Halfords Group PLC

LSE:HFD

Earnings Call Transcript 2021-Q4

[Graham Stapleton, CEO & Executive Director]

Good morning, everyone, and welcome to the Halfords Group Preliminary Results for the 52 weeks ending the 2nd of April 2021. I'm Graham Stapleton, CEO of Halfords. And I'm joined this morning by Loraine Woodhouse, our CFO. I would like to start by expressing my sincere gratitude to all of the Halfords team for their hardwork, resilience and determination during a year unlike any other. These are a fantastic set of results produced under very challenging circumstances, and we would not have delivered this without our colleagues energy and commitment. As you will see in a moment, we've achieved a lot in a very busy year, be that financially, operationally or strategically. This sets us up very well for FY '22 and beyond. In terms of the structure for this morning, Loraine will start by taking you through our financial performance, current trading and outlook. I will then provide you with an update on our progress against last year's strategic priorities, then I'll talk about FY '22 and our focus for this year. You'll then have the opportunity to ask questions at the end. So to begin today's presentation, I will now hand you over to Loraine to talk you through our financial performance.

[Loraine Woodhouse, CFO & Director]

Thank you, Graham. Good morning, everybody, and thank you for joining us. Our last financial year started on the 4th of April 2020, two weeks after the country went into full lockdown. The whole period since has been one of extreme volatility as we moved into and out of a series of national and regional restrictions. Whilst we were fortunate to be designated an essential retailer and therefore able to continue trading, the operational impact on our business was huge. And we've spent the year trying to both optimize our opportunities and mitigate the challenges. Through it all, our colleagues across the business have responded brilliantly, and it is through their significant skill and effort that we have continued to operate through the pandemic and ultimately delivered what we believe to be a strong set of financial results. I'm going to start today on Slide 4 with a short summary of our full year financial performance. Before I begin, I should be clear that unless stated otherwise, I will be talking about pre-IFRS 16 numbers and comparing against our 52-week period last year for ease of comparability. Group revenue was up 13.1% or 13.9% on a like-for-like basis. Our growth accelerated in the second half of the year as the initial dampening effect of the first lockdown was less evident with subsequent restrictions. Our group gross margin was 50.8%, 34 basis points below last year. I'll cover this in more detail later in my presentation. Costs were tightly controlled during the year, with underlying costs increasing by 5.6% and falling as a percentage of revenue by 3.1 percentage points. Underlying profit before tax pre-IFRS 16 was GBP 96.3 million, which is GBP 40.4 million above last year. If we strip out business rates relief and an estimation of the additional cost of COVID, our profit was GBP 34.6 million above last year. Last but not least, we ended the year with net cash of GBP 58.1 million, albeit, as I will explain later, some of the improvement was driven by working capital movements which will reverse in the current year. Moving to Slide 5. I cover most of these metrics in more detail later in the presentation, but I did want to touch briefly on our IFRS 16 numbers and non-underlying items for the group. The impact of adopting IFRS 16 was a GBP 3.2 million credit for FY '21, more significant than the prior year. This largely reflects two things: the natural aging of our estate and the fact that we had a larger number than usual of held-over leases at the year-end. If we renew those leases in this financial year, the associated depreciation and interest charges will increase year-on-year. Non-underlying costs, as flagged earlier in the year, was GBP 35 million post IFRS 16. The principal element was GBP 28.5 million relating to the previously announced closure for stores and garages during the year. This element of the provision is largely noncash. We also provided for organizational restructuring costs of GBP 5.9 million primarily in stores where we have restructured the in-store teams. Finally, we have increased an existing provision by GBP 2.9 million for national minimum wage underpayments, reflecting the latest view from ongoing investigations, which are yet to conclude. Moving to Slide 6. This is a difficult year to try to bridge the movement in profitability from FY '20 to FY '21. But in this slide, we have tried to strip out business rates and identifiable COVID costs from our underlying performance. You can see from this chart that the underlying Retail business contributed GBP 21.7 million of incremental profit despite a heavy mix shift to Cycling. This significant uplift reflects the work that we've been doing over the last couple of years to optimize and improve our Cycling margins and reduce our underlying costs. This has helped offset the large mix into Cycling. Autocentre profitability improved by over GBP 5 million, even more impressive when we think that the first two or three months of the year were materially disrupted as the government deferred MOT requirements and, of course, we saw lower levels of traffic on the road. Finally, from a trading perspective, our performance Cycling business, which here is reflected as Tredz and Cycle Republic, added GBP 9.8 million of profit year-on-year, reflecting a great performance from Tredz and reinforcing our decision to close Cycle Republic at the start of the year. We have specifically drawn out business rates relief and COVID-related costs on this chart. Included within COVID costs is GBP 10.5 million of furlough repayments, along with the cost of PPE, the cost of additional front-of-house colleagues in Retail to ensure social distancing and investments in our colleagues to reward and support them during the pandemic. These costs were offset by the government electing not to levy business rates last year. Moving to Slide 7 to look at our Retail business in more detail. Retail revenue growth over the year was 9.4% or 14.6% like-for-like. Like-for-like is higher than total growth as it is adjusted for store closures in the year. Gross margin rate was above the previous year despite the significant mix into Cycling. Operating cost growth was managed well with costs rising just 1.6% despite the 9.4% growth in sales. And as a result, profit grew very strongly to GBP 91.4 million, nearly 70% ahead of the previous year. Moving to Slide 8. It is no surprise that we saw very divergent performances in our Cycling and Motoring businesses last year with both heavily impacted by the trends coming out of the pandemic. The other attribute worth highlighting on Slide 8 is the enormous volatility in trading over the year. Within a period of just a few weeks, we saw sales go from a 10% decline to 40% growth. Operating the business with this variability in trade was extremely hard, and it is testament to the skill and experience of our colleagues that they managed it, as well as they did. You can see that Cycling delivered 54% like-for-like growth in the year, whilst Motoring had a more challenging year at minus 12%. Despite the much publicized supply challenges driving some of that volatility, Cycling performed very strongly throughout the year. All mainstream product categories saw strong growth, as did our performance cycling business, Tredz. Whilst demand was strong, our performance was principally driven by the actions that we took. We were agile in securing stock, sourcing additional items from both new and existing suppliers. We improved the customer journey online, expanded our bike build capability and refreshed over half of our adult bike ranges. We also quickly geared up in the bike servicing space and took a market-leading share of the government's 'fix your bike' scheme. Motoring improved in the second half. But with almost continual restrictions, either regional or national, road traffic was inevitably much lower than normal, impacting our sales accordingly. Essential products such as Blades, Bulbs and Batteries outperformed traffic levels, whilst Touring, Car Cleaning and Maintenance Products all grew in absolute terms, demonstrating the attractiveness of our ranges. Moving to Slide 9. Retail gross margin was 48.3%, ahead of the prior year. Given that Cycling is a lower-margin category than Motoring, we consider this to be a strong result. As you can see on the chart, the mix impact of 220 basis points was more than compensated for by improvements in gross margin rate. The bulk of the rate improvement was driven by Cycling, where gross margins improved by 680 basis points. The improvement represents a series of actions, notably rationalizing componentry, improving buying terms and promoting less on the back of a significant amount of work on price elasticity. The other two elements highlighted on the chart include the commissions that we pay on Cycle to Work and other areas of B2B, both of which experienced very high growth in the year. In FX, where we saw an adverse impact, the shift year-on-year largely reflects the translation impact of stock and creditor balances at each year-end. On Slide 10. Our focus on efficiency and procurement, saw Retail operating costs, increased just 1.6% year-on-year. Adjusting for COVID costs and business rates relief increases this to 3.6%, still well below the level of sales increase. We experienced a series of additional costs during the year, many of which were necessary to keep both colleagues and customers safe. We also saw underlying costs increase as a result of the shift to Cycling as these are bulkier products to move and typically more expensive to sell. To help mitigate the impact of the additional costs, we worked hard to improve our efficiency. During the year, the closure of Cycle Republic saved GBP 9.6 million of cost. We saved an additional GBP 7 million through better procurement of goods not for resale. At the end of the year, we closed an additional 42 retail stores, a program that we believe will improve overall annual profitability by GBP 6 million going forward. There will also be further gains to be had through renegotiating rents. During the year, we renewed 19 leases with an average rental reduction of 30%. We plan to go faster in this area in FY '22. It is worth highlighting that in FY '21, we paused much of our strategic investment. And as a result, we only saw strategic operating cost increases of GBP 7.5 million. Much of this additional cost reflects the centralization of customer contact into specialist remote teams. We will return to our strategic program in FY '22, and we are likely to see operating costs increase as we resource our transformation. Graham will talk more about this shortly in his section. Moving now to Slide 11 and our Autocentres business. Like Retail Motoring, Autocentres was hit hard by the early stages of the pandemic, and the overall financial performance for the year was very distorted by the first 2 months, in which we experienced a significant like-for-like sales decline and incurred losses as a result. After the first quarter, however, the business grew strongly. And we have no doubt that we grew market share materially over this period. Total revenue was ahead by just under 32% with like-for-like growth of 9.7%. Total revenue benefited from the annualization of our prior year acquisitions, but we also expanded our Halfords Mobile Expert business as the pandemic conditions perfectly suited the customer proposition. In FY '22, we will see the full benefit of our acquisition of Universal Tyres. On Slide 12, I thought it worth focusing on Autocentres margin. Gross margin declined by 440 basis points across the year. This is entirely reflective of our two prior year acquisitions as both new businesses are weighted more towards tyres than our existing Autocentres. There are two important aspects, however. The first is that within each business, gross margin rate improved year-on-year. The dilutive effect that you see is driven by mix. And the second is whilst the gross margin percentage may have dipped for Autocentres overall, the cash margin per worked hour, which is important in the Services business, is strong and improved by 10% over the year. The businesses we have acquired have a different business model to our existing garage business. Our objective remains to improve margin productivity in each business, and we're making good progress in this regard. In Slide 13, you can see that the underlying cost growth in Autocentres, excluding acquisitions and adjusting for COVID costs and business rates, was just 4.8%, again, demonstrating a good increase in productivity. The bulk of the cost increase year-on-year reflects the annualization of the acquisitions made in FY '20. Business rates relief of GBP 6 million compensated for COVID costs incurred of GBP 5.3 million. Overall, the Autocentre business made EBIT of GBP 12.7 million, nearly 90% better than the previous year. Adjusting for COVID costs and business rates, this reduces to GBP 12 million, which is almost 80% higher than FY '20. Given the challenging first quarter, we are really pleased with the performance, which we believe demonstrates the resilience of a services-led business. That concludes the Retail and Autocentres story. Given the complexity of our total margin evolution, I thought it would be worth on Slide 15 bringing together our group gross margin position. Overall, our group margin was down 34 basis points on FY '20. This was an improvement on the position at the half year when margin was down by 63 basis points. Year-on-year, we have lost 248 basis points due to mix across the business, either mix within the Motoring category, mix into Cycling sales or mix into new businesses in Autocentres that have naturally lower levels of gross margin. However, we broadly compensated for the adverse mix effect by improving the margins within our categories, most notably Cycling, which has had the biggest positive impact. Moving now to Slide 16 and to cash. Cash flow has been very strong this year with free cash generated of GBP 145.3 million, leading to a net cash position of GBP 58.1 million at the year-end. Whilst our underlying profit has been strong, there are some unusual movements in working capital that have inflated the year-end cash position. The first is stock. Our retail stock levels have declined by GBP 34 million year-on-year. Around GBP 20 million of this was deliberate through the targeting of a better stock turn across all categories. However, we have continued to see stock availability challenges in our Retail business, particularly within the Cycling category. And our stock levels are still suboptimal. We estimate the gap to an optimal stock level to be at least GBP 15 million at the year-end, and we would hope to see this recover throughout the current year. The year-end creditor balance is also higher than normal. We paid back our VAT creditor from earlier in the year just after our year-end. And this, plus other normal timing differences, means that we also believe our creditor position to be inflated. Taking these two things together, we believe the year-end working capital position was flattered by around GBP 36 million. This is likely to reverse in FY '22. And accordingly, we expect to see a working capital cash outflow this year. It is also worth pointing out that within FY '21, we suspended our dividend and reduced our capital expenditure. This year, we will accelerate our strategic program once more, and our CapEx will increase as a result. Moving now to the dividend on Slide 17. We suspended our dividend last year in light of the considerable uncertainty that we faced. However, we performed much more strongly than we could have anticipated at the time. And in recognition of the performance, the directors are proposing a final FY '21 dividend of 5p per share, which would be payable in September '21. At the same time, we have also taken the opportunity to review our dividend and capital allocation policies for the years ahead. Our strategic opportunities, alongside our considerable financial strength, is encouraging us to continue to invest in our transformation plan, positioning the business for long-term success. Considering the opportunity, we have updated our capital allocation priorities, elevating targeted M&A, recognizing that the economic environment we now find ourselves in could lead to some exciting opportunities. Outside of M&A, we intend to revert to a capital expenditure program of between GBP 50 million to GBP 60 million per annum, as previously communicated. In reviewing our capital allocation, we consider the views of our investors as we do understand the importance of the ordinary dividend. Given that importance, we propose to reinstate the ordinary dividend from FY '22 at 9p per share, intending this to be progressive. If surplus cash remains in the business that we feel we cannot deploy with good rates of return, we will return this to shareholders in the most appropriate way. In my final slide, Slide 18, I turn to current trading and the outlook for FY '22. There is no doubt, even as we reemerge from lockdown, that this year remains extremely uncertain. We all hope that vaccination will be the way out of this pandemic, but we will be vulnerable to new variants for some time. Equally, it will also take time until we see consumer trends settle. The demand side of our business is demonstrably uncertain, but we also know that we will likely face supply challenges for some time. COVID continues to disrupt the supply chain, particularly in Asia. And if this persists, it could result in greater stock shortages than we currently anticipate. Notwithstanding the uncertainty, however, we remain cautiously optimistic. Although still volatile, our group like-for-like sales growth year-to-date is 17.9% on a 2-year basis, a strong start to the year. Knowing what we know today, we are targeting FY '22 profit before tax, post-IFRS 16, of above GBP 75 million, including business rates relief of GBP 11 million. We have a clearer view of the first half of the year, and we believe that the restrictions on foreign travel will continue to support our Motoring and Cycling businesses. The second half of the year is less clear, albeit, if we are still in a world of lower restrictions, we would expect to see an underlying improvement in our Motoring business as traffic levels recover. The guidance of GBP 75 million includes our planned investment in Motoring pricing and other strategic operating cost investment. CapEx is planned to be between GBP 50 million to GBP 60 million. And there will also be a working capital outflow, as I mentioned earlier. As I said, the outlook does remain uncertain, and we therefore look forward to updating you throughout the year as some of the trends that I've described will hopefully become clearer. Thank you very much. I will now hand back to Graham, who will cover the strategic update.

[Graham Stapleton, CEO & Executive Director]

Thanks, Loraine. So you can see from Loraine's summary that our FY '21 performance was very strong particularly given the extremely challenging backdrop we traded through. And our delivery last year is clear evidence that our strategy is working. We are very much evolving into a consumer and B2B services-focused business with a greater emphasis on Motoring generating higher financial returns. We can see examples of strategic progress in the key priority areas of B2B, Services and Online. All three saw record sales and increased their proportion of group revenue: B2B sales grew 40%; Services, 23%; and Online, 110%. Each one of these business areas benefited in year from developments to attract new customers and enhanced proposition or the launch of new services. So with visible and substantial progress being made, our long-term vision remains unchanged and the same as we outlined at the Capital Markets Day back in 2018. That is for our customers, we will aim to inspire and support a lifetime of Motoring and Cycling. The three key strategic goals that we set out to help us deliver against our plan are also entirely unchanged, as you can see here on the slide. If we look back to the beginning of FY '21, the speed with which the pandemic hit caught everyone off guard. And with that came a high degree of uncertainty, which overshadowed much of the year. In July 2020, we therefore repriortized our plans, dialing back the full transformation and instead focusing on four specific areas. We said we would continue to transform and build a unique and market-leading position in Motoring Services. We would also enhance our group web platform and digital customer experience to create an even more differentiated and specialist proposition. We will continue to focus on cost and efficiency, creating an even leaner and more profitable business. And finally, that we would invest in our colleagues' welfare, engagement and development. So how do we deliver against these priorities? Let's look first at how we are continuing to transform and build a unique and market-leading position in Motoring Services. Here, we can see some of the most tangible and visible strategic progress made last year. Our HME business tripled in size as the convenience, safety and expertise of this service really resonated with both new and existing customers. We added 68 vans in the year to create a fleet of over 140. And we doubled the number of hubs to 14, now employing over 250 technicians. We acquired our third Garage business, Universal Tyres, which consisted of 20 garages and 89 commercial vans. This, alongside McConechy’s, is good progress towards scaling up our commercial business, giving us a fleet of now over 180 commercial vans. We also continued to invest in the technology that provides the backbone to our garage business. We have rolled out our upgraded in-garage digital operating system, PACE2, to all of our garages, including our recently acquired McConechy’s sites. Tyres on the Drive was fully integrated into our group website, and we launched our WeCheck app in Retail. This app enables colleagues to digitally record the vehicle checks undertaken and then recommends actions for customers to keep their cars safe. Finally, we brought all this together by launching our first ever group motoring services marketing campaign. This was a huge success, with our TV advert seen by more than 34 million viewers or just over 70% of U.K. adults. This resulted in a 28% uplift in customers considering our motoring services offer. For those of you who haven't seen it yet, let's take a moment to play the ad. [Presentation]

[Graham Stapleton, CEO & Executive Director]

I hope you agree, the advert really brings to life the scale and coverage of our developing motoring services offer. And before we move on, we shouldn't forget the growth in Cycling Services of over 50% last year. Our national network of super specialist technicians undertook over 1 million cycle repair and services jobs, taking a market-leading share of the government 'Fix Your Bike' voucher scheme. Secondly, let's look at how we are transforming our digital customer experience. Here, our focus has been to optimize and enhance our offer, investing more than GBP 11 million in this space across the last two years. In FY '21, we made more than 160 customer enhancements to our group website. These included a cycling industry first with the introduction of 'email me went back in stock' functionality. This not only assisted in optimizing our restricted stock of bikes but has helped plan stock and supply chain more effectively. In addition, we increased convenience for customers with bookable bike collection slots and enhanced frequently bought with on our website. This has resulted in additional items added to 20% of baskets online, increasing average transaction size and ensuring customers get everything they want every time they shop. During the pandemic, we saw a much greater level of customer engagement and contact. To mitigate the extra cost of this and to improve the customer experience, we launched a self-service portal and chatbots on our website. This allowed customers to get easy answers to some of the more generic questions. Lastly, we launched the Halfords Electric Hub, bringing everything electric together for our customers in one place, highlighting our products and services alongside expert advice and guidance. Combined, these enhancements resulted in a really strong online performance, with online conversion for retail up a huge 37% year-on-year. Whilst not a digital initiative, it is worth taking a moment to explain one of the biggest changes undertaken last year. This was to centralize all customer contact from our 404 retail stores. Against the backdrop of a fourfold increase in customer contact during the pandemic, we have reached a call answer rate now of over 95%. This represents a huge improvement from our baseline position at the height of the pandemic and is now significantly better than pre-COVID. Perhaps one of the most pleasing aspects of our performance in FY '21 is the impact this focus on digital and contact center investment has had on the overall Halfords customer experience, measured by our Net Promoter Scores or NPS. Despite the difficult trading and shopping conditions, we are seeing more customers promoting Halfords as a place to shop than we did this time last year. By year-end, NPS was 2 points ahead of last year in Retail and 4 points ahead in Autocentres. Moving on to our third priority, which is to further increase our focus on cost and efficiency. We really have left no stone unturned in our ambition to make this business more profitable and more efficient, as you can see here on the slide. Loraine has already talked about quite a few of these, but I would like to just touch on two key parts of this program. Firstly, the work undertaken to make our Cycling business more profitable. We embarked on this journey almost two years ago and announced our intentions here in November 2019. A combination of better ranging, value engineering, more effective promotional planning and a continued growth in our own brand business has resulted in a 680 basis point increase in gross margin. These changes, coupled with successful restructuring of our Performance Cycling business, provide us with a greater level of trading optionality moving forward. Secondly, we have placed great focus on our property portfolio. Here, we concluded our store closures program, seeing 58 stores and garages closed on top of the 22 Cycle Republic stores we announced at the end of FY '20. Therefore, in total, we've closed 80 stores and garages, leading to a GBP 12 million annualized increase in profits. We do, however, still have a high degree of flexibility across our portfolio. Finally, I'd like to turn to our colleagues and our investment in their welfare, engagement and development. From the onset of the pandemic, we placed huge importance on colleague and customer safety. As Loraine said, we invested heavily to maintain a COVID-secure environment for colleagues across the business. We also provided industry-leading levels of financial support for colleagues, including a frontline colleague support fund to reward those working on the front line of our business. We set up the Halfords Here to Help fund to provide assistance to any colleague suffering financial hardship due to the impacts of COVID. And we offered a remote working subsidy for colleagues working from home through the winter period. Combined, these support schemes represent a total investment of circa GBP 4 million. And finally, we have continued to invest in training and recruitment, spending GBP 1.7 million on colleague skills. So how does this progress over the last year come together? I mentioned earlier that the change in focus for FY '21 was to create strong foundations from which to transform in FY '22. And I think this is exactly what we have achieved. We have improved the economics of our business. We have reshaped our property portfolio and continued to deliver significant GNFR savings. Despite the pandemic, we have delivered a significantly improved customer experience with more people recommending Halfords than ever before. And we have made great strides to make Halfords the biggest motoring services provider in the U.K. through acquisition, growth of our motoring services proposition and technology. Moving on now to FY '22 and where we focus our resources this coming year. Having achieved our goals in FY '21, this year, we will accelerate our transformation, further scaling up our services business and improving the customer experience across multiple channels so that by the end of FY '22, customers will begin to see a different business emerge. So how will we continue to inspire our customers? Work is now well underway on Project Fusion, which remains a really exciting opportunity. We think of Fusion as a customer experience seamlessly, consistently and conveniently executed across all of our assets in a town, and we will trial this in two or three towns in FY '22. It will encompass a destination retail store and updated Autocentres garage and a Halfords Mobile Expert offer, all operating together in conjunction with centralized customer support channels,and an online and home delivery proposition. Focused primarily on improving the customer experience and understanding the potential of combining all Halfords services in the most compelling way, the trial will also test whether a reinvigorated in-store and garage design focused more on -- heavily on the delivery of services can further stimulate sales across the group. In addition to Fusion, we will also continue to enhance our digital proposition. We made really good progress in this area last year, but there is still lots more to do. Using the data we have, we will personalize content and drive cross shop across the group. Lastly, our program to optimize cycling space and range in our retail stores continues with the rollout of Peloton 2, which focuses specifically on parts, accessories and clothing ranges. Moving on to the support pillar of our strategy. This is where we will place the greatest emphasis, creating scale, convenience and additional services for our customers. This year is about making significant strides to becoming the biggest independent garage services provider in the U.K. through acquisition, growth of our motoring services proposition and investment in technology. This will be done by continuing to scale our HME business, through having more vans and a greater range of services. By the end of FY '22, we will have over 200 vans within our HME business, achieving a U.K. coverage of 80%. Secondly, we will increase the number of garages, bringing us close to our medium-term target of 550. Thirdly, we will leverage our acquisitions, McConechy’s and Universal Tyres, and their 192 vans to grow our B2B commercial business. And finally, we will position Halfords as the leading voice in e-mobility through launching new products and services and continuing to invest in training and technology. Our final area of strategic focus for FY '22 is centered around forming lifetime relationships with our customers across the group. Towards the end of this financial year, we will launch a unique and market-leading Motoring Services Club, rewarding loyal customers with preferential terms and offers. We will also continue to grow the number of customers who shop across our group, products and services, with increased scale in our business alongside enhanced digital personalization. And lastly, within lifetime, we will accelerate our ESG program, focused on four priorities where we feel Halfords can make a real difference. These are: Electrification, where we aim to be the leading name in electromobility services, giving customers the confidence to switch to electric forms of travel and drive the U.K. to a more sustainable future; our Net Zero commitment, in which we are targeting a reduction in our Scope 1 and 2 emissions by at least 42% before 2030; then diversity and inclusion; and finally, product packaging and waste management. Lastly and most importantly, we will continue to invest in our colleagues. Our frontline colleagues will benefit from the biggest investment in skills to date, with nearly GBP 3 million going towards further enhancing our super specialist expertise. By the close of half two, we will have completed the skills intervention program that we started late last year, investing in training to bring our colleagues skills base from 16,000 to over 40,000 skills across the business. This will ensure that every single colleague in our Retail business can work across both Motoring and Cycling and that they are trained to deliver all of our core services. Of course, each area of strategic focus will continue to be underpinned by improvements to the efficiency of the business. Cost and efficiency will remain a priority. And although we do not foresee any further large-scale property closures in the near term, we will seek to negotiate further rental savings and take advantage of any opportunities. In addition, our already well-established work streams will continue to target maximum efficiency and reduce costs across the business. To conclude, we are very pleased with our performance in FY '21. Under unprecedented trading conditions and against extreme uncertainty, we made some changes to our short-term plans to help us build the foundations from which to transform. This reprioritization allowed us to successfully transform the economics of our business through both cost and efficiency savings and profitability improvements. We strengthened our balance sheet, ending the year with a strong cash position, and we made great progress in enhancing our customer experience. We also made huge strides against our strategic ambition to build a market-leading Motoring Services business, and we brought this to more customers than ever before through a targeted group marketing campaign. All of this puts us in a great position to continue to accelerate our transformation this year across each area of our Inspire, Support Lifetime strategy. By the end of FY '22, customers, colleagues and shareholders will see a different Halfords emerging, one that really harnesses the strength of our unique business. That concludes today's presentation. Thank you for listening. There will be a short pause now whilst we move across to the live Q&A, where Loraine and I will be happy to take your questions.

[Operator]

[Operator Instructions] Our first question today comes from Jonathan Pritchard of Peel Hunt.

[Jonathan Pritchard, Retail Analyst]

The standard three from me, if I may. On Cycling, obviously a great gross margin performance. Can I be a bit greedy and ask if there's more in the pipeline? Obviously, 680 this year. Anything behind that? On CRM, I suppose you could call it, how will I notice these changes? Will my e-mails get more personalized? What things would I expect over the next 12 months as well as notice of the loyalty club? And then M&A, any filler sort of more incoming calls on that basis?

[Graham Stapleton, CEO & Executive Director]

Do you want to pick up the gross margin one?

[Loraine Woodhouse, CFO & Director]

Yes, Jonathan, so Cycling, we've had an incredibly strong 12 months, clearly long in the planning. I don't foresee significant movement forward in the gross margin. I think we've made quite a lot of the strides that we've had planned. That said, we will, this year, relay our stores for Peloton 2, which is focused much more on accessories rather than bikes. And our hope on the back of that is that we see a better performance from our accessories business, which typically is higher margin. So there could be a little bit more to come through mix. I don't think, personally, there's significantly more to come through bikes.

[Graham Stapleton, CEO & Executive Director]

And Jonathan, in terms of CRM, you're right, we are going to make some further enhancements to the current CRM approach that we have. It will mean a more personalized CRM strategy and plan for this financial year. The biggest move though is very much the Motoring Services Club that we plan to launch later in the year as that really will start to tie all the assets that we've got together for customers, and they'll be able to see all the opportunities across the group. We're well ahead in designing the proposition there. It's more now the infrastructure that we have to put in to enable that. In terms of your last question around M&A, we've already said that our focus very much is on building a Motoring Services business and acquisitions in that space. We've also said today that we intend this year to move further towards our midterm target of 550 garages. So along those lines, we are looking at the right opportunities there. Obviously, they'll have to have the right business case, but we think there could be opportunities open to us during the course of this financial year.

[Operator]

Our next question comes from Tony Shiret of Panmure Gordon.

[Tony Shiret, Analyst]

Fantastic performance. Just a few things. First of all, you've given sort of a lot of detail on both sides of the business. I just wondered in Retail a couple of things. First of all, which particular areas do you think there's still sort of major work to do in store? And secondly, the sort of comments about no further property closures, should we assume for that, that you think that there's no cannibalization between your online sales and your in-store sales? And just a small last question, I just wondered if you could let us know what your marketing spend as a percent of sales was and is likely to be going forward.

[Graham Stapleton, CEO & Executive Director]

Tony, should I start with the first question in terms of Retail and the plans there. We've had a very good year on Retail, and we've actually started this financial year in a really good position on both Cycling and Motoring in Retail compared to FY '20 pre-COVID. There is, though, still a lot more we can do. Obviously, the Fusion trials that we are going to introduce later this year, we'll start to bring that to life. In terms of the offer within the Retail business, I think the -- probably one of the biggest opportunities we've got is to really bring out more effectively the services proposition that we have. At the moment, in most of our stores, what we do on servicing is quite disparate and hidden to some extent. We want to really bring that alive. And we also want to make more of the more inspirational, engaging parts of our offer, so be that cycling showroom or bringing the technology alive for the motoring area. So there's a lot we can do to showcase the proposition in Retail better. In terms of ranging, albeit, we don't want to run too many products, and our job, I think, as a specialist is to curate the range of products for customers. We still think there's opportunities for extended range online to ensure that our super specialist is seen in every channel. So we'll also be looking at extended range online particularly in the Motoring part of our business during the course of this year.

[Loraine Woodhouse, CFO & Director]

Tony, I'll cover the property closures and marketing spend. So you'll have seen from the statement that we've closed a number of stores. And indeed, Graham in his presentation talked about the fact that I think that we've closed 100 stores over the last three years. So we've been doing quite a bit of surgery to the estate. The most recent store closures, the stores were actually profitable, certainly a number of them, but they were low returning. And we felt we've got an opportunity to improve the return of the business overall by moving some of those sales, transferring some of the sales to nearby stores. So we've actually now managed to get ourselves into the position where the store estate that remains is really quite profitable. From an online perspective, obviously, online reached 45% of sales last year, so it was really significant. It has stepped back in the first 9 weeks of the year, as you would expect, as customers start to shop more normally, I would say. But what's really interesting is our Click & Collect percentage. So the number of sales that were then collected in a store and now in a garage actually were -- remained at 80% throughout. It never dipped. So our home delivery, really, it moved from a pounds perspective; but from a percentage perspective, really didn't move very much throughout the whole of the pandemic. And we just believe that the store and indeed a garage is a really pivotal part of our offering. It's very important for customers to be able to go in, to get advice, perhaps to pick up a supplementary product we often on-sell or upsell when a customer goes into a store to pick something up. So the whole thing really is connected, and we think we've got an opportunity to drive that further through Fusion. So no planned further store closures right now. Obviously, we monitor every store. We monitor the position of the store, and we look at every store as though it's a new store when it comes up for renewal. But I think we're in a good position with the estate as it stands at the moment. Onto marketing, we've never given to my knowledge, the percent of marketing -- the marketing as a percent of sales, it's quite sensitive, obviously. What I would say is that certainly with what I've seen from Retail businesses, our spend as a percent of sales is quite low. And it was very low last year because there were periods of time where we switched marketing off almost completely, certainly in the early parts of the pandemic. So I would expect us to spend more this year. It will be very targeted spend, so very focused around Motoring and Motoring Services, focused hopefully around the loyalty program as we get towards the end of the year. So it will be very targeted. But I believe we probably need to put more into this area in the year we're in because we probably underspent last year, I would say.

[Operator]

Our next question is from Kate Calvert from Investec.

[Kate Calvert, Retail Analyst]

I think this is probably first me with all my questions being motor-related. The first question is on the planned investments in Motoring pricing you talked about. Can you talk through which areas this investment is particularly being made in and who typically are you benchmarking against? My second question is what level of sustainable long-term margin is realistic for the Autocentres division going forward? And the third one is just on Halfords Mobile Expert. Is that breakeven in the current year? And what are your expectations for the year ahead?

[Unknown Analyst]

[ Do we stop that? ]

[Graham Stapleton, CEO & Executive Director]

Kate, in terms of Motoring pricing, we're not necessarily targeting one specific area. We're looking at the whole offer. And we're just -- we're ensuring that, that offer is competitive, and we're in a position to take more share over the coming year. We have historically been much more promotionally led, so we've, in effect, engaged in promotional activities at seasonal peaks and during the year. And what we believe, particularly with customers in the position they're in as government support rolls off, we need to do is make sure we are competitive all the time, and that's what we're planning to do. So it's not any specific area, it's sort of across the piece that we're looking at. In terms of competitive set, it's the competitors you would expect. It's the bricks-and-mortar retailers we compete with and the online players that we compete with. We have to look at the way customers research and shop and make sure we're competitive against that. So that would be my answer to that.

[Loraine Woodhouse, CFO & Director]

Kate, in terms of Autocentres margin, I assume you're talking operating margin rather than gross margin. Autocentres achieved just under 5% last year if you strip out COVID costs, business rates, et cetera. We think 6% or 7% is a sensible medium-term target, so we've got some way to go still. But over the medium term, that's certainly -- we see no reason why we should be lower than some of the key competitors. And I think we've made really good productivity progress over the last year, which is positive. In terms of HME, the hubs that are established, i.e., they're well set up already, are already profitable. So I guess the extent to which the whole business is breakeven depends really on how fast we go with the expansion. Typically, as you move into a new area,and you put in new vans, you have to live with a degree of underutilization for a period of time. And then as you mature, it becomes much, much easier to generate profitability. But what I would say on HME is we've got there much faster than we would have believed and much, much faster than I might have believed. So I think we've made great progress, and customers really love the proposition.

[Kate Calvert, Retail Analyst]

Great. Could I just follow up on one thing? On the Autocentres side, is there something structural that could stop you getting McConechy’s and Universal Tyres gross margin up to Autocentres level?

[Loraine Woodhouse, CFO & Director]

They are, I think, a little bit more challenged by the fact that they are predominantly tyre-related. But from an operating margin point of view, there shouldn't be anything structural. I do think we've got some investment to make in those businesses. And I do think particularly McConechy’s had a more challenging year because of the pandemic. But fundamentally, over the longer term, operating margin, they should also be able to get there. I just think we've got a little bit more work to do on our own business, which is well invested and more mature.

[Graham Stapleton, CEO & Executive Director]

Yes. We also delayed some of the investment that we were going to make to reposition, for example, McConechy’s as a Halfords business, be that signage, branding, et cetera, that we started to roll out the back end of last financial year. So the full benefit of rolling into the group are still to be realized.

[Operator]

[Operator Instructions] Our next question comes from Matthew McEachran from N+1 Singer.

[Matthew Neil McEachran, Senior Research Analyst of Retail]

A couple of questions from me. Can I go back to the Motoring price investment question and maybe ask it a slightly different way? I mean what is the magnitude of the investment you're looking to make? And is this a 1-year reset? Or is it part of a kind of 2-year program to get to a more competitive position?

[Graham Stapleton, CEO & Executive Director]

Matthew, in terms of the Motoring pricing, we are doing it in phases, so it's not possible to give you a full number. We're starting the pricing repositioning in July. That's Phase 1. And we will then learn and develop our thinking and plans following that first phase. So that's as much detail as I think we can share with you today. In terms of is it a 1-year reset, obviously difficult to answer that entirely because we obviously don't know how the market is going to develop following what we do and what others do this year. So we'll just have to keep agile and ensure we're competitive in each year. It's really important if we want to grow our market share and maintain our leadership position that we are competitive on price,and not just through a promotional campaign. And that's where we want to be. It's important we are good value, not necessarily the cheapest but good value on products to grow a very significant Motoring Services business off the back of it. The two are very interdependently linked.

[Loraine Woodhouse, CFO & Director]

One thing I might just add, Matthew, is you'll see this from the statement but also in what we've said about Cycling. We've done a huge amount of work on price elasticity across Cycling and Motoring. The two categories behave quite differently, and subcategories behave quite differently. So from a finance perspective, you can imagine I'm looking hard at this. We're also able to be really clear where we make some investment, what we think might happen to volume as a result. And we are really confident that there is market share for us to take here. And we're a lot more confident in the behavior of customers and how we might take that share. So there's quite a bit of analytics that sit behind this that we probably didn't have 18 months to two years ago.

[Graham Stapleton, CEO & Executive Director]

The other build as well as I would put on to that is that there's two other factors in our plans that help here. One is our focus on solution selling. So we've got a very significant focus and training around selling through service. So when a customer comes in to buy the Bulb or Battery or whatever it is, is then making sure the service is attached, financial services or any other wrapper with it. So we're looking at this as a solution sale rather than an individual product decision. And then obviously, later in the year, we bring in the Motoring Services Club. And what that will enable us to do is to make much more granular decisions around pricing to, in effect, customer level what investment do we want to make on a lifetime value basis for this particular customer. And I think that will mean a much more -- an even more scientific approach to what we do with motoring pricing when we get into next financial year. So it's a journey that we're on, and this is the first phase of it.

[Matthew Neil McEachran, Senior Research Analyst of Retail]

Yes. Yes. I mean I'm sure in the back of your mind, you've got a fair idea as to how much you're going to invest in price this year. But maybe if we take it up a level, so you're obviously uncomfortable to give more detail. But overall, I think in the prior year in Retail, you made about GBP 7.5 million of strategic investment in the P&L. What do you think the equivalent number will be in the current year, including motoring price?

[Loraine Woodhouse, CFO & Director]

So Matthew, I would say it will be more than double that. I'm not going to give you a precise sum because I'll end up cornering myself. But the GBP 7.5 million was naturally very depressed last year. I would expect it to be more than twice that.

[Matthew Neil McEachran, Senior Research Analyst of Retail]

Okay. Yes. A couple of other questions. Could you talk a little bit more about Fusion? I mean I know that this has been brewing for a long while, and the jigsaw pieces are starting to come together. But I mean, technically, you already have the assets in a local town. How are you going to operate them differently? And what are the effects here other than trying to capture more market share? Is it -- can you reduce the occupancy costs and the service -- the cost to serve in those particular catchments? Can you just walk us through the kind of future of that?

[Graham Stapleton, CEO & Executive Director]

Yes, I mean let's start with the customer first. So what Fusion is intending to do is to make it much easier for a customer to shop across all the assets of Halfords in that town, in other words, bringing together for the customer the garage, the van, the store, the contact center, the home delivery options, making it much easier for them to understand what's available for them and how they shop across it. So the obviously one aim of Fusion, therefore, is to increase the average transaction value from a customer because they're just better able to shop that town and everything that Halfords has in it. So that's the first thing. The second piece is around capability. So this is not just a store format program. In fact, it's only a very small part of what we're doing. We're also reviewing the operational and selling model for the store. So we're increasing the training, the skills and really, really making this a sort of -- store of -- a town of excellence, if you like, for selling, where we're training our colleagues to sell through service much more effectively, again, giving customers the right solutions, increasing average basket value. And then there is an opportunity too on cost not just by operating the store more efficiently and effectively through Fusion but also reviewing how we manage an area or a town. So for example, do we need a manager for an Autocentres, a store, the vans or can we actually consolidate that leadership into one town. So there's a lot of different facets. The format itself is also quite different. So you will see in the destination retail store to a large extent, less so in the garage, a very different shopping experience coming out, certainly one that shows our services offer much more effectively. But also, there are differences in the way we sell motoring products in the store and also showcase our cycling area, to make it more inspirational. So there's a heck of -- the reason -- part of the reason this is taking time is because it is such a big change to the way we want to operate a town. And we want to make sure obviously we give it the best shot that we can and test and learn effectively at pace. It's also not obviously something we could have done through a pandemic. Very, very difficult to deliver a Fusion program with that going on in the background.

[Matthew Neil McEachran, Senior Research Analyst of Retail]

Yes. Okay. That's helpful. And then just one final one in relation to the comments about targeted M&A, potentially a lot of opportunities arising in the current climate. Could you just give us a flavor as to whether this is channel, service, product market, where are you interested in bolting on accretive businesses?

[Graham Stapleton, CEO & Executive Director]

Well, we've already successfully bought and integrated McConechy’s, Tyres on the Drive and, more recently, Universal. And we think there are more opportunities in that space to add businesses to the group because of the synergies that they bring, the scale benefits, obviously, and the opportunities in the market. There is no doubt that the MOT deferral last year will make it quite challenging for some businesses as we go into this financial year because, obviously, there will be less MOTs to do and, therefore, less servicing coming off the back of it. So it's a good time to at least to look at those opportunities now.

[Matthew Neil McEachran, Senior Research Analyst of Retail]

Yes. Brilliant. That's great.

[Operator]

The next question comes from David Green of Boldhaven.

[David Green]

I just wanted to touch base, first of all, on the supply chain. I mean it's something you've had to flag continually throughout last year, specifically the supply chain disruptions for Cycling. I was just wondering, are you seeing any further deterioration here or is it sort of status quo? And on that specifically, you've also mentioned that demand is outstripping supply on that basis. It would be really helpful to get a feel for what you see the fill rates as -- yes, that's my first question.

[Loraine Woodhouse, CFO & Director]

So it's -- I'm not sure I'd say we've seen further deterioration, David, but we definitely haven't seen any improvement. I guess what's happened over the supply chain is the problems are constant, but the nature of them tends to change. So we had a big problem with containers. At a point in time, containers were in the wrong place. We had a big problem with port congestion. Very early in the pandemic, we had a significant problem with COVID in Asia. We've had Brexit, where getting products into Ireland, frankly, is still incredibly hard to do. So the problems have sort of moved over time. What we're seeing again now is COVID reemerging in Asia. So I'm very much hoping this isn't the cycle repeating itself. So I don't think I would say we've seen a significant deterioration. But whereas we might have hoped we've seen an improvement, we certainly haven't seen that. It will be interesting to see how that progresses as we go through this year. In terms of demand outstripping supply, sorry, I didn't hear the last little bit of your question. Could you just repeat the last bit, please?

[David Green]

Yes, it was what are the fill rates? So it's used by some -- I guess, some retailers in a sort of similar situation where there are constraints, so it's basically what percentage of the total demand are you able to sell at the moment, is it 70% or however you want to...

[Loraine Woodhouse, CFO & Director]

Okay. We've not talked about that, but I can tell you that we've got significant gaps across the range. We've got built-up demand. We've got a service whereby you can e-mail if you're interested in a particular item. We've got a significant amount of demand built up through that service. And we're also able to see through Google search that customers are still searching bikes. There's also quite a lot of research data out there that tells us that customers are thinking about buying a bike, so we know there is more demand than there is supply at the moment. We've not given a figure on what we think that gap is, but we are comfortable that as and when we get stock -- and stock is flowing in, it's just flowing in, in sort of rather spiky fashion, we're confident that as that stock flows in, the demand will be there.

[Graham Stapleton, CEO & Executive Director]

Yes. I mean we're just building on that point. I mean we did see quite early in the pandemic what was coming here with the research insight, Google data, et cetera. And what we have done is leverage the scale of our business and the relationships that we have, with 85% of our range own brand, it means we are very aware of what's going on in Asia and around the world here. And therefore, I'm confident that in terms of share of what is available, we are in a good place going into this year. Will we meet full demand? Certainly not in the first half because the demand is still very, very high. From our research data, just picking that point from Loraine, 37% -- according to our research, 37% of the U.K. adults are looking to buy a bike within the next 6 months. And that's after the demand and sales that we've already seen over the last 18 months.

[Loraine Woodhouse, CFO & Director]

What I would add, David, I think there are two things that give me some confidence that to the extent the product is there, we'll be able to get it. We have a really experienced bike-buying team. They really do understand cycling inside out, and they are very innovative when it comes to thinking about new ways in which they can build a bike, get componentry, et cetera. And the second thing we have is a very experienced shipping agent who's worked with us for a long time. So we know the shipping lines well, and we are able to -- we say we're able to pull strings, but we have good relationships, which means that we are able to move product very successfully. So I think those two things, whilst they're challenging and they are taking more time than you might hope, they do also give us quite a strategic advantage at the moment.

[David Green]

And I guess just following on, on Cycling, it was obviously a very, very strong year, and it's probably going to be hard to sustain the same kind of level of growth. But you do still have some multiple tailwinds like government initiatives. It will probably benefit, I would have thought, from staycation. And you've obviously got the ongoing health and wellness trends as well. I appreciate it's going to be very difficult to predict, but any sort of thoughts on sort of Cycling growth levels for this year? Do you think you can do positive like-for-likes?

[Graham Stapleton, CEO & Executive Director]

Yes.

[Loraine Woodhouse, CFO & Director]

So I think positive 1-year like-for-like might be quite hard, David, although year-to-date, we're not that far away, interestingly. And of course, we are more stock constrained at the moment than we were a year ago. So personally, I think positive like-for-like on a 1-year basis would be some results, and I'm not sure I'm expecting that we get there. But we are expecting very positive 2-year like-for-like because we think all of the structural things that are in play at the moment for cycling, all of the trends you've just described will give us strong tailwinds throughout the course of this year. So we're very positive on Cycling. I just think maintaining a 1-year like-for-like result might be tough. But if we do that, happy days.

[Graham Stapleton, CEO & Executive Director]

I mean the other thing just to build on that, I'm in the same place as Loraine, maybe a little bit more positive about sizing prospects. I think the thing to remember is the first 9 weeks that we've reported for cycling includes a large period of time where the weather was very, very poor relative to last year and the year before. It might seem a long time ago now with lots of hot weather over the last few weeks, but you will remember that large parts of the spring were torrential rain and quite cold, which is not great weather for cycling, so certainly not leisure cycling. So I think there is definitely still the demand there. I think the [ rea ] if we don't hit the like-for-like in year one, it will be because our supply is constrained, not because the customer demand isn't there for the bikes.

[David Green]

And sort of on an ongoing basis, what do you see the market growing at? And where do you think you can grow versus the market?

[Graham Stapleton, CEO & Executive Director]

Market share data on cycling is a bit patchy. We have started very recently to get some decent share data, but we haven't got the historical information to be able to give you a sort of trended view. We think that the market, from talking to suppliers and looking at the data we have got, we think that the market grew about just over 40% against our 54%. So we were growing ahead of the market, but the market overall did grow over the last year. And there's nothing to suggest that, that market isn't still growing now. So -- but that's the best data we can give you at this moment.

[David Green]

And then just really to the market, your thoughts on growth rate for the market specifically?

[Graham Stapleton, CEO & Executive Director]

For the -- sorry, I didn't understand that last question.

[David Green]

Sorry, just what do you see just a general market growth rate for cycling going forward?

[Graham Stapleton, CEO & Executive Director]

It's -- we haven't actually suggested what that would be. We don't normally position that sort of number. It's very, very difficult to give a sense of what that could be. I think the best way of looking at it is to look at the first 9 weeks numbers that we've just shown. That gives you the sort of latest picture. There is nothing to suggest that the growth in cycling is stopping yet that we can see. And we look at lots of data from Google search data to our own insight and research, to our own sales data, we can't see that trend diminishing. There were a lot of new people in the market for cycling. The usage is also changing. So we are seeing more people using bikes more often. So our data shows that sort of 40 -- I think it's 40% of cycling -- of people that are cycling are cycling now more than they were a year ago. A lot are making two journeys a week when they would not have done that before. And obviously, more people using bikes to get to work rather than public transport. We still see through our data that I think it's one in three members of the public are still not wanting to use public transport in the way that they used to. If you add that to all the challenges around climate and sustainability, in fact, the more people are potentially staycationing, I just can't see that demand for cycling dropping significantly over the next 12 months.

[David Green]

Great. Sorry, and just apologies, a couple more, if that's okay. On the Motoring side, obviously, it was a tough year for obvious reasons. And I guess a large part of that is linked to car journeys. As those begin to normalize, do we see -- necessarily see more of a tailwind coming through and an improvement in like-for-like coming?

[Graham Stapleton, CEO & Executive Director]

Yes. I mean, I have not known what I would say, I mean, honestly, the -- one of the most pleasing things about the results, I think, is the motoring products and motoring services performance last year. There were -- if you took the whole year, there was, on average, 25% less traffic on the road. Our Autocentres business delivered a like-for-like growth of 9.7% up, which is quite extraordinary if you think of those 2 numbers. And even the Retail Products business at minus 12% was significantly better than the reduction in traffic that we saw on the road. If you look at the last 9 weeks, you'll see that both Retail Products and our Autocentres business delivered a 6.6% growth on FY '20 pre-pandemic. So I think we had a very good Motoring year particular Motoring Services. Last year, we definitely took share in the motoring services part of the market. And we started very, very strongly this year. It's only the last -- we were seeing, I think, a reduction in traffic for most of that 9 weeks still at about 8% or 9% down traffic-wise on pre-COVID. It's only the last few weeks that we've seen traffic return to pre-COVID or just above levels. So we're still not seeing the real opportunity that, that brings to the Motoring business for any length of time yet. So we remain pretty positive about prospects of Motoring this year.

[David Green]

And just my final question was on the guidance in terms of could you give us a feel for some of the assumptions behind the GBP 75 million and any color on the sort of shape of H1 versus H2?

[Loraine Woodhouse, CFO & Director]

So David, I'll cover the second point first because that's easy. So the GBP 11 million of business rates is only applicable for the first half of the year, so you'll see all of that come through. If you strip the GBP 11 million off the GBP 75 million and you divide the rest by 2, then at the moment, we've got nothing better to give you by way of guidance. Clearly, the shape will evolve as the year goes on. In terms of the overall guidance, we're not giving sales, margin, cost assumptions. But clearly, as I mentioned earlier, we would see more significant cost investment going in this year particularly around the strategic investment, which is important that we return to that. We've talked about motoring pricing. That, you can imagine, may lead to some form of a small dip in gross margin, but we'll see how that pans out throughout the year. We've talked about still some confidence in our sales numbers, and that's confidence year-on-year as well. So while Cycling will have a harder job delivering last year, then Motoring clearly providing the restrictions do not descend once more, then Motoring should have a much less tough comparative year-on-year. So you'd hope that would more than compensate. So that's the best shape we can give you. You'll notice the guidance is post-IFRS 16. IFRS 16 for us last year was a credit of small single millions. Most of that was related to the fact that we have leases held over at the end of the year. So as those leases settle, and I would expect a chunk of them to settle throughout the next year, then the IFRS 16 element of that charge will come into play. So we'll see higher right-of-use asset depreciation and higher interest on the liabilities. So the GBP 75 million takes that into account or at least it takes into account what we're able to see at the moment. It's quite hard to predict that until we see the leases. So that's probably as much shape as I can give you. It remains incredibly uncertain as we sit here. So every time we update the market, we'll be back in September, we will try to give you a slightly clearer picture of how the year is evolving.

[Operator]

[Operator Instructions] As we have no further questions, I'll hand back to the management team for any closing remarks.

[Graham Stapleton, CEO & Executive Director]

Thanks very much indeed for joining us this morning and for your questions. I look forward to speaking again in September. Thank you.

[Loraine Woodhouse, CFO & Director]

Thank you.