remuneration committee chairman's letter

Dear Shareholders

On behalf of the Remuneration Committee, I am pleased to present the Remuneration Report for the financial period ended 3 April 2015.

The Report has been prepared in line with the new UK Reporting Regulations that came into force in 2013 and consists of three sections:

• This Annual Statement;
• Our Policy Report, which sets out the Directors' Remuneration Policy for all Directors of Halfords; and
• Our Annual Report on Remuneration, which sets out the details of how the Company's Directors were paid during FY15 and how our policy will be implemented in FY16. The Annual Report on Remuneration is subject to an advisory shareholder vote at the 2015 AGM.

Remuneration Policy

The Committee was pleased that shareholders approved our Remuneration Policy at the AGM that took place on 29 July 2014. There are no proposals to amend the policy at this time and it is intended to continue until 2017. The Group's full Remuneration Policy is available on the corporate governance section of the Halfords website www.halfordscompany.com and, for ease of reference, is also summarised in the Remuneration Policy Summary.

REMUNERATION STRUCTURE AND PHILOSOPHY

The Remuneration structure is comprised of the following elements:

• Fixed pay — base salary, benefits and pension; and
• Variable pay — annual cash bonus and Performance Share Plan.

Our approach to remuneration supports a strong focus on performance and reflects the nature of our business. Our remuneration philosophy is aimed at providing Executive Directors with incentive opportunities strongly aligned to growth, profitability and shareholder returns.

Performance Share Plan ("PSP")

To ensure that the interests of the Executive Directors continue to align with the delivery of the strategy, the Committee again determined that the performance measure for the FY15 PSP would be based on 75% Group EBITDA growth and 25% Group Revenue Growth.

The rules for the current PSP expire this year, having been in place for 10 years. The Committee has considered and approved new rules for the PSP, which will be placed before members for their approval at the 2015 AGM. We took this opportunity to introduce clawback provisions into the plan, alongside existing malus provisions.

Save as you earn Scheme ("SAYE")

The Committee believes that encouraging colleagues to own shares in the business encourages them to 'think like an owner' in their dealings with customers and colleagues, which is why the Committee doubled the monthly sum that colleagues are permitted to save from £250 to £500. Share ownership is another factor that makes Halfords a great place to work, as it drives colleague motivation and commitment. At the last AGM, members approved the renewal of a UK SAYE Scheme, which led to the adoption of new rules for the UK SAYE. Members also approved measures to allow overseas colleagues to participate in similar SAYE schemes.

Incentive / Remuneration review

The Committee approved a 2% salary increase for Executive Directors, mirroring that awarded to colleagues throughout the Support Centre in the October 2014 pay review. Executive Directors earned bonuses of 94.0% of their maximum FY15 opportunity (FY14 97.5%). The Committee determined that this level of bonus was appropriate, reflecting the strong PBT result and compelling performance against key strategic objectives during the financial year.

Matt Davies resigned as Chief Executive Officer with effect from 30 April 2015. His termination arrangements were consistent with the approved Remuneration Policy. Further details are provided at appropriate places throughout the Annual Remuneration Report.

The Committee recommended to the Board a potential CEO remuneration package, as the Group searched for a replacement CEO following Matt Davies' resignation and, ultimately, approved the package offered to his successor, Jill McDonald.

The Committee also approved the addition of malus and clawback provisions within the FY16 Executive Bonus and Deferred Bonus schemes and, as mentioned above, approved the introduction of clawback provisions into the new PSP rules, alongside existing malus provisions. In each case, these provisions give the Committee the ability to reduce awards prior to vesting or require repayment of awards that have vested or been paid in certain circumstances.

Concluding remarks

At the forthcoming AGM, shareholders will be provided with two separate votes relating to remuneration matters:

1. Vote on the 2015 Annual Report on Remuneration in line with the Regulations; this is an advisory vote; and
2. Approval of the new rules of the Halfords' PSP following the expiry of the current PSP Scheme.

I hope that you will find the report clear, transparent and informative. The Committee has sought to set a remuneration environment that strongly aligns the commercial direction of the Group with the interests of shareholders, whilst reflecting best practice developments and market trends. I look forward to your support at the Company's AGM.

Yours faithfully