Dear shareholder,

FY14 has been an encouraging year for Halfords. Matt Davies, our CEO appointed in 2012, announced the details of Group's strategy to deliver on our vision to Help and Inspire our Customers with their Life on the Move in May 2013. The strategy is described elsewhere in this document but the key aim is to deliver a strong and sustainable business. For the Remuneration Committee this has therefore been a year of ensuring that we have the right talent, processes, structure and incentives in place to ensure we deliver the new strategy.

Performance measures

As indicated in our last report, in the summer of 2013 the Committee undertook a review of performance measures for the Performance Share Plan ("PSP") to ensure that they aligned Executive Directors' interests with the delivery of our strategy. As the strategic focus of the business is to put in place the foundations necessary to deliver a strong and sustainable business, the Committee determined that Total Shareholder Return and Earnings Per Share were no longer the most suitable measures.

Following consultation with shareholders in the first half of the year, the Committee determined that PSP awards granted from 2013 onwards would be based on growth in the Group's revenue (25%) and growth in the Group's EBITDA (75%). The vesting of awards will also be subject to meeting a net debt underpin to ensure that debt remains at appropriate levels.

For 2013/14, the annual bonus was based 75% on PBT, and 25% on the delivery of key strategic objectives which the Committee believed were crucial to the delivery of our strategy, and which it believes will lead to the creation of shareholder value. For 2014/15, the Committee determined that the strategic objectives should remain linked to the delivery of the Company's vision but that the balance between financial and strategic targets should be amended as the strategy increasingly focuses on profitability. Consequently the Committee approved a FY15 bonus based 80% on PBT and 20% on strategic goals.

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Remuneration policy

Our focus on the appropriate remuneration policies for Halfords has also had to take account of the wide ranging market discussions over the last few years around Executive Director remuneration arrangements, and the new remuneration disclosure requirements which have been introduced from 1 October 2013. The legislation has introduced the concept of a binding vote for the Remuneration Policy Report and an advisory vote for the Annual Remuneration Report.

We have considered all the regulations carefully, and focused on our duty as a Committee to ensure that our remuneration policy for Executive Directors supports the strategic aims of the business, without taking unnecessary risks, and enables us to recruit, motivate and retain executives of a high calibre, whist at the same time being consistent with the remuneration policies for our c.12,000 colleagues. Our Remuneration Policy Report is broadly in line with previously reported policies.

The Annual Remuneration Report reports on how our policy has been applied during the financial year to 28 March 2014 and also to the date of this report.

New company's share option scheme ("csos") and save as you earn scheme ("saye")

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The Committee considers that encouraging colleagues to own shares in our business helps to motivate and retain colleagues, and encourages them to think like an owner in their dealings with customers and colleagues alike. Colleague share ownership is an important part of making Halfords a great place to work and creating stores that are a great place to shop. The current CSOS and SAYE expire in 2014, and therefore the Committee has considered and approved new rules for these schemes which will be placed before members for their approval at the Company's Annual General Meeting on 29 July 2014. Executive Directors will not be invited to participate in the CSOS.

Remuneration received in respect of 2013/14

The Remuneration Committee approved an average 1.5% salary increase in October 2013 for all colleagues and Executive Directors. Executive Directors earned bonuses of 97.5% of their maximum opportunity. The Committee determined that this level of bonus was appropriate, reflecting the strong PBT result and compelling performance against key strategic objectives during the year, see Annual Remuneration Report for more details. PSP awards granted in 2011 will lapse in 2014 as the EPS and TSR targets were not met.

Priorities for 2014/15

The priorities for the Committee in the forthcoming year remain to ensure that the Company's Remuneration Policy supports the delivery and ongoing development of the strategy, and the focus on the long-term success of the business.

In summary, the Committee has dealt with a number of changes over the last year both specific to the Company and in response to Government and shareholder consultations and is committed to ensuring that the Company's remuneration arrangements are designed to drive sustained shareholder value, and that proper levels of transparency are maintained.

Yours faithfully,

Claudia Arney
Chairman of the Remuneration Committee
21 May 2014

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