REG - Hornby PLC - Final Results <Origin Href="QuoteRef">HRN.L</Origin> - Part 4
16/07/2015 11:29
- Part 4: For the preceding part double click ID:nRSR4957Qc
price being achieved within the timeframe.We also read the Proposed Open Offer Prospectus concerning
the equity issue and had detailed discussions with management and their advisors about the proposed
equity issue. We obtained a copy of the signed bank facilities and agreed the amount of the proposed
facility, and the debt covenants that would apply, to those used in the group cash flow forecasts.
Based on our work we agreed with the Directors' assessment that the going concern basis of preparation
is appropriate and our conclusion on going concern is below.However we also concur that there is a
material uncertainty which may cast significant doubt on the group's ability to continue as a going
concern because of the uncertainty over the refinancing. The disclosures in the financial statements
appropriately identify this risk.
Carrying value of inventoryRefer to page 21 of the Audit Committee Report and pages 46, 47 and 59 of the financial statements.Management's provisioning process for finished goods inventory starts by calculating the difference between the sales forecast based on historical sales data, and the level of inventory held for each individual inventory line. This calculation is then adjusted for any known or expected additional sales over and above the initial sales forecast. Management also consider the margins achieved on all product lines to determine if a provision is required to reduce the inventory down to its net realisable value. This was an area of focus for us as the level of provisioning is an important factor in the overall profitability of the business and the calculations involved are manual and based on judgement. We assessed the accuracy and completeness of the source information used to calculate the inventory
provisions by agreeing the detailed listing of inventory included in the provision calculation to the
listing we had tested for existence and valuation and reconciled to the general ledger. We also
agreed the sales forecast figures to historical sales data, or to planned sales orders where stock
items were for newer lines without sales history. We were able to obtain reasonable explanations for
adjustments to the initial sales forecast from management which could generally be supported by post
year-end sales.We also re-performed the provision calculations, finding no material misstatements, and
tested a sample to recent sales to assess whether inventory was being sold above its carrying
value.Our testing identified no material misstatements and we found the judgements made by management
were reasonable.
Capitalisation of costs in respect of ERP system Refer to page 21 of the Audit Committee Report and pages 45 and 56 of the financial statements.During the year, the group began to implement a new ERP system and external and internal costs totalling £646,000 were capitalised in respect of the project.This was an area of focus for us due to the materiality of the amounts involved and the risk that the relevant costs do not meet the criteria for capitalisation under International Accounting Standard 38 'Intangible assets' ("IAS 38"). We obtained a detailed listing of the costs capitalised and tested a sample to supporting documentation to ensure that they met the criteria for capitalisation under IAS 38.The costs included capitalised salary costs, which we tested by assessing the role of the employee in the project team and agreeing their salary costs to payroll records. Other costs primarily related to contractor costs which we tested by agreement to third party invoices.Our testing identified no material misstatements.
Classification of exceptional itemsRefer to page 21 of the Audit Committee Report and pages 44 and 52 of the financial statements.During the year the group incurred £811,000 of costs which management believe are one-off in nature and therefore disclosed as exceptional items on the face of the Statement of Comprehensive Income.We included this as an area of focus given the significant focus on the underlying profit figure of the group. We obtained a detailed listing of the exceptional costs and tested a sample to check that they were one-off in nature and warranted separate disclosure on the face of the Statement of Comprehensive Income.The majority of these costs related to the cost of setting up the new warehouse facility. We were able to confirm from our testing to third party invoices that these were one-off in nature.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic structure of the group, the accounting processes and controls,
and the industry in which the group operates. The group financial statements are a consolidation of ten reporting units,
comprising the group's operating businesses and centralised functions.
In establishing the overall approach to the group audit, we determined the scope of work that needed to be performed at the
reporting units by us in the UK, as the group engagement team, or by other PwC network firms operating under our
instruction. Where the work was performed by a component auditor, we also determined the level of involvement we needed to
have in the audit work of the reporting unit to be able to conclude whether sufficient appropriate audit evidence has been
obtained as a basis for our opinion on the group financial statements as a whole.
Of the group's ten reporting units, we identified three (two in the UK and one in Spain, accounting 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) which in our view, required an audit of their complete financial information due to their size.
Specific audit procedures on certain balances were performed on the reporting unit in the USA. This, together with
additional procedures performed at group level, gave us the evidence we needed for our opinion on the financial statements
as a whole.
The UK and US work was carried out by the group engagement team. The work in Spain was carried out by the Spanish firm and
a conference call was held with the Spanish team prior to the commencement of work to discuss the principal areas of risk
with them. A conference call was also held following submission of their reporting to discuss their findings.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality £62,000 (2014: £126,000).
How we determined it 5% of profit before tax, adjusted for the loss on revaluation of intra-Group loans and exceptional restructuring costs. In the prior year materiality was based on 5% of loss before tax before the exceptional item relating to the impairment of goodwill.
Rationale for benchmark applied We believe that profit before tax adjusted for one-off items provides us with a consistent year on year basis for determining materiality by eliminating the non-recurring disproportionate impact of these items.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £5,000
(2014: £5,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors' statement, set out on page 19, in relation to going
concern. We have nothing to report having performed our review.
As noted in the directors' statement, the directors have concluded that it is appropriate to prepare the financial
statements using the going concern basis of accounting. The going concern basis presumes that the group and company have
adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date
the financial statements were signed.
As explained in note 1, the group's ability to remain in operation is dependent on successful refinancing. As part of our
audit we have concluded that the directors' use of the going concern basis is appropriate. However, because further
financing is necessary and the raising of it is conditional upon shareholder approval, there is a material uncertainty
which may cast significant doubt on the ability of the group to continue as a going concern.
Because not all future events or conditions can be predicted, even if the refinancing plans referred to in note 1 are
successful, these statements are not a guarantee as to the group's and parent company's ability to continue as a going
concern.
Other required reporting
Consistency of other information
Companies Act 2006 opinions
In our opinion 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.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
· Information in the Annual Report is:- materially inconsistent with the information in the audited financial statements; or- apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group and company acquired in the course of performing our audit; or- otherwise misleading. We have no exceptions to report arising from this responsibility.
· the statement given by the directors on page 32, in accordance with provision C.1.1 of the UK Corporate Governance Code ("the Code"), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the group's and company's performance, business model and strategy is materially inconsistent with our knowledge of the group and company acquired in We have no exceptions to report arising from this responsibility.
the course of performing our audit.
· the section of the Annual Report on page 21, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report arising from this responsibility.
We have no exceptions to report arising from this responsibility.
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
· we have not received all the information and explanations we require for our audit; or
· adequate accounting records have not been kept by the company, or returns adequate for our audit have not been
received from branches not visited by us; or
· the company financial statements and the part of the Directors' Remuneration Report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors' remuneration
Directors' remuneration report - Companies Act 2006 opinion
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors'
remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the company's
compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors' Responsibilities set out on page 32, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and
ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for
Auditors.
This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of:
· whether the accounting policies are appropriate to the group's and the company's circumstances and have been
consistently applied and adequately disclosed;
· the reasonableness of significant accounting estimates made by the directors; and
· the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material
inconsistencies with the audited financial statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If
we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Rosemary Shapland (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Gatwick
18 June 2015
Group and Company Statement of Comprehensive Income
for the Year Ended 31 March 2015
Revenue 2 58,135 51,557 1,346 1,456
Cost of sales (30,961) (28,230) - -
Gross profit 27,174 23,327 1,346 1,456
Distribution costs (5,937) (2,549) - -
Selling and marketing costs (12,246) (11,322) - -
Administrative expenses (7,367) (9,811) (888) (994)
Other operating expenses (1,303) (3,718) (103) (85)
Operating profit/(loss) 2 321 (4,073) 355 377
Finance income 3 1 8 174 174
Finance costs 3 (506) (492) (192) (208)
(Loss)/profit before taxation 4 (184) (4,557) 337 343
Analysed as:
Underlying profit/(loss) before taxation 1 1,622 (1,139) 337 383
Net foreign exchange impact on intercompany loans (618) (108) - -
Amortisation of intangibles (377) (389) - -
Exceptional items:
Restructuring costs (811) (875) - (40)
Impairment of goodwill - (2,046) - -
(Loss)/profit before taxation (184) (4,557) 337 343
Income tax credit/(charge) 5 64 112 (51) (38)
(Loss)/profit for the year after taxation (120) (4,445) 286 305
Other comprehensive income
Items that may be subsequently reclassified to Profit and Loss:
Cash flow hedges, net of tax 802 (714) - -
Currency translation differences (501) (146) 605 101
Other comprehensive income /(loss) for the year, net of tax 301 (860) 605 101
Total comprehensive income/(loss) for the year 181 (5,305) 891 406
Loss per ordinary share
Basic 7 (0.31)p (11.35)p
Diluted 7 (0.31)p (11.35)p
Basic
7
(0.31)p
(11.35)p
Diluted
7
(0.31)p
(11.35)p
All results relate to continuing operations.
The notes on pages 43 to 70 form part of these accounts.
Group and Company Balance Sheet
at 31 March 2015
Group Company
Note 2015 £'000 2014£'000 2015 £'000 2014£'000
Assets
Non-current assets
Goodwill 8 8,464 8,530 - -
Intangible assets 9 4,071 3,569 - -
Property, plant and equipment 10 10,260 10,383 1,207 1,241
Investments 11 - - 37,326 37,224
Deferred tax assets 20 2,099 1,858 - -
24,894 24,340 38,533 38,465
Current assets
Inventories 12 12,469 13,165 - -
Trade and other receivables 13 10,444 9,043 983 628
Derivative financial investments 19 519 39 - -
Current tax assets 17 419 601 81 29
Cash and cash equivalents 14 451 619 1 1
24,302 23,467 1,065 658
Liabilities
Current liabilities
Borrowings 18 (7,747) (7,630) (116) -
Derivative financial instruments 19 (24) (445) - -
Trade and other payables 15 (9,067) (7,618) (19) (62)
Provisions 16 (255) (238) - -
Current tax liabilities 17 (53) (128) - (100)
(17,146) (16,059) (135) (162)
Net current assets/(liabilities) 7,156 7,408 930 496
Non-current liabilities
Borrowings 18 (163) (242) (4,395) (4,984)
Deferred tax liabilities 20 (131) (136) (121) (126)
(294) (378) (4,516) (5,110)
Net assets 31,756 31,370 34,947 33,851
Equity attributable to owners of the parent
Share capital 21 392 392 392 392
Share premium 6,180 6,180 6,180 6,180
Capital redemption reserve 55 55 55 55
Translation reserve (1,259) (758) (353) (958)
Hedging reserve 362 (440) - -
Other reserves 1,688 1,688 19,145 19,145
Retained earnings 24,338 24,253 9,528 9,037
Total equity 31,756 31,370 34,947 33,851
33,851
The notes on page 43 to 70 form part of these accounts. The financial statements on pages 38 to 70 were approved by the
Board of Directors on 18 June and were signed on its behalf by:
N P Stone, Director, Registered Company Number: 01547390
Group and Company Statement of Changes in Equity
Year Ended 31 March 2015 and 31 March 2014
GROUP Sharecapital£'000 Sharepremium £'000 Capital redemption reserve£'000 Translation reserve£'000 Hedging reserve£'000 Otherreserves £'000 Retained earnings £'000 Totalequity£'000
Balance at 1 April 2013 392 6,180 55 (612) 274 1,688 28,424 36,401
Total loss for the year - - - - - - (4,445) (4,445)
Other comprehensive income for the year - - - (146) (714) - - (860)
Total comprehensive income for the year - - - (146) (714) - (4,445) (5,305)
Transactions with owners
Share-based payments (note 22) - - - - - - 274 274
Total transactions with owners - - - - - - 274 274
Balance at 31 March 2014 392 6,180 55 (758) (440) 1,688 24,253 31,370
Total loss for the year (120) (120)
Other comprehensive income for the year - - - (501) 802 - - 301
Total comprehensive income for the year - - - (501) 802 - (120) 181
Transactions with owners
Share-based payments (note 22) - - - - - - 205 205
Total transactions with owners - - - - - - 205 205
Balance at 31 March 2015 392 6,180 55 (1,259) 362 1,688 24,338 31,756
Retained earnings includes £570,000 at 31 March 2015 (2014 - £587,000) which is not distributable and relates to a 1986
revaluation of land and buildings.
COMPANY Sharecapital£'000 Sharepremium £'000 Capital redemption reserve£'000 Translation reserve£'000 Otherreserves £'000 Retained earnings £'000 Totalequity£'000
Balance at 1 April 2013 392 6,180 55 (1,059) 19,145 8,458 33,171
Total income for the year - - - - - 305
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