REG - Hornby PLC - PRELIMINARY RESULTS AND TURNAROUND PLAN <Origin Href="QuoteRef">HRN.L</Origin> - Part 3
22/06/2016 07:05
- Part 3: For the preceding part double click ID:nRSV8892Bb
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.
ASSETS HELD FOR SALE
Individual, formerly non-current assets, which are expected to be sold within the next twelve months, are measured at the
lower of their carrying amount at the time they are reclassified and selling price less further costs expected to be
incurred to disposal.
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,
the growth rate in perpetuity of the cash flows and the forecast operating profits of the cash generating units. 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 two share-based payment plans:
· Share Option Scheme
· 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
Company 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 Statement of Comprehensive Income.
(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.
(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 2016 the Group had a revolving credit facility of £10 million expiring in August 2019. Borrowings in the year
ended 31 March 2016 peaked at £12.9 million under the Group's previous revolving credit facility of £13 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 three-and-a-half
years. The proposed £8 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 and
capital expenditure needs through to December 2019.
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 Statement of Comprehensive Income within operating expenses.
Amounts accumulated in Other Comprehensive Income are recycled in the Statement of Comprehensive Income 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 Statement of Comprehensive Income. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss is immediately transferred to the Statement of Comprehensive Income.
(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 Statement of Comprehensive Income, and changes in the fair value of derivative
instruments that do not qualify for hedge accounting are recognised immediately in the Statement of Comprehensive Income.
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 Statement of Comprehensive Income, except when deferred and disclosed 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 Statement of Comprehensive Income.
Foreign exchange gains/losses recognised in the Statement of Comprehensive Income relating to foreign currency loans and
other foreign exchange adjustments are included within operating profit.
On consolidation, the Statement of Comprehensive Income 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 Statement 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 21 and its assets and liabilities given in the Company Balance Sheet on page 22. Other Company information
is provided in the other notes to the accounts.
Year ended 31 March 2016
Revenue - External 42,562 3,080 2,470 2,275 5,370 55,757 - 55,757
- Other segments 6,534 - 2,250 696 822 10,302 (10,302) -
Operating loss (3,801) (4) (7,214) (528) (1,577) (13,124) - (13,124)
Finance cost - External (379) - (38) (3) (9) (429) - (429)
- Other segments (175) - (181) (130) (56) (542) 542 -
Finance income - External 21 - - - - 21 - 21
- Other segments 542 - - - - 542 (542) -
Loss before taxation (3,792) (4) (7,433) (661) (1,642) (13,532) - (13,532)
Analysed as:
Underlying loss before taxation (2,100) (4) (2,017) (471) (1,091) (5,683) - (5,683)
Net foreign exchange impact on intercompany loans 389 - - - - 389 - 389
Amortisation of intangibles (264) - - (71) (49) (384) - (384)
Restructuring costs (332) - (312) (15) (334) (993) - (993)
Implementation of new ERP system (814) - (88) (104) (168) (1,174) - (1,174)
Refinancing costs (762) - - - - (762) - (762)
Profit on disposal of property 223 - - - - 223 - 223
Impairment of tooling (132) - (1,026) _ - (1,158) - (1,158)
Impairment of goodwill - - (3,990) _ - (3,990) - (3,990)
Loss before taxation (3,792) (4) (7,433) (661) (1,642) (13,532) - (13,532)
Taxation (182) - - - - (182) - (182)
Loss for the year (3,974) (4) (7,433) (661) (1,642) (13,714) - (13,714)
Segment assets 55,604 1,704 5,088 3,673 3,696 69,765 (23,918) 45,847
Less intercompany receivables (20,918) (53) (720) (1,051) (1,176) (23,918) 23,918 -
Add tax assets 1,752 - - 157 295 2,204 - 2,204
Total assets 36,438 1,651 4,368 2,779 2,815 48,051 - 48,051
Segment liabilities 14,036 1,923 11,141 4,414 5,799 37,313 (21,609) 15,704
Less intercompany payables - (1,774) (10,635) (4,026) (5,174) (21,609) 21,609 -
Add tax liabilities 207 - 4 - - 211 - 211
Total liabilities 14,243 149 510 388 625 15,915 - 15,915
Other segment items
Capital expenditure 3,393 13 1,113 39 4 4,562 _ 4,562
Depreciation 2,447 21 1,059 162 16 3,705 - 3,705
Net foreign exchange on intercompany loans 389 - - - - 389 - 389
Amortisation of intangible assets 603 - - 71 49 723 - 723
Impairment of goodwill - - 3,990 - - 3,990 - 3,990
Share-based payment 18 - - - - 18 - 18
Share-based payment
18
-
-
-
-
18
-
18
All transactions between Group companies are on normal commercial terms.
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)
(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 41,095 1,538 10,431 4,514 3,517 61,095 (14,417) 46,678
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 29,989 1,534 9,547 4,415 3,711 49,196 - 49,196
Segment liabilities 22,955 1,525 9,133 4,526 3,967 42,106 (24,850) 17,256
Less intercompany payables (10,524) (1,391) (6,446) (3,303) (3,186) (24,850) 24,850 -
Add tax liabilities 122 41 4 17 - 184 - 184
Total liabilities 12,553 175 2,691 1,240 781 17,440 - 17,440
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.
3. FINANCE COSTS
Finance costs:
Interest expense on bank borrowings (429) (506) - -
Interest expense on intercompany borrowings - - (181) (192)
(429) (506) (181) (192)
Finance income:
Bank interest 21 1 - -
Interest income on intercompany loans - - 174 174
21 1 174 174
Net finance costs (408) (505) (7) (18)
21
1
174
174
Net finance costs
(408)
(505)
(7)
(18)
4. (LOSS)/PROFIT BEFORE TAXATION
The following items have been included in arriving at (loss)/profit before taxation:
Staff costs (note 23) 11,010 10,210 1,147 1,160
Inventories:
- Cost of inventories recognised as an expense (included in cost of sales) 26,808 25,400 - -
- Stock provision (895) (179) - -
Depreciation of property, plant and equipment: -
- Owned assets 3,705 3,749 19 34
Profit/(loss) on disposal of fixed assets 193 (5) 223 -
Other operating lease rentals payable:
- Plant and machinery 125 142 - -
- Property 1,058 446 - -
Repairs and maintenance expenditure on property, plant and equipment 171 82 - -
Research and development expenditure 1,760 1,810 - -
Foreign exchange (gains)/losses:
- On trading transactions and ineffective hedges (135) 135 - -
Impairment of trade receivables 163 40 - -
Share-based payment charge 18 205 (48) 103
Other operating expenses:
- Foreign exchange on trading transactions (822) 205 - -
- Net impact of foreign exchange on intercompany loans (389) 618 - -
- Movement on fair value of ineffective hedge 135 (102) - -
- Amortisation of intangible assets - brands 384 377 - -
-
- Amortisation of intangible assets - brands
384
377
-
-
Exceptional items comprise:
- Restructuring costs 993 811 - -
- Implementation of ERP system 1,174 - - -
- Refinancing 762 - 191 -
- Profit on disposal of property (223) - (223) -
- Impairment of property, plant and equipment 1,158 - - -
- Impairment of goodwill 3,990 - - -
- Impairment of investment - - 9,543 -
7,854 811 9,511 -
-
-
9,543
-
7,854
811
9,511
-
The exceptional items totalling £7.9 million (2015: £0.8 million) include restructuring costs (£1.0 million) relating to
the reorganisation of the European management teams and the costs of running the Margate site, impairment of goodwill (£4.0
million) following the decision to restructure the European businesses, impairment of tooling (£1.1 million) following the
decision to discontinue certain product lines as part of the new business plan, costs relating to the implementation of the
new ERP system (£1.2 million), costs relating to the 2015 equity issue and bank refinancing (£0.8 million) less the profit
on the sale of part of the Margate site (£0.2 million).
Services provided by the Company's auditors and network firms
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company's auditors
and network firms as detailed below:
Fees payable to the Company's auditors for the audit of Parent Company and consolidated accounts 103 99 15 15
Fees payable to the Company's auditors and its associates for other services:
- The auditing of accounts of the Company's subsidiaries 39 37 39 -
- Audit-related assurance services 5 25 - 25
- Tax advisory services 19 31 - -
- Tax compliance services 1 28 - 5
- Other advisory work - 34 - -
167 254 54 45
-
34
-
-
167
254
54
45
In the current financial year the level of non-audit fees was within the 1:1 ratio to audit fees as per Audit Committee
policy.
5. TAXATION
Analysis of tax charge/(credit) in the year
Group Company
2016 £'000 2015 £'000 2016 £'000 2015 £'000
Current tax
- UK taxation - (7) 89 99
adjustments in respect of prior years (43) 103 - -
- overseas taxation (8) 138 - (43)
adjustments in respect of prior years - - - -
(51) 234 89 56
Deferred tax (note 20)
- current year (569) (216) (3) (2)
- overseas taxation 348 60 - -
- adjustments in respect of prior years 255 (142) (7) (3)
- effect of tax rate change on opening balance 199 - (11) -
233 (298) (21) (5)
Total tax charge/(credit) to the loss before tax 182 (64) 68 51
51
The tax for the year differs to the standard rate of corporation tax in the UK of 20%. Any differences are explained
below:
Group Company
2016 £'000 2015 £'000 2016 £'000 2015£'000
(Loss)/profit before taxation (13,532) (184) (9,017) 337
(Loss)/profit on ordinary activities multiplied by rate of
Corporation tax in UK of 20% (2015: 21%) (2,706) (39) (1,803) 71
Effects of:
Adjustments to tax in respect of prior years 212 (39) (7) (5)
Permanent timing differences 1,208 - 1,889 -
Difference on overseas rates of tax (486) 18 - (15)
Impact of overseas losses not recognised 1,755 12 - -
Remeasurement of deferred tax
- change in UK tax rate to 18% 199 - (11) -
Other - (16) - -
Total taxation 182 (64) 68 51
51
The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the
Company's profits for this accounting period are taxed at an effective rate of 20%. The UK corporation tax rate is due to
decrease further to 19% on 1 April 2017 and 17% on 1 April 2020, however, the latter is yet to be substantively enacted.
UK deferred tax balances have been restated in these accounts and carried forward at a rate of 18%, being the current rate
substantively enacted for periods from 1 April 2020 onwards.
6. DIVIDENDS
No interim or final dividends were paid in relation to the year ended 31 March 2015 and no interim dividend has been paid
in relation to the year ended 31 March 2016. The Directors are not proposing a final dividend in respect of the financial
year ended 31 March 2016.
7. (LOSS) / EARNINGS PER SHARE
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year, excluding those held in the employee share trust (note 22) which are
treated as cancelled.
For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares that have satisfied the appropriate performance criteria at 31 March 2016. For the year
ended 31 March 2016, there was no difference in the weighted average number of shares used for basic and diluted net loss
per ordinary share as the effect of all potentially dilutive ordinary shares was nil as both the outstanding options and
PSP awards have not vested.
Reconciliations of the (loss)/earnings and weighted average number of shares used in the calculations are set out below.
REPORTED
Basic loss per share
Loss attributable to ordinary shareholders (13,714) 49,200 (27.87) (120) 39,164 (0.31)
Effect of dilutive securities
Options - - - - - -
Diluted loss per share (13,714) 49,200 (27.87) (120) 39,164 (0.31)
UNDERLYING
(Loss) / Earnings attributable to ordinary shareholders (13,714) 49,200 (27.87) (120) 39,164 (0.31)
Amortisation of intangibles 307 - 0.62 302 - 0.77
Restructuring costs 794 - 1.61 649 - 1.66
Implementation of new ERP system 939 - 1.91 - - -
Refinancing 610 - 1.24 - - -
Profit on disposal of Property (178) - (0.36) - - -
Impairment of PPE - tooling 1,158 - 2.36 - - -
Impairment of goodwill 3,990 - 8.11 - - -
Net foreign exchange translation adjustments (311) - (0.64) 494 - 1.26
Underlying basic (loss) / earnings /EPS (6,405) 49,200 (13.02) 1,325 39,164 3.38
Underlying diluted (loss) / earnings /EPS (6,405) 49,200 (13.02) 1,325 39,164 3.38
(13.02)
1,325
39,164
3.38
Underlying diluted (loss) / earnings /EPS
(6,405)
49,200
(13.02)
1,325
39,164
3.38
The above numbers used to calculate the EPS for the year ended 31 March 2016 and 31 March 2015 have been tax effected at
the rate of 20% respectively with the exception of Hornby Spain where the net deferred tax asset associated with the
impairment in 2016 has not been recognised.
8. GOODWILL
COST
At 1 April 2015 12,973
Exchange adjustments 34
At 31 March 2016 13,007
AGGREGATE IMPAIRMENT
At 1 April 2015 4,509
Charge for the year 3,990
Exchange adjustments (8)
At 31 March 2016 8,491
Net book amount at 31 March 2016 4,516
COST
At 1 April 2014 13,027
Exchange adjustments (54)
At 31 March 2015 12,973
AGGREGATE IMPAIRMENT
At 1 April 2014 4,497
Charge for the year -
Exchange adjustments 12
At 31 March 2015 4,509
Net book amount at 31 March 2015 8,464
Net book amount at 31 March 2014 8,530
Net book amount at 31 March 2014
8,530
The Company has no goodwill.
The goodwill has been allocated to cash-generating units and a summary of carrying amounts of goodwill by geographical
segment (representing cash-generating units) at 31 March 2016 is as follows:
At 31 March 2016 3,992 8 - - 337 179 4,516
At 31 March 2015 3,992 8 3,990 - 295 179 8,464
At 31 March 2015
3,992
8
3,990
-
295
179
8,464
Goodwill allocated to the above cash-generating units of the Group has been measured based on benefits each geographical
segment is expected to gain from the business combination.
Impairment tests for goodwill
Management reviews the business performance based on geography. Budgeted revenue was based on expected levels of activity
given results to date, together with expected economic and market conditions. Budgeted operating profit was calculated
based upon management's expectation of operating costs appropriate to the business as reflected in the new business plan.
The relative risk adjusted (or 'beta') discount rate applied reflects the risk inherent in hobby based product companies.
In determining this discount rate, management has applied an adjustment for risk of such companies in the industry on
average determined using the betas of comparable hobby based product companies. The forecasts are based on approved budgets
for the year ending 31 March 2017. Subsequent cash flows for the following two years have been increased in line with
expectation of 4% growth based on the 3 year working capital model adopted by the business which incorporates the Group's
strategy to integrate the European operations, reducing costs and opening up new revenue opportunities, particularly
through E-Commerce. This model has been reviewed with external advisors as part of the recent refinancing process. Cash
flows beyond the four-year period are extrapolated using the estimated growth rates stated below. The cash flows were
discounted using a pre-tax discount rate of 13% (2015: 10%) which management believes is appropriate for all territories.
The key assumptions used for value-in-use calculations for the year ended 31 March 2016 are as follows:
Gross Margin1 46.2% 46.2% 59.7% 59.7% 59.7% 59.7%
Growth rate to perpetuity2 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Growth rate to perpetuity2
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
The key assumptions used for value-in-use calculations for the year ended 31 March 2015 are as follows:
Gross Margin1 30.3% 47.0% 37.9% 22.62% 32.4% 26.06%
Growth rate to perpetuity2 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Growth rate to perpetuity2
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
1. Budgeted gross margin.
2. Weighted average growth rate used to extrapolate cash flows beyond the budget period.
These assumptions have been used for the analysis of each CGU within the operating segments.
For the UK CGU, the recoverable amount calculated based on value in use exceeded carrying value by £19.3 million. A
reduction in operating profit by 50%, or a rise in discount rate to 29% would remove the remaining headroom. For the France
CGU, the recoverable amount calculated based on value in use exceeded carrying value by £317k. A reduction in operating
profit by 24%, or a rise in discount rate to 20% would remove the remaining headroom. For the Germany CGU, the recoverable
amount calculated based on value in use exceeded carrying value by £5k. A reduction in operating profit by 1%, or a rise in
discount rate to 14% would remove the remaining headroom.
9. INTANGIBLE ASSETS
INTANGIBLE ASSETS
COST
At 1 April 2015 4,683 1,372 988 7,043
Additions - - 1,341 1,341
Exchange adjustments 130 33 - 163
At 31 March 2016 4,813 1,405 2,329 8,547
ACCUMULATED AMORTISATION
At 1 April 2015 1,897 1,075 - 2,972
Charge for the year 263 121 339 723
Exchange adjustments 43 32 - 75
At 31 March 2016 2,203 1,228 339 3,770
Net book amount at 31 March 2016 2,610 177 1,990 4,777
Net book amount at 31 March 2016
2,610
177
1,990
4,777
INTANGIBLE ASSETS
COST
At 1 April 2014 4,887 1,423 - 6,310
Additions - - 988 988
Exchange adjustments (204) (51) - (255)
At 31 March 2015 4,683 1,372 988 7,043
ACCUMULATED AMORTISATION
At 1 April 2014 1,756 985 - 2,741
Charge for the year 240 137 - 377
Exchange adjustments (99) (47) - (146)
At 31 March 2015 1,897 1,075 - 2,972
Net book amount at 31 March 2015 2,786 297 988 4,071
Net book amount at 31 March 2014 3,131 438 - 3,569
Net book amount at 31 March 2014
3,131
438
-
3,569
All amortisation charges in the year have been charged in other operating expenses. The Company held no intangible assets.
10. PROPERTY, PLANT AND EQUIPMENT
GROUP Freehold land and buildings £'000 Plant and equipment £'000 Motor Tools and moulds Total
vehicles £'000 £'000 £'000
COST
At 1 April 2015 2,952 6,598 239 55,039 64,828
Exchange adjustments 47 88 6 1,030 1,171
Additions at cost - 395 - 2,826 3,221
Transfer to current assets held for sale (2,999) - - - (2,999)
Disposals - (275) (51) (94) (420)
At 31 March 2016 - 6,806 194 58,801 65,801
ACCUMULATED DEPRECIATION
At 1 April 2015 1,371 5,156 230 47,811 54,568
Exchange adjustments 47 75 7 882 1,011
Charge for the year 32 544 - 3,129 3,705
Transfer to current assets held for sale (1,450) - - - (1,450)
Impairment - - - 1,158 1,158
Disposals - (239) (43) (101) (383)
At 31 March 2016 - 5,536 194 52,879 58,609
Net book amount at 31 March 2016 - 1,270 - 5,922 7,192
The impairment charge in the year relates to tooling held in Hornby Espana S.A and Hornby Hobbies Limited, which management
no longer intend to use in the medium term operations of the business.
COST
At 1 April 2014 3,026 6,172 249 53,178 62,625
Exchange adjustments (74) (93) (10) (1,455) (1,632)
Additions at cost - 531 - 3,542 4,073
Disposals - (12) - (226) (238)
At 31 March 2015 2,952 6,598 239 55,039 64,828
ACCUMULATED DEPRECIATION
At 1 April 2014 1,346 4,719 234 45,943 52,242
Exchange adjustments (22) (73) (8) (1,097) (1,200)
Charge for the year 47 522 4 3,176 3,749
Disposals - (12) - (211) (223)
At 31 March 2015 1,371 5,156 230 47,811 54,568
Net book amount at 31 March 2015 1,581 1,442 9 7,228 10,260
Net book amount at 31 March 2014 1,680 1,453 15 7,235 10,383
Net book amount at 31 March 2014
1,680
1,453
15
7,235
10,383
Freehold land amounting to £786,000 (2015: £786,000) has not been depreciated. The Group holds no finance leases (2015:
none).
The Group has taken advantage of the exemption under IFRS 1 to use the valuation of certain land and buildings at the date
of transition to IFRS as deemed cost. All other assets are stated at cost.
COST
At 1 April 2015 2,428 4 2,432
Transfer to current assets held for sale (2,428) - (2,428)
At 31 March 2016 - 4 4
ACCUMULATED DEPRECIATION
At 1 April 2015 1,221 4 1,225
Charge for the year 19 - 19
Transfer to current assets held for sale (1,240) - (1,240)
At 31 March 2016 - 4 4
Net book amount at 31 March 2016 - - -
Net book amount at 31 March 2016
-
-
-
COMPANY Freehold land and buildings £'000 Plant and equipment £'000 Total £'000
COST
At 1 April 2014 and at 31 March 2015 2,428 4 2,432
ACCUMULATED DEPRECIATION
At 1 April 2014 1,187 4 1,191
Charge for the year 34 - 34
At 31 March 2015 1,221 4 1,225
Net book amount at 31 March 2015 1,207 - 1,207
Net book amount at 31 March 2014 1,241 - 1,241
The Company does not hold any assets under finance leases. Freehold land amounting to £786,000 (2015: £786,000) has not
been depreciated.
Property, plant and equipment held for sale
At 31 March 2016 the Group had a clear intention to sell the land and buildings held by the Company and by its subsidiary
Hornby Espana S.A and remain in a sales process for both sites. These assets have been reclassified as current assets under
IFRS 5. During the year the Group sold part of the land and buildings held for sale.
2016 £'000 2015£'000 2016 £'000 2015£'000
Freehold land and buildings
COST
At 1 April 2015 - - - -
Transfer from non-current assets 2,999 - 2,428 -
Disposals (258) - (258) -
At 31 March 2016 2,741 - 2,170 -
ACCUMULATED DEPRECIATION
At 1 April 2015 - - - -
Transfer from
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