REG - Hornby PLC - Final Results <Origin Href="QuoteRef">HRN.L</Origin> - Part 2
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being approved by shareholders.
System and Cyber Risk The Group continues to invest in its E-commerce with the expansion and development of the UK Website and a programme of overseas subsidiary websites being rolled out over the coming months. Additionally the Group is implementing a new "ERP" system which will also be rolled out across the Group over the coming months. This exposes the business to greater risk of financial loss, disruption or damage to the reputation of an organisation from a failure of its information technology systems. The Group has invested significant time and cost in the new website and ERP development in the last two years. A new web team
and office have been opened and a dedicated ERP implementation team has been established from a mixture of internal and new
external resources.
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 and
quarterly. Performance against budget is monitored and where any significant deviations are identified appropriate action
is taken.
Corporate social responsibility
The Board considers the social, environmental and ethical matters pertinent to the Group, and will review items of
significance where appropriate. The risk assessment procedures in place are designed to highlight any key areas of concern
including health and safety considerations, employee recruitment and retention and environmental issues, with controls put
in place as necessary.
The Group is pro-active in working with all suppliers to ensure compliance with the International Council of Toy Industries
('ICTI') Code of Business Practices to include child and forced labour, working conditions, hours of work, pay,
non-discrimination and health and safety. Compliance is managed through an annual audit process.
Hornby Plc acknowledges the UN Guiding Principles on Business and Human Rights and has many policies and initiatives in
place to identify, prevent, mitigate and account for how we are addressing key human rights issues. We continue to work
with stakeholders to understand better and respond to these issues, however there has never been a human rights issue that
has had a direct impact on the activities of the business and accordingly the Group has nothing further to disclose.
We have a Group employee Code of Conduct which covers a wide range of human rights including discrimination and working
conditions. The Company also has HR policies, Health & Safety policies, an Anti-Bribery & Corruption Policy and a
Whistle-blowing Policy which encompass key human rights.
It is the Group's policy to recruit, train, promote and treat all personnel on grounds solely based on individual
performance. The principles are applied regardless of gender, sexual orientation, religion, age, nationality or ethnic
origin.
The Group's split between male and female employees as at 31 March 2015 is shown below:
Female Male Total
Directors - 5 5
Senior managers (including Statutory Directors of subsidiary entities) 2 8 10
Employees 87 140 227
Total 89 153 242
Environmental responsibility
The Group believes that protection of the environment is an integral part of good practice and that it should satisfy
itself that all of its operations are conducted with reasonable proper regard for the environment. It is committed to
maintaining, and wherever possible improving, the quality of this environment both for the people who work in the Group,
and for the wider community now and in the future. The Group seeks to make the most effective and efficient use of all
resources, encouraging all members of the Group to develop an ecologically sound approach to their work.
Carbon emissions data
The Group has implemented the UK Government's Guidance on measuring and reporting greenhouse gas emissions, in line with
DEFRA guidelines. We have used the UK Government Environmental Reporting Guidelines (2013), supplemented by the GHG
Protocol Corporate Accounting and Reporting Standard (revised edition) and emissions factors from UK Government's GHG
Conversion factors for Company Reporting 2013.
The GHG Protocol defines direct and indirect emissions as follows: Direct GHG emissions are emissions from sources that are
owned or controlled by the reporting entity; Indirect GHG emissions are emissions that are a consequence of the activities
of the reporting entity, but occur at sources owned or controlled by another entity. The GHG Protocol further categorizes
these direct and indirect emissions for which Hornby has responsibility to report under scope 1 and scope 2 as set out in
the following table:
· Scope 1: All direct GHG emissions.
· Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat or steam.
UK 420 522 UK 641 469
Europe 58 36 Europe 52 35
Rest of World 27 28 Rest of World 27 31
Group revenue (2014-15) £'m 58 Group revenue (2013-14) £'m 52
Intensity ratio tonnage/£'m of revenue: 19 Intensity ratio tonnage/£'m of revenue: 24
58
Group revenue (2013-14) £'m
52
Intensity ratio tonnage/£'m of revenue:
19
Intensity ratio tonnage/£'m of revenue:
24
By order of the Board
Nick Stone
Group Finance Director
18 June 2015
Directors and Corporate Information
Directors
R Ames
Chief Executive
R Canham
Executive Chairman
N P Stone
Finance Director
D Adams
Non-Executive Director
C Caminada
Non-Executive Director
Company Secretary
A Stacey
Registered office
Westwood
Margate
Kent CT9 4JX
Company Registered Number
Registered in England Number: 01547390
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
The Portland Building
25 High Street
Crawley
West Sussex RH10 1BG
Solicitors
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London EC4R 9HA
Principal Bankers
Barclays Bank PLC
9 St George's Street
Canterbury
Kent CT1 2JX
Financial Advisers and Brokers
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Registrars and Transfer Agents
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Directors' Report
The Directors submit their Annual Report together with the audited consolidated and Company financial statements for the
year ended 31 March 2015. The Corporate Governance Report on pages 17 to 20 forms part of the Directors' Report.
The Group's business review along with future developments and the principal risks and uncertainties facing the Group are
included in the Strategic review.
INFORMATION REQUIRED UNDER LISTING RULE
For financial years ended after 31 August 2014 the listing rules require certain specific disclosures. For the purposes of
LR 9.8.4CR, details of the Company's long term incentive schemes are disclosed in the Directors' remuneration report on
page 25. All other information required to be disclosed by LR 9.8.4R is not applicable for the period under review.
Principal activities
The Company is a holding company registered in England No.01547390 with a Spanish branch and has six operating
subsidiaries: Hornby Hobbies Limited in the United Kingdom with a branch in Hong Kong, Hornby America Inc. in the US,
Hornby Espana S.A. in Spain, Hornby Italia s.r.l in Italy, Hornby France S.A.S in France and Hornby Deutschland GmbH in
Germany. Hornby Plc is a public limited company which is listed on the London Stock Exchange, and incorporated and
operating in the United Kingdom. Its registered office is set out on page 13.
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 2015 are set out in the Group Statement of Comprehensive Income on page 38. Revenue
for the year was £58.1 million compared to £51.6 million last year. The loss for the year attributable to equity holders
amounted to £0.1 million (2014 - £4.4 million loss). The position of the Group and Company is set out in the Group and
Company Balance Sheets on page 39.
No interim dividend was declared in the year (2014 - £nil) and the Directors do not recommend a final dividend (2014 -
£nil).
Research and development
The Board considers that research and development into products continues to play an important role in the Group's success.
All R&D costs incurred in the year have been charged to the Statement of Comprehensive Income and are set out in note 4,
these costs all relate to research costs.
Directors
The persons who were Directors during the year and up to the date of signing the financial statements are listed below:
Richard Ames, aged 44, was appointed to the Board on 28 April 2014 and has a wealth of experience of leading fast moving
consumer facing businesses. His most recent role was as a Director of Ladbrokes PLC, where latterly he was Managing
Director of their Product Division. He joined Ladbrokes in 2005 and had run the UK and Ireland Retail operations where he
was responsible for managing a successful retail turnaround strategy. Earlier in his career he worked at Dixons Stores
Group Plc as Marketing Director in Essentials and prior to this he was the Purchasing Director in Domestic Appliances
operations. He also helped to lead the consumer electronics divisions at Asda Wal-Mart and he started his career at Philips
Consumer Electronics.
Roger Canham, aged 50, was appointed to the Board on 7 November 2012 and became Chairman on 1 February 2013. Roger has been
Chairman of Phoenix Asset Management Partners Limited ('Phoenix') since 2009 and also owns and manages a number of property
development companies. Prior to that, he was a Non-Executive Director of Goshawk Insurance Holdings PLC from 2007 until the
business was acquired in 2008, and a Director of Brake Bros Limited, for a year following its acquisition of W. Pauley & Co
Limited in 2002. Mr Canham joined W. Pauley & Co Limited in 1990 and became Managing Director in 1996.
Nick Stone, aged 51, joined the Group on 14 January 2013 and was appointed Group Finance Director on 1 February 2013. Nick
was previously the Operations and Finance Director at KBC Advanced Technologies PLC and earlier in his career was interim
Finance Director at Accidentcare Group PLC, Finance Director at Lambert Fenchurch Limited and held positions at Mobil Oil
Corporation. As announced, Nick Stone will be leaving Hornby later this summer to be replaced by Steve Cooke who will join
the business on 10 June 2015.
David Adams, aged 59, was appointed a Non-executive Director on the 9th January 2014. David is currently senior
Non-Executive Director of Halfords plc and chairs Conviviality Retail plc, Ecovision Ltd, Park Cameras Ltd, and Walk the
walk (a breast cancer charity). In addition, he is a Non-Executive Director of Fever-Tree Drinks plc. David chairs the
audit committee at Halfords and Fever-Tree Drinks. Prior to that he was Executive chairman of Jessops and Chief Financial
officer and Deputy Chief Executive officer at House of Fraser plc.
Charlie Caminada, aged 57, was appointed a Non-Executive Director on 9th January 2014. Charlie was previously Chief
Operating Officer of HIT Entertainment Plc, which is now part of Mattel. His most recent position was the Founder and Chief
Operating Officer of Ludorum, a media investment company that focused on managing IP franchises for children's
entertainment brands, including Chuggington. Charlie led the company's IPO on AIM in 2006. He is a Non-Executive Director
of Shoe Zone Plc and chairs the Remuneration Committee at the company.
The interests of the Directors in the shares of the Company and in options granted over such shares are disclosed in the
Directors' Remuneration Report on page 26.
The number of Board meetings held during the year and attendance by the Directors is set out on page 17.
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.
Substantial shareholdings
The Company has been notified that at close of business on 1 June 2015 the following parties were interested in 3% or more
of the Company's ordinary share capital.
New Pistoia Income Limited 9,126,699 23.30
Phoenix Asset Management Partners Limited 6,257,323 15.98
Electra Quoted Partners 2,995,150 7.65
Ruffer LLP 2,437,800 6.22
Artemis Fund Managers Ltd 1,312,079 3.35
Artemis Fund Managers Ltd
1,312,079
3.35
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 raise finance for the Group's operations. The Group also 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.
Personnel policies
It is the policy of the Group to follow equal opportunity employment practices and these include the full consideration of
employment prospects for the disabled.
Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant
concerned. It is the policy of the Group that the training, career development and promotion of disabled persons should, as
far as possible, be identical with that of other employees. Arrangements are made, wherever possible, for retraining
employees who become disabled, to enable them to perform work identified as appropriate to their aptitudes.
The Group places importance on the contributions to be made by all employees to the progress of the Group and aims to keep
them informed by the use of formal and informal meetings. One of the Company's incentive schemes includes share scheme
options for Directors and senior management, further detail of which is covered within the Remuneration Report on pages 25
to 26.
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.
Independent auditors
A resolution to reappoint the auditors, PricewaterhouseCoopers LLP, will be proposed at the forthcoming Annual General
Meeting.
Annual General Meeting
The Annual General Meeting is to be scheduled for Summer 2015. A notice of the Annual General Meeting will be sent out to
shareholders separately to this Annual Report and Accounts. The notice of the Annual General Meeting is important and
requires your immediate attention. If you are in any doubt as to what action to take in relation to the Annual General
Meeting, you should consult appropriate independent advisers. The following special resolutions were passed at the last
Annual General Meeting and remain in force until the next Annual General Meeting:
Resolution 10
Under section 551 of the Companies Act 2006 (the 'Act'), the Directors may allot unissued shares or grant rights over such
shares only if authorised to do so by shareholders. This resolution gives the Directors authority to allot new ordinary
shares in the capital of the Company or grant rights to subscribe for, or convert any security into, shares in the Company,
up to an aggregate nominal amount of £130,000, which represents approximately 33% of the Company's issued ordinary capital
as at 25 June 2014 (being the latest practicable date prior to the publication of this notice). This authority renews that
given at last year's Annual General Meeting and will expire at 12 noon on 9 September 2019. The Directors did not have any
present intention of exercising the authority granted by this resolution except in connection with the Company's share
schemes. However, it is considered prudent to maintain the flexibility that this authority provides.
Under the guidelines of the Association of British Insurers on authority to allot shares companies may seek basic authority
to allot new shares in an amount of up to one-third of the existing issued share capital and this request will be regarded
as routine under guidelines.
Resolution 11
It was proposed to renew the authority to the Directors to allot equity securities for cash without first being required to
offer such securities to existing members. This included the sale for cash on a non-pre-emptive basis of any shares which
the Company holds in treasury. The authority is limited to the issue of shares for cash up to an aggregate nominal amount
of £19,000 representing approximately 5% of the issued ordinary share capital of the Company as at 25 June 2014 (being the
latest practicable date prior to the publication of last year's notice). The authority will expire at the conclusion of the
next Annual General Meeting of the Company.
The Directors do not intend to issue more than 7.5% of the issued ordinary share capital of the Company in any rolling
three year period without prior consultation with the Institutional Investment Committee. Members will note that this
resolution also relates to the sale of treasury shares.
Resolution 12
The Company obtained authority to purchase up to approximately 10% of the Company's issued ordinary share capital at, or
between, the minimum and maximum prices specified in this resolution. As at 25 June 2014 (being the latest practicable date
prior to the publication of this notice), the total number of options to subscribe for shares in the Company was 365,809
(approximately 0.9% of the Company's issued ordinary share capital and approximately 2.4% of the Company's issued ordinary
share capital if the full authority proposed by resolution 12 was used and the shares purchased were cancelled). This power
would be used only after careful consideration by the Directors, having taken into account market conditions prevailing at
that time, the investment needs of the Company, its opportunities for expansion and its overall financial position. The
Directors would exercise the authority to purchase ordinary shares only if they considered it to be in the best interest of
the members and they believe that the effect of such purchases will be to increase earnings per share.
The Company (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 came into force on 1 December 2003. These
regulations allow shares repurchased by the Company to be held as treasury shares rather than being cancelled. Treasury
shares may be cancelled, resold for cash or used for the purpose of employee share schemes but all rights attaching to
them, including voting rights and any right to receive dividends, are suspended whilst they are held in treasury. The
authority sought by this resolution is intended to apply equally to shares to be held by the Company as treasury shares.
The Company currently holds no treasury shares.
The authority obtained at the Annual General Meeting will expire at the earlier of the date which falls 18 months from the
date this resolution is passed and the conclusion of the next Annual General Meeting of the Company.
Signed on behalf of the Board
N P Stone
Group Finance Director
Westwood
Margate
Kent CT9 4JX
18 June 2015
Corporate Governance
UK Corporate Governance Code
The Company recognises the importance of maintaining high standards of corporate governance. This report has been
structured to report corporate governance arrangements and practices against the requirements of the UK Corporate
Governance Code issued by the Financial Reporting Council in September 2012.
Throughout the year ended 31 March 2015, the Company has been in compliance with the Code provisions except with provision
A.2.1 of the UK Corporate Governance Code. From 1 April 2014 to June 2014, Roger Canham performed the role of Executive
Chairman. He reverted to a non-executive Chairman role from 1 June 2014 after a transition period with the appointment of
the new Chief Executive Mr Richard Ames who joined the Group on 28 April 2014.
HOW THE BOARD OPERATES
The Board is responsible for the overall conduct of the Group's business and has the powers and duties set out in the
relevant laws of England and Wales and our articles of association. The Board: is responsible for setting the Group
strategy and for the management, direction and performance of our businesses; is accountable to shareholders for the proper
conduct of the business; is responsible for the long-term success of the Company, having regard for the interests of all
stakeholders; and is responsible for ensuring the effectiveness of and reporting on our system of corporate governance.
The Board has a formal schedule of matters reserved for its decision and these include: Group strategy and long-term plans;
major capital projects, acquisitions or divestments; annual budget and operating plan; Group financial structure, including
tax and treasury; annual and half-year financial results and shareholder communications; and system of internal control and
risk management. The schedule is reviewed annually. It was last reviewed in March 2015 when it was decided that no
amendments were required.
LEADERSHIP
The Board is responsible for the long-term success of the Company and is responsible to shareholders for ensuring that the
Group is appropriately managed and achieves its objectives. The Board is also responsible for the system of corporate
governance, strategy, risk management and financial performance. The Company's governance structure is consistent with the
leadership principles set out in the Code.
The Board believes its current structure is appropriate for the scale of the business and to enable the Group to be managed
efficiently.
During the year the Board comprised the Chief Executive Officer, Chairman, Finance Director and two Non-Executive
Directors.
Chairman and Chief Executive
In the year to 31 March 2015, the roles of Chairman and Chief Executive were combined for a temporary interim period while
a new Chief Executive was recruited. With effect from 1 June 2014 after a transition period, the two roles are once again
separate with a clear division of responsibility and Roger Canham has returned to a Non-Executive Chairman role.
Senior Independent Director
David Adams is the Senior Independent Director. This role provides a point of contact to those shareholders who wish to
raise issues with the Board, other than through the Chairman.
The Board monitors the performance of the Group as a whole by:
· Engaging at Board meetings with, and challenging the Chief Executive and Group Finance Director, as appropriate, on the
financial and operating performance of the Group and external issues material to the Group's prospects;
· Evaluating progress towards the achievement of the Group's financial and business objectives and plans;
· And monitoring the significant risks facing the Group.
EFFECTIVENESS
Board composition
The Board contains a range of complementary skills, experience and knowledge that is considered appropriate for the scale
of the business. The biographical details of all Board members are provided on page 14.
The Board considers David Adams and Charlie Caminada who served during the year to be independent of management and free
from any business or other relationship which could interfere with the exercise of their independent judgement. Code
provision B.1.2 requires non-FTSE 350 companies to have at least two independent non-executive Directors.
In line with the UK Corporate Governance Code the Board has reflected on its performance and undertaken a rigorous review
of the effectiveness of the performance of the Board based on discussions between the Chairman and other members of the
Board, and has concluded that it operated effectively and executed commitment to the roles. Following the transition period
from 1 June 2014 and in line with the code the senior independent non-executive will carry out this function and perform a
detailed evaluation of the Board's ongoing effectiveness over the next year.
During the year eleven Board meetings were held. All Directors attended all meetings.
The Board has adopted a formal schedule of matters specifically reserved to it for decisions including the determination of
the strategy, the approval of business plans, budgets, acquisitions and disposals, major capital purchases, Board
appointments, accounting policies and treasury arrangements.
The Board also delegates specific responsibilities to committees as described below. The Board meets monthly and monitors
progress against plan at each meeting.
The Directors have the authority of the Board to obtain external legal or other independent professional advice in the
furtherance of their duties at the Company's expense. All Directors have access to the advice and services of the Company
Secretary, who is responsible for ensuring Board procedures are followed and applicable rules and regulations are complied
with. The Executive Directors have all received appropriate training for their appointment to the Board of a listed
company. The Non-Executive Directors bring a broad expertise to the Board. David Adams and Charlie Caminada are both
experienced company Directors.
Appointments to the Board
Nominations Committee
The Nominations Committee comprises the Executive Chairman as well as executive and Non-Executive Directors. There was one
appointment to the Board during the year ended 31 March 2015, Richard Ames who formally joined the Board on 28 April 2014
as Chief Executive. Appointments to the Board require the Board's authorisation and are conducted by the Nominations
Committee.
The duties of the Nominations Committee are available from the terms of reference and include regularly reviewing the
structure, size and composition required of the Board and making recommendations to the Board with regard to any changes,
giving full consideration to succession planning for Directors and other senior executives, identifying and nominating
candidates to fill Board vacancies and evaluating the balance of skills, knowledge and experience on the Board before an
appointment is made. The terms of reference are available on the Company's website, covering the authority delegated to it
by the Board.
The potential candidates are interviewed by either the Nominations Committee or a panel appointed by that Committee. An
appointment requires the final approval of the Board prior to an offer being forwarded.
Information and professional development
The Chief Executive is responsible for ensuring that Directors receive accurate, timely and clear information. Management
has an obligation to provide such information but Directors should seek clarification or amplification where necessary.
The Chairman is responsible for ensuring that Directors continually update their skills and the knowledge and familiarity
with the Company required to fulfil their role. Resources are available on request to develop and update the Directors'
knowledge and capabilities.
Re-election
The Company's Articles of Association currently require newly appointed Directors to offer themselves for election and one
third of the Directors to retire by rotation at each Annual General Meeting. Therefore, Richard Ames, David Adams and
Charlie Caminada offer themselves for election at the forthcoming Annual General Meeting. In accordance with the UK
Corporate Governance Code, the non-retiring Directors have conducted a review of their contribution to the Board and can
confirm that they continue to be effective Directors and to execute commitment to the role.
Audit Committee and Auditors
The Audit Committee comprises David Adams and Charlie Caminada. David Adams became Chairman of the Audit Committee on
31 January 2014. He is a Fellow of the Institute of Chartered Management Accountants and is considered by the Board to have
recent and relevant financial experience, as required by the Code. Charlie Caminada has a wide range of business
experience, which is evidenced by his biography set out in the Directors' Report.
The Committee meets at least three times a year and the Chairman, Chief Executive, Finance Director, Company Secretary and
other managers attend by invitation. The Group's Auditors attend meetings and have direct access to the Committee. The
terms of reference are available on the Company's website, covering the authority delegated to it by the Board.
Control environment
The Board has put in place an organisational structure with clearly defined and understood lines of responsibility and
delegation of authority. The Board promotes a strong control environment with a strong ethical climate.
REMUNERATION
The Remuneration Committee comprises Charlie Caminada and David Adams. Charlie Caminada is the Chairman of the Remuneration
Committee.
The Committee met three times in total during the year with all members being present. The Committee is responsible for
establishing formal and transparent procedures for determining policy on executive remuneration and advising the Board on
executive remuneration and in particular for ensuring that executive remuneration packages are sufficient to attract,
retain and motivate Executive Directors of the required quality whilst avoiding paying more than necessary. It also
endeavours to establish performance related elements of remuneration which align the interests of the Directors with those
of the shareholders. No Director is involved in deciding his own remuneration and the Board itself determines the
remuneration of the Non-Executive Directors. The terms of reference are available on the Company's website, covering the
authority delegated to it by the Board. Further detail of Directors' remuneration is provided in the Directors'
Remuneration Report.
ACCOUNTABILITY
The Board is committed to providing shareholders with a clear assessment of the Company's financial position and prospects.
This is achieved through the Annual Report and Accounts and through other periodic financial statements and announcements.
Internal Control and Risk Management
The Board is responsible for the operation and effectiveness of the Group's system of internal controls and risk
management. There is a continuous process for identifying, evaluating and managing the significant risks the Group faces.
This process has been in place throughout the year under review and up to the date of approval of the Annual Report and
Accounts, and complies fully with the Turnbull guidance.
The Audit Committee considered reports from Group financial management on the operation of, and issues arising from the
Group's internal control procedures. The Audit Committee monitored the effectiveness of the Group's risk management
process, which considered the key risks, both financial and non-financial, facing the Group and the effectiveness of the
Group's controls to manage and reduce the impact of those risks.
The Board regularly reviews the effectiveness of the Group's system of internal control. The Board's monitoring covers all
key controls, including financial, operational and compliance controls and risk management. It is based principally on
reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled
and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring.
The Audit Committee reviews and discusses with management and the external auditor the half-year and annual financial
statements focusing on, amongst other matters; the quality and acceptability of accounting policies and practices, the
clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance
reporting requirements; and material areas in which significant judgements have been applied. These are discussed further
within the Audit Committee report on pages 21 and 22.
The internal control systems are designed to meet the Group's particular needs and the risks to which it is exposed and by
their nature can only provide reasonable but not absolute assurance against misstatement or loss. During the year, the
Group continued to take action to enhance these control systems, based upon its own process improvement initiatives and
auditors' recommendations.
The Audit Committee reviews and reports to the Board on the effectiveness of the Group's systems of internal control on an
ongoing basis during the year and no significant weaknesses have been identified.
RELATIONS WITH SHAREHOLDERS
The Company communicates regularly with its institutional shareholders and encourages communication with private investors
through the Annual General Meeting.
David Adams is the senior independent Non-Executive Director. The senior independent Non-Executive Director welcomes direct
discussion with shareholders. The Executive Directors update major shareholders at institutional visits and analyst
presentations immediately after the interim and final announcements
The Board uses the Annual General Meeting as an occasion for communication with its shareholders. All proxy votes are
counted by the Company's registrars and the voting on each resolution is made available to the meeting. Directors of the
Company and the UK subsidiary attend the meeting to respond to specific questions.
Share Capital
Details of our Share Capital structure can be found on page 15 of the Directors' Report and in Note 21.
Going Concern
A review of the Group's business activities and future outlook are set out on pages 2 to 3 of the Chairman's Statement and
within pages 4 to 7 of the Strategic Review. The financial position of the Group, its cash flows and liquidity position are
shown in the balance sheet, cash flow statement and accompanying notes to the financial statements. The principal business
risks associated with the business are shown on pages 10 to 11, whilst the risks arising from the Group's financial
instruments are covered in note 19.
The Directors, in their consideration of going concern, have reviewed the Group's future cash flow forecasts and revenue
projections, which they believe are based on a realistic assessment of future business performance. These models have been
reviewed with the Group's external advisors to ensure they are robust and the assumptions made within the underlying
principles of the model are realistic. As a result discussions were held recently with the larger shareholders and a
proposal to raise £15 million of new equity is to be put to a general meeting on 13 July 2015. Conditional on the approval
of this new equity raise, a new facility which extends to August 2019 has been agreed with the Group's principal banker.
The Group's forecasts and projections, taking account of reasonable possible changes in trading performance, show that the
Group should be able to operate within the levels of its new facilities assuming the new equity proposals are approved by
shareholders. Accordingly the Directors believe it appropriate to prepare the financial statements of the Group on a going
concern basis.
However as the current fundraise and resulting move to AIM has not yet been approved by shareholders there remains a
material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.
Takeovers Directive
Pursuant to S992 of the Companies Act 2006, which implements the EU Takeovers Directive, the Company is required to
disclose certain additional information. The following gives those disclosures which are not covered elsewhere in this
Annual Report.
The Company's Articles of Association (the 'Articles') give the Board power to appoint Directors, but also require
Directors to retire and submit themselves for election at the first Annual General Meeting following their appointment. A
Director who retires in this way is eligible for election but is not taken into account when deciding how many Directors
should retire by rotation at the Annual General Meeting. The Articles themselves may be amended by special resolution of
the shareholders.
Pursuant to the Articles, at every Annual General Meeting, one third of the current Directors must retire by rotation.
The Board of Directors is responsible for the management of the business of the Company and may exercise all the powers of
the Company subject to the provisions of the Company's Memorandum of Association and the Articles.
The Articles contain specific provisions and restrictions regarding the Company's power to borrow money. Powers relating to
the issuing and buying back of shares are also included in the Articles and shareholders are asked to renew such
authorities each year at the AGM. A copy of the Articles is available on request from the Company Secretary.
There are a number of agreements that take effect, alter or terminate upon a change of control of the Company following a
takeover, such as commercial contracts, bank agreements, property lease arrangements and employees' share plans. None of
these are deemed to be significant in terms of their potential impact on the business of the Group as a whole.
REPORT OF THE AUDIT COMMITTEE
Statement by the Chairman of the Audit Committee
I am pleased to present the report of the Audit Committee for the financial year ended 31st March 2015 .Throughout the year
the committee has continued its work to review the effectiveness of the Group's corporate governance framework. In
particular the Committee has reviewed the Group's financial reporting; reviewed the need for an internal audit function and
examined the internal audit reviews conducted; the appropriateness of the Group's internal controls; compliance with
governance; financial and other compliance issues; shareholder announcements during the period; and to consider whether the
Annual Report is fair, balanced and understandable and to disclose its conclusions on these matters.
This report explains how the Audit Committee has discharged its responsibilities, and takes into account the three specific
areas highlighted in the Corporate Governance Code:
· Significant issues considered in relation to the financial statements.
· External Audit effectiveness and appointment.
· External Audit objectivity and independence and the impact of non-audit work.
David Adams
Chairman of the Audit Committee
18 June 2015
MEMBERSHIP OF THE AUDIT COMMITTEE
The Audit Committee comprises David Adams and Charlie Caminada who have been on the Committee throughout the year. David
Adams became Chairman of the Audit Committee on 9 January 2014. He is a Fellow of the Institute of Chartered Management
Accountants and is considered by the Board to have recent and relevant financial experience, as required by the Code.
Charlie Caminada has a wide range of business experience, which is evidenced by his biography set out in the Directors'
Report.
During the year, three Audit Committee meetings were held in line with the Committee's formal timetable. All members
attended all meetings. The Committee also meets privately with representatives of PricewaterhouseCoopers LLP, the Group's
external auditors. Other employees of the Group and the Chairman are also be invited to attend meetings as deemed
appropriate.
In two of the meetings held, the approval of announcements for the Group's full year and interim results were considered.
The Committee considered the financial reporting judgements made which are informed by accounting papers and financial
reports prepared by management and reviewed in the course of their audit by the Group's external auditors,
PricewaterhouseCoopers LLP. It also considered whether the announcements were balanced and fair and that the tone of the
announcement reflected the results of the Group.
SIGNIFICANT ISSUES IN RELATION TO THE FINANCIAL STATEMENTS
There were several significant judgements that the Committee has reviewed this year. These were:
· The Going Concern of the business in light of its aim to refinance and raise further equity;
· The provisions in place for any obsolete or aged stock;
· The capitalisation of the new ERP system being implemented within the Group and,
· The appropriate treatment and classification of exceptional costs in the accounts.
The going concern assumption is inherent to the preparation of the financial statements and the Committee has ensured that
the renewal of the facilities for at least the next 18 months with the Group's bankers and the proposal to shareholders to
raise further equity is complete in concluding on the going concern assumption. However it should be noted that the new
financing arrangements are dependent on shareholder approval in the general meeting called for 13 July 2015. The Audit
Committee has received detailed reports from the Hornby finance team and external advisers addressing this issue and has
concluded that it is satisfied with the going concern assumption. Although as the current fundraise has not yet been
approved by shareholders there remains a material uncertainty which may cast significant doubt about the Group's ability to
continue as a going concern.
The Committee has reviewed a detailed board paper on both the approach to stock provisions, the accounting treatment and
rationale for the treatment and classification of both the capitalisation of the new ERP system and the classification of
exceptional costs in the accounts. Each of the respective accounting treatments on these areas of significant judgements
represent a consistent approach to previous years for the business.
The Committee also reported to the Board that it considers, when taken as a whole, the 2015 Annual Report was fair,
balanced and understandable and includes the necessary information to assess the performance, business model and strategy
of the Company.
REMIT OF THE AUDIT COMMITTEE
In addition to its work reviewing the Group's financial statements noted above, the Committee has:
· Made recommendations on the appointment and remuneration of the external auditors and monitored their performance
· Reviewed the nature and scope of the work to be performed by the external auditors, the results of their audit work and
management's responses to their recommendations
· Monitored the independence of the external auditors and recommended policy for any non-audit services they provide to
ensure that their independence is not compromised
· Reviewed and advised the Board on the Company's interim financial statements and related announcements, its accounting
policies and on the control and mitigation of its financial and business risks
· Reviewed and advised the Board on the effectiveness of the Company's internal control environment, including its
procedures for detecting fraud and 'whistle-blowing' and for the prevention of bribery
· Monitored the Company's systems of internal financial control and risk management systems and ensured that these are
properly reviewed by Group management on an ongoing basis and in light of changes in the business
· Considered its own effectiveness and made recommendations to the Board where necessary
· Reported to the Board on how it has discharged its responsibilities
EXTERNAL AUDIT
The Committee has adopted a specific policy on auditor independence, setting out restrictions on specific non-audit
activities such as bookkeeping, payroll services and advocacy, and procedures and authority levels for audit and non-audit
fees.
The policy specifies:
· The external auditors can be used to provide non-audit services provided their proposal is formally approved by the
Audit Committee before contractual arrangements are entered into except for the half year review.
In addition the external auditor follows its own ethical guidelines and continually reviews its audit team to ensure
independence is not compromised. In the current financial year the audit fee fell within the 1:1 ratio and these are set
out within note 4.
Hornby believes that it receives particular benefit from the external auditors' advice on potential accounting changes and
any tax consequences thereof, given its auditors' detailed knowledge of the Group. The Board considers alternative
providers if practical and seeks confirmation prior to engaging services that independence will not be compromised.
To assess the effectiveness of the external auditors, the Committee reviewed their fulfilment of the agreed audit plan; the
robustness and perceptiveness of the auditors in their handling of key accounting and audit judgements, the content of
their letter to the Audit Committee on control matters and adherence to service standards set out in Hornby's Audit Charter
policy. There are no contractual restrictions on the choice of the Committee as to external audit and, having considered
the services provided by the current external auditors, PricewaterhouseCoopers LLP, their independence and knowledge of the
Group, the Committee has recommended to the Board the reappointment of the auditors at the Annual General Meeting in Summer
2015. In reaching this decision the Committee has taken into account the tenure of the auditors of greater than ten years
and considered whether there should be a full tender process. The Committee also had regard to the likelihood of a
withdrawal of the auditor from the market.
INTERNAL AUDIT AND INTERNAL CONTROL
The Committee considered reports from Group financial management on the operation of, and issues arising from the Group's
internal control procedures. The Committee monitored the effectiveness of the Group's risk management process, which
considered the key risks, both financial and non-financial, facing the Group and the effectiveness of the Group's controls
to manage and reduce the impact of those risks. These principal risks are set out on pages 10 to 11.
The Committee considers annually the need for an internal audit function, but currently believes that this is not justified
given the size, nature of the Group and a programme of visits to Hornby locations carried out by senior Group financial
management.
Arrangements exist for staff of the Group to raise concerns, in confidence, about possible improprieties in matters of
financial reporting or other matters. The Group has a code of conduct outlining the business standards to which all Company
personnel must adhere which further reinforces existing whistle-blowing policy and procedures.
The Audit Committee's terms of reference include all matters indicated by the UK Corporate Governance Code. The terms of
reference are considered annually by the Audit Committee and are then referred to the Board for approval. The Audit
Committee's full terms of reference are available within the investor relations section of the Group's website,
www.Hornby.com.
Directors' Remuneration Report
for the Year Ended 31 March 2015
REPORT OF THE REMUNERATION COMMITTEE
Annual Statement
As Chair of the Remuneration Committee, I am pleased to introduce the Directors' Remuneration Report for the year ended 31
March 2015.
This report sets out how the Committee has operated the shareholder approved Remuneration Policy in the year ended 31 March
2015 and how the policy will be operated for the year ending 31 March 2016.
The Remuneration Committee
The Remuneration Committee's remit is to consider and set policies and levels of remuneration to encourage actions by
management that are in the long-term interests of the Company and its shareholders.
The objective of the Committee is to ensure that the Company's Chairman, Executive Directors and senior management are
fairly rewarded for their contributions to the Company's performance and to ensure that their remuneration is commensurate
with their duties and responsibilities. The Committee will ensure that the Company provides the remuneration packages
needed to attract, retain and motivate Directors of the quality required.
The Committee is responsible for determining:
· The framework for the remuneration of the Executive Directors and targets for any performance related elements
· The overall remuneration package of each Executive Director
· The terms of termination of each Executive Director
· The policy and scope of pension arrangements for each Executive Director
During the year the Committee sought to set Executive Directors' remuneration levels to incentivise performance and align
this with the long-term interests of the shareholders as well as, in line with Company policy, ensure that a substantial
proportion of total remuneration is performance related.
Performance and Reward
Despite the management team making good progress in respect of delivering the Company's turnaround strategy, the threshold
underlying PBT target for the annual bonus (80% of potential) was not met. As a result, the Remuneration Committee took
the view that the profit performance did not support the payment of a bonus against the personal objectives (20% of
potential). Although not held by either of the current Executive Directors, the 2012 PSP awards which had a 2015 vesting
date failed to meet the threshold three year EPS and TSR performance targets and will therefore lapse.
Operation of the Policy for 2015-16
No changes will be made to the Remuneration Policy for the year ending 31 March 2016. As such, base salaries will remain
at similar levels, the annual bonus will operate on a similar basis to 2014-15 and any PSP awards, to the extent granted to
Executive Directors, would be granted on similar terms to those awarded in the past.
Shareholder Approval at the 2015 AGM
As no changes are being made to the Remuneration Policy, this Annual Statement and the Annual Report on Remuneration will
be tabled for an advisory vote at the forthcoming AGM although the Remuneration Policy has been repeated in line with best
practice and for the benefit of the reader.
Annual Report on remuneration
The Company has established a Remuneration Committee (the 'Committee') which is constituted in accordance with the
recommendations of the UK Corporate Governance Code published in September 2012 and other relevant regulation, including
the Remuneration Regulations. It sets out the Group's remuneration policy and details of Directors' remuneration.
The Committee
The Committee is comprised of independent Non-Executive Directors. The current members are Charlie Caminada (Committee
Chairman) and David Adams both of whom served for the entire financial year under review.
The Committee meets as required. During the year three Remuneration Committee meetings were held, with both members present
at each meeting.
Neither of the Committee members has any personal financial interest (other than as shareholders), conflicts of interest
arising from cross-Directorships or day-to-day involvement in running the business. The Committee makes recommendations to
the Board. No Director plays a part in any discussion about their remuneration. The terms of reference of the Committee are
available on the Company website.
In determining the Directors' remuneration for 2015-16 the Committee consulted Roger Canham (Executive Chairman) and
Richard Ames (Chief Executive) about its proposals. New Bridge Street ('NBS'), a trading name of Aon Corporation, is the
Committee's appointed remuneration adviser and continues to provide advice to the Committee. Neither NBS nor Aon
Corporation provides any other services to the Company.
This part of the remuneration report has been audited.
General remuneration policy for the Executive Directors
Executive remuneration packages are designed to attract, motivate and retain Directors of the high calibre needed to
maintain the Group's position as a market leader and to reward them for enhancing value to shareholders. The performance
measurement of the Executive Directors is undertaken by the Committee. The Committee is sensitive to pay and conditions in
the workforce when determining executive remuneration policy and base salary increases in particular.
The Committee is also aware of the potential risk to the business of executive pay structures and is satisfied that the
current policy is compatible with risk policies and systems.
There are five main elements of the remuneration package for Executive Directors and senior management: Base salary,
Benefits-in-kind, Pension arrangements, Performance-related annual bonus, Performance Share Plan.
The Company's policy is that a substantial proportion of the remuneration of the Executive Directors should be performance
related. At a target level of performance, approximately 40% - 45% of the total remuneration package is
performance-related.
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 salary levels within listed
companies of a similar size. The following tables shows the total remuneration of the Executive Directors for 2014-15 and
2013-14:
R Ames 277 10 56 - 343 - 343
N P Stone 180 10 36 - 226 - 226
N P Stone
180
10
36
-
226
-
226
Executive Director Salaryand Fees£'000 TaxableBenefits1£'000 Pensioncontributions£'000 Annualbonus£'000 Sub-total2013-14£'000 Long-term incentives£'000 Total 2013-14 £'000
R T Canham2 300 - - - 300 - 300
N P Stone 180 8 36 - 224 - 224
F Martin3 100 2 20 - 122 - 122
1. Taxable benefits relate to the provision of a company car, health assurance and F Martin pension supplement.
2. Roger Canham became Executive Chairman on 1 April 2013. Roger then remained in an Executive Director role until the
handover period with R Ames, who joined the Board on 28 April 2014 was complete and then reverted back to the non-executive
position of Chairman on 1 July 2014.
3. Frank Martin stepped down as Chief Executive on 28 March 2013 and became Deputy Chairman on that date until stepping
down from the Board on 9 January 2014.
Benefits
Policies concerning benefits, including the Group's company car policy, are reviewed periodically. Currently, benefits
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