REG - Hornby PLC - Annual Financial Report
16/06/2022 07:01
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RNS Number : 0292P Hornby PLC 16 June 2022
16 June 2022
HORNBY PLC
HORNBY ANNOUNCES ANNUAL RESULTS
Hornby Plc ("Hornby" or the "Group"), the international models and
collectibles group, today announces its results for the year ended 31 March
2022
.
Highlights 2022
"Our sales increase despite difficulties in the supply chain. The company has
ambitious plans for the future, it is an exciting time to be at Hornby."
(Lyndon Davies, Executive Chairman)
Revenue (2021: £48.5m)
£53.7m
Operating profit (2021: £0.6m)
£1.0m
Reported profit before taxation (2021: £0.3m)
£0.6m
Underlying1 profit before taxation (2021: £1.5m)
£3.2m
Reported profit after taxation (2021: £1.4m)
£1.5m
Reported profit per share (2021: 0.82p)
0.89p
Underlying2 basic profit per share (2021: 1.36p)
2.18p
Net cash (2021: 4.7m) (see Note 29)
£3.8m
1 Underlying profit before taxation is before amortisation of
intangibles (brand names and customer lists), and net unrealised foreign
exchange movements on intercompany loans, exceptional items and shared-based
payments.
2 Underlying basic profit per share is before amortisation of
intangibles (brand names and customer lists), and net unrealised foreign
exchange movements on intercompany loans, exceptional items and shared-based
payments (see note 7).
Hornby Plc
Lyndon Davies, CEO
Kirstie Gould, CFO
01843 233500
Web: www.hornby.plc.uk (http://www.hornby.plc.uk/)
Liberum Capital Limited (Nominated Advisor & Broker)
Andrew Godber
Edward Thomas
020 3100 2222
Executive Chairman Report
Introduction
Revenue for the year increase to £53.7 million (2021: £48.5million), up over
10% from the previous year. Underlying profit before tax was £3.2 million
(2021: £1.5 million). Reported profit before tax was £0.6 million (2021:
£0.3 million). We continue to make good progress.
Sales continue on an upward trend, though delays in shipping and in the supply
chain have held them back as well as increasing our costs. We were
particularly impacted in the case of Hornby and Scalextric sets, many of which
arrived after the Christmas season.
The points I will cover in my statements are as follows:
Key Performance Indicators (KPIs)
Variable costs, fixed costs, gross profit and operating profit.
Key Performance Indicator 1: Costs
How and why our cost levels are what they are.
Key Performance Indicator 2: Capital Expenditure Productivity
Gross profit in relation to essential capital expenditure.
Key Performance Indicator 3: Inventory
The importance of the inventory balance in relation to sales.
Key Performance Indicator 4: The Digital Change
We are behind schedule, but we are gaining momentum.
Supply Chain
The issues we faced and our medium-term plan.
Brexit, Covid and World Events
Where Hornby is in this context.
Staff Profit Share Scheme
Return to profit means that our employees benefit.
New CEO
Current Trading & Outlook
Governance
Key Performance Indicators (KPIs)
In 2022, we again generated enough gross profit to cover our fixed costs. By
improving our KPI's we will ensure that this is sustainable and growing.
2022 (£'000) 2021 (£'000) 2020 (£'000) 2019 (£'000) 2018 (£'000)
Sales 53,739 48,549 37,842 32,759 35,651
Variable Costs (28,023) (26,795) (21,140) (19,348) (21,900)
Gross Profit 25,716 21,754 16,702 13,411 13,751
Fixed Costs (24,632) (20,976) (19,444) (18,041) (21,309)
Operating Profit/ (Loss) 1,085 778 (2,742) (4,630) (7,578)
Underlying Operating Profit/(Loss) 3,246 1,456 (3,241) (4,401) (7,574)
KPI No. 1 Costs
Variable Costs
These have reduced further in proportion to sales. Our long-term target is for
these to be below 40% of sales, and there was a point during this financial
year when it appeared that we were closing in on 50%.
Further automation took place at the warehouse with the introduction of robots
to improve our efficiency in fulfilling orders and in recent months we have
increased our operating hours in order to despatch products more quickly.
This table shows our variable costs as a percentage of sales since 2001. After
a period of all-time high variable costs, we are now getting closer to our
all-time low.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sales 64.736 63.372 64.447 57.395 51.557 58.135 55.757 47.420 35.651 32.759 37.842 48.549 53.738
Variable Costs 32.587 34.095 33.290 32.917 28.230 30.961 33.992 29.270 21.900 19.348 21.140 26.800 28.026
% 50% 54% 52% 57% 55% 53% 61% 62% 61% 59% 56% 55% 52%
Fixed Costs
In the last annual report, I reported that our current fixed cost base could
service a business bringing in £50 million to £55 million of sales. Our
fixed costs have now risen, as they must, if they are to support sales of £60
million to £70 million. These increases in fixed costs are in several parts
of the business, but mainly in our Digital Team and the support that they
require. This started to bring rewards in the second half of the 2021/22
financial year.
We are investing today for the future. I expect this percentage to be closer
to 40% for the 2022/23 financial year
This table shows how our fixed costs have varied as a percentage of sales
since 2001:
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sales 64.736 63.372 64.447 57.395 51.557 58.135 55.757 47.420 35.651 32.759 37.842 48.549 53.738
Fixed Costs 24.547 23.867 25.361 24.591 23.682 25.550 30.565 24.393 20.892 17.815 19.643 21.1 24.4
% 37.9% 37.7% 39.4% 42.8% 45.9% 43.9% 54.8% 51.4% 58.6% 54.4% 51.9% 43.5% 45.4%
KPI No.2: Capital Expenditure Productivity
In this financial year we spent £3,348,000 (2021: £4,124,000) on Product
Tooling.
Our "Capex Productivity" has declined in 2021/22, because products in which we
have invested, that we would have expected to be selling in the 2021/22
financial year arrived late and so the sales have not happened. This is
disappointing, but those sales are not lost; they will just occur in future
years.
A good example of how we are intending to increase our Capex Productivity is
to discuss our Pocher brand, a range of highly detailed models. Four years
ago, annual sales in this category were only £1,500. They have now risen to
more than £1 million pounds per annum and we anticipate this doubling during
2022/23. To achieve this, we have been layering the development of consecutive
products. Work started on the highly anticipated Lotus 72 in 2020. An
unannounced item is in design for release in 2023 which will triple our Pocher
sales. We then have further releases of both of these products in alternative
liveries that will require little additional capex but will provide
significant profits. If you also factor in our move to more direct sales
through our digital channels, it begins to make the numbers look quite
exciting in this category alone.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Gross Profit 32.10 29.28 31.16 24.48 23.33 27.17 21.77 18.15 13.75 13.41 16.70 21.80 25.70
Capital Expenditure (Year Prior) 4.01 3.69 3.76 3.33 3.58 3.68 3.54 2.83 1.70 1.59 1.83 2.40 4.10
£ of Capital Expenditure £8.00 £7.94 £8.30 £7.34 £6.52 £7.38 £6.14 £6.42 £8.09 £8.43 £9.15 £9.08 £6.27
KPI No. 3: Inventory
Inventory has increased in the period due to the acquisition of LCD
Enterprises Limited but is lower than I expected considering the late receipt
of stock over the Christmas period.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sales 64.736 63.372 64.447 57.395 51.557 58.135 55.757 47.420 35.651 32.759 37.842 48.549 53.738
Inventory 12.27 16.21 17.87 13.64 13.17 12.47 13.64 9.68 10.03 10.86 14.2 15.2 16.5
% 19% 26% 28% 24% 26% 21% 24% 20% 28% 33% 38% 31% 31%
KPI No. 4: The Digital Change
I had believed that at the beginning of 2020 we would begin the move to
increase direct sales to consumers through our digital channels. Covid arrived
on our shores, however, so instead much of my time was spent in just trying to
hold this business together.
This slow transformation to digital was disappointing, but I wanted to
prioritise building the engine, interface, and pipework that would be required
to make Digital work for us in the long run. Like a Hornby layout, this will
now evolve, develop and change constantly.
We entered 2021 bringing on stream twenty-seven websites in place of the one
website we previously operated. This took until mid-year to settle down and
only then did we begin to put the Digital Team together, along with our
partners that were necessary to support this change. This structure started to
come together in our third quarter and we are now starting to see the real
benefits of this investment.
This new KPI will report where we are and what our ambitions are. Therefore,
to be transparent it is better to report this performance in terms of sales
value. Our short-term ambition is to at least double those sales over the next
two financial years.
Q1 Q2 Q3 Q4
2018/19 £301,100 £479,767 £582,434 £362,688
2019/20 £426,382 £497,494 £731,252 £638,260
2020/21 £1,222,578 £1,169,936 £1,574,834 £976,711
2021/22 £849,782 £1,038,172 £2,128,918 £1,687,916
Sales in Quarter 3 over the Christmas period will always be heavily loaded,
but as part of the digital change we will move to announcing more products
outside of the January window, which has always been the traditional time in
our industry. The change will vary by brand; for example Corgi has already
started staggering releases and Airfix will follow in 2023. Hornby will also
announce certain products outside of the January window next year.
Supply Chain
These affected us as follows during this period.
· Container Availability - previously 2 to 3 days, but recently we
have been experiencing 2 to 3 weeks.
· Port Closures - Covid shut down the Yantian port for 2 to 3 weeks
in May/June 2021, with continual sporadic outbreaks.
· Container Ship Availability - diversion of pre-booked ships due
to above, rising demand and a lack of capacity.
· Shipping Times - previously 30 to 35 days total transit time, we
experienced over 70 days during the year.
· Container shipping costs - previously £3,000 for a 40-foot
container, but we experienced prices as high as £17,000.
· Power shortages to factories in September/October 2021 - this had
the potential to severely impact Christmas sales.
· Labour shortages caused by restrictions in movement - making it
harder to find the required capacity.
Over the last 12 months we have been planning more production outside of our
main China base. This involves laying down duplicate tooling on some evergreen
products in other countries. This should not be seen as a movement out of
China, but rather an opportunity to work with new manufacturers on our
extensive range of existing products; not just to supply ourselves, but also
to build new demand in their local markets.
Brexit, Covid and World Events
Brexit continued to affect us in the first quarter of the financial year, but
things settled down, and there are now very few problems arising. With most of
the world back to normality, Covid now impacts us most in the supply chain.
Recent events in Ukraine have not impacted us so far, although there are some
specialist materials we are watching closely.
Staff Profit Share Scheme
I am delighted to announce that another year of profitability means that the
second part of the profit share scheme kicks in with 15% of the operating
profit shared with our staff as we move forward. I am grateful to our
shareholders for supporting this scheme.
Once again I thank our employees for all their enthusiasm and backing over the
last year. They have supported me throughout.
New CEO
In January we announced that we had started a search for a new CEO. We will
take our time to ensure that we find the right person to lead the company over
the next decade.
Current Trading & Outlook
Sales for April/May 2022 have been in line with expectations, but it is only
when we move into our busier second and third quarters that we can be certain
that the supply chain will be able to support our demand.
We have a strong balance sheet with net cash of £3,800,000 as at 31 March
2022 and we appreciate the strong support from our customers and
shareholders.
Governance
Good corporate governance provides a framework for delivering the objectives
of the Company and is fundamental to a sound decision making process. It
supports the executive management to control and achieve the maximum
performance of the Company. I am pleased to report that the Board believes it
applies the ten principles of the Quoted Companies Alliance Code ("QCA"). In
the current uncertain economic and political period, management of risks
remains a key focus for the Board. The Board has in place a robust process for
identifying the major risks facing the business and for developing appropriate
polices to manage those risks. The Board reviews those risks on an annual
basis carrying out regular reviews and annual updates on our compliance with
the QCA Code.
We will hold our Annual General Meeting on 14 September 2022 and will provide
further details nearer the time.
Lyndon Davies
Executive Chairman
15 June 2022
Section 172 Statement and Stakeholder Engagement
As required by Section 172 of the Companies Act, a director of a company must
act in the way he or she considers, in good faith, would likely promote the
success of the company for the benefit of the shareholders. In doing so, the
director must have regard, amongst other matters, to the following issues:
• likely consequences of any decisions in the long term;
• interests of the company's employees;
• need to foster the company's business relationships with
suppliers/customers and others;
• impact of the company's operations on the community and
environment;
• the company's reputation for high standards of business
conduct; and
• need to act fairly between members of the company.
Culture
Our values and leadership behaviours are a vital part of our culture to ensure
that through good governance, our conduct and decision making we do the right
thing for the business and our stakeholders. The Board acknowledges that every
decision it makes will not necessarily result in a positive short-term outcome
for all of the Group's stakeholders. We believe in creating solid foundations
for the future, so there is a balance between short term success and
longer-term prosperity.
Shareholders
The Board values the views of our shareholders and recognises their interest
in our strategy and performance. We endeavour to update shareholders on the
Board's expectations for the outlook of the business and as and when this
changes. As much as possible, we try to provide information that is relevant
to our shareholders on our corporate website; in our annual report and
accounts; and through regulatory news announcements throughout the year.
We also believe in knowing and understanding our shareholders. We encourage
our shareholders to attend our Annual General Meetings (AGMs) and we welcome
questions from them. At our AGMs, we provide the platform for robust
discussions with our shareholders, during which the participants, both
Directors and shareholders alike, are engaged with the proceedings. We believe
this reflects the connection to the business which we have cultivated and
continue to cultivate in our shareholders. In addition, the review of investor
relations activity and analysis of our shareholder register is a standing item
at each Board meeting. Our corporate website http://www.hornby.plc.uk/
(http://www.hornby.plc.uk/) also includes the outcomes of shareholder votes
cast at the AGMs, as well as Annual and Interim Reports from previous years.
The primary mechanism for engaging with our shareholders is through the
Company's AGM and also through the publication of the Group's financial
results for the half year and full year. Further information is disclosed in
the Corporate Governance Statement on pages 13 to 16. The Board reviews
feedback received from institutional investors following publication of our
financial results. At the AGM we encourage our shareholders to ask questions
and participate in debate about our performance and products.
Customers
Understanding our customers and what matters to them is key to the success of
Hornby. We listen and talk to them using all of the tools at our disposal. Our
customers operate in a global, but niche market, we interact with them either
directly, or via our retailers, wholesalers and distributors.
Suppliers
We have long-standing close relationships with our suppliers overseas, who we
would normally visit on a regular basis. During the pandemic we have
communicated via video conferencing, working together with a common goal,
giving them visibility, sharing our plans allowing them to plan their
factories capacity well into the future. We are planning to reintroduce
regular visits this year as the COVID restrictions in China are lifted.
Employees
A key to the Group's renewed success has been its engaged workforce. The
Group's Directors, alongside our executive management teams, work hard to
provide a positive working environment. As a well-respected local employer
within each of the communities we operate, it is important for us to provide
opportunities for all of our staff to allow them to grow and achieve their
potential. More detail can be found in Note 25.
Community and environment
We are proud to employ people in the communities that we operate. The strength
of our brands allows us to promote both local and national charitable causes.
We have product standards, policies and guidance covering the products we make
to help ensure that they are manufactured safely, legally and to the required
quality standards.
Operating and Financial Review of the Year
Financial Review
2022 2021
Revenue £53.7m £48.5m
Gross profit £25.7m £21.8m
Gross profit margin 47.9% 44.9%
Overheads £24.6m £21.0m
Exceptionals £0.1m £0.2m
Reported profit before tax £0.6m £0.3m
Underlying profit before tax* £3.25m £1.5m
Reported profit after tax £1.5m £1.4m
Basic profit per share 0.93p 0.82p
Underlying basic profit per share* 2.19p 1.36p
Net cash £3.8m £4.7m
Undrawn Facilities £12.6m £14.4m
* Stated before amortisation of intangibles (brands and customer lists), net
unrealised foreign exchange movements on intercompany loans, goodwill
impairments and exceptional items.
Performance on a statutory basis
Consolidated revenue for the year ended 31 March 2022 was £53.7 million, an
increase of 11% compared to the previous year's £48.5 million due to increase
in direct sales and acquisition of the LCD group on 303 July 2021. The revenue
in the second half of the year of £31.9 million was ahead of previous year
which was £27.4 million. Gross profit margin was higher, at 47.9% (2021:
44.9%).
Overheads increased year-on-year by 17% from £21.0 million to £24.6 million
predominantly as a result of planned recruitment of additional staff and
selling related costs linked to higher revenues, especially direct sales. UK
distribution costs were similar to prior year costs despite higher volumes.
Sales and marketing costs increased by £1.0 million year-on-year due to
ongoing investment in direct relationships with our customers and costs
related to running the LCD business. Administration costs were £2.4 million
higher due to the £2.3 million LTIP payment accrual that has gone through the
Statement of Comprehensive Income this year (2021: £0.7 million). This is
detailed further in Note 23. Other operating expenses in the year of £0.03
million (2021: £0.2 million) includes foreign exchange losses and
amortization of brand names.
Exceptional costs totalling £0.01 million (2021: £0.2 million) are
predominantly restructuring costs in the UK, an adjustment on acquisition of
LCD Enterprises Limited both offset by an amortisation adjustment to correct
prior year over amortisation.
Performance on an underlying basis
The underlying profit before taxation is shown to present a clearer view of
the trading performance of the business. Management identified the following
items, whose inclusion in performance distorts underlying trading performance:
shared-based payments and the amortisation of intangibles which result from
historical acquisitions. Additionally, exceptional items including refinance,
relocation and restructuring costs are one off items and therefore have also
been added back in calculating the underlying profit before taxation.
Group
2022 2021
£'000 £'000
Statutory Profit before taxation 583 345
Adjustments:
Amortisation of intangibles - brands 194 227
Share-based payments 2,341 673
Exceptional items:
Restructuring costs 88 136
LCD Acquisition 219 -
Relocation costs 9 75
Amortisation adjustment (177) -
Underlying profit before taxation 3,257 1,456
Segmental analysis
Third party sales by the UK business of £37.7 million increased by 1% in the
year as a result of improvements in the choice of products on offer and a
significant increase in direct sales via the website. The profit before
taxation of £0.5 million compared to £1.0 million last year reflects the
LTIP charge for the year of £2.3 million within administration costs.
Sales by the European businesses of £11.4 million increased by 93% in the
year reflecting the Group's focus on growing these markets through correct
product selection and overcoming the shipping issues we experienced post
Brexit. The profit before tax was £0.8 million compares to £0.5 million loss
last year.
Sales in the US business of £4.6 million decreased by 13%. The trading loss
of £0.7 million compares to £0.3 million loss in last year. We expect sales
to increase in this key market in the longer term and overheads to reduce.
Statement of Financial Position
Property, plant and equipment increased year-on-year by £3.4 million to
£10.1 million as a result of increased expenditure in tooling for new
products and technologies and the acquisition of LCD. Group inventories
increased from £15.1 million to £16.5 million due to the acquisition of LCD
offset by a very strong fourth quarter sales. Trade and other receivables
increased by £1.5 million or 21% largely due the increase in sales compared
to prior year. Trade and other payables are similar to the prior year. Overall
investment in new tooling, new intangible computer software and other capital
expenditure was £4.0 million (2021: £5.0 million).
Dividend
The Group is still in the turnaround phase and there will not be a dividend
payment this year (2021: £nil). The Board continues to keep the dividend
policy under review.
Financing
At 31 March 2022 the UK had a £12 million Asset Based Lending facility with
PNC Credit Limited ("PNC") and a £9 million loan facility with Phoenix Asset
Management Partners. The PNC facility was replaced with a £12 million Asset
Based Lending facility with Secure Trust Bank ("STB") on 21 April 2022.
The facility with STB is a floating facility based on the current asset
position capped at £12 million ends October 2024 and carries a margin of
2.5‐3% over SONIA. The STB Facility has a fixed and floating charge on the
assets of the Group. The Company provides customary operational covenants to
STB on a monthly basis.
The Phoenix Facility is a £9 million facility which attracts interest at a
margin of 5% over SONIA on funds drawn. Undrawn funds attract a
non‐utilisation fee of the higher of 1% or SONIA. This facility is currently
due to expire December 2023.
Borrowings in the year ended 31 March 2022 were £327,000 (2021: nil). This
consist of a CBIL loan with £217,000 outstanding (acquired with LCD) and
£110,000 shareholder loan drawdown.
Net cash at 31 March 2022 was £3.8 million compared with net cash of £4.7
million at 31 March 2021.
Our Key Performance Indicators ('KPIs')
The Directors are of the opinion that the financial KPIs are revenues, gross
margins, underlying profit before tax and earnings per share, the information
for which is available in these financial statements and summarised on the
financial highlights section earlier in this report. We additionally think
that Capex Productivity, Inventory, Digital Change, Variable and Fixed Costs
as percentage of Sales should be monitored. We provide current and historical
analysis in the Executive Chairman Report on pages 3 to 7 and will continue to
report in future Annual Reports. The Board monitors progress against plan on a
regular basis adjusting future objectives annually in line with
current circumstances.
Identification of principal risks and uncertainties
The Board has the primary responsibility for identifying the major risks
facing the Group and developing appropriate policies to manage those risks.
The Board completes an annual risk assessment programme to identify the major
risks and has reviewed and determined any mitigating actions required as set
out below. The risk assessment has been completed in the context of the
overall strategic objectives and the Business Plan of the Group.
Principal risks and uncertainties
Risk Description Impact/Sensitivity Mitigation/Comment
Market competition The Group has competition in the model railway, slot racing, model kits, die The Group performance is impacted by the actions of competitors and changes in In many of our markets the Group still enjoys a strong market position due to
cast and paint markets. Loss of market share to increased competitor activity the wider retail landscape. the continued development of our brands. We will strive to further improve the
or alternative hobbies would have a negative impact on the Group's results. strength of our brands. Production of high-quality products which customers
Failure to evolve and innovate products may lead to brands becoming less want is a key mitigating factor.
relevant in the marketplace.
The Business Plan The Business Plan may not fully achieve the aims of returning the Group to The increase in business scale and reduction of costs and the re-conversion of The Group has developed clear targets and has cost saving contingencies in the
positive cash generation in 2022/23. concession sales currently anticipated is not achieved and the Group does not plan being actioned to put the necessary resources in place to deliver the
achieve sustainable profit and cash generation. aims of the plan.
Hobby market Overall decline in the hobby market could lead to greater levels of Failing interest in traditional hobbies may impact our core Independent and In many of our markets the Group enjoys a strong market position due to the
competition in the medium term, which could have a negative impact on the National retailers and have a consequent impact upon the Group's performance. continued development of our brands. Brands are extremely important in the
Group's results. model sector with market entry costs being prohibitive. In the short-term
there is an opportunity to regain market share lost through previous
underperformance. We have also implemented tiering and only allowing certain
percentage of our goods to go wholesale with balance only being available on
our website.
Exchange rates The Group purchases goods in US Dollars and sells in Pounds Sterling, Significant fluctuations in exchange rates to which the Group is exposed could The Group continues to hedge short-term exposures by establishing forward
Euros and US Dollars and is therefore exposed to exchange rate fluctuations. have a material adverse effect on the Group's future results. In particular currency purchases using fixed rate and participating forward contracts up to
the negative impact on Sterling of Brexit and the continuing uncertainties twelve months ahead. It is deemed impractical to hedge exchange rate movements
could make the US Dollar purchase of its goods more expensive. beyond that period.
In particular the negative impact on sterling of Brexit and the continuing
uncertainties world wide will make the US Dollar purchase of its goods more
expensive.
Supply chain The Group's products are manufactured by artisan labour in China, India and The Group does not have exclusive arrangements with its suppliers and there is The Group is continuing to develop and review its vendor portfolio and has
Vietnam. Risk that capacity is lost which could lead to delays in production. a risk that competition for manufacturing capacity could lead to delays in started diversifying the supplier base. A 26-step critical path analysis tool
introducing new products or servicing existing demand. has been developed to monitor the whole manufacturing process to identify and
deal with issues as they arise. The Group has its own storage facilities in
China where its tooling is secured and managed.
The Group manages the supply chain forecasts continuously and communicates
regularly with suppliers and customers in turn. The Group maintains
significant stock levels in the UK at any time and therefore this allows
additional time to plan for stock output variances from overseas suppliers in
time for the peak season.
Capital allocation New tooling is important to support the production of new products. The risk is that the Group has insufficient capital to fund new tooling or The business plan includes significant capital expenditure to fund suitable
invests ineffectively in the wrong products. products to underpin the implementation of the business plan strategy of the
Group. This process will be underpinned by a robust capital allocation
process aligned to brand strategies and brand delivery targets.
Product compliance The Group's products are subject to compliance with toy safety legislation Failure to comply could lead to a product recall resulting in damage to Robust internal processes and procedures, active monitoring of proposed
around the world. Company and brand reputation along with an adverse impact on the Group's legislation and involvement in policy debate and lobbying of the relevant
results. authorities.
Liquidity Insufficient financing to meet the needs of the business. Without the appropriate level of financing, it would be increasingly difficult The Group has a £12.0 million ABL facility with Secure Trust Bank (STB) and a
to execute the Group's business plans. £9.0 million revolving loan facility with Phoenix Asset Management Partners.
The Group's policy on liquidity risk is to maintain adequate facilities to
meet the future needs of the business.
System and cyber risk The Group continues to invest in the development of its website and ERP This exposes the business to greater risk of financial loss, disruption or The Group has invested significant time and cost in the new website and ERP
systems. damage to the reputation of an organisation from a failure of its information system in the last three years. The Group has dedicated web and ERP teams to
technology systems. monitor and maintain the Group's systems and holds appropriate insurance
policies to minimise material risk. A new website went live in January 2021
which has even higher security than the existing system. We are also working
on upgrading the current ERP system.
Talent and skills Recruitment, development and retention of talented people are the key to the The Group fails to retain the necessary skills and talent to deliver the Management team to encourage and empower employees. Key lost talent has been
success of any business. Group's plans. reacquired and brought back into the Company. All employees (after 12 months
service) participate in profits of the Group.
COVID-19 Further outbreaks in the UK, US and Europe and within our supply chain. The Government may issue instructions that result in our warehouses being The ongoing situation is being monitored and direction is taken from the
unable to transport goods in or out. Department of Business and Central Government as the situation evolves.
Main control procedures
Management establishes control policies and procedures in response to each of
the key risks identified. Control procedures operate to ensure the integrity
of the Group's financial statements and are designed to meet the Group's
requirements and both financial and operational risks identified in each area
of the business. Control procedures are documented where appropriate and
reviewed by management and the Board on an ongoing basis to ensure control
weaknesses are mitigated.
The Group operates a comprehensive annual planning and budgeting system. The
annual plans and budgets are approved by the Board. The Board reviews the
management accounts at its monthly meetings and financial forecasts are
updated monthly. Performance against budget is monitored and where any
significant deviations are identified appropriate action is taken.
The Strategic Report has been signed on behalf of the Board.
Kirstie Gould
Chief Finance Officer
15 June 2022
Corporate Governance Report
Corporate Governance
For the year ended 31 March 2022, and up to the date of this report, the
Company has applied the main principles of the QCA Corporate Governance Code
("the Code") and complied with its detailed provisions throughout the period
under review. Full details of our approach to governance are set out below
and, as a Board, we continue to be committed to good standards in governance
practices and will continue to review the governance structures in place, to
ensure that the current practices are appropriate for our current shareholder
base and that, where necessary, changes are made.
The key governance principles and practices are described in the statement
below, together with the Audit and Nomination and Remuneration Committees'
reports on pages 17 to 21 and the Directors report on pages 23 to 28.
Board of Directors
John Stansfield - Lyndon Davies - aged 61 Kirstie Gould - aged 49 Daniel Carter - Henry de Zoete - aged 40
aged 67 Executive Chairman Chief Finance Officer aged 27 Independent
Independent & Independent Non-Executive Director
Non-Executive Director Company Secretary Non-Executive Director
John Stansfield was Non-Executive Chairman in August 2018 to February 2022. Lyndon joined the Board as Chief Executive in October 2017 and was appointed Kirstie Gould was appointed as Chief Finance Officer of the Company in January Daniel Carter was appointed as a Non-Executive Director in July 2020. Henry de Zoete was appointed as a Non-Executive Director in January 2022
Prior to that, he had been a non-executive Director of the Company, having to Executive Chairman in February 2022. 2018 after spending over 2 years with Hornby as a consultant in the finance
been appointed in January 2018.
department. Kirstie also acts as Company Secretary.
Daniel is an Investment Analyst at Phoenix Asset Management which controls the Henry de Zoete is an entrepreneur and alumnus of renowned Silicon
He is a highly-experienced model and hobby professional with 45 years'
funds that own 74.7% of the ordinary shares of Hornby Plc. Valley start-up accelerator Y Combinator.
John is a Fellow of the Chartered Institute of Management Accountants and experience in the industry. He has built Oxford Diecast into a successful Kirstie is a Fellow of the Institute of Chartered Accountants in England and
spent 31 years with the Group, 12 years of which he was Group Finance international business over the past two decades, focusing on Diecast Wales, qualifying with PricewaterhouseCoopers in 1997 and has since held
Director. vehicles, aircraft and, more recently, rail-based products. senior management and directorship roles across a number of high growth SME
firms including Affini Technology Limited (part of the TTG Group) and Gamma Daniel studied Economics at The University of Bath. Henry has previously served on the Board of grassroots campaigning
Communications plc.
organisation 38 Degrees (2015-2018) and was a Special Adviser in
the Department of Education (2010-2014). Henry is currently an angel
He re-joined the Company, after having left in 2013. Lyndon is also Chairman of Oxford Diecast ("Oxford"), a business founded in
investor in tech start-ups and a Non-Executive Board Member of the Cabinet
1993. He was the majority shareholder of LCD Enterprises Limited, the ultimate
Daniel is Chair of the Remuneration and Nomination Committee and a member of Office.
owner of the Oxford Diecast brands until July 2021 when Hornby acquired the the Audit Committee.
remaining stake.
John helped to deliver some of the Group's most profitable years and has a
wealth of experience in the toy and hobby sectors. Henry is a member of the Remuneration and Nomination Committee and the Audit
Committee.
John is also Chair of the Audit Committee and a member of the Remuneration and
Nomination Committee.
Our Board and Committees Membership
Director Board Audit Remuneration & Nomination
John Stansfield Member Chair Member
Lyndon Davies Chair
Kirstie Gould Member
Daniel Carter Member Member Chair
Henry De Zoete Member Member Member
Composition and independence of the Board
The Board is comprised of two executive directors and three non-executive
directors. During the year, the Board is of the opinion that the composition
of the Board, continues to represent an appropriate balance between executive
and non-executive directors, given our size and our operations. John
Stansfield is considered independent due to the time elapsed since his
employment with the Group originally. Daniel Carter is considered independent
as he has no control over the voting shares of Phoenix Asset Management. Henry
de Zoete is considered independent.
The Board members collectively have skills and expertise embracing a range of
areas including finance, auditing, e-commerce, engineering, manufacturing,
design, general management, sales and innovation. The Executive Chairman and
John Stansfield in particular, have extensive, directly applicable experience
of working within the toy and hobby products industry. We do however intend to
carry out periodic reviews of the composition of the Board to ensure that its
skillset and experience are appropriate for the effective leadership and
long-term success of the business as it develops. These reviews will give due
consideration to having more diversity on the Board, as well as to other
priorities.
Details of each Directors' background and experience are set out in the table
above.
Appointments to the Board and re-election
The Board takes decisions regarding the appointment of new directors as a
whole following the recommendations of its Remuneration and Nomination
Committee. The task of searching for appropriate candidates and assessing
potential candidates' skills and suitability for the role has been delegated
to the Remuneration and Nomination Committee. Further information on the roles
of the Remuneration and Nomination Committee and also the Audit Committee of
the Board can be found on pages 17 to 21.
The Company's Articles of Association require that one-third of directors
(excluding any directors who have been appointed since the last Annual General
Meeting (AGM)), retire by rotation at each AGM. In accordance with best
practice in corporate governance, all the Directors will offer themselves for
re-election.
Division of responsibilities
There is a formal schedule of matters reserved for the Board which is set out
in detail on the Hornby Plc corporate website at http://www.hornby.plc.uk/
(http://www.hornby.plc.uk/) and summarised further on in this report.
The Board is responsible for the formulating of the overall business strategy
and the Executive team is responsible for the managing of the business to
realise this strategy. The Exec Chairman is responsible for overseeing the
Board and the implementation of the Company's strategy and its operational
performance.
Executive Directors
The Executive Directors, as with the Non-Executive Directors, are encouraged
to use their independent judgement in the discharging of their duties. They
are responsible for the day-to-day management of the business, including its
trading, financial and operational performance. Issues and progress made are
reported to the Board by the Executive Chairman.
Executive Directors are full-time employees of the Company and have entered
into service agreements with the Company. Directors' contracts are available
for inspection at the Company's registered office and at the Annual General
Meeting.
Non-Executive Directors
The Board considers the Non-Executive Directors to be sufficiently competent.
They provide objectivity and substantial input to the activities of the Board,
from their various areas of expertise.
Non-Executive Directors are contracted to work no less than 15 days per year.
Succession Planning
During the year, the Remuneration and Nomination Committee was delegated with
the task of formulating succession plans for the business, identifying areas
where there is a skills shortage, extending the area of focus to senior
management level and ensuring that the plans cover several years. We have
identified a number of employees that have the potential to succeed the
Executive Team.
The Board also recognises that diversity is a key element in strengthening the
contribution made to Board deliberations and in the course of our search for
suitable candidates, due regard is given to this in addition to the skills and
experience a potential candidate brings.
How the Board operates
The Board retains control of certain key decisions through the Schedule of
Matters reserved for the Board. Other matters, responsibilities and
authorities have been delegated to its Audit and Remuneration and Nomination
Committees and these are documented in the terms of reference of each of those
committees, which can be found on the Company's corporate website at
http://www.hornby.plc.uk/ (http://www.hornby.plc.uk/) .
The Board is responsible for:
-overall management of the business;
-developing the Company's strategy, business planning, budgeting and risk
management;
-monitoring performance against agreed objectives;
-setting the business' values, standards and culture;
-internal control and risk management;
-remuneration;
-membership and chairmanship of Board and Board Committees;
-relationships with shareholders and other stakeholders;
-determining the financial and corporate structure of the business;
-major investment and divestment decisions;
-the Company's compliance with relevant legislations and regulations; and
-other ad hoc matters such as the approval of the Company's principal
advisors.
The Board met twelve times during the year. All directors attended all twelve
meetings apart from Henry who joined near the end of the year. Henry attended
3 board meetings.
The main activities of the Board during the year
Key Board activities this year included:
· dealing with the impact of COVID-19
· dealing with the impact of supply chain issues in China due to
power outages
· discussing strategic priorities
· reviewing feedback from our institutional shareholders following
our full and half year results; and
· input into implementing the next phase of the Turnaround Plan.
The Board Committees
The Board delegates authority to two committees: the Audit and the
Remuneration and Nomination Committees, to assist in meeting its business
objectives. The Committees meet independently of Board meetings.
Each committee has terms of reference setting out their responsibilities,
which were reviewed and approved by the Board during the year. These are
available on the Company's corporate website http://www.hornby.plc.uk/
(http://www.hornby.plc.uk/)
We have made some improvements in our governance arrangements including
introducing reporting by the Remuneration and Nomination Committee as well as
the Audit Committee in our Annual Report and Accounts. These reports can be
found on pages 21 to 27.
The Audit Committee comprises the independent non-executive directors of the
Company and met three times during the year. The Exec Chairman, Chief Finance
Officer and other managers attend by invitation. The external auditors attend
meetings and have direct access to the Committee.
The Remuneration and Nomination Committee meet at least once a year with all
members being present. The members are all non-executive directors. The
Committee is responsible for establishing and reporting to the Board,
procedures for determining policy on executive remuneration and also the
performance-related elements of remuneration, which align the interest of the
directors with those of the shareholders.
Its remit also includes matters of nomination and succession planning for
Directors and senior key executives, with the final approval for appointments
resting with the Board. Directors excuse themselves from meetings where the
matter under discussion is their own succession when appropriate.
External Advisors
The Board makes use of the expertise of external advisors where necessary, to
enhance knowledge or gain access to particular skills or capabilities. Areas
where external advisors are used include and are not limited to: diligence
work on major contracts; recruitment; and Company secretarial and corporate
governance. The list of external advisors is set out on page 22.
Directors' Induction, Development, Information and Support
The Board considers all Directors to be effective and committed to their
roles.
All Directors receive regular and timely information on the business'
operational and financial performance. Ahead of the Board and Committee
meetings, papers are circulated to all Directors to ensure that they are fully
informed and can participate fully in discussions.
Directors keep their skillset up to date through a combination of attendance
at industry events, individual professional development and experience gained
from other Board roles. The Company Secretary ensures that the Board is aware
of any applicable regulatory changes and updates as and when relevant. The
Board is also given an annual refresher in AIM Rules and this was last
provided in January 2022 by its Nominated Advisors, Liberum Capital Limited.
This refresher is designed to enable Directors to keep abreast of corporate
governance developments.
Directors are also able to take independent professional advice in the
furtherance of their duties, if necessary, at the Company's expense. Directors
also have direct access to the advice and services of the Company Secretary.
The Company Secretary supports the Exec Chairman in ensuring that the Board
receives the information and support it needs to carry out its roles.
Conflicts of Interest
Outside interests and commitments of Directors, and changes to these
commitments are reported to and agreed by the Board. In addition, no one
member of the Board has unfettered powers to make decisions.
Performance Evaluation
The Exec Chairman considers the operation of the Board and performance of the
Directors on an ongoing basis as part of his duties and will bring any areas
of improvement he considers are needed to the attention of the Board. However,
the Board recognises the need to put in place an annual formal evaluation
process for the Board, its Committees and individual directors.
The effectiveness of the Board, its Committees and Directors will be reviewed
on an annual basis.
Accountability
Although the Board delegates authority to its committees and also the
day-to-day management of the business to the Executive Directors, it is
accountable for the overall leadership, strategy and control of the business
in order to achieve its strategic aims in accordance with good corporate
governance principles.
Risk Management and Internal Control
Mitigating the risks that a Company faces as it seeks to create long-term
value for its shareholders, is the positive by-product of applying good
corporate governance. At Hornby, all employees are responsible for identifying
and monitoring risks across their areas. However, the Board sets the overall
risk strategy for the business. The business maintains a Risk Register and a
Fraud Register, which are presented and considered at the Audit Committee
meetings.
Financial and Business Reporting
In our half-year, final and any other ad hoc reports and other information
provided by the Company, the Board seeks to present a fair, balanced and
understandable assessment of the business' position and prospects. The Board
receives a number of reports, including those from the Audit Committee, to
enable it to monitor and clearly understand the business' financial position.
The Board considers that this Annual Report and financial statements, taken as
a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance, business model
and strategy.
Business Ethics
Our commitment to our customers and having a people-oriented ethos is central
to the success of achieving our strategy. We value the skills of our employees
and it is through the efforts of these dedicated people that we are able to
grow our customer base.
We endeavour to conduct our business affairs in a way that reflects our
values. Our suppliers are audited to ensure that their policies and procedures
comply with the Modern Slavery and Human Trafficking Act, which ensures that
workplace and conditions of employment for their employees are of an
acceptable standard. We reinforce our expectations to achieve and maintain
these standards. Our Statement on Modern Slavery and Human Trafficking can be
found on our corporate website http://www.hornby.plc.uk/
(http://www.hornby.plc.uk/) .
Whistleblowing
The business has procedures in place for detecting fraud and for
whistleblowing to ensure that arrangements are in place for all employees to
raise concerns in confidence, about possible irregularities and non-compliance
in matters of financial reporting or other matters. These procedures and
policies are reviewed by the Audit Committee.
Audit Committee Report
As Chair of the Audit Committee ("the Committee"), I am pleased to present our
Audit Committee Report for the year ended 31 March 2022.
Membership
The Audit Committee comprises three members, Daniel Carter, Henry de Zoete and
myself, John Stansfield. All of us are independent Non-Executive Directors of
the Company. I am the member of the Committee, who with the background as a
chartered management accountant has significant, recent and relevant financial
experience. Our biographies are set out on page 13.
Meetings and attendance
The Committee met three times during the year ended 31 March 2022. All members
of the Committee at the time of each meeting were present at the meetings. At
least one of these meetings was with the external auditor, without the
executive Board members present. Lyndon Davies and Kirstie Gould also attended
meetings by invitation.
Duties:
The full list of the Committee's responsibilities is set out in its Terms of
Reference, which is available on the Company's website at
http://www.hornby.plc.uk/ (http://www.hornby.plc.uk/) and is summarised below
as follows:
- External Audit;
- Financial Reporting;
- Internal Control and Risk Management;
- Internal Audit; and
- Reporting on activities of the Committee.
The terms of reference for the Committee are reviewed annually and approved by
the Board.
The main items of business considered by the Committee during the year
included:
- a review of the year-end external audit plan, consideration of the scope of
the audit and the external auditor's fees;
- consideration and approval of the external audit report and management
representation letter;
- a review of the Annual Report and financial statements, including
consideration of the significant accounting issues relating to the
financial statements, the consistency in the application of accounting
policies and the going concern review;
- a review and approval of the internal financial statement;
- approving revised borrowing and credit facilities.
External Auditor
The Committee has the primary responsibility for recommending the appointment
of the external auditor and reviewing the findings of the auditor's work. The
Company's external auditor is Crowe U.K. LLP. There will be ongoing dialogue
between the Committee and the auditor on actions to improve the effectiveness
of the external audit process.
Having reviewed the auditor's independence and performance to date, the
Committee has recommended to the Board that they be reappointed for the 2023
audit. A resolution to reappoint Crowe U.K LLP as the Company's auditor is to
be proposed at the forthcoming Annual General Meeting (AGM) in September
2022.
Policies for non-audit services
In addition to the audit services they provide, Crowe U.K. LLP do not
currently provide any other services.
Audit process
The external auditor prepares an audit plan setting out how the auditor will
review the interim and audit the full-year financial statements. The audit
plan is reviewed, agreed in advance and overseen by the Committee. The plan
includes the proposed scope of the work, the approach to be taken with the
audit and also describes the auditor's assessment of the principal risks
facing the business.
Prior to approval of the financial statements, the external auditor presents
its findings to the Committee, highlighting areas of significant financial
judgement for discussion.
Internal Audit
The Audit Committee has considered the need for an internal audit function
during the year and is of the view that, given the size and nature of the
Company's operations and finance team, there is no current requirement to
establish a separate internal audit function.
Risk Management and Internal Controls
Through the work of the Committee, the Board carries out an annual risk
assessment programme to identify the principal risks to the business and these
include:
- UK market dependence and conditions;
- the New Business Plan;
- the status of the model/hobby market;
- exchange rates;
- the supply chain function;
- capital allocation;
- product compliance;
- liquidity;
- systems and cyber risks;
- talent and skills; and
- Brexit
The Committee also reviews the effectiveness of control policies and
procedures in place to deal with the risks mentioned. Further details on the
business risks identified and the actions being taken are set out on pages 11
to 12 of the Operating and Financial Review Report.
The process of risk management in the business is continually reviewed.
John Stansfield
Chairman of the Audit Committee
15 June 2022
Remuneration and Nomination Committee Report
As Chairman of the Remuneration and Nomination Committee ("the Committee"), I
am pleased to present our report for the year ended 31 March 2022 which sets
out details of the composition, structure and activities of the Committee and
remuneration paid to Directors during the year.
The Board has taken the decision to expand the schedule of matters it has
delegated to its Remuneration Committee, to include matters which are
typically within the remit of a nomination committee. Its terms of reference
were revised accordingly and the Committee was renamed the Remuneration and
Nomination Committee.
Membership
The Committee currently comprises three independent Non-Executive Directors,
John Stansfield, Henry de Zoete and myself, Daniel Carter, whose biographies
are set out on page 13.
Meetings and attendance
The Committee meets at least once a year and at such other times during the
year as is necessary to discharge its duties. During the year, the Committee
met twice. Only members of the Committee have the right to attend meetings,
although other individuals, such as the Executive Chairman and external
advisers, may be invited to attend for all or part of any meeting.
Duties
The Committee works closely with the Board to formulate remuneration policy
and consider succession plans and possible internal candidates for future
Board roles, having regard to the views of shareholders. The main duties of
the Committee are set out in its Terms of Reference, which are available on
the Company's website (http://www.hornby.plc.uk/ (http://www.hornby.plc.uk/) )
and include the following key responsibilities:
Remuneration
-set remuneration policy for all Executive Directors (including pension rights
and any compensation payments), and in the process, review and give due
consideration to pay and employment conditions throughout the Company,
especially when determining annual salary increases;
-approve the design of, and determine targets for any performance-related pay
schemes operated by the Company;
-recommend and monitor the level and structure of remuneration for senior
management; and
-review the design of all share incentive plans for approval by the Board and
shareholders.
Nomination
-regularly review the structure, size and composition, (including the skills,
experience, knowledge and diversity) of the Board and make recommendations to
the Board as to any changes necessary;
-give full consideration to succession planning for directors and other senior
executives in the course of its work, taking into account the challenges and
opportunities facing the Company and the skills and expertise needed on the
Board in the future;
-lead the process for all potential appointments to the Board and making
recommendations to the Board in relation to them;
-evaluate the balance of skills, experience, independence and knowledge on the
Board; and following any evaluation, identify and nominate for approval by the
Board, potential candidates to fill Board vacancies as and when they arise.
Principal activities during the year
The Committee considered:
· Executive Directors' bonuses and salaries;
· performance criteria for any future awards under the LTIP;
· succession planning and the search for an additional
Non-Executive director;
· election and re-election of directors at the AGM;
· a review of the Committee's terms of reference.
The Committee considers business' strategy when recommending the appointment
of directors and setting and reviewing remuneration.
Diversity
It is the Board's view and commitment that recruitment, promotion and any
other selection exercises are conducted on the basis of merit against
objective criteria that avoid discrimination. No individual should be
discriminated against on the ground of race, colour, ethnicity, religious
belief, political affiliation, gender, age or disability, and this extends to
Board appointments.
The Board recognises the benefits of diversity, including gender diversity, on
the Board, although it believes that all appointments should be made on merit,
while ensuring there is an appropriate balance of skills and experience within
the Board. The Board currently consists of 21% (one) female and 80% (four)
male Board members. The Board's age demographic ranges from 27 to 67. The
business consists of 65% male employees and 35% female employees.
Remuneration policy
The objective of the remuneration policy is to promote the long-term success
of the Company, giving due regard to the views of shareholders and
stakeholders. In formulating remuneration policy for the Executive Directors,
the Committee:
-considers Directors' experience and the nature and complexity of their work
in order to pay a competitive salary, (in line with comparable companies),
that attracts and retains directors of the highest quality;
-considers pay and employment conditions within the Company and salary levels
within listed companies of a similar size;
-considers Directors' personal performance; and
-links individual remuneration packages to the business' long-term performance
and continued success of the business through the award of annual bonuses and
share-based incentive schemes.
Executive Directors
Base salary
Executive Directors' base salaries are reviewed annually by the Committee,
taking into account the responsibilities, skills and experience of each
individual, pay and employment conditions within the Company and the salary
levels within listed companies of a similar size.
Annual bonus
Executive Directors do not receive annual bonuses.
Long-term Incentive Plan
The existing LTIP scheme completes this year based on operating Profit for the
year ended 31 March 2022. The Remuneration committee will review and consider
a suitable scheme for the future.
Other benefits
Policies concerning benefits are reviewed periodically. Currently taxable
benefits comprise Company car allowance or a travel allowance and private
health cover. The Committee also retains the discretion to offer additional
benefits as appropriate.
The Executive Directors and senior managers are members of defined
contribution pension schemes and annual contributions are calculated by
reference to base salaries, with neither annual bonuses nor awards under the
share incentive schemes taken into account in calculating the amounts due.
Service agreements and termination payments
Details of the Executive Directors' service agreements are set out below.
Director Date of Contract Unexpired Term Notice period by Company Notice period by Director
Lyndon Davies 5 October 2017 Rolling contract 9 months 6 months
Kirstie Gould 21 December 2017 Rolling contract 9 months 6 months
Compensation for loss of office is based on the base salary of the Director.
Employees' pay
Employees' pay and conditions throughout the business are considered when
reviewing remuneration policy for Executive Directors.
A profit share scheme exists for all employees (excluding Executive
Directors), and 15% of operating profit is shared among employees
proportionately. This is a mechanism aimed at addressing issues of motivation
of employees below Board level. It is also to ensure that the Company attracts
and retains the best talent and that their interests align with that of
shareholders.
Non-Executive Directors
The remuneration payable to Non-Executive Directors is decided by the Exec
Chairman and Non-Executive Directors (but excluded from discussing their
personal fees). The remuneration payable to the Executive Chairman is decided
by the other Board members.
Fees are designed to ensure the Company attracts and retains high calibre
individuals. They are reviewed on an annual basis and account is taken of the
level of fees paid by other companies of a similar size and complexity.
Non-Executive Directors do not participate in any annual bonus, share options
or pension arrangements. The Company repays the reasonable expenses that
Non-Executive Directors incur in carrying out their duties as Directors.
Terms of appointment
Each of the Non-Executive Directors signed a letter of appointment for an
initial period of two years which can be terminated by either party giving to
the other prior written notice of three months. John Stansfield signed a
letter on 2 January 2018, Daniel Carter signed his on 16 July 2020 and Henry
de Zoete signed his on 4 January 2022. The contract continues as long as the
Non-Executive Directors are re-elected at the AGM. All three non-exec
directors will stand for re-election at the next AGM in September 2022.
Daniel Carter
Chairman of the Remuneration and Nomination Committee
15 June 2022
Directors and Corporate Information
Directors
The full details of all directors who served in the year ended 31 March 2022
can be found below.
Lyndon Davies
Executive Chairman
Kirstie Gould
Chief Finance Officer
Daniel Carter
Non-Executive Director
John Stansfield
Non-Executive Director
Henry de Zoete
Non-Executive Director
Kirstie Gould
Company Secretary
Registered office
Enterprise Road
Westwood Industrial Estate
Margate, Kent CT9 4JX
Company Registered Number
Registered in England Number: 01547390
Independent Auditors
Crowe U.K. LLP
Riverside House
40-46 High Street
Maidstone
Kent ME14 1JH
Solicitors
Taylor Wessing LLP
5 New Street Square
London EC4A 3TW
Principal Bankers
Barclays Bank PLC
9 St George's Street
Canterbury
Kent CT1 2JX
Nominated Advisor and Brokers
Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Registrars and Transfer Agents
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Directors' Report
The Directors present their Annual Report together with the audited
consolidated and Company financial statements for the year ended 31 March
2022.
STATUTORY INFORMATION CONTAINED ELSEWHERE IN THE ANNUAL REPORT
Information required to be part of the Directors' Report can be found
elsewhere in this document, as indicated, and is incorporated into this report
by reference:
The Group's business review is set out in the Strategic Report on pages 9 to
10.
The Corporate Governance statement on page 13 to 16.
Details of the Directors who served during the year including their salaries,
bonuses, benefits and share interests are on pages 26 to 27.
Directors' responsibility statements on page 25.
Likely future events are disclosed within the Exec Chairman report on page 7.
Post balance sheet events are set out in note 32.
Principal activities
The Company is a holding Company, limited by shares, registered (and
domiciled) in England Reg. No. 01547390 with a Spanish branch and has seven
operating subsidiaries: Hornby Hobbies Limited in the United Kingdom with a
branch in Hong Kong, Hornby America Inc. in the US, Hornby España S.A. in
Spain, Hornby Italia s.r.l. in Italy, Hornby France S.A.S. in France, Hornby
Deutschland GmbH in Germany and LCD Enterprises Limited in the United Kingdom.
Hornby PLC is a public limited Company which is a member of AIM and
incorporated and operating in the United Kingdom.
The Group is principally engaged in the development, design, sourcing and
distribution of hobby and interactive products.
Results and dividends
The results for the year ended 31 March 2022 are set out in the Group
Statement of Comprehensive Income. Revenue for the year was £53.7 million
compared to £48.5 million last year. The profit for the year attributable to
equity holders amounted to £0.6 million (2021: £0.3 million). The position
of the Group and Company is set out in the Group and Company Statements of
Financial Position. Future developments are set out within the Executive
Chairman Statement.
No interim dividend was declared in the year (2021: £nil) and the Directors
do not recommend a final dividend (2021: £nil).
GOING CONCERN
The Group has in place a £12.0 million Asset Based Lending (ABL) facility
with Secure Trust Bank PLC ("STB") through to October 2024. The Covenants are
customary operational covenants applied on a monthly basis. In addition, the
Group has a committed £9.0 million loan facility with Phoenix Asset
Management Partners Limited (the Group's largest shareholder) if it should be
required currently expires December 2023.
The Group has prepared trading and cash flow forecasts for a period of three
years, which have been reviewed and approved by the Board. On the basis of
these forecasts, the facilities with STB and Phoenix and after a detailed
review of trading, financial position and cash flow models (taking COVID-19
into account), the Directors have a reasonable expectation that the Group and
Company have adequate resources to continue in operational existence for the
foreseeable future. For these reasons, they continue to adopt the going
concern basis of accounting in preparing the annual financial statements.
Research and development
The Board considers that research and development into products continues to
play an important role in the Group's success. R&D costs of £1.5 million
(see Note 4) incurred in the year have been charged to the Statement of
Comprehensive Income as these costs all relate to research activities.
Directors' indemnities
The Company maintained liability insurance for its Directors and officers
during the financial year and up to the date of approval of the Annual Report
and Accounts. The Company has also provided an indemnity for its Directors and
the secretary, which is a qualifying third party indemnity provision for the
purposes of the Companies Act 2006.
STREAMLINED ENERGY AND CARBON REPORTING (SECR)
Streamlined Energy and Carbon Reporting (SECR) is the UK Government's name for
energy and carbon reporting and taxation.
As a largely office-based business, the Group has a relatively low carbon
presence. Under the SECR requirements we are reporting energy use and business
mileage for all our UK operations.
2022 2022 2021 2021
Scope Activity Consumption kWh Consumption (tCO2e) Consumption kWh Consumption (tCO2e)
Scope 1 Business Mileage 112,647 27.3 38,263 9.3
Scope 2 Purchased Electricity 548,850 128.0 446,069 104.0
Purchased Gas 343,019 69.0 493,767 100.6
1,004,515 224.3.8 978,099 213.9
Intensity metric
An intensity metric of tCO2e per £m revenue has been applied for the annual
total consumption
2022 2021
tCO2e/£m Revenue 3.68 4.22
During the reporting year, the Group's business miles has considerably
increased reflecting the return to normal working conditions. The gas
consumption has fallen due to proactive efforts to reduce our consumption with
Head Office offset by an increase in electricity consumption following a
return to working from the office.
Substantial shareholdings
The Company has been notified that at close of business on 15 June 2022 the
following parties were interested in 3% or more of the Company's ordinary
share capital.
Shareholder Number of ordinary shares Percentage held
Phoenix Asset Management 124,634,330 74.66
Artemis Fund Managers Limited 27,551,350 16.50
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the Group and
Company financial statements 'in accordance with UK-adopted international
accounting standards in conformity with the requirements of the Companies Act
2006. Under Company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Company and of the profit or loss of the
Group and Company for that period. In preparing the financial statements, the
directors are required to:
· select suitable accounting policies and then apply them
consistently;
· state whether applicable UK-adopted international accounting
standards in conformity with the Companies Act 2006 have been followed,
subject to any material departures disclosed and explained in the financial
statements;
· make judgements and accounting estimates that are reasonable and
prudent; and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company will continue
in business.
The directors are also responsible for safeguarding the assets of the Group
and Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements
comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
Directors' confirmations
The directors consider that the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group and Company's position and performance,
business model and strategy.
In the case of each director in office at the date the Directors' Report is
approved:
· so far as the director is aware, there is no relevant audit
information of which the Group and Company's auditors are unaware; and
· they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant audit information
and to establish that the Group and Company's auditors are aware of that
information.
Financial instruments
The Group's financial instruments, other than derivatives, comprise
borrowings, cash and liquid resources, and various items, such as trade
receivables, trade payables, etc. that arise directly from its operations. The
Group's financial liabilities comprise borrowings, trade payables, other
payables and finance leases. The main purpose of the Group's borrowings is
to provide finance for the Group's operations. The Group has financial assets
comprising cash and trade and other receivables.
The Group also enters into derivatives transactions (principally forward
foreign currency contracts). The purpose of such transactions is to manage the
currency risks arising from the Group's operations. It is, and has been
throughout the period under review, the Group's policy that no speculative
trading in financial instruments shall be undertaken.
FINANCIAL RISK MANAGEMENT
The financial risk is managed by the Group and more information on this can be
found within the Notes to the financial statements.
Personnel policies
Hornby is committed to eliminating discrimination and encouraging diversity
amongst our workforce. Our aim is that our workforce will be truly
representative of all sections of society and each employee feels respected
and able to give of their best.
To that end the purpose of personnel policies are to provide equality and
fairness for all in our employment and not to discriminate on grounds of
gender, marital status, race, ethnic origin, colour, nationality, national
origin, disability, sexual orientation, religion or age. We oppose all forms
of unlawful and unfair discrimination.
All employees, whether part time, full time or temporary, are treated fairly
and with respect. Selection for employment, promotion, training or any other
benefit is on the basis of aptitude and ability. All employees are helped and
encouraged to develop their full potential and the talents and resources of
the workforce are fully utilised to maximise the efficiency of the
organisation.
Our commitments are:
· To create an environment in which individual differences and the
contributions of all our staff are recognised and valued;
· Every employee is entitled to a working environment that promotes
dignity and respect to all. No form of intimidation, bullying or harassment is
tolerated;
· Training, development and progression opportunities are available
to all staff;
· Equality in the workplace is good management practice and makes
sound business sense;
· To regularly review all our employment practices and procedures
to ensure fairness;
· Breaches of our equality policy are regarded as misconduct and
may lead to disciplinary proceedings; and
· These policies will be monitored and reviewed on a regular basis.
The Group places importance on the contributions made by all employees to the
progress of the Group and aims to keep them informed via formal and informal
meetings.
ARTICLES OF ASSOCIATION
The rules governing the appointment and replacement of Directors are set out
in the Company's Articles of Association. The Articles of Association may be
amended by a special resolution of the Company's shareholders.
Share capital
The share capital of the Company comprises ordinary shares of 1p each. Each
share carries the right to one vote at general meetings of the Company. The
issued share capital of the Company, together with movements in the Company's
issued share capital is shown in Note 22. Ordinary shareholders are entitled
to receive notice and to attend and speak at general meetings.
Each shareholder present in person or by proxy (or by duly authorised
corporate representatives) has, on a show of hands, one vote. On a poll, each
shareholder present in person or by proxy has one vote for each share held.
Other than the general provisions of the Articles (and prevailing legislation)
there are no specific restrictions of the size of a holding or on the transfer
of the ordinary shares.
The Directors are not aware of any agreements between holders of the Company's
shares that may result in the restriction of the transfer of securities or on
voting rights. No shareholder holds securities carrying any special rights or
control over the Company's share capital.
Authority to purchase own shares
The Company was authorised by shareholder resolution at the 2021 Annual
General Meeting to purchase up to 10% of its issued share capital. A
resolution will be proposed at the forthcoming Annual General Meeting and
authority sought to purchase up to 10% of its issued share capital. Under this
authority, any shares purchased must be held as treasury shares or, otherwise,
cancelled resulting in a reduction of the Company's issued share capital.
No shares were purchased by the Company during the year.
Change of control - significant agreements
There are a number of agreements that may take effect, alter or terminate on a
change of control of the Company. None of these are considered to be
significant in their likely impact on the business as a whole.
POLITICAL DONATIONS
The Company has made no political donations during the year.
Independent auditor
A resolution to reappoint the auditor Crowe U.K. LLP, will be proposed at the
forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting is to be scheduled for 14 September 2022. A notice
of the Annual General Meeting will be sent out to shareholders separately to
this Annual Report and Accounts.
DIRECTORS' REMUNERATION
Executive Directors' base salaries are reviewed annually by the Remuneration
and Nomination Committee taking into account the responsibilities, skills and
experience of each individual, pay and employment conditions within the
Company and salary levels within listed companies of a similar size.
The following table summarises the total salary and pension contributions
received by Directors for 2021/22 and 2020/21 in line with the Companies Act
2006 requirement:
AUDITED
Year ended 31 March 2022 Yea
r
end
ed
31
Mar
ch
202
1
Basic salary, allowances and fees £'000 Pension contributions £'000 Total salary and pension contributions £'000 Basic salary, allowances and fees £'000 Pension contributions £'000 Total salary and pension contributions £'000
L Davies (Appointed 5 October 2017) 241 - 241 222 - 222
K Gould (Appointed 4 January 2018) 158 29 187 151 28 179
D Carter (Appointed 16 July 2020) - - - - - -
J Stansfield (Appointed 4 January 2018) 71 - 71 71 - 71
H De Zoete (appointed 5 January 2022) 11 - 11 - - -
Total 481 29 510 444 28 472
Performance Share Plan awards outstanding (Audited)
At 31 March 2022, outstanding awards to Directors under the PSP were as
follows:
Director Award date Vesting date Market price at award date At 1 April 2021 Lapsed during the year As at 31 March 2022
Lyndon Davies Nov-20 Jun-22 54p 2,670,846 (988,213) 1,682,633
Kirstie Gould Nov-20 Jun-22 54p 2,670,846 (988,213) 1,682,633
Under the terms of the LTIP, awards are subject to strict vesting criteria.
These are linked to the Company's in the year ended 31 March 2022.
The level of vesting is determined by the level of Operating Profit announced
in the 2021/22 Group results. 63% of the target has been met and 63% of the
total share options on offer will be granted.
Benefits and Pension (Unaudited)
Policies concerning benefits, including the Group's Company car policy, are
reviewed periodically. Currently, benefits in kind comprise motor cars or a
travel allowance and private health cover, both of which are
non-performance related. The Executive Directors and senior managers are
members of defined contribution pension schemes and annual contributions are
calculated by reference to base salaries, with neither annual bonuses nor
awards under the share incentive schemes taken into account in calculating the
amounts due.
Executive Directors' service contracts (Unaudited)
Executive Directors do not have fixed period contracts.
Payments to Past Directors, policy on payment of loss of office and
termination payments (Audited)
There were no payments to past directors made during the year. Notice periods
are set under individual service contracts but the Company has a policy for
Executive directors of a notice period of nine months to be given by the
Company and of six months to be given by the individual. The compensation for
loss of office is based upon the respective service contracts and the
components are based on the base salary of the director.
DIRECTORS' INTERESTS
Interests in shares
Interests of the Directors in the shares of the Company at 31 March 2022 and
31 March 2021 were:
At At
31 March 31 March
2022 2021
number number
Executive Directors
L Davies 795,144 795,144
K Gould 55,006 55,006
Non-Executive Directors
H De Zoete - -
D Carter - -
J Stansfield 85,358 85,358
All the interests detailed above are beneficial. Two of the Directors also
have share options as detailed in Note 22. Apart from the interests disclosed
above no Directors were interested at any time in the year in the share
capital of any other Group Company. Daniel Carter is also an employee at
Phoenix Asset Management Partners Limited who hold a substantial shareholding
in Hornby PLC.
On behalf of the Board
Kirstie Gould
Chief Finance Officer
Westwood
Margate
CT9 4JX
15 June 2022
Opinion
We have audited the financial statements of Hornby Plc (the "Parent Company")
and its subsidiaries (the "Group") for the year ended 31 March 2022 which
comprise:
· the Group and parent company statements of comprehensive income
for the year ended 31 March 2022;
· the Group and parent company statements of financial position as
at 31 March 2022;
· the Group and parent company statements of changes in equity for
the year then ended;
· the Group and parent company statements of cash flows for the
year then ended; and
· the notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the preparation of
the financial statements is applicable law and in accordance with UK adopted
international accounting standards.
In our opinion, the financial statements:
· give a true and fair view of the state of the Group's and of the
Parent Company's affairs as at 31 March 2022 and of the Group's profit and
Parent Company's loss for the period then ended;
· have been properly prepared in accordance with UK adopted
international accounting standards; and
· have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We are independent of
the Company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the FRC's Ethical
Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director's
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the Group's and Parent Company's ability to continue to adopt
the going concern basis of accounting included:
· reviewing the cash flow model provided by management and
challenging the assumptions made;
· reviewing management's forecasts which show continued growth in
both revenue and profitability. Our assessment therefore considered if this
will be feasible in light of past losses and recent economic conditions;
· considering the accuracy of past budgeting since the new
management team took over, as well as a review of the April management
accounts compared to forecast; and
· considering the cash position of the business along with current
facilities available for drawdown.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's or Parent Company's
ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of materiality. An
item is considered material if it could reasonably be expected to change the
economic decisions of a user of the financial statements. We used the concept
of materiality to both focus our testing and to evaluate the impact of
misstatements identified.
Based on our professional judgement, we determined overall materiality for the
Group financial statements as a whole to be £250,000 (2021: £215,000), based
on turnover and the underlying profitability of the business. We consider
these to be the key performance metrics reported by management to shareholders
to assess the performance of the business. Materiality represents
approximately 0.5% of turnover and 8% of underlying profit (2021: 0.5% of
turnover and 15% of underlying profit).
Overall Parent Company materiality was set at £200,000 (2021: £200,000)
based on net assets, restricted so as not to exceed Group materiality.
Materiality represents 0.3% of net assets. The Parent Company acts as holding
company for the investments in the trading subsidiaries and therefore net
assets was considered a more relevant measure than turnover or profitability.
We use a different level of materiality ('performance materiality') to
determine the extent of our testing for the audit of the financial
statements. Performance materiality is set based on the audit materiality as
adjusted for the judgements made as to the entity risk and our evaluation of
the specific risk of each audit area having regard to the internal control
environment. Performance materiality was set at £175,000 (2021:
£150,500) for the Group and £140,000 (2021: £140,000) for the Parent
Company.
Where considered appropriate performance materiality may be reduced to a lower
level, such as, for related party transactions and directors' remuneration.
We agreed with the Audit Committee to report to it all identified errors in
excess of £10,000 (2021: £10,000). Errors below that threshold would also be
reported to it if, in our opinion as auditor, disclosure was required on
qualitative grounds.
Overview of the scope of our audit
We performed an audit of the financial information of four full scope
components, Hornby Plc, Hornby Hobbies Limited, LCD Enterprises Limited and
Oxford Diecast Limited. The European sales offices and US trading subsidiary
were audited using a component materiality level of £200,000 for the purposes
of the consolidation only.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matter How the scope of our audit addressed the key audit matter
Carrying value of goodwill and intangibles and investments - Notes 9, 10 and We tested management's impairment review which includes impairment reviews for
12 investments, goodwill and intangible assets.
The Group holds goodwill at a carrying value of £4.5m and brand relations at The audit work relied on forecasts of future cash flows based on board
a carrying value of £1.9m. approved forecasts. We challenged management on the assumptions made,
including the forecast growth rate, profitability, terminal growth rates
The Parent Company also holds significant investments and debtor balances with applied and discount rate applied. This work was conducted with the support
Group companies. of our valuations team. As part of our testing we benchmarked assumptions
such as the terminal growth rate and inputs into the calculation of the cost
Recovery of these assets is dependent upon future cash flows which are of capital (discount rate).
required to be discounted. There is a risk that forecasts for these future
cash flows are not met or that the cash flows have not been discounted at an We also considered the recoverability of intercompany debt in the Parent
appropriate rate. If the cash flows do not meet expectations the assets may Company financial statements. Management prepared a discounted cashflow
become impaired. model to support the value recorded. We tested this model with the support
of our valuations team and challenged management on the assumptions made.
Inventory provisioning We obtained the aged inventory reports and recalculated the provision.
The Group was holding £16.5m of inventory at the year end. There a risk We compared the assumptions used to those used in the prior year and
that old inventory may become difficult to sell and thereby become impaired. challenged management where assumptions had either changed or no longer
appeared appropriate.
We compared the aging of stock year on year to consider if stock was getting
older and questioned management on the increase in stock from the prior year.
For a sample of inventory items we reviewed sales post year end to consider if
any items were being sold below cost.
Acquisition of LCD Enterprises Limited - Note 12 We obtained a copy of the acquisition documents and agreed the cost of the
acquisition and calculation of goodwill.
On 31 July the company acquired the remaining 51% of the share capital of LCD
Enterprises Limited. The company previously held a 49% stake. We completed audit procedures on the opening position including reviewing the
stock at acquisition and the fair value of intangibles not previously
There is a risk that the transaction had been incorrectly accounted for. Key recognised. Our internal valuations team were used to audit the calculation
risks were considered to be the fair value of assets acquired at acquisition, of the fair value of intangibles acquired.
the calculation of cost and related goodwill and the disclosure surrounding
the acquisition in the accounts. We checked the disclosures in the accounts to ensure these reflected the
underlying agreement and complied with accounting standards.
Our audit procedures in relation to these matters were not designed to enable
us to express an opinion on these matters individually and we express no such
opinion.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report, other than the
financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion based on the work undertaken in the course of our audit
· the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the strategic report and directors' report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and the Parent
Company and their environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the Parent Company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of the directors for the financial statements
As explained more fully in the directors' responsibilities statement set out
on page 25 the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and
for such internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group's and Parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Extent to which the audit is capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We identified and assessed the risks of material misstatement of
the financial statements from irregularities, whether due to fraud or error,
and discussed these between our audit team members. We then designed and
performed audit procedures responsive to those risks, including obtaining
audit evidence sufficient and appropriate to provide a basis for our opinion.
We obtained an understanding of the legal and regulatory frameworks within
which the company operates, focusing on those laws and regulations that have a
direct effect on the determination of material amounts and disclosures in the
financial statements. The laws and regulations we considered in this context
were the Companies Act 2006 and Taxation legislation.
Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the Directors and
other management and inspection of regulatory and legal correspondence, if
any.
We identified the greatest risk of material impact on the financial statements
from irregularities, including fraud, to be the override of controls by
management and the recognition of revenue. Our audit procedures to respond to
these risks included:
• enquiry of management about the Group's policies, procedures and related
controls regarding compliance with laws and regulations and if there are any
known instances of non-compliance;
• examining supporting documents for all material balances, transactions and
disclosures;
• review of the board meeting minutes;
• enquiry of management and review of legal expenditure;
• detailed testing of a sample of sales made during the year and around the
year and agreeing these through to invoices and despatch records;
• testing the appropriateness of a sample of significant journal entries
recorded in the general ledger and other adjustments made in the preparation
of the financial statements; and
• review of accounting estimates for biases.
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. We are not responsible for preventing
non-compliance and cannot be expected to detect non-compliance with all laws
and regulations.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's
website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Mark Sisson (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Riverside House
40-46 High Street
Maidstone
Kent ME14 1JH
15 June 2022
Group and Company Statements of Comprehensive Income
for the Year Ended 31 March 2022
Group Company
Note 2022 2021 2022 2021
£'000 £'000 £'000 £'000
Revenue 2 53,739 48,549 1,071 933
Cost of sales (28,023) (26,795) - -
Gross profit 25,716 21,754 1,071 933
Distribution costs (6,991) (6,798) - -
Selling and marketing costs (8,832) (7,804) - -
Administrative expenses (8,514) (6,133) (2,258) (1,315)
Other operating expenses 4 (294) (241) - -
Operating profit/(loss) before Exceptional items 4 1,085 778 (1,187) (382)
Exceptional items 4 (139) (211) (219) -
Operating profit/(loss) 2 946 567 (1,406) (382)
Finance income 3 15 3 175 175
Finance costs 3 (358) (334) (209) (220)
Net finance expense 3 (343) (331) (34) (45)
Share of profit of investments accounted for using the equity method 12 (20) 109 (20) 109
Profit/(loss) before taxation 4 583 345 (1,460) (318)
Income tax credit 5 896 1,018 - -
Profit/(loss) for the year after taxation 1,479 1,363 (1,460) (318)
Other comprehensive income
Items that may be subsequently reclassified to profit or loss:
Cash flow hedges, net of tax 858 (597) - -
Currency translation gains/(losses) 175 (187) 53 246
Other comprehensive income/(loss) for the year, net of tax 1,033 (784) 53 246
Total comprehensive income/(loss) for the year 2,512 579 (1,407) (72)
Comprehensive income attributable to:
Equity holders of the Company 2,500 - - -
Non-controlling interests 12 - - -
Profit/(loss) per ordinary share
Basic 7 0.89p 0.82p
Diluted 7 0.85p 0.80p
All results relate to continuing operations.
The notes on pages 37 to 69 form part of these accounts.
Group and Company Statements of Financial Position as at 31 March 2022 Company
Group
Note 2022 2021 2022 2021
£'000 £'000 £'000 £'000
Assets
Non-current assets
Goodwill 9 4,644 4,561 - -
Intangible assets 10 3,187 3,017 - -
Property, plant and equipment 11 10,057 6,680 - -
Investments 12 - 1,839 26,092 23,860
Right of Use Assets 13 2,584 2,690 - -
Deferred tax assets 21 3,425 2,956 - -
23,897 21,743 26,092 23,860
Current assets
Inventories 14 16,462 15,152 - -
Trade and other receivables 15 8,786 7,247 47,410 48,518
Derivative financial instruments 20 504 32 - -
Cash and cash equivalents 16 4,139 4,685 2 2
29,891 27,116 47,412 48,520
Liabilities
Current liabilities
Borrowings 19 (50) - - -
Trade and other payables 17 (7,372) (7,131) (6,958) (6,722)
Lease liabilities 18 (433) (365) - -
Derivative financial instruments 20 - (513) - -
(7,855) (8,009) (6,958) (6,722)
Net current assets 22,036 19,107 40,454 41,798
Non-current liabilities
Borrowings 19 (277) - (5,643) (5,689)
Lease liabilities 18 (2,313) (2,443) - -
Deferred tax liabilities 21 (233) (150) - -
(2,823) (2,593) (5,643) (5,689)
Net assets 43,110 38,257 60,903 59,969
Equity attributable to owners of the parent
Share capital 22 1,669 1,669 1,669 1,669
Share premium 24 52,857 52,857 52,857 52,857
Capital redemption reserve 24 55 55 55 55
Translation reserve 24 (1,814) (1,989) (963) (1,016)
Hedging reserve 24 377 (481) - -
Other reserves 24 1,688 1,688 19,145 19,145
Accumulated losses (11,734) (15,542) (11,860) (12,741)
Equity attributable to PLC shareholders 43,098 38,257 60,903 59,969
Non-controlling interests 12 - - -
Total equity 43,110 - - -
The notes on page 37 to 69 form part of these accounts. The financial
statements on pages 33 to 69 were approved by the Board of Directors on 15
June 2022 and were signed on its behalf by:
K Gould, Director, Registered Company Number: 01547390
Group and Company Statements of Changes in Equity
For the Year Ended 31 March 2022
GROUP Share capital Share premium Capital Translation reserve Hedging reserve Other reserves Non-controlling interests Retained earnings Total equity
redemption reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 March 2020 and 1 April 2020 1,669 52,857 55 (1,802) 116 1,688 - (17,578) 37,005
Profit for the year - - - - - - - 1,363 1,363
Other comprehensive (expense)/income for the year - - - (187) (597) - - - (784)
Total comprehensive (loss)/income for the year - - - (187) (597) - - 1,363 579
Transactions with owners
Share-based payments (Note 23) - - - - - - - 673 673
Total transactions with owners - - - - - - - 673 673
Balance at 31 March and 1 April 2021 1,669 52,857 55 (1,989) (481) 1,688 - (15,542) 38,257
Profit for the year - - - - - - 12 1,467 1,479
Other comprehensive (expense)/income for the year - - - 175 858 - - - 1,033
Total comprehensive (loss)/income for the year - - - 175 858 - 12 1,467 2,512
Transactions with owners
Share-based payments (Note 23) - - - - - - - 2,341 2,341
Total transactions with owners - - - - - - - 2,341 2,341
Balance at 31 March 2022 1,669 52,857 55 (1,814) 377 1,688 12 (11,734) 43,110
COMPANY Share Capital Share premium Capital redemption reserve Translation reserve Other reserves Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 March and 1 April 2020 1,669 52,857 55 (1,262) 19,145 (13,096) 59,368
Loss for the year - - - - - (318) (318)
Other comprehensive expense for the year - - - 246 - - 246
Total comprehensive income/(expense) for the year - - - 246 - - 246
Transactions with owners
Share-based payments (Note 23) - - - - - 673 673
Total transactions with owners - - - - - 673 673
Balance at 31 March and 1 April 2021 1,669 52,857 55 (1,016) 19,145 (12,741) 59,969
Loss for the year - - - - - (1,460) (1,460)
Other comprehensive expense for the year - - - 53 - - 53
Total comprehensive income/(expense) for the year - - - 53 - (1,460) (1,407)
Transactions with owners
Share-based payments (Note 23) - - - - - 2,341 2,341
Total transactions with owners - - - - - 2,341 2,341
Balance at 31 March and 1 April 2022 1,669 52,857 55 (963) 19,145 (11,860) 60,903
The notes on page 37 to 69 form part of these accounts.
Group and Company Cash Flow Statements
for the Year Ended 31 March 2022
Group Company
Note 2022 2021 2022 2021
£'000 £'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations 28 4,862 4,372 34 45
Interest paid (192) (75) (209) (220)
Interest element of lease payments (166) (165) - -
Tax received/(paid) - 90 - -
Net cash generated from/(used in) operating activities 4,504 4,222 (175) (174)
Cash flows from investing activities
Purchase of business (net of cash acquired) 8 (1,015) - - -
Purchase of property, plant and equipment 11 (3,551) (4,249) - -
Purchase of intangible assets 10 (149) (726) - -
Interest received 15 3 175 175
Net cash (used in)/generated from investing activities (4,700) (4,972) 175 175
Cash flows from financing activities
Repayment of CBIL Loan (25) - - -
Proceeds from shareholder loan 110 - - -
Payment of lease liability (446) (462) - -
Net cash (used in)/generated from financing activities (361) (462) - -
Net (decrease)/increase in cash and cash equivalents (557) (1,212) - 1
Cash and cash equivalents at the beginning of the year 4,685 5,921 2 1
Effect of exchange rate movements 11 (24) - -
Cash and cash equivalents 4,139 4,685 2 2
Cash and cash equivalents consist of:
Cash and cash equivalents 16 4,139 4,685 2 2
Cash and cash equivalents at the end of the year 4,139 4,685 2 2
Notes to the Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Accounting policies for the year ended 31 March 2022
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
BASIS OF PREPARATION
The financial statements are presented in sterling, which is the Parent's
functional currency and the Group's presentation currency. The figures shown
in the financial statements are rounded to the nearest thousand pounds.
The financial information for the year ended 31 March 2022 has been prepared
in accordance with UK-adopted international accounting standards.. The
consolidated Group and Parent Company financial statements have been prepared
on a going concern basis and under the historical cost convention, as modified
by the revaluation of certain financial assets and liabilities (including
derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the
use of estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of the amount, event or
actions, actual results ultimately may differ from those estimates.
GOING CONCERN
The Group has in place a £12.0 million Asset Based Lending (ABL) facility
with Secure Trust Bank PLC ("STB") through to October 2024. The Covenants are
customary operational covenants applied on a monthly basis. In addition, the
Group has a committed £9.0 million loan facility with Phoenix Asset
Management Partners Limited (the Group's largest shareholder) if it should be
required. This facility currently expires December 2023.
The Group has prepared trading and cash flow forecasts for a period of three
years, which have been reviewed and approved by the Board. On the basis of
these forecasts, the facilities with STB and Phoenix and after a detailed
review of trading, financial position and cash flow models (taking COVID-19
into account), the Directors have a reasonable expectation that the Group and
Company have adequate resources to continue in operational existence for the
foreseeable future. For these reasons, they continue to adopt the going
concern basis of accounting in preparing the annual financial statements.
BASIS OF CONSOLIDATION
Subsidiaries are all entities over which the Group has control. The Group
controls an entity where the Group is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the ability to
affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases.
The acquisition method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued, liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired, and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any
non-controlling interest. The excess of the cost of acquisition over the fair
value of the Group's share of the identifiable net assets acquired is recorded
as goodwill.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also eliminated
but considered an impairment indicator of the asset concerned. Accounting
policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
ADOPTION OF NEW AND REVISED STANDARDS
The following standards and interpretations relevant to the Group are in issue
but are not yet effective and have not been applied in the historical
financial information. In some cases these standards and guidance have not
been endorsed for use.
· IAS 1 Presentation of liabilities as current or non-current
· IAS 1 Disclosure of accounting policies
· IAS 8 definition of accounting estimates
Adoption of these standards is not expected to have a material impact on the
group
REVENUE RECOGNITION
The Group's revenue is mostly from product sales and is recognised as follows:
(a) Sale of goods
Sales of goods are recognised when a Group entity
has delivered products to the customer. The customer is either a trade
customer or the consumer when sold through Hornby concessions in various
retail outlets, or via the internet.
(b) Royalty income
Royalty income is recognised when the performance obligation is
satisfied.
(c) Sales returns
The Group establishes a refund liability (included
in trade and other payables) at the period end that reduces revenue in
anticipation of customer returns of goods sold in the period. Accumulated
experience is used to estimate such returns at the time of sale at a portfolio
level (expected value method).
(d) Hornby Visitor Centre
Revenue is generated from the ticket and
product sales at our Visitor Centre in Margate and recognised at the point of
sale.
Dividend income in the Company is recognised upon receipt. Revenue from
management services are recognised in the accounting period in which the
services are rendered.
EXCEPTIONAL ITEMS
Where items of income and expense included in the statement of comprehensive
income are considered to be material and exceptional in nature, separate
disclosure of their nature and amount is provided in the financial statements.
These items are classified as exceptional items. The Group considers the size
and nature of an item both individually and when aggregated with similar items
when considering whether it is material, for example impairment of intangible
assets or restructuring costs.
OPERATING SEGMENTS
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of the
Company that makes strategic decisions.
Operating profit of each reporting segment includes revenue and expenses
directly attributable to or able to be allocated on a reasonable basis.
Segment assets and liabilities are those operating assets and liabilities
directly attributable to or that can be allocated on a reasonable basis.
BUSINESS COMBINATIONS
Goodwill arising on a business combination, is not subject to amortisation but
tested for impairment on an annual basis. Intangible assets, excluding
goodwill, arising on a business combination subsequent to 1 April 2004, are
separately identified and valued, and subject to amortisation over their
estimated economic lives.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net identifiable assets of the acquired
subsidiary at the date of acquisition.
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. Impairment losses on goodwill are not reversed.
Gains and losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold. Goodwill is allocated to cash-generating
units for the purpose of impairment testing. The allocation is made to those
cash-generating units or Groups of cash-generating units that are expected to
benefit from the business combination in which the goodwill arose identified
according to operating segment. Goodwill is recorded in the currency of the
cash generating unit to which it is allocated.
INTANGIBLES
Other intangibles include brands, customer lists and computer software. They
are recognised initially at fair value determined in accordance with
appropriate valuation methodologies and subjected to amortisation and annual
impairment reviews, as follows:
(a) Brand names
Brand names, acquired as part of a business combination, are
capitalised at fair value as at the date of acquisition. They are carried at
their fair value less accumulated amortisation and any accumulated impairment
losses. Amortisation is calculated using the straight-line method to allocate
the fair value of brand names over their estimated economic life of 15-20
years.
(b) Customer lists
Customer lists, acquired as part of a business combination, are
capitalised at fair value as at the date of acquisition. They are carried at
their fair value less accumulated amortisation and any accumulated impairment
losses. Amortisation is calculated using the straight-line method to allocate
the fair value of customer relationships over their estimated economic life of
ten years. Customer lists have been valued according to discounted incremental
operating profit expected to be generated from each of them over their
useful lives of 10 years.
(c) Computer software and website costs
Computer software expenditure is capitalised at the value at the date of
acquisition and depreciated over a useful economic life of 4-6 years.
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are shown at cost less accumulated depreciation. Assets
revalued prior to the transition to IFRS use this valuation as deemed cost at
this date. Other property, plant and equipment are shown at historical cost
less accumulated depreciation. Cost includes the original purchase price of
the asset and the costs attributable to bringing the asset to its working
condition for its intended use.
Depreciation is provided at rates calculated to write off the cost or
valuation of each asset, on a straight-line basis (with the exception of tools
and moulds) over its expected useful life to its residual value, as follows:
Plant and equipment - 5 to 10 years
Motor vehicles - 4 years
Tools and moulds are depreciated at varying rates in line with the related
product production on an item-by-item basis up to a maximum of four years.
Tools and moulds purchased but not ready for production are not depreciated.
IMPAIRMENT OF NON-CURRENT ASSETS
Assets that have an indefinite useful life, for example goodwill, are not
subject to amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment when events or changes
in circumstances indicate that the carrying value may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
value exceeds its recoverable amount, which is considered to be the higher of
its value in use and fair value less costs to sell. In order to assess
impairment, assets are grouped into the lowest levels for which there are
separately identifiable cash flows (cash-generating units). Cash flows used to
assess impairment are discounted using appropriate rates taking into account
the cost of equity and any risks relevant to those assets.
INVESTMENTS
In the Company's financial statements, investments in subsidiary undertakings
are stated at cost less any impairment. Investments in associates are
recognised using the equity method of accounting, where the investments are
initially recognised at cost and adjusted thereafter to recognise the Group's
share of the profits or losses of the investee. Dividend income is shown
separately in the Statement of Comprehensive Income.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost is
predominantly determined using the first-in, first-out ('FIFO') method.
Alternative methods may be used when proven to generate no material
difference. The cost of finished goods comprise item cost, freight and any
product specific development costs.
Net realisable value is based on anticipated selling price less further costs
expected to be incurred to completion and disposal. Provisions are made
against those stocks considered to be obsolete or excess to requirements on an
item-by-item basis.
The replacement cost, based upon latest invoice prices before the balance
sheet date, is considered to be higher than the balance sheet value of
inventories at the year end due to price rises and exchange fluctuations. It
is not considered practicable to provide an accurate estimate of the
difference at the year end date.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised in the Group and
Company's statements of financial position when the Group or Company becomes a
party to the contractual provisions of the instrument.
TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost less provision for impairment. To establish the
provision for impairment, the Group applies IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime expected loss allowance
for all trade receivable.
To measure the expected credit losses, trade receivables have been grouped
based on shared credit risk characteristics and the days past due. The
expected loss rates are based on the payment profiles of sales over a period
of twelve months before 31 March 2022 and the corresponding historical credit
losses experienced within this period.
FINANCIAL LIABILITIES AND EQUITY
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the
assets of the Group and Company after deducting all of its liabilities. Equity
instruments issued by the Group and Company are recorded at the proceeds
received, net of direct issue costs.
REFUND LIABILITY
Provisions for sales returns are recognised for the products expected to be
returned. Accumulated experience is used to estimate such returns at the time
of sale at a portfolio level (expected value method).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents for the purpose of the cash flow statement includes
cash in hand, deposits at banks, other liquid investments with original
maturities of three months or less and bank overdrafts. Bank overdrafts or
loans where there is no right of set off are shown within borrowings in
current or non-current liabilities on the balance sheet as appropriate.
BORROWING COSTS
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the Statement of Comprehensive Income over the period
of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as
transaction costs of the loan to the extent that it is probable that some or
all of the facility will be drawn down. In this case, the fee is deferred
until the draw-down occurs and subsequently amortised over the life of the
facility. To the extent that there is no evidence that it is probable that
some or all of the facility will be drawn down, the fee is capitalised as a
prepayment for liquidity services and amortised over the period of the
facility to which it relates.
TRADE PAYABLES
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
TAXATION INCLUDING DEFERRED TAX
Corporation tax, where payable, is provided on taxable profits at the
current rate.
The taxation liabilities of certain Group undertakings are reduced wholly or
in part by the surrender of losses by fellow Group undertakings.
Deferred tax is provided on all temporary differences at the balance sheet
date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
Deferred tax assets are recognised for all deductible temporary differences,
carry-forward of unused tax assets and unused tax losses, to the extent that
it is probable that taxable profit will be available against which the
deductible temporary differences, and the carry-forward of unused tax assets
and unused tax losses can be utilised. The carrying amount of deferred income
tax assets is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax
liabilities, and when the deferred income tax assets and liabilities relate to
income taxes levied by the same taxation authority on either the taxable
entity or different taxable entities where there is an intention to settle the
balances on a net basis.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date. Tax relating to items
recognised directly in equity is recognised in equity and not in the Statement
of Comprehensive Income.
EMPLOYEE BENEFIT COSTS
During the year the Group operated a defined contribution money purchase
pension scheme under which it pays contributions based upon a percentage of
the members' basic salary. The scheme is administered by trustees either
appointed by the Company or elected by the members (to constitute one
third minimum).
Contributions to defined contribution pension schemes are charged to the
Statement of Comprehensive Income according to the year in which they
are payable.
Further information on pension costs and the scheme arrangements is provided
in Note 26.
The Group has a profit share scheme for all employees below Executive level.
This scheme commenced in 2020/21 with a 5% bonus for all when the Group broke
even. Thereafter, 15% of all Group operating profit will be shared between the
employees every year.
R&D COSTS
Research and development expenditure that does not meet the criteria for
capitalisation under IAS 36 is expensed as incurred.
SHARE CAPITAL AND SHARE PREMIUM
Ordinary shares issued are shown as share capital at nominal value. The
premium received on the sale of shares in excess of the nominal value is shown
as share premium within total equity.
SHARE BASED PAYMENTS
The Group has issued share options to executive directors. The fair value of
the award granted is recognised as an employee expense within the Income
Statement with a corresponding increase in equity. The fair value is measured
at the grant date and allocated over the vesting period based on the best
available estimate of the number of share options expected to vest. Estimates
are subsequently revised if there is any indication that the number of share
options expected to vest differs from previous estimates. The fair value of
the grants is measured using the Black-Scholes model.
FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group's operations expose it to a variety of financial risks that include
the effects of changes in foreign currency exchange rates, market interest
rates, credit risk and its liquidity position. The Group has in place a risk
management programme that seeks to limit adverse effects on the financial
performance of the Group by using foreign currency financial instruments.
(a) Foreign exchange risk
The Group is exposed to foreign exchange risks against Sterling
primarily on transactions in US Dollars. It enters into forward currency
contracts to hedge the cash flows of its product sourcing operation (i.e. it
buys US Dollars forwards in exchange for Sterling) and looks forward
six-twelve months on a rolling basis at forecasted purchase volumes. The
policy framework requires hedging between 70% and 100% of anticipated import
purchases that are denominated in US Dollars.
The Company has granted Euro denominated intercompany loans to subsidiary
companies that are translated to Sterling at statutory period ends thereby
creating exchange gains or losses. The loans to the subsidiaries, Hornby
Deutschland GmbH, Hornby Italia s.r.l. and Hornby France S.A.S. are classified
as long-term loans and therefore the exchange gains and losses on
consolidation are reclassified to the translation reserve in Other
Comprehensive Income as per IAS 21. The loan to the branch in Spain is
classified as a long-term loan however repayable on a shorter timescale than
those of the other subsidiaries and therefore the exchange gains or losses are
taken to Statement of Comprehensive Income.
(b) Interest rate risk
The Group finances its operations through a mixture of retained
profits, Asset Based lending facilities and shareholder loans. The Group
borrows, principally in Sterling, at floating rates of interest to meet
short-term funding requirements. At the year end the Group's borrowings were
£327,000
(c) Credit risk
The Group manages its credit risk through a combination of internal
credit management policies and procedures.
(d) Liquidity risk
At 31 March 2022 the UK had a £12 million Asset Based Lending facility with
Secure Trust Bank PLC and a £9 million loan facility with Phoenix Asset
Management Partners. The funding needs are determined by monitoring forecast
and actual cash flows. The Group regularly monitors its performance against
its banking covenants to ensure compliance.
DERIVATIVE FINANCIAL INSTRUMENTS
To manage exposure to foreign currency risk, the Group uses foreign currency
forward contracts, also known as derivative financial instruments.
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured at their fair value
at the end of each reporting period. The Group documents at the inception of
the transaction the relationship between hedging instruments and hedged items,
as well as its risk management objective and strategy for undertaking various
hedge transactions. The accounting for subsequent changes in fair value
depends on whether the derivative is designated as a hedging instrument and,
if so the nature of the item being hedged.
(a) Cash flow hedge
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges are recognised in the
hedging reserve within equity and through the Statement of Comprehensive
Income within Other Comprehensive Income. The gain or loss relating to the
ineffective portion is recognised immediately in the Statement of
Comprehensive Income within operating expenses.
Amounts accumulated in Other Comprehensive Income are recycled in
the Statement of Comprehensive Income in the periods when the hedged item
affects profit or loss (for instance when the forecast purchase that is hedged
takes place). The gain or loss relating to the effective portion of forward
foreign exchange contracts hedging import purchases is recognised in the
Statement of Comprehensive Income within 'cost of sales'. However, when the
forecast transaction that is hedged results in the recognition of a
non-financial asset (for example, inventory) the gains and losses previously
deferred in Other Comprehensive Income are transferred from Other
Comprehensive Income and included in the initial measurement of the cost of
the asset. The deferred amounts are ultimately recognised in cost of goods
sold in the case of inventory.
When a hedging instrument expires or is sold, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised in income
when the forecast transaction is ultimately recognised in the Statement of
Comprehensive Income. When a forecast transaction is no longer expected to
occur, the cumulative gain or loss is immediately transferred to the Statement
of Comprehensive Income.
(b) Derivatives that do not qualify for hedge accounting
Non derivative financial instruments comprise trade and other
receivables, cash and cash equivalents, loans and borrowings, and trade and
other payables. Unless otherwise indicated, the carrying amounts of the
Group's and the Company's financial assets and liabilities are a reasonable
approximation of their fair values
FAIR VALUE ESTIMATION
The fair values of short-term deposits, loans and overdrafts with a maturity
of less than one year are assumed to approximate to their book values.
The fair values of the derivative financial instruments used for hedging
purposes are disclosed in Note 20.
FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded in the relevant
functional currency at the exchange rates ruling at the date of the
transaction. Foreign exchange gains and losses resulting from such
transactions are recognised in the Statement of Comprehensive Income, except
when deferred and disclosed in Other Comprehensive Income as qualifying cash
flow hedges. Monetary assets and liabilities denominated in foreign currencies
are translated at the exchange rates ruling at the balance sheet date and any
exchange differences are taken to the Statement of Comprehensive Income.
Foreign exchange gains/losses recognised in the Statement of Comprehensive
Income relating to foreign currency loans and other foreign exchange
adjustments are included within operating profit.
On consolidation, the Statement of Comprehensive Income and cash flows of
foreign subsidiaries are translated into Sterling using average rates that
existed during the accounting period. The balance sheets of foreign
subsidiaries are translated into Sterling at the rates of exchange ruling at
the balance sheet date. Gains or losses arising on the translation of opening
and closing net assets are recognised in Other Comprehensive Income.
DIVIDEND DISTRIBUTION
Final dividends are recorded in the Statement of Changes in Equity in the
period in which they are approved by the Company's shareholders. Interim
dividends are recorded in the period in which they are approved and paid.
CRITICAL ESTIMATES AND JUDGEMENTS IN APPLYING THE ACCOUNTING POLICIES
The Group's estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions:
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are addressed below.
(a) Impairment of goodwill, intangibles and investments
The Group tests annually whether any goodwill, investment or intangible asset
has suffered any impairment. The recoverable amounts of cash-generating units
(CGUs) have been determined based on value-in-use calculations. The critical
areas of estimation applied within the impairment reviews conducted include
the weighted average cost of capital used in discounting the cash flows of the
cash generating units, the forecast margin growth rate, the growth rate in
perpetuity of the cash flows and the forecast operating profits of the cash
generating units. The judgements used within this assessment are set out
within Note 9.
Other estimates and assumptions:
(a) Inventory provision
Whenever there is a substantiated risk that an item of stock's sellable value
may be lower than its actual stock value, a provision for the difference
between the two values is made. Management review the stock holdings on a
regular basis and consider where a provision for excess or obsolete stock
should be made based on expected demand for the stock and its condition.
(b) Receivables provision
The Group reviews the amount of credit loss associated with its trade
receivables, intercompany receivables and other receivables based on forward
looking estimates that consider current and forecast credit conditions as
opposed to relying on past historical default rates.
(c) Fair value of derivatives
The fair value of the financial derivatives is determined by the mark to
market value at the year end date with any movement in fair value going
through Other Comprehensive Income.
(d) Refund liability
The refund liability is based on accumulated experience of returns at the time
of sale at a portfolio level (expected value method). Because the number of
products returned has been steady for years, it is highly probable that a
significant reversal in the cumulative revenue recognised will not occur. The
validity of this assumption and the estimated amount of returns are reassessed
at each reporting date. The right to the returned goods is measured by
reference to the carrying amount of the goods.
(e) IFRS 16 Estimates
The Group makes judgement to estimate the incremental borrowing rate used to
measure lease liabilities based on expected third party financing costs when
the interest rate implicit in the lease cannot be readily determined. This is
explained further in the Leases accounting policy. Where leases include break
dates the management make decisions as to whether the lease is likely to be
broken and calculations are based on this judgement.
Critical judgements in applying the Group's accounting policies:
(a) Recognition of deferred tax on losses
Deferred tax assets are recognised for deductible temporary differences,
carry-forward of unused tax assets and unused tax losses, to the extent that
it is probable that the taxable profit will be available against which the
deductible temporary differences, and the carry-forward of unused tax assets
and unused tax losses can be utilised. The carrying amount of deferred tax
assets is reviewed at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilised.
(b) Going concern
The directors apply judgement to assess whether it is appropriate for the
Group to be reported as a going concern by considering the business activities
and the Group's principal risks and uncertainties. Details of the
consideration made are included within the Directors report (page 23) and the
basis of preparation (page 39).
A number of assumptions and estimates are involved in arriving at this
judgement including management's projections of future trading performance and
expectations of the external economic environment.
2. SEGMENTAL REPORTING
Management has determined the operating segments based on the reports reviewed
by the Board (chief operating decision-maker) that are used to make
strategic decisions.
The Board considers the business from a geographic perspective.
Geographically, management considers the performance in the UK, USA, Spain,
Italy and the rest of Europe.
Although the USA segment does not meet the quantitative thresholds required by
IFRS 8, management has concluded that this segment should be reported, as it
is closely monitored by the Board as it is outside Europe.
The Company is a holding Company operating in the UK with its results given in
the Company Statement of Comprehensive Income on page 35 and its assets and
liabilities given in the Company Statement of Financial Position on page 34.
Other Company information is provided in the other notes to the accounts.
Year ended 31 March 2022
UK USA Spain Italy Rest of Total Reportable Segments £'000 Intra Group
£'000 £'000 £'000 £'000 Europe Group £'000
£'000 £'000
Revenue - External 37,748 4,551 2,181 3,401 5,858 53,739 - 53,739
- Other segments 2,791 - - - - 2,791 2,791 -
Operating Profit/(Loss) 489 (655) 125 337 649 945 - 945
Finance income - External 15 - - - - 15 - 15
- Other segments 471 - - - - 471 (471) -
Finance costs - External (339) (12) (1) (2) (4) (358) - (358)
- Other segments (175) (209) (16) (71) (471) 471 -
Share of profit of investments accounted for using the equity method (20) - - - - (20) - (20)
Profit/(Loss) before taxation 440 (667) (85) 319 575 582 - 582
Taxation 911 - - (15) - 896 - 896
Profit/(Loss) for the year 1,351 (667) (85) 304 575 1,478 - 1,478
Segment assets 63,951 2,663 6,639 269 4,743 78,265 - 78,265
Less intercompany receivables (17,572) - (5,876) (497) (3,957) (27,902) - (27,902)
Add tax assets 3,488 - - (63) 3,425 - 3,425
Total assets 49,867 2,663 763 (291) 786 53,788 - 53,788
Segment liabilities (25,098) (6,968) (5,399) (897) (6,540) (44,902) - (44,902)
Less intercompany payables 14,917 6,872 5,322 520 6,340 33,971 - 33,971
Add tax liabilities 238 - - 15 - 253 - 253
Total liabilities (9,943) (96) (77) (362) (200) (10,678) - (10,678)
Other segment items
Capital expenditure 6,086 2 2 4 - 6,094 - 6,094
Depreciation 2,217 15 3 4 - 2,239 - 2,239
Amortisation of intangible assets 485 - - - - 485 - 485
Year ended 31 March 2021
UK USA Spain Italy Rest of Total Reportable Segments £'000 Intra Group
£'000 £'000 £'000 £'000 Europe Group £'000
£'000 £'000
Revenue - External 37,428 5,233 1,012 1,719 3,157 48,549 - 48,549
- Other segments 2,603 - - - - 2,603 (2,603) -
Operating Profit/(Loss) 969 (279) (56) 10 (77) 567 - 567
Finance income - External 3 - - - - 3 - 3
- Other segments 486 - - - - 486 (486) -
Finance costs - External (308) - (3) (21) (2) (334) - (334)
- Other segments (176) - (220) (17) (73) (486) 486 -
Share of profit of investments accounted for using the equity method 109 - - - - 109 - 109
Profit/(Loss) before taxation 1,083 (279) (279) (28) (152) 345 - 345
Taxation 1,018 - - - - 1,018 - 1,018
Profit/(Loss) for the year 2,101 (279) (279) (28) (152) 1,363 - 1,363
Segment assets 59,490 2,245 5,827 (116) 4,199 71,645 - 71,645
Less intercompany receivables (16,442) - (5,738) (106) (3,456) (25,742) - (25,742)
Add tax assets 3,019 - - (63) 2,956 - 2,956
Total assets 46,067 2,245 89 (285) 743 48,859 - 48,859
Segment liabilities (17,628) (6,235) (5,213) (811) (6,607) (36,494) - (36,494)
Less intercompany payables 8,098 5,687 5,103 503 6,351 25,742 - 25,742
Add tax liabilities 150 - - - - 150 - 150
Total liabilities (9,380) (548) (110) (308) (256) (10,602) - (10,602)
Other segment items
Capital expenditure 4,953 18 - 2 2 4,975 - 4,975
Depreciation 1,701 17 5 (2) - 1,721 - 1,721
Net foreign exchange on intercompany loans (148) - - - - (148) - (148)
Amortisation of intangible assets 533 - - - - 533 - 533
All transactions between Group companies are on normal commercial terms.
3. NET FINANCE EXPENSE
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Finance costs:
Interest expense on borrowings (100) (85) - -
Interest expense on shareholder loan (92) (84) - -
Interest element of leases (166) (165) - -
Interest expense on intercompany borrowings - - (209) (220)
(358) (334) (209) (220)
Finance income:
Bank interest 15 3 - -
Interest income on intercompany loans - - 175 175
15 3 175 175
Net finance expense (343) (331) (34) (45)
4. PROFIT/(LOSS) BEFORE TAXATION
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
The following items have been included in arriving at loss before taxation:
Staff costs 11,761 9,257 1,747 834
Inventories:
- Cost of inventories recognised as an expense (included in cost of sales) 22,982 22,429 - -
- Stock provision 263 27 - -
Depreciation of property, plant and equipment:
- Owned assets 2,239 1,721 - -
- Leased assets 489 492
Repairs and maintenance expenditure on property, plant and equipment 55 81 - -
Research and development expenditure 1,501 1,320 - -
Impairment of trade receivables (61) (25) - -
Share-based payment charge 2,341 673 - -
Other operating expenses/(income):
- Foreign exchange on trading transactions 101 14 - -
- Amortisation of intangible brand assets 194 533 - -
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Exceptional items comprise:
- Restructuring costs 88 136 - -
- Relocation 9 75 - -
- Adjustment on Acquisition 219 - 219 -
- Amortisation adjustment (177) - - -
139 211 219 -
The exceptional items totalling £95,000 (2021: £211,000) include
restructuring costs relating to redundancy costs and dilapidation costs on
relocation of the Hong Kong office. These are classified as exceptional as
they are one off, non-recurring costs. In addition there is a one off cost
£219k relating to the Acquisition of LCD Enterprises Limited as detailed in
Note 8 and an overstatement of the amortisation charge in prior years as a
credit of £221,000).
Services provided by the Company's auditors and network firms
During the year the Group (including its overseas subsidiaries) obtained the
following services from the Company's auditors and network firms as
detailed below:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Fees payable to the Company's auditors for the audit of Parent Company and 33 31 11
consolidated accounts
Fees payable to the Company's auditors and its associates for other services:
- The auditing of accounts of the Company's subsidiaries 54 39 - -
- Audit-related assurance services - - - -
- Tax services 6 - -
87 76 11
Current year subsidiary fees relate to Hornby Italia (£8,000) and Hornby
Hobbies Limited (£33,000) and LCD Enterprises Limited (£12,750).
In the prior financial year the level of non-audit fees were £6k and related
to tax services and was within the 1:1 ratio to audit fees as per Audit
Committee policy.
5. INCOME TAX (CREDIT)/CHARGE
Analysis of tax (credit)/charge in the year
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Current tax - - - -
UK Taxation:
- Current 5
- Adjustments in respect of prior years (87) (92)
Overseas taxation 15
Deferred tax (Note 21) - - - -
Origination and reversal of temporary differences 57 (926) - -
Effect of tax rate change on opening balance (886) - - -
Total tax credit to the loss before tax (896) (1,018) - -
The tax for the year differs to the standard rate of corporation tax in the UK
of 19%. Any differences are explained below:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Profit/(Loss)before taxation 582 345 (1,460) (318)
Loss on ordinary activities multiplied by rate of
Corporation tax in UK of 19% (2021: 19%) 111 65 (277) (60)
Effects of:
Adjustments to tax in respect of prior years (87) (92)
Permanent differences 259 (138) 150 8
Non taxable income - (21) - (21)
Plant and machinery super-deduction (207) - - -
Difference on overseas rates of tax 66 (40) - -
Deferred tax not recognised (152) (792) 128 73
Effect of tax rate change (886) - - -
Total taxation (896) (1,018) - -
The Company's profits for this accounting year are taxed at an effective rate
of 19% (2021: 19%)
UK deferred tax balances have been restated in these accounts and carried
forward at a rate of 25% (2021: 19%)
The current rate of tax is 19%. The new rate of corporation tax of 25% comes
into effect on 1 April 2023. Therefore timing differences expected to reverse
after this rate are recognised for Deferred Tax purposes at 25%, those
expected to reverse before this date will continue to be recognised at 19%.
Unrecognised deferred tax relates to UK and overseas subsidiaries and is not
recognised, except to the extent of the prior year movement in the change in
tax rate noted above. This is due to the directors taking the view that
deferred tax should only be recognised to the extent significant taxable
profits are likely to be achieved in the short term. More detail can be found
in Note 21.
6. DIVIDENDS
No interim or final dividends were paid in relation to the year ended 31 March
2021 and no interim dividend has been paid in relation to the year ended 31
March 2022. The Directors are not proposing a final dividend in respect of the
financial year ended 31 March 2022.
7. PROFIT PER SHARE
Basic profit per share is calculated by dividing the loss attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year.
For diluted profit per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares that have satisfied the appropriate performance criteria at 31 March
2022
The underlying profit per share is shown to present a clearer view of the
trading performance of the business. Management identified the following
items, whose inclusion in performance distorts underlying trading performance:
net foreign exchange (gains)/losses on intercompany loans which are dependent
on exchange rate fluctuations and can be volatile, and the amortisation of
intangibles which results from historical acquisitions. Additionally,
share-based payments and exceptional items including relocation, refinance and
restructuring costs are one off items and therefore have also been added back
in calculating underlying profit/(loss) per share.
Reconciliations of the profit and weighted average number of shares used in
the calculations are set out below.
2022 2021
(Loss) / earnings Weighted average number of shares Per-share amount (Loss) / earnings Weighted average number of shares Per-share amount
£'000 '000s pence £'000 '000s pence
REPORTED
Basic profit per share
Profit attributable to ordinary shareholders 1,479 166,929 0.89 1,363 166,929 0.82
Effect of dilutive share options - 6,731 - - 4,127 -
Diluted profit per share 1,479 173,660 0.85 1,363 171,056 0.8
UNDERLYING
Profit attributable to ordinary shareholders 1,479 166,929 0.89 1,363 166,929 0.82
Share-based payments 1,896 1.14 545 0.33
Amortisation of intangibles 157 - 0.09 432 - 0.26
Restructuring costs 71 - 0.04 110 - 0.07
Amortisation adjustment (143) - (0.09) - - -
Relocation 7 - (0.00) 61 - 0.04
Acquisition adjustment 177 - 0.11 - - -
Underlying basic profit /EPS 3,644 166,929 2.18 2,511 166,929 1.5
Underlying diluted profit /EPS 3,644 173,660 2.10 2,511 171,056 1.47
The above numbers used to calculate the EPS for the year ended 31 March 2022
and 31 March 2021 have been tax effected at the rate of 19%.
8. BUSINESS COMBINATIONS
On 30 July 2021 the Company acquired the remaining 51 per cent. of the issued
share capital of LCD Enterprises Limited ("LCD") which it did not already
hold from Lyndon Davies, CEO of the Company, and his wife Catherine Davies,
who together owned this remaining stake.
LCD owns the Oxford Diecast Group, which supplies diecast model vehicles and
railway products to the collector, gift and hobby markets in the UK, Hong
Kong and North America.
Summary of the Acquisition
On 8 December 2017 the Company completed the acquisition of 49 per cent. of
the issued ordinary share capital of LCD, for a consideration of £1.6
million payable in cash pursuant to the LCD SPA.
The Company acquired the remaining 51% per cent. of the issued share capital
of LCD, for a total cash consideration of £1.3 million on 30 July 2021.
Management assessed the value of the existing holding of 49% and did not
consider that the investment was impaired on the basis that the 51% was
obtained at a favourable price
A purchase price allocation exercise has been completed which identified £0.3
million of acquired intangible assets relating to the Oxford Diecast brand.
The fair value of the assets acquired at completion and the consideration
payable:
Book cost Fair Vaue Adj Fair value
£'000 £'000 £'000
Intangible assets - 330 330
Property, plant and equipment 2,064 - 2,064
ROU Assets - 180 180
Inventories 2,200 - 2,200
Trade and other receivables 299 - 299
Cash and cash equivalents 285 - 285
Trade and other payables (2,015) (180) (2,195)
Deferred tax liability (83) (83)
Income tax (263) - (263)
Net assets 2,570 247 2,817
Cash consideration (2,900)
Goodwill 83
Acquisition related costs
Acquisition related costs of £nil are included in operating expenses in the
income statement.
Revenue and profit contribution
The acquired business contributed revenues of £1,897,000 and net profit of
£132,000 to the Group for the period 1 August to 31 March 2022. If the
acquisition had completed 1(st) April 2021 the contribution would have been
revenue of £2,688,000 and net profit of £136,000.
9. GOODWILL
GROUP £'000
COST
At 1 April 2021 13,052
Acquired on business combination 83
At 31 March 2022 13,135
AGGREGATE IMPAIRMENT
At 1 April 2021 and 31 March 2022 8,491
Net book amount at 31 March 2022 4,644
COST
At 1 April 2021 13,052
Exchange adjustments -
At 31 March 2022 13,052
AGGREGATE IMPAIRMENT
At 1 April 2021 and 31 March 2022 8,491
Net book amount at 31 March 2022 4,644
Net book amount at 31 March 2021 4,561
The Company has no goodwill.
The goodwill has been allocated to cash-generating units and a summary of
carrying amounts of goodwill by geographical segment (representing
cash-generating units) at 31 March 2022 and 31 March 2021 is as follows:
GROUP UK USA Germany Total
£'000 £'000 France £'000 £'000
£'000
At 31 March 2022 4,075 9 364 196 4,644
At 31 March 2021 3,992 9 364 196 4,561
Goodwill allocated to the above cash-generating units of the Group has been
measured based on benefits each geographical segment is expected to gain from
the business combination.
Impairment tests for goodwill
Management reviews the business performance based on geography. Budgeted
revenue was based on expected levels of activity given results to date,
together with expected economic and market conditions. Budgeted operating
profit was calculated based upon management's expectation of operating costs
appropriate to the business as reflected in the business plan.
The relative risk adjusted (or 'beta') discount rate applied reflects the risk
inherent in hobby-based product companies. The 31 March 2022 forecasts are
based on a 4 year business plan for the years ending 31 March 2023 to 31 March
2026. Cash flows beyond these years are extrapolated using an estimated 5.0%
year on year growth rate to 2030 and 2% thereafter. The cash flows were
discounted using a pre-tax discount rate of 11.6% (2021: 9.9%) which
management believes is appropriate for all territories.
The key assumptions used for value-in-use calculations for the year ended 31
March 2022 and 2021 are as follows:
2022
GROUP UK UK France Germany
(Corgi) (Airfix & Humbrol)
Gross Margin(1) 59.2% 63.7% 59.1% 59.0%
Growth rate to perpetuity(2) 2.0% 2.0% 2.0% 2.0%
1. Average of the variable yearly gross margins used over the period 22'23 to
29'30.
2. Weighted average growth rate used to extrapolate cash flows beyond the
budget period reflecting the long term future growth rate of the economy.
2021
GROUP UK UK France Germany
(Corgi) (Airfix & Humbrol)
Gross Margin(1) 63.7% 64.5% 57.0% 56.7%
Growth rate to perpetuity(2) 2.0% 2.0% 2.0% 2.0%
1. Average of the variable yearly gross margins used over the period 22'23 to
29'30.
2. Weighted average growth rate used to extrapolate cash flows beyond the
budget period.
These assumptions have been used for the analysis of each CGU within the
operating segments.
For the UK CGU, the recoverable amount calculated based on value in use
exceeded carrying value by £9.6 million. A reduction of the average gross
margin to respectively 56.0% for Corgi and 54.5% for Airfix / Humbrol, or a
rise in discount rate to respectively 14.6% for Corgi and 30.6% for Airfix /
Humbrol would remove the remaining headroom.
For the France CGU, the recoverable amount calculated based on value in use
exceeded carrying value by £14.0 million. A reduction of the average gross
margin to 6.8%, or a rise in discount rate to 75.1% would remove the remaining
headroom.
For the Germany CGU, the recoverable amount calculated based on value in use
exceeded carrying value by £11.2million. A reduction of the average gross
margin to 12.3%, or a rise in discount rate to 113.6% would remove the
remaining headroom.
10. INTANGIBLE ASSETS
GROUP Brand names £'000 Customer lists Computer Software and Website £'000 Total
£'000 £'000
INTANGIBLE ASSETS
COST
At 1 April 2021 4,914 1,415 4,176 10,505
Additions 286 44 149 479
At 31 March 2022 5,200 1,459 4,325 10,984
ACCUMULATED AMORTISATION
At 1 April 2022 3,439 1,415 2,634 7,488
Charge for the year 194 - 291 485
Adjustment related to prior years (177) - - (177)
At 31 March 2022 3,456 1,415 2,925 7,796
Net book amount at 31 March 2022 1,744 44 1,399 3,187
GROUP Brand names £'000 Customer lists Computer Software and Website £'000s Total
£'000 £'000
INTANGIBLE ASSETS
COST
At 1 April 2020 4,914 1,415 3,450 9,779
Additions - - 726 726
At 31 March 2021 4,914 1,415 4,176 10,505
ACCUMULATED AMORTISATION
At 1 April 2020 3,212 1,415 2,328 6,955
Charge for the year 227 - 306 533
At 31 March 2021 3,439 1,415 2,634 7,488
Net book amount at 31 March 2021 1,475 - 1,542 3,017
All amortisation charges in the year have been charged in other
operating expenses. The Company held no intangible assets. The Company holds
intangible computer software and website assets that are fully amortised but
still in use and therefore the cost is still included.
The adjustment in the amortisation charge in relation to prior years relates
to a group adjustment on transfer of intangibles from overseas subsidiaries
into the UK. The adjustment has been classed within exceptional costs.
11. PROPERTY, PLANT AND EQUIPMENT
GROUP Plant and equipment Motor Tools and moulds Total
£'000 Vehicles
£'000 £'000 £'000
COST
At 1 April 2021 1,525 54 71.601 73,180
Exchange adjustments 6 1 - 7
Additions at cost 203 - 3,348 3,551
Acquired from business combination - - 2,064 2,064
Disposals (28) - - (28)
At 31 March 2022 1,706 55 77,013 78,774
ACCUMULATED DEPRECIATION
At 1 April 2021 1,251 45 65,204 66,500
Exchange adjustments 5 1 - 6
Charge for the year 92 4 2,143 2,239
Disposals (28) - - (28)
At 31 March 2022 1,320 50 67,347 68,717
Net book amount at 31 March 2022 386 5 9,666 10,057
Depreciation is charged in the Group's statement of comprehensive income
within Administrative expenses.
GROUP Plant and equipment Motor Tools and moulds Total
£'000 Vehicles
£'000 £'000 £'000
COST
At 1 April 2020 1,529 55 67,477 69,061
Exchange adjustments (53) (1) - (54)
Additions at cost 125 - 4,124 4,249
Disposals (76) - - (76)
At 31 March 2021 1,525 54 71.601 73,180
ACCUMULATED DEPRECIATION
At 1 April 2020 1,237 42 63,617 64,896
Exchange adjustments (41) (1) - (41)
Charge for the year 130 4 1,587 1,721
Disposals (76) - - (76)
At 31 March 2021 1,251 45 65,204 66,500
Net book amount at 31 March 2021 274 9 6,397 6,680
The Company does not hold any property, plant and equipment.
12. INVESTMENTS
COMPANY
The movements in the net book value of interests in subsidiary and associated
undertakings are as follows:
Interests in subsidiary undertakings £'000 Interests in associate undertakings £'000 Loans to subsidiary undertakings Total
£'000 £'000
At 1 April 2021 17,672 1,839 4,349 23,860
Share of profit of investments accounted for using the equity method (20) (20)
LCD Acquisition 2,900 (1,819) - 1,081
Capital contribution relating to share-based payment 1,171 - - 1,171
At 31 March 2022 21,743 - 4,349 26,092
At 1 April 2020 17,336 1,730 4,349 23,415
Share of profit of investments accounted for using the equity method - 109 - 109
Capital contribution relating to share-based payment 336 - - 336
At 31 March 2021 17,672 1,839 4,349 23,860
Interest was charged on loans to subsidiary undertakings at Sterling
three-month SONIA + 3.6%.
Loans are unsecured and exceed five years' maturity.
GROUP SUBSIDIARY UNDERTAKINGS
Details of the subsidiaries of the Group are set out below. Hornby Hobbies
Limited is engaged in the development, design, sourcing and distribution of
models. Hornby America Inc., Hornby Italia s.r.l., Hornby France S.A.S.,
Hornby España S.A., Hornby Deutschland GmbH, LCD Enterprises Limited and
Oxford Diecast Limited are distributors of models. Hornby Industries
Limited,H&M (Systems) Limited and Hornby World Limited are dormant
companies. All subsidiaries are held directly by Hornby PLC with the exception
of Oxford Diecast Limited which is held by LCD Enterprises Limited.
Proportion of nominal value of issued shares held
Country of incorporation, registration and business Description of shares held Group Company
% %
Hornby Hobbies Limited Westwood, Margate, Kent CT9 4JX, UK Ordinary shares 100 100
Hornby America Inc. 3900 Industry Dr E, Fife, WA 98424, USA Ordinary shares 100 100
Hornby España S.A C/Federico Chueca, S/N, E28806 ALCALA DE HENARES Spain Ordinary shares 100 100
Hornby Italia s.r.l. Viale dei Caduti, 52/A6 25030 Castel Mella (Brescia), Italy Ordinary shares 100 100
Hornby France S.A.S. 31 Bis rue des Longs Pres, 92100 Boulogne, Billancourt, France Ordinary shares 100 100
Hornby Deutschland GmbH Oeslauer StraBe 36, 96472, Rodental, Germany Ordinary shares 100 100
Hornby Industries Limited Westwood, Margate, Kent CT9 4JX, UK Ordinary shares 100 100
H&M (Systems) Limited Westwood, Margate, Kent CT9 4JX, UK Ordinary shares 100 100
Hornby World Limited Westwood, Margate, Kent CT9 4JX, UK Ordinary shares 100 100
LCD Enterprises Limited Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB Ordinary shares 100 100
Oxford Diecast Limited Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB Ordinary shares 91 91
13. RIGHT OF USE ASSETS
GROUP Property Motor Fixtures, Fittings and Equipment Total
Vehicles
£'000
£'000 £'000 £'000
COST
At 1 April 2021 3,376 317 17 3,710
Additions at cost 189 13 2 204
Acquired from business combination 161 16 3 180
At 31 March 2022 3,726 346 22 4,094
ACCUMULATED DEPRECIATION
At 1 April 2021 851 156 13 1,020
Charge for the year 415 70 5 490
At 31 March 2022 1,266 226 18 1,510
Net book amount at 31 March 2022 2,460 120 4 2,584
GROUP Property Motor Fixtures, Fittings and Equipment Total
Vehicles
£'000
£'000 £'000 £'000
COST
At 1 April 2020 2,898 192 11 3,101
Additions at cost 478 125 6 609
At 31 March 2021 3,376 317 17 3,710
ACCUMULATED DEPRECIATION
At 1 April 2020 445 76 7 528
Charge for the year 406 80 6 492
At 31 March 2021 851 156 13 1,020
Net book amount at 31 March 2021 2,525 161 4 2,690
14. INVENTORIES
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Finished goods 16,462 15,152 - -
16,462 15,152 - -
Movements on the Group provision for impairment of inventory is as follows:
2022 2021
£'000 £'000
At 1 April 1,205 1,179
Provision for inventory impairment (56) 207
Inventory written off during the year (211) (160)
Acquired from business combination 1,486 -
Exchange adjustments 4 (21)
At 31 March 2,428 1,205
15. TRADE AND OTHER RECEIVABLES
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
CURRENT:
Trade receivables 6,208 6,893 - -
Less: loss allowance for receivables (789) (853) - -
Trade receivables - net 5,419 6,010 - -
Other receivables 1,724 270 - -
Prepayments 1,643 967 87 87
Amounts owed by subsidiary undertaking - - 47,322 48,431
8,786 7,247 47,409 48,518
We initially recognise trade and other receivables at fair value, which is
usually the original invoices amount. They are subsequently carried at
amortised cost using the effective interest method. The carrying amount of
these balances approximates to fair value due to the short maturity of amounts
receivable.
We provide goods to consumer and business customers, mainly on credit terms.
We know that certain debts due to us will not be paid through the default of a
small number of customers. Because of this, we recognise an allowance for
doubtful debts on initial recognition of receivables, which is deducted from
the gross carrying amount of the receivable. The allowance is calculated by
reference to credit losses expected to be incurred over the lifetime of the
receivable. In estimating a loss allowance we consider historical experience
and informed credit assessment alongside other factors such as the current
state of the economy and particular industry issues. We consider reasonable
and supportive information that is relevant and available without undue cost.
Once recognised, trade receivables are continuously monitored and updated.
Allowances are based on our historical loss experiences for the relevant aged
category as well as forward-looking information and general economic
conditions.
Concentrations of credit risk with respect to trade receivables are limited
due to the Group's customer base being large and unrelated and therefore the
loss allowance for trade receivables is deemed adequate. Other receivables
include deposits paid to suppliers for tooling.
Gross trade receivables can be analysed as follows:
2022 2021
£'000 £'000
Fully performing 4,470 5,320
Past due 949 690
Fully impaired 789 853
Trade receivables 6,208 6,863
As of 31 March 2022 trade receivables of £949,000 (2021: £690,000) were past
due but not impaired. These relate to a number of independent customers for
whom there is no recent history of default.
As of 31 March 2022, trade receivables of £789,000 (2021: £853,000) were
impaired and provided for in full.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses which uses a lifetime expected loss allowance for all trade
receivables.
Movements on the Group loss allowance for trade receivables is as follows:
2022 2021
£'000 £'000
At 1 April 853 1,050
(Decrease)/increase in loss allowance (61) (25)
Receivables written-off during the year as uncollectible - (140)
Exchange adjustments (3) (32)
At 31 March 789 853
The decrease in loss allowance has been included in 'administrative expenses'
in the Statement of Comprehensive Income.
Amounts owed to the Company by subsidiary undertakings are repayable on
demand, unsecured and interest bearing.
The carrying amounts of the Group and Company trade and other receivables
except prepayments and Amounts owed by subsidiary undertaking are denominated
in the following currencies:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Sterling Intercompany - - 47,322 48,431
Sterling 3,188 4,396 - -
Euro 2,657 979 - -
US Dollar 1,318 905 - -
7,163 6,280 47,322 48,431
16. CASH AND CASH EQUIVALENTS
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Cash at bank and in hand 4,139 4,685 2 2
Cash at bank of £4,139,000 (2021: £4,685,000) is with financial institutions
with a credit rating of A3 per Moody's rating agency.
17. TRADE AND OTHER PAYABLES
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
CURRENT:
Trade payables 3,919 2,833 - -
Other taxes and social security 730 1,294 32 30
Other payables 578 603 856 599
Refund liability 252 231 - -
Accruals and contract liabilities 1,893 2,170 50 73
Group receivables guarantee - - 6,020 6,020
7,372 7,131 6,958 6,722
Contract liabilities relate to payments of £178,777 (2021: £438,308)
received upfront for products where delivery is yet to take place. Delivery is
expected to take place over the next 3 months. Revenue of £438,308, deferred
in 2021, was recognised as income in the year ended 31 March 2022
18. RIGHT OF USE LEASE LIABILITIES
The movement in the right of use lease liability over the year was as follows:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
As at 1 April 2,808 2,639 - -
New leases 192 609 - -
Acquired from business combination 190 - - -
Interest payable 166 165 - -
Repayment of lease liabilities (610) (605) - -
As at 31 March 2,746 2,808 - -
Lease liability less than one year 433 365 - -
Lease liability greater than one year and less than five years 664 791 - -
Lease liability greater than five years 1,649 1,652 - -
Total Liability 2,746 2,808 - -
Maturity analysis of contracted undiscounted cashflows is as follows:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Lease liability less than one year 575 522 - -
Lease liability greater than one year and less than five years 1,134 1,378 - -
Lease liability greater than five years 2,299 2,304 - -
Total Liability 4,008 4,204 - -
Finance charges included above (1,262) (1,396) - -
2,746 2,808 - -
19. BORROWINGS
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Secured borrowing at amortised cost
CBIL Bank Loan 217 - - -
Shareholder Loan 110 - - -
Loan from subsidiary undertakings - - 5,643 5,689
327 - 5,643 5,689
Total borrowings
Amount due for settlement within 12 months 50 - - -
Amount due for settlement after 12 months 277 - 5,643 5,689
327 - 5,643 5,689
The Company borrowings are denominated in Sterling. All intercompany
borrowings are formalised by way of loan agreements. The loans can be repaid
at any time however the Company has received confirmation from its subsidiary
that they will not require payment within the next twelve months.
The principal features of the Group's borrowings are as follows:
At 31 March 2022 the UK had a £12 million Asset Based Lending facility with
PNC Credit Limited (replaced on 13 April 2022 with a £12 million Asset Based
Lending facility with Secure Trust Bank PLC (STB)) and a £9 million loan
facility with Phoenix Asset Management Partners.
The £12 million facility with STB extends until October 2024 and carries a
margin of 2.5‐3% over SONIA. The STB Facility has a fixed and floating
charge on the assets of the Group. The Company is expected to provide
customary operational covenants to STB on a monthly basis.
The Phoenix Facility is a £9 million facility with a current expiration date
of December 2023 and attracts interest at a margin of 5% over SONIA on funds
drawn. Undrawn funds attract a non‐utilisation fee of the higher of 1% or
SONIA.
LCD Enterprises Limited has a CBIL loan of £217,000 being repaid at £4,167
per month. This should be repaid by August 2026.
Undrawn borrowing facilities
At 31 March 2022, the Group had available £12,611,165 (2021: £14,380,773) of
undrawn committed borrowing facilities in respect of which all conditions
precedent had been met. The facility from Secure Trust Bank PLC has limits
based on the Group's asset position at any one time.
20. FINANCIAL INSTRUMENTS
CLASSIFICATION AND MEASUREMENT
Under IFRS 9 the Group classifies and measures its financial instruments as
follows:
• Derivative financial instruments: classified and measured at fair value
through profit or loss;
• All other financial assets: classified as receivables and measured at
amortised cost; and
• All other financial liabilities: classified as other liabilities and
measured at amortised cost.
CARRYING VALUE AND FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Amortised Cost Held at Fair Value
Financial Assets Financial Liabilities Cash flow hedges Carrying value Fair value
£'000 £'000 £'000 £'000 £'000
At 31 March 2022
Trade and other receivables 7,143 - - 7,143 7,143
Trade and other payables - (4,496) - (4,496) (4,496)
Derivative Financial instruments - - 504 504 504
Cash and cash equivalents 4,139 - - 4,139 4,139
Lease liabilities - (2,746) - (2,746) (2,746)
Amortised Cost Held at Fair Value
Financial Assets Financial Liabilities Cash flow hedges Carrying value Fair value
£'000 £'000 £'000 £'000 £'000
At 31 March 2021
Trade and other receivables 6,279 - - 6,279 6,279
Trade and other payables - (3,342) - (3,342) (3,342)
Derivative Financial instruments - - (481) (481) (481)
Cash and cash equivalents 4,685 - - 4,685 4,685
Lease liabilities - (2,808) - (2,808) (2,808)
The Group's policies and strategies in relation to risk and financial
instruments are detailed in note 1.
Assets Liabilities
GROUP 2022 2021 2022 2021
£'000 £'000 £'000 £'000
Carrying values of derivative financial instruments
Forward foreign currency contracts - cash flow hedges 504 32 - (513)
The hedged forecast transactions denominated in foreign currency are expected
to occur at various dates during the next 12 months. Gains and losses
recognised in reserves on forward foreign exchange contracts as of 31 March
2022 are recognised in the Statement of Comprehensive Income first in the
period or periods during which the hedged forecast transaction affects the
Statement of Comprehensive Income, which is within twelve months from the
balance sheet date.
At 31 March 2022 and 31 March 2021, the gross value of forward currency
contracts was as follows:
2022 2021
'000s '000s
US Dollar 20,025 22,000
The net fair value for the forward foreign currency contracts is an asset of
£504,000 (2021: £32,000 asset) and a liability of nil (2021: £513,000) of
which £504,000 net asset (2021: £481,000 liability) represents an effective
hedge at 31 March 2022 and has therefore been credited to Other Comprehensive
Income.
The Group has reviewed all contracts for embedded derivatives that are
required to be separately accounted for if they do not meet certain
requirements set out in the standard. No embedded derivatives have
been identified.
The Company has no derivative financial instruments.
Maturity of financial liabilities
GROUP 2022 2021
£'000s £'000s
Less than one year 3,730 3,957
Between one and five years 1,134 1,378
More than five years 2,299 2,304
7,163 7,639
COMPANY 2022 Intercompany Debt 2021 Intercompany Debt
£'000 £'000
More than five years (Note 19) 5,643 5,689
HIERARCHY OF FINANCIAL INSTRUMENTS
The following tables present the Group's assets and liabilities that are
measured at fair value at 31 March 2022 and 31 March 2021. The table analyses
financial instruments carried at fair value, by valuation method. The
different levels have been defined as follows:
· Quoted prices (unadjusted) in active markets for identical assets
or liabilities (Level 1).
· Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (Level 2).
· Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level 3).
There were no transfers or reclassifications between Levels within the year.
Level 2 hedging derivatives comprise forward foreign exchange contracts and
have been fair valued using forward exchange rates that are quoted in an
active market. The effects of discounting are generally insignificant for
Level 2 derivatives.
The fair value of the following financial assets and liabilities approximate
their carrying amount: Trade and other receivables, other current financial
assets, cash and cash equivalents (excluding bank overdrafts), trade and
other payables.
Financial Instruments
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Assets
Derivatives used for hedging - 504 - 504
Total assets as at 31 March 2022 - 504 - 504
Liabilities
Derivatives used for hedging - - - -
Total liabilities at 31 March 2022 - - - -
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Assets
Derivatives used for hedging - 32 - 32
Total assets as at 31 March 2021 - 32 - 32
Liabilities
Derivatives used for hedging - (513) - (513)
Total liabilities at 31 March 2021 - (513) - (513)
Interest rate sensitivity
The Group is exposed to interest rate risk as the Group borrows funds at both
fixed and floating interest rates. The exposure to these borrowings varies
during the year due to the seasonal nature of cash flows relating to sales.
In order to measure risk, floating rate borrowings and the expected interest
costs are forecast on a monthly basis and compared to budget using
management's expectations of a reasonably possible change in interest rates.
The effect on both income and equity based on exposure to borrowings at the
balance sheet date for a 1% increase in interest rates is £17,000 (2021:
£nil) before tax. A 1% fall in interest rates gives the same but opposite
effect. 1% is considered an appropriate benchmark given the minimum level of
movement in the UK interest rate over recent years and expectation over the
next financial year.
Foreign currency sensitivity in respect of financial instruments
The Group is primarily exposed to fluctuations in US Dollars, and the Euro.
The following table details how the Group's income and equity would increase
on a before tax basis, given a 10% revaluation in the respective currencies
against Sterling and in accordance with IFRS 7 all other variables remaining
constant. A 10% devaluation in the value of Sterling would have the opposite
effect. The 10% change represents a reasonably possible change in the
specified foreign exchange rates in relation to Sterling.
Comprehensive Income and Equity Sensitivity
2022 2021
£'000 £'000
US dollars 1,559 670
Euros 660 655
2,219 1,325
Capital risk management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. The ratio is
calculated as net (cash)/debt divided by total capital. Net debt is calculated
as total borrowings as shown in the Statement of Financial Position less cash
and cash equivalents. Total capital is calculated as 'equity' as shown in the
Statement of Financial Position plus net debt.
2022 2021
£'000 £'000
Total borrowings (Note 19) 327 -
Less:
Total cash and cash equivalents (Note 16) (4,139) (4,685)
Net (cash) (3,812) (4,685)
Total equity 43,110 38,257
Total capital 39,298 33,572
Gearing (10%) (14%)
21. DEFERRED TAX
Deferred tax is calculated in full on temporary differences under the
liability method.
Deferred tax assets have been recognised in respect of certain UK timing
differences only. Temporary differences giving rise to deferred tax assets
have been recognised in the UK where it is probable that those assets will
be recovered.
No deferred tax is provided for tax liabilities which would arise on the
distribution of profits retained by overseas subsidiaries because there is
currently no intention that such profits will be remitted.
The movements in deferred tax assets and liabilities during the year are shown
below.
Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset.
Acquisition intangibles Fixed Asset & Other UK temporary timing differences
Total
Deferred tax liabilities £'000 £'000 £'000
At 1 April 2021 150 - 150
Acquired on business combination 83 294 377
Charge to Statement of Comprehensive Income - 64 64
Charge to Other Comprehensive Income 127 127
At 31 March 2022 -233 485 718
At 1 April 2020 -150 - 150
Charge to Statement of Comprehensive Income - - -
At 31 March 2021 -150 - 150
Acquisition intangibles Fixed Asset & Other UK temporary timing differences
Total
Deferred tax liabilities £'000 £'000 £'000
At 1 April 2021 150 - 150
Acquired on business combination 83 294 377
Charge to Statement of Comprehensive Income - 64 64
Charge to Other Comprehensive Income 127 127
At 31 March 2022 233 485 718
At 1 April 2020 150 - 150
Charge to Statement of Comprehensive Income - - -
At 31 March 2021 150 - 150
Group Company
Deferred tax assets Acquisition intangibles Fixed Asset and other UK temporary timing differences Total Short-term incentive plan Total
£'000 £'000 £'000 £'000 £'000
At 1 April 2021 - 2,956 2,956 - -
Acquired on business combination - 61 61 - -
Credit to Statement of Comprehensive Income - 893 893 - -
At 31 March 2022 - 3,910 3,910 - -
At 1 April 2020 - 2,030 2,030 - -
Credit to Statement of Comprehensive Income - 926 926 - -
At 31 March 2021 - 2,956 2,956 - -
Net deferred tax (liability )/asset
At 31 March 2022 (233) 3,425 3,192 - -
At 31 March 2021 (150) 2,956 2, 806 - -
2022 2021
GROUP Recognised £'000 Not recognised £'000 Recognised £'000 Not recognised £'000
Deferred tax comprises:
Depreciation in excess of capital allowances 2,032 - 2,817 461
Losses and other temporary differences - UK 1,159 4,557 (11) 3,360
Losses and other temporary differences - Overseas - 2,912 - 3,327
Deferred tax asset 3,191 7,469 2,806 7,148
2022 2021
COMPANY Recognised £'000 Not recognised £'000 Recognised £'000 Not recognised £'000
Deferred tax comprises:
Other timing differences - (589) - (320)
Deferred tax (asset)/liability - (589) - (320)
The UK deferred tax asset not recognised of £4,557,000 primarily relates to
unrecognised losses in Hornby Hobbies Limited of £15,136,000 (potential
deferred tax asset of £3,784,000) and Hornby Plc of £1,459,000 (potential
deferred tax asset of £365,000). It also relates to an unrecognised gross
temporary difference of £1,632,000 related primarily to share options and
timing difference on the provision for unrealised profit.
The deferred tax asset not recognised in respect of overseas losses carried
forward of £2,912,000 relates to losses carried forward of £1,444,000 in
respect of Hornby Espana SA (potential deferred tax asset of £361,000),
£2,597,000 in respect of Hornby France SAS (potential deferred tax asset of
£649,000), £1,506,000 in respect of Hornby Deutschland GmbH (potential
deferred tax asset of £452,000), £3,650,000 in respect of Hornby Italia srl
(potential deferred tax asset of £876,000) and £2,734,000 in respect of
Hornby America Inc (potential deferred tax asset of £574,000).
22. SHARE CAPITAL
GROUP AND COMPANY
Allotted, issued and fully paid:
2022 2021
Number of shares £'000 Number of shares £'000
Ordinary shares of 1p each:
At 1 April and 31 March 166,927,838 1,669 166,927,838 1,669
23. SHARE-BASED PAYMENTS ('PSP')
All Performance Share Plan ('PSP') awards outstanding at 31 March 2022 vest
only if performance conditions are met. Awards granted under the PSP must be
exercised within six months of the relevant award vesting date.
The Group operates the PSP for Executive Directors and senior executives.
Awards under the scheme are granted in the form of a nominal-priced option,
and are satisfied using market-purchased shares. The awards in previous years
vest in full or in part dependent on the satisfaction of specified performance
targets.
The 2020 awards vest in full or in part dependent on the satisfaction of
specified performance targets.
All plans are subject to continued employment. To the extent that such shares
in the above plans are awarded to employees below fair value, a charge
calculated in accordance with IFRS 2 'Share-based payment' is included within
other operating expenses in the Statement of Comprehensive Income. This charge
for the Group amounts to £2,341,000 and the charge for the Company amounted
to £1,171,000 in the year ended 31 March 2022 (2021: £673,000 charge for the
Group and £337,000 charge for the Company).
No options were granted during the year.
2021 PSP
Fair Value 53.0p
Options pricing model used Black-Scholes (Stochastic)
Share price at grant date (p) 54.0p
Exercise price (p) 1.0p
Risk-free rate (0.5%) 0.50%
Expected option term (years) 1.5
Expected dividends (per year, %) 0%
Assumptions on expected volatility and expected option return have been made
on the basis of historical data, wherever available, for the period
corresponding with the vesting of the option. Best estimates have been used
where historical data is not available in this respect. No reasonable change
in volatility would impact on the fair value of the options granted.
24. RESERVES
GROUP
Capital Redemption Reserve
This reserve records the nominal value of shares repurchased by the Company.
Share Premium reserve
Share premium represents the excess of the fair value of consideration
received for the equity shares, net of expenses of the share issue, over the
nominal value of the equity shares.
Accumulated losses
This reserve represents accumulated gains and losses less distributions to the
shareholders.
Translation Reserve
The translation reserve represents the foreign exchange movements arising from
the translation of financial statements in foreign currencies.
Hedging Reserve
The hedging reserve comprises the effective portion of changes in the fair
value of forward foreign exchange contracts that have not yet occurred.
Other Reserves
This reserve represents historic negative goodwill arising prior to the
transition to IFRS,
Share-based payment reserve
The share-based payment reserve arises from the requirement to value share
options in existence at the fair value at the date they are granted.
COMPANY
Capital Redemption Reserve
This reserve records the nominal value of shares repurchased by the Company.
Translation Reserve
The translation reserve represents the foreign exchange movements arising from
the translation of financial statements in foreign currencies.
Other Reserves
This reserve represents the revaluation of investments in subsidiaries as
allowable under previous UK GAAP. The reserve was frozen on transition to
IFRS in 2006.
Accumulated losses
This reserve represents accumulated gains and losses less distributions to the
shareholders.
25. EMPLOYEES AND DIRECTORS
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Staff costs for the year:
Wages and salaries 7,940 7,514 482 408
Furlough scheme (1) (184) - -
Share-based payment (Note 23) 2,341 673 1,171 337
Social security costs 869 823 69 61
Other pension costs (Note 26) 478 411 29 28
Redundancy and compensation for loss of office 134 20 - -
11,761 9,257 1,751 834
The redundancy costs form part of the restructuring costs in the year
classified as exceptional items.
Average monthly number of people (including Executive Directors) employed by
the Group:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Operations 83 76 - -
Sales, marketing and distribution 92 83 - -
Administration 35 34 4 3
210 193 4 3
Key management compensation:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Salaries and short-term employee benefits 900 853 482 445
Share-based payments 2,341 673 1,171 337
Other pension costs 38 36 29 28
Redundancy and compensation for loss of office - - - -
3,279 1,562 1,682 810
Key management comprise the individuals involved in major strategic decision
making and includes all Group and subsidiary Directors.
A detailed numerical analysis of Directors' remuneration and share options
showing the highest paid Director, number of Directors accruing benefits under
money purchase pension schemes, is included in the Directors' Report on pages
25 to 30 and forms part of these financial statements.
26. PENSION COMMITMENTS
The Group operates a defined contribution pension scheme by way of a
Stakeholder Group Personal Pension Plan set up through the Friends Provident
Insurance Group.
Alexander Forbes International is appointed as Independent Financial Adviser
to work in liaison with the Group.
The level of contributions to the Group Personal Pension Plan for current
members is fixed by the Group.
The Group pension cost for the year was £478,000 (2021: £411,000)
representing the actual contributions payable in the year and certain scheme
administration costs. The Company pension cost for the year was £29,000
(2021: £28,000). No contributions were outstanding at the year end of 31
March 2022.
27. FINANCIAL COMMITMENTS
GROUP 2022 2021
£'000 £'000
At 31 March capital commitments were:
Contracted for but not provided 1,967 1,847
The commitments relate to the acquisition of property, plant and equipment.
The Company does not have any capital commitments.
Contingent Liabilities
The Company and its subsidiary undertakings are, from time to time, parties to
legal proceedings and claims, which arise in the ordinary course of business.
The Directors do not anticipate that the outcome of these proceedings and
claims, either individually or in aggregate, will have a material adverse
effect upon the Group's financial position.
28. CASH (USED IN) / GENERATED FROM OPERATIONS
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Profit/(loss) before taxation 583 345 (1,460) (318)
Interest payable 192 169 209 220
Interest paid on Lease liabilities 166 165 - -
Interest receivable (15) (3) (175) (175)
Share of profit of investments accounted for using the equity method 20 (109) 240 (109)
Disposal of equity interest 219 - - -
Amortisation of intangible assets 308 533 - -
Depreciation 2,239 1,721 - -
Depreciation on right of use assets 490 492 - -
Share-base payments (non cash) 2,341 673 1,171 337
Decrease/(increase) in inventories 994 (1,223) - -
(Increase)/Decrease in trade and other receivables (1,150) (764) (175) (64)
Increase/(Decrease) in trade and other payables (1,525) 2,373 224 154
Cash generated from/(used in) operations 4,862 4,372 34 45
29. NET FUNDS RECONCILIATION
2022 2021
£'000 £'000
Cash and cash equivalents 4,139 4,685
Borrowings - repayable within one year (50) -
Borrowings - repayable after one year (277) -
Net Funds 3,812 4,685
Cash and liquid investments 4,139 4,685
Gross debt - variable interest rates (327) -
Net Funds 3,812 4,685
30. RELATED PARTY DISCLOSURES
Hornby Hobbies Limited purchased services from a company called Rawnet Limited
which is 100% owned by Phoenix Asset Management, the controlling party of the
Group.
Therefore transactions between the parties are related party transactions and
disclosed below:
Transactions Balance at year end
Company £'000 £'000
Rawnet Limited 656 79
Phoenix Asset Management Partners who own the majority shareholding in Hornby
PLC have also provided a funding facility to the Group (see note
19).
There were no other contracts with the Company or any of its subsidiaries
existing during or at the end of the financial year in which a Director of the
Company or any of its subsidiaries was interested. There are no other
related-party transactions.
The Company received management fees from subsidiaries of £1,071,000 (2021:
£933,000), interest of £175,000 (2021: £175,000) and incurred interest of
£209,000 (2021: £220,000) on intercompany borrowings.
Hornby Plc have provided a guarantee of £6.109m against intercompany
receivables in Hornby Hobbies. This guarantee is included in liabilities.
31. ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY
The Group is 74.66% owned by Phoenix Asset Management. Artemis Fund Managers
Limited hold 16.5%. The remaining 8.84% of the shares are widely held. As a
result of these arrangements, there is no ultimate parent undertaking, and the
funds managed by Phoenix Asset Management are therefore the controlling party.
32. EVENTS AFTER THE END OF THE REPORTING PERIOD
On the 21 April 2022 we transferred our Asset Based Lending Facility from PNC
Credit Limited to Secure Trust Bank PLC.
No other significant events have occurred between the end of the reporting
period and the date of the signature of the Annual Report.
Shareholders' Information Service
Hornby welcomes contact with its shareholders.
If you have questions or enquiries about the Group or its products,
please contact:
K Gould, Chief Finance officer
Hornby PLC
Westwood
Margate
Kent CT9 4JX
www.hornby.com
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