Structure and content of the Remuneration Report

This Remuneration Report has been prepared in accordance with the provisions of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Group (Accounts and Reports)(Amendment) Regulations 2013 (the "Regulations"). This Report meets the requirements of the UK Listing Rules and the Disclosure Guidance and Transparency Rules.

The information set out below represents auditable disclosures referred to in the Auditor's Report, as specified by the UK Listing Authority and the Regulations.

Committee Composition

During the year, the Committee comprised:

• Claudia Arney (Chair)
• Dennis Millard
• David Adams
• Helen Jones

There were five Committee meetings held during the year, attended by all members; details are shown in the table in the Corporate Governance Report. In addition three further unscheduled meetings were called to discuss and approve the exit remuneration arrangements of Jill McDonald and Jonny Mason, and the remuneration package of Graham Stapleton, as new Chief Executive Officer. These additional meetings were quorate and all Committee members received the relevant papers and provided the required approval. The Chairman of the Remuneration Committee reported to the Board on the key issues discussed. A number of informal discussions were also held between the Committee Chairman and Committee members throughout the year as the need arose.

All members are considered to be independent for the purposes of the UK Corporate Governance Code. The Company Secretary acts as secretary to the Committee.

Activities during the Year

During the year, the Committee has

• discussed feedback received from shareholder bodies on the Directors' Remuneration Policy which was approved at the Annual General Meeting in July 2017;
• reviewed and approved the Directors' Remuneration Report in the FY17 Annual Report and Accounts;
• discussed and reviewed attainment against the performance conditions for the Performance Share Plan ("PSP") and Company Share Option Scheme ("CSOS") due to vest during the period;
• discussed and approved FY18 executive bonus payments;
• discussed and approved both financial and strategic annual bonus metrics and targets;
• approved grants under the Performance Share Plan, Company Share Option Scheme (to senior managers below Board) and the Sharesave Scheme;
• discussed and approved the introduction of the Restricted Share Plan ("RSP") (to senior managers below Board);
• discussed outline of share scheme approvals across all discretionary and all employee share plans, and approved grants under the Performance Share Plan, Restricted Share Plan (to senior managers below Board) and the Save As You Earn (Sharesave) Scheme;
• reviewed and approved the updated plan rules for the Deferred Bonus Plan, Performance Share Plan, Save As You Earn (Sharesave) Scheme and Company Share Option Scheme;
• reviewed the Terms of Reference of the Committee;
• reviewed the mechanics and assets of the Employee Benefit Trust and hedging arrangements;
• discussed and recommended, to the Halfords Group plc Board, the terms of the remuneration package for the new Chief Executive Officer ("CEO"), the temporary increase in the remuneration for the Chief Financial Officer as interim CEO and the Non-Executive Directors' fees;
• reviewed the Executive Remuneration Policy; and
• reviewed and approved appointment of remuneration advisors.

Advisors and Other Attendees

During the year, the Committee has been supported by Jonathan Crookall, People Director, and Tim O'Gorman, Company Secretary. The Chief Executive Officer and Chief Financial Officer also attend Committee meetings on occasion, at the request of the Committee; they are never present when their own remuneration is discussed. In carrying out its responsibilities, the Committee is authorised to obtain the advice of external independent remuneration consultants and is solely responsible for their appointment, retention and termination. During the year, the Committee has taken advice from Deloitte LLP ("Deloitte"), which advised on performance measures for the PSP, remuneration reporting and other remuneration matters.Deloitte also provided unrelated tax advice during the year. Total fees paid to Deloitte were £88,300, charged on a time and materials basis.

Deloitte is a founding member of the Remuneration Consultants Group and adheres to the Remuneration Consultants Group Code of Conduct when providing services. The Committee considers Deloitte's advice independent and impartial, and is also satisfied that the Deloitte Engagement Partner and team, do not have connections with the Company that might impair their independence. The Committee considered the potential for conflicts of interest and judged that there were appropriate safeguards against such conflicts.

Willis Towers Watson also provided the Committee with executive salary market data. Willis Towers Watson is also a signatory of the Remuneration Consultants Group Code of Conduct. Fees paid to Willis Towers Watson for this advice were £4,041. Willis Towers Watson also provide insurance broking services and employee benefits services to the Group.

Shareholder Dialogue

The voting outcome from the 2017 Annual General Meeting reflected very strong individual and institutional shareholder support for both our Directors' Remuneration Report and our new Directors' Remuneration Policy (the "Policy"). We consulted extensively with shareholders prior to introducing the new Policy and we would like to thank shareholders for their time and constructive feedback.

We continue to be mindful of the views of our shareholders and other stakeholders and are open to discussion with shareholders on any issue related to executive remuneration. In the event of a substantial vote against a resolution in relation to Directors' remuneration, we would seek to understand the reasons for any such vote, determine appropriate actions and detail any such actions in response to it in the Directors' Remuneration Report.

The following table sets out the votes cast at the 2017 AGM in respect of the previous Directors' Remuneration Report and Directors' Remuneration Policy.

* 1.04% votes were withheld in relation to this resolution.

† 0.27% votes were withheld in relation to this resolution.

How the Remuneration Policy was Implemented in FY18– Executive Directors

Single remuneration figure (audited)

1. Graham Stapleton was appointed on 15 January 2018. To compensate Graham for remuneration forfeited when leaving his previous employer, Dixons Carphone plc, he will receive the following: a compensation bonus equal to £695,617 in July 2018 (the first £100,000 of which will be satisfied by the issue and allotment of shares and the balance as cash); a replacement cash bonus of £269,026 in July 2018; and he will be granted an award of 185,872 shares equating to £588,694 in January 2021.
2. Graham Stapleton's bonus was prorated from date of joining on 15 January 2018 to 30 March 2018. One third of this bonus was deferred into the Deferred Bonus Plan, this will be paid on 31 May 2018.
3. Jonny Mason was interim Chief Executive Officer from September 2017 until Graham Stapleton joined in January 2018. Jonny's salary increased from the current level of £364,140 to £500,000 p.a. to which bonus and pension were applied for that period.
4. Jonny Mason announced his resignation as Chief Financial Officer on 27 March 2018. Jonny will be eligible to receive only the cash element of his annual bonus for the year ended 30 March 2018.
5. Jill McDonald left the business in September 2017. She did not receive a bonus for the period.
6. No Executive Director received any vesting under the PSP granted in 2015. Jonny Mason was granted a PSP award in 2015, however, this lapsed upon his resignation. The following table shows the history of PSP award vesting over the last five years.

FY18 Annual Bonus

The annual bonuses for FY18 for the Executive Directors were based as follows:

The PBT performance for FY18 was £71.6m which generated 40.1% achievement of the profit target.

The table below sets out the key strategic initiatives which made up the remainder of the annual bonus for the Chief Financial Officer, along with performance and resulting out-turn against each measure.

The annual bonus out-turn was reviewed in the context of the performance of the underlying business during the year and delivery against strategy, with the final out-turn set out below.

1. Graham Stapleton was appointed on 15 January 2018 and his bonus was prorated accordingly.
2. Jonny Mason resigned from his role as Chief Financial Officer, as announced on 27 March 2018. Jonny will be eligible to receive only the cash element of his annual bonus for the year ended 30 March 2018. Jonny's bonus has been based on the higher salary for the period that he acted as interim Chief Executive Officer.

Benefits

Benefits include payments made in relation to life assurance, private health insurance and the provision of a fully expensed company car or equivalent cash allowance or chauffeur and fuel card.

Pension

Pension payments represent contributions made either to defined contribution pension schemes or as a cash allowance. The CEO and CFO both received a contribution of 15% of base salary.

Appointment terms for Graham Stapleton

Regular package

Graham was appointed as Chief Executive Officer ("CEO") on an annual basic salary of £535,000. This is considered to be reasonable in light of his retail, digital, services and category credentials. Graham will receive a pension contribution of 15% of basic salary and standard benefits, in line with our Remuneration Policy (the "Policy").

Graham's maximum annual bonus opportunity is 150% of salary, in line with Policy, and this was prorated for the period of 2017/18 that he served. One-third of his annual bonus was deferred into Halfords shares for a period of three years. In line with our Policy, Graham has a maximum opportunity under the PSP of 200% of salary, and an award at this level was made under the 2017/18 PSP cycle upon appointment.

Buy-out arrangements

Graham received a buy-out of 185,872 shares to compensate for awards forfeited when leaving his previous employer, Dixons Carphone plc, which will vest in January 2021, subject to him not having resigned before that date. This matches the release profile of the forfeited award.

In addition, a contribution will be made towards the Dixons Carphone plc annual bonus he forfeited upon leaving, prorated for the portion of the year he worked there. This will be paid following the Dixons Carphone plc year end, and will be based upon the actual out-turn as disclosed in their Report and Accounts. The Committee considers that this treatment is appropriate as it directly matches what he would have received had he remained at this previous employer.

An additional payment will be made to Graham to compensate him for the loss of a cash entitlement of £695,617 under the 2013 Carphone Warehouse scheme. This payment is subject to clawback provisions, should he resign before July 2021.

Graham will be eligible for reimbursement of certain capped costs of up to £15,000 should he relocate within two years of joining.

Leaving Arrangements for Jonny Mason

Jonny Mason resigned from his role as Chief Financial Officer ("CFO"), as announced on 27 March 2018, to take up a position of Group Finance Director at Dixons Carphone plc. Jonny will remain as CFO until the end of his notice period in September 2018 and will continue to receive his normal salary and associated benefits, until his leaving date. Jonny will receive the cash element of his annual bonus for the year ended 30 March 2018, but all annual bonus deferred share awards will lapse. Jonny's long-term incentive arrangements in respect of his awards under the PSP and SAYE schemes will also lapse.

Leaving Arrangements for Jill McDonald

In May 2017 Jill McDonald resigned as CEO in order to take up a position at Marks and Spencer plc and she subsequently left the business in September 2017. Jill did not receive a bonus in respect of 2017/18 and all of her unvested DBP and PSP awards lapsed in full upon her leaving date.

Upon her appointment in 2015, it was agreed that awards with a total value £529,819 would be made as compensation for awards forfeited when leaving her previous employer. The final two tranches of this award, which were due to vest in 2018 and 2019 and had a value at her leaving date of £130,016, have lapsed in full (previous tranches has already vested prior to her departure).

Share Awards Granted During the Year (Audited)

Performance Share Plan

During the period we approved awards to the Executive Directors under the Performance Share Plan as follows:

1. These awards were based on 200% of salary.
2. Based on the mid-market price on the date of the awards of £3.58 on 24 January 2018 for Graham Stapleton's award and £3.19 on 13 September 2017 for Jonny Mason's award.
3. Graham Stapleton was appointed on 15 January 2018 and became eligible to receive a PSP award following his appointment, as set out in the announcement made by the Company on 13 September 2017.

Performance Conditions

Awards granted in FY18 are subject to the following performance conditions:

In addition to achieving these targets, the vesting of awards will be subject to meeting an underpin of net debt to EBITDA ratio no greater than 1.5× throughout the three-year performance period. This will ensure that net debt remains at appropriate levels and management is not incentivised to increase net debt levels to meet targets; the focus is to maximise the return on cash investments. The Award shares that vest will become exercisable in August 2020. Fifty percent of the shares that vest will be subject to a one-year holding period with the remaining 50% subject to a two-year holding period.

Deferred Bonus Plan

Awards granted during the year:

1. Interim and final dividends have been reinvested in shares at prices between £3.171 and £3.522.

On 30 June 2017, one-third of Jonny Mason's FY17 bonus was deferred into shares for a period of three years. Following the announcement made on 27 March 2018 regarding Jonny's resignation, these awards will lapse.

Outstanding Share Awards (Audited)

Performance Share Plan ("PSP")

The following summarises outstanding awards under the PSP:

1. Interim and final dividends have been reinvested in shares at prices between £3.171 and £3.522.
2. Graham Stapleton was appointed on 15 January 2018.
3. As announced on 27 March 2018, Jonny's outstanding PSP awards will lapse upon him leaving the business in September 2018.
4. Jill McDonald left the business in September 2017, to take up a senior role at Marks and Spencer plc. Jill's unvested PSP awards lapsed in full upon her leaving.

Deferred Bonus Plan ("DPB")

1. Interim and final dividends have been reinvested in shares at prices between £3.171 and £3.522.

As announced on 27 March 2018, and as detailed above, Jonny Mason's outstanding DBP award will lapse upon him leaving the business in September 2018.

Save As You Earn ("SAYE")

As announced on 27 March 2018, Jonny Mason's outstanding SAYE award will lapse upon him leaving the business in September 2018.

CEO Pay Compared to Performance

The following graph shows the TSR performance of the Company since April 2009, against the FTSE 350 General Retailers (which was chosen because it represents a broad equity market index of which the Company is a constituent).

The following table summarises the CEO single figure for the past nine years and outlines the proportion of annual bonus paid as a percentage of the maximum opportunity and the proportion of PSP awards vesting as a percentage of the maximum opportunity. The annual bonus is shown based on the year to which performance related and the PSP is shown for the last year of the performance period.

1. Graham Stapleton was appointed in January 2018.
2. Jonny Mason was appointed as interim Chief Executive Officer for the period from September 2017 to the date of Graham Stapleton joining in January 2018, and the figures represent prorated amounts of his bonus and overall remuneration for FY18.
3. Jill McDonald was appointed in May 2015 and resigned as CEO in September 2017.
4. Matt Davies was appointed in October 2012 and resigned as CEO in April 2015.
5. David Wild resigned as CEO in July 2012.

Shareholding Guidelines

The Committee believes that it is important that Executive Directors' interests are aligned with those of our shareholders. Executive Directors are encouraged to acquire and retain shares with a value equal to 200% of their annual base salary. Executive Directors are expected to retain 75% of any post-tax shares that vest under any share incentive plans until this shareholding guideline is met.

* This being the last trading day of the Financial Year ended 30 March 2018.

These figures include those of their spouse or civil partner and infant children, or stepchildren, as required by Section 822 of the Companies Act 2006. There was no change in these beneficial interests between 30 March 2018 and 22 May 2018.

Outside Appointments

Halfords recognises that its Executive Directors may be invited to become non-executive directors of other companies. Such non-executive duties can broaden experience and knowledge which can benefit Halfords. Subject to approval by the Board, Executive Directors are allowed to accept non-executive appointments and retain the fees received, provided that these appointments are not likely to lead to conflicts of interest. During the year, between 1 April 2017 and 29 September 2017, Jill McDonald received fees of £43,500 as a non-executive director of Inter Continental Hotels Group plc.

Loss of Office Payments (Audited)

No loss of office payment was made to a Director during the year.

Payments to Former Directors (Audited)

No payments were made to former Directors during the year.

How the Remuneration Policy was Implemented in FY18 – Non-Executive Directors

Non-Executive Director single figure comparison (audited)

Non-Executive Director Shareholding

These figures include those of their spouses, civil partners and infant children, or stepchildren, as required by Section 822 of the Companies Act 2006. There was no change in these beneficial interests between 30 March 2018 and 22 May 2018.

Non-Executive Directors do not have a shareholding guideline but they are encouraged to buy shares in the Company.

How the Remuneration Policy will be Implemented for FY19 — Executive Directors

Salary

Current salaries for the Executive Directors are as follows:

Salaries will next be reviewed with effect from 1 October 2018.

Annual Bonus

The annual bonus opportunity for 2018/2019 will be as follows:

The annual bonus will continue to be based 80% on Profit Before Tax ("PBT") performance and 20% based on performance against strategic objectives. PBT targets range from 95% of budget, where payment is 15% to 110% of budget for maximum payment. The Committee reviews the goals included in the strategic objectives portion of the bonus to ensure that they remain appropriate. These objectives include metrics in relation to customer service, colleague engagement, digital and service sales growth.

In determining whether any bonuses are payable, the Committee retains the discretionary authority to increase or decrease the bonus to ensure that the level of bonus paid is appropriate in the context of performance. Bonus targets are released retrospectively as they are considered by the Board to be commercially sensitive as they could reveal information about Halfords' business plan and budgeting process to competitors which could be damaging to Halfords' business interests and therefore to shareholders.

Performance Share Plan ("PSP")

As outlined in the Remuneration Committee Chair's letter, it is important that the performance targets attached to the FY19 LTIP awards are fully aligned with Halfords' strategy over the next three years. As we set out elsewhere in the annual report, it is anticipated that our strategic review will be finalised and the outcome communicated to the market in September 2018. Immediately following this, the Committee will consider and set the performance targets, which is currently expected to be in September 2018. Full details of the targets will be disclosed to shareholders at that time, and also in next year's Remuneration Report.

How the Remuneration Policy will be Implemented for FY19 — Non-Executive Directors

Fees

The fees of Non-Executive Directors are normally reviewed every two years. Any changes to these fees will be approved by the Board as a whole following a recommendation from the Chief Executive Officer. In March 2018, the fees of Non-Executive Directors were reviewed, as the previous review was in April 2016.

Following this review, the basic fee of the Chairman and the Non-Executive Directors was increased by 4% with effect from 1 April 2018. Current fees for Non-Executive Directors are as follows:

Change in Remuneration of Chief Executive Officer Compared to Group Employees

The table below sets out the increase in total remuneration of the Chief Executive Officer and that of all colleagues.

1. The budget across the business was 3% and the application awarded to all colleagues was 2% with an additional 1% merit pot.
2. Based on all colleagues in receipt of bonus in both years.

Gender Pay Gap Report

Details of the Group's Gender Pay Gap Report for 5 April 2017 can be found in the CSR Report.

Relative Importance of Pay

The Committee is also aware of shareholders' views on remuneration and its relationship to other cash disbursements. The following table shows the relationship between the Company's financial performance, payments made to shareholders, payments made to tax authorities and expenditure on payroll.

1. Based on the single figure calculation, not all of which is included within wages and salary costs.