REG - Hornby PLC - Final Results <Origin Href="QuoteRef">HRN.L</Origin> - Part 5
16/07/2015 11:29
- Part 5: For the preceding part double click ID:nRSR4957Qd
305
Other comprehensive income for the year - - - 101 - - 101
Total comprehensive income for the year - - - 101 - 305 406
Transactions with owners
Share-based payments - - - - - 274 274
Total transactions with owners - - - - - 274 274
- - - 101 - 579 680
Balance at 31 March 2014 392 6,180 55 (958) 19,145 9,037 33,851
Total income for the year - - - - - 286 286
Other comprehensive income for the year - - - 605 - - 605
Total comprehensive income for the year - - - 605 - 286 891
Transactions with owners
Share-based payments - - - - - 205 205
Total transactions with owners - - - - - 205 205
Balance at 31 March 2015 392 6,180 55 (353) 19,145 9,528 34,947
The notes on page 43 to 70 form part of these accounts.
Group and Company Cash Flow Statement
for the Year Ended 31 March 2015
Group Company
Note 2015 £'000 2014£'000 2015 £'000 2014£'000
Cash flows from operating activities
Cash generated/(used in) from operations 5,328 (76) (194) 516
Interest paid (506) (492) (192) (208)
Tax (paid)/received (127) (482) 67 16
Net cash generated/(used in) from operating activities 4,695 (1,050) (319) 324
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 20 - - -
Purchase of property, plant and equipment 10 (4,073) (4,059) - -
Purchase of intangible assets 9 (988) - - -
Interest received 1 8 174 174
Net cash (used in)/generated from investing activities (5,040) (4,051) 174 174
Cash flows from financing activities
Repayments of loans (1,584) (3,060) - -
Finance lease capital payments - (3) - -
Advances to subsidiary undertakings - - 116 (4,767)
Repayments to subsidiary undertakings - - 29 4,268
Net cash used in financing activities (1,584) (3,063) 145 (499)
Net decrease in cash and cash equivalents (1,929) (8,164) - (1)
Cash, cash equivalents and bank overdrafts at beginning of the year (5,456) 2,725 1 2
Effect of exchange rate movements 138 (17) - -
Cash, cash equivalents and bank overdrafts at end of year (7,247) (5,456) 1 1
Cash, cash equivalents and bank overdrafts consist of:
Cash and cash equivalents 14 451 619 1 1
Bank overdrafts 16 (7,698) (6,076) - -
Cash, cash equivalents and bank overdrafts at end of year (7,247) (5,456) 1 1
1
Notes to the Cash Flow Statements
Group and Company Cash Flows from Operating Activities
Group Company
2015 £'000 2014£'000 2015 £'000 2014£'000
(Loss)/profit before taxation (184) (4,557) 337 343
Interest payable 506 492 192 208
Interest receivable (1) (8) (174) (174)
Dividend income - - - -
Amortisation of intangible assets 377 389 - -
Impairment of Goodwill - 2,046 - -
Depreciation 3,749 3,604 34 34
(Gain) / Loss on disposal of property, plant and equipment (5) 22 - -
Share-based payments 205 274 103 85
Gain on financial derivatives (102) (135) - -
Increase in provisions 17 3 - -
Decrease in inventories 166 472 - -
(Increase) / decrease in trade and other receivables (1,883) 560 (643) 26
Increase / (decrease) in trade and other payables 1,685 (1,451) (43) (6)
Increase / (decrease) in derivative financial instruments 798 (1,787) - -
Cashgenerated from/(used in)operations 5,328 (76) (194) 516
516
Notes to the Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Accounting policies for the year ended 31 March 2015
The principal accounting policies adopted in the preparation of these financial statements are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.
BASIS OF PREPARATION
The financial information for the year ended 31 March 2015 has been prepared in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union ('EU'), IFRS Interpretations Committee ('IFRS-IC')
interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The
consolidated Group and Parent Company financial statements have been prepared on a going concern basis and under the
historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including
derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount,
event or actions, actual results ultimately may differ from those estimates.
GOING CONCERN
As the Group's bank facilities expire in December 2015 and the current business plans require significant investment, the
Group are proposing to raise £15 million additional equity to enable the Group to pursue these plans.
Based on the successful completion of discussions with investors to raise the £15 million additional equity, the signing of
a new bank facility with the Group's bankers, which is conditional on the equity raise and a detailed review of the Groups
forecasts and cash flow models with external advisors, the directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to
adopt the going concern basis of accounting in preparing the annual financial statements.
However as the current equity raise 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 financial statements do not
include the adjustments that would result if the Group was unable to continue as a going concern.
BASIS OF CONSOLIDATION
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally
accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair
value of the Group's share of the identifiable net assets acquired is recorded as goodwill.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated but considered an impairment indicator of the asset concerned. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
ADOPTION OF NEW AND REVISED STANDARDS
The Group applied all applicable new standards, interpretations and amendments published by the IASB and as endorsed by the
European Union for the year beginning 1 January 2014, being IFRS 10, IFRS 11, IFRS 12 and amendments to IAS 27, IAS 28, IAS
36, IAS 32 and IAS 39. The implementation of these standards and amendments did not have a material effect on the
accounts.
The Group did not early adopt any standard, interpretation, or amendments published by the IASB and endorsed by the
European Union for which the mandatory application date is after 1 January 2014.
The following new standards, interpretations, and amendments to standards and interpretations have been issued, subject to
the EU endorsement, but are not effective for the financial year beginning 1 January 2014 and have not yet been early
adopted by the Group:
Effective date for periods beginning on or after
IFRS 9 "Financial Instruments" 1 January 2018
IFRS 14 "Regulatory Deferral Accounts" 1 January 2016
IFRS 15 "Revenue from Contracts with Customers" 1 January 2017
Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture" 1 January 2016
Amendments to IFRS 11 "Accounting for Acquisitions of interests in Joint Operations" 1 January 2016
Amendments to IAS 16 and IAS 41 "Bearer Plants" 1 January 2016
Amendments to IAS 16 and IAS 38 "Clarification of Acceptable Methods of Depreciation and Amortisation" 1 January 2016
Amendments to IAS 19 "Defined Benefit Plans: Employee Contributions" 1 July 2014
Amendments to IAS 27 "Equity Method in Separate Financial Statements" 1 January 2016
The Group does not currently expect any of these changes to have a material impact on the results.
RECONCILIATION OF STATUTORY TO NON STATUTORY INFORMATION IN THE CHAIRMAN'S STATEMENT AND OPERATING AND FINANCIAL REVIEW
Underlying profit before taxation is shown to present a clearer view of the trading performance of the business. Management
has identified the following non-trivial adjustments, whose inclusion in earnings could distort underlying trading
performance: net foreign exchange gains/losses on intercompany loans which are dependent on exchange rates from time to
time and can be volatile and amortisation of intangibles which result from historic acquisitions. Additionally exceptional
items, restructuring costs and impairments to goodwill, add volatility and these are considered to be one-off items and
therefore have also been added back in calculating underlying profit / (loss) before taxation.
Group
2015 £'000 2014£'000
Loss before taxation (184) (4,557)
Foreign exchange on intercompany loans 618 108
Amortisation of intangibles (note 9) 377 389
Impairment of goodwill (note 8) - 2,046
Restructuring costs 811 875
Underlying profit/(loss) before taxation 1,622 (1,139)
(1,139)
The Statement of Comprehensive Income discloses foreign exchange movements, amortisation of intangibles and impairment of
goodwill within other operating expenses. Restructuring costs are disclosed within administrative expenses. Restructuring
costs of £0.8 million in the year ended 31 March 2015 comprise mainly the costs of moving warehouses in the UK to the new
warehouse run by our third party provider, DS Logistics, but also include elements of redundancy and associated legal fees
and other one off items.
Reconciliation of net debt:
Group
2015 £'000 2014£'000
Cash (note 14) 451 619
Total borrowings (note 18) (7,910) (7,872)
Net debt (7,459) (7,253)
(7,253)
Cash of £451,000 above includes restricted cash of £98,108 held within an Escrow account that relates to the exit payment
to our previous principal model railway supplier mentioned within the previous annual report and accounts for the year
ended 31 March 2014.
REVENUE RECOGNITION
Revenue comprises the fair value of the sale of goods net of value added tax, rebates and discounts, royalty income and
after eliminating sales within the Group.
Revenue is recognised as follows:
(a) Sale of goods
Sales of goods are recognised when a Group entity has despatched products to the customer. The customer is either a trade
customer or the consumer when sold through Hornby concessions in various retail outlets, or via the internet.
(b) Royalty income
Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements.
(c) Sales returns
The Group establishes a sales returns provision at the period end that reduces income in anticipation of customer returns
of goods sold in the period.
(d) Hornby Visitor Centre
Revenue is generated from the ticket and product sales at our Visitor Centre in Margate and recognised at the point of
sale.
Dividend income in the Company is recognised upon receipt. Management fees are recognised in the Company on an accruals
basis in relation to costs incurred on behalf of subsidiary companies.
EXCEPTIONAL ITEMS
Where items of income and expense included in the statement of comprehensive income are considered to be material and
exceptional in nature, separate disclosure of their nature and amount is provided in the financial statements. These items
are classified as exceptional items. The Group considers the size and nature of an item both individually and when
aggregated with similar items when considering whether it is material, for example impairment of intangible assets or
restructuring costs.
OPERATING SEGMENTS
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance
of the operating segments, has been identified as the Board of the Company that makes strategic decisions.
Operating profit of each reporting segment includes revenue and expenses directly attributable to or able to be allocated
on a reasonable basis. Segment assets and liabilities are those operating assets and liabilities directly attributable to
or that can be allocated on a reasonable basis.
BUSINESS COMBINATIONS
Goodwill arising on a business combination before and after 1 April 2004, the date of transition to IFRS, is not subject to
amortisation but tested for impairment on an annual basis. Intangible assets, excluding goodwill, arising on a business
combination subsequent to 1 April 2004, are separately identified and valued, and subject to amortisation over their
estimated economic lives.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net
identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and
carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to
cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or
groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose
identified according to operating segment. Goodwill is recorded in the currency of the cash generating unit to which it is
allocated.
INTANGIBLES
(a) Brand names
Brand names are capitalised at fair value as at the date of acquisition. They are carried at their fair value less
accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method
to allocate the fair value of brand names over their estimated economic life of 15-20 years. Brand names have been valued
on a 'relief from royalty' basis.
(b) Customer lists
Customer lists are capitalised at fair value as at the date of acquisition. They are carried at their fair value less
accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method
to allocate the fair value of customer relationships over their estimated economic life of ten years. Customer lists have
been valued according to discounted incremental operating profit expected to be generated from each of them over their
useful lives.
(c) Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the
design and testing of new products) are recognised as intangible assets when it is probable that the project will be a
success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development
expenditures are recognised as an expense as incurred.
(d) Computer software
Computer software expenditure is capitalised at the value at the date of acquisition and depreciated over a useful economic
life of 4-6 years.
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are shown at cost less accumulated depreciation. Assets revalued prior to the transition to IFRS use
this valuation as deemed cost at this date. Other property, plant and equipment are shown at historical cost less
accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the
asset to its working condition for its intended use.
Depreciation is provided at rates calculated to write off the cost or valuation of each asset, on a straight-line basis
(with the exception of tools and moulds) over its expected useful life to its residual value, as follows:
Freehold buildings - 30 to 50 years
Plant and equipment - 5 to 10 years
Motor vehicles - 4 years
Freehold land is not depreciated.
Tools and moulds are depreciated at varying rates in line with the related estimated product sales on an item-by-item basis
up to a maximum of four years.
IMPAIRMENT OF NON-CURRENT ASSETS
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually
for impairment. Assets that are subject to amortisation are reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the
asset's carrying value exceeds its recoverable amount, which is considered to be the higher of its value in use and fair
value less costs to sell. In order to assess impairment, assets are grouped into the lowest levels for which there are
separately identifiable cash flows (cash-generating units). Cash flows used to assess impairment are discounted using
appropriate rates taking into account the cost of equity and any risks relevant to those assets.
INVESTMENTS
In the Company's financial statements, investments in subsidiary undertakings are stated at cost less any impairment.
Investments revalued using the equity method of valuation prior to the transition to IFRS use this valuation as deemed cost
at this date. Dividend income is shown separately in the Statement of Comprehensive Income.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost is predominantly determined using the first-in,
first-out ('FIFO') method. Alternative methods may be used when proven to generate no material difference. The cost of
finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production
overheads (based on normal operating capacity).
Net realisable value is based on anticipated selling price less further costs expected to be incurred to completion and
disposal. Provisions are made against those stocks considered to be obsolete or excess to requirements on an item-by-item
basis.
The replacement cost, based upon latest invoice prices before the balance sheet date, is considered to be higher than the
balance sheet value of inventories at the year end due to price rises and exchange fluctuations. It is not considered
practicable to provide an accurate estimate of the difference at the year end date.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised in the Group and Company's balance sheet when the Group or
Company becomes a party to the contractual provisions of the instrument.
FINANCIAL LIABILITIES AND EQUITY
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the Group and Company after
deducting all of its liabilities. Equity instruments issued by the Group and Company are recorded at the proceeds received,
net of direct issue costs.
BORROWING COSTS
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried
at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in
the Statement of Comprehensive Income over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is
probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs
and subsequently amortised over the life of the facility. To the extent that there is no evidence that it is probable that
some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised
over the period of the facility to which it relates.
SALES RETURNS PROVISIONS
Provisions for sales returns are recognised when the Group has a constructive obligation as a result of a past event.
Provisions for sales returns are measured at the present value of the expenditure expected to be required to settle the
obligation.
TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for
impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the
Statement of Comprehensive Income.
TRADE PAYABLES
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
TAXATION INCLUDING DEFERRED TAX
Corporation tax, where payable, is provided on taxable profits at the current rate.
The taxation liabilities of certain Group undertakings are reduced wholly or in part by the surrender of losses by fellow
Group undertakings.
Deferred tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused
tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and unused tax losses can be utilised. The carrying amount of
deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at
the balance sheet date. Tax relating to items recognised directly in equity is recognised in equity and not in the
Statement of Comprehensive Income.
CRITICAL JUDGEMENTS IN APPLYING THE ACCOUNTING POLICIES
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that may have an element of risk causing an
adjustment to the carrying amounts of assets and liabilities within the next financial year include provisions for stock
obsolescence, customer returns, doubtful debts, impairment reviews, fair values of share-based payments, fair values of
derivatives and recoverability of deferred tax assets. All of the above are estimated with reference to historical data,
expectation of future events and reviewed regularly.
Whenever there is a substantiated risk that an item of stock's sellable value may be lower than its actual stock value, a
provision for the difference between the two values is made. Management review the stock holdings on a regular basis and
consider where a provision for excess or obsolete stock should be made based on expected demand for the stock and its
condition.
The provision for sales returns is based on historic returns data applied to sales for the current year and this provision
is reviewed by management on an ongoing basis.
Specific debtors are provided for when there is significant doubt that a repayment of debt will be fulfilled considering
specific knowledge of the customer and sales terms of the debt outstanding.
The critical areas of judgement applied within the impairment reviews conducted include the weighted average cost of
capital used in discounting the cash flows of the cash generating units, the assessment of the initial growth rate used and
the growth rate in perpetuity of the cash flows. The judgments used within this assessment are set out within note 8.
The critical areas of judgment used in the share based payment charge for the year include the assessment of the fair value
of the option along with the expected volatility and option term. These are based on historical data where this is
available and best estimates where historical data is not available. Further details in relation to share-based payments
are given in note 22.
The deferred tax assets are assessed based on the current trading performance, expected future cash flows in the specific
countries and the nature of the tax base.
The fair value of the financial derivatives is determined by the mark to market value at the year end date.
,
PROVISIONS
Liabilities and provisions are recognised when the Group has a present legal or constructive obligation as a result of past
events and it is more likely than not that an outflow of resources will be required to settle the obligation and the amount
has been reliably estimated. The expense relating to any liability or provision is presented in the Statement of
Comprehensive Income net of any reimbursement but only if reimbursement is virtually certain and will be settled
simultaneously.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the
present obligation at the balance sheet date. If material, provisions are determined by discounting the expected future
cash flows of the Group at rates that reflect current market assessments of the time value of money.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents for the purpose of the cash flow statement includes cash in hand, deposits at banks, other liquid
investments with original maturities of three months or less and bank overdrafts. Bank overdrafts or loans where there is
no right of set off are shown within borrowings in current or non-current liabilities on the balance sheet as appropriate.
SHARE-BASED PAYMENT
Hornby Plc operates three share-based payment plans:
· Share Option Scheme.
· Short Term Incentive Plan. (Dormant)
· Performance Share Plan.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured
at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined
at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period,
based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting
conditions.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Company
is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date
fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a
corresponding credit to equity.
Share Option Scheme
Fair value is measured by use of the Black-Scholes model. The expected life used in the models has been adjusted, based on
management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Performance Share Plan
Awards are granted to Executive Directors in shares worth 100% of salary, with lower levels of grant for less senior
executives.
The Performance Share Plan ('PSP') incorporates two three-year performance conditions:
· Total Shareholder Return ('TSR').
· Earnings per share ('EPS') growth targets.
each applying to a separate 40%:60% of the award respectively and vesting on the third anniversary of grant as appropriate.
The method applied in estimating the fair value of the 'PSP' awards is the Black-Scholes model,
The TSR fair value and the projected EPS award fair value are spread over the vesting period of the shares and recognised
in the Statement of Comprehensive Income in the appropriate year.
EMPLOYEE BENEFIT COSTS
During the year the Group operated a defined contribution money purchase pension scheme under which it pays contributions
based upon a percentage of the members' basic salary. The scheme is administered by trustees either appointed by the
Company or elected by the members (to constitute one third minimum).
Contributions to defined contribution pension schemes are charged to the Statement of Comprehensive Income according to the
year in which they are payable.
Further information on pension costs and the scheme arrangements is provided in note 24.
SHARE CAPITAL AND SHARE PREMIUM
Ordinary shares issued are shown as share capital at nominal value. The premium received on the sale of shares in excess of
the nominal value is shown as share premium within total equity.
LEASES
The Group enters into operating and finance leases. Assets held under finance leases are initially reported at the fair
value of the asset with an equivalent liability categorised as appropriate under current and non-current payables. The
assets are depreciated over the shorter of the lease term and their useful economic lives. Finance charges are allocated to
accounting periods over the period of the lease to produce a constant rate of return on the outstanding balance. Rentals
are apportioned between finance charges and the reduction of the liability and allocated to net interest.
Leases classed as operating leases are expensed on a straight-line basis to the Statement of Comprehensive Income over the
lease term.
FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group's operations expose it to a variety of financial risks that include the effects of changes in foreign currency
exchange rates, market interest rates, credit risk and its liquidity position. The Group has in place a risk management
programme that seeks to limit adverse effects on the financial performance of the Group by using foreign currency financial
instruments. In addition, other instruments are used to manage the Group's interest rate exposure.
(a) Foreign exchange risk
The Group is exposed to foreign exchange risks against Sterling primarily on transactions in US Dollars. It enters into
forward currency contracts to hedge the cash flows of its product sourcing operation (i.e. it buys US Dollars forwards in
exchange for Sterling) and looks forward six-twelve months on a rolling basis at forecasted purchase volumes. The policy
framework requires hedging between 70% and 100% of anticipated import purchases that are denominated in US Dollars. The
Group has granted Euro denominated intercompany loans to subsidiary companies that are translated to Sterling at statutory
period ends thereby creating exchange gains or losses. The loans to the subsidiaries, Hornby Deutschland GmbH, Hornby
Italia s.r.l and Hornby France S.A.S are classified as long-term loans and therefore the exchange gains and losses on
consolidation are reclassified to the translation reserve in Other Comprehensive Income as per IAS 21. The loan to the
branch in Spain is classified as a long-term loan however repayable on a shorter timescale than those of the other
subsidiaries and therefore the exchange gains or losses are taken to the Income Statement.
(b) Interest rate risk
The Group finances its operations through a mixture of retained profits and bank borrowings. The Group borrows, principally
in Sterling, at floating rates of interest to meet short-term funding requirements. At the year end the Group's borrowings
comprised a revolving credit facility, bank overdrafts and a fixed-term loan agreement. An interest rate hedge is in place
to protect the Group against future interest rate rises.
(c) Credit risk
The Group manages its credit risk through a combination of internal credit management policies and procedures and external
credit insurance.
(d) Liquidity risk
At 31 March 2015 the Group had a revolving credit facility of £13 million expiring in December 2015. The Group also has
additional facilities of £4 million in place in its European subsidiaries through bank loans and import credit line
facilities of which £2.3 million was undrawn at year end. Borrowings in the year ended 31 March 2015 peaked at £13.5
million. The needs are determined by monitoring forecast and actual cash flows. The Group regularly monitors its
performance against its banking covenants to ensure compliance.
The Group has recently been successful in renegotiating its main UK banking facilities for a further 4 years. The proposed
£15 million equity placing has allowed us to reduce reliance on debt facilities and we have signed a new revolving credit
facility of £10 million with our main UK bankers Barclays. This facility is conditional on the equity raising being
approved by shareholders which is expected to allow sufficient headroom for trading working capital needs for the next four
years and expires in August 2019. The Group also continues to have additional facilities of £4 million in place in its
European subsidiaries through bank loans and import credit line facilities.
DERIVATIVE FINANCIAL INSTRUMENTS
To manage exposure to foreign currency risk, the Group uses foreign currency forward contracts, also known as derivative
financial instruments.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge
transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values of the hedged
items.
(a) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in Other Comprehensive Income. The gain or loss relating to the ineffective portion is recognised immediately in
the Income Statement within operating expenses.
Amounts accumulated in Other Comprehensive Income are recycled in the Income Statement in the periods when the hedged item
affects profit or loss (for instance when the forecast purchase that is hedged takes place). The gain or loss relating to
the effective portion of forward foreign exchange contracts hedging import purchases is recognised in the Statement of
Comprehensive Income within 'cost of sales'. However, when the forecast transaction that is hedged results in the
recognition of a non-financial asset (for example, inventory) the gains and losses previously deferred in the Other
Comprehensive Income are transferred from Other Comprehensive Income and included in the initial measurement of the cost of
the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised in income when the forecast
transaction is ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur,
the cumulative gain or loss that was reported in the Statement of Comprehensive Income is immediately transferred to the
Income Statement.
(b) Derivatives that do not qualify for hedge accounting
Certain derivative instruments are not considered effective and do not qualify for hedge accounting. Such derivatives are
classified at fair value through the Income Statement, and changes in the fair value of derivative instruments that do not
qualify for hedge accounting are recognised immediately in the Income Statement.
FAIR VALUE ESTIMATION
The fair values of short-term deposits, loans and overdrafts with a maturity of less than one year are assumed to
approximate to their book values.
The fair values of the derivative financial instruments used for hedging purposes are disclosed in note 19.
FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded in the relevant functional currency at the exchange rates
ruling at the date of the transaction. Foreign exchange gains and losses resulting from such transactions are recognised in
the Income statement, except when deferred in Other Comprehensive Income as qualifying cash flow hedges. Monetary assets
and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the balance sheet date and
any exchange differences are taken to the Income Statement.
Foreign exchange gains/losses recognised in the Income Statement relating to foreign currency loans and other foreign
exchange adjustments are included within operating profit.
On consolidation, the Income Statement and cash flows of foreign subsidiaries are translated into Sterling using average
rates that existed during the accounting period. The balance sheets of foreign subsidiaries are translated into Sterling at
the rates of exchange ruling at the balance sheet date. Gains or losses arising on the translation of opening and closing
net assets are recognised in Other Comprehensive Income.
DIVIDEND DISTRIBUTION
Final dividends are recorded in the Statements of Changes in Equity in the period in which they are approved by the
Company's shareholders. Interim dividends are recorded in the period in which they are approved and paid.
2. SEGMENTAL REPORTING
Management has determined the operating segments based on the reports reviewed by the Board (chief operating
decision-maker) that are used to make strategic decisions.
The Board considers the business from a geographic perspective. Geographically, management considers the performance in the
UK, US, Spain, Italy and the rest of Europe.
Although the USA segment does not meet the quantitative thresholds required by IFRS 8, management has concluded that this
segment should be reported, as it is closely monitored by the Board as it is outside Europe.
The Company is a holding company operating in the UK with its results given in the Company Statement of Comprehensive
Income on page 38 and its assets and liabilities given in the Company Balance Sheet on page 39. Other Company information
is provided in the other notes to the accounts.
Year ended 31 March 2015
Revenue - External 41,477 3,349 2,836 4,079 6,394 58,135 - 58,135
- Other segments 3,028 - 6,093 200 - 9,321 (9,321) -
Operating profit/(loss) 46 125 111 315 (276) 321 - 321
Finance cost - External (406) - (72) (12) (16) (506) - (506)
- Other segments - - (193) (137) (64) (394) 394 -
Finance income - External 1 - - - - 1 - 1
- Other segments 394 - - - - 394 (394) -
(Loss)/profit before taxation 35 125 (154) 166 (356) (184) - (184)
Analysed as:
Underlying profit/(loss) before taxation 1,566 125 (154) 265 (180) 1,622 - 1,622
Net foreign exchange impact on intercompany loans (618) - - - - (618) - (618)
Amortisation of intangibles (264) - - (83) (30) (377) - (377)
Restructuring costs (649) - - (16) (146) (811) - (811)
Impairment of goodwill - - - - - - - -
(Loss)/profit before taxation 35 125 (154) 166 (356) (184) - (184)
Taxation 262 (39) (92) (170) 103 64 - 64
(Loss)/profit for the year 297 86 (246) (4) (253) (120) - (120)
Segment assets 40,995 1,538 10,431 4,514 3,517 60,995 (14,417) 46,578
Less intercompany receivables (13,198) (4) (915) (238) (62) (14,417) 14,417 -
Add tax assets 2,092 - 31 139 256 2,518 - 2,518
Total assets 29,889 1,534 9,547 4,415 3,711 49,096 - 49,096
Segment liabilities 22,855 1,525 9,133 4,526 3,967 42,006 (24,850) 17,156
Less intercompany payables (10,524) (1,391) (6,446) (3,303) (3,186) (24,850) 24,850 -
Add tax liabilities 122 41 4 17 - 183 - 184
Total liabilities 12,453 175 2,691 1,240 781 17,340 - 17,340
Other segment items
Capital expenditure 3,563 19 1,243 234 2 5,061 - 5,061
Depreciation 2,550 22 1,020 141 16 3,749 - 3,749
Net foreign exchange on intercompany loans 618 - - - - - - 618
Amortisation of intangible assets 264 - - 83 30 - - 377
Impairment of goodwill - - - - - - - -
Share-based payment 205 - - - - - - 205
Share-based payment
205
-
-
-
-
-
-
205
All transactions between Group companies are on normal commercial terms and an arm's length basis.
Year ended 31 March 2014
Revenue - External 36,413 2,966 2,885 2,952 6,341 51,557 - 51,557
- Other segments 2,877 - 5,238 402 - 8,517 (8,517) -
Operating (loss)/profit (1,335) 85 (115) (2,431) (277) (4,073) - (4,073)
Finance cost - External (375) - (87) (1) (29) (492) - (492)
- Other segments (175) - (208) (191) (98) (672) 672 -
Finance income - External 7 - - 1 - 8 - 8
- Other segments 672 - - - - 672 (672) -
(Loss)/profit before taxation (1,206) 85 (410) (2,622) (404) (4,557) - (4,557)
Analysed as:
Underlying profit/(loss) before taxation 41 85 (410) (483) (372) (1,139) - (1,139)
Net foreign exchange impact on intercompany loans (108) - - - - (108) - (108)
Amortisation of intangibles (264) - - (93) (32) (389) - (389)
Restructuring costs (875) - - - - (875) - (875)
Impairment of goodwill - - - (2,046) - (2,046) - (2,046)
(Loss)/profit before taxation (1,206) 85 (410) (2,622) (404) (4,557) - (4,557)
Taxation 338 (4) 13 (291) 56 112 - 112
(Loss)/profit for the year (868) 81 (397) (2,913) (348) (4,445) - (4,445)
Segment assets 40,430 1,329 10,678 4,214 3,879 60,530 (15,182) 45,348
Less intercompany receivables (14,052) (91) (697) (304) (38) (15,182) 15,182 -
Add tax assets 1,936 - 29 318 176 2,459 - 2,459
Total assets 28,314 1,238 10,010 4,228 4,017 47,807 - 47,807
Segment liabilities 22,398 1,259 9,635 4,361 3,783 41,436 (25,263) 16,173
Less intercompany payables (10,220) (1,173) (7,034) (3,844) (2,992) (25,263) 25,263 -
Add tax liabilities 226 3 35 - - 264 - 264
Total liabilities 12,404 89 2,636 517 791 16,437 - 16,437
Other segment items
Capital expenditure 2,247 7 1,594 192 19 4,059 - 4,059
Depreciation 2,520 22 966 76 20 3,604 - 3,604
Net foreign exchange on intercompany loans 108 - - - - 108 - 108
Amortisation of intangible assets 264 - - 92 33 389 - 389
Impairment of goodwill - - - 2,046 - 2,046 - 2,046
Share-based payment 274 - - - - 274 - 274
Share-based payment
274
-
-
-
-
274
-
274
All transactions between Group companies are on normal commercial terms and an arm's length basis.
3. FINANCE COSTS
Finance costs:
Interest expense on bank borrowings (506) (492) - -
Interest expense on intercompany borrowings - - (192) (208)
(506) (492) (192) (208)
Finance income:
Bank interest 1 8 - -
Interest income on intercompany loans - - 174 174
1 8 174 174
Net finance costs (505) (484) (18) (34)
1
8
174
174
Net finance costs
(505)
(484)
(18)
(34)
4. (LOSS)/PROFIT BEFORE TAXATION
The following items have been included in arriving at (loss)/profit before taxation:
Staff costs (note 23) 10,210 10,463 1,051 1,151
Inventories:
- Cost of inventories recognised as an expense (included in cost of sales) 25,400 25,891 - -
- Stock provision (179) (443) - -
Depreciation of property, plant and equipment: - -
- Owned assets 3,749 3,602 34 34
- Under finance leases - 2 - -
(Profit) / loss on disposal of assets (5) 22 - -
Other operating lease rentals payable:
- Plant and machinery 142 139 - -
- Property 446 433 - -
Repairs and maintenance expenditure on property, plant and equipment 82 142 - -
Research and development expenditure 1,810 1,713 - -
Foreign exchange gains/(losses):
- On trading transactions and ineffective hedges 135 35 - -
Impairment of trade receivables 40 250 - -
Restructuring costs (2015 - excluding £16,000 redundancy costs, 2014 - £173,000) 795 702 - -
Other operating expenses:
- Foreign exchange on trading transactions 205 1,032 - -
- Net impact of foreign exchange on intercompany loans 618 108 - -
- Movement on fair value of ineffective hedge (102) 135 - -
- Share-based payment charge 205 274 103 85
- Amortisation of intangible assets 377 389 - -
- Impairment of goodwill
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