Hornby PLC
Westwood,
Margate,
Kent
CT9 4JX
www.hornby.com
Hornby PLC
Annual Report & Accounts
YEAR ENDED 31 MARCH 2012
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2 Hornby > Annual Report and Accounts 2012 >
Hornby PLC Annual Report & Accounts 2012
The Group’s principal business is the development, production
and supply of hobby and toy products. The Group distributes its products
through a network of specialist and multiple retailers throughout the
UK and overseas.
Financial Highlights
Revenue
Underlying Operating Profit
Dividend per Share
£64.5m +2%
2011: £63.4m
£5.3m +2%
2011: £5.2m
3.7p (26%)
2011: 5.0p
2008 2009 2010
2011
2012
Revenue £’000
2008 2009 2010
2012
Underlying operating profit £’000
2011
2008 2009 2010
2011
2012
Divdend per share £’000
Hornby > Annual Report and Accounts 2012 > Financial Highlights
Contents
Financial Highlights
Chairman’s Statement
Chief Executive’s Report
Directors and Corporate
Information
Directors’ Report
Corporate Governance Report
Directors’ Remuneration Report
2
4
5
8
9
12
20
Statement of Directors
Responsibilities
Independent Auditors’ Report
to the Members of Hornby PLC
Group and Company
Statement of Comprehensive
Income
Group and Company
Balance Sheet
3
31
32
Group and Company
Statement of Changes in Equity
Group and Company
Cash Flow Statement
Cash Flow from Operating Activities 33
Notes to the Financial Statements
34
Notice of Annual General Meeting 68
26
27
29
30
Five Year Summary
72
Underlying
Profit before taxation
£4.5m +2%
2011: £4.4m
Reported
Profit before taxation
£4.0m (3%)
2011: £4.1m
Profit after taxation
£3.7m +15%
2011: £3.2m
Basic earnings per share
9.5p +14%
2011: 8.3p
Profit after taxation
£3.2m +11%
2011: £2.9m
Basic earnings per share
8.2p +9%
2011: 7.5p
Frank Martin, Chief Executive of Hornby, commented,
“Despite the backdrop of a challenging market, Hornby is making encouraging progress. Our ability to broaden
our product and distribution base will enable us to mitigate to some extent any short term weakness in our
traditional hobby sectors. We are pleased that sales of our London 2012 merchandise are gathering momentum.
We expect this unique license opportunity to contribute positively to profits in the short term and, through the
increased distribution that we gain as a result of our involvement with London 2012, to provide an ongoing legacy
benefit in substantially increasing our presence in mass market retail outlets.“
4 Hornby > Annual Report and Accounts 2012 > Chairman’s Statement
Chairman’s Statement
Overview
The management team has continued to
focus on delivering a long term business
strategy for the Group. The aim is to be
the most successful model, hobby and
collectable toy company in the world. The
year under review has not been without
its challenges but our strategy to diversify
our business both by product sector and
geographical market has stood us in good
stead. In the UK, challenging market
conditions have constrained our sales, whilst
in mainland Europe we have seen our sales
grow considerably as we consolidate our
position as an important supplier to the
model railway markets in Continental Europe.
The Group is well positioned to benefit from
the incremental sales that will be generated
in the UK by the London 2012 Games and
also to continue to grow our mainland
European businesses.
Corporate Governance
Good corporate governance provides a
framework for delivering the objectives
of the company and is fundamental to a
sound decision making process. It supports
executive management in achieving the
maximum performance for the business.
The Board will continue to focus on
strengthening governance and compliance
procedures. We welcomed the introduction
of the Financial Reporting Council’s UK
Corporate Governance Code (the Code)
and the Corporate Governance Report this
year is structured so that we can report our
corporate governance arrangements and
practice against its five sections. Maintaining
good corporate governance is a key priority
and I am pleased to introduce our Corporate
Governance Report setting out how we
complied with the Code during the year.
There have been no changes to the
composition of the Board during the year.
The annual evaluation of the Board has
considered the balance of skills, experience,
independence, knowledge of the Company,
its diversity, including gender, how the Board
interacts together as a unit, and considers
that the present structure and composition
of the Board to be effective for the size of the
organisation.
All non-executive directors are advised of
the likely time commitments at appointment.
The ability of individual directors to allocate
sufficient time to the discharge of their
responsibilities is considered as part of the
directors’ annual evaluation and development
process overseen by the Chairman. The
Board has formal and informal procedures to
monitor its performance both as individuals
and as a Board.
In the current uncertain economic
environment, management of risk remains
a key focus for the Board. The Board has
in place a robust process for identifying
the major risks facing the business and for
developing appropriate policies to manage
those risks. The Board reviews the major
risks and any mitigating actions required on a
bi-annual basis.
Through the Board and the Audit Committee
we retain good visibility of the issues and
challenges faced by management and the
work to address them. In the year to March
2012, for example, we have completed a
thorough review of the Group’s policies and
procedures to ensure compliance with the
2010 UK Bribery Act.
I was appointed Chairman of Hornby just
before Christmas 2000. At that time,
we were an overwhelmingly UK focused
business, and although we had started to
build supplier relationships in China, we
still retained manufacturing activities in
the UK. Eleven years later, Hornby has
become a truly international company, with
supplier operations in China and India, and
a collection of World and European brands
which have substantially broadened the base
of our operations and reduced the short-
term risks associated with over reliance on a
single market. This year, 2012, marks another
potentially game-changing development of
our brand ‘reach’ as Hornby products feature
strongly in the ‘collectables’ ranges of the
London 2012 Games.
I have much enjoyed being part of this
transformation, particularly working with my
Board colleagues and the talented executive
team who have actually delivered major
success and change. That said, I consider
that it is now time to hand-over the Chair
to a new pair of eyes and hands capable
of consolidating this transformation and
steering the business to ever greater success
in the future. It is therefore my intention to
stand-down from the Board not later than
next year’s AGM. This will leave sufficient
time for us to find a suitable successor and
arrange the necessary transitions. In the
coming months I will be consulting with
major shareholders and, together with my
Board colleagues, managing a professional
and comprehensive selection process. I will,
of course, keep all shareholders informed of
any major developments in this process.
Finally, I would like to thank our Chief
Executive Frank Martin and through him, all
our staff, for their commitment to growing
the business, and ensuring that future return
to shareholders is maximised.
Neil Johnson
Chairman
8 June 2012
Hornby > Annual Report and Accounts 2012 > Chief Executive’s Report
5
Chief Executive’s Report
The Group’s principal business is the design, development, production and
supply of hobby and toy products. The Group distributes its products through
a network of specialist and multiple retailers throughout the UK and overseas.
The Group markets its products under a number of strong brands well known in
their respective markets. These brands include Hornby, Scalextric, Electrotren,
Lima, Jouef, Rivarossi, Arnold, Airfix, Humbrol and Corgi.
Financial Review
Revenue
£64.4m £63.4m
2012
2011
Underlying profit before
tax *
Gross profit margin
Underlying profit before
tax margin *
Reported profit before
tax margin
Underlying basic
earnings per share *
Statutory basic earnings
per share
Net debt
£4.5m
48.3%
£4.4m
46.2%
7.0%
7.0%
6.2%
6.5%
9.48p
8.34p
8.19p
£6.3m
7.50p
£6.1m
* Stated before amortisation of intangibles and net foreign
exchange adjustments on intercompany loans
Consolidated revenue for the year ended
31 March 2012 was £64.4 million, an
increase of 2% compared to the previous
year’s £63.4 million.
Full year gross profit margin was 48.3%
(2011 – 46.2%). The increase in gross profit
margin was primarily a result of changes
in the product mix of sales in favour of
higher margin model railway products. This
reflected improvements in the performance
of our supply chain. Overheads increased
year on year, due primarily to the effect of
variable selling costs increasing in our UK
concessions and European subsidiaries as
a result of higher levels of sales, and with
incremental promotional activity associated
with the London 2012 Games.
Pre-tax profit before amortisation of
intangibles and net foreign exchange
adjustments on intercompany loans
(hereafter referred to as underlying
pre-tax profits) was £4.5 million (2011 –
£4.4 million) (see note 1). Basic earnings
per share calculated on underlying pre-tax
profit (hereafter referred to as underlying
basic earnings per share) were 9.48p
(2011 – 8.34p). Statutory pre-tax profit
was £4.0 million (2011 – £4.1 million) and
statutory basic earnings per share were 8.19p
(2011 – 7.50p).
Taxation at £0.8 million (2011 – £1.3 million)
was 21% of reported profit before tax
(2011 – 31%). This included a prior year
deferred tax adjustment of £0.3 million,
relating to the provision for unrealised profit
in stock. The taxation figure excluding this
adjustment was 27%.
Core Group inventories reduced during the
year. However, at the year end we were
carrying stocks of London 2012 merchandise
valued at £3.3 million in order to service
the sales to be made in the run-up to and
during the Games. This resulted in an overall
increase in stocks at the year end. We expect
this position to unwind as the London 2012
inventory is sold. Net debt as at 31 March
2012 was £6.3 million (2011 – £6.1 million).
long term policy of paying 50% of earnings.
The total dividend has been calculated after
excluding the impact of the prior year tax
benefit referred to above and results in a
recommended dividend of 3.7p per ordinary
share (2011 – 5.0p). An interim dividend of
1.7p has already been paid, so the proposed
final dividend will be 2.0p. In line with the
notification made in last year’s Report and
Accounts to this effect, payment of the final
dividend will be made after the Group’s peak
working capital requirement for the year has
passed. The final dividend will therefore be
paid on 21 December 2012 to shareholders
on the register at 23 November 2012.
Banking Facilities
The Group has banking facilities of
£17.5 million in the UK. These facilities
comprise a £7.5 million amortising Term
Loan which expires in July 2014 and a
£10 million Secured Money Market Loan
which expires in August 2015. The Group
also has additional facilities of £2.5 million in
place in its European subsidiaries. Borrowings
in the year ended 31 March 2012 peaked
at £15.6 million. The Group remained
comfortably within all of its covenants during
the year.
Dividend
This has been another year in which
trading has been challenging. Last year the
dividend payment was maintained at the
level of the previous year, notwithstanding
a reduction in earnings per share. The Board
recommends that the total dividend for the
current year be re-aligned to the Group’s
Business Overview
This has been a further year of challenging
economic conditions. However we have
made good progress in a number of key
areas. In mainland Europe improved supply
chain performance enabled our European
business to report increased sales and a
satisfactory profit. Trading conditions in our
6 Hornby > Annual Report and Accounts 2012 > Chief Executive’s Report
Chief Executive’s Report (continued)
UK home market continued to be difficult.
We are now in the run-up to the London
2012 Games and demand for our London
2012 merchandise is growing strongly.
We are expecting good sales performance
over the coming months, and the expanded
distribution base that we have opened up as
a result of London 2012 will stand us in good
stead to continue to develop sales beyond
the Games. The development of the new
Corgi “Toys” range and the launch of a range
of products based on the rapidly growing
license “Olly the Little White Van” will help
to underpin our mass-market distribution
beyond 2012.
Hornby sources the majority of its products
in China and India, via third-party contract
manufacturers. During the year supplies
from the Group’s largest supplier in China
improved considerably and additional
sources were brought on stream. We
continue to work closely with our largest
supplier and expect that this relationship will
continue to the benefit of both parties for
many years to come.
All purchases from our Chinese suppliers are
either in US or Hong Kong Dollars. It is the
Group’s policy to enter into forward currency
contracts in anticipation of purchases for up
to 12 months in the future. The Group retains
intellectual property rights in its products and
controls all sales of its products.
United Kingdom
The challenging trading conditions in the
UK resulted in full-year sales in our UK
subsidiary being 4% below the previous
year at £45.5 million (2011 – £47.3 million).
Against this difficult background, underlying
profit before tax fell to £3.4 million
compared to £4.5 million the previous year.
Reported profit before tax was £3.0 million
(2011 – £4.3 million). This result includes
export sales to third parties of £6.4 million
(2011 – £6.5 million).
Sales via all our channels of distribution were
below the previous year, with the exception
of our concessions chain and our direct
marketing channel. The reduction in sales
reflects weak consumer confidence generally
and caution on the part of retailers in respect
of inventory purchases.
Sales of Hornby model railways were broadly
similar to the previous year. However we
had some notable successes in terms of new
product introductions. In particular our newly
tooled Brighton Belle five car set launched to
critical acclaim. In addition, our new Flying
Scotsman locomotive followed the success in
the previous year of the Tornado locomotive.
Both these locomotives are built to a high
standard of authenticity whilst achieving a
competitive price point. We will continue
to develop this new market sector which is
attuned to the more challenging economic
conditions which we face.
Sales of Scalextric were below the previous
year as a result of lower consumer demand
and cautious buying behaviour amongst our
retailers. However, with the launch this year
of our Star Wars based Scalextric range and
the introduction of a number of products
celebrating the 50th anniversary of the
James Bond franchise we are confident that
we can rebuild our Scalextric volumes.
Sales of Airfix were slightly below the
previous year after a number of years of good
growth. Our Airfix product development
programme continues apace and we expect
our recently announced 1:48 scale military
range to provide a strong platform for Airfix
sales.
Corgi sales benefitted from the London 2012
programme and were ahead of the previous
year. In particular, the London 2012 branded
bus and taxi ranges were very successful and
we expect sales of these and similar items to
continue to grow during the current financial
year.
Continental Europe
Our subsidiaries in mainland Europe together
made good progress, benefitting directly
from the improved performance of our supply
chain. Sales via our European subsidiaries
in total were 21% above the previous year
at £16.2 million (2011 – £13.4 million). Our
subsidiaries in mainland Europe contributed
an underlying profit before tax of £1.1 million
compared with an underlying loss before tax
of £42,000 in the previous year. Reported
profit before tax was £1.0 million (2011 – loss
£0.2 million). All our European subsidiaries
returned a profit in the year and we are
particularly pleased with the progress that
has been made in Germany.
Our strong European brands continue to
attract increasing support from the model
railway communities in each of our key
territories. Across Europe in 2011/12 we
won no less than ten separate ‘model of the
year’ awards, receiving at least one award
in each territory where we have a subsidiary
company. This is an important third party
endorsement of our strategy to build our
presence in these markets.
The current macro economic issues
surrounding the euro zone continue to be a
cause for concern. Continued weakness in
the Euro will have a negative impact on the
level of profit of the European business.
America
Sales in Hornby America were higher at
$4.4 million (2011 – $4.2 million), producing
a profit before tax of $83,000 (2011 – loss
$69,000). Upon translation into Sterling,
sales were £2.7 million (2011 – £2.7 million)
with a profit before tax of £52,000 (2011 –
loss £44,000). In addition Hornby Hobbies
in the UK benefitted from a gross margin
contribution of £411,000 (2011 – £397,000)
generated on sales made to Hornby
America, which has the effect of increasing
significantly the overall contribution to Group
Hornby > Annual Report and Accounts 2012 > Chief Executive’s Report
7
profit of our US operation. Further good
progress was made during the year in Hornby
America in reducing working capital and
overheads.
Product Development
Our product development programme
continues to be a key driver of our business.
We continue to increase our resources in
this area in order to cope with the additional
demands of our subsidiaries and the increase
in product categories. We were delighted
that at the London toy fair in January 2012
we were awarded three separate “Best
New Toy” awards, for our Corgi toys range,
our Scalextric Star Wars products and
our London 2012 Pictogram figurines. No
other company received as many awards.
In addition to the ongoing development
of our traditional hobby-based ranges we
are working for the future on a number
of technology based initiatives which if
successfully executed will broaden further
our appeal and market reach.
Outlook
Consumer confidence in all our major
markets continues to be weak. We will
continue to review our overhead base in
order where possible to align costs with
the current environment. Our ability to
broaden our product and distribution base
will enable us to mitigate to some extent
any short term weakness in our traditional
hobby sectors. The sales of our London 2012
merchandise are gathering momentum and
we expect this unique license opportunity to
contribute positively to profits in the short
term and, through the increased distribution
that we gain as a result of our involvement
with London 2012, to provide an ongoing
legacy benefit in substantially increasing our
presence in mass market retail outlets. In
order to benefit from this increased presence
following London 2012 we have developed
a number of new ranges with entry-level
price points ranging from £2 to £9.99. The
first of these ranges is a series of collectable
pin-badges based on the Moshi Monsters
license. This development arises directly from
our experience of distributing the London
2012 collectable pin badges. By applying this
knowledge to the hugely successful Moshi
Monsters license we are leveraging our
product development expertise and securing
continued mass market distribution. We also
have high expectations of success for our
range of Corgi “Toys”. This range is designed
around the everyday vehicles that use the
roads of the UK and indeed mainland Europe.
There is currently a gap in the market for
this type of collectable series and we have
received a very positive response from our
retail customers. First deliveries of this range
will be in-store in September. Other ranges
soon to reach the market include “Olly the
Little White Van”, which is currently the
highest rating children’s TV series on CITV.
There is no doubt that there will continue
to be pressure on consumer confidence for
some time to come. However we continue
to innovate and to seek new commercial
opportunities in order to counter the effects
of the macro-economic climate in which we
are operating.
Frank Martin
Chief Executive
8 June 2012
8 Hornby > Annual Report and Accounts 2012 > Directors and Corporate Information
Directors and Corporate Information
DIRECTORS
N A Johnson
Non-Executive Chairman
F Martin
Chief Executive
A J Morris
Finance Director
N M Carrington
Non-Executive Director
M E Rolfe
Non-Executive Director
COMPANY SECRETARY
J W Stansfield
REGISTERED OFFICE
Westwood
Margate
Kent CT9 4JX
COMPANY REGISTERED NUMBER
Registered in England No. 01547390
AUDITORS
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
First Point
Buckingham Gate
Gatwick RH6 0PP
SOLICITORS
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London EC4R 9HA
PRINCIPAL BANKERS
Barclays Bank PLC
9 St George’s Street
Canterbury
Kent CT1 2JX
FINANCIAL ADVISERS AND BROKERS
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
REGISTRARS AND TRANSFER AGENTS
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Hornby > Annual Report and Accounts 2012 > Directors’ Report
9
Directors’ Report
The directors submit their Annual Report together with the audited
consolidated financial statements for the year ended 31 March 2012.
PRINCIPAL ACTIVITIES
The Company is a holding company registered in England No.
01547390 with a Spanish branch and has six operating subsidiaries:
Hornby Hobbies Limited in the United Kingdom, Hornby America Inc.
in the USA, Hornby España S.A. in Spain, Hornby Italia s.r.l. in Italy,
Hornby France S.A.S. in France and Hornby Deutschland GmbH in
Germany. Hornby Plc is a public limited company incorporated and
operating in the United Kingdom. Its registered office is set out on
page 8.
The Group is principally engaged in the development, design,
sourcing and distribution of hobby and interactive home
entertainment products.
BUSINESS REVIEW
The Group’s business review along with future developments are
included in the Chief Executive’s Report.
The principal risks and uncertainties facing the Group and the
Group’s Corporate Governance Statement are set out in the
Corporate Governance Report on pages 17 and 18.
RESULTS AND DIVIDENDS
The results for the year ended 31 March 2012 are set out in the
Group and Company Statement of Comprehensive Income on
page 29. Revenue for the year was £64.4 million compared to
£63.4 million last year. The profit for the year attributable to equity
holders amounted to £3.2 million (2011 – £2.9 million). The position
of the Group is set out in the Group and Company Balance Sheet on
page 30.
An interim dividend was declared in the year of 1.7p per ordinary
share amounting to £0.7 million (2011 – £0.7 million).
The directors recommend a final dividend of 2.0p (2011 – 3.3p)
per ordinary share amounting to £0.8 million (2011 – £1.3 million)
payable on 21 December 2012 to those shareholders on the Register
at 23 November 2012.
This represents a total dividend paid in respect of the year ended 31
March 2012 of 3.7p per ordinary share (2011 – 5.0p).
KEY PERFORMANCE INDICATORS (KPIs)
The directors are of the opinion that the KPIs are revenues, gross
margins, underlying profit before tax, earnings per share and cash
generation, the information for which is available in these financial
statements and summarised on the financial highlights section at
the beginning of this report. The Group maintains a robust planning
system with individual targets for subsidiaries in terms of growth
and profits. The Board monitors progress against plan on a regular
basis adjusting future objectives annually in line with current
circumstances.
RESEARCH & DEVELOPMENT
The Board considers that research and development into new
products continues to play an important role in the Group’s success.
All R&D costs incurred in the year have been charged to the
Statement of Comprehensive Income and are as set out in note 4.
PROPERTY VALUES
In the opinion of the directors, and given current planning use
approvals, there is no significant difference between the book amount
and the current market value of interests in land and buildings.
Land and buildings are valued according to the provisions of IAS 16’s
cost model. Assets are carried at cost less accumulated depreciation
and impairment.
CHARITABLE DONATIONS
During the year the Group made donations of £14,232 (2011 –
£21,250) for charitable purposes to include the Theatre Royal
Margate (£10,000). There were no political donations in the year
(2011 – £nil).
DIRECTORS
The persons who were directors during the year are listed below:
Neil A Johnson, aged 63, was originally appointed a non-executive
director on 1 July 1998. On 22 December 2000 he assumed the
responsibilities of Chairman. He served for five years as a member
of a Prime Minister’s Advisory Panel and is currently a member of a
Ministry of Defence Advisory Board. He sits on a number of private
company Boards and Trusts, is Chairman of Motability Operations
Group Plc, Umeco Plc and Yule Catto & Co Plc.
Frank Martin, aged 60, was appointed Chief Executive on 3 January
2001. Frank was previously Chief Executive of Humbrol Limited,
and formerly Managing Director of Denby Pottery Limited and
Group Marketing Director of Hasbro (UK) Limited. His conditions of
employment include a notice period of one year to be given by the
Company and of six months to be given by him.
Andrew J Morris, aged 49, was appointed Group Finance Director
on 26 November 2007. Andrew was previously CFO of Speedo
International and formerly Finance Director, Africa Glaxo Smithkline
plc. His conditions of employment include a notice period of one year
to be given by the Company and of six months to be given by him.
Nigel M Carrington, aged 56, was appointed a non-executive
director on 1 December 2007. Nigel is currently Rector and Chief
Executive of University of the Arts London and a member of the
10 Hornby > Annual Report and Accounts 2012 > Directors’ Report
Directors’ Report (continued)
board of a number of charities. He was formerly a corporate lawyer
and Managing Partner at Baker & McKenzie and Managing Director
and Deputy Chairman of McLaren Group Limited.
Mark E Rolfe, aged 53, was appointed a non-executive director on
1 January 2008. After qualifying as a chartered accountant with
Coopers and Lybrand, Mark joined Gallaher Group plc in 1986, where
he was Finance Director for seven years retiring in 2007. He is a non-
executive director of The Sage Group Plc, Barratt Developments Plc
and Debenhams Plc, and Chairman of Lane Clark & Peacock LLP.
The Group also enters into derivatives transactions (principally
forward foreign currency contracts). The purpose of such
transactions is to manage the currency risks arising from the Group’s
operations. The Group has a foreign exchange (FX) collar in place
to minimise risk on translation of Euro denominated intercompany
loans.
It is, and has been throughout the period under review, the Group’s
policy that no speculative trading in financial instruments shall be
undertaken.
The interests of the directors in the shares of the Company and in
options granted over such shares are disclosed in the Directors’
Remuneration Report on pages 23 and 24.
The number of Board meetings held during the year and attendance
by the directors is set out on page 12.
DIRECTORS’ INDEMNITIES
The Company maintains liability insurance for its directors and
officers during the financial year and up to the date of approval of
the Annual Report and Accounts. The Company has also provided
an indemnity for its directors and the secretary, which is a qualifying
third party indemnity provision for the purposes of the Companies
Act 2006.
SUBSTANTIAL SHAREHOLDINGS
The Company has been notified that at close of business on 25 May
2012 the following parties were interested in three per cent or more
of the Company’s ordinary share capital.
Shareholder
Phoenix Asset Management Partners
Limited
Electra Quoted Partners
P J Wood
New Landfinance Holdings Limited, BVI
J J Hosking
Aberdeen Asset Management
Number of
Ordinary
Shares
Percentage
held
4,027,573
2,995,150
2,821,500
1,815,514
1,711,434
1,198,140
10.28
7.65
7.20
4.64
4.37
3.06
FINANCIAL INSTRUMENTS
The Group’s financial instruments, other than derivatives, comprise
borrowings, some cash and liquid resources, and various items, such
as trade receivables, trade payables, etc. that arise directly from its
operations. The Group’s financial liabilities comprise borrowings,
trade payables, other payables and finance leases, the main purpose
of which is to raise finance for the Group’s operations. The Group
also has financial assets comprising cash, trade and other receivables.
PERSONNEL POLICIES
It is the policy of the Group to follow equal opportunity employment
practices and these include the full consideration of employment
prospects for the disabled.
Applications for employment by disabled persons are always fully
considered, bearing in mind the aptitudes of the applicant concerned.
It is the policy of the Group that the training, career development and
promotion of disabled persons should, as far as possible, be identical
with that of other employees. Arrangements are made, wherever
possible, for retraining employees who become disabled, to enable
them to perform work identified as appropriate to their aptitudes.
The Group places importance on the contributions to be made by
all employees to the progress of the Group and aims to keep them
informed by the use of formal and informal meetings.
CREDITOR PAYMENT POLICY
The Group has agreed a variety of payment terms with its suppliers.
It is and will remain the general policy of the Group that payments
to a supplier are made in accordance with the general conditions of
purchase agreed with that supplier, providing the supplier complies
with all relevant terms and conditions and also that the invoice is
presented in a timely fashion.
The average creditor payment period for the main trading subsidiary
at 31 March 2012 was 39 days (2011 – 40 days). The Company itself
does not trade and therefore has no external trade payables.
SHARE CAPITAL
The share capital of the Company comprises ordinary shares of 1p
each, each share carries the right to one vote at general meetings
of the Company. The authorised and issued share capital of the
Company, together with movements in the Company’s issued share
capital is shown in note 21.
INDEPENDENT AUDITORS
A resolution to re-appoint the auditors, PricewaterhouseCoopers LLP,
will be proposed at the forthcoming Annual General Meeting.
Hornby > Annual Report and Accounts 2012 > Directors’ Report
11
ANNUAL GENERAL MEETING
The notice of Annual General Meeting is important and requires your
immediate attention. If you are in any doubt as to what action to
take in relation to the Annual General Meeting, you should consult
appropriate independent advisers.
The directors do not intend to issue more than 7.5% of the issued
ordinary share capital of the Company in any rolling three year
period without prior consultation with the Institutional Investment
Committee. Members will note that this resolution also relates to the
sale of treasury shares.
The notice of the Annual General Meeting is set out on pages 68 to
71 .
Resolution 3
A final dividend can only be paid after the shareholders at a general
meeting have approved it. A final dividend of 2.0 pence per ordinary
share of 1 pence each in the capital in the Company is recommended
by the directors for payment to shareholders who are on the register
at the close of business on 23 November 2012.
Resolution 10
Under section 551 of the Companies Act 2006 (the “Act”), the
directors may allot unissued shares or grant rights over such shares
only if authorised to do so by shareholders. This resolution will give
the directors authority to allot new ordinary shares in the capital of
the Company or grant rights to subscribe for, or convert any security
into, shares in the Company, up to an aggregate nominal amount of
£130,000, which represents approximately 33% of the Company’s
issued ordinary capital as at 7 June 2012 (being the latest practicable
date prior to the publication of this notice). This authority renews
that given at last year’s Annual General Meeting and will expire
at 11 a.m. on 25 July 2017. The directors do not have any present
intention of exercising the authority granted by this resolution except
in connection with the Company’s share schemes. However, it is
considered prudent to maintain the flexibility that this authority
provides.
Under the guidelines of the Association of British Insurers on
authority to allot shares companies may seek basic authority to allot
new shares in an amount of up to one-third of the existing issued
share capital and this request will be regarded as routine under
guidelines.
Resolution 11
It is proposed to renew the authority to the directors to allot equity
securities for cash without first being required to offer such securities
to existing members. This will include the sale for cash on a non pre-
emptive basis of any shares which the Company holds in treasury.
The authority will be limited to the issue of shares for cash up to an
aggregate nominal amount of £19,000 representing approximately
5% of the issued ordinary share capital of the Company as at 7 June
2012 (being the latest practicable date prior to the publication of this
notice). The authority sought at the Annual General Meeting will
expire at the conclusion of the next Annual General Meeting of the
Company.
Resolution 12
The Company is seeking authority to purchase up to approximately
10% of the Company’s issued ordinary share capital at, or between,
the minimum and maximum prices specified in this resolution. As at
7 June 2012 (being the latest practicable date prior to the publication
of this notice), the total number of options to subscribe for shares in
the Company was 847,500 (approximately 2.2% of the Company’s
issued ordinary share capital and approximately 2.4% of the
Company’s issued ordinary share capital if the full authority proposed
by resolution 12 was used and the shares purchased were cancelled).
This power would be used only after careful consideration by the
directors, having taken into account market conditions prevailing at
that time, the investment needs of the Company, its opportunities
for expansion and its overall financial position. The directors would
exercise the authority to purchase ordinary shares only if they
considered it to be in the best interest of the members and they
believe that the effect of such purchases will be to increase earnings
per share.
The Company (Acquisition of Own Shares) (Treasury Shares)
Regulations 2003 came into force on 1 December 2003. These
regulations allow shares repurchased by the Company to be held as
treasury shares rather than being cancelled. Treasury shares may be
cancelled, resold for cash or used for the purpose of employee share
schemes but all rights attaching to them, including voting rights and
any right to receive dividends, are suspended whilst they are held in
treasury. The authority to be sought by this resolution is intended
to apply equally to shares to be held by the Company as treasury
shares. The Company currently holds no treasury shares.
The authority sought at the Annual General Meeting will expire at
the earlier of the date which falls eighteen months from the date this
resolution is passed and the conclusion of the next annual general
meeting of the Company.
Signed on behalf of the Board
A J Morris
Finance Director
Westwood
Margate
Kent CT9 4JX
8 June 2012
12 Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
Corporate Governance Report
UK Corporate Governance Code
The Company welcomes the introduction of the new UK Corporate
Governance Code published in 2010 with this report being structured
to report corporate governance arrangements and practices against
the requirements of the Code.
Throughout the year ended 31 March 2012, the Company has been in
compliance with the Code provisions.
LEADERSHIP
The Board is responsible for the long term success of the Company
and is responsible to shareholders for ensuring that the Group is
appropriately managed and achieves its objectives. The Board is also
responsible for the system of corporate governance, strategy, risk
management and financial performance. The Company’s governance
structure is consistent with the leadership principles set out in the
Code.
Neil Johnson has led the Board since December 2000.
The Board believes its current structure is appropriate for the scale of
the business and to enable the Group to be managed efficiently.
During the year the Board comprised the Chairman, Chief Executive,
Finance Director and two non-executive directors.
Chairman and Chief Executive
The roles of Chairman and Chief Executive are separate and there
is a clear division of responsibility. The Chairman is responsible for
leading the Board and ensuring its effectiveness. The Chairman and
the Board are satisfied that effective communication, principally by
the Chief Executive and Group Finance Director, is undertaken with
the shareholders.
The Chief Executive is responsible for running the business and
ensuring that accurate, timely and clear information is presented at
monthly Board meetings or when appropriate.
Senior Independent Director
The Board has appointed N M Carrington to the role of Senior
Independent Director. This role provides a point of contact to those
shareholders who wish to raise issues with the Board, other than
through the Chairman.
The Board monitors the performance of the Group as a whole by;
•
•
Engaging at Board meetings with, and challenging the CEO and
Group Finance Director, as appropriate, on the financial and
operating performance of the Group and external issues material
to the Group’s prospects.
Evaluating progress towards the achievement of the Group’s
financial and business objectives and plans.
• Monitoring the significant risks facing the Group.
EFFECTIVENESS
Board composition
The Board contains a range of complementary skills, experience
and knowledge that is considered appropriate for the scale of the
business. The biographical details of all Board members are provided
on pages 9 and 10.
The Board considers the non-executive directors who served during
the year to be independent of management and free from any
business or other relationship which could interfere with the exercise
of their independent judgement. Code provision B.1.2 requires non
FTSE 350 companies to have at least two independent non-executive
directors.
N A Johnson has served on the Board for more than thirteen
years and has been its Chairman for eleven years. In line with the
Combined Code the Senior Independent Director, N M Carrington,
has undertaken a rigorous review of the effectiveness of the
performance of the Chairman as well as a review of his contribution
to the Board, based on a questionnaire and discussion with other
members of the Board, and has concluded that the Chairman
continues to operate effectively and to execute commitment to the
role.
During the year ten Board meetings were held. All directors attended
all meetings.
The Board has adopted a formal schedule of matters specifically
reserved to it for decisions including the determination of the
strategy, the approval of business plans, budgets, acquisitions and
disposals, major capital purchases, Board appointments, accounting
policies and treasury arrangements.
The Board also delegates specific responsibilities to committees as
described below. The Board meets monthly and monitors progress
against plan at each meeting.
The directors have the authority of the Board to obtain external legal
or other independent professional advice in the furtherance of their
duties at the Company’s expense. All directors have access to the
advice and services of the Company Secretary, who is responsible
for ensuring Board procedures are followed and applicable rules
and regulations are complied with. The executive directors have all
received appropriate training for their appointment to the Board of a
listed company. The non-executive directors bring a broad expertise
to the Board. N A Johnson, N M Carrington and M E Rolfe are all
experienced company directors.
Appointments to the Board
Nominations Committee
There have been no appointments to the Board during the year
ended 31 March 2012. Appointments to the Board require the Board’s
Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
13
authorisation and are conducted by the Nominations Committee.
The Nominations Committee comprises the Chairman, executive and
non-executive directors.
The duties of the Nominations Committee are available from the
terms of reference and include regularly reviewing the structure, size
and composition required of the Board and making recommendations
to the Board with regard to any changes, giving full consideration
to succession planning for directors and other senior executives,
identifying and nominating candidates to fill board vacancies and
evaluating the balance of skills, knowledge and experience on the
Board before an appointment is made. The terms of reference are
available on the Company’s website, covering the authority delegated
to it by the Board
The potential candidates are interviewed by either the Nominations
Committee or a panel appointed by that Committee. An appointment
requires the final approval of the Board prior to an offer being
forwarded.
Information and professional development
The Chief Executive is responsible for ensuring that directors
receive accurate, timely and clear information. Management has
an obligation to provide such information but directors should seek
clarification or amplification where necessary.
The Chairman is responsible for ensuring that directors continually
update their skills and the knowledge and familiarity with the
Company required to fulfil their role. Resources are available
on request to develop and update the directors’ knowledge and
capabilities.
Performance Evaluation
During the year a performance evaluation of the Board and its
committees has taken place by way of a performance evaluation
questionnaire. The results of this questionnaire were summarised in a
report which was presented to the Board.
In the year under review the report identified no areas of concern.
Re-election
N A Johnson, having served for more than thirteen years, will retire
and offer himself for re-election at the Annual General Meeting and
annually thereafter in accordance with the Combined Code.
The Company’s Articles of Association currently require one third of
the directors to retire by rotation at each Annual General Meeting.
Thereby M E Rolfe and A J Morris offer themselves for re-election
at the forthcoming Annual General Meeting. In accordance with
the Combined Code, the non-retiring directors have conducted a
review of M E Rolfe and A J Morris’s contribution to the Board and
the Chairman can confirm that they continue to be effective directors
and to execute commitment to the role.
Audit Committee and Auditors
The Audit Committee comprises N M Carrington and M E Rolfe.
M E Rolfe became Chairman of the Audit Committee on 28 July
2008. He is a Fellow of the Institute of Chartered Accountants
in England and Wales and is considered by the Board to have
recent and relevant financial experience, as required by the Code.
N M Carrington has a wide range of business experience, which is
evidenced by his biography set out in the Directors’ Report.
The Committee meets at least three times a year and the Chairman,
Chief Executive, Finance Director, Company Secretary and other
managers attend by invitation. The Group’s Auditors attend meetings
and have direct access to the Committee. The terms of reference are
available on the Company’s website, covering the authority delegated
to it by the Board.
The Audit Committee’s terms of reference include all matters
indicated by the Combined Code. The terms of reference are
considered annually by the Audit Committee and are then referred to
the Board for approval.
The main duties of the Committee, set out in its terms of reference,
are to:
• Make recommendations on the appointment and remuneration
of the external auditors and monitor their performance.
•
Review the nature and scope of the work to be performed
by the external auditors, the results of their audit work and
management’s responses.
• Monitor the independence of the external auditors and
recommend policy for any non-audit services they provide to
ensure that their independence is not compromised.
•
•
Review and advise the Board on the Company’s interim and
annual financial statements and related announcements, its
accounting policies and on the control and mitigation of its
financial and business risks.
Review and advise the Board on the effectiveness of the
Company’s internal control environment, including its
procedures for detecting fraud and ‘whistle blowing’ and for the
prevention of bribery.
Activity during the year
During the year, three Audit Committee meetings were held. All
members attended all meetings. The Committee met privately
with the external auditors without executives present, and with the
Finance Director.
The Committee reviewed the Company’s interim and annual financial
statements and related announcements, along with a report from the
external auditors setting out the findings from their audit work.
14 Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
Corporate Governance Report (continued)
The Committee has adopted a specific policy on auditor
independence, setting out restrictions on specific non-audit activities
such as bookkeeping, payroll services and advocacy, and procedures
and authority levels for audit and non-audit fees. The authority levels
beyond which prior approval from the Audit Committee is required
are set as 1:1 for the audit/non audit fee ratio. Hornby believes that
it receives particular benefit from the external auditors’ advice on
potential acquisitions and the tax consequences thereof, given its
auditors’ detailed knowledge of the Group. The Board considers
alternative providers if practical and seeks confirmation prior to
engaging services that independence will not be compromised.
In the current financial year the audit fee was £123,000 and the non-
audit fee (principally tax services) was £69,000, well within the 1:1
ratio.
To assess the effectiveness of the external auditors, the Committee
reviewed their fulfilment of the agreed audit plan; the robustness and
perceptiveness of the auditors in their handling of key accounting
and audit judgements, the content of their letter to management
on control matters and adherence to service standards set out in
Hornby’s Audit Charter policy. There are no contractual restrictions
on the choice of the Committee as to external audit and, having
considered the services provided by the current external auditors,
PricewaterhouseCoopers LLP, their independence and knowledge
of the Group, the Committee has recommended to the Board the
reappointment of the auditors at the Annual General Meeting in July
2012. In reaching this decision the Committee has taken into account
the tenure of the auditors and considered whether there should be a
full tender process. The Committee also had regard to the likelihood
of a withdrawal of the auditor from the market.
The Committee considered reports from Group financial
management on the operation of, and issues arising from the
Group’s internal control procedures. The Committee monitored
the effectiveness of the Group’s risk management process, which
considered the key risks, both financial and non-financial, facing the
Group and the effectiveness of the Group’s controls to manage and
reduce the impact of those risks.
The Committee considers annually the need for an internal audit
function, but currently believes that this is not justified given the size,
nature of the Group and a programme of visits to Hornby locations
carried out by senior Group financial management.
Arrangements exist for staff of the Group to raise concerns, in
confidence, about possible improprieties in matters of financial
reporting or other matters. The Group has a code of conduct
outlining the business standards to which all Company personnel
must adhere which further reinforces existing whistle-blowing policy
and procedures.
Control Environment
The Board has put in place an organisational structure with clearly
defined and understood lines of responsibility and delegation of
authority. The Board promotes a strong control environment with a
strong ethical climate.
REMUNERATION
The Remuneration Committee comprises N M Carrington and
M E Rolfe. N M Carrington is the Chairman of the Remuneration
Committee.
The Committee met three times during the year with all members
being present. The Committee is responsible for establishing formal
and transparent procedures for determining policy on executive
remuneration and advising the Board on executive remuneration
and in particular for ensuring that executive remuneration packages
are sufficient to attract, retain and motivate executive directors of
the required quality whilst avoiding paying more than necessary.
It also endeavours to establish performance related elements of
remuneration which align the interests of the directors with those
of the shareholders. No director is involved in deciding his own
remuneration and the Board itself determines the remuneration of
the non-executive directors. The terms of reference are available on
the Company’s website, covering the authority delegated to it by the
Board.
Further detail of directors’ remuneration is provided in the Directors’
Remuneration Report.
ACCOUNTABILITY
The Board is committed to providing shareholders with a clear
assessment of the Company’s financial position and prospects. This
is achieved through the Annual Report and Accounts and through
other periodic financial statements and announcements.
Internal Control and Risk Management
The Board is responsible for the operation and effectiveness of the
Group’s system of internal controls and risk management. There is
a continuous process for identifying, evaluating and managing the
significant risks the Group faces. This process has been in place
throughout the year under review and up to the date of approval of
the annual report and accounts, and complies fully with the Turnbull
guidance.
The Audit Committee considered reports from Group financial
management on the operation of, and issues arising from the Group’s
internal control procedures. The Audit Committee monitored the
effectiveness of the Group’s risk management process, which
considered the key risks, both financial and non-financial, facing the
Group and the effectiveness of the Group’s controls to manage and
reduce the impact of those risks.
Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
15
The Board regularly reviews the effectiveness of the Group’s system
of internal control. The Board’s monitoring covers all controls,
including financial, operational and compliance controls and risk
management. It is based principally on reviewing reports from
management to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant
weaknesses are promptly remedied and indicate a need for more
extensive monitoring.
The internal control systems are designed to meet the Group’s
particular needs and the risks to which it is exposed and by their
nature can only provide reasonable but not absolute assurance
against misstatement or loss. During the year, the Group continued
to take action to enhance these control systems, based upon its own
process improvement initiatives and auditors’ recommendations.
The Audit Committee reviews and reports to the Board on the
effectiveness of the Group’s systems of internal control on an on-
going basis during the year and no significant weaknesses have been
identified.
RELATIONS WITH SHAREHOLDERS
The Company communicates regularly with its institutional
shareholders and encourages communication with private investors
through the Annual General Meeting.
N M Carrington is the senior independent non-executive director.
The senior independent non-executive director welcomes direct
discussion with shareholders.
The executive directors update major shareholders at institutional
visits and analyst presentations immediately after the interim and
final announcements. The Chairman attends a selection of these
meetings. The meetings facilitate open discussion and direct face-to-
face contact and the views of shareholders are reported to the Board
by the Chairman and Chief Executive.
The Board uses the Annual General Meeting as an occasion for
communication with its shareholders. All proxy votes are counted
by the Company’s registrars and the voting on each resolution is
made available to the meeting. Directors of the Company and the UK
subsidiary attend the meeting to respond to specific questions.
16 Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
Corporate Governance Report (continued)
BUSINESS MODEL AND STRATEGY
The Group comprises a number of high quality premium brands spread across different product categories within the hobby and collectable
toy market. The Group has the opportunity to develop a number of new license properties within the existing brand structure (e.g. ‘Olly the
Little White Van’, Moshi Monsters, ‘Star Wars’) as well as developing other distribution opportunities (e.g. Breyer horses). We are also
continuing to grow the European train brands and to explore opportunities in developing markets. The nature of the model railway business
worldwide is that products are largely country-specific. This requires high levels of knowledge and expertise in each individual market. This
represents a significant barrier to entry. However, the Group has this infra-structure in place and is therefore in a strong competitive position.
Production of model railway items is a labour intensive process. The Group sources all of its model railway products from China. Although
labour rates in China are increasing, the Group continues to operate at a cost advantage to competitors producing in higher cost regions such
as Europe.
Company Mission and Strategic Objectives
Vision/Mission
To be the most successful model, hobby and collectables toy company in the world.
Strategic objectives
• To develop high margin branded product.
• To develop complimentary product categories for organic development.
• To broaden global reach through additional markets and products.
• To add complimentary distribution lines to accelerate growth.
Product categories
Model Trains
Slot car racing
Kits/Paints
Business Model
Internally developed branded intellectual property
Brands
Hornby
Electrotren
Lima
Rivarossi
Jouef
Arnold
Scalextric
Superslot
Airfix
Humbrol
Die-cast
Corgi
% share of revenue
48% (2011 - 45%)
26% (2011 - 30%)
14% (2011 - 15%)
12% (2011 - 10%)
Supply source
China
Product development
Internal
UK/Spain
China
UK
India/UK
UK
China
UK
Licensing strategy
To utilise appropriate third party licenses to enhance the consumer proposition.
3rd party distributors :
Rest of the world
Distribution
Subsidiaries :
UK
Spain
Italy
France
Germany
USA
Routes to market
Independent toy/model stores
Key accounts/Major retailers
3rd party internet retailers
Concession stores (UK only)
Direct to consumer
3rd party branded intellectual property distributed by Hornby
Brands
Breyer ( Model Horses)
Territory : UK
Slot-it (Slot car racing)
Territory : USA
% share of revenue
This currently represents less than 1% of revenue.
Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
17
Strategy
The continued diversification of our product categories, the legacy distribution opportunities coming out of the London 2012 games, and the
opportunities to continue to grow our international business, provide a strong platform for future growth. In addition, we continue to extend
our brand reach into complimentary categories such as the Moshi Monsters pin badge range. Our spread of brands/categories and our wide
geographic reach provide a broad and stable base from which to trade during difficult economic times and as the opportunities arise, to
continue to grow our business.
IDENTIFICATION OF PRINCIPAL RISKS AND UNCERTAINTIES
The Board has the primary responsibility for identifying the major risks facing the Group and developing appropriate policies to manage
those risks. The Board has completed a risk assessment programme in order to identify the major risks and has reviewed and determined any
mitigating actions required as set out below. The risk assessment has been completed in the context of the overall strategic objectives and the
business model of the Group which has been set out above.
Principal risks and uncertainties
Risk
UK market dependence
Description
Impact/Sensitivity
Mitigation/Comment
The UK market represents a
significant part of Group revenue;
61% in 2012 (2011 - 64%).
The Group is exposed to a
downturn in the performance of the
brands in the UK as well as to a
downturn in the UK economy.
Market conditions
The Group’s products are sold in
the main to its retail customers.
The performance of the market is
affected by the general economic
climate, overall consumer and
retailer confidence, and the
changing retail landscape.
The Group performance is
impacted by the global macro-
economic environment and
changes in the wider retail
landscape.
The Group has competition in the
model railway, slot racing, model
kits, die cast and paint markets.
Loss of market share to increased
competitor activity would have a
negative impact on the Group’s
results.
Exchange rates
The Group purchases goods in
Hong Kong dollars and US dollars
and sells in £ sterling, Euros
and US dollars and is therefore
exposed to exchange rate
fluctuations.
Significant fluctuations in exchange
rates to which the Group is
exposed could have a material
adverse effect on the Group’s
future results.
The Board’s strategy continues
to be to expand overseas sales.
The acquisitions of the brands
Airfix, Humbrol, Corgi, Electrotren,
Rivarossi, Lima, Arnold and Jouef
have provided the Group with
a significant share of the model
railway, model and die-cast
markets in continental Europe, with
the objective of facilitating further
growth.
In reviewing the future forecasts
for the business the directors
consider reasonable changes in
macro-economic and associated
market conditions recognising the
potential for a negative impact on
the Group’s results. The Group has
credit insurance in place to mitigate
against any specific retail customer
default. The Group formulates its
business strategy, including the
website and direct to consumer
channels, based on the changing
retail dynamics.
In many of our markets the Group
enjoys a strong market position
due to the continued development
of our brands. Brands are
extremely important in the model
sector with market entry costs
being prohibitive.
The Group continues to hedge
short term exposures by
establishing forward currency
purchases using fixed rate and
participating forward contracts
up to twelve months ahead. It
is deemed impractical to hedge
exchange rate movements beyond
that period. Transaction risk on
intercompany loans is managed
through a foreign exchange collar.
18 Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
Corporate Governance Report (continued)
Risk
Supply Chain
Description
Impact/Sensitivity
Mitigation/Comment
The Group purchases goods, in
the main, from third party Chinese
suppliers due to the significant
cost advantage when compared to
products manufactured in Europe.
The principal supplier to the Group,
Sanda Kan, is owned by Kader
Holdings Company Limited a
Hong Kong based company with
interests in the model rail sectors in
Europe/US.
The Group does not have exclusive
arrangements with its suppliers
and there is a risk that competition
for manufacturing capacity could
lead to delays in introducing new
products or servicing existing
demand.
Input cost escalation in China
could reduce or remove the
Group’s pricing advantage and
impact margins.
The Group is continuing to develop
and diversify its supplier portfolio,
which includes a supplier in India,
and closely monitors production
through an increased number of
locally based employees (who also
ensure the maintenance of quality
standards).
Product compliance
The Group’s products are subject
to compliance with toy safety
legislation around the world.
Failure to comply could lead to a
product recall resulting in damage
to Company and brand reputation
along with an adverse impact on
the Group’s results.
Robust internal processes and
procedures, active monitoring
of proposed legislation and
involvement in policy debate and
lobbying of the relevant authorities.
Liquidity
Insufficient financing to meet the
needs of the business.
Without the appropriate level of
financing it would be increasingly
difficult to execute the Group’s
business plans.
The Group has a fixed term loan
agreement expiring in July 2014
(£7.5 million at 31 March 2012)
and a revolving credit facility (£10
million expiring August 2015). The
Group’s policy on liquidity risk is to
maintain adequate facilities to meet
the future needs of the business.
Main control procedures
Management establishes control policies and procedures in response
to each of the key risks identified. Control procedures operate to
ensure the integrity of the Group’s financial statements, designed to
meet the Group’s requirements and risks identified in each area of
the business. Control procedures are documented where appropriate
and reviewed by management and the Board on an on-going basis to
ensure control weaknesses are mitigated.
The Group operates a comprehensive annual planning and budgeting
system. The annual plans and budgets are approved by the Board.
The Board reviews the management accounts at its monthly
meetings and financial forecasts are updated monthly and quarterly.
Performance against budget is monitored and where any significant
deviations are identified appropriate action is taken.
Corporate Social Responsibility
The Board considers the social, environmental and ethical matters
pertinent to the Group, and will review items of significance
where appropriate. The risk assessment procedures in place are
designed to highlight any key areas of concern including health and
safety considerations, employee recruitment and retention and
environmental issues, with controls put in place as necessary.
The Group is pro-active in working with all suppliers to ensure
compliance with the International Council of Toy Industries (ICTI)
Code of Business Practices to include child and forced labour,
working conditions, hours of work, pay, non-discrimination and
health and safety. Compliance is managed through an annual audit
process.
Environmental Responsibility
The Group believes that protection of the environment is an
integral part of good practice and that it satisfies itself that all of
its operations are conducted with reasonable proper regard for the
environment. It is committed to maintaining, and wherever possible
improving, the quality of this environment both for the people who
work in the Group, and for the wider community now and in the
future. The Group seeks to make the most effective and efficient use
of all resources, encouraging all members of the Group to develop an
ecologically sound approach to their work.
Share Capital
Details of our Share Capital structure can be found on page 10 of the
Directors report and in Note 21.
Hornby > Annual Report and Accounts 2012 > Corporate Governance Report
19
Going Concern
A review of Group business activities and future outlook are set out
on pages 5 to 7 of the Chief Executive’s Report. The financial position
of the Group, its cash flows and liquidity position are shown in the
balance sheet, cash flow statement and accompanying notes to the
financial statements. The principal business risks associated with the
business are shown on pages 17 and 18, whilst the risks arising from
the Group’s financial instruments are covered on page 10.
The directors, in their consideration of going concern, have reviewed
the Group’s future cash flow forecasts and revenue projections,
which they believe are based on a realistic assessment of future
business performance.
The Group’s forecasts and projections, taking account of reasonable
possible changes in trading performance, show that the Group
should be able to operate within the levels of its agreed facilities.
Accordingly the directors believe it appropriate to prepare the
financial statements of the Group on a going concern basis.
Takeovers Directive
Pursuant to S992 of the Companies Act 2006, which implements the
EU Takeovers Directive, the Company is required to disclose certain
additional information. The following gives those disclosures which
are not covered elsewhere in this Annual Report.
The Company’s Articles of Association (the ‘Articles’) give the Board
power to appoint directors, but also require directors to retire and
submit themselves for election at the first Annual General Meeting
following their appointment. A director who retires in this way is
eligible for election but is not taken into account when deciding
how many directors should retire by rotation at the Annual General
Meeting. The Articles themselves may be amended by special
resolution of the shareholders.
Pursuant to the Articles, at every Annual General Meeting, one third
of the current directors must retire by rotation.
The Board of Directors is responsible for the management of the
business of the Company and may exercise all the powers of the
Company subject to the provisions of the Company’s Memorandum
of Association and the Articles.
The Articles contain specific provisions and restrictions regarding
the Company’s power to borrow money. Powers relating to the
issuing and buying back of shares are also included in the Articles
and shareholders are asked to renew such authorities each year at
the AGM. A copy of the Articles is available on request from the
Company Secretary.
There are a number of agreements that take effect, alter or terminate
upon a change of control of the Company following a takeover,
such as commercial contracts, bank agreements, property lease
arrangements and employees’ share plans. None of these are deemed
to be significant in terms of their potential impact on the business of
the Group as a whole.
20 Hornby > Annual Report and Accounts 2012 > Directors’ Remuneration Report
Directors’ Remuneration Report
for the Year Ended 31 March 2012
Introduction
This report has been prepared in accordance with the Companies Act
2006 and Schedule 8 of the Large and Medium Sized Companies and
Groups (Accounts and Reports) Regulations 2008. The report also
meets the relevant requirements of the Listing Rules of the Financial
Services Authority and describes how the Board has applied the
principles relating to directors’ remuneration in the UK Corporate
Governance Code (2010). A resolution to approve the report will be
proposed at the Annual General Meeting of the Company at which
the financial statements will be approved.
The report has been divided into separate sections for audited and
unaudited information.
UNAUDITED INFORMATION
Remuneration Committee
The Company has established a Remuneration Committee
(the ‘Committee’) which is constituted in accordance with the
recommendations of the Combined Code. The Committee is
comprised of independent non-executive directors. The current
members of the Committee are N M Carrington (Committee
Chairman) and M E Rolfe, both of whom served throughout the
financial year.
The Committee meets regularly but more frequently if required.
During the year three Remuneration Committee meetings were held,
with both members present at each meeting.
Neither of the Committee members has any personal financial
interest (other than as shareholders), conflicts of interests arising
from cross-directorships or day-to-day involvement in running the
business. The Committee makes recommendations to the Board. No
director plays a part in any discussion about their remuneration. The
terms of reference of the Committee are available on the Company
website.
In determining the directors’ remuneration for the year, the
Committee consulted F Martin (Chief Executive) about its proposals.
New Bridge Street (‘NBS’), a trading name of Aon Corporation, is
the Committee’s appointed remuneration adviser and continues to
provide advice to the Committee. Neither NBS nor Aon Corporation
provides any other services to the Company.
Remuneration policy for the Executive Directors
General policy
Executive remuneration packages are designed to attract, motivate
and retain directors of the high calibre needed to maintain the
Group’s position as a market leader and to reward them for
enhancing value to shareholders. The performance measurement
of the executive directors is undertaken by the Committee. The
Committee is sensitive to pay and conditions in the workforce when
determining executive remuneration policy and base salary increases
in particular.
The Committee is also aware of the potential risk to the business
of executive pay structures and is satisfied that the current policy is
compatible with risk policies and systems.
There are five main elements of the remuneration package for
executive directors and senior management:
•
•
•
•
•
Base salary
Benefits-in-kind
Pension arrangements
Performance-related annual bonus
Performance Share Plan
The Company’s policy is that a substantial proportion of the
remuneration of the executive directors should be performance
related. At a target level of performance, approximately 40%-45% of
the total remuneration package is performance-related.
Salary and benefits
Executive directors’ base salaries are reviewed annually by the
Committee taking into account the responsibilities, skills and
experience of each individual, pay and employment conditions within
the Company and salary levels within listed companies of a similar
size. Base salary levels as at 1 April 2011 and 2012 are as follows:
Director Role
F Martin
Chief Executive
A J Morris Finance Director
Salary at
1 April 2012
Salary at
1 April 2011
£267,909
£262,656
£176,802
£173,353
Base salary levels were reviewed during the first quarter of 2012 and,
consistent with the average increase awarded across the Group,
increased by 2.0% from 1 April 2012.
Policies concerning benefits, including the Group’s company car
policy, are reviewed periodically. Currently, benefits in kind comprise
motor cars and private health cover.
Pension
The executive directors and senior managers are members of
defined contribution pension schemes and annual contributions are
calculated by reference to base salaries, with neither annual bonuses
nor awards under the share incentive schemes taken into account in
calculating the amounts due. The contribution level continues to be
20% of base salary for executive directors. For F Martin the balance
of pension in excess of the HMRC Approved limit of £50,000 is paid
by way of a salary supplement included in taxable benefits in the
emoluments table.
Hornby > Annual Report and Accounts 2012 > Directors’ Remuneration Report
21
Performance-related annual bonus
Executive directors participate in a performance-related bonus
scheme. The maximum bonus continues to be capped at 100% of
base salary for the Chief Executive and 75% of salary for the Finance
Director.
Performance targets are designed both to stretch and encourage
individuals whilst aligning their interests with those of the Group. The
performance conditions are divided 80:20 between Group underlying
profit before tax and personal objectives. For the Group underlying
profit before tax condition, a sliding scale range is set around a target
level (designed to be stretching but realistically achievable). The
personal objectives are set at the start of the year and are designed
to be as objective and measurable as possible. This mix of targets is
considered to provide a good link to the business strategy.
With effect from 2011, a provision was incorporated into the Annual
Bonus Plan to enable the Company to claw back overpayments in the
event of financial misstatement or gross misconduct.
In respect of the year ended 31 March 2012 neither of the executive
directors were entitled to a bonus.
Performance Share Plan
The Performance Share Plan (‘PSP’), which was approved by
shareholders at the 2008 AGM, was introduced as the Company’s
primary long-term incentive plan to replace the short-term incentive
plan (‘STIP’). No further awards will be made under the STIP although
legacy awards continue to vest on their original terms.
Under the PSP, awards are made to executive directors and selected
other executives on the following basis:
•
•
•
•
The maximum award level is 150% of base salary per annum
although awards up to 200% of base salary may be granted
to an individual in exceptional circumstances (e.g. recruitment
or retention). The current policy is to grant awards over shares
worth 100% of salary.
Performance conditions are reviewed annually, so as to ensure
they remain appropriately pitched in relation to the strategy and
business cycle, and provide an optimal alignment between the
interests of executives and shareholders.
For 2012, an award will be subject to a total shareholder return
(‘TSR’) condition and a range of normalised underlying earnings
per share (‘EPS’) growth targets, each of the TSR and EPS
elements apply to a separate 50% of an award and measured
over a period of three financial years.
The TSR condition is based on the Company’s underlying
performance against the constituents of the FTSE Small Cap
(excluding investment trusts) as at the date of grant. 25% of
this part of the award will vest if the Company’s TSR is equal to
•
•
•
•
•
•
the TSR of the median company, with full vesting for top quartile
performance. A sliding scale operates between these points.
For the EPS part of the award, 25% vests for average annual
underlying EPS growth of RPI+3% p.a., with full vesting for
average annual EPS growth of RPI+12% p.a. A sliding scale
operates between these points.
The Committee is comfortable that the blend of TSR and
EPS targets continues to provide a good balance between
incentivising and rewarding strong financial performance on the
one hand whilst, on the other hand, providing a strong and direct
alignment with the interests of institutional shareholders by
rewarding stock market outperformance.
Performance conditions are calculated by independent advisers
and verified by the Committee.
Executives benefit, in the form of additional cash or shares, from
the value of dividends paid over the vesting period, to the extent
that awards vest.
It is currently intended that market purchased shares are used to
satisfy awards although there is flexibility to use new issue and
treasury shares within institutional shareholder dilution limits.
Similar to the bonus plan, with effect from 2011 awards, a
provision was incorporated into the PSP to enable the Company
to claw back overpayments in the event of misstatement or
gross misconduct.
Shareholding guidelines
A policy for share ownership guidelines is operated for the executive
directors and senior executives. For the executive directors, the
required threshold of share ownership is 100% of base salary. Until
such time as this level of shareholding is achieved, 50% of the net
of tax value of awards which vest under the PSP are required to be
retained.
Executive Directors’ Service Contracts
The executive directors do not have fixed period contracts.
Frank Martin’s service contract dated 26 February 2001 includes
a notice period of one year to be given by the Company and of six
months to be given by F Martin. In lieu of giving notice the Company
may terminate the agreement on payment of a lump sum (subject to
tax and national insurance) equal to the salary and other benefits to
which he is entitled under this agreement.
Andrew J Morris’s service contract dated 23 November 2007
includes a notice period of one year to be given by the Company and
of six months to be given by A J Morris. In lieu of giving notice the
Company may terminate the agreement on payment of a lump sum
(subject to tax and national insurance) equal to the salary and other
benefits to which he is entitled under this agreement.
22 Hornby > Annual Report and Accounts 2012 > Directors’ Remuneration Report
Directors’ Remuneration Report (continued)
for the Year Ended 31 March 2012
Non-Executive Directors’ Contracts
The remuneration of the non-executive directors is determined by
the Board (except the Company Chairman’s fee, which is set and
reviewed by the Remuneration Committee) based on the level of
fees paid to non-executive directors of similar companies and by
considering independent external advice.
Neil A Johnson was appointed non-executive Chairman on 22
December 2000 having initially joined the Board on 1 July 1998 and
receives salary and fees for his services to the Company of £95,000
per annum effective 1 April 2012. 80% is paid to a third-party
consultancy company and 20% treated as earnings. N A Johnson’s
service contract dated 13 February 2006, amended March 2007, is
subject to termination on six months notice to be given by either the
Company or N A Johnson. In lieu of giving notice the Company may
terminate the agreement on payment of a lump sum (subject to tax
and national insurance) equal to the salary and fee to which he is
entitled under this agreement.
Nigel M Carrington, non-executive director, was appointed to
the Board on 1 December 2007, and receives fees for his services
to the Company of £40,000 per annum effective 1 April 2012.
N M Carrington’s service contract dated 3 November 2007 is
subject to termination on six months notice to be given by either the
Company or N M Carrington. In lieu of giving notice the Company
may terminate the agreement on payment of a lump sum (subject
to tax and national insurance) equal to the fee to which he is entitled
under this agreement.
Mark E Rolfe, non-executive director, was appointed to the Board on
1 January 2008, and receives fees for his services to the Company
of £40,000 per annum effective 1 April 2012. M E Rolfe’s service
contract dated 22 November 2007 is subject to termination on six
months notice to be given by either the Company or M E Rolfe. In
lieu of giving notice the Company may terminate the agreement on
payment of a lump sum (subject to tax and national insurance) equal
to the fee to which he is entitled under this agreement.
None of the non-executive directors receives any pension or
performance-related pay from the Company.
Hornby > Annual Report and Accounts 2012 > Directors’ Remuneration Report
23
AUDITED INFORMATION
DIRECTORS’ INTERESTS
Interests in shares
The interests of the directors in the shares of the Company in the year were:
N A Johnson
F Martin
A J Morris
N M Carrington
M E Rolfe
At
31 March
2012
number
100,000
388,282
8,404
18,000
10,000
At
31 March
2011
number
50,000
354,092
6,702
10,000
10,000
All the interests detailed above are beneficial. Apart from the interests disclosed above no directors were interested at any time in the year in
the share capital of any other group company.
There have been no other changes in the interests set out above between 31 March 2012 and 8 June 2012.
Aggregate Directors’ remuneration
The total amount for directors’ remuneration was as follows:
Emoluments
Money purchase pension contributions
Directors’ detailed emoluments
The emoluments of the directors were as follows:
2012
£’000
635
86
721
2011
£’000
675
86
761
Chairman:
N A Johnson
Executive:
F Martin
A J Morris
Non-executive
N M Carrington
M E Rolfe
Salary &
Fees
£
95,000
262,656
173,353
40,000
40,000
611,009
Bonus1
£
Taxable
Benefits2
£
Pension
Contribution
£
2012
Total
£
2011
Total3
£
-
-
-
-
-
-
-
-
95,000
90,000
14,085
10,030
50,000
35,628
326,741
219,011
365,131
236,235
-
-
-
-
40,000
40,000
35,000
35,000
24,115
85,628
720,752
761,366
1. The Directors bonus award is based on performance targets. The targets are based on Group underlying profit before tax (80%) and personal objectives
(20%). Both executive directors achieved nil% (out of a maximum 100%) for the profit before tax element and nil% (out of a maximum 100%) for the
personal objectives element. The Remuneration Committee took the view that profit delivery in 2011/12 did not support the payment of bonuses for personal
objectives.
2. Taxable benefits relate to the provision of a company car, health assurance and F Martin pension supplement.
3. The 2011 total column includes pension contributions which were F Martin (£51,250) and A J Morris (£34,691).
24 Hornby > Annual Report and Accounts 2012 > Directors’ Remuneration Report
Directors’ Remuneration Report (continued)
for the Year Ended 31 March 2012
Performance Share Plan
At 31 March 2012, outstanding awards to directors under the Performance Share Plan were as follows:
Director
F Martin
A J Morris
Award
date
July 2008
July 2009
June 2010
June 2011
July 2008
July 2009
June 2010
June 2011
Vesting
date
July 2011
July 2012
June 2013
June 2014
July 2011
July 2012
June 2013
June 2014
Market
price at
Award
date
149.6p
136.0p
139.5p
136.4p
149.6p
136.0p
139.5p
136.4p
At
1 April 2011
167,112
183,824
183,692
-
110,924
121,324
121,237
-
Awarded
during
year
-
-
-
192,591
-
-
-
127,110
Lapsed
during
year
(167,112)
-
-
-
(110,924)
-
-
-
Vested
during
year
At
31 March
2012
-
-
-
-
-
-
-
-
-
183,824
183,692
192,591
-
121,324
127,237
127,110
For the awards granted to date, 50% of an award is subject to a TSR condition and 50% is subject to an EPS performance condition, both of
which are measured over a period of three financial years. For the TSR condition, 25% of this part of the award will vest if Hornby’s TSR is equal
to the TSR of the median company of the constituents of the FTSE Small Cap (struck at the date of grant), with full vesting for top quartile
performance, with a sliding scale operating between these points. For the EPS part of the award, 25% vests for average annual underlying EPS
growth of RPI+3% p.a., with full vesting for average annual EPS growth of RPI+12% p.a. with a sliding scale operating between these points.
Interests in share options
Details of options held by directors at 31 March 2012 are set out below:
Director
Date
of Grant
Options
held at
1 April 2011
Options
granted
during
the year
Options
exercised
during
the year
Options
lapsed
during
the year
Options
held at
31 March
2012
Exercise
price
Exercise period
F Martin
28 Mar 2002
600,000
-
(600,000)
-
-
76.8p 28 Mar 2005 – 28 Mar 2012
F Martin exercised 600,000 share options during the year at 76.8p, the market price at the date of exercise was 120.0p, realising a gain of
£259,200 (2011 – £324,800 gain).
The market price of the Company’s shares at 31 March 2012 was 95.0p and the range during the year ended 31 March 2012 was 94.3p to
145.0p.
Short Term Incentive Plan
At 31 March 2012, outstanding awards to directors under the Short Term Incentive Plan were as follows:
Director
F Martin
A J Morris
Award
date
June 2008
June 2008
Vesting
dates
June 2012
June 2012
Market
price at
Award
date
156.1p
156.1p
Value of
entitlement
31 March 2012
£’000
Value of
entitlement
31 March 2011
£’000
26
2
59
4
Number
of shares
27,191
1,702
On 17 June 2011, 27,190 shares of the 2008 Award were vested to F Martin. The share price on this date was 136.3p.
On 17 June 2011, 1,702 shares of the 2008 Award were vested to A J Morris. The share price on this date was 136.3p.
Value of entitlement at 31 March 2012 is based on the closing market price of the Company’s shares of 95.0p (2011 – 108.0p).
Hornby > Annual Report and Accounts 2012 > Directors’ Remuneration Report
25
Performance graph (unaudited information)
The following graph shows the Company’s total shareholder return compared to the TSR of the FTSE Small Cap (excluding investment trusts)
over the five year period to 31 March 2012. This index has been selected given that the Company is a constituent of the FTSE Small Cap.
N M Carrington
Remuneration Committee Chairman
8 June 2012
26 Hornby > Annual Report and Accounts 2012 > Statement of Directors’ responsibiIities
Statement of Directors’ responsibiIities
The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the
Group and Parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing
these financial statements, the directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and
explained in the financial statements.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the
financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed in the Directors and Corporate Information section, confirm that, to the best of
their knowledge:
•
•
the Group and Company financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit of the Group and Company; and
the Chief Executive’s Report and Corporate Governance Statement include a fair review of the development and performance of the
business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
So far as the directors are aware, there is no relevant audit information of which the Company’s auditors are unaware; and each director has
taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.
By order of the Board
J W Stansfield
Company Secretary
8 June 2012
Hornby > Annual Report and Accounts 2012 > Independent Auditors’ Report to the Members of Hornby Plc
27
Independent Auditors’ Report to the Members of Hornby Plc
We have audited the financial statements of Hornby Plc for the year ended 31 March 2012 which comprise the Group and Company Statement
of Comprehensive Income, the Group and Company Balance Sheet, the Group and Company Statement of Changes in Equity, the Group and
Company Cash Flow Statement, the Group and Company Cash Flow from Operating Activities and the related notes. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page 26, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the
financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies
with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the
implications for our report.
Opinion on financial statements
In our opinion the financial statements:
•
•
•
give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2012 and of the Group and Parent
Company’s profit and cash flows for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union;
have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the lAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
•
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the
financial statements; and
the information given in the Corporate Governance Statement set out on pages 12 to 19 with respect to internal control and risk
management systems and about share capital structures is consistent with the financial statements.
28 Hornby > Annual Report and Accounts 2012 > Independent Auditors’ Report to the Members of Hornby Plc
Independent Auditors’ Report to the Members of Hornby Plc
(continued)
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
•
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
•
a corporate governance statement has not been prepared by the Parent Company.
Under the Listing Rules we are required to review:
•
•
the directors’ statement, set out on page 19, in relation to going concern;
the parts of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review; and
•
certain elements of the report to shareholders by the Board on directors’ remuneration.
Rosemary Shapland (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Gatwick
8 June 2012
Hornby > Annual Report and Accounts 2012 > Financial Statements
29
Group and Company Statement of Comprehensive Income
for the year ended 31 March 2012
REVENUE
Cost of sales
GROSS PROFIT
Distribution costs
Selling and marketing costs
Administrative expenses
Other operating expenses
OPERATING PROFIT
Income from shares in Group undertakings
Finance income
Finance costs
PROFIT BEFORE TAXATION
Analysed as:
Underlying profit before taxation
Net foreign exchange impact on intercompany loans
Amortisation of intangibles
PROFIT BEFORE TAXATION
Taxation
PROFIT FOR THE YEAR AFTER TAXATION
OTHER COMPREHENSIVE INCOME
Cash flow hedges, net of tax
Currency translation differences
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR,
NET OF TAX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
EARNINGS PER ORDINARY SHARE
Basic
Diluted
All operations relate to continuing operations.
Group
2012
£’000
64,447
(33,290)
31,157
(2,571)
(13,761)
(9,029)
(1,054)
4,742
-
26
(779)
3,989
4,526
(145)
(392)
3,989
(825)
3,164
2011
£’000
63,372
(34,095)
29,277
(2,579)
(12,882)
(8,406)
(519)
4,891
-
64
(826)
4,129
4,423
96
(390)
4,129
(1,274)
2,855
300
(16)
(655)
(15)
284
(670)
Company
2012
£’000
1,278
-
1,278
-
-
(808)
(144)
326
1,932
175
(234)
2,199
2,199
-
-
2,199
22
2,221
-
305
305
2011
£’000
1,251
-
1,251
-
-
(795)
(166)
290
3,681
174
(228)
3,917
3,917
-
-
3,917
(135)
3,782
-
79
79
3,448
2,185
2,526
3,861
8.19p
8.12p
7.50p
7.43p
Note
2
2
3
3
4
5
7
7
30 Hornby > Annual Report and Accounts 2012 > Financial Statements
Group and Company Balance Sheet
at 31 March 2012
Group
2012
£’000
Company
2011
£’000
2012
£’000
2011
£’000
Note
ASSETS
NON-CURRENT ASSETS
Goodwill
Intangible assets
Property, plant and equipment
Investments
Deferred tax assets
CURRENT ASSETS
Inventories
Trade and other receivables
Derivative financial investments
Current tax assets
Cash and cash equivalents
LIABILITIES
CURRENT LIABILITIES
Borrowings
Derivative financial instruments
Trade and other payables
Provisions
Current tax liabilities
NET CURRENT ASSETS/(LIABILITIES)
NON-CURRENT LIABILITIES
Borrowings
Deferred tax liabilities
NET ASSETS
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Share capital
Share premium
Capital redemption reserve
Translation reserve
Hedging reserve
Other reserves
Retained earnings
TOTAL EQUITY
8
9
10
11
20
12
13
19
17
14
18
19
15
16
17
18
20
21
13,059
4,350
10,022
-
538
27,969
17,867
13,169
104
61
1,952
33,153
(3,474)
(2,155)
(9,822)
(324)
(705)
13,372
4,820
10,208
-
109
-
-
1,309
36,601
7
28,509
37,917
-
-
1,344
35,172
16
36,532
16,213
13,648
93
282
4,952
35,188
(3,136)
(3,193)
(11,259)
(413)
(564)
-
33
-
9
2
44
-
-
(88)
-
(245)
(333)
(289)
-
38
-
130
11
179
-
-
(132)
-
(20)
(152)
27
(16,480)
(18,565)
16,673
16,623
(4,888)
(573)
(5,461)
(8,026)
(337)
(8,363)
(5,018)
(159)
(5,177)
(5,331)
(177)
(5,508)
39,181
36,769
32,451
31,051
392
6,180
55
(545)
(187)
1,688
31,598
385
5,643
55
(529)
(487)
1,688
30,014
392
6,180
55
(985)
-
19,145
7,664
385
5,643
55
(1,290)
-
19,145
7,113
39,181
36,769
32,451
31,051
The financial statements on pages 29 to 33 were approved by the Board of directors on 8 June 2012 and were signed on its behalf by:
F Martin
Director
Hornby > Annual Report and Accounts 2012 > Financial Statements
31
Group and Company Statement of Changes in Equity
year ended 31 March 2012 and 31 March 2011
GROUP
Balance at 1 April 2010
Total comprehensive income for the year
Transactions with owners
Issue of shares
Share-based payments
Shares vested from employee benefit trust
Dividends
Balance at 31 March 2011
Total comprehensive income for the year
Transactions with owners
Issue of shares
Share-based payments
Shares vested from employee benefit trust
Dividends
Share
capital
£’000
380
-
Share
premium
£’000
5,340
-
5
-
-
-
5
303
-
-
-
303
385
-
5,643
-
7
-
-
-
7
537
-
-
-
537
Capital
redemption
reserve
£’000
Translation
reserve
£’000
Hedging
reserve
£’000
Other
reserves
£’000
1,688
-
-
-
-
-
-
Retained
earnings
£’000
29,511
2,855
-
51
146
(2,549)
Total
equity
£’000
36,628
2,185
308
51
146
(2,549)
(2,352)
(2,044)
(514)
(15)
168
(655)
-
-
-
-
-
-
-
-
-
-
(529)
(16)
(487)
300
1,688
-
30,014
3,164
36,769
3,448
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
262
90
(1,932)
544
262
90
(1,932)
(1,580)
(1,036)
55
-
-
-
-
-
-
55
-
-
-
-
-
-
Balance at 31 March 2012
392
6,180
55
(545)
(187)
1,688
31,598
39,181
Retained earnings includes £621,000 at 31 March 2012 (2011 - £638,000) which is not distributable and relates to a 1986 revaluation of
land and buildings.
COMPANY
Balance at 1 April 2010
Total comprehensive income for the year
Transactions with owners
Issue of shares
Share-based payments
Dividends
Balance at 31 March 2011
Total comprehensive income for the year
Transactions with owners
Issue of shares
Share-based payments
Dividends
Share
capital
£’000
380
-
5
-
-
5
Share
premium
£’000
5,340
-
303
-
-
303
Capital
redemption
reserve
£’000
Translation
reserve
£’000
Other
reserves
£’000
55
-
(1,369)
79
19,145
-
Retained
earnings
£’000
5,829
3,782
Total
equity
£’000
29,380
3,861
-
-
-
-
-
-
-
-
-
-
-
-
-
51
(2,549)
308
51
(2,549)
(2,498)
(2,190)
385
-
5,643
-
55
-
(1,290)
305
19,145
-
7,113
2,221
31,051
2,526
7
-
-
7
537
-
-
537
-
-
-
-
-
-
-
-
-
-
-
-
-
262
(1,932)
544
262
(1,932)
(1,670)
(1,126)
Balance at 31 March 2012
392
6,180
55
(985)
19,145
7,664
32,451
32 Hornby > Annual Report and Accounts 2012 > Financial Statements
Group and Company Cash Flow Statement
for the year ended 31 March 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations
Interest received
Interest paid
Tax (paid)/repaid
Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Dividends received
Net cash (used in)/generated from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of ordinary shares
Repayments of issue of loans
Finance lease capital payments
Dividends paid to Company’s shareholders
Loans to subsidiary undertakings
Net cash used in financing activities
Effect of exchange rate movements
Net decrease in cash and cash equivalents
Cash, cash equivalents and bank overdrafts at beginning of the year
CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS
AT END OF YEAR
CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS CONSIST OF:
Cash and cash equivalents
Bank overdrafts
CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS
AT END OF YEAR
Group
2012
£’000
Company
2011
£’000
2012
£’000
5,856
26
(779)
(656)
4,447
1
(3,787)
-
(3,786)
544
(2,577)
(29)
(1,932)
-
(3,994)
527
(2,806)
4,397
6,072
64
(826)
(1,750)
3,560
181
(4,499)
-
(4,318)
308
(1,554)
(54)
(2,549)
-
(3,849)
125
(4,482)
8,879
1,591
4,397
1,952
(361)
4,952
(555)
1,591
4,397
466
175
(234)
62
469
-
-
1,932
1,932
544
-
-
(1,932)
(1,014)
(2,402)
(8)
(9)
11
2
2
-
2
2011
£’000
325
174
(228)
(253)
18
-
-
3,681
3,681
308
-
-
(2,549)
(1,529)
(3,770)
37
(34)
45
11
11
-
11
Hornby > Annual Report and Accounts 2012 > Financial Statements
33
Group and Company Cash Flow from Operating Activities
For the year ended 31 March 2012
Profit before taxation
Interest payable
Interest receivable
Dividend income
Amortisation of intangible assets
Depreciation
Profit on disposal of property, plant and equipment
Share-based payments
(Gain)/loss on financial derivatives
(Decrease)/increase in provisions
Increase in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
CASH GENERATED FROM OPERATIONS
Group
Company
2012
£’000
3,989
779
(26)
-
392
3,914
-
262
(18)
(89)
(1,654)
479
(2,172)
5,856
2011
£’000
4,129
826
(64)
-
390
4,060
(2)
51
75
22
(3,940)
(349)
874
6,072
2012
£’000
2,199
234
(175)
(1,932)
-
35
-
144
-
-
-
5
(44)
466
2011
£’000
3,917
228
(174)
(3,681)
-
43
-
166
-
-
-
6
(180)
325
34 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements
for the year ended 31 March 2012
1. SIGNIFICANT ACCOUNTING POLICIES
Accounting policies for the year ended 31 March 2012
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 2012 has been prepared in accordance with International Financial Reporting
Standards (‘IFRS’) as adopted by the European Union (‘EU’), IFRS Interpretations Committee (‘IFRIC’) interpretations and with those parts
of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated 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.
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 transferred. 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
Interpretations effective in the current year
There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 April 2011 that
would be expected to have a material impact on the Group.
Interpretations effective in the current year but not relevant
The following interpretations to published standards are mandatory for accounting periods beginning on or after 1 April 2011 but are not
relevant to the Group’s operations in the current year:
IAS 24 (revised),
IFRIC 14 amendment
IFRIC 19
Annual Improvements Project 2010
‘Related party disclosures’
‘Prepayments of a minimum funding arrangement’
‘Extinguishing financial liabilities with equity investments’
Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the
Group
The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting
periods beginning on or after 1 April 2012 or later periods, but the Group has not early adopted them:
Amendment to IFRS 7 ‘Financial instruments: Disclosures’ the amendment will promote transparency in the reporting of transfer
transactions and improve understanding of risk exposures relating to transfers of financial instruments. The Group is yet to assess the
IFRS 7 amendment’s full impact and intends to adopt the amendment no later than the accounting period beginning on 1 April 2012.
Amendment to IAS 1 ‘Financial statement presentation’ the amendment is a requirement for entities to group items presented in other
comprehensive income (‘OCI’) on the basis of whether they are potentially reclassifiable to profit or loss. The Group is yet to assess the IAS
1 amendment’s full impact and intends to adopt the amendment no later than the accounting period beginning on 1 April 2013.
Hornby > Annual Report and Accounts 2012 > Financial Statements
35
For the year ended 31 March 2012
IFRS 9 ‘Financial Instruments’ addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS
9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of
financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value
and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business
model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the
standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial
liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the
income statement, unless this creates an accounting mismatch. The Group is yet to assess IFRS 9’s full impact and intends to adopt IFRS
9 no later than the accounting period beginning on 1 April 2013.
IFRS 10 ‘Consolidated financial statements’ builds on existing principles by identifying the concept of control as the determining factor in
whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional
guidance to assist in the determination of control where this is difficult to assess. The Group is yet to assess IFRS 10’s full impact and
intends to adopt IFRS 10 no later than the accounting period beginning on 1 April 2013.
IFRS 12 ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including
joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The Group is yet to assess IFRS 12’s full
impact and intends to adopt IFRS 12 no later than the accounting period beginning on 1 April 2013.
IFRS 13 ‘Fair value measurement’ aims to improve consistency and reduce complexity by providing a precise definition of fair value and
a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned
between IFRSs, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already
required or permitted by other standards within IFRSs. The Group is yet to assess IFRS 13’s full impact and intends to adopt IFRS 13 no
later than the accounting period beginning on 1 April 2012.
IAS 27 ‘Separate financial statements’ (revised) includes the provisions on separate financial statements that are left after the control
provisions of IAS 27 have been included in IFRS 10. The Group is yet to assess IAS 27 (revised) full impact and intends to adopt IAS 27
(revised) no later than the accounting period beginning on 1 April 2013.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.
RECONCILIATION OF STATUTORY TO NON STATUTORY INFORMATION IN THE CHAIRMAN’S STATEMENT AND CHIEF
EXECUTIVE’S REPORT
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 and restructuring.
Profit before taxation
Foreign exchange on intercompany loans
including impact of foreign exchange collar
Amortisation of intangibles (note 9)
Underlying profit before taxation
Group
2012
£’000
2011
£’000
3,989
4,129
145
392
(96)
390
4,526
4,423
36 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
The Statement of Comprehensive Income discloses foreign exchange movements and amortisation of intangibles in other operating
expenses.
Reconciliation of net debt:
Cash
Total borrowings excluding finance leases (note 18)
Net debt
Group
2012
£’000
2011
£’000
1,952
(8,263)
4,952
(11,034)
(6,311)
(6,082)
Hornby Hobbies Limited, the Group’s UK trading subsidiary, has granted Euro denominated intercompany loans to sister subsidiary
companies that are translated into Sterling at statutory period ends thereby creating exchange gains or losses. In order to mitigate the
exchange exposure Hornby Hobbies Limited has entered a foreign exchange collar contract to sell an equal number of Euros in October
2012 that will be revalued by an approximately similar but opposite Sterling value at each period end.
The foreign exchange collar is for a principal amount of Euro 16.5 million and is in place to minimise exposure to Euro denominated
intercompany loans.
The amount shown above comprises losses on translation of intercompany loans of £875,000 (2011 - loss of £127,000), offset by a gain
on marking to market the foreign exchange collar of £730,000 (2011 - gain of £223,000).
Beneficial impact of the collar as at 3 October 2012 is expected to be a minimum of £340,000 if the exchange rate exceeds the strike
rate of 1.4300 t:£, increasing to a maximum of £767,000 at the participation cap rate of 1.3790 t:£ compared to the intercompany loans
Sterling valuation at 31 March 2007 (1.4734 t:£).
As at 31 March 2012 the cumulative profit impact is a gain of £730,000. Therefore in the period 1 April 2012 to 30 September 2012 there
will be an adjustment to the Statement of Comprehensive Income between a £37,000 profit and £390,000 charge.
The fluctuation of foreign exchange and resultant impact on intercompany loans and foreign exchange collar is set out below:
06 Aug 2007 Transaction
31 Mar 2008
31 Mar 2009
31 Mar 2010
31 Mar 2011
31 Mar 2012
Total cumulative gain/(loss) to profit before tax
Foreign
exchange
rate
€:£
€16.5 million
intercompany
loan
in Sterling
£’000
1.47
1.25
1.08
1.12
1.13
1.20
11,199
13,156
15,288
14,722
14,606
13,750
Gain
/(loss)
on loan
£’000
-
1,957
4,089
3,523
3,407
2,551
Fair
value
collar
£’000
Net gain/(loss)
in Profit
before tax
£’000
-
(1,346)
(3,270)
(2,774)
(2,552)
(1,821)
-
611
208
(70)
106
(125)
730
Prior to expiry in October 2012 the Company intends to enter a new one year foreign exchange collar contract that will include the current
collar mark to market valuation and have no cash impact.
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) Sales 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.
Hornby > Annual Report and Accounts 2012 > Financial Statements
37
(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.
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.
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 Group 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 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.
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 10 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.
38 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
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
Plant and equipment
Motor vehicles
–
–
–
30 to 50 years
5 to 10 years
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 4 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. In previous years dividend
income was presented in finance income. This has now been 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’s balance sheet when the Group 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 after deducting all of its liabilities. Equity
instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
SALES RETURNS PROVISIONS
Provision for sales returns are recognised when the Group has a constructive obligation as a result of a past event. Provision for sales
returns are measured at the present value of the expenditure expected to be required to settle the obligation.
Hornby > Annual Report and Accounts 2012 > Financial Statements
39
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.
Deferred tax assets and liabilities have not been discounted.
CRITICAL JUDGEMENTS IN APPLYING THE ACCOUNTING POLICIES
The Group makes estimates and assumptions concerning the future, none of which are regarded as critical. 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.
Further details in relation to impairment reviews are in note 8 and in relation to share-based payments in note 22.
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.
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 all 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
– Performance Share Plan
40 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
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 Group 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.
Short Term Incentive Plan
The Short Term Incentive Plan (STIP) investment is carried at the cost of the shares held. This investment in own shares is presented as
a deduction from shareholders’ funds.
The matched element of the STIP which has a condition of employment attached to it is recorded at fair value and spread over the vesting
period of the shares and recognised in the Statement of Comprehensive Income over this period.
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 3-year performance conditions
–
Total Shareholder Return (TSR)
– Earnings per share (EPS) growth targets
each applying to a separate 50% of the award and vest on the 3rd anniversary of grant as appropriate.
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.
Assets under operating leases are charged on a straight-line basis to the Statement of Comprehensive Income over the lease term.
Hornby > Annual Report and Accounts 2012 > Financial Statements
41
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.
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 Hong Kong Dollars and US Dollars. It enters
into forward currency contracts to hedge the cash flows of its product sourcing operation (i.e. it buys HK Dollars forward in exchange
for Sterling) and looks forward 6-12 months on a rolling basis at forecasted purchase volumes. The policy framework requires hedging
between 80 per cent and 100 per cent of anticipated import purchases that are denominated in HK 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. In order to mitigate the exchange exposure the Group has entered a foreign exchange
collar contract to sell an equal number of Euros in October 2012 that will be revalued by an approximately similar but opposite Sterling
value at each period end.
(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 only borrowings were finance leases, 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
The Group has borrowings comprising a revolving credit facility (£10 million – expiring August 2015) and a fixed-term loan agreement (£7.5
million – expiring July 2014). The Group’s policy on liquidity risk is to ensure that sufficient cash is available to fund future operations. The
peak level of net debt in the year to 31 March 2012 was £15.6 million. Those needs are determined by monitoring forecast and actual cash
flows. The Group regularly monitors its performance against its banking covenants to ensure compliance.
DERIVATIVE FINANCIAL INSTRUMENTS
To manage exposure to foreign currency risk, the Group uses foreign currency forward contracts and a foreign exchange collar, and to
manage interest rate risk, the Group uses an interest rate swap, 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 re-measured 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.
42 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
(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 equity.
The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income within operating
expenses.
Amounts accumulated in equity 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 equity are transferred from equity 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 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 that was
reported in equity is immediately transferred to the Statement of Comprehensive Income.
(b) Derivatives that do not qualify for hedge accounting
Certain derivative instruments including the foreign exchange collar are not considered effective and do not qualify for hedge accounting.
Such derivatives are classified as 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 be 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 Sterling 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 in equity 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 relating to foreign currency loans and other foreign exchange adjustments are included within operating
profit and shown separately as part of other operating expenses.
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 the Statement of Changes in Equity.
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 US 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 29 and its assets and liabilities given in the Company Balance Sheet on page 30. Other Company information is provided in the other
notes to the accounts.
Hornby > Annual Report and Accounts 2012 > Financial Statements
43
Year ended 31 March 2012
Revenue
Operating profit
Finance cost
Finance income
– External
– Other segments
– External
– Other segments
– External
– Other segments
Profit before taxation
Analysed as:
Underlying profit before taxation
Net foreign exchange impact
on intercompany loans
Amortisation of intangibles
Profit before taxation
Taxation
Profit for the year
UK
£’000
45,484
3,053
2,950
(675)
-
24
663
2,962
3,371
(145)
(264)
2,962
(468)
2,494
USA
£’000
2,729
-
58
-
(6)
-
-
52
52
-
-
52
-
52
Spain
£’000
3,693
6,910
845
(73)
(234)
1
-
Italy
£’000
4,911
48
605
(6)
(312)
1
-
Rest
of
Europe
£’000
7,630
-
284
(25)
(111)
-
-
Total
Reportable
Segments
£’000
64,447
10,011
4,742
(779)
(663)
26
663
Intra
Group
£’000
-
(10,011)
-
-
663
-
(663)
539
288
148
3,989
539
-
-
539
384
-
(96)
288
180
4,526
-
(32)
(145)
(392)
148
3,989
(428)
(142)
(48)
(1,086)
111
146
100
2,903
-
-
-
-
-
-
-
Group
£’000
64,447
-
4,742
(779)
-
26
-
3,989
4,526
(145)
(392)
3,989
(1,086)
2,903
Segment assets
Less intercompany receivables
Add tax assets
53,178
(17,448)
538
1,318
(1)
-
11,961
(2,464)
9
10,669
(453)
17
3,771
(8)
35
80,897
(20,374)
599
(20,374)
20,374
-
60,523
-
599
Total assets
36,268
1,317
9,506
10,233
3,798
61,122
-
61,122
Segment liabilities
Less intercompany payables
Add tax liabilities
17,451
(211)
648
1,303
(1,175)
-
9,530
(8,092)
382
7,757
(7,196)
242
4,991
(3,700)
11
41,032
(20,374)
1,283
(20,374)
20,374
-
Total liabilities
17,888
128
1,820
803
1,302
21,941
Other segment items
Capital expenditure
Depreciation
Net foreign exchange on
intercompany loans
Amortisation of intangible assets
Share-based payment – charge to
Statement of Comprehensive Income
(note 22)
2,820
2,846
145
264
262
6
16
-
-
-
977
787
-
-
-
25
237
-
96
-
53
28
-
32
3,881
3,914
145
392
-
262
-
-
-
-
-
-
20,658
-
1,283
21,941
3,881
3,914
145
392
262
All transactions between Group companies are on normal commercial terms and an arm’s length basis.
44 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
Year ended 31 March 2011
Revenue
– External
– Other segments
Operating profit/(loss)
Finance cost
Finance income
– External
– Other segments
– External
– Other segments
UK
£’000
47,273
3,526
4,416
(763)
-
60
629
USA
£’000
2,667
-
(35)
-
(9)
-
-
Spain
£’000
3,260
3,823
(160)
(45)
(221)
-
-
Italy
£’000
4,628
347
690
(2)
(295)
4
-
Rest
of
Europe
£’000
5,544
-
(20)
(16)
(104)
-
-
Total
Reportable
Segments
£’000
63,372
7,696
4,891
(826)
(629)
64
629
Intra
Group
£’000
-
(7,696)
-
-
629
-
(629)
Profit/(loss) before taxation
4,342
(44)
(426)
397
(140)
4,129
Analysed as:
Underlying profit before taxation
Net foreign exchange impact
on intercompany loans
Amortisation of intangibles
Profit/(loss) before taxation
Taxation
4,509
(44)
(426)
96
(263)
4,342
(1,062)
-
-
(44)
-
-
-
(426)
(134)
Profit/(loss) for the year
3,280
(44)
(560)
491
-
(94)
397
(54)
343
(107)
4,423
-
(33)
96
(390)
(140)
4,129
(24)
(1,274)
(164)
2,855
-
-
-
-
-
-
-
Group
£’000
63,372
-
4,891
(826)
-
64
-
4,129
4,423
96
(390)
4,129
(1,274)
2,855
Segment assets
Less intercompany receivables
Add tax assets
56,472
(18,064)
109
1,317
(2)
-
11,014
(1,696)
130
11,479
(658)
107
3,454
(10)
45
83,736
(20,430)
391
(20,430)
20,430
-
63,306
-
391
Total assets
38,517
1,315
9,448
10,928
3,489
63,697
-
63,697
Segment liabilities
Less intercompany payables
Add tax liabilities
21,685
(100)
813
1,380
(1,259)
-
10,510
(7,873)
65
8,379
(7,669)
23
4,503
(3,529)
-
46,457
(20,430)
901
(20,430)
20,430
-
Total liabilities
22,398
121
2,702
733
974
26,928
Other segment items
Capital expenditure
Depreciation
Net foreign exchange on
intercompany loans
Amortisation of intangible assets
Share-based payment – charge to
Statement of Comprehensive Income
(note 22)
3,147
2,833
(96)
263
51
7
15
-
-
-
1,228
670
-
-
-
110
526
-
94
-
14
16
-
33
-
4,506
4,060
(96)
390
51
-
-
-
-
-
-
26,027
-
901
26,928
4,506
4,060
(96)
390
51
All transactions between Group companies are on normal commercial terms and an arm’s length basis.
Hornby > Annual Report and Accounts 2012 > Financial Statements
45
3. FINANCE (COSTS)/INCOME
Finance costs:
Interest expense on bank borrowings
Interest expense on intercompany borrowings
Interest expense on finance leases
Finance income:
Bank interest
Interest income on intercompany loans
2012
£’000
(774)
-
(5)
(779)
26
-
26
Group
Company
2011
£’000
2012
£’000
2011
£’000
(7)
(221)
-
(228)
-
174
174
(54)
(818)
-
(8)
(826)
64
-
64
-
(234)
-
(234)
-
175
175
(59)
Net finance (costs)/income
(753)
(762)
4. PROFIT BEFORE TAXATION
The following items have been included in arriving at profit before taxation:
Staff costs (note 23)
Inventories:
– Cost of inventories recognised as an expense (included in cost of sales)
– Write down release/(charge)
Depreciation of property, plant and equipment:
– Owned assets
– Under finance leases
Profit on disposal of assets
Other operating lease rentals payable:
– Plant and machinery
– Property
Repairs and maintenance expenditure on property, plant and equipment
Research and development expenditure
Foreign exchange losses:
– On trading transactions and ineffective hedges
Impairment of trade receivables
Other operating expenses/(income):
– Foreign exchange on trading transactions
– Net impact of foreign exchange on intercompany loans
– Movement on fair value of ineffective hedge
– Share-based payment charge
– Amortisation of intangible assets
Group
2012
£’000
Company
2011
£’000
2012
£’000
2011
£’000
10,276
9,643
923
928
27,704
25
28,468
(102)
3,889
25
-
169
395
214
1,635
255
187
273
145
(18)
262
392
1,054
4,036
24
(2)
183
362
198
1,738
174
52
99
(96)
75
51
390
519
-
-
35
-
-
-
-
-
-
-
-
-
-
-
144
-
144
-
-
43
-
-
-
-
-
-
-
-
-
-
-
166
-
166
46 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
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
Fees payable to the Company’s auditors and its Associates for other
services:
– The auditing of accounts of subsidiaries of the Company pursuant to
legislation
– Other services pursuant to legislation
Services relating to taxation
Group
2012
£’000
Company
2011
£’000
2012
£’000
2011
£’000
87
36
39
30
90
50
19
34
192
193
15
-
26
5
46
12
-
19
10
41
In the current financial year the level of non audit fees was well within the 1:1 ratio to audit fees as per Audit Committee policy.
5. TAXATION
Analysis of tax charge in the year
Current tax
– UK taxation
adjustments in respect of prior years
– overseas taxation
adjustments in respect of prior years
Deferred tax (note 20)
– current year
– overseas taxation
– adjustments in respect of prior years
Total tax charge to the profit before tax
Group
2012
£’000
Company
2011
£’000
2012
£’000
2011
£’000
643
(30)
491
-
1,014
7
1
165
1,104
1,187
(145)
127
(261)
(279)
825
41
46
-
87
36
(3)
(46)
-
(13)
(9)
-
-
(9)
20
7
(52)
165
140
(5)
-
-
(5)
1,274
(22)
135
Hornby > Annual Report and Accounts 2012 > Financial Statements
47
The tax for the year differs to the standard rate of corporation tax in the UK (26%). Any differences are explained below:
Profit before taxation
Profit on ordinary activities multiplied by rate of Corporation tax in UK of 26%
(2011 - 28%)
Effects of:
Adjustments to tax in respect of prior years
Income not taxable
Difference on overseas rates of tax
Impact of overseas losses not recognised
Re-measurement of deferred tax – change in UK tax rate to 24%
Other
Total taxation
Group
2012
£’000
Company
2011
£’000
2012
£’000
2011
£’000
3,989
4,129
2,199
3,917
1,037
1,156
572
1,097
231
-
2
-
(18)
95
825
172
-
20
65
(15)
(124)
1,274
(3)
(502)
10
-
13
(112)
(22)
172
(1,031)
4
-
(12)
(95)
135
In addition to the change in rates of corporation tax to 26% from 1 April 2011 disclosed above a number of further changes to the UK
corporation tax system were announced in the March 2012 UK Budget Statement. Legislation to reduce the main rate of corporation tax
from 26% to 24% from 1 April 2012 is expected to be included in the Finance Act 2012. Further reductions to the main rate are proposed
to reduce the rate by 1% per annum to 22% by 1 April 2014. These further changes have not been substantively enacted at the balance
sheet date and, therefore, are not included in these financial statements.
6. DIVIDENDS
3.3p final paid per share in relation to year ended 31 March 2011 (2011 - 5.0p paid in relation to year
ended 31 March 2010)
1.7p interim paid per share in relation to year ended 31 March 2012 (2011 - 1.7p paid in relation to year
ended 31 March 2011)
Group and Company
2012
£’000
1,267
665
1,932
2011
£’000
1,897
652
2,549
In addition, the directors are proposing a final dividend in respect of the financial year ended 31 March 2012 of 2.0p per share which will
absorb £783,282 of shareholders’ funds to be paid on 21 December 2012 to shareholders who are on the register of members on 23
November 2012.
48 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
7. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings 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 earnings 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 2012.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.
2012
Weighted
average
number of
shares
000’s
Earnings
£’000
Per-share
amount
pence
Earnings
£’000
2011
Weighted
average
number of
shares
000’s
Per-share
amount
pence
3,164
38,626
8.19
2,855
38,071
7.50
REPORTED
Basic EPS
Earnings attributable to ordinary shareholders
Effect of dilutive securities
Options
Diluted EPS
3,164
38,954
8.12
2,855
38,444
-
328
(0.07)
-
373
UNDERLYING
Earnings attributable to shareholders
Amortisation of intangibles
Net foreign exchange translation adjustments
net of tax
Underlying basic EPS
Underlying diluted EPS
3,164
392
38,626
-
107
-
3,663
38,626
3,663
38,954
8.19
1.01
0.28
9.48
9.40
2,855
390
(69)
3,176
3,176
(0.07)
7.43
7.50
1.02
38,071
-
-
(0.18)
38,071
38,444
8.34
8.26
Hornby > Annual Report and Accounts 2012 > Financial Statements
49
8. GOODWILL
GROUP
COST
At 1 April 2011
Exchange adjustments
At 31 March 2012
AGGREGATE IMPAIRMENT
At 1 April 2011 and 31 March 2012
Net book amount at 31 March 2012
GROUP
COST
At 1 April 2010
Exchange adjustments
At 31 March 2011
AGGREGATE IMPAIRMENT
At 1 April 2010 and 31 March 2011
Net book amount at 31 March 2011
£’000
13,372
(313)
13,059
-
13,059
£’000
13,416
(44)
13,372
-
13,372
Annual impairment reviews performed have not identified any impairment of goodwill.
The goodwill has been allocated to cash-generating units and a summary of carrying amounts of goodwill by geographical segments
(representing cash-generating units) at 31 March 2012 is as follows:
GROUP
At 31 March 2012
At 31 March 2011
UK
£’000
3,992
3,992
USA
£’000
8
8
Spain
£’000
3,990
3,990
Italy
£’000
4,526
4,807
Rest of
Europe
£’000
543
575
Total
£’000
13,059
13,372
Goodwill allocated to the above cash-generating units of the Group has been measured based on synergies each geographical segment
is expected to gain from the business combination.
The key assumptions in the value in use calculations:
–
–
–
Budgeted revenue growth was based on expected levels of activity given results to date, together with growth based upon internal
improvements, marketing initiatives, and expected economic and market conditions.
Budgeted operating profit was calculated based upon management’s expectation of operating costs appropriate to the growing
business.
The relative risk adjusted (or ‘beta’) discount rates applied to reflect the risk inherent in hobby based product companies. In determining
the risk adjusted 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 2013. Subsequent cash flows have been increased in line
with historic local territory gross domestic product. For cash flows after 5 years, growth is no higher than long-term growth rate for each
country. The cash flows were discounted using a pre-tax discount rate of 11% (2011 - 12%) which management believes is appropriate
for all territories. The Italian business is expected to grow strongly in the year March 2013, but if revenue growth were limited to 8% in that
year, the recoverable amount would be equal to its carrying amount.
50 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
9.
INTANGIBLE ASSETS
GROUP
ACQUIRED INTANGIBLE ASSETS
COST
At 1 April 2011
Exchange adjustments
Disposals
At 31 March 2012
ACCUMULATED AMORTISATION
At 1 April 2011
Charge for the year
Exchange adjustments
Disposals
At 31 March 2012
Net book amount at 31 March 2012
COST
At 1 April 2010
Exchange adjustments
At 31 March 2011
ACCUMULATED AMORTISATION
At 1 April 2010
Charge for the year
Exchange adjustments
At 31 March 2011
Net book amount at 31 March 2011
Net book amount at 31 March 2010
Brand
names
£,000
Customer
lists
£’000
Rent free
period
£’000
5,001
(102)
-
4,899
1,057
248
(34)
-
1,271
3,628
5,015
(14)
5,001
811
246
-
1,057
3,944
4,204
1,452
(26)
-
1,426
576
144
(16)
-
704
722
1,455
(3)
1,452
432
144
-
576
876
1,023
36
(3)
(33)
-
36
-
(3)
(33)
-
-
36
-
36
36
-
-
36
-
-
Total
£’000
6,489
(131)
(33)
6,325
1,669
392
(53)
(33)
1,975
4,350
6,506
(17)
6,489
1,279
390
-
1,669
4,820
5,227
All amortisation charges in the year have been charged through other operating expenses.
Hornby > Annual Report and Accounts 2012 > Financial Statements
51
10. PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
At 1 April 2011
Exchange adjustments
Additions at cost
Disposals
At 31 March 2012
ACCUMULATED DEPRECIATION
At 1 April 2011
Exchange adjustments
Charge for the year
Disposals
At 31 March 2012
Net book amount at 31 March 2012
GROUP
COST
At 1 April 2010
Exchange adjustments
Additions at cost
Disposals
At 31 March 2011
ACCUMULATED DEPRECIATION
At 1 April 2010
Exchange adjustments
Charge for the year
Disposals
At 31 March 2011
Net book amount at 31 March 2011
Freehold
land and
buildings
£’000
Plant
and
equipment
£’000
Motor
vehicles
£’000
Tools and
moulds
£’000
3,068
(38)
-
-
3,030
1,210
(7)
49
-
1,252
1,778
5,518
(54)
548
(4)
6,008
3,688
(40)
478
(3)
4,123
1,885
417
(4)
-
(12)
401
235
(3)
50
(12)
270
131
3,033
(4)
39
-
3,068
1,152
-
58
-
1,210
1,858
4,925
(16)
616
(7)
5,518
3,293
(5)
407
(7)
3,688
1,830
418
(1)
96
(96)
417
251
-
50
(66)
235
182
Total
£’000
53,125
(591)
3,881
(16)
44,122
(495)
3,333
-
46,960
56,399
37,784
(389)
3,337
-
42,917
(439)
3,914
(15)
40,732
46,377
6,228
10,022
Total
£’000
48,978
(81)
4,506
(278)
40,602
(60)
3,755
(175)
44,122
53,125
34,262
3
3,545
(26)
38,958
(2)
4,060
(99)
37,784
42,917
6,338
10,208
Freehold
land and
buildings
£’000
Plant
and
equipment
£’000
Motor
vehicles
£’000
Tools and
moulds
£’000
Freehold land amounting to £786,000 (2011 - £786,000) has not been depreciated.
52 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
Assets held by the Group under finance leases have the following net book amount:
COST
Aggregate depreciation
Net book amount
2012
£’000
167
(71)
96
2011
£’000
167
(46)
121
Assets held by the Group under finance leases are motor vehicles.
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.
All depreciation charges in the year have been charged through other operating expenses.
COMPANY
COST
At 1 April 2011
Additions
At 31 March 2012
ACCUMULATED DEPRECIATION
At 1 April 2011
Charge for the year
At 31 March 2012
Net book amount at 31 March 2012
COMPANY
COST
At 1 April 2010
Additions
At 31 March 2011
ACCUMULATED DEPRECIATION
At 1 April 2010
Charge for the year
At 31 March 2011
Net book amount at 31 March 2011
Net book amount at 31 March 2010
The Company does not hold any assets under finance leases.
Freehold
land and
buildings
£’000
Plant
and
equipment
£’000
2,428
-
2,428
1,084
35
1,119
1,309
4
-
4
4
-
4
-
Freehold
land and
buildings
£’000
Plant
and
equipment
£’000
2,428
-
2,428
1,041
43
1,084
1,344
1,387
4
-
4
4
-
4
-
-
Total
£’000
2,432
-
2,432
1,088
35
1,123
1,309
Total
£’000
2,432
-
2,432
1,045
43
1,088
1,344
1,387
Hornby > Annual Report and Accounts 2012 > Financial Statements
53
11. INVESTMENTS
COMPANY
The movements in the net book value of interests in subsidiary undertakings are as follows:
At 1 April 2011
Capital contribution relating to share-based payment
Net increase in loans to subsidiary undertakings
At 31 March 2012
At 1 April 2010
Capital contribution relating to share-based payment
Net increase in loans to subsidiary undertakings
At 31 March 2011
Interests in
subsidiary
undertakings
at valuation
£’000
Loans to
subsidiary
undertakings
at cost
£’000
27,993
118
-
7,179
-
1,311
Total
£’000
35,172
118
1,311
28,111
8,490
36,601
28,108
(115)
-
27,993
5,650
-
1,529
7,179
33,758
(115)
1,529
35,172
Interest was charged on loans to subsidiary undertakings at Sterling 3-month Libor + 3.6%.
Loans are unsecured and exceed five years maturity.
PRINCIPAL GROUP SUBSIDIARY UNDERTAKINGS
Details of the principal subsidiary undertakings of the Company, which are included in the consolidated financial statements, are set out
below. Hornby Hobbies Limited and Hornby España S.A. are engaged in the development, design, sourcing and distribution of models.
Hornby America Inc., Hornby Italia s.r.l., Hornby France S.A.S. and Hornby Deutschland GmbH are distributors of models.
Hornby Hobbies Limited
Hornby America Inc.
Hornby España S.A
Hornby Italia s.r.l.
Hornby France S.A.S.
Hornby Deutschland GmbH
12. INVENTORIES
Raw materials
Work in progress
Finished goods
Country of
incorporation
United Kingdom
USA
Spain
Italy
France
Germany
Description of
shares held
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Proportion of nominal
value of issued shares held
Group
%
100
100
100
100
100
100
Company
%
100
100
100
100
100
100
Group
2012
£’000
354
39
17,474
2011
£’000
270
58
15,885
17,867
16,213
Company
2012
£’000
2011
£’000
-
-
-
-
-
-
-
-
54 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
13. TRADE AND OTHER RECEIVABLES
CURRENT:
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments
Group
2012
£’000
Company
2011
£’000
2012
£’000
2011
£’000
11,608
(230)
11,378
400
1,391
11,996
(195)
11,801
511
1,336
13,169
13,648
-
-
-
-
33
33
-
-
-
-
38
38
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated and
deemed adequate. Credit insurance policies are in place in Hornby Hobbies Limited, Hornby America Inc., Hornby España S.A., Hornby
Italia s.r.l., Hornby France S.A.S. and Hornby Deutschland GmbH covering trade receivables at 31 March 2012 to the value of £8.9 million
(2011 - £9.2 million).
Gross trade receivables can be analysed as follows:
Fully performing
Past due
Impaired
Trade receivables
2012
£’000
9,252
2,078
278
2011
£’000
10,288
1,480
228
11,608
11,996
As of 31 March 2012, trade receivables of £2,078,000 (2011 - £1,480,000) were past due but not impaired. These relate to a number of
independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
1 – 120 days
>120 days
2012
£’000
1,946
132
2,078
2011
£’000
1,412
68
1,480
As of 31 March 2012, trade receivables of £278,000 (2011 - £228,000) were impaired and provided for. The amount of provision was
£230,000 (2011 - £195,000) as of 31 March 2012.
Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or financial reorganisation are considered
indications that the trade receivable is impaired.
The ageing of these receivables is as follows:
1 – 120 days
> 120 days
2012
£’000
37
241
278
2011
£’000
12
216
228
Hornby > Annual Report and Accounts 2012 > Financial Statements
55
Movements on the Group provision for impairment of trade receivables are as follows:
At 1 April
Provision for receivables impairment
Receivables written off during the year as uncollectible
Exchange adjustments
At 31 March
2012
£’000
195
187
(145)
(7)
230
2011
£’000
284
52
(138)
(3)
195
The charge relating to the increase in provision has been included in ‘administrative expenses’ in the Statement of Comprehensive Income.
The carrying amounts of the Group and Company trade and other receivables are denominated in the following currencies:
Sterling
Euro
US dollar
HK dollar
14. CASH AND EQUIVALENTS
Cash at bank and in hand
15. TRADE AND OTHER PAYABLES
CURRENT:
Trade payables
Other taxes and social security
Other payables
Accruals
Company
2012
£’000
2011
£’000
Group
2012
£’000
7,206
5,174
570
219
2011
£’000
7,875
5,113
512
148
13,169
13,648
33
-
-
-
33
Group
2012
£’000
2011
£’000
1,952
4,952
Company
2012
£’000
2
Group
2012
£’000
Company
2011
£’000
2012
£’000
5,047
1,198
2,332
1,245
9,822
6,590
1,018
2,127
1,524
11,259
-
18
-
70
88
38
-
-
-
38
2011
£’000
11
2011
£’000
-
18
-
114
132
56 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
16. PROVISIONS
Sales returns
At 1 April
Charge to Statement of Comprehensive Income
Utilised in the year
At 31 March
Group
Company
2012
£’000
413
649
(738)
324
2011
£’000
2012
£’000
2011
£’000
391
933
(911)
413
-
-
-
-
-
-
-
-
Provision is made for future sales returns based on historical trends. The provision is expected to be utilised within one year from the
balance sheet date.
17. CURRENT TAX ASSETS & LIABILITIES
Current tax assets
Corporation tax recoverable – Overseas
Current tax liabilities
UK Corporation tax liability
Overseas Corporation tax liability
18. BORROWINGS
Secured borrowing at amortised cost
Bank overdrafts
Bank loan
Finance leases
Loan from subsidiary undertakings
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Group
2012
£’000
Company
2011
£’000
2012
£’000
2011
£’000
61
282
9
130
324
381
705
512
52
564
36
209
245
Group
2012
£’000
Company
2011
£’000
2012
£’000
361
7,902
99
-
8,362
3,474
4,888
8,362
555
10,479
128
-
11,162
3,136
8,026
11,162
-
-
-
5,018
5,018
-
5,018
5,018
20
-
20
2011
£’000
-
-
-
5,331
5,331
-
5,331
5,331
The Group complied with all loan covenants during the year. The Company borrowings are denominated in Sterling.
Hornby > Annual Report and Accounts 2012 > Financial Statements
57
Analysis of borrowings by currency:
Group
31 March 2012
Bank overdrafts
Bank loan
Finance leases
31 March 2011
Bank overdrafts
Bank loan
Finance leases
Sterling
£’000
-
7,500
99
7,599
-
10,000
128
10,128
Euros
£’000
Total
£’000
361
402
-
763
555
479
-
361
7,902
99
8,362
555
10,479
128
1,034
11,162
The other principal features of the Group’s borrowings are as follows:
At 31 March 2012 the Group had a revolving credit facility of £10 million expiring August 2015 and a 5-year fixed term loan agreement of
£12 million with repayments scheduled to July 2014 (£7.5 million as at 31 March 2012). The future interest rates of these facilities are Libor
+ 2.5% for the revolving credit facility and Libor + 3.6% for the fixed term loan.
The average effective interest rate on bank overdrafts approximated to 3.63% (2011 - 3.85%) per annum and is determined based on
1.0% above 3-month Libor.
Undrawn borrowing facilities
At 31 March 2012, the Group had available £10.6 million (2011 - £10.4 million) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. In addition, European subsidiaries had available £1.6 million (2011 - £1.4 million) of undrawn
import credit line facilities that could be obtained with security being given against trade receivables.
19. FINANCIAL INSTRUMENTS
The Group’s policies and strategies in relation to risk and financial instruments are detailed in note 1.
Group
Carrying values of derivative financial instruments
Foreign exchange collar
Forward foreign currency contracts – cash flow hedges
– cash flow hedge
Interest rate swap
Assets
2012
£’000
Liabilities
2011
£’000
2012
£’000
2011
£’000
-
104
-
104
-
93
-
(1,821)
(120)
(214)
(2,552)
(299)
(342)
93
(2,155)
(3,193)
The hedged forecast transactions denominated in foreign currency are expected to occur at various dates during the next 12 months.
Gains and losses recognised in reserves on forward foreign exchange contracts as of 31 March 2012 are recognised in the Statement of
Changes in Equity in the period or periods during which the hedged forecast transaction affects the Statement of Comprehensive Income,
which is within 12 months from the balance sheet date.
58 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
At 31 March 2012 outstanding forward currency contracts were as follows:
Hong Kong $
US$
Euros
2012
000’s
156,776
6,732
-
2011
000’s
167,676
4,473
908
The notional principal amount of the outstanding interest rate swap contract at 31 March 2012 was £3.0 million (2011 - £4.0 million).
At 31 March 2012, the interest rate swap fixes the interest rate on £3.0 million of the bank loan disclosed in note 18 to 6.22%. The loss
recognised in the interest rate swap included in the hedging reserve as of 31 March 2012 will be continuously released to the Statement of
Comprehensive Income until the maturity of the swap. The £4.5 million (2011 - £6.0 million) remainder of the bank loan disclosed in note
18 incurs interest based on 3-month Libor established quarterly in advance.
The total fair value above for forward foreign currency contracts and the interest rate swap comprises £230,000 liability (2011 - £637,000
liability) of which £187,000 liability (2011 - £168,000 liability) has been effectively hedged at 31 March 2012 and therefore charged to
reserves in accordance with IAS 39. The liability balance of £43,000 (2011 - £61,000 liability) was the ineffective hedged portion and was
included within operating expenses.
In accordance with IAS 39, the Group has reviewed all contracts for embedded derivatives that are required to be separately accounted
for if they do not meet certain requirements set out in the standard. No embedded derivatives have been identified.
All derivative financial investments are Level 2 in the Fair Value Hierarchy.
Fair values of non-derivative financial assets and liabilities
For the Group and the Company, as at 31 March 2012 and 31 March 2011, there is no difference between the carrying amount and fair
value of each of the following classes of financial assets and liabilities, principally due to their short maturity: trade and other receivables,
cash at bank and in hand, trade and other payables and current borrowings. Bank deposits attract interest within 0.5% of the ruling market
rate. There is no significant difference between the fair value and carrying amount of non-current borrowings as the impact of discounting
is not significant.
The Company has no derivative financial instruments.
Hornby > Annual Report and Accounts 2012 > Financial Statements
59
Maturity of non-current financial liabilities
GROUP
Between one and two years
Between two and five years
More than five years
Between one and two years
Between two and five years
More than five years
COMPANY
More than five years (note 18)
The minimum lease payments under finance leases fall due as follows:
GROUP
Not later than one year
Later than one year but not more than five
Future finance charges on finance leases
Present value of finance lease liabilities
Bank
loan
£’000
3,053
1,669
129
4,851
Bank
loan
£’000
3,054
4,674
199
7,927
Finance
leases
£’000
25
12
-
37
Finance
leases
£’000
62
37
-
99
2012
Debt
£’000
2012
Total
£’000
3,078
1,681
129
4,888
2011
Total
£’000
3,116
4,711
199
8,026
2011
Debt
£’000
5,018
5,331
2012
£’000
63
38
101
(2)
99
2011
£’000
34
101
135
(7)
128
60 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
Financial Instruments
Interest rate sensitivity
The Group is exposed to interest rate risk as the Group borrows funds at both fixed and floating interest rates. The exposure to these
borrowings varies during the year due to the seasonal nature of cash flows relating to sales.
In order to measure risk, floating rate borrowings and the expected interest costs are forecast on a monthly basis and compared to budget
using management’s expectations of a reasonably possible change in interest rates.
The effect on both income and equity based on exposure to borrowings at the balance sheet date for a 1% increase in interest rates is
£106,000 (2011 - £110,000) before tax. A 1% fall in interest rates give the same but opposite effect.
Foreign currency sensitivity
The Group is primarily exposed to US Dollars, Hong Kong Dollars and the Euro. The following table details how the Group’s income and
equity would increase on a before tax basis, given a 10% revaluation in the respective currencies against Sterling and in accordance with
IFRS 7 all other variables remaining constant. A 10% devaluation in the value of Sterling would have the opposite effect.
The 10% change represents a reasonably possible change in the specified foreign exchange rates in relation to Sterling.
US and HK dollars
Euros
Capital risk management
Income and Equity Sensitivity
2011
£’000
2012
£’000
815
148
963
768
128
896
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net debt divided by total capital. Net debt is
calculated as total borrowings as shown in the consolidated balance sheet less cash and cash equivalents. Total capital is calculated as
‘equity’ as shown in the balance sheet plus net debt.
Total borrowings (note 18)
Less:
Total cash and cash equivalents (note 14)
Net debt
Total equity
Total Capital
Gearing
2012
£’000
2011
£’000
8,362
11,162
(1,952)
(4,952)
6,410
39,181
6,210
36,769
45,591
42,979
14%
14%
Hornby > Annual Report and Accounts 2012 > Financial Statements
61
20. DEFERRED TAX
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 24% (2011 - 26%).
The movement on the deferred tax account is as shown below:
At 1 April
Charge/(credit) to Statement of Comprehensive Income (note 5)
– origination and reversal of temporary differences
Exchange adjustments
Utilisation of trading losses against other tax payable
At 31 March
Group
Company
2012
£’000
228
(279)
(2)
88
35
2011
£’000
141
87
-
-
2012
£’000
161
(9)
-
-
2011
£’000
166
(5)
-
-
228
152
161
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets
because it is probable that those assets will be recovered.
No deferred tax is provided for tax liabilities which would arise on the distribution of profits retained by overseas subsidiaries because there
is currently no intention that such profits will be remitted.
The movements in deferred tax assets and liabilities during the year are shown below.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset.
Deferred tax liabilities
At 1 April 2011
(Credit)/charge to Statement of
Comprehensive Income
At 31 March 2012
At 1 April 2010
(Credit)/charge to Statement of
Comprehensive Income
At 31 March 2011
Group
Accelerated
capital
allowances
£’000
Revaluation
£’000
166
(17)
149
183
(17)
166
135
40
175
84
51
135
Other
£’000
36
213
249
14
22
36
Total
£’000
Revaluation
£’000
Company
Accelerated
capital
allowances
£’000
337
236
573
281
56
337
166
(17)
149
183
(17)
166
11
(1)
10
13
(2)
11
Total
£’000
177
(18)
159
196
(19)
177
62 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
Of the total deferred tax liability of £573,000, £5,000 was due within one year for the Group (2011 - £5,000) and £5,000 for the Company
(2011 - £5,000).
Deferred tax assets
At 1 April 2011
Charge/(credit) to Statement of Comprehensive Income
At 31 March 2012
At 1 April 2010
Charge/(credit) to Statement of Comprehensive Income
At 31 March 2011
Net deferred tax liability
At 31 March 2012
At 31 March 2011
Short-term
incentive
plan
£’000
Group
Acquisition
intangibles
£’000
(35)
20
(15)
(68)
33
(35)
(74)
(25)
(99)
(48)
(26)
(74)
Other
£’000
-
(424)
(424)
(24)
24
-
Company
Short-term
incentive
plan
£’000
(16)
9
(7)
(30)
14
(16)
152
161
Total
£’000
(109)
(429)
(538)
(140)
31
(109)
35
228
The deferred tax liability arising on the revaluation of freehold land and buildings in 1986 cannot be offset against deferred tax assets.
Therefore, the deferred tax asset and deferred tax liability at 31 March 2012 and 31 March 2011 have been recognised separately.
GROUP
Deferred tax comprises:
Accelerated capital allowances
Other temporary differences
Overseas taxation
Deferred tax liability
COMPANY
Deferred tax comprises:
Accelerated capital allowances
Other timing differences
Deferred tax liability
2012
2011
Recognised
£’000
Not
recognised
£’000
Recognised
£’000
Not
recognised
£’000
175
(389)
249
35
-
-
-
-
135
57
36
228
-
-
-
-
2012
2011
Recognised
£’000
Not
recognised
£’000
Recognised
£’000
Not
recognised
£’000
10
142
152
-
-
-
11
150
161
-
-
-
Hornby > Annual Report and Accounts 2012 > Financial Statements
63
21. SHARE CAPITAL
GROUP AND COMPANY
Allotted, issued and fully paid:
Ordinary shares of 1p each
At 1 April
Allotted under share option schemes
2012
Number of
shares
38,464,100
700,000
2011
Number of
shares
38,064,100
400,000
£’000
385
7
39,164,100
392
38,464,100
£’000
381
4
385
At 31 March 2012 options granted under the Company’s share option schemes were outstanding as follows:
Date granted
28 March 2002
19 June 2002
09 June 2005
Number of options
Exercise price
Period of option
2012
2011
-
447,500
400,000
600,000
547,500
400,000
847,500
1,547,500
76.8p March 2005 – March 2012
June 2005 – June 2012
83.4p
June 2008 – June 2012
201.0p
The total number of options outstanding as at the date of this document represent approximately 2.2% (2011 - 4.0%) of the issued share
capital of the Company.
If Resolution 12 is passed at the Annual General Meeting and the Company were to exercise the full authority to buy-back approximately
10% of the issued ordinary shares of the Company, such options would represent 2.4% (2011 - 4.5%) of the issued share capital of the
Company.
22. SHARE-BASED PAYMENTS
Hornby Plc operates three share-based plans – Share Option Scheme (‘SOS’), Short Term Incentive Plan (‘STIP’) and Performance Share
Plan (‘PSP’).
SOS awards
The SOS awards are a reward of share options to executive directors and senior management that vest after 3 years and must be
exercised in a 4 or 7 year exercise window.
The awards are subject to a performance measure of Profits before Interest and Tax (‘PBIT’) or Profit before Tax (‘PBT’) as disclosed by
the Group’s accounts for any of the years ended 31 March 2006, 31 March 2007, 31 March 2008, 31 March 2009 or 31 March 2010
excluding (i) any profit or loss in relation to property transactions, (ii) any restructuring and abortive due diligence costs and (iii) any profits
or losses arising from businesses acquired by the Group after the date of grant of the Option. Some awards are subject to achieving a
PBIT that is equal to or greater than £8 million, or to PBT being equal to or greater than £9 million or aggregate PBT for 3 years ending 31
March 2008, 2009 and 2010 being equal to or greater than £32.7 million. The awards are equity settled.
Activity relating to share options for the year ended 31 March 2012 and 31 March 2011 was as follows:
Outstanding at 1 April
Exercised
Lapsed
Outstanding at 31 March
2012
2011
Weighted
average
exercise price
111.2p
77.7p
Number
2,176,467
(400,000)
(228,967)
Weighted
average
exercise price
119.7p
76.8p
252.0p
Number
1,547,500
(700,000)
-
847,500
138.9p
1,547,500
111.2p
64 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
Options were exercised on 2 December 2011. The weighted average share price during the year was 125.5p (2011 - 138.5p).
The following table summarises information relating to the number of shares under option (SOS awards) and those which were exercisable
at 31 March 2012.
Weighted
average
remaining
contractual
life
Months
Options
exercisable
at 31 March
2012
Number
-
3
3
-
447,500
400,000
Options
exercisable
at 31 March
2011
Number
600,000
547,500
400,000
Exercisable
weighted
average
exercise
price for
options
exercisable
at 31 March
2012
76.8p
83.4p
201.0p
847,500
1,547,500
138.9p
Total shares
under option
Number
-
447,500
400,000
847,500
Range of exercise prices
£0.70 – £0.80
£0.80 – £0.90
£2.00 – £2.10
Performance Share Plan
All Performance Share Plan (PSP) awards outstanding at 31 March 2012 vest only if performance conditions are met. Awards granted
under the PSP must be exercised within one year of the relevant award vesting date.
The Group operates the PSP for executive directors and senior executives. Awards under the scheme are granted in the form of a nil-
priced option, and are satisfied using market-purchased shares. The awards vest in full or in part dependent on the satisfaction of specified
performance targets. 50% of the award vests dependent on TSR performance over a three year performance period, relative to the
constituents of the FTSE Small Cap Index (excluding investment trusts) from the time of grant, and the remaining 50% vests dependent
on performance against earnings per share targets.
All plans are subject to continued employment. To the extent that such shares in the above plans are awarded to employees below fair
value, a charge calculated in accordance with IFRS 2 ‘Share-based payment’ is included within other operating expenses in the Statement
of Comprehensive Income. This charge for the Group and Company amounted to £262,000 in the year ended 31 March 2012 (2011 -
£51,000).
The following table summarises the key assumptions used for grants during the year:
Fair value (p)
Options pricing model used
Share price at grant date (p)
Exercise price (p)
Expected volatility (%)
Risk-free rate (%)
Expected option term (years)
Expected dividends (per year, %)
*Assumptions for TSR component only.
SOS
2012
STIP
PSP*
SOS
2011
STIP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
102.25p
Stochastic
136.4p
n/a
48.0%
n/a
3
0%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
PSP*
102.5p
Stochastic
139.5p
n/a
47.0%
n/a
3
0%
Assumptions on expected volatility and expected option term have been made on the basis of historical data, wherever available, for the
period corresponding with the vesting period of the option. Best estimates have been used where historical data is not available in this
respect.
Hornby > Annual Report and Accounts 2012 > Financial Statements
65
STIP awards
The STIP is a reward of shares to executive directors and senior management.
Vesting of the awards occurs in equal amounts on the second, third and fourth anniversaries of the award date provided that the
participant remains employed by the Group. These awards are not subject to any performance conditions. The awards are equity settled.
At 1 April
Shares acquired in Company
Shares vested
At 31 March
2012
£’000
180
-
(90)
90
2011
£’000
326
-
(146)
180
Details of the Short Term Incentive Plan are given in the Directors’ Remuneration Report on pages 20 to 25.
The Employee Benefit Trust acquired no ordinary shares in the year.
On 17 June 2011, the second third of the 2008 allocation (57,766 ordinary shares) were vested.
At 31 March 2012, a total of 57,766 (2011 - 115,532) ordinary shares are held by the Trust and allotted to the directors and senior
management under the plan with a nominal value of £578 (2011 - £1,155) and a market value of £54,878 (2011 - £124,775). The costs of
the plan are borne by Hornby Plc. The Trust has waived its right to dividends.
23. EMPLOYEES AND DIRECTORS
Staff costs for the Group during the year:
Wages and salaries
Share-based payments (note 22)
Social security costs
Other pension costs (note 24)
Redundancy and compensation for loss of office
Group
2012
£’000
8,171
262
1,081
669
93
10,276
2011
£’000
7,797
51
1,047
723
25
9,643
Company
2012
£’000
628
144
93
58
-
923
2011
£’000
613
166
90
59
-
928
Average monthly number of people (including executive directors) employed by the Group:
Operations
Sales, marketing and distribution
Administration
Group
2012
Number
2011
Number
Company
2012
Number
2011
Number
99
107
40
246
104
106
39
249
1
1
3
5
1
1
3
5
66 Hornby > Annual Report and Accounts 2012 > Financial Statements
Notes to the Financial Statements (continued)
Key management compensation:
Salaries and short term employee benefits
Share-based payments
Post-employment benefits
Group
Company
2012
£’000
2,002
261
244
2,507
2011
£’000
1,893
100
199
2,192
2012
£’000
469
144
58
671
2011
£’000
488
166
59
713
Key management comprise the individuals involved in major strategic decision making and includes all Group and subsidiary directors.
A detailed numerical analysis of directors’ remuneration and share options showing the highest paid director, number of directors
accruing benefit under money purchase pension schemes and gains realised on the exercise of share options, is included in the Directors’
Remuneration Report on pages 20 to 25 and forms part of these financial statements.
24. PENSION COMMITMENTS
The Group operates a defined contribution pension scheme by way of a Stakeholder Group Personal Pension Plan set up through the
Friends Provident Insurance Group.
Alexander Forbes Financial Services Limited is appointed as Independent Financial Adviser to work in liaison with the Company.
The level of contributions to the Group Personal Pension Plan for current members is fixed by the Company.
The Group pension cost for the year was £669,000 (2011 - £723,000) representing the actual contributions payable in the year and certain
scheme administration costs. The Company pension cost for the year was £58,000 (2011 - £59,000).
25. FINANCIAL COMMITMENTS
At 31 March capital commitments were:
Contracted for but not provided for
Group
2012
£’000
2011
£’000
1,879
1,439
The commitments relate to the acquisition of property, plant and equipment.
The Company does not have any capital commitments.
Contingent Liabilities
The Company and its subsidiary undertakings are, from time to time, parties to legal proceedings and claims, which arise in the ordinary
course of business. The directors do not anticipate that the outcome of these proceedings and claims, either individually or in aggregate,
will have a material adverse effect upon the Group’s financial position.
HMRC are currently performing a review of Hornby Hobbies Limited’s previously agreed accelerated capital allowances for product tooling.
The review is ongoing, however were HMRC to overturn the previously agreed treatment there would as at 31 March 2012 be a maximum
£1.1 million cash outflow.
Hornby > Annual Report and Accounts 2012 > Financial Statements
67
26. OPERATING LEASE COMMITMENTS
The total of future minimum lease payments in respect of non-cancellable plant and motor vehicle operating leases falling due are as
follows:
GROUP
Not later than one year
Later than one year but not more than five years
More than five years
2012
£’000
417
794
-
2011
£’000
489
967
106
1,211
1,562
27. RELATED PARTY DISCLOSURES
There were no contracts with the Company or any of its subsidiaries existing during or at the end of the financial year in which a director
of the Company was materially interested.
The Company received management fees from subsidiaries of £1,278,000 (2011 - £1,251,000), interest of £175,000 (2011 - £174,000)
and dividends from subsidiaries of £1,932,000 (2011 - £3,681,000) and incurs interest of £234,000 (2011 - £221,000) on intercompany
borrowings.
68 Hornby > Annual Report and Accounts 2012 > Notice of Annual General Meeting
Notice of Annual General Meeting
If you have sold or otherwise transferred all of your ordinary shares in Hornby Plc, please forward this document as soon as possible to the
purchaser or transferee, or to the stockbroker, bank or other agent through or to whom the sale or transfer was effected for transmission
to the purchaser or transferee of your ordinary shares.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the thirty first Annual General Meeting of Hornby Plc (the “Company”) will be held at the offices of Berwin
Leighton Paisner LLP, Adelaide House, London Bridge, London EC4R 9HA on Thursday 26 July 2012 at 11.00 a.m. for the following
purposes:
To consider and, if thought fit, to pass the following resolutions, of which numbers 1 to 10 (inclusive) will be proposed as ordinary
resolutions and numbers 11 and 12 as special resolutions.
ORDINARY RESOLUTIONS
1.
2.
3.
To receive and adopt the Company’s Annual Report and Accounts for the financial year ended 31 March 2012 together with the
Report of the Directors and Auditors.
To approve the Directors’ Remuneration Report, as set out on pages 20 to 25 of the Company’s Annual Report and Accounts, for the
financial year ended 31 March 2012.
To declare a final dividend of 2.0 pence per ordinary share of 1 pence each in the capital of the Company (the “Ordinary Shares”)
payable to holders of Ordinary Shares on the register at the close of business on 23 November 2012.
4. To re-elect N A Johnson as a Director.
5. To re-elect A J Morris, who retires by rotation, as a Director.
6. To re-elect M E Rolfe, who retires by rotation, as a Director.
7.
To re-appoint PricewaterhouseCoopers LLP, the retiring auditors, as auditors of the Company to hold office from conclusion of the
Annual General Meeting to the conclusion of the next meeting at which accounts are laid before the Company.
8. To authorise the Directors to agree the auditors’ remuneration.
9.
That, in accordance with section 366 of the Companies Act 2006 (the “Act”), the Company and all companies that are its subsidiaries
at any time during the period for which this resolution has effect be authorised to:
(a) make political donations to political parties and/or independent election candidates, not exceeding £10,000 in total;
(b) make political donations to political organisations, other than political parties, not exceeding £10,000 in total; and
(c)
incur political expenditure, not exceeding £10,000 in total,
provided that the aggregate amount of any such donations and expenditure shall not exceed £15,000 during the period beginning
with the date of the passing of this resolution and ending on the date of the Company’s next Annual General Meeting.
For the purpose of this resolution, the terms ‘political donations’, ‘political expenditure’, ‘independent election candidates’, ‘political
parties’ and ‘political organisations’ shall have the meaning given to them by Part 14 of the Act.
10. THAT, in place of the equivalent authority given to the Directors at the last Annual General Meeting (but without prejudice to the
continuing authority of the Directors to allot shares pursuant to an offer or agreement made by the Company before the expiry of
the authority pursuant to which such offer or agreement was made), the Directors be generally and unconditionally authorised in
accordance with section 551 of the Act to allot shares in the Company or grant rights to subscribe for or to convert any security into
shares in the Company up to a maximum aggregate nominal amount of £130,000, provided that this authority shall expire on 25
July 2017 but so that the Company may, before the expiry of such period, make an offer or agreement which would or might require
shares to be allotted or rights to subscribe for or convert securities into shares to be granted after the expiry of such period and the
Directors may allot shares or grant rights to subscribe for or convert securities into shares pursuant to such an offer or agreement as
if this authority had not expired.
Hornby > Annual Report and Accounts 2012 > Notice of Annual General Meeting
69
Notice of Annual General Meeting
SPECIAL RESOLUTIONS
11. THAT, subject to and conditional on the passing of resolution 10, the Directors be empowered, pursuant to section 570 of the Act,
to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority conferred by resolution 10
as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity
securities:
(a)
in connection with an offer of such securities by way of Rights Issue (defined below); and
(b) otherwise than pursuant to resolution 10 above up to an aggregate nominal amount of £19,000,
and that this authority shall expire at the conclusion of the Company’s next Annual General Meeting following the date of the passing
of the resolution, save that the Company may, before such expiry, make an offer or agreement which would or might require equity
securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement as
if this power had not expired.
This power applies in relation to a sale of treasury shares as if all references in this resolution to an allotment included any such sale
and in the first paragraph of the resolution the words “pursuant to the authority conferred by resolution 10” were omitted in relation to
such sale.
In this resolution, “Rights Issue” means an offer of equity securities open for acceptance for a period fixed by the Directors to holders
of Ordinary Shares in the capital of the Company on the register on a record date fixed by the Directors in proportion as nearly as may
be to the respective numbers of Ordinary Shares held by them, but subject to such exclusions or other arrangements as the Directors
may deem necessary or expedient to deal with any treasury shares, fractional entitlements or legal or practical issues arising under the
laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory or any other matter.
12. THAT, subject to and in accordance with Article 9 of the Company’s articles of association, the Company be generally and
unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Act) of Ordinary Shares on such
terms as the Directors think fit, and where such shares are held as treasury shares, the Company may use them for the purposes set
out in section 727 of the Act, including for the purpose of its employee share schemes, provided that:
(a)
the maximum number of Ordinary Shares hereby authorised to be purchased is 3,900,000 being an amount equal to approximately
10% of the Ordinary Shares in issue as at 7 June 2012 (being the latest practicable date prior to the publication of this notice);
(b) the minimum price, exclusive of any expenses, which may be paid for an Ordinary Share is 1 pence;
(c)
the maximum price, exclusive of any expenses, which may be paid for each Ordinary Share is an amount equal to the higher of:
(i)
105 per cent, of the average of the middle market quotations for an Ordinary Share, as derived from the London Stock
Exchange Daily Official List, for the five business days immediately preceding the day on which the Ordinary Share is
contracted to be purchased; and
(ii)
the amount stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation 2003; and
(d) the authority hereby conferred shall, unless previously revoked or varied, expire at the conclusion of the Company’s next Annual
General Meeting following the date of the passing of this resolution, or, if earlier, on the expiry of 18 months from the date of the
passing of this resolution (except in relation to the purchase of Ordinary Shares, the contract for which was concluded before the
expiry of this authority and which will or may be executed wholly or partly after such expiry).
By order of the Board
John Stansfield
Company Secretary
Dated: 8 June 2012
Registered office: Westwood, Margate, Kent CT9 4JX
Registered in England and Wales with number 01547390
70 Hornby > Annual Report and Accounts 2012 > Notice of Annual General Meeting
Notice of Annual General Meeting (continued)
NOTES
1.
2.
3.
4.
5.
6.
7.
This notice is being sent to all members and to any person nominated by a member of the Company under section 146 of the
Companies Act 2006 to enjoy information rights.
Only holders of Ordinary Shares, or their duly appointed representatives, are entitled to attend, vote and speak at the AGM. A member
so entitled may appoint (a) proxy/(ies), who need not be (a) member(s), to attend, speak and vote on his/her behalf. A member may
appoint more than one proxy, provided that each proxy is appointed to exercise the rights attached to a different share or shares held
by him/her. A form of proxy is enclosed with this Notice and instructions for its completion are set out on the form.
Proxies may only be appointed by completing and returning the form of proxy enclosed with this Notice to the Company’s Registrars,
Capita Registrars Limited PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
To be valid a proxy appointment and any power of attorney or other authority, if any, under which it is signed or a duly certified copy of
such power of attorney must reach the office of the Company’s Registrars not less than 48 hours (excluding any part of a day which
is not a working day) before the time fixed for the AGM or any adjournment thereof. Therefore, the form of proxy must be received by
the Company’s Registrars by 11 a.m. on 24 July 2012.
Return of the form of proxy will not preclude a member from attending the AGM and voting in person. A vote withheld option is
provided on the form of proxy to enable you to instruct your proxy to abstain on any particular resolution. However, it should be noted
that a “vote withheld” is not a vote in law and will not be counted in the calculation of the proportion of votes “For” and “Against” a
resolution. If you select “Discretionary” or fail to select any of the options, your proxy can vote as he or she chooses or can decide
not to vote. Your proxy can also do this on any other resolution that is put to the AGM. A shareholder must inform the Company’s
registrars in writing of any termination of the authority of a proxy.
The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been
nominated to receive communications from the Company in accordance with section 146 of the Companies Act 2006 (“Nominated
Persons”). The rights of shareholders in relation to the appointment of proxies can only be exercised by registered shareholders of the
Company. Nominated Persons may have a right under an agreement with the registered shareholder who hold shares on their behalf
to be appointed (or to have someone else appointed) as a proxy. Alternatively, if Nominated Persons do not have such a right, or do
not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the
exercise of voting rights.
The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those shareholders
on the register of members of the Company as at 11 a.m. on 24 July 2012 (or, if the AGM is adjourned, shareholders on the register
of members not later than 48 hours (excluding any part of a day which is not a working day) before the time fixed for the adjourned
meeting) are entitled to attend and/or vote at the AGM (or any adjournment thereof) in respect of the number of shares registered in
their name at that time. Subsequent changes to the register of securities shall be disregarded in determining the rights of any person
to attend and vote at the AGM (or any adjournment thereof).
8.
Copies of contracts of service and letters of appointment between the Directors and the Company will be available for inspection at
the registered offices of the Company and the offices of Berwin Leighton Paisner LLP at Adelaide House, London Bridge, EC4R 9HA
during normal business hours on any weekday (Saturdays, Sundays and public holidays excluded) from the date of this Notice until
the conclusion of the AGM, and at the place of the AGM for at least 15 minutes prior to the AGM until its conclusion.
9.
Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers
as a member provided that they do not do so in relation to the same shares.
10. In order to facilitate voting by corporate representatives at the AGM, arrangements will be put in place at the meeting so that (i) if
a corporate member has appointed the Chairman of the meeting as its corporate representative with instructions to vote on a poll
in accordance with the directions of all of the other corporate representatives for that member at the meeting, then on a poll those
corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate
representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate member
attends the meeting but the corporate member has not appointed the Chairman of the meeting as its corporate representative, a
designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and
the other corporate representatives will give voting directions to that designated corporate representative. Corporate members are
referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives
– http://www.icsa.org.uk/- for further details of this procedure. The guidance includes a sample form of representation letter if the
Chairman is being appointed as described in (i) above.
11. Under section 527 Companies Act 2006 members meeting the threshold requirements set out in that section have the right to
require the Company to publish on its website a statement setting out any matter relating to: (i) the audit of the Company’s accounts
(including the auditor’s report and the conduct of the audit) that are to be laid before the AGM; or (ii) any circumstances connected
Hornby > Annual Report and Accounts 2012 > Notice of Annual General Meeting
71
Notice of Annual General Meeting
with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid
in accordance with section 437 Companies Act 2006. The Company may not require the members requesting any such website
publication to pay its expenses in complying with sections 527 or 528 Companies Act 2006. Where the Company is required to place
a statement on a website under section 527 Companies Act 2006, it must forward the statement to the Company’s auditor not later
than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any
statement that the Company has been required under section 527 Companies Act 2006 to publish on a website.
12. A copy of this Notice, and other information regarding the meeting, as required by section 311A Companies Act 2006, is available
from www.hornby.com.
13. You may not use any electronic address provided in this Notice or in any related documents (including the form of proxy) to communicate
with the Company for any purposes other than those expressly stated.
14. Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question
relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the
preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in
the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the
question be answered.
15. As at 7 June 2012 (being the latest practicable date prior to the publication of this Notice), the Company’s issued share capital
consists of 39,164,100 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 8 June 2012
are 39,164,100.
72 Hornby > Annual Report and Accounts 2012 > Five Year Summary
Five Year Summary
Turnover
64,447
63,372
63,863
60,803
54,949
2012
£’000
2011
£’000
2010
£’000
2009
£’000
2008
£’000
Profit on ordinary activities before taxation
Taxation
Profit on ordinary activities after taxation
Assets employed:
Non-current assets
Net current assets
Non-current borrowings
Deferred tax liabilities
Net assets
Total capital employed
Earnings per share
– basic
– diluted
Dividend per share (net)
Net assets per share
3,989
(825)
3,164
27,969
16,673
(4,888)
(573)
4,129
(1,274)
5,215
(1,530)
6,121
(1,909)
9,017
(2,940)
2,855
3,685
4,212
6,077
28,509
16,623
(8,026)
(337)
28,803
18,653
(10,547)
(281)
29,903
9,133
(7,181)
(301)
20,812
11,037
(41)
(346)
39,181
36,769
36,628
31,554
31,462
39,181
36,769
36,628
31,554
31,462
8.2p
8.1p
3.7p
100.0p
7.5p
7.4p
5.0p
95.7p
9.8p
9.6p
5.0p
96.2p
11.2p
11.0p
2.7p
83.1p
16.2p
15.6p
8.5p
82.8p
SHAREHOLDERS’
INFORMATION
SERVICE
HORNBY WELCOMES CONTACT
WITH ITS SHAREHOLDERS.
IF YOU HAVE QUESTIONS OR
ENQUIRIES ABOUT THE GROUP OR
ITS PRODUCTS, PLEASE CONTACT:
A J MORRIS, FINANCE DIRECTOR
HORNBY PLC
WESTWOOD
MARGATE
KENT CT9 4JX
(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)(cid:31)
2 Hornby > Annual Report and Accounts 2012 >
Hornby PLC Annual Report & Accounts 2012
The Group’s principal business is the development, production
and supply of hobby and toy products. The Group distributes its products
through a network of specialist and multiple retailers throughout the
UK and overseas.
Financial Highlights
Revenue
Underlying Operating Profit
Dividend per Share
£64.5m +2%
2011: £63.4m
£5.3m +2%
2011: £5.2m
3.7p (26%)
2011: 5.0p
2008 2009 2010
2011
2012
Revenue £’000
2008 2009 2010
2012
Underlying operating profit £’000
2011
2008 2009 2010
2011
2012
Divdend per share £’000
Hornby PLC
Westwood,
Margate,
Kent
CT9 4JX
www.hornby.com
Hornby PLC
Annual Report & Accounts
YEAR ENDED 31 MARCH 2012