REG - Hornby PLC - Notice of GM and Disposal of Interest

HornbyAnnouncement

05/11/2024 07:00

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RNS Number : 8914K  Hornby PLC  05 November 2024

Hornby PLC

5 November 2024

 

 

Hornby plc

("Hornby", or the "Company" and, together with its subsidiaries, the "Group")

Disposal of interests in LCD Enterprises Limited

and

Publication of Circular and Notice of General Meeting

As part of the strategic review discussed in the Annual Report earlier this
year, Hornby (HRN), the toy and hobby Group is looking to rationalise its
portfolio of brands to ensure that management, and the business, are focused
on core product and markets. As part of this process, the Company has today
entered into a conditional agreement to dispose of its wholly-owned subsidiary
LCD Enterprises Limited ("LCD") to EKD Enterprises Limited, a company owned by
Lyndon Davies and his family for an aggregate consideration of approximately
£1.38 million (the "Disposal"). The Disposal will release the Oxford Diecast
brand from the Company's portfolio.

Oxford Diecast is currently a loss-making business with losses before tax
amounting to c.£200k in the Year Ended 31 March 2024, and is no longer
aligned with the core activities of the Group. The current net book value of
LCD as represented on Hornby's balance sheet as at 30 September 2024 is £2.99
million.

Strategic Rationale

·     Streamlining of the Group's business, enabling resources and
investments to be focused on the core brands

·     Positive impact on the overall aged inventory position through the
release of Oxford Diecast stock, reducing total inventory by a further 11%

·     Simplification of our proposition in the collectable diecast
category, allowing Hornby to focus exclusively on Corgi in the space

Further information and related party transaction

The aggregate consideration of approximately £1.38 million (the
"Consideration") is structured as follows:

·     Approximately £1.1 million of the Consideration is payable in cash
over a 5-year period post-Completion (the "Cash Consideration"), with £0.25
million of such amount being payable by the Buyer on Completion, and the
outstanding amount being payable in five equal instalments of approximately
£0.17 million on or around each anniversary of Completion for the five-year
period following Completion

·     If the Cash Consideration is not paid in accordance with the terms
of the Agreement, the Buyer shall be required to pay an additional
consideration payment to the Company of £600,000

·     As part of the Consideration for the Disposal, the Company has
agreed to acquire 1,526,627 ordinary shares in the capital of the Company that
Lyndon Davies holds (representing 0.9% of Hornby's share capital) for total
consideration of £1.00 (the "Buy Back"). As at market close on 4 November
2024 the shares have a current market value of approximately £0.28 million at
the mid-price of 18.0 pence. This will be implemented as an off market share
buyback and the shares will be cancelled following Completion.

In addition, the transaction also sees Lyndon Davies step down from the Board
and his role as a Non-Executive Director of the Group with immediate effect
from Completion.

As Lyndon Davies is a Director of the Company prior to Completion, the
Disposal constitutes a related party transaction pursuant to Rule 13 of the
AIM Rules for Companies. The independent directors of Hornby, consisting of
the full Board of Directors excluding Lyndon Davies, consider, having
consulted with Panmure Liberum, the Company's nominated adviser, that the
Disposal and the Buy Back are fair and reasonable insofar as the Company's
shareholders are concerned.

A circular containing further details of the Disposal, the Buy Back and the
Sale Agreement, and convening a general meeting of the Company (the "General
Meeting") to take place at 9.00 a.m. on 27 November 2024 at the offices of the
Company at Enterprise Road, Westwood Industrial Estate, Margate, England, CT9
4JX, to consider and approve the Disposal and the Buy Back (the "Circular")
is expected to be published and posted to shareholders today. The Circular,
when published, will be made available on the Group's website
(www.hornby.plc.uk).  Relevant extracts of the Circular are included in this
announcement below. A summary of the material terms of the Sale and Buy Back
Agreement is included in the Circular.

Commenting on today's announcement, Neil Sachdev, Non-Executive Chairman,
said:

"On behalf the board, I would like to thank Lyndon for his commitment to, and
support of, Hornby in various roles over the last 7 years. He has been a
passionate member of the Board, and we wish him well with Oxford Diecast in
the future.

Hornby and its family of brands remains world renowned, and rationalising our
portfolio in this way presents a more coherent offering to our customers.
Through consistently adapting to change we will ensure that we are best placed
to continue to support our existing customers whilst we create a new
generation of hobbyists".

 

Enquiries:

Hornby PLC

Oliver Raeburn, CEO                        01843 233
500

Kirstie Gould, CFO

Holly Barnett, PR

 

Panmure Liberum Limited, Nominated Advisor and Broker

Andrew Godber
020 3100 2222

Edward Thomas

Ailsa MacMaster

 

 FURTHER DETAILS OF THE DISPOSAL AND GENERAL MEETING

The following text are extracts from the Circular expected to be published
today.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

 

 Publication of the Circular                                                 5 November 2024
 Latest time and date for receipt of Forms of Proxy for the General Meeting  09.00 a.m. on 25 November 2024
 General Meeting                                                             09.00 a.m. on 27 November 2024
 Expected date for Completion                                                2 December 2024

 

Introduction

For the reasons set out below, the Company has entered into a conditional
agreement to dispose of its entire interest in the share capital of LCD to the
Buyer for aggregate consideration of approximately £1.38 million (the
"Consideration"). £0.25 million of the Consideration will be payable by the
Buyer in cash on Completion and approximately £1.1m of the Consideration is
payable in cash in five equal instalments of approximately £0.17 million on
or around each anniversary of Completion for the five year period following
Completion (the "Cash Consideration"). The balance of the Consideration will
be settled by the transfer by Lyndon Davies of the Hornby Shares to the
Company. If the Cash Consideration is not duly paid to the Company on the
dates and in the amounts set out in the Sale and Buy Back Agreement, the Buyer
shall be required to pay an additional consideration payment to the Company of
£600,000.

In connection with the Disposal, the Company has also conditionally agreed to
buy back all of the Hornby Shares held by Lyndon Davies, which have a current
market value of approximately £0.28 million, for a total consideration of
£1.00. These transactions will be implemented pursuant to the terms of the
Sale and Buy Back Agreement,  details of which are summarised in the
Circular. In addition, under the terms of the Sale and Buy Back Agreement, the
Company, the Buyer, LCD and Oxford Diecast have entered into the Debenture,
pursuant to which each of the Buyer, LCD and Oxford Diecast have granted to
the Company a fixed and a floating charge of all of their respective assets
until the whole of the Cash Consideration has been paid.

On 25 April 2024, the Company announced that Lyndon Davies would formally
stand down from his position as Non-Executive Chairman of the Company,
effective 30 April 2024. Lyndon Davies has continued to serve on the Board as
a Non-Executive Director since that date and has agreed to resign as a
director of the Company and all other Group Companies of which he is a
director, with effect from Completion. In addition and in connection with
Disposal, each of Kirstie Gould and Oliver Raeburn have agreed to resign as
directors of LCD and Oxford Diecast with effect from Completion.

The Proposals require certain approvals from Shareholders pursuant to the
Resolutions. The General Meeting to be convened in order for the Shareholders
to consider, and if thought fit approve, the Resolutions will be held at
Enterprise Road, Westwood Industrial Estate, Margate, England, CT9 4JX at
09.00 a.m. on 27 November 2024.

 

Background to the Disposal and the Buy Back

The Hornby Group of companies is a UK-based models and collectibles group that
operates internationally and owns some of the most recognisable hobbyist
brands, including "Hornby", "Corgi", "Airfix" and "Scalextric". Through these
brands, the Company offers a diverse range of modelling products that appeal
to all age groups. The Company acquired 49% of LCD in December 2017, and the
remaining 51% was acquired in July 2021. The aggregate consideration paid by
the Company for LCD was £2.9 million.

Oxford Diecast, a wholly owned-subsidiary of LCD, was founded in 1993. Oxford
Diecast supplies diecast vehicles to the collector, gift, hobby and
promotional markets. It has a collectors club with worldwide membership and
subsidiary companies in China and North America. Whilst LCD was historically a
profitable business it has been loss-making in recent years. The Group is
strategically focused on its return to profitability, and as such has been
reviewing its non-core businesses. Given LCD's negative financial
contribution, it is expected that the Disposal will improve the Group's
overall profitability.

The table below summarises the combined results of Oxford Diecast and LCD
recorded for the two financial years ending on 31 March 2024:

                            Year Ended    Year Ended

                            31 Mar 2023   31 Mar 2024
 Revenue                    £2,315,291    £2,526,344
 Operating Profit / (Loss)  £(113,470)    £(187,005)

 

The current net book value of LCD as represented on Hornby's balance sheet as
at 31 October 2024 (being the latest practicable date prior to the publication
of the Circular) is £2.99 million.

The Group is also focused on improving its operational efficiency and in
particular, reducing operational complexity. The Disposal is part of this
broader strategy, which should allow management and senior leadership to focus
their efforts on areas of the business that offer the most shareholder value.
Furthermore, by selling LCD, the Group expects to be able to both improve its
inventory position, and reduce future capital expenditure requirements. The
Company's stock position will reduce by approximately £2.5 million post
Completion.

In connection with the Disposal, the Company has agreed to buy back all of the
Hornby Shares held by Lyndon Davies for a total consideration of £1.00. The
Buy Back will constitute an off-market buy back under the Act. The key terms
of the Buy Back are summarised the Circular, and a copy of the Sale and Buy
Back Agreement is available for inspection at the registered office of the
Company for a period of 15 days ending on the date of the General Meeting. The
Company is seeking approval at the General Meeting for the Buy Back pursuant
to the Buy Back Resolution.

The Disposal and the Buy Back also require the  approval of the  Company's
Shareholders pursuant to section 190 of the Act as a substantial property
transaction  The Company is therefore seeking approval at the General Meeting
of the substantial property transaction pursuant to the SPT Resolution.

General Meeting and Resolutions

A Notice of General Meeting is set out in the Circular.

The General Meeting will take place at Enterprise Road, Westwood Industrial
Estate, Margate, England, CT9 4JX at 09.00 a.m. on 27 November 2024. At the
General Meeting, the Resolutions set out in Part V of the Circular will be
proposed to Shareholders. An ordinary resolution will be passed if 50% or more
of the votes cast (in person or by proxy) at the General Meeting are in favour
of it.

The Resolutions, are summarised below:

Resolution 1 - this is a special resolution to approve the Buy Back. This
resolution is conditional on the passing of resolution 2 below.

Resolution 2 - this is an ordinary resolution for the Disposal and the Buy
Back as a substantial property transaction under sections 190 and 191 of the
Act. This resolution is conditional on the passing of resolution 1 above.

 

Action to be taken in respect of the General Meeting

Shareholders will find a Form of Proxy enclosed with the Circular for use at
the General Meeting. Whether or not you intend to be present at the General
Meeting, you are requested to complete and return the Form of Proxy in
accordance with the instructions printed thereon as soon as possible. To be
valid, completed Forms of Proxy must be received by the Company's Registrars,
Link Group, by not later than 09.00 a.m. on 25 November 2024, or 48 hours
(excluding any part of a day that is not a Business Day) before any adjourned
General Meeting. Completion of the Form of Proxy will not preclude you from
attending the meeting and voting in person if you so wish.

 

Recommendation

The Independent Directors believe that the Resolutions to be considered at the
General Meeting are in the best interests of the Company and its shareholders
as a whole and unanimously recommend that Shareholders vote in favour of each
of the Resolutions, as the Independent Directors who are Shareholders intend
to do in respect of their beneficial shareholdings representing, in
aggregate, over approximately 0.49 per cent. of the current issued share
capital of the Company.

 

DEFINITIONS

The following definitions apply throughout this announcement, the Circular
and the accompanying Form of Proxy unless the context otherwise requires:

 "Act"                          Companies Act 2006, as amended;
 "AIM Rules"                    the AIM Rules for Companies published by the London Stock Exchange from time
                                to time;
 "Board" or "Directors"         the directors of the Company from time to time;
 "Buy Back"                     the proposed buy back by the Company of the Hornby Shares contemplated by the
                                Sale and Buy Back Agreement and as further described in Part IV of the
                                Circular;
 "Buy Back Resolution"          the resolution to be proposed at the General Meeting in relation to the Buy
                                Back which is set out in full in the Notice of General Meeting at resolution
                                1;
 "Buyer"                        EKD Enterprises Limited, a newly incorporated entity controlled by Lyndon
                                Davies, Catherine Davies and Eloise Davies;
 "Company"                      Hornby plc, a company incorporated in England and Wales with registered number
                                01547390;
 "Completion"                   the completion of the Disposal and the Buy Back, pursuant to the terms of the
                                Sale and Buy Back Agreement;
 "Debenture"                    the debenture to be entered into prior to Completion between the Buyer, LCD
                                and Oxford Diecast and the Company pursuant to which each of the Buyer, LCD
                                and Oxford Diecast has granted the Company a fixed and floating charge over
                                their respective assets;
 "Disposal"                     the disposal by the Company of the entire issued share capital of LCD
                                Enterprises to the Buyer pursuant to the Sale and Buy Back Agreement;
 "Form of Proxy"                the form of proxy accompanying the Circular relating to the General Meeting;
 "General Meeting"              the general meeting of the Company, notice of which is set out at the end of
                                the Circular and including any adjournment(s) thereof;
 "Group"                        Hornby and its subsidiaries from time to time;
 "Hornby Shares"                the 1,526,627 ordinary shares of 1 pence each in the capital of the Company
                                held by Lyndon Davies as at the date of the Circular;
 "Independent Directors"        each of the Directors, excluding Lyndon Davies;
 "LCD"                          LCD Enterprises Limited, a company incorporated and registered in England and
                                Wales under number 03005140;
 "London Stock Exchange"        London Stock Exchange plc;
 "Notice of General Meeting"    the notice of the General Meeting, set out in Part V of the Circular;
 "Ordinary Shares"              ordinary shares of 1 pence each in the capital of the Company;
 "Oxford Diecast"               Oxford Diecast Limited, a subsidiary undertaking of LCD;
 "Registrars"                   Link Group, registrars to the Company;
 "Resolutions"                  the Buy Back Resolution and the SPT Resolution set out in full in the Notice
                                of General Meeting;
 "Sale and Buy Back Agreement"  the sale and buy back agreement entered into on 5 November 2024 between the
                                Buyer, Lyndon Davies and the Company in relation to the Disposal and the Buy
                                Back;
 "Shareholders"                 holders of Ordinary Shares from time to time;
 "SPT Resolution"               the resolution to be proposed at the General Meeting which is set out in full
                                in the Notice of General Meeting at resolution 2;

 

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