REG - Hornby PLC - Annual Financial Report
22/06/2023 07:00
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RNS Number : 4866D Hornby PLC 22 June 2023
22 June 2023
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
2023
Highlights 2023
Revenue (2022: £53.7m)
£55.1m
Operating loss (2022: £0.9m profit)
(£5.0m)
Reported loss before taxation (2022: £0.6m profit)
(£5.9m)
Underlying1 loss before taxation (2022: £3.2m profit)
(£1.1m)
Reported loss after taxation (2022: £1.5m profit)
(£5.9m)
Reported loss per share (2022: 0.89p profit)
(3.50p)
Underlying2 basic loss per share (2022: 2.18p)
(1.22p)
Net funds (2022: £3.8m) (see Note 27)
(£5.5m)
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 (see page 11).
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
Olly Raeburn, 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
Miquela Bezuidenhoudt
020 3100 2222
Non-Executive Chairman's Report
The Strategic Report comprises the Non-Executive Chairman's report, the Chief
Executive's Report, the Operating and Financial Review of the year and our Key
Performance Indicators ('KPIs')
Revenue in the year of £55.1 million (2022: £53.7 million) was 2.5% above
the previous year. Underlying loss before tax was (£1.1) million (2022: £3.2
million profit). Reported loss was (£5.9) million (2022: £0.6 million
profit)
The year started well, but in the most important trading period October-
December the sales were very disappointing and did not hit the levels that had
been forecasted just a few months earlier.
The UK economy struggled in 2022, with growth slowing and inflation rising.
The war in Ukraine caused energy prices to rise sharply, which put a squeeze
on households who were facing higher costs and uncertainty. Our own prices
rose as factory costs increased, these were passed on to our customers.
Against this background, our manufacturing was at its highest level ever, we
closed the year with stocks of £21.3 million an increase of 29% (2022: £16.5
million). These increased stocks put a squeeze on cash.
New Product Development
In late 2022 we announced the new HM7000 system to control trains. It
completely replaces the traditional systems of train control, instead it uses
a Bluetooth® equipped phone or tablet. Key parts of the new system are
patented, it is 'backwards compatible', and it works in all the main scales
worldwide; 1:87, 1:76. N scale and Hornby's newly-launched TT scale.
Importantly, this new system doesn't just work with Hornby model trains, it
will also control trains made by competitors. Decoders will no longer be
unique to a specific train; sounds and locomotive characteristics will in
future be downloadable direct from the Hornby website. The latest Bluetooth®
mesh technology will permit thousands of trains to be controlled over the
largest model railway.
CEO
In January 2022 we announced that we had started a search for a new CEO. In
January 2023 Olly Raeburn was appointed and he is evaluating all parts of the
business and developing the strategy to move us forwards. I am very supportive
of him during this process as he get to grips with our many brands and the
short-term challenges that he faces.
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.
I am delighted that once again this year, we will be hosting our Annual
General Meeting at the Hornby headquarters in Margate on Wednesday 13
September 2023. This will be an excellent opportunity for shareholders to see
the new products for themselves and to understand the progress that the
Company is making. Personally I am looking forward to welcoming as many
shareholders as possible that are able to attend.
Lyndon Davies
Non Executive Chairman
21 June 2023
CEO Report
Having only taken up my position as CEO in January 2023, in my first report on
the business I will be reviewing performance over the last 12 months, before
highlighting some of the challenges and opportunities that lie ahead.
Whilst it's too soon to lay out a definitive strategy for the future, I will
talk to the progress that is being made and the key building blocks that will
inevitably define that strategy as it continues to take shape over the coming
months.
With that in mind, this report will address:
1. Headlines and financial overview
· Revenue growth of 2.5%, improved gross margin and D2C growth of
49%
· A shortfall versus management expectations at the top line
2. Key initiatives and continuous improvement
· Successful launches for TT:120 and Hobby Rewards, and meaningful
improvements in digital metrics
· Opportunities to further scale through ongoing focus on
execution
3. A focus on the next 12 months
· Brand and product development, pricing initiatives and evolution
of customer experience
· An outline of a few of the primary building blocks for the year
ahead
4. A return to profitable growth
· Our key focus for the future and the route to sustainable growth
· Indicative performance expectations for the year ahead
1. Headlines and financial overview
We saw a modest improvement in sales at the top line, growing 2.5% and
representing a fourth consecutive year of growth.
However, £55.1million of revenue was c10% behind management expectations.
H1 revenues were in line with budget, and a strong Q4 was ahead of plan, but
this was not sufficient to mitigate disappointing revenues in the crucial
third quarter. This Q3 underperformance was due to a mixture of overestimating
demand based on trajectory and a weakening consumer environment.
Gross margin grew from 48% to 49% and gross profit lifted by 8.5% to £26.9
million. An increase in fixed costs of c14%, ahead of anticipated revenue
growth resulted in the posting of a small underlying operating loss.
This growth in fixed costs was due to a combination of inflation in certain
cost lines (warehousing, utilities and insurance), and discretionary increases
in operating costs in regard to both digital resource and digital marketing.
These investments in operating costs equated to £1.9 million, which was 57%
of the total £3.4 million increase in the year.
Digital performance was one of the highlights of the year, delivering a 49%
revenue uplift from £5.7 million to £8.5 million.
The significant increase in gross debt from £0.3 million to £6.9m was in
part due to an over-commitment to stock derived from an expectation that the
top line revenue growth trajectory would have continued to follow that of
recent years. As a result, inventory has risen by 30%. In the year ahead, we
will seek to lower our inventory in a measured way without impacting long-term
brand equity.
Managing this inventory position and improving the way our key growth-driving
initiatives affect the top line, some of which are outlined in the following
sections of this report, are fundamental building blocks in our return to
profitability.
In the coming year we expect to deliver high single digit / low double digit
percentage growth in revenues at the top line and see a further improvement in
gross margins.
Sales and margins are in line with budget for the first two months of the
current year.
Key figures and KPI's:
2023 2022
Sales 55,105 53,739
Growth 2.5% 10.7%
Variable Costs (28,165) (28,023)
Gross Profit 26,940 25,716
Margin % 49% 48%
Fixed Costs (28,009) (24,631)
Operating Profit (1,069) 1,085
Operating margin % (1.5)% 2.0%
Underlying Operating Profit (309) 3,246
Underlying margin % (0.6%) 6.0%
KPI's
Digital sales 8,501 5,704
Growth 49.0% 15.4%
Capex 4,640 3,348
Gross profit per capex (PY capex) £8.24 £6.27
Net debt 6,867 327
Gross cash 1,337 4,139
Inventory 21,505 16,462
% of sales 39% 31%
2. Key initiatives and continuous improvement
The last 12 months have seen encouraging developments in a number of areas. It
is important that this initial momentum is maintained and built upon over the
coming year.
TT:120 Launch
November 2022 saw the launch of TT:120, arguably the first major development
in model railway systems in the UK for decades. TT:120 revenues to date are
c£1.5 million.
The TT ('Table Top') system, leverages all of our existing intellectual
property, but is at 1:120 scale, just over 35% smaller than the standard 00
gauge which is 1:76 scale.
The relative sizes of 00 and TT can be seen in the image below;
TT:120 was conceived to both create additional growth from existing
enthusiasts and to open up the hobby to a new customer group, for whom the
space required for the current OO gauge was perhaps too much of a barrier to
entry.
TT:120 was initially launched as a web exclusive, driving interest through our
direct to consumer ('D2C') channel. The first wave of sets all but sold out in
a matter of weeks, demonstrating a real appetite for the new system and the
effectiveness of our new digital platform.
This early success, driven by the anticipation created pre-launch through D2C
marketing activities, created some challenges. It meant, for example, that the
quicker than anticipated uptake left us in a position where stock availability
of the crucial entry level sets was very limited.
Sales momentum was maintained, however, through creation of bundles of
available stock.
Regular deliveries of further volumes of sets between August 2023 and January
2024, along with additional locos, coaches and system products will drive a
second significant uplift in growth of TT:120 throughout the coming year.
Hobby Rewards
Launched in November 2022, Hobby Rewards is a loyalty currency that will allow
us to create value in the relationships with our customers, vertically, within
each of our brands, and horizontally across the portfolio.
36,000 customers have signed up since launch and on average, spend from Hobby
Rewards members is c2.5 times greater than that of non-members.
Our efforts since launch have been focused on converting customers to the
programme, with an emphasis on earning rewards and accumulating value. Next
steps will see us focusing on increasing engagement and driving redemption of
rewards. With these customers signed up to a loyalty programme we can now
further grow their value over time, in a targeted and controlled way.
The opportunity for the future lies in using the data we glean from Hobby
Rewards transactions to allow us to segment and evolve customer relationships
over time. This analysis and segmentation will form the basis of an ongoing
and effective CRM programme over the coming months and years.
Digital platform
One of the largest potential drivers of value for the group is increasing the
scale and value of our direct-to-consumer business through ongoing development
in the digital channel. We started investing, with purpose, for this future
with our website re-platforming c18 months ago and continued to develop our
relationship with Rawnet, our digital development partners, throughout this
time.
This investment enabled a 49% increase in digital revenues last year. Whilst
D2C sales were only c15.5% of total sales, representing c8% of volume, this
clearly highlights the potential for future growth.
Traffic to the site increased by +5% year on year and transaction volumes grew
by +37%, driven by a +29% improvement on conversion, up to c2% across the
year.
Building on this growth through engaging with existing customers and growing
our addressable market efficiently, we are expecting to increase D2C revenues
by over 20% in the current year.
D2C represents multiple benefits including higher average sales prices, higher
gross margins and full control over pricing.
We are still at the tip of the iceberg of the potential here and it has scope
to transform the Group's profitability as we continue to both scale up and
improve execution.
The three initiatives outlined above took varying lengths of time, and varying
levels of investment, to bring to fruition and they are all still at
relatively early stages in their lifecycles. Each of them will continue to be
the subject of significant and constant energy and focus through the coming
year and will begin to make a more meaningful impact on overall performance
over time.
3. A focus on the next 12 months
I have said that it's too soon to lay out the details of a full and rounded
strategy at this stage. It is, however, clear that there are number of
foundational activities that need focus, attention and energy over the coming
months as they will provide some of the building blocks for growth into the
future.
Brand Vision and Proposition Development
Building solid foundations for future growth requires a purposeful strategy,
based on a clear understanding of each of our portfolio of brands, how they
relate to each other and how they are differentiated.
Hornby Hobbies is in a privileged position of owning a portfolio of 13 brands,
representing an unrivalled opportunity to create distinctive propositions,
tones of voice and communications plans.
The four largest revenue contributors, and best known, of these brands are
AIRFIX, CORGI, HORNBY and SCALEXTRIC. Working with a collection of such rich,
recognisable, heritage brands and defining distinctive propositions for each,
is a foundational piece of work that will form the basis of marketing planning
and investment in the coming months and years.
Developing these distinctive and authentic visions for each of the brands will
help us clearly define existing and target customers, and how we will meet
their needs most appropriately.
We have already completed the work that defines the vision and proposition for
the Hornby Hobbies umbrella brand, concluding that BUILDING HAPPINESS is the
emotional thread that runs through all of our brands, underpinned by five key
values and guiding principles.
We are now working through the portfolio brands, building a clear and
distinctive proposition for each of them that represents the ways in which
they feed the overall proposition of BUILDING HAPPINESS.
Product development and merchandising
The current inventory position clearly points to an over-commitment of stock
ahead of increased sales, but part of the story also relates to the specifics
of product development.
In some instances, like the TT:120 launch highlighted earlier, we were not
ambitious enough in our initial commitments, and in other cases we find
ourselves over-stocked on slower moving lines.
We need to improve the effectiveness of the linear relationship between
analysis of product performance, resultant product development, ranging,
inventory management and merchandising. This will have a positive impact on
our inventory position, working capital and top line performance.
Feeding the outputs of the brand work, indicated above, through the product
development process will also go some way to ensure that we are developing
product and ranges, across all brands, in a purposeful and informed way into
the future.
This brand-led, customer-led, structured, approach to product selection is
something that has not had enough focus in recent years and is a contributor
to the current Inventory position.
An increase in emphasis on commercial analysis of performance of specific
product categories, and subject matter, will improve the quality of our
decision-making moving forwards.
Entry level product and pricing
The nature of our development process, our high standards and the complexity
of some of our products, has seen our pricing create challenges in certain
scenarios.
In the domestic market, the National retailers are demanding better value and
lower prices at all times, and our pricing has also limited some of our
opportunities to grow our distribution in certain International markets.
We are, therefore, starting the process of reengineering a capsule range that
allows us to present entry level products, across some of our key brands, at
prices that are more attractive to some domestic partners and to new markets
and distributors. Bringing new customers to our brands in an affordable way is
critical to future growth.
This capsule of entry level product is likely to include re-engineered
versions of products from the Airfix, Scalextric and Hornby ranges.
Data, Loyalty and Segmentation
Our existing customer data represents a rich source of insight for developing
more targeted communications to clearly defined customer groups, segmented by
value, frequency and product choice.
We have 5 years of transaction history from our D2C channel but have not taken
full advantage of that information to develop relationships and drive
purposeful growth.
Analysing all existing customer data and building an effective and workable
customer segmentation, by brand, is a priority this year.
This segmentation work will drive our customer relationship management ('CRM')
activities moving forward, with Hobby Rewards as a currency and key tool for
establishing and growing those relationships.
We will continue to build on the initial segmentation as we gather more data
and insights from CRM campaigns over time; these insights will, in turn, drive
our decision making and resultant actions.
An effective segmentation and CRM programme are two of the fundamental
building blocks that will drive the D2C growth that represents such a powerful
opportunity for the future.
Customer Experience and Retail Development
Bringing our brands to life in a meaningful way in both physical and virtual
touchpoints will deepen engagement and drive growth as a result. Projects that
improve our online experience on our websites, as well as through social and
email channels are underway and will be completed well within the current
financial year.
Furthermore, we have been experimenting with the development of a retail
format. The fact that we own a set of established, complementary, yet
differentiated brands, that can be combined in a physical format that is
powerful and experiential, presents a great opportunity to reach, and appeal
to, a wide demographic of new customers.
We have spent time and money developing a solution and speaking to potential
partners who have cited interest in helping us roll out the format. The first
expression of the retail experience will be opened in Margate, on the site of
the current Hornby Visitor Centre, with the ambition of opening further sites
in a more traditional retail environment, in 2024 and beyond.
Given that the group currently has no direct retail presence, outside of the
Hornby Visitor Centre, we are confident that this can be a significant future
growth opportunity.
The above list is by no means exhaustive, but is indicative of the areas of
focus in the short and mid-term. Equally, it should be evident that there is a
common underlying theme across all of them that points to a greater emphasis
on better understanding, and servicing, the needs of our customers.
4. A return to profitable growth
A swing from an underlying operating profit of £3.3m to a loss of (£310K) in
12 months is obviously disappointing to have to report, and I have already
highlighted some of the factors that have resulted in this outcome.
Addressing the top line sales miss of c10% vs management expectations, the
year on year growth in the level of Net Debt and the high Inventory position
are, clearly, all priority KPIs for the year ahead.
This will be achieved through a combination of continued effort on the various
initiatives outlined in this report, most notably TT:120, Hobby Rewards and
overall Digital Improvements, and the upweighting of resource in our sales
function. A new Head of Export Sales joins the business in July and we are
well advanced in the recruitment of a new Group Sales Director.
Successfully navigating these initiatives will naturally build profitability,
allowing us to invest more in product development, creating a cycle where the
growth delivered will continually build on itself.
The business, and its current cost base, can support a materially higher level
of revenue than the level achieved in the last 12 months and we are targeting
high single digit / low double digit revenue growth in the year ahead. Gross
margins have risen, and they can rise further with increased D2C penetration.
Operating leverage should support a strong improvement in profitability.
Joining an organisation with such a rich heritage is a real privilege, but
it's the opportunity of leading the business into the future, and back into
profitable growth, that fills me with most excitement.
I look forward with great enthusiasm to leading the business through this next
stage of its evolution as we continue on the journey towards becoming a truly
effective, omni-channel organisation, for the 21(st) century.
Olly Raeburn
CEO
21 June 2023
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 future
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 future success is an 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.
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 and is an environmentally friendly way as possible.
Operating and Financial Review of the Year
Financial Review
2023 2022
Revenue £55.1m £53.7m
Gross profit £26.9m £25.7m
Gross profit margin 49.3% 47.9%
Overheads £28.0m £24.6m
Exceptionals £4.0m £0.1m
Reported (loss)/profit before tax (£5.9m) £0.6m
Underlying (loss)/profit before tax* (£1.1m) £3.26m
Reported (loss)/profit after tax (£5.9m) £1.5m
Basic (loss)/profit per share (3.50p) 0.93p
Underlying basic (loss)/profit per share* (1.23p) 2.19p
Net (debt)/funds (£5.5m) £3.8m
Undrawn Facilities £11.7m £12.6m
* 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 2023 was £55.1 million, an
increase of 2.5% compared to the previous year's £53.7 million due to a very
strong fourth quarter. The revenue in the second half of the year of £32.7
million was ahead of previous year which was £31.9 million. Gross profit
margin was higher, at 49.3% (2022: 47.9%).
Overheads increased year-on-year by 13.7% from £24.6 million to £28.0
million. UK distribution costs were higher than prior year due to increased
head count to speed up dispatch and the increased variable cost of B2C
shipments. Sales and marketing costs increased by £2.6 million year-on-year
due to ongoing investment in direct relationships with our customers.
Administration costs were £0.8 million lower due to lower PSP costs of £0.5
million (2022: £2.3 million) offset by increased insurance and utility costs.
Other operating expenses in the year of £0.7 million (2022: £0.03 million)
includes foreign exchange losses and amortization of brand names.
Exceptional costs totalling £4 million (2022: £0.01 million) are
predominantly Corgi goodwill impairment of £2.9 million, a write off of
£0.91 million of Hornby World costs and refinancing costs of £0.1 million.
We have spent the last year developing plans to launch a multi-brand retail
experience, bringing our key brands to life in a meaningful way. The aim of
this work was to explore routes for creating and testing concepts that
customers love and that can be subsequently rolled out across multiple sites,
if successful. We have learned a great deal from the development process and,
in January 2023 concluded that creating the first iteration of a new retail
experience should be done on site in Margate, by reimagining and redeveloping
the current Hornby Visitors' Centre. Whilst this decision undoubtedly means we
will be able to test and learn more effectively, helping us get to the best
solution in a controlled way, it's fair to say that the need to pivot our
approach only became clear once we had carried out a substantial amount of
development work. Consequently, we're required to write down the value of any
capitalised costs related to the development work carried out over the last 12
months, although we have taken many learnings from decisions made during the
development of the project so far, into the proposed scheme.
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
2023 2022
£'000 £'000
Statutory loss before taxation (5,875) 583
Adjustments:
Amortisation of intangibles - brands 227 194
Share-based payments 532 2,341
Exceptional items:
Restructuring costs - 88
Costs relating to Hornby World 910 -
Goodwill impairment 2,915 -
Refinancing 149 -
LCD Acquisition - 219
Relocation costs - 9
Amortisation adjustment - (177)
Underlying profit before taxation (1,142) 3,257
Segmental analysis
Third party sales by the UK business of £40 million increased by 5% in the
year as a result a significant increase in direct sales via the website. The
loss before taxation of £2.7 million compared to £0.6 million profit last
year reflects the increased overheads as a result of investment in direct
sales and a significant increase in the cost of finance (as a result of base
rate increases).
Sales by the European businesses of £10.6 million decreased by 7% in the year
as a result of supply chain delays. The profit before tax was £0.7 million
compares to £0.8 million profit last year.
Sales in the US business of £4.9 million increased by 7%. The trading loss of
£0.6 million compares to £0.7 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 £2 million to £12
million as a result of increased expenditure in tooling for new products and
technologies. Group inventories increased from £16.5 million to £21.3
million due to a weak Q3. Trade and other receivables increased by £0.4
million or 4% largely due the increase in sales compared to prior year in
fourth quarter. Trade and other payables are £0.7 million higher than
previous year due to timing of supplier payments falling due. Overall
investment in new tooling, new intangible computer software and other capital
expenditure was £5.1 million (2022: £4.0 mil lion).
Dividend
The Group is still in the turnaround phase and there will not be a dividend
payment this year (2022: £nil). The Board continues to keep the dividend
policy under review.
Financing
At 31 March 2023 the UK had a £12 million Asset Based Lending facility with
Secure Trust Bank Limited ("STB") and a £9 million loan facility with Phoenix
Asset Management Partners.
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 base rate. 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 2023 were £6,867,000 (2022: 327,000).
This consists of a CBIL loan with £167,000 outstanding (acquired with LCD),
amounts owing to STB of £4,590,000 and £2,110,000 shareholder loan drawdown.
Net debt at 31 March 2023 was £5.5 million compared with net cash of £3.8
million at 31 March 2022.
Our Key Performance Indicators ('KPIs')
The Directors are of the opinion that the financial KPIs are revenues, gross
margins, underlying operating profit, capex productivity, Inventory, Digital
Change, Variable and Fixed Costs the information for which is available in
these financial statements and summarised on the financial highlights section
earlier in this report. We provide current and historical analysis in the
CEO's 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 increase in The Group has developed clear targets and has cost saving contingencies in the
positive cash generation in 2023/24. direct 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 previous 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.
Economic climate Further cost of living increases could impact our sales The further increase could inhibit sales as less residual income. The ongoing situation is being monitored and we are ensuring that our products
are priced competitively.
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 incorporates the statements on pages 3 to 12 and has been
signed on behalf of the Board.
Kirstie Gould
Chief Finance Officer
21 June 2023
Corporate Governance Report
Corporate Governance
For the year ended 31 March 2023, 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 62 Kirstie Gould - aged 50 Daniel Carter - Henry de Zoete - aged 41 Oliver Raeburn - aged 52
aged 68 Non-Executive Chairman Chief Finance Officer aged 28 Independent Chief Executive Officer
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 Oliver Raeburn was appointed as CEO on 23 January 2023.
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 A psychology graduate of the University of Leicester, Olly's career started
He is a highly-experienced model and hobby professional with 45 years'
funds that own 73.38% of the ordinary shares of Hornby Plc. Valley start-up accelerator Y Combinator. out in advertising, including a 9 year stint as owner / manager of a London
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
agency. A move into the corporate world saw Olly spend the next 6 years as
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 Marketing Director at Coral and subsequently Brand Director for Ladbrokes and
Director. vehicles, aircraft and, more recently, rail-based products. senior management and directorship roles across a number of high growth SME
Coral in the newly formed Ladbrokes Coral PLC. Two years as Chief Marketing
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 Officer at Rank PLC were followed by a move to Paperchase as CMO in 2019.
Communications plc.
organisation 38 Degrees (2015-2018) and was a Special Adviser in Having been promoted to CEO in 2020 he guided the company through an
the Department of Education (2010-2014). Henry is currently an angel administration process during the Covid pandemic, followed by a turnaround
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 process, refinancing and sale of the business in August 2022.
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 Member Member
Kirstie Gould Member
Daniel Carter Member Member Chair
Henry De Zoete Member Member Member
Oliver Raeburn Member
Composition and independence of the Board
The Board is comprised of two executive directors and four 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. Lyndon is not considered independent due
to the time elapsed since his employment and his shareholding.
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 Non-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 Non-executive 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 CEO.
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, as a result a new CEO was recruited.
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 eleven times during the year. All directors attended all eleven
meetings apart from Henry and John attended 10 board meetings and Oliver who
attended 3 as he started late in the year.
The main activities of the Board during the year
Key Board activities this year included:
· recruitment of a new CEO
· 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.
· approving revised borrowing and credit facilities.
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 Chief Executive Officer,
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 October 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 Non-Executive 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 Non-Executive 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 2023.
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 2023. 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;
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 2024
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
2023.
Non-audit services
In addition to the audit services they provide, Crowe U.K. LLP also provide
tax compliance services. These fees are within the 1:1 ratio of audit
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
21 June 2023
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 2023 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 CEO 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;
· Succession planning and the search for and appointment of a new
CEO
· 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 17% (one) female and 83% (five)
male Board members. The Board's age demographic ranges from 28 to 68. 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
The CEO receives an annual bonus based on performance criteria. There is also
a new bonus scheme for the CEO based on the increase in the share price over
the next three years. Management have taken an accounting policy choice to
only recognise the cost when a liability actually arises which is at the date
the share price is met and the bonus determined.
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
Oliver Raeburn 23 January 2023 Rolling contract 3 months 3 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
Non-executive Chairman and Non-Executive Directors (but excluded from
discussing their personal fees). The remuneration payable to the Non-exec
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 non-executive directors
will stand for re-election at the next AGM in September 2023 with the
exception of Henry de Zoete who is standing down 30 June 2023.
Daniel Carter
Chairman of the Remuneration and Nomination Committee
21 June 2023
Directors and Corporate Information
Directors Independent Auditors
The full details of all directors who served in the year ended 31 March 2023 Crowe U.K. LLP
can be found below.
Lyndon Davies Riverside House
Non-Executive Chairman 40-46 High Street
Oliver Raeburn Maidstone
Chief Executive Officer Kent ME14 1JH
Kirstie Gould
Chief Finance Officer Solicitors
Daniel Carter Taylor Wessing LLP
Non-Executive Director 5 New Street Square
John Stansfield London EC4A 3TW
Non-Executive Director Principal Bankers
Henry de Zoete Barclays Bank PLC
Non-Executive Director 9 St George's Street
Kirstie Gould Canterbury
Company Secretary Kent CT1 2JX
Nominated Advisor and Brokers
Registered office Liberum Capital Limited
Enterprise Road Ropemaker Place
Westwood Industrial Estate 25 Ropemaker Street
Margate, Kent CT9 4JX London EC2Y 9LY
Registrars and Transfer Agents
Company Registered Number Link Asset Services
Registered in England Number: 01547390 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
2023.
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 CEO report on page 7.
Post balance sheet events are set out in note 30.
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 and Hornby World 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. Hornby
Hobbies India Private Limited was established post year end but is yet to
trade.
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 2023 are set out in the Group
Statement of Comprehensive Income. Revenue for the year was £55.1 million
compared to £53.7 million last year. The loss for the year attributable to
equity holders amounted to £5.9 million (2022: £0.6 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 CEO Statement.
No interim dividend was declared in the year (2022: £nil) and the Directors
do not recommend a final dividend (2022: £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. The Company has received a letter of support from Phoenix
Asset Management confirming their intention to provide funds to support the
Company's business plan for a minimum of twelve months from the date of
signing the financial statements. For these reasons, the Directors 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 £1.7 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.
2023 2023 2022 2022
Scope Activity Consumption kWh Consumption (tCO2e) Consumption kWh Consumption (tCO2e)
Scope 1 Business Mileage 112,748 28.3 112,647 27.3
Scope 2 Purchased Electricity 529,956 112.5 548,850 128.0
Purchased Gas 199,449 40.6 343,019 69.0
842,153 181.4 1,004,516 224.3
Intensity metric
An intensity metric of tCO2e per £m revenue has been applied for the annual
total consumption
2023 2022
tCO2e/£m Revenue 3.29 3.68
During the reporting year the gas and electricity consumption has fallen due
to proactive efforts to reduce our consumption at Head Office.
Substantial shareholdings
The Company has been notified that at close of business on 19 June 2023 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 73.38
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 21. 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 2022 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 13 September 2023. 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 2022/23 and 2021/22 in line with the Companies Act
2006 requirement:
AUDITED
Year ended Year
31 March ended
2023 31
March
2022
Basic salary Pension LTIP LTIP Total Basic salary Pension Total
& fees contributions - shares - cash & fees contributions
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
L Davies (Appointed 5 October 2017) 247 6 186 178 617 241 - 241
O Raeburn (Appointed 23 January 2023) 51 2 - - 53 - - -
K Gould (Appointed 4 January 2018) 191 36 186 178 591 158 29 187
D Carter (Appointed 16 July 2020) - - - - - - - -
J Stansfield (Appointed 4 January 2018) 51 - - - 51 71 - 71
H De Zoete (appointed 5 January 2022) 45 - - - 45 11 - 11
Total 585 44 372 356 1,357 481 29 510
Performance Share Plan awards outstanding (Audited)
At 31 March 2023, outstanding awards to Directors under the PSP were as
follows:
Director Award date Vesting date Market price at award date At 1 April 2022 Exercised during the year As at 31 March 2023
Lyndon Davies Nov-20 Jun-22 54p 1,682,633 (1,682,633) -
Kirstie Gould Nov-20 Jun-22 54p 1,682,633 (1,682,633) -
Under the terms of the LTIP, awards are subject to strict vesting criteria.
These are linked to the Company's performance 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 was achieved and 63% of the
total share options on offer were 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 2023 and
31 March 2022 were:
At At
31 March 31 March
2023 2022
number number
Executive Directors
O Raeburn - -
K Gould 786,489 55,006
Non-Executive Directors
L Davies 1,526,627 795,144
H De Zoete - -
D Carter - -
J Stansfield 85,358 85,358
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
XX June 2023
Independent auditor's report to the members of Hornby PLC
Opinion
We have audited the financial statements of Hornby Plc (the "Parent Company")
and its subsidiaries (the "Group") for the year ended 31 March 2023, which
comprise:
· the Group statement of comprehensive income for the year ended 31
March 2023;
· the Group and Parent Company statements of financial position as
at 31 March 2023;
· 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 significant
accounting policies.
The financial reporting framework that has been applied in the preparation of
the financial statements is applicable law and 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 2023 and of the Group's loss for the
period then ended;
· have been properly prepared in accordance with UK-adopted
international accounting standards;
· 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 Group and the Parent 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 directors'
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
revenue and a return to profitability;
· considering whether the forecasts will be feasible in light of
past losses and recent economic conditions;
· considering whether the group will continue to comply with
existing covenants in respect of its facilities;
· 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;
· consideration of the support provided by Phoenix Asset
Management;
· considering the cash position of the business along with current
facilities available for drawdown; and
· considering the appropriateness of the related disclosures
against the requirements of the accounting standards.
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 and 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 (2022 £250,000), based
on turnover but while considering the underlying profitability of the
business. We consider these to be the key performance metric reported by
management to shareholders to assess the performance of the business.
Materiality represents approximately less than 0.5% of turnover and 9% of loss
before tax (2022: 0.5% of turnover and 17% of profit before tax).
Overall Parent Company materiality was set at £200,000 (2022: £200,000)
based on net assets, restricted so as not to exceed Group materiality.
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 (2022: £175,000)
for the Group and £140,000 (2022: £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 (2022: £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,
Oxford Diecast Limited and Hornby World 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.
We considered going concern to be a key audit matter. Our observations on
this area are set out in the Conclusions relation to Going Concern section of
the auditors' report.
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 8, 9 and 11 We obtained an understanding of the design and tested the implementation of
controls over the valuation of these assets.
The Group holds goodwill at a carrying value of £1.7m and brand relations at
a carrying value of £1.5m. We tested management's impairment review which includes impairment reviews for
investments and intercompany debt in the parent and goodwill and intangible
The Parent Company also holds significant investments and debtor balances with assets at group level.
Group companies.
The audit work was directed at obtaining evidence on the accuracy of the
Recovery of these assets is dependent upon future cash flows which are forecasts of future cash flows which were based on board approved forecasts.
required to be discounted. There is a risk that forecasts for these future We challenged management on the assumptions made, including the forecast
cash flows are not met or that the cash flows have not been discounted at an growth rate, profitability, terminal growth rates applied and discount rate
appropriate rate. If the cash flows do not meet expectations the assets may applied. This work was conducted utilising the expertise of our valuations
become impaired team. As part of our testing we benchmarked assumptions such as the terminal
growth rate and inputs into the calculation of the cost of capital (discount
rate).
For investments and intercompany balances were considered the fair value of
the group with reference to market capitalisation of the group.
We ensured that the impairment recorded had been determined in accordance with
IAS 36.
Inventory provisioning - Note 13 We obtained an understanding of how the inventory provision was determined and
considered whether it was a reasonable basis for making such a provision.
The Group was holding £21.3m of inventory at the year end. The inventory
balance increased by £4.8m (29%) over the previous year with a risk that We obtained the aged inventory reports and tested the accuracy of the reports
older inventory is difficult to sell and there is inadequate provision. and then recalculated the provision.
We compared the assumptions used to those used in the prior year and
challenged management where assumptions had either changed or no longer
appeared appropriate.
We compared the aging of inventory year on year to consider whether the
inventory was correctly valued at the lower of cost and net realisable
value. We considered whether the increase in inventory during the year
resulted in an overstatement of inventory and challenged management to
consider whether an additional provision was required in respect of older
inventory.
For a sample of inventory items, we reviewed sales post year end to consider
if any items were being sold below cost.
For a sample of older inventory items we obtained an inventory movement report
and tested the report for accuracy. We considered the time it will take for
the inventory to sell through based upon the current run rate and whether
management's sales plans would be achievable.
Based on the audit work performed we made a significant judgement about
whether the inventory provision was appropriate.
Our audit procedures in relation to these matters were designed in the context
of our audit opinion as a whole. They 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 contained within the
annual report. 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.
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 this gives rise
to a material misstatement in the financial statements themselves. 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.
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 of laws and regulations and as regards
fraud;
• examining supporting documents for all material balances, transactions and
disclosures;
• review of the board meeting minutes;
• enquiry of management and review and inspection of relevant correspondence
with any legal firms;
• 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 is available 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
21 June 2023
Group Statement of Comprehensive Income
for the Year Ended 31 March 2023
Group
Note 2023 2022
£'000 £'000
Revenue 2 55,105 53,739
Cost of sales (28,166) (28,023)
Gross profit 26,939 25,716
Distribution costs (8,196) (6,991)
Selling and marketing costs (11,448) (8,832)
Administrative expenses (7,712) (8,514)
Other operating expenses 4 (653) (294)
Operating (loss)/profit before Exceptional items 4 (1,070) 1,085
Exceptional items 4 (3,974) (139)
Operating (loss)/profit 2 (5,044) 946
Finance income 3 11 15
Finance costs 3 (843) (358)
Net finance expense 3 (832) (343)
Share of loss of investments using the equity method 11 - (20)
(Loss)/Profit before taxation 4 (5,876) 583
Income tax credit 5 (46) 896
(Loss)/Profit for the year after taxation (5,922) 1,479
Other comprehensive income
Items that may be subsequently reclassified to profit or loss:
Cash flow hedges, net of tax (932) 858
Currency translation gains/(losses) 161 175
Other comprehensive (loss)/income for the year, net of tax (771) 1,033
Total comprehensive (loss)/income for the year (6,693) 2,512
Comprehensive income attributable to:
Equity holders of the Company (6,676) 2,500
Non-controlling interests (17) 12
(Loss)/Profit per ordinary share
Basic 7 (3.50p) 0.89p
Diluted 7 (3.50p) 0.85p
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 2023 Company
Group
Note 2023 2022 2023 2022
£'000 £'000 £'000 £'000
Assets
Non-current assets
Goodwill 8 1,732 4,644 - -
Intangible assets 9 2,986 3,187 - -
Property, plant and equipment 10 12,041 10,057 - -
Investments 11 - - 25,509 26,092
Right of Use Assets 12 2,087 2,584 - -
Deferred tax assets 20 3,571 3,425 -
22,417 23,897 25,509 26,092
Current assets
Inventories 13 21,282 16,462 - -
Trade and other receivables 14 9,181 8,786 14,978 47,410
Derivative financial instruments 19 2 504 - -
Cash and cash equivalents 15 1,337 4,139 1 2
31,802 29,891 14,979 47,412
Liabilities
Current liabilities
Borrowings 18 (6,750) (50) - -
Trade and other payables 16 (8,067) (7,372) (11,065) (6,958)
Lease liabilities 17 (409) (433) - -
Derivative financial instruments 19 (557) - - -
(15,783) (7,855) (11,065) (6,958)
Net current assets 16,019 22,036 3,914 40,454
Non-current liabilities
Borrowings 18 (117) (277) (5,871) (5,643)
Lease liabilities 17 (2,047) (2,313) - -
Deferred tax liabilities 20 (233) (233) - -
(2,397) (2,823) (5,871) (5,643)
Net assets 36,039 43,110 23,552 60,903
Group and Company Statements of Financial Position as at 31 March 2023
Group Company
Note 2023 2022 2023 2022
£'000 £'000 £'000 £'000
Equity attributable to owners of the parent
Share capital 21 1,699 1,669 1,699 1,669
Share premium 52,857 52,857 52,857 52,857
Capital redemption reserve 55 55 55 55
Translation reserve 23 (1,653) (1,814) (1,232) (963)
Hedging reserve 23 (555) 377 - -
Other reserves 23 1,688 1,688 19,145 19,145
Accumulated losses 23 (18,047) (11,734) (48,972) (11,860)
Equity attributable to PLC shareholders 36,044 43,098 23,552 60,903
Non-controlling interests (5) 12
Total equity 36,039 43,110
The Company made a loss after tax of £36,704,000 (2022: £1,460,000).
The notes on page 38 to 69 form part of these accounts. The financial
statements on pages 33 to 68 were approved by the Board of Directors on 15
June 2023 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 2023
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 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 22) - - - - - - 2,341 2,341
Total transactions with owners - - - - - - 2,341 2,341
Balance at 31 March 2022 and 1 April 2022 1,669 52,857 55 (1,814) 377 1,688 12 (11,734) 43,110
Loss for the year - - - - - - (17) (5,905) (5,922)
Other comprehensive (expense)/income for the year - - - 161 (932) - - - (771)
Total comprehensive (loss)/income for the year - - - 161 (932) - (17) (5,905) (6,693)
Transactions with owners
Share-based payments - cash (Note 22) 30 - - - - - - (940) (910)
Share-based payments - noncash (Note 22) - - - - - - - 532 532
Total transactions with owners 30 - - - - - - (408) (378)
Balance at 31 March 2023 1,699 52,857 55 (1,653) (555) 1,688 (5) (18,047) 36,039
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 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 22) - - - - - 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
Loss for the year - - - - - (36,704) (36,704)
Other comprehensive expense for the year - - - (269) - - (269)
Total comprehensive income/(expense) for the year - - - (269) - (36,704) (36,973)
Transactions with owners
Share-based payments (Note 22) 30 - - - - (408) (378)
Total transactions with owners 30 - - - - (408) (378)
Balance at 31 March 2023 1,699 52,857 55 (1,232) 19,145 (48,972) 23,552
The notes on page 37 to 69 form part of these accounts.
Group and Company Cash Flow Statements
for the Year Ended 31 March 2023
Group Company
Note 2023 2022 2023 2022
£'000 £'000 £'000 £'000
Loss before taxation (5,875) 583 (36,704) (1,460)
Interest payable 322 192 212 209
Interest paid on Lease liabilities 153 166 - -
Interest receivable (11) (15) (175) (175)
Share of profit of Minority Interest - 20 - 240
Disposal of equity interest - 219 - -
Amortisation of intangible assets 553 308 - -
Impairment of goodwill/intercompany balances 2,915 - 33,389 -
Depreciation 2,762 2,239 - -
Depreciation on right of use assets 528 490 - -
Share-based payments (non cash) 532 2,341 266 1,171
Share-based payments (cash) (940) - - -
Decrease / (increase) in inventories (4,680) 994 - -
Decrease / (increase) in trade and other receivables (373) (1,150) (870) -
(Decrease) / increase in trade and other payables 733 (1,525) 3,851 15
Cash flows from operating activities (3,381) 4,862 (31) -
Interest paid (322) (192) - -
Interest element of ROU lease payments (153) (166) - -
Net cash (used in)/generated from operating activities (3,856) 4,504 - -
Cash flows from investing activities
Purchase of business (net of cash acquired) 11 - (1,015) - -
Purchase of property, plant and equipment 10 (4,744) (3,551) - -
Purchase of intangible assets 9 (351) (149) - -
Interest received 11 15 - -
Net cash (used in)/generated from investing activities (5,084) (4,700) - -
Cash flows from financing activities
Proceeds from issuance of ordinary shares 30 - 30 -
Repayment of CBIL loan (50) (25) - -
Proceeds from Asset Based Lending Facility 4,590 - - -
Shareholder Loan 2,000 110 - -
Payment of lease liabilities (460) (446) - -
Net cash generated from/(used in) financing activities 6,110 (361) 30 -
Net (decrease)/increase in cash and cash equivalents (2,830) (557) (1) -
Cash, cash equivalents and bank overdrafts at beginning of the year 4,139 4,685 2 2
Effect of exchange rate movements 28 11 - -
Cash, cash equivalents and bank overdrafts at end of year 1,337 4,139 1 2
Cash, cash equivalents and bank overdrafts consist of:
Cash and cash equivalents 15 1,337 4,139 1 2
Cash, cash equivalents and bank overdrafts at end of year 1,337 4,139 1 2
Notes to the Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Accounting policies for the year ended 31 March 2023
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 2023 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. Under section
408 of the Companies Act 2006 the Company is exempt from the requirement to
present its own income statement or statement of comprehensive income.
The preparation of financial statements in conformity with UK-adopted IAS
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, the Directors have
a reasonable expectation that the Group and Company have adequate resources to
continue in operational existence for the foreseeable future. The Company has
received a letter of support from Phoenix Asset Management confirming their
intention to provide funds to support the Company's business plan for a
minimum of twelve months from the date of signing the financial statements.
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
depending on the terms of the contract and the amount of revenue can be
measured reliably.
(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). Goods to be returned are not recognised as
assets until they are returned and have been inspected.
(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 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 and website 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 reporting
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 2023 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).
CUSTOMER LOYALTY LIABILITY
Loyalty points issued by Hornby when a customer purchases goods from the
website are a separate performance obligation providing a material right to a
future discount. The amount allocated to loyalty points is deferred as a
contract liability within trade and other payables. Revenue is recognised as
the points are redeemed by the customer.
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 statement of financial position
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 statement of
financial position 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 25.
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.
There is a new bonus scheme for the CEO based on the increase in the share
price over the next three years. Management have taken and accounting policy
choice to only recognise the cost when a liability actually arises which is at
the date the share price is met and the bonus determined.
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 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 £6,867,000.
(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 2023 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 19.
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 8.
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 42).
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 33 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 2023
UK USA Spain Italy Rest of Total Reportable Intra Group
Europe Segments Group £'000
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue - External 39,617 4,875 1,464 3,494 5,655 55,105 - 55,105
- Other segments 3,193 - - - - 3,193 (3,193) -
Operating (Loss)/Profit before (1.467) (598) 21 371 603 (1.070) - (1,070)
exceptional items
Exceptional items (3,974) - - - - (3,974) - (3,974)
Operating Profit/(Loss) (5,441) (598) 21 371 603 (5,044) - (5,044)
Finance income - External 11 - - - - 11 - 11
- Other segments 473 - - - - 473 (473) -
Finance costs - External (825) (12) (1) (2) (3) (843) - (843)
- Other segments (174) - (212) (15) (72) (473) 473 -
Profit/(Loss) before taxation (5,956) (610) (192) 354 528 (5,876) - (5,876)
Taxation (21) - - (25) - (46) - (46)
Profit/(Loss) for the year (5,977) (610) (192) 329 528 (5,922) - (5,922)
Segment assets 65,951 2,307 6,222 198 5,401 80,079 - 80,079
Less intercompany receivables (18,215) - (6,136) (424) (4,657) (29,432) - (29,432)
Add tax assets 3,637 - - (65) 3,572 - 3,572
Total assets 51,373 2,307 86 (291) 744 54,219 - 54,219
Segment liabilities (33,244) (7,611) (5,852) (442) (6,756) (53,905) - (53,905)
Less intercompany payables 15,523 7,537 5,760 127 6,545 35,492 - 35,492
Add tax liabilities 233 - - - - 233 - 233
Total liabilities (17,488) (74) (92) (315) (211) (18,180) - (18,180)
Other segment items
Capital expenditure 4,721 16 - 7 - 4,744 - 4,744
Depreciation 2,739 17 2 4 - 2,762 - 2,762
Net foreign exchange on intercompany loans (313) - - - - (313) - (313)
Amortisation of intangible assets 553 - - - - 553 - 553
Year ended 31 March 2022
UK USA Spain Italy Rest of Total Reportable Intra Group
Europe Segments Group £'000
£'000 £'000 £'000 £'000 £'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
3. NET FINANCE EXPENSE
Group
2023 2022
£'000 £'000
Finance costs:
Interest expense on bank borrowings (322) (100)
Interest expense on shareholder loan (368) (92)
Interest element of lease payments made (153) (166)
(843) (358)
Finance income:
Bank interest 11 15
Interest income on intercompany loans - -
11 15
Net finance costs (832) (343)
4. PROFIT/(LOSS) BEFORE TAXATION
Group
2023 2022
£'000 £'000
The following items have been included in arriving at loss before taxation:
Staff costs 10,315 11,761
Inventories:
- Cost of inventories recognised as an expense (included in cost of sales) 22,754 22,982
- Stock provision 29 263
Depreciation of property, plant and equipment:
- Owned assets 2,763 2,239
- Leased assets 492 489
Repairs and maintenance expenditure on property, plant and equipment 65 55
Research and development expenditure 1,719 1,501
Impairment of trade receivables (31) (61)
Share-based payment charge 532 2,341
Goodwill impairment 2,915 -
Other operating expenses/(income):
- Foreign exchange on trading transactions 426 101
- Amortisation of intangible brand assets and customer lists 227 194
Group
2023 2022
£'000 £'000
Exceptional items comprise:
- Refinancing costs 149 -
- Hornby World Experience 910 -
- Goodwill impairment 2,915
- Restructuring costs - 88
- Relocation - 9
- Adjustment on Acquisition - 219
- Amortisation adjustment - (177)
3,974 139
The group exceptional items totalling £3,974,000 (2022: £139,000) are
refinance costs relating to the take on fees for moving to Secure Trust Bank
Plc, £2,915,000 relating to Corgi goodwill impairment and costs relating to
the Hornby World customer experience. These are classified as exceptional as
they are one off, non-recurring costs. Further detail can be found on Page 10.
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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Fees payable to the Company's auditors for the audit of Parent Company and 36 33 12 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 98 54 - -
- Audit-related assurance services - - - -
- Tax services 8 7 - -
142 94 12 11
In the prior financial year the level of non-audit fees were £8k 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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Current tax - - - -
UK Taxation:
- Current - 5 - -
- Adjustments in respect of prior years (32) (87) - -
Overseas taxation 97 15 - -
Deferred tax (Note 20) - - - -
Origination and reversal of temporary differences (19) 57 - -
Effect of tax rate change on opening balance - (886) - -
Total tax credit to the loss before tax 46 (896) - -
The tax for the year differs to the standard rate of corporation tax in the UK
of 19%. Any differences are explained below:
Group
2023 2022
£'000 £'000
Profit/(Loss)before taxation (5,876) 582
Loss on ordinary activities multiplied by rate of
Corporation tax in UK of 19% (2022: 19%) (1,116) 111
Effects of:
Adjustments to tax in respect of prior years (32) (87)
Permanent differences (35) 259
Non taxable income - -
Plant and machinery super-deduction (265) (207)
Difference on overseas rates of tax 57 66
Deferred tax not recognised 1,437 (152)
Effect of tax rate change - (886)
Total taxation 46 (896)
The Company's profits for this accounting year are taxed at an effective rate
of 19% (2022: 19%)
UK deferred tax balances have been carried forward at a rate of 25% (2022:
25%)
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%.
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 20.
6. DIVIDENDS
No interim or final dividends were paid in relation to the year ended 31 March
2022 and no interim dividend has been paid in relation to the year ended 31
March 2023. The Directors are not proposing a final dividend in respect of the
financial year ended 31 March 2023.
7. LOSS 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
2023.
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 refinance and R&D
World development 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.
2023 2022
(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 (loss)/profit per share
(Loss)/Profit attributable to ordinary shareholders (5,904) 168,812 (3.50) 1,479 166,929 0.89
Effect of dilutive share options - - - - 6,731 -
Diluted (loss)/profit per share (5,904) 168,812 (3.50) 1,479 173,660 0.85
UNDERLYING
(Loss)/Profit attributable to ordinary shareholders (5,904) 168,812 (3.50) 1,479 166,929 0.89
Share-based payments 431 - 0.26 1,896 - 1.14
Amortisation of intangibles 180 - 0.11 157 - 0.09
Refinance costs 121 - 0.07 - - -
Hornby World costs 737 - 0.44 - - -
Goodwill impairment 2,361 - 1.40
Restructuring costs - - 0.00 71 - 0.04
Amortisation adjustment - - 0.00 (143) - (0.09)
Relocation - - 0.00 7 - -
Acquisition adjustment - - 0.00 177 - 0.11
Underlying basic (loss)/profit /EPS (2,074) 168,812 (1.22) 3,644 166,929 2.18
The above numbers used to calculate the EPS for the year ended 31 March 2023
and 31 March 2022 have been tax effected at the rate of 19%.
8. GOODWILL
GROUP £'000
COST
At 1 April 2022 13,135
Exchange adjustments 3
At 31 March 2023 13,138
AGGREGATE IMPAIRMENT
At 1 April 2022 8,491
Impairment charge in the year 2,915
At 31 March 2023 11,406
Net book amount at 31 March 2023 1,732
Net book amount at 31 March 2022 4,644
The Company has no goodwill.
The goodwill impairment in the year relates to goodwill on Corgi, acquired in
2008. The Directors have taken the approach of no longer recognising this
goodwill due to an increase in the discount rate and a more prudent forecast
over the next couple of years. Details of valuation method are detailed below
in impairment tests for goodwill. The impairment charge for the year has been
included with exceptional items (see note 4).
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 2023 and 31 March 2022 is as follows:
GROUP UK France Germany USA Total
£'000 £'000 £'000 £'000 £'000
At 31 March 2023 1,160 365 197 10 1,732
At 31 March 2022 4,075 364 196 9 4,644
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 2023 forecasts are
based on a 4 year business plan for the years ending 31 March 2024 to 31 March
2027. Cash flows beyond these years are extrapolated using an estimated 2.0%
year on year growth rate. The cash flows were discounted using a pre-tax
discount rate of 15.5% (2022: 11.6%) which management believes is appropriate
for all territories.
The key assumptions used for value-in-use calculations for the year ended 31
March 2023 and 2022 are as follows:
2023
GROUP UK UK France Germany
(Corgi) (Airfix & Humbrol)
Gross Margin(1) 61.38% 65.60% 60.40% 66.90%
Growth rate to perpetuity(2) 2.00% 2.00% 2.00% 2.00%
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.
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.
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 £3.1 million. A reduction of the average gross
margin to 61.0% for Airfix / Humbrol, or a rise in discount rate to
respectively 29.4% 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 £9.9 million. A reduction of the average gross
margin to 9.6%, or a rise in discount rate to 154.0% would remove the
remaining headroom.
For the Germany CGU, the recoverable amount calculated based on value in use
exceeded carrying value by £10.4 million. A reduction of the average gross
margin to 14.2%, or a rise in discount rate to 155.1% would remove the
remaining headroom.
9. INTANGIBLE ASSETS
GROUP Brand names £'000 Customer lists Computer Software and Website £'000 Total
£'000 £'000
COST
At 1 April 2022 5,200 1,459 4,325 10,984
Additions - - 351 351
At 31 March 2023 5,200 1,459 4,676 11,335
ACCUMULATED AMORTISATION
At 1 April 2023 3,456 1,415 2,925 7,796
Charge for the year 223 4 326 553
At 31 March 2023 3,679 1,419 3,251 8,349
Net book amount at 31 March 2023 1,521 40 1,425 2,986
GROUP Brand names £'000 Customer lists Computer Software and Website £'000s Total
£'000 £'000
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
All amortisation charges in the year relating to brand names and customer
lists have been charged in other operating expenses. Amortisation in relation
to computer software and website is withing admin costs. The Group holds
intangible computer software and website assets that are fully amortised but
still in use and therefore the cost is still included.
The Company held no intangible assets.
10. PROPERTY, PLANT AND EQUIPMENT
GROUP Plant and equipment Motor Tools and moulds Total
£'000 Vehicles
£'000 £'000 £'000
COST
At 1 April 2022 1,706 55 77,013 78,774
Exchange adjustments 31 1 - 32
Additions at cost 104 - 4,640 4,744
Disposals (80) (3) - (83)
At 31 March 2023 1,761 53 81,653 83,467
ACCUMULATED DEPRECIATION
At 1 April 2022 1,320 50 67,347 68,717
Exchange adjustments 26 1 - 27
Charge for the year 150 4 2,609 2,763
Disposals (79) (2) - (81)
At 31 March 2023 1,417 53 69,956 71,426
Net book amount at 31 March 2023 344 - 11,697 12,041
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 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 Value at 31 March 2022 386 5 9,666 10,057
The Company does not hold any property, plant and equipment.
11. 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 2022 21,743 - 4,349 26,092
Capital contribution relating to share-based payment 266 - - 266
Options granted (849) - - (849)
At 31 March 2023 21,160 - 4,349 25,509
At 1 April 2021 17,672 1,839 4,349 23,860
Share of profit of investments accounted for using the equity - (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
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, Hornby Hobbies India Private
Limited, Hornby LCD Enterprises Limited and Oxford Diecast Limited are
distributors of models. Hornby World Limited is a retail and consumer
experience business. Hornby Industries Limited and H&M (Systems) 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 and Hornby Hobbies India Private Limited with 1% ownership by Hornby
Hobbies Limited.
Proportion of nominal value of issued shares held
Registered office 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
Hornby Hobbies India Private Limited 205, 2nd Floor, Plot 67, Hem Bldg Hatkesh Society, N S Road No. 8, JVPD Ordinary shares 100 99
Scheme, Vileparle West, Juhu, Mumbai-400049
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
12. RIGHT OF USE ASSETS
GROUP Property Motor Fixtures, Fittings and Equipment Total
Vehicles
£'000
£'000 £'000 £'000
COST
At 1 April 2022 3,726 346 22 4,094
Additions at cost 207 - - 207
Adjustment (176) - - (176)
Disposal - (36) - (36)
At 31 March 2023 3,757 310 22 4,089
ACCUMULATED DEPRECIATION
At 1 April 2022 1,266 226 18 1,510
Charge for the year 431 61 - 492
At 31 March 2023 1,697 287 18 2,002
Net book amount at 31 March 2023 2,060 23 4 2,087
GROUP Property Motor Fixtures, Fittings and Equipment Total
Vehicles
£'000
£'000 £'000 £'
00
0
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
The adjustment in the year relates to a lease incentive previously classified
under accruals.
13. INVENTORIES
Group Company
2023 2022 2023 20212
£'000 £'000 £'000 £'000
Finished goods 21,282 16,462 - -
21,282 16,462 - -
Movements on the Group provision for impairment of inventory is as follows:
2023 2022
£'000 £'000
At 1 April 2,428 1,205
Provision for inventory impairment 29 (56)
Inventory written-off during the year - (211)
Acquired from LCD - 1,486
Exchange adjustments (4) 4
At 31 March 2,453 2,428
14. TRADE AND OTHER RECEIVABLES
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
CURRENT:
Trade receivables 7,425 6,208 - -
Less: loss allowance for receivables (777) (789) - -
Trade receivables - net 6,648 5,419 - -
Other receivables 543 1,724 - -
Prepayments 1,990 1,643 58 87
Amounts owed by subsidiary undertaking - - 14,920 47,322
9,181 8,786 14,978 47,409
We initially recognise trade and other receivables at fair value, which is
usually the original invoiced 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 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:
2023 2022
£'000 £'000
Fully performing 6,426 4,470
Past due 222 949
Fully impaired 777 789
Trade receivables 7,425 6,208
As of 31 March 2023 trade receivables of £222,000 (2022: £949,000) 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 2023, trade receivables of £777,000 (2022: £789,000) 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:
2023 2022
£'000 £'000
At 1 April 789 853
(Decrease)/increase in loss allowance (31) (61)
Receivables written-off during the year as uncollectible - -
Exchange adjustments 19 (3)
At 31 March 777 789
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. Recoverability review is performed
annually and balances impaired if not considered recoverable. In the year the
Company has provided for an impairment on the intercompany balances of
£33,389,000 which is included within exceptional items. The fair value of the
business was used to calculate the impairment and was determined with
reference to the company's market capitalisation and share price at 31 March
2023 but adjusted based on management's understanding of the business.
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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Sterling Intercompany - - 14,978 47,322
Sterling 3,103 3,188 - -
Euro 2,657 2,657 - -
US Dollar 1,318 1,318 - -
7,078 7,163 14,978 47,322
15. CASH AND CASH EQUIVALENTS
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Cash at bank and in hand 1,337 4,139 1 2
Cash at bank of £1,337,000 (2021: £4,139,000) is with financial institutions
with a credit rating of A3 per Moody's rating agency.
16. TRADE AND OTHER PAYABLES
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
CURRENT:
Trade payables 4,194 3,919 - -
Other taxes and social security 913 730 36 32
Other payables 1,034 578 1,124 856
Refund liability 260 252 - -
Accruals and contract liabilities 1,666 1,893 47 50
Group receivables guarantee (note 28) - - 9,858 6,020
8,067 7,372 11,065 6,958
Contract liabilities relate to payments of £320,461 (2022: £178,777)
received upfront for products where delivery is yet to take place. Delivery is
expected to take place over the next 3 months. Revenue of £178,777, deferred
in 2022, was recognised as income in the year ended 31 March 2023.
Hornby Plc have provided a guarantee of £9.858 million against intercompany
receivables in Hornby Hobbies. This guarantee is included in liabilities
17. RIGHT OF USE LEASE LIABILITIES
The movement in the right of use lease liability over the year was as follows:
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
As at 1 April 2,746 2,808 - -
New leases 206 192 - -
Disposals (36)
Acquired from business combination - 190 - -
Interest payable 153 166 - -
Repayment of lease liabilities (613) (610) - -
As at 31 March 2,456 2,746 - -
Lease liability less than one year 409 433 - -
Lease liability greater than one year and less than five years 677 664 - -
Lease liability greater than five years 1,370 1,649 - -
Total Liability 2,456 2,746 - -
Maturity analysis of contracted undiscounted cashflows is as follows:
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Lease liability less than one year 544 575 - -
Lease liability greater than one year and less than five years 1,191 1,134 - -
Lease liability greater than five years 1,836 2,299 - -
Total Liability 3,571 4,008 - -
Finance charges included above (1,115) (1,262) - -
2,456 2,746 - -
18. BORROWINGS
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Secured borrowing at amortised cost
CBIL Bank Loan 167 217 - -
Asset Based Lending Facility 4,590 - - -
Shareholder Loan 2,110 110 - -
Loan from subsidiary undertakings - - 5,871 5,643
6,867 327 5,871 5,643
Total borrowings
Amount due for settlement within 12 months 6,750 50 - -
Amount due for settlement after 12 months 117 277 5,871 5,643
6,867 327 5,643 5,643
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 2023 the UK had 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 base rate. 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 £167,000 being repaid at £4,167
per month. This should be repaid by August 2026.
Undrawn borrowing facilities
At 31 March 2023, the Group had available £11,742,338 (2022: £12,611,165) 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.
19. 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 2023
Trade and other receivables 7,191 - - 7,191 7,191
Trade and other payables - (5,228) - (5,228) (5,228)
Derivative Financial instruments - - (555) (555) (555)
Cash and cash equivalents 1,337 - - 1,337 1,337
Lease liabilities - (2,456) - (2,456) (2,456)
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)
The Group's policies and strategies in relation to risk and financial
instruments are detailed in note 1.
Assets Liabilities
GROUP 2023 2022 2023 2022
£'000 £'000 £'000 £'000
Carrying values of derivative financial instruments
Forward foreign currency contracts - cash flow hedges 2 504 (557) -
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
2023 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 2023 and 31 March 2022, the gross value of forward currency
contracts was as follows:
2023 2022
'000s '000s
US Dollar 18,750 20,025
The contracts are expected to be used at various dates within the next twelve
months. The average rate for the outstanding contracts is 1.20.
The fair value for the forward foreign currency contracts is an asset of
£2,000 (2022: £504,000 asset) and a liability of £557,000 (2022: £nil) of
which £555,000 net liability (£504,000 net asset) represents an effective
hedge at 31 March 2023 and has therefore been credited to Other Comprehensive
Income. During the year hedge ineffectiveness was not considered material and
therefore no amount has been expensed.
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 2023 2022
£'000s £'000s
Less than one year 7,743 3,730
Between one and five years 117 1,134
More than five years 2,299
7,860 7,163
COMPANY 2023 Intercompany Debt 2022 Intercompany Debt
£'000 £'000
More than five years (Note 18) 5,871 5,643
HIERARCHY OF FINANCIAL INSTRUMENTS
The following tables present the Group's assets and liabilities that are
measured at fair value at 31 March 2023 and 31 March 2022. 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 - 2 - 2
Total assets as at 31 March 2023 - 2 - 2
Liabilities
Derivatives used for hedging - (557) - (557)
Total liabilities at 31 March 2023 - (557) - (557)
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 - - - -
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 £41,000 (2022:
£17,000) before tax. A 1% fall in interest rates gives the same but opposite
effect.
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
2023 2022
£'000 £'000
US dollars 714 1,559
Euros 120 660
834 2,219
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.
2023 2022
£'000 £'000
Total borrowings (Note 18) 6,867 327
Less:
Total cash and cash equivalents (Note 15) (1,337) (4,139)
Net debt (cash) 5,530 (3,812)
Total equity 36,040 43,110
Total capital 41,570 39,298
Gearing (13%) (10%)
20. 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 2022 233 485 718
Charge to Statement of Comprehensive Income - (19) (19)
Charge to Other Comprehensive Income - (127) (127)
At 31 March 2023 233 339 572
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
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 2022 - 3,910 3,910 - -
At 31 March 2023 - 3,910 3,910 - -
At 1 April 2021 - 2,956 2,956 - -
Acquired on acquisition of LCD Enterprises Limited - 61 61 - -
Charge to Statement of Comprehensive Income 893 893
At 31 March 2022 - 3,910 3,910 - -
Net deferred tax (liability)/asset
At 31 March 2023 (233) 3,571 3,338 - -
At 31 March 2022 (233) 3,425 3,192 - -
Management consider the deferred tax asset t be recoverable based on forecasts
to support the asset and a history of profits in the last two years.
2023 2022
GROUP Recognised £'000 Not recognised £'000 Recognised £'000 Not recognised £'000
Deferred tax comprises:
Depreciation in excess of capital allowances 3,338 249 2,032 -
Losses and other temporary differences - UK - 5,513 1,159 4,557
Losses and other temporary differences - Overseas - 2,212 - 2,912
Deferred tax asset 3,338 7,974 3,191 7,469
2023 2022
COMPANY Recognised £'000 Not recognised £'000 Recognised £'000 Not recognised £'000
Deferred tax comprises:
Other timing differences - (206) - (589)
Deferred tax (asset)/liability - (206) - (589)
The UK deferred tax asset not recognised of £5,762,000 primarily relates to
unrecognised losses in Hornby Hobbies Limited of £19,044,000 (potential
deferred tax asset of £4,761,000) and Hornby Plc of £824,000 (potential
deferred tax asset of £206,000). It also relates to an unrecognised gross
temporary difference of £795,000 related to timing difference on the
provision for unrealised profit.
The deferred tax asset not recognised in respect of overseas losses carried
forward of £2,212,000 relates to losses carried forward of £1,418,000 in
respect of Hornby Espana SA (potential deferred tax asset of £355,000),
£1,173,000 in respect of Hornby France SAS (potential deferred tax asset of
£353,000), £1,176,000 in respect of Hornby Deutschland GmbH (potential
deferred tax asset of £353,000), £3,324,000 in respect of Hornby Italia srl
(potential deferred tax asset of £798,000) and £3,364,000 in respect of
Hornby America Inc (potential deferred tax asset of £706,000).
No further deferred tax has been recognised at this point as management prefer
to be prudent.
21. SHARE CAPITAL
GROUP AND COMPANY
Allotted, issued and fully paid:
2023 2022
Number of shares £'000 Number of shares £'000
Ordinary shares of 1p each:
At 1 April and 31 March 169,853,770 1,699 166,927,838 1,669
22. SHARE-BASED PAYMENTS ('PSP')
The 2020 awards vested in part in June 2022 and were exercised. 63%
achievement was awarded through a mixture of shares and cash. The cash amount
totalled the employees tax liabilities on exercise of the options.
There are no Performance Share Plan ('PSP') awards outstanding at 31 March
2023.
23. 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.
24. EMPLOYEES AND DIRECTORS
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Staff costs for the year:
Wages and salaries 8,301 7,940 585 482
Furlough scheme - (1) - -
Share-based payment (Note 22 532 2,341 266 1,171
Social security costs 963 869 82 69
Other pension costs (Note 25) 520 478 44 29
Redundancy and compensation for loss of office - 134 - -
10,316 11,761 977 1,751
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
2023 2022 2023 2022
Operations 80 83 - -
Sales, marketing and distribution 98 92 - -
Administration 34 35 4 4
212 210 4 4
Key management compensation:
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Salaries and short-term employee benefits 1,022 900 585 482
Share-based payments 532 2,341 266 1,171
Other pension costs 47 38 44 29
1,601 3,279 895 1,682
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 28 and forms part of these financial statements.
25. 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 £520,000 (2022: £478,000)
representing the actual contributions payable in the year and certain scheme
administration costs. The Company pension cost for the year was £38,000
(2022: £29,000). No contributions were outstanding at the year end of 31
March 2023.
26. FINANCIAL COMMITMENTS
GROUP 2023 2022
£'000 £'000
At 31 March capital commitments were:
Contracted for but not provided 2,757 1,967
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.
27. NET FUNDS RECONCILIATION
2023 2022
£'000 £'000
Cash and cash equivalents 1,337 4,139
Borrowings - repayable within one year (6,750) (50)
Borrowings - repayable after one year (117) (277)
Net Funds (5,530) 3,812
Cash and liquid investments 1,337 4,139
Gross debt - variable interest rates (6,867) (327)
Net Funds (5,530) 3,812
Maturity of financial liabilities
GROUP Borrowings Leases Total
£'000s £'000s £'000s
At 31 March 2021 - 2,808 2,808
New leases - 192 192
Cash flows 110 (610) (500)
Interest - 166 166
Aquired as part of acquisition 217 190 407
At 31 March 2022 327 2,746 3,073
New leases - 206 206
Cash flows 6,540 (613) 5,927
Interest - 153 153
Disposal - (36) (36)
Balance at 31 March 2023 6,867 2,456 9,323
28. 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 1,201 72
Phoenix Asset Management Partners who own the majority shareholding in Hornby
PLC have also provided a funding facility to the Group (see note
18).
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 £2,188,000 (2022:
£1,071,000), interest of £175,000 (2022: £175,000) and incurred interest of
£212,000 (2022: £209,000) on intercompany borrowings.
Hornby Plc have provided a guarantee of £9,858,000 (2022: £6,020,000)
against intercompany receivables in Hornby Hobbies. This guarantee is
included in liabilities.
29. ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY
The Group is 73.38% owned by Phoenix Asset Management. Artemis Fund Managers
Limited hold 16.28%. The remaining 10.34% 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.
30. EVENTS AFTER THE END OF THE REPORTING PERIOD
No 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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