CARAVANNING is not a pastime typically associated with the UK’s senior finance chiefs more used to executive treatment, but as the finance director of Halfords it goes with the terrain. Britain’s largest bike retailer is bucking the trend in retail circles by recording profits in a painful recession. And at the head of its finance function is Nick Wharton, lifetime West Bromwich Albion fan and novice camper and cyclist.
Wharton, who has been with Halfords since its former parent Boots sold the business to CVC Capital Partners in 2002, has been diligently working his way up the track to the FD position, overseeing the finances at one of the most critical periods in Halfords’ 117-year history.
Bikes have always been a mainstay for Halfords, but with the explosion of car ownership during the 1950s and 1960s the business turned more towards the auto parts market. Hence the closer association with car maintenance fanatics than cyclists.
Both the resurgence of traditional, eco-friendly British pastimes like cycling, camping and caravanning, coupled with Halfords’ sponsorship of the British Olympics cycling team, have turned the retailer into a market leader in bicycle sales at a time when most others are struggling to turn a profit. Halfords became the first ever commercial sponsor of the hugely successful Great Britain Cycling Team in March 2008.
Halfords began life as a local hardware store on Halford Street in Leicester, hence the name. From its humble beginnings Halfords has grown into an £809.5m business today, selling, on average, one in every three bikes bought in the UK.
With its solid foundations, Halfords was well positioned to gain increased market share in the bike business and move, almost seamlessly, into taking a large chunk of Britain’s camping business, too. In June, Halfords reported record sales of camping equipment, benefiting from the thrifty trend to holiday in Britain this year due to the recession.
Wharton says the business plans to expand its range next year to take advantage of the growth of “staycations” and the popularity of environmentally friendly activities. If the Camping and Caravanning Club’s reports are anything to go by then Halfords has chosen the right time to further expand into the camping market.
The Club reported landmark memberships of 250,570 this year and is on track to report a record number of holidays on its 109 camping and caravanning sites in 2009, seeing a 50% rise in occupancy rates at Easter alone. Even Wharton enjoyed his first caravanning holiday in many, many years this year, and found it “a positive experience”.
At 42, Wharton’s broad commercial knowledge at the head of the business’s finance team is vital to ensuring that Halfords not only triumphs in its domestic markets, but also stays on track to fulfil its international plans, too.
“I think where the FD has influence and where I try to play strongly is to be the grit in the oyster, but without draining energy. It’s all well and good to say I’m the point of discipline and challenge, but that can be draining of both energy, but also initiative,” he says sagely.
Wheels in motion
Wharton seeks to run a “no surprises” finance function where he places equal importance on rigour, discipline and control, as well as on creativity and initiative. “You can only do that if you’re credible and commercial. I see the role as the one of pressure testing,” he adds.
After working on the due diligence for the sale of Halfords as finance and planning director in March 2002, CVC Capital Partners asked Wharton to take a more strategic role in searching out new overseas development opportunities by becoming business development director a year later. This broad commercial experience undoubtedly helped propel him into the CFO spot in 2007. The overseas expansion project he worked on back in 2003 has, however, remained a driver for his ambitions for the business.
With a combined population of roughly 50 million across Poland and the Czech Republic, whose citizens drive around 20 million vehicles that tend to be slightly older and therefore in need of constant maintenance, Wharton says they have chosen “meaningful” markets.
“We’re not into broad flag planting. We believe those markets can provide meaningful opportunities. From a macroeconomic point of view, while they are challenging at the moment, their GDP growth potential is greater than the UK. So strategically we believe we’ve chosen good markets,” he adds.
Nonetheless, he isn’t taking his eye off the domestic road, because without a strong UK business any plans for overseas development will stall. “We want to make sure we manage the business well, tactically, without losing any strategic opportunities that are available. Our UK core business generates more than 100% profit. It is the solid foundation that provides the growth for our strategic plan. Quite a lot of my time is focused on making sure the UK business is strong and performing well, which [touches wood] it continues to do,”he says.
Despite Halfords current strength in a tough economy, the business hasn’t been immune to belt tightening. Last year Wharton had to reduce staff hours to cut employee costs, which is 11% of the total cost base. Property rents are its second biggest outlay. The exercise however also improved yield and productivity.
“On a like-for-like basis productivity in terms of labour improved by 10% in the second half of last year. And we don’t feel we’ve pushed that too far in terms of customer service,” he says.
The strategy has proved successful. In its preliminary report in June Halfords, which operates 438 stores across the UK, reported pre-tax profits of £92.4m for the year to March 2009. The business has fared better than most thanks to counter-cyclical discretionary spending such as car maintenance and the rise in popularity of cycling and camping. That said, at £794.7m, group revenue was down, representing a like-for-like sales decrease of 3.3% on last year.
Keen to ensure liquidity in the business, Wharton is de-gearing to the tune of £15-£20m. Although having operated at high levels of debt in the past, the FD is only too aware of the importance of liquidity in a recession to create flexibility in order to act quickly should the business need it.
“It’s a delicate balance between the cost of the debt that I currently have and the fact that I need to provide certainty to the organisation in terms of its debt. We don’t feel we face an immediate refinance horizon, but equally we don’t think we’ll delay it until calendar year 2011,” he says.
Refinancing in 2010 will bring a higher cost of borrowing for the business, but Wharton isn’t concerned about the company’s ability to access those funds when it needs them thanks to Halfords’ current healthy cash flow and its eight-bank syndicate.
His confidence is backed by analysts. Following Halfords’ preliminary results in June, surprising observers with better than expected results, CitiGroup Investment Research issued an investment note stating: “Despite conservative assumptions on revenue, gross margin and costs, our updated forecast is at the top end of current consensus. Halfords remains a high quality, high earnings visibility retailer and we remain buyers.”
Having forsaken dreams of winning the Ashes with a double century and his migration from playing sport to mostly watching it, Wharton seeks comfort in golf these days and spending time with his young family. That said, he remains bent on turning his five-year-old into another ardent WBA fan, like himself, and keeping his career on track.
“I’m quite ambitious. It would be disingenuous of me to say I didn’t have a plan. The pinnacle of a finance career in any organisation is the director level role, while I’ve done other things at my heart I’m a commercially focused FD.”
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