REG - Hornby PLC - Final Results <Origin Href="QuoteRef">HRN.L</Origin> - Part 3
16/07/2015 11:29
- Part 3: For the preceding part double click ID:nRSR4957Qb
in
kind comprise motor cars and private health cover, both of which are non-performance related.
Pension
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. The contribution level continues to be 20% of base salary for Executive
Directors save that Mr Canham was not a member of the pension scheme and receives no benefits or contributions in respect
of pensions.
Policy on payment of loss of office
Notice periods are set under individual service contracts but the Company has a policy for Executive directors of a notice
period of six months to be given by the Company which is extended to one year after six months service 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.
Performance-related annual bonus
Annual bonus targets are designed both to stretch and encourage individuals whilst aligning their interests with those of
the Group. The performance conditions are divided 80:20 between Group underlying profit before tax and personal objectives.
For the Group underlying profit before tax condition, a sliding scale range is set around a target level (designed to be
stretching but realistically achievable). The personal objectives are set at the start of the year and are designed to be
as objective and measurable as possible. This mix of targets is considered to provide a good link to the business strategy.
Claw back provisions are incorporated into the Annual Bonus Plan rules to enable the Company to claw back overpayments in
the event of financial misstatement or gross misconduct.
The table below shows the PBT targets set for 2014-15:
Target of Underlying PBT Target atoperating level Target formaximum pay-out % salary awarded for operating plan achievement % salary awarded for maximum achievement Achieved underlying PBT % of salary awarded
Richard Ames 100% 120% 40% 80% £1.6 millionunderlying PBT 0%
Nick Stone 100% 120% 30% 60% £1.6 millionunderlying PBT 0%
In respect of the year ended 31 March 2015 neither of the Executive Directors who served during the year were entitled to a
bonus. Executive Directors achieved 0% (out of a maximum 80%) for the profit before tax element and 0% (out of a maximum
20%) for the personal objectives element. The Remuneration Committee took the view that profit delivery in 2014-15 did not
support the payment of bonuses for personal objectives.
Performance Share Plan
The Performance Share Plan ('PSP') is the Company's primary long-term incentive plan. Under the PSP, awards are made to
Executive Directors and selected other executives on the following basis:
· The maximum award level is 150% of base salary per annum although awards up to 200% of base salary may be granted to an
individual in exceptional circumstances (e.g. recruitment or retention).
· Performance conditions are reviewed annually, so as to ensure they remain appropriately pitched in relation to the
strategy and business cycle, and provide an optimal alignment between the interests of executives and shareholders
· Awards are subject to a total shareholder return ('TSR') condition and a range of normalised underlying earnings per
share ('EPS') growth targets.
· The Committee is comfortable that a blend of TSR and EPS targets continues to provide a good balance between
incentivising and rewarding strong financial performance on the one hand whilst, on the other hand, providing a strong and
direct alignment with the interests of institutional shareholders by rewarding stock market outperformance
· Performance conditions are calculated by independent advisers and verified by the Committee
· Executives benefit, in the form of additional cash or shares, from the value of dividends paid over the vesting period,
to the extent that awards vest
· Similar to the bonus plan, a claw back provision operates to enable the Company to claw back PSP overpayments in the
event of misstatement or gross misconduct
PSP Awards Granted in the year ended 31 March 2015
On 26 September 2014, Executive Directors were granted the following PSP awards.
Executive director Number of PSP awards Basis Face value1
R Ames 845,070 200% of base salary £600,000
N Stone 253,521 100% of base salary £180,000
1. Based on a share price of 71p (the closing share price prior to the grant date).
As agreed between the individual and the Remuneration Committee at the point of recruitment, Richard Ames received a PSP
award of shares over 200% of salary following his appointment.
Performance conditions for the awards, which were discussed with the Company's major investors prior to the grant date, are
as follows:
· 40% of awards: 25% of this part of the award will vest if Hornby's TSR is equal to the TSR of the median company of
the constituents of the FTSE Small Cap (struck at the date of grant), with full vesting for top quartile performance, with
a sliding scale operating between these points.
· 60% of awards: For the EPS part of the award, 25% vests for EPS of 5 pence for the year ending 31 March 2017, with
full vesting for EPS of 12.2 pence for the year ending 31 March 2017 with a sliding scale operating between these points
Shareholding guidelines
A policy for share ownership guidelines is operated for the Executive Directors and senior executives. For the Executive
Directors, the required threshold of share ownership is 100% of base salary. Until such time as this level of shareholding
is achieved, 50% of the net of tax value of awards which vest under the PSP are required to be retained in shares.
DIRECTORS' INTERESTS
Interests in shares
The interests of the Directors in the shares of the Company at 31 March 2015 were:
At 31 March 2015 number At31 March2014number
Executive Directors
R Ames - -
N P Stone 10,000 10,000
Non-Executive Directors
R Canham 40,000 40,000
D Adams - -
C Caminada 22,325 -
All the interests detailed above are beneficial. 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. Roger Canham is also the chairman of Phoenix Asset
Management Partners who hold a substantial shareholding in Hornby Plc.
J Ames a related party of R Ames held 36,983 shares in Hornby Plc as at 31 March 2015.
Performance Share Plan awards outstanding
At 31 March 2015, outstanding awards to Directors under the Performance Share Plan were as follows:
Director Award date Vesting date Marketprice atAward date At1 April2014 Awarded during year Lapsedduring year Vestedduringyear At 31 March 2015
R Ames Sept 2014 Sept 2017 71.0p - 845,070 - - 845,070
N Stone July 2013 July 2016 81.5p 220,859 - - - 220,859
Sept 2014 Sept 2017 71.0p - 253,521 - - 253,521
R Canham July 2013 July 2016 81.5p 122,699 - - - 122,699
For the 2013 awards, 40% of an award is subject to a TSR condition and 60% is subject to an EPS performance condition, both
of which are measured over a period of three financial years. For the TSR condition, 25% of this part of the award will
vest if Hornby's TSR is equal to the TSR of the median company of the constituents of the FTSE Small Cap (struck at the
date of grant), with full vesting for top quartile performance, with a sliding scale operating between these points. For
the EPS part of the award, 25% vests for average annual underlying EPS growth of RPI+3% p.a., with full vesting for average
annual EPS growth of RPI+12% p.a. A sliding scale operates between these points
For the 2014 awards, 40% of an award is subject to a TSR condition and 60% is subject to an EPS performance condition, both
of which are measured over a period of three financial years. For the TSR condition, 25% of this part of the award will
vest if Hornby's TSR is equal to the TSR of the median company of the constituents of the FTSE Small Cap (struck at the
date of grant), with full vesting for top quartile performance, with a sliding scale operating between these points. For
the EPS part of the award, 25% vests for EPS of 5 pence for the year ending 31 March 2017, with full vesting for EPS of
12.2 pence for the year ending 31 March 2017 with a sliding scale operating between these points.
Non-Executive Directors
The table below gives the salary and fees of the Non-Executive Directors for 2014-15 and 2013-14:
Basic salary and fees 2014-15 £'000
R Canham 150
D Adams 40
C Caminada 40
Basic salary and fees 2013-14 £'000
D Adams (appointed 9 January 2014) 9
C Caminada (appointed 9 January 2014) 9
N M Carrington (Resigned 31 January 2014) 33
M E Rolfe (Resigned 31 January 2014) 33
The following table summarises the total salary and pension contributions received by Directors for 2014-15 and 2013-14 in
line with the Companies Act 2006 requirement:
R Ames (Joined 28 April 2014) 287 56 343 - - -
R Canham 150 - 150 300 - 300
N Stone 190 36 226 188 36 224
F Martin (resigned 9 January 2014) - - - 102 20 122
D Adams (appointed 9 January 2014) 40 - 40 9 - 9
C Caminada (appointed 9 January 2014) 40 - 40 9 - 9
N M Carrington (Resigned 31 January 2014) - - - 33 - 33
M E Rolfe (Resigned 31 January 2014) - - - 33 - 33
Total 707 92 799 674 56 730
-
33
-
33
Total
707
92
799
674
56
730
Performance graph (unaudited information)
The following graph shows the Company's total shareholder return compared to the TSR of the FTSE Small Cap (excluding
investment trusts) over the ten-year period to 31 March 2015. This index has been selected given that the Company is a
constituent of the FTSE Small Cap.
For TSR graph please see: http://www.hornby.plc.uk/?page_id=4680
The table below shows the total remuneration for the Chief Executive Officer and the percentages of the maximum awards of
performance related pay received over the past six years. The variable element reflects the actual bonus paid to the CEO
and the long-term incentives relate to the PSP scheme which only pays out when it vests.
Year CEO Single figure total remuneration£'000 Annual variable element% of max Long-term incentives% of max
2014-15 R Ames 343 n/a -
2013-14 R T Canham 300 n/a -
2012-13 F Martin 333 0% -
2011-12 F Martin 326 0% -
2010-11 F Martin 365 12% -
2009-10 F Martin 455 31% -
Relative importance of spend on pay (unaudited)
As required by the Remuneration Regulations, the table below compares total staff remuneration with the amounts paid in
dividends to shareholders and the loss after tax of the Group. The measure being used of loss after tax represent the
statutory financial performance of the Group and acts as a comparative benchmark for future years.
For relative importance of spend on pay graph please see: http://www.hornby.plc.uk/?page_id=4680
Payments to Past Directors
No payments were made to past Directors in the year ended 31 March 2015.
Termination Payments
No termination payments were made to Directors in the year ended 31 March 2015. IFRS 2 leaver provisions are applied to the
PSP share scheme based upon the directors' service contracts.
Remuneration policy
Executive Directors' service contracts
The Executive Directors do not have fixed period contracts.
Remuneration under termination of contract
Under the Executive Directors contracts they are entitled to receive payment under their notice period, all other
non-contractual payments are at the discretion of the Board. For the Performance Share Plan awards issued under the rules
of the scheme; these are subject to good and bad leaver provisions redundancy, retirement and death in service constitute
examples of good leavers, where the awards would still continue to be held albeit on a prorate basis. Resignation from the
Group would constitute an example where the bad leaver rules would apply and the awards would lapse.
Richard Ames was appointed to the Board as Chief Executive on 28 April 2014. His service contract includes a notice period
of six months to be given by the Company which is extended to one year after six months service and of six months to be
given by him. In lieu of giving notice the Company may terminate the agreement on payment of a lump sum (subject to tax and
national insurance) equal to the salary and other benefits to which he is entitled under this agreement.
Roger Canham Mr Canham was appointed non-executive Chairman with effect from 1 February 2013 under a contract dated 7
November 2012 for an initial term of three years subject to termination on three months' notice, to be given by either the
Company or himself at a fee of £100,000 p.a. In lieu of giving notice the Company may terminate the agreement on payment of
a lump sum (subject to tax and national insurance) equal to the salary to which he is entitled under the agreement. He was
appointed executive Chairman on 1 April 2013. Upon becoming executive Chairman, his fees were increased to £300,000 per
annum until after a handover period when R Ames was appointed as Chief Executive. He reverted back to Chairman on 1 July
2014.
Nick Stone's service contract dated 1 February 2013 includes a notice period of six months to be given by the Company which
is extended to one year after six months service and of six months to be given by him. In lieu of giving notice the Company
may terminate the agreement on payment of a lump sum (subject to tax and national insurance) equal to the salary and other
benefits to which he is entitled under this agreement.
Non-Executive Directors' contracts
The remuneration of the Non-Executive Directors is determined by the Board (except the Company Chairman's fee, which is set
and reviewed by the Remuneration Committee) based on the level of fees paid to Non-Executive Directors of similar companies
and by considering independent external advice.
David Adams Non-Executive Director, was appointed to the Board on 9 January 2014, and receives fees for his services to the
Company of £40,000 per annum effective 1 January 2014. David's service contract dated 9 January 2014 is subject to
termination on six months' notice to be given by either the Company or himself. In lieu of giving notice the Company may
terminate the agreement on payment of a lump sum (subject to tax and national insurance) equal to the fee to which he is
entitled under this agreement.
Charlie Caminada Non-Executive Director, was appointed to the Board on 9 January 2014, and receives fees for his services
to the Company of £40,000 per annum effective 1 January 2014. Charlie's service contract dated 9 January 2014 is subject to
termination on six months' notice to be given by either the Company or himself. In lieu of giving notice the Company may
terminate the agreement on payment of a lump sum (subject to tax and national insurance) equal to the fee to which he is
entitled under this agreement.
None of the Non-Executive Directors receives any pension or performance-related pay from the Company. The table below
summarises the main components of the existing remuneration package for executive Directors.
Remuneration component Strategic objective How the component operates Performance measures applicable Maximum and minimum pay-outs
Base salary To attract and retain executives of high quality. Initial salaries are based upon the level of skill and experience of the individual, the scope of None. None. In recent years any base salary awards have been in line with the rise given to all the UK employees.
responsibilities and market benchmarks of similar sized quoted businesses.
Annual bonus To incentivise Executive Directors to achieve the short-term priorities and to deliver high performance in the current financial year. Performance targets are based on the strategic objectives of the Group and bonus payments are based on Financial measures set by the Committee in line with near-term priorities i.e. Underlying profit. The maximum bonus payable is 130% of salary based entirely on the financial measures. The minimum pay-out is nil.
the Group's ability to meet its financial targets as a result of the overarching objectives.
Benefits To provide a competitive package for Executive Directors. Benefits comprise a company car or allowance alongside medical health cover benefits. None. n/a
Performanceshare plan ('PSP') To sustain the Executive Directors' performance over the longer term in line with shareholder interests. The awards are normally made annually under the Hornby PSP scheme to Executive Directors. Criteria set are designed to challenge the goals set by the Group in line with its three-year strategic plan. The maximum award level is 150% of base salary per annum although awards up to 200% of base salary may be granted to an individual in exceptional circumstances (e.g.
recruitment or retention).
Pensions To provide a competitive package for Executive Directors. The Executive Directors are provided with a contribution to their retirement savings plans. None. 20%
Estimate of the total future potential remuneration
The charts below set out estimates of the potential remuneration for each of the Executive Directors based on the current
remuneration packages. The assumptions included in each scenario are described below:
· The share price of Hornby Plc remains constant.
· Consists of base salary, pension and benefits which are all assumed to be in line with 2014-15.
· On plan - the Performance share plan will deliver 50% of maximum.
For graphs of total executive remuneration please see: http://www.hornby.plc.uk/?page_id=4680
Policy on Non-Executive Directors
The independent Non-Executive Directors receive letters of appointment with six month notice terms and are subject to
re-election every three years at the Annual General Meeting. The Executive Directors review the Non-Executive Directors'
fees annually. The fee is a fixed annual fee, which reflects their time and commitment to the business and comparatives
from similar sized quoted companies. Non-Executive Directors do not participate in any share scheme, bonus or pension
arrangements.
The current scale of remuneration is:
£'000
Chairman 100
Other Non-Executive Directors 40
Recruitment of Directors
When determining the remuneration package and levels for a new Director the Committee will take into consideration all
relevant factors including but not limited to; the role, the skills a Director has and the added value they can bring to
the business but without paying more than is required to recruit and retain a candidate of the required calibre. The
Committee will seek to align the package with the framework of the remuneration policy outlined in the previous table
above.
On recruitment, the Committee may also grant awards to a new Director under the Listing Rule 9.4.2 which allows for the
granting of awards, specifically to facilitate, in unusual circumstances, the recruitment or retention of a Director,
without seeking prior shareholder approval. This discretion will only be used in respect of buyout awards where a new
recruit forfeits awards granted by a previous employer.
Engagement with shareholders
The Committee considers shareholder feedback received during the AGM and any other shareholder meetings as part of its
annual review of its remuneration policy. Where the Committee proposes to introduce new long-term incentive plans, the
Committee seeks the views of major shareholders prior to seeking general shareholder approval at a general meeting. There
were no shareholder representations to the Company in 2014-15 in respect of Directors' remuneration.
C Caminada
Remuneration Committee Chairman
18 June 2015
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors
have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting
Standards ('IFRSs') as adopted by the European Union. 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 the
Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the
Directors are required to:
· Select suitable accounting policies and then apply them consistently
· Make judgements and accounting estimates that are reasonable and prudent and
· State whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures
disclosed and explained in the financial statements
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time, the financial position of the Group and the Company and
enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act
2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
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.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and
provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Directors and Corporate Information section, confirm
that, to the best of their knowledge:
· The Group and Company financial statements, which have been prepared in accordance with IFRSs as adopted by the EU,
give a true and fair view of the assets, liabilities, financial position and loss of the Group and profit of the Company
· The Strategic Review and Corporate Governance Statement includes a fair review of the true development and performance
of the business and the position of the Group, together with a description of the principal risks and uncertainties that it
faces
So far as the Directors are aware, there is no relevant audit information of which the Company's auditors are unaware; and
each Director has 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 Company's auditors are aware of that information.
By order of the Board
N Stone
Group Finance Director
18 June 2015
Independent auditors' report to the members of Hornby Plc
Report on the financial statements
Our opinion
In our opinion, Hornby Plc's group financial statements and company financial statements (the "financial statements"):
· give a true and fair view of the state of the group's and of the company's affairs as at 31 March 2015 and of the
group's loss, the company's profit and the group's and the company's cash flows for the year then ended;
· have been properly prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by
the European Union; and
· have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
Emphasis of matter - Group - Going concern
In forming our opinion on the group financial statements, which is not modified, we have considered the adequacy of the
disclosure made in note 1 to the financial statements concerning the group's ability to continue as a going concern. The
group incurred a net loss of £0.1 million during the year ended 31 March 2015 and is currently raising additional equity of
£15 million. However, this fundraising is subject to shareholder approval on 13 July 2015. In addition, a new bank facility
was signed on 18 June 2015 conditional on the successful equity raise. Both the equity fund raise and the new bank facility
are needed in order to finance the group's operations and for it to continue as a going concern for at least the next 12
months. These conditions, along with the other matters explained in note 1 to the financial statements, indicate the
existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going
concern. The group financial statements do not include the adjustments that would result if the group was unable to
continue as a going concern.
What we have audited
Hornby Plc's financial statements comprise:
· the group and company Balance Sheet as at 31 March 2015;
· the group and company Statement of Comprehensive Income for the year then ended;
· the group and company Statement of Changes in Equity for the year then ended;
· the group and company Cash Flow Statement for the year then ended; and
· the notes to the financial statements, which include a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Accounts (the "Annual Report"), rather
than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified
as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law
and IFRSs as adopted by the European Union.
Our audit approach
Overview
Materiality Audit scope Areas of focus · Overall group materiality: £62,000 which represents 5% of profit before tax, adjusted for the loss on revaluation of intra-group loans and exceptional restructuring costs.
· Of the group's ten reporting units, we performed full scope audit procedures on three units based in the UK and Spain and specific audit procedures on certain balances in the USA. Overall, this accounted for 96% of group revenue and 100% of group profit before tax adjusted for the loss on revaluation of intra-group loans and
exceptional restructuring costs.
· Group's ability to continue as a going concern.· Carrying value of inventory.· Capitalisation of costs in respect of ERP system.· Classification of exceptional items.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)").
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to
fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and
effort, are identified as "areas of focus" in the table below. We have also set out how we tailored our audit to address
these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the
results of our procedures should be read in this context. This is not a complete list of all risks identified by our
audit.
Group's ability to continue as a going concern
Refer to page 21 of the Audit Committee Report and page 43 of the financial statements.Hornby Plc has bank facilities which expire in December 2015 and based on cash flow forecasts prepared by management, the directors have determined that the group will have insufficient cash to meet its debts as they fall due or to pursue its future strategies, unless the group is able to effect a refinancing before then. Management is currently pursuing a £15 million equity issue to finance the group's operations and has agreed a revised working capital facility with its bankers conditional on the equity raise. At the time of approving the group's financial statements, the equity raise is subject to shareholder approval on 13 July 2015.We consider this matter to be a material uncertainty to the ability of the group to continue as a going concern. This issue is referred to in Note 1 (Basis of Preparation) and our Emphasis of matter paragraph above. We obtained management's group cash flow forecasts for the period ending 31 December 2016, which
reflect the proposed equity raise and revised bank facilities. We evaluated and challenged the
composition of the forecasts, and the process by which they were drawn up and evaluated the
appropriateness of the key assumptions included in the forecasts. We compared the forecasts against
historical performance to gain comfort over the phasing of the cash flows in the forecasts and also
that the assumptions were reasonable in light of past performance.In particular we concentrated on the
following key assumptions:· Sales growth of 11% in FY2015/16 and 15% in FY 2016/17 which
management believe is achievable based on an improved supply chain and further investment in internet
sales · Exchange rate of US dollar 1.51 used for purchases which is management's consensus on the
estimated long term US dollar rate. For 2015/16, the rate has been adjusted for the forward contracts
in place that expire throughout the year.· A successful equity placing of £14.4m (net of costs)
in August 2015. Management have received verbal commitments from existing and new shareholders to
support the planned £15m equity raise.· Sale of the site in Margate in June 2016. Management has
received an indicative offer from a potential buyer which they believe gives support to the sales
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