Okay. Good morning, everyone, and welcome to the Halfords Group results for the 52 weeks ending the 28th of March, 2025. I'm Henry Birch, the Chief Executive of Halfords, and joining me today is Joe Hartley, our Chief Financial Officer. In terms of the agenda for today's presentation, I wanted to start with some initial reflections on my first 10 weeks. Joe is then going to cover our financial results. I'll talk to some of our strategic highlights of FY25 and then give you an overview of current trading and outlook. We will close today's session with the opportunity for Q&A. As the new Chief Executive, I wanted to start just very briefly with a bit about my background. My last role was as Chief Executive of the Very Group, the privately held multi-category retailer.
Prior to Very, I ran Rank Group, the FTSE 250 gaming and leisure group. Before Rank, I was the Chief Executive of William Hill Online. I like to think I have a strong retail and digital experience, but also have run a multi-site business of similar scale to Halfords. In all of those businesses, I have led a transformation agenda driven by tech and data and clearly focused on better serving customers. I have been in role now for about 10 weeks, and I am hugely enthused by what I have seen, both in terms of what we do today and, more importantly, where I think we can take our business in the future. Much of my initial time has been spent out and about in our operations, visiting our stores and garages, our commercial fleet services and mobile vans, and in our distribution centers.
It is clear to me that we have a unique and compelling offer for customers alongside unmatched scale and breadth and capability across the group, from retail to mobile, B2B to our SaaS business Availor. It is fair to say that the last three or so years have been pretty tough for the majority of consumer-facing companies in the U.K., and Halfords has been no exception. The forces and events are well documented, and I am not going to go into them now. I come from a retail environment where many companies are continuing to struggle to differentiate themselves, selling very similar product to one another with very limited provision of services and grappling for the same discretionary spend. Halfords is different. Over half of all customer transactions are service-based, with the majority of service events taking place in our retail store car parks, in fact, 80% of them.
We're unique in this space, providing on-demand fitting of bulbs, wiper blades, batteries, and various other products. Customers can drive into our car park, access expert advice to help pick the right product for their vehicle, have it fitted, then drive away. That's the ultimate convenience and a brilliant solution for customers. This is combined with a strong digital capability, supporting those operations and as a transactional channel, with more than three quarters of digital transactions being click and collect, which brings those customers into our stores. Delivering all of this, we have over 12,000 passionate and knowledgeable colleagues. Having spent time in our stores and garages, it's very clear to me that they're not just knowledgeable colleagues, they're specialists.
The majority of the people who walk through our doors are looking for advice or a service, and that puts us in a really strong position to build trust and a relationship with those customers. From those interactions, we're capturing a huge amount of data about those customers, their vehicles, their transactions, and their needs. I'm delighted with the progress of Halfords Motoring Club, but to my mind, we're just scratching the surface as to how we use that data to better serve customers, to grow the business, and to operate more efficiently. Joe and I will talk a lot today about the success of Fusion and the growth in our garages business, which I think is really exciting. Our retail business also grew last year, and I believe there is opportunity for us to grow it further.
We remain clear category leaders in retail, and for the majority of our customers, the store experience is their introduction to Halfords. All in all, I believe we have really strong foundations to grow our business, and I'm genuinely excited about where we can take it. Those foundations are strengthened by our FY25 results. I wanted to thank my predecessor, Graham, for handing over a business in good shape and acknowledge that these positive results are ones achieved under his watch. Against a challenging backdrop of inflation, we managed to grow like-for-like sales 2.5%, beat expectations on PBT, and announce a 10% increase in the dividend to GBP 0.088. A really strong set of results, and I'm now going to ask Joe to go into some more of the detail.
Thank you, Henry, and good morning, everyone. I'd like to start today by saying how pleased I am with the performance we've delivered in FY25, navigating a challenging consumer and inflationary backdrop to deliver ahead of target across the P&L and balance sheet. We achieved this with clear focus, prioritizing optimizing pricing, delivering our better buying program, and continuing our relentless efforts to drive out cost and improve efficiency in all areas of the business. At the same time, we managed inventory and cash carefully while investing selectively in high-returning strategic initiatives, including our very successful Fusion program, as Henry will detail later. The result of this focused approach was a strong set of numbers. Before I go into more detail, the usual reminder that all results are post-IFRS 16 and also that comparisons to the prior year are on a total operations basis.
You'll recall that we closed and discontinued our loss-making consumer tire warehousing and distribution businesses last year, outsourcing these operations to Bond. Overall, this drove significant P&L benefit but moved some costs into the continuing garage business. As such, a comparison to total operations last year better reflects comparative performance. To start with the highlights, like-for-like sales grew 2.5%, led by Autocentres, but pleasingly with sales growth across both segments despite the continued consumer challenges. Group gross margin grew 250 basis points, exceeding our initial expectations, and with half two accelerating beyond the 190 basis points increase we described in half one. The combination of gross margin expansion and sales growth led to a very strong underlying performance for the group, triggering the reinstatement of a performance-related bonus for colleagues that had not been paid in the previous two years.
This caused costs to increase as a percentage of sales year on year. Underlying PBT was up 6.4% at GBP 38.4 million, slightly above consensus and the top of our guided range. Free cash flow at GBP 43 million was particularly strong, up nearly GBP 14 million year on year, reflective of an excellent underlying performance and continued good working capital management. It is worth noting that the incentives charged to the P&L in FY25 will be cash paid in FY26. As a result, we closed the year with GBP 10.1 million of net cash on our balance sheet, notwithstanding higher CapEx than in previous years to fund the successful Fusion program. Overall, it was a very pleasing performance. This next slide shows the drivers of that profit growth, bridging between the underlying PBT reported in FY24 on a total operations basis and the underlying PBT we are reporting today.
As you can see, once again, we face very material inflation that alone would have eliminated most of the profit made in the previous year. However, this was more than offset by successful price and promotion optimization alongside GBP 35 million of cost savings. I'll share more detail on the makeup of inflation and cost savings shortly. As I indicated this time last year, we also made selected investments during the year, reinstating performance-related bonuses at a cost of around GBP 11 million and also investing in leadership capability, apprenticeships, and our Fusion program. Let's look now at the makeup of inflation and offsetting savings in a bit more detail. As you saw on the previous slide, we faced GBP 33 million of inflationary headwinds in FY25.
The biggest of those was GBP 21 million of wage inflation, driven by the 10% increase in the minimum wage effective April 2024 and the knock-on impacts on the wider workforce as we sought to maintain a skills differential. We also saw GBP 3 million of inflation in freight costs driven by Red Sea disruption, slightly below the GBP 4-GBP 7 million range we expected at the start of the year. Business rates increased by GBP 3 million, and across all other cost lines, we saw a further GBP 6 million of inflationary pressure. Offsetting this, we found cost savings of GBP 35 million, around GBP 5 million more than our initial target. GBP 21 million came from our better buying program. More than GBP 4 million was realized from the tire warehousing and distribution outsourcing to Bond. GBP 2 million was saved in interest costs due to excellent cash management and falling interest rates.
£8 million came from a host of other initiatives across the group, including our Goods Not for Resale program, operational efficiency, and productivity improvements. As we just saw, the bulk of cost savings came from better buying this year and are reflected in an excellent gross margin performance. Overall, we delivered 250 basis points of gross margin accretion, reaching 50.7%, which is the highest margin delivered in the last three years. This chart shows the drivers of the margin improvement, bridging the margin year on year. You can see here how better buying contributed 140 basis points of the growth as we successfully tendered own-label product categories in the retail business and continued to robustly negotiate with our commercial partners across all areas of the group. The second significant contributor to our performance was price optimization, delivering 90 basis points of the improvement.
We've made several strategic changes to pricing over the last year, particularly in services, where customers can tangibly see how the labor cost that's involved and dynamic pricing enables customers to make their own choices between price and convenience. The margin rate also benefited from further mix into strategically important servicing, maintenance, and repair, supported by Fusion and our investment into garage leadership, which has resulted in more additional work being identified when vehicles are in our garages. FX was a tailwind this year, given we purchased around $200 million of dollar-denominated product, and the average FX rate in cost of goods sold improved from 1.22 in FY2024 to 1.24. We expect FX to deliver further benefit as a result of our hedging strategy. FY2025 requirements were bought at nearly 1.26, and 92% of our FY2026 purchasing requirement has already been bought at 1.29.
Overall, we saw strong margin momentum in half two, with gains accelerating, all of which should give confidence in our ability to mitigate the further headwinds we are facing in the year ahead. The dynamics we have just discussed come together in this summary slide. Good revenue growth, gross margin expansion, and cost control were partly offset by an increase in operating expenses. Overall, this delivered growth in underlying PBT that we are reporting today, despite market and inflationary pressures. That said, headwinds continue in FY26, not least from a further increase in the minimum wage and changes to employers' national insurance contributions, which impact us from the start of the new financial year.
While we've identified the actions required to mitigate yet another year of significant inflation, these factors, together with a change in the risk-free rate, which has impacted our discount rate, have contributed to the non-cash exceptional charges, resulting in a statutory loss before tax for the year. Slide 12 breaks down the non-underlying charges, with the two biggest components being closure costs and impairment of non-current assets. The most material item is a GBP 49.1 million non-cash impairment charge, mostly impacting our retail segment and largely relating to Goodwill. A major driver of this is an upward move in U.K. gilt yields over the last 12 months, which has impacted the discount rate used in our impairment testing calculations. This higher rate has, of course, then been applied to a revised set of forecasts, which incorporate the additional costs introduced by the government's autumn budget.
We've also assumed further minimum wage growth throughout the forecast period and taken a prudent view on FX rates. I would stress this impairment is a non-cash charge and reflects the mechanics of an NPV calculation according to the method prescribed by accounting standards. In addition, GBP 14.9 million of closure costs are predominantly non-cash charges relating to garage closures. In reviewing our portfolio in light of the autumn budget and our plans to roll out Fusion, a number of sites were identified for closure, with the majority of affected colleagues to be redeployed to nearby garages with the potential to offer a better customer and colleague experience. These closures are expected to be immediately earnings accretive, with an upfront cash cost of just over GBP 1 million. In total, cash non-underlying costs for FY25 amounted to GBP 5.7 million, with the remainder being non-cash accounting charges.
Moving now to briefly touch on segmental performance. In retail, like-for-like sales growth was 2.1%, with growth in both motoring and cycling supported by a stronger second half performance. This is the first time we've reported positive like-for-like sales growth in cycling since 2021, a good sign in a market that remains significantly depressed versus pre-COVID levels. A strong underlying performance at the profit level was driven primarily by margin expansion, up 200 basis points, largely as a result of our better buying program. This performance triggered bonus reinstatement for colleagues, without which retail segment EBIT would have grown year on year. Including this impact, EBIT declined slightly to GBP 39 million. The standout performance in 2025 was in the Autocentres part of our business. Excluding Availor, underlying EBIT grew 21.2% year on year. The like-for-like sales growth of 3.7% was very pleasing, especially versus strong prior year comparatives.
FY24 like-for-like was 10.7%, so on a two-year basis, this part of the business has grown sales by 14.4%. We saw very different dynamics in tires and SMR during the year, with double-digit sales growth in SMR, but a much more muted tire performance, and I'll describe these dynamics in a bit more detail later. The really significant 320 basis points of margin expansion reflected the themes already discussed at a group level: smarter pricing, better buying, and mixing to higher margin SMR work were the key drivers. Costs were well managed, productivity improved, and we saw the benefit of switching our tire warehousing and distribution operations to Bond. All of this was delivered partly due to the investments we made in the Fusion program and in developing the capability of our garage leadership.
Overall, we were delighted by the performance of the segment in FY25 and continue to see significant potential for the growth and profitability of this part of our business. Before moving on, I'll touch on Availor, our software business. Here we continue to make progress, winning new clients such as MyCar in Australia and also moving to the next stage of our flagship contract with Bridgestone. Losses expanded slightly to GBP 2.7 million as we continued to invest in development for future growth. Unfortunately, ATD, a key US client, went into Chapter 11 proceedings during the year. The impact of the loss of this account will be more significant in FY26. As a result of this and our continued investment, we expect Availor's losses to widen in the year ahead. The Availor team continued to prioritize the successful delivery of our major contracts, including that with Bridgestone.
Before moving on, I thought it might be useful to look a little more closely at our two consumer garage end markets, which saw divergent performance in the year. As I have already described, growth was very strong in strategically important servicing, maintenance, and repair, while the consumer tires market continued to struggle with customers still choosing to defer tire purchases wherever possible, and this slide brings those dynamics to life. On the left-hand side, you can see how the volume of SMR jobs that we have performed in our garage business has steadily increased since the acquisition of National Tyres and Autocare at the end of 2021. As a reminder, SMR is a highly fragmented market with significant opportunities for disruption, particularly with our Fusion model. Year on year, the mix of SMR work within our consumer garages grew by 3 percentage points.
Our strong performance in this growing market has helped to offset the ongoing challenges in the tire market, which, based on GFK data, remains around 14% below pre-COVID levels in FY25. On the right-hand side is the chart we shared at the interims, depicting the percentage of tire jobs that come into our garages where tread depth is below 2 millimeters, very close to the legal limit. Six months ago, we spoke about tentative signs of recovery, with this percentage starting to fall from its peak in FY24. However, we've seen this reverse in the second half, indicating that customers are continuing to delay and defer tire replacement. We're seeing almost one in five of the vehicles coming into our garages with at least one tire that's illegal or close to being illegal, showing the scale of this issue and the genuine safety risk that it poses.
This market has continued to be challenging in the early part of our new financial year. Moving now to our balance sheet, which has further strengthened this year. We closed the year in a net cash position of GBP 10.1 million, up GBP 18.2 million year on year as a result of strong cash and working capital management, and despite spending around GBP 9 million more cash CapEx than we did in FY2024 as we invested in the Fusion program. Inventory across both retail and Autocentres fell year on year, and we closed with GBP 225 million of stock, GBP 12.3 million less than this time last year. Total stock levels are now at the lowest level since FY2022, despite the acquisition of Lodge Service that has happened since then.
Free cash flow of GBP 43 million was up GBP 14 million year on year, reflecting working capital discipline and a very strong underlying performance, which triggered colleague incentives that will be paid out in FY26. This impact, together with the higher CapEx spend of GBP 60-70 million as the Fusion program accelerates, means that lower free cash flow is anticipated in the year ahead. As a final point, we have maintained significant flexibility in our property portfolio, with the average remaining lease length below three years in retail and around five years in Autocentres. Our balance sheet, therefore, remains strong, with leverage, including lease debt, at 1.4 times, slightly below our target range. Maintaining a strong balance sheet is at the heart of our capital allocation priorities, which remain unchanged.
Reflective of our balance sheet strength and within our dividend policy, we're pleased to be proposing an increase in the final dividend to GBP 5.8, bringing the full year dividend to GBP 8.8, growth of 10% on FY 2024. To summarise, FY 2025 has been a good year in the context of a challenging external backdrop. We have delivered against the three priorities we set out at this time last year. We've continued to optimize our unique platform, growing group profits. We've mitigated over GBP 30 million of inflation through our ongoing cost and efficiency program. We've selectively prioritized investments which we know from experience can deliver substantial returns, most notably Fusion. Returning to where I started, this focus has delivered financial outcomes which have surpassed our expectations. We've grown underlying PBT largely by delivering a significant increase in our gross margin to levels not seen in the last three years.
We've continued to deliver on cost, exceeding the initial target, and we've maintained a very strong balance sheet, which is net cash despite increasing investment in high-returning strategic programs such as Fusion. FY26 will bring its own opportunities and challenges, but the actions we've taken and continue to take set us up well for another year of progress. I'll now hand over to Henry, who'll cover current trading and our plans for the year ahead.
Thank you, Joe. I now wanted to talk about two key areas of strategic progress, specifically our Fusion garages and Halfords Motoring Club, before turning to current trading and outlook. Starting with Fusion, with 50 garages now live, I thought it might be helpful to set out a reminder of how Fusion works and how it's delivering significant growth for our garages business.
Very simply, Fusion sits at the center of our garages proposition, feeding demand directly into our garages and offering customers a truly differentiated experience. The easiest way to describe this is to look at Halfords as an ecosystem. As well as generating the majority of sales, our retail stores are an important acquisition channel. When we perform a WeCheck or WeFit service in our retail car parks, any work identified and referred to our garages is effectively captured demand, essentially taking a customer out of the market before they search on Google or go to a competitor. Whilst out visiting our retail stores, I've actually seen this in action, and it's a really compelling customer proposition. Our market-leading Halfords Motoring Club builds on that. It enables us to harness the data we collect to retain and convert customers effectively.
Couple that with the unrivaled scale of our garage and mobile van network, and together, the ecosystem means that, unlike a traditional garage business, we're able to generate demand from our group assets, capturing demand on a total town basis. If that's how Fusion works within the Halfords ecosystem, what do we actually mean when we say a Fusion garage? What's different? As I've seen for myself, it isn't just a rebranding exercise. It's an increase in capacity, more ramps and improved equipment, increasing the return from our fixed costs by optimizing the space. Alongside that, we implement a full operating model change with specialist customer service and quality control roles within the garage, as you can see on this slide. Fundamentally, this is a people-led change underpinned by increased capacity and all presented to the customer with a new look and feel and updated Halfords branding.
A year into rollout, the great news is that the results continue to be compelling. We're seeing excellent returns from the 50 sites delivered to date, with no change in performance in the latest cohort of garages converted compared to the first wave. As a reminder, this means garage-level contribution is on track to double on average at maturity, delivering an average payback of just two years. We continue to see scope for around 150 Fusion garages in total by FY 2027. Fusion is a fantastic program, delivering on every level for customers, colleagues, and shareholders, and I'm looking forward to seeing this generate substantial growth for our garage business over the course of this year. Moving on now to the progress we've made with our Halfords Motoring Club, which continues to generate significant value for the business.
This year saw the club exceed 5 million members who, on average, shop twice as often and are more likely to access products and services across both our retail and garage offer. In fact, members now account for more than half of all MOTs booked in our garages. As a reminder, the club consists of two tiers of membership, free and premium, both delivering benefits to the group. Free membership provides an important route towards higher-value premium membership, with half going on to convert, helping to reduce the cost of customer acquisition for our garages. Our 370,000 premium members bring in GBP 18 million in annualized subscription revenue, and they spend more, in fact, three times the amount of a non-member annually.
The club is not just generating value for the business; customers are enjoying the benefits, and we're seeing a market-leading retention rate in our paid membership of around 70%. A strong year for the club, and as I said earlier, in my view, there is still significant opportunity for growth. It gives us unparalleled access to customer and automotive data, and there is much more we can do here to use that data to better serve customers, to grow the business, and to operate more efficiently. On the people side, I'm really pleased that we've recently announced the appointment of two new Managing Directors for our retail and garages divisions. First, Adam Pay will lead our garages division, taking over from Karen Bellairs from the 1st of July. Adam brings extensive industry experience, most recently as Managing Director of MyCar in Australia.
Adam inherits a fantastic platform in our garages business, and I'd like to thank Karen, our Chief Customer Officer, for the role she's played here. Later in July, Jess Frame will join us as Managing Director of Retail. Jess is currently a partner at the Boston Consulting Group, BCG, where she's served as the managing partner of the London office, as well as previously having operating roles in various retail businesses. I expect both Adam and Jess to have a significant positive impact on their businesses and both inherit experienced and capable teams beneath them. Moving on now to FY26 and our current trading and outlook. Overall, I'm pleased to report that trading has been in line with our expectation in the first three periods of FY26.
In retail, cycling and touring have been particularly strong, and in our garages business, both consumer and fleet components continue to grow, with particular strength in service maintenance and repair, helping to offset a tire market that remains sluggish. Earlier this year, we deployed a new warehouse management system in our Coventry Distribution Centre, which led to issues with stability and output. We're on track to return to full productivity before the end of H1, but in the short term, we're deploying additional resources to maintain stock availability in our stores. This has led to additional non-recurring costs of low- to mid-single-digit millions being incurred in the first half of the year. Similar to FY25, we're facing a number of cost increases, many related to the autumn budget, which come into effect from the very start of the new financial year.
Just like last year, we have a clear plan to mitigate them through pricing and cost savings. The combination of these factors, together with our investment plans, means that our profit in FY26 will be weighted to the second half of the year. In terms of that investment, we have clear plans for the year ahead. Many of our investments will build on the good work of FY25 and progress the optimization of the valuable and differentiated assets we have at our disposal. We'll continue to expand our successful Fusion program with over 100 Fusion garages planned to be operational by the end of the year. We'll drive growth in our retail business through better category management, range development, and price optimization. We'll deliver more customer benefits through our Motoring Club, and we'll continue to invest in talent and leadership.
We'll lay the foundations to transform our technology and data capability, and alongside all of that, we'll continue to build a more efficient and effective business. I'm really pleased with the results we're announcing today. They give us a strong base from which to build, and we're starting to generate good momentum. Looking forward, there is a lot of work to do, but there is a huge amount of opportunity for this business firmly within our grasp. I look forward to providing a detailed update on our strategy and plans later in the year, but for now, this concludes today's presentation, and Joe and I will now be happy to take any questions you may have.
Morning, it's Jonathan Pritchard at Peel Hunt here. Firstly, what's the difference between, is it Washford, Coventry, and Washford?
Because you had a sort of systems overhaul at the former, and it's not been as smooth at the latter. What are the differences between those two, and why has that happened? Secondly, you've talked an awful lot about data. Is there a sort of quality overhaul needed here? Is it usable? Is it in the right sort of shape and packaging you would like that data to be coming in? Or is there a job of work to sort of work on data management before you can actually move forward with it?
Sure. Okay, on the distribution centre side of things, we've got three distribution centres, Washford or Redditch, which is where we also have our corporate HQ. We've got Coventry, and we've got Crick.
Last year, we migrated the warehouse management system in Washford, and Washford deals almost exclusively with bikes, so kind of big, fairly simple packages. Coventry is where we have the most complexity in terms of product, and that is where we have had the challenges with the warehouse management system. In Washford, we had no issues. We migrated successfully. In Coventry, we have had issues, but as I say, we feel that those are kind of well under control, albeit we have incurred those additional costs. Crick, we will be looking to do in the course of FY2027, and I would sincerely hope that we will not have issues there because we would have resolved any outstanding issues from Coventry. In terms of the data, yes, I think there is more work that we can do, and some of that is getting data into the right format.
We actually do use data extremely effectively today, which I think is kind of evidenced by our Halfords Motoring Club. We're actually using that effectively. As a company kind of new in, one of the things I'm kind of acutely aware of is we've got a lot more data at our fingertips than your average retailer or consumer-facing company because we've got that customer information, that transactional information, but we've also got vehicle data as well. Actually, it's that combination where I think there is a lot more that we can do. Yes, there is more work that we can do in terms of systems and in terms of data availability and quality, but it's not significantly different from other companies that I've been in.
Ben Hunt from Peel Hunt. Obviously, the cost headwinds this year continue to exist.
Seems a bit of an unfair question, but can you keep going with the momentum you've had from the previous year in terms of the price optimization and maybe just flesh out where you see those cost savings coming from and how you're going to get them? I mean, Ben, I think the good news from my perspective coming into Halfords is that we've got that track record of actually being able to push cost savings. Last year, we had GBP 33 million of inflationary costs to deal with. We delivered GBP 35 million of cost savings this year, as we said last year, GBP 23 million from the autumn budget that we got to mitigate. It is a continuation of what we did before.
I'm confident that we've got the plans in place, both in terms of the kind of better buying, the suppliers and supply chain management, pricing optimization, and then what I kind of classify as kind of good old-fashioned cost control to the extent that we don't have any kind of program of redundancies or job losses. I've got a pretty good degree of confidence that we'll deliver on those, and we've got plans in place that are underway. I think it does go slightly to that H1, H2 weighting, though, because the costs hit us from day one, and clearly a mitigation program will go throughout the year. Joe, I don't know if you wanted to add anything to that.
No, I think that covers it. Thanks.
Just on Availor, are you able to tell us how much ATD contributed to you?
Just aware that momentum seems to have slowed a little bit there in terms of winning new clients in the second half. You obviously have mentioned losses expected to widen. Any sort of color around that? Yeah, look, we have not given a revenue split historically, so cannot really go into specifics around the impacts of the loss of ATD, apart from saying it was a fairly significant client for us. There is no slowing, though, of pace with Availor. Our absolute focus is on delivering the Bridgestone contract, which we previously described as probably the biggest contract that we could gain in the U.S. for the Availor business, and we are progressing really well with that. Losses will widen a bit in the year ahead as we continue to invest and as a result of the loss of the ATD contract.
But the absolute focus is on delivering the expansion that will come from Bridgestone.
Okay, Calvert from Investor. I'm just following up on Ben's question on Availor. Should we expect a rollout to start with Bridgestone this year or next year, do you think?
We have a contractual agreement with Bridgestone that looks at a rollout, which the majority of that rollout will be next year. We're currently live in one site, and we're currently in discussion with them as to whether we roll out more in the course of this year or whether it will be weighted into next year. Definitely, the intention is that we together roll out from one to 10 to 50 and then do the whole lot in the course of time.
Two other questions. The first one on the Motoring Hub, sorry, not the Motoring Hub, the Motoring Club.
What should we expect in terms of developments in the current year from a consumer perspective? The second question is just on the retailer state. You have got a very short average lease length now. Is there any sort of lumpiness in the lease renewals over the next year or two? Are there any opportunities to get lease costs down?
[crosstalk] Why do you not take the leases and I will take the leases? Yeah, look, as you know, Kate, we have got a really flexible lease portfolio, and I think we have got sort of 40 or 50 lease events coming up in the year ahead. We look at every one on its merits as it comes up for renewal. As you know, over the last three years, we have taken the opportunity to take around 100 sites out of the retail lease portfolio.
I do not think we will see another major reduction, but we will continue to see, I think, a few closures as we have done in the year that has just gone in each year as we go forward.
On the Motoring Club, I think the majority of our focus is going to be on converting free members to premium members this year. I think longer term, there is the ability to really expand the offer of Halfords Motoring Club in terms of driving different types of subscriptions potentially and working with third-party partners as well. As I say, I think the majority of our focus this year is going to be on driving premium membership.
Thank you.
Thank you. Andy Edmund, Equity Development. A couple of questions for Joe. I will come back to you, Henry. Do not worry.
Inventory and supply chain and sort of linking the two together, the world remains a very volatile place. Is it unreasonable to expect further cuts in inventory because you might be holding back a little more stock than usual or the new usual? Linked to that, looking at the cost on freight costs that you referred to in the prior, have you learned? Have you got new partners? Have you taken remedial action that might mitigate, let's say, an extension of what's going on in the Middle East again at the moment?
Thank you. Just firstly, on stock, look, I think we've done a really good job in getting our stock levels down over the last three years, and I'm pretty happy with where stock is actually across the group.
We're back at stock levels that we haven't seen since FY22 across the group, and I don't think we need or will be going any further in terms of reducing stock as we look forward. We're in a really good shape, actually. In terms of freight costs, the freight headwind that we described was really driven by the disruption that the entire market saw in the Red Sea as a result of the issues in the Red Sea last year. We've always worked really hard with our freight forwarders to negotiate rates that have consistently been below spot rates in the market. It's been actually one of our real successes, and we managed to mitigate the potential cost headwind that we saw at the start of the year, which was GBP 4 million-GBP 7 million back to around GBP 3 million.
I think we're in pretty good shape from a freight perspective. It's hard to know what will happen to freight costs in the year ahead with everything that's going on around the world at the moment, but we remain in a good and really competitive place from a buying perspective, and we haven't seen the need to change our forwarding partners.
Good. Reassuring. Henry, very unfair question after 10 weeks, but you've obviously done a lot of due diligence prior to joining the group, and your introduction and your video this morning were very positive. What is the single thing that you've found that's come as a surprise that, as a side that depressed you, well, hopefully excited you the most?
The surprises have definitely been positive. I think it probably comes back to actually, well, I think two elements.
One is the fact that most of our customers come to us for advice or a service, which I think really differentiates us. Secondly, I think is the level of data that we have and are collecting and potentially are not using to its full potential.
Great. Thank you.
Morning, guys. Charlie Perkins from RBC. Just two questions, if I may. Firstly, I am just wondering sort of roughly how many of the ex-National Garages have been transferred to Fusion, and do you guys see significant upside for the ones yet to come? Can you just give a little bit more color on the additional investments that you plan on making to the customer experience that I think you guys mentioned in the statement this morning? Thank you. Yeah.
The national, Joe will know the figure because
yeah, we have done about 50 Fusion garages so far, and around half to two-thirds of those have been ex-National garages that have converted. That leaves a significant proportion of the ex-National portfolio that have not yet been transformed, and we see more of those becoming Fusion garages as we go forward.
I think the National garages have tended to be larger than the Halfords Autocentres, so we can get more ramps in there. Therefore, they are better candidates for conversion to Fusions. On the digital customer experience, we are looking at developing our search capability, accessibility in terms of people with disabilities.
Thirdly, in terms of we're putting in place a headless front end, which means that we can integrate with a much larger number of third parties, tools, content feeds, that type of stuff gives us additional flexibility, which overall will improve the customer experience.
Sorry, can I just ask a question on the cycling market as to where are volumes now, you think, versus pre-COVID levels? You're getting more positive on it, so are you calling the recovery in the cycling market? Can you talk about how much stock you still think there is out there in the wider market that might need clearing?
I think I probably said it's a bit early to call a widespread recovery in the cycling market, Kate, much as we'd love that to be the case.
The early part of the year has been really strong, though March and April were strong from a market perspective, and we traded well within the market there. While we do not like to talk too much about the weather, the warm weather will certainly have helped with that. It is tentatively looking more positive, as you say. In terms of excess stock that is out there in the market, I think most of that has probably worked through now. It is hard to be absolutely sure, but it feels that way.
Great. I mean, it is worth pointing out we grew, cycling grew by 1.7% last year, which is not huge, and we are still below pre-COVID levels. I think, as Joe says, there are definitely some positive signs coming through.
Yeah, the market still was around 33% below pre-COVID levels by the end of the year.
It may be getting a little bit better. If there are no more questions in the room, we just want to check and see if there are questions from callers outside of the room.
Sure. Thank you. Ladies and gentlemen, if you would like to ask a question via the audio, please press star one on your telephone keypad. We'll pause for a brief moment. Thank you. We have no questions coming through the audio. Handing it back to the room for further questions.
Okay. Assuming there are no further questions, that concludes today's presentation. Thank you very much for attending, and we look forward to seeing you later on in the year for our interim results. Thank you.