Hornby PLC
Annual Report
and Accounts 2013
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Hornby PLC
Westwood
Margate
Kent
CT9 4JX
www.hornby.com
Corgi Toys Die-cast Scania Fire Engine.
Scalextric James Bond 007 Skyfall Set.
Airfix Operation Herrick Afghanistan British
Forces – Helicopter Support Gift Set.
Hornby The Flying Scotsman Train Set.
Rivarossi Diesel Railcar.
Overview
01 Financial Highlights
02 Hornby – Group at a glance
04 Chairman’s Statement
06 Operating and Financial Review
Governance
10 Directors and Corporate Information
11 Directors’ Report
14 Corporate Governance Statement
21 Directors’ Remuneration Report
26 Statement of Directors’ Responsibilities
27
Independent Auditors’ Report to the
Members of Hornby Plc
Financials
28 Group and Company Statement of
Comprehensive Income
29 Group and Company Balance Sheet
30 Group and Company Statement of
Changes in Equity
31 Group and Company Cash Flow
Statement
32 Notes to the Cash Flow Statement
33 Notes to the Financial Statements
64 Notice of Annual General Meeting
(unaudited)
68 Five Year Summary (unaudited)
68 Shareholder’s information service
(unaudited)
Hornby PLCThe 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.
01 Hornby PLC Annual Report and Accounts 2013
* Underlying figures are before amortisation of intangibles and net foreign exchange adjustments on intercompany loans,
re-structuring costs and impairment of goodwill.
OverviewgovernancefinancialsOverview(£3.4)mReported (loss)/profit before taxation(2012 – £4.0m)£0.7mUnderlying* operating profit (2012 – £5.3m)0.5pUnderlying* basic earnings per share (2012 – 9.5p)Financial Highlights£57.4mRevenue(2012 – £64.5m)£0.15mUnderlying* profit before taxation (2012 – £4.5m)£1mUnderlying* profit after taxation (2012 – £3.7m)(£2.5)mReported (loss)/profit after taxation(2012 – £3.2m)0pTotal dividend per share(2012 – 3.7p)(6.4)pReported basic (loss) per share (2012 – 8.2p earnings per share)‘‘ We continue to work hard on managing our supply chain. I am encouraged with the progress we have made, and we have continued to broaden the range of suppliers that we work with. Production for our new Airfix Quickbuild product range will be UK-based and we are moving some manufacturing from China to India. Our aim is to use this time of transition as a major opportunity for the business to build a robust platform for future growth.’’ 02 Hornby PLC Annual Report and Accounts 2013
The quality and heritage of the brands allows us to
re‑introduce product lines to the market that we have done
over the last few years with Airfix and now Pocher. We are
also continuing to grow the European train brands and to
explore opportunities in developing markets. The Group
has the opportunity to develop a number of new license
properties within the existing brand structure as well as
developing other distribution opportunities. 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. Some other product lines are
developed outside China where cost effective such as Airfix
in India and we will continue to seek other opportunities to
diversify production capacity including bringing it back to
the UK.
£57.395m
Total revenue
● £43.195m UK
● £2.696m USA
● £2.655m Spain
● £3.234m Italy
● £5.615m Rest of Europe
Hornby Railmaster.
OverviewHornby – Group at a glanceThe Group comprises a number of high quality premium brands spread across different product categories within the hobby and collectable toy market. 03 Hornby PLC Annual Report and Accounts 2013
Corgi Lotus F1 Team, E20 Romain Grosjean,
2012 Race Car.
Overviewgovernancefinancials 04 Hornby PLC Annual Report and Accounts 2013
Overview
I am delighted to be making my first statement as Chairman of
Hornby. Having joined the Board in November and assumed the
Chair in February, I spent much of these first few months acquainting
myself with Hornby’s business and its people.
Historically supply shortages have affected some parts of the Group
more than others and our current focus is to ensure that the supply
risk across product groups and market geographies is much more
balanced. In January I took the opportunity to meet our colleagues in
the Hong Kong office and to visit our current and potential vendors in
China. The economics of sourcing our products from China continue
to be affected by reducing availability of labour and increasing
costs. The production of model railway items is both a complex and
skilled process and consequently migrating to new vendors requires
a patient approach. I am pleased to report that our plans to protect
our margins and reduce our dependence on one or two key suppliers
are well under way. Hornby’s procurement team is also helping to
develop manufacturing expertise in India and this year brought some
of our Humbrol paint production back to the UK. Indeed, we are
planning that one of our award winning new products for 2013, Airfix
Quickbuild, will be manufactured in Sussex. Whilst the performance
of existing and new vendors remains the single largest risk for the
business, I am satisfied that as we move forwards through this year
that risk will begin to decline.
The shape of the High Street is changing rapidly, our traditional
wholesale customers are changing their retailing models, and we in
turn are seeing the routes through which consumers purchase our
products become increasingly digital and multichannel. Authenticity
is a unique feature of our products and digital media presents an
excellent opportunity for Hornby to engage with our consumers and
share the huge amount of work that our product development team
do when researching products. The Board is determined that the
consumer will be at the heart of our business and responding to their
demands will be the core of our business culture.
There is a huge depth of talent and knowledge at Hornby and
incredible loyalty amongst our employees. Nick Stone joined the
business in January this year as Group Finance Director and is a
terrific addition to the team. Frank martin, Chief Executive since
2001, decided to step down from this role in march, but will stay
with the Group as Deputy Chairman prior to retiring on or before
30 June 2014. I am delighted that Frank has agreed to remain with
the business for the short term so that we are able to benefit from
his huge experience and knowledge. I moved to an Executive role
with effect from 1 April 2013 whilst we recruit a new Chief Executive.
Neil Johnson, our previous Chairman, left us in February, and we
have taken the opportunity to reshape the senior management
team at this time of transition, details of which are set out in the
business review. I am grateful to those leaving for their many years
of dedicated service.
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 continues this year to be 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 say that we were compliant with the
Code throughout the year.
OverviewChairman’s Statement Roger Canham‘‘ In this my first results statement as Chairman, I am pleased to report that Hornby is in a strong position to face the future. Despite the tough economic and consumer environment, we are broadening our distribution base and have made good progress towards developing our range of exciting new products.’’ 05 Hornby PLC Annual Report and Accounts 2013
As a result of the management changes that are underway my role
is now one of Executive Chairman while we are seeking a new Chief
Executive. Although this is not in compliance with the Code the Board
believes this will be the most effective way of managing the Group on
a temporary basis until the search process is complete and when we
will then be back in compliance.
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.
Shareholder Engagement
I am delighted that once again this year, we will be hosting our
Annual General meeting at the Hornby headquarters in margate on
25 July 2013. This will be an excellent opportunity for shareholders to
see the new products for themselves and to understand the progress
that the Company is making. Personally I am looking forward to
welcoming as many shareholders as possible that are able to attend.
Outlook
Consumer confidence in all our major markets continues to be weak.
We have reviewed our overhead base in order where possible to align
costs with the current environment and as a result we have incurred
one‑off re‑structuring costs of £0.7 million. We have also had to take
a goodwill write‑down of £2.4 million in our Italian business which
has been particularly affected by supply issues and the economic
downturn. 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.
Over the coming months our priority will be to focus on improving the
execution of our core business, so that over time we can demonstrate
high‑quality and sustainable long‑term revenue and earnings growth,
combined with a disciplined approach to capital allocation. We have
a broad portfolio of strong brands and we are optimistic that with a
more reliable supply chain, we will see a return to growth.
Hornby has managed to weather the current economic uncertainty
not least because of the commitment and loyalty of its people.
On behalf of the Board I would like to thank them all for their
contribution. The transition from a traditionally manufacturing
business to one that is brand and consumer focused will not be quick
and easy. However by engaging with our consumers, embracing
digital technology and making our processes more efficient it can
be done and will show significant benefit. I look forward to the
challenges ahead with increasing optimism.
Roger Canham
Chairman
7 June 2013
OverviewgovernancefinancialsOur Vision and StrategyOur VisionTo be the most successful model, hobby and collectables toy company in the world‘Success through our people’ ‘Success through focused execution’ ‘Success through passion for our brands’Our Strategy• To develop high quality consumer led branded product• To develop complementary product categories for organic development• To broaden global reach through additional markets and products• To add complementary distribution lines to accelerate growth 06 Hornby PLC Annual Report and Accounts 2013
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.
The Company’s vision is to be the most successful model, hobby,
and collectable toy company in the world.
Financial Review
Revenue
Underlying profit before tax*
Gross profit margin
Underlying profit before tax margin*
Reported (loss)/profit before tax margin
Underlying basic earnings per share*
Statutory basic (loss)/earnings per share
Net debt
2013
2012
£57.4m £64.4m
£4.5m
£0.15m
48.3%
42.6%
7.0%
0.26%
6.2%
(5.9%)
9.48p
0.47p
8.19p
(6.39)p
£6.3m
£2.1m
* Stated before amortisation of intangibles, net foreign exchange adjustments on
intercompany loans, re‑structuring costs and impairment of goodwill.
Consolidated revenue for the year ended 31 march 2013 was
£57.4 million, a decrease of 11% compared to the previous year’s
£64.4 million.
Full year gross profit margin was 43% (2012 – 48%). The decrease
in gross profit margin was primarily a result of heavy discounting
on London 2012 stock and the reduction in availability of supply on
high end products and new releases due to the supply chain issues
discussed below. Overheads decreased year on year, due primarily
to the effect of the fall in variable selling costs due to reduced
sales levels.
Pre‑tax profit before net foreign exchange adjustments on
intercompany loans, amortisation of intangibles, re‑structuring
costs and impairment of goodwill (hereafter referred to as
underlying pre‑tax profit) was £0.15 million (2012 – £4.5 million)
(see reconciliation in note 4). Basic earnings per share calculated on
underlying pre‑tax profit (hereafter referred to as underlying basic
earnings per share) were 0.47p (2012 – 9.48p). Statutory pre‑tax loss
was £3.4 million (2012 – £4.0 million profit) and statutory basic loss
per share was 6.39p (2012 – 8.19p earnings per share). Taxation at
£0.9 million credit (2012 – £0.8 million charge) was 26% of reported
(loss)/profit before tax (2012 – 21%).
Core Group inventories reduced during the year by 24% from
£17.9 million to £13.6 million, largely as a result of the effort made
throughout the second half of the financial year to reduce the
holding of London 2012 merchandise. Trade and other receivables
also reduced from £13.2 million at the last year end to £9.6 million at
31 march 2013. The combined impact of both of these movements
led to strong cash generation from operations. Investment in new
tooling and other capital expenditure was £3.5m (2012 – £3.3m).
As a result the working capital requirement fell and net debt at
31 march 2013 was £2.1 million, down from £6.3 million in 2012.
Dividend
This has been another year in which trading has been challenging
and therefore the decision has been taken not to pay a dividend
(2012 – 3.7p). It is the Board’s intention to return to the long‑term
policy of paying 50% of earnings to shareholders once earnings and
cash flows return to sustainable levels.
OverviewOperating and Financial Review Nick Stone‘‘ 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.’’
Scalextric Demolition Derby
Quick Build Set.
Hornby Railroad Evening
Star.
Airfix Quick Build Range.
07 Hornby PLC Annual Report and Accounts 2013
Re-structuring
Following a review of the wider internal management structure,
a re‑structuring of the senior team below the Board level was
announced at the end of the year. This will create a simpler, more
streamlined reporting structure that more closely reflects the current
shape of the business and implementation started immediately.
A one‑off re‑structuring charge of around £0.7 million has been
recorded this year, £0.4 million of which is expected to be offset by
cost savings in the year to 31 march 2014. The changes will allow a
stronger focus on our brands and their development as well as being
more streamlined and a reduction in overhead costs.
Banking Facilities
The Group has banking facilities of £14.5 million in the UK. At 31
march 2013 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 (£4.5 million is to be
repaid between 31 march 2013 and July 2014). The Group also has
additional facilities of £3.5 million in place in its European subsidiaries.
Borrowings in the year ended 31 march 2013 peaked at £9.9 million.
During the year, to ensure the Group remained comfortably within its
banking covenants for the duration of the current facilities, the terms
were successfully renegotiated with its principal banker Barclays Plc
with effect from December 2012.
Business Overview
This year was one of challenging economic conditions in all of our
major markets that were exacerbated by continuing disruptions
to the model railway supply chain and the distractions of what
was a disappointing venture into London 2012 branded products.
We estimate that across the Group, more than 10% of product
ordered was not delivered during the year with our European
subsidiaries faring worse than the UK business. The UK business
was also impacted by the sales of London 2012 product, which
although totalling just short of £5 million produced an overall loss
of £1.3 million. The combined impact of these factors has been a
sharp decline in revenue and profits. The Board has undertaken a
re‑structuring of the management team and will continue to work on
improving the business processes throughout the coming year with
an increased focus on empowering our people, efficient execution
and the strength of our brands.
Hornby sources the majority of its products in China and India,
via third‑party contract manufacturers. During the year model
railway supplies from the Group’s largest supplier in China, reduced
considerably after their decision to close down the main factory
supplying Hornby and transfer activity to another that didn’t have
the experience of producing our products. We have mitigated this risk
by diversifying production to new suppliers whilst continuing to work
with existing suppliers to help strengthen these existing relationships.
This supplier is now expected to contribute less than 15% of total
production in 2013. This is from a historical peak of 75% and 35%
earlier in 2012.
Overviewgovernancefinancials 08 Hornby PLC Annual Report and Accounts 2013
All purchases from our Chinese suppliers are either in Hong Kong
or US 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 supply disruption and London 2012 shortfall reduced
our Dollar requirement and resulted in 36 million Hong Kong Dollar
purchases that were not required in the year and will be carried
forward into the next financial year. The Group retains intellectual
property rights in its products and controls all sales of its products.
United Kingdom
Trading conditions in our UK home market continued to be difficult
and the shortfall in new products that had been expected during the
year made matters worse. Disappointing sales from London 2012
were not only loss making but were also a distraction from the core
business for both our consumers and management. The result was a
decline in full‑year sales in our UK subsidiary of 5% from the previous
year to £43.2 million (2012 – £45.5 million). Against this difficult
background, underlying profit before tax fell to £1.4 million compared
to £3.4 million the previous year. Reported profit before tax was
£0.46 million (2012 – £3.0 million). This result includes export sales to
third parties of £6.1 million (2012 – £6.4 million). If the London 2012
merchandise were excluded from these numbers then the results
would show sales of £38.5 million and underlying profit before tax
of £1.7 million.
Sales of Hornby model railways declined by around 26% in the
year, largely due to the supply chain disruption and the consequent
delays to the launch of new locomotives. This in turn had a knock‑on
effect on sales of other items in the range. However we did have
success with the majority of our new product introductions that
were not affected by the supply chain disruption. These included a
refurbished Flying Scotsman, a Diamond Jubilee celebratory set and
a more modern ‘2‑bil’, which sold out quickly after launch. Despite the
disappointments of the results in the year, appetite for the Hornby
products is still strong and the gross margins can be sustained at
a healthy level if we can improve the supply chain reliability. Sales
through our concessions and our online direct sales have held up well
against this backdrop, albeit with a larger than average decline in
sales through our independent retailers. This reduction reflects weak
consumer confidence generally and caution on the part of these
retailers in respect of inventory purchases.
Sales of Scalextric overall were down by around 8% with the decline
all coming in the 1:32 scale sets and cars. One exception to this was
the sales of top of the range ‘Digital Platinum’ sets that increased.
The ‘micro’ range in 1:64 scale showed some growth although some
of it came from London 2012 subject matter. Across both scales the
James Bond Skyfall sets sold well. The decline was spread across all
of our retailer channels with the exception of our own concessions
further illustrating the cautious buying behaviour amongst
our retailers.
Sales of Airfix showed a small increase on the previous year with
some growth in both our classic kits, new ranges and gift sets from
a reliable supply source in India. Amongst this was the successful
launch of a 1:48 scale ‘Afghan’ military range and strong sales of a
much requested Bentley kit. Our strategic repositioning of Humbrol as
a support brand to our range of hobbies bore fruit with growth of over
20% across paints, glues and brushes.
Corgi sales grew by close to 40% overall but included the great
majority of the London 2012 merchandise which was loss making.
Comparing performance on a like for like basis excluding London
2012 merchandise sales grew by over 20% with success across
premium products, the aviation archive items and toy ranges. This
growth was supported by a strong supplier in China with capacity
for growth, and we saw support in all retail channels.
Continental Europe
Our subsidiaries in mainland Europe bore the brunt of the supply
chain difficulties with a shortfall in product orders of more than
30%. This is because most of the difficulties were in the model
railway brands which make up the majority of the European sales.
Revenue from our European subsidiaries in total was 29% below the
previous year at £11.5 million (2012 – £16.2 million). Our subsidiaries
in mainland Europe contributed an underlying loss before tax of
£1.2 million compared with an underlying profit before tax of £1.1
million in the previous year. Reported loss before tax was £3.9 million
(2012 – profit £1.0 million) including the goodwill impairment charge
(see below).
The current macro‑economic issues surrounding the Eurozone
continue to be a cause for concern, especially in Italy and Spain but
also affecting business in France and Germany to a lesser extent.
Our strong European brands continue to attract increasing support
from the model railway communities in each of our key territories
and where new product has been available the response has
been encouraging.
Goodwill Impairment
The previously mentioned supply chain issues and general economic
weakness have impacted Italy disproportionally, depressing
short‑term cash flow and earnings and resulting in an impairment
charge in the year of £2.4 million to goodwill (see note 8), which arose
on the acquisition of assets within the Italian subsidiary in 2004. This
non‑cash exceptional charge has been made to the statement of
comprehensive income through other operating expenses.
America
Sales in Hornby America were least impacted by the supply chain
issues and were only marginally lower at $4.3 million (2012 – $4.4
million), producing a profit before tax of $15,000 (2012 – profit
$83,000). Upon translation into Sterling, sales were £2.7 million
(2012 – £2.7 million) with a profit before tax of £10,000 (2012 –
profit £52,000). In addition Hornby Hobbies in the UK benefited
from a gross margin contribution of £470,000 (2012 – £411,000)
generated on sales made to Hornby America, which has the effect
of increasing significantly the overall contribution to Group profit of
our US operation.
OverviewOperating and Financial Review continued 09 Hornby PLC Annual Report and Accounts 2013
Product Development
Our product development programme continues to be a key driver
of our business and will give us a competitive advantage in the
future when the supply chain issues are totally behind us. The ranges
for each product type are designed to have a balance between
recruitment, re‑invigoration and retention of our consumers. The
recruitment of young consumers through our toy ranges, starter
sets and those items with lower price points is essential for the
future of the brands. Inevitably many of those young consumers
will not be retained as they grow older but there will be opportunities
to re‑invigorate their interest later in life when they perhaps have
their own children or turn back to pastimes of their youth through
our mid‑price range items such as the Hornby Railroad products
and Airfix. The core of our business currently is the typically older
consumer with more time and disposable income who has become
an enthusiast and is retained by the production of new material in
the high end Hornby locomotives, the Corgi premium ranges and the
Airfix higher scale ranges.
We were delighted at the response from the London Toy Fair
where the complete Quickbuild range won Best New Toy this year
in the hobby category, awarded by the British Toy and Hobby
Association. The new Scalextric Demolition Derby set also topped
the Toy Fair’s inaugural Editors’ Choice Awards as voted by over 300
journalists. Additionally this April, Airfix won the award for the Best
Cause‑Related marketing Activity at the RAF Benevolent Fund’s
Award Ceremony. The planned re‑launch of the Pocher model car
range by our Spanish subsidiary later this year has received a very
positive response across the world. Other notable developments
in the year include Hornby E‑Link and the launch of a Railmaster
app both aimed at allowing control of a railway layout via home
computers and other mobile devices. The year has also seen the
launch of a new range of collectable Corgi cars based on the Lotus
and mcLaren Formula 1 teams and the Corgi toys range has been
extended to include pocket money collectables.
Nick Stone
Group Finance Director
7 June 2013
Overviewgovernancefinancials 10 Hornby PLC Annual Report and Accounts 2013
Directors
R T Canham
Executive Chairman
F Martin
Deputy Chairman
N P Stone
Group Finance Director
N M Carrington
Non-Executive Director
M E Rolfe
Non-Executive Director
Company Secretary
N P Stone
Registered office
Westwood
Margate
Kent CT9 4JX
Company Registered Number
Registered in England Number: 01547390
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
First Point
Buckingham Gate
Gatwick RH6 0NT
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
governanceDirectors and Corporate Information 11 Hornby PLC Annual Report and Accounts 2013
Directors’ Report
The directors submit their Annual Report together with the audited
consolidated financial statements for the year ended 31 March 2013.
Research and development
The Board considers that research and development into new
products continues to play an important role in the Group’s success.
The Corporate Governance Report on pages 14 to 20 forms part of
the Directors’ Report.
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.
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 with a branch in
Hong Kong, 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 which is listed on the London Stock Exchange, and
incorporated and operating in the United Kingdom. Its registered
office is set out on page 10.
The Group is principally engaged in the development, design,
sourcing and distribution of hobby and interactive home
entertainment products.
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 £3,140 (2012 –
£14,232) for charitable purposes. No donations to individual charities
exceeded £2,000 for the year. There were no political donations in
the year (2012 – £nil).
Business review
The Group’s business review along with future developments are
included in the Operating and Financial review.
Directors
The persons who were directors during the year and up to the date of
signing the financial statements are listed below:
The principal risks and uncertainties facing the Group and the Group’s
Corporate Governance Statement are set out in the Corporate
Governance Statement on page 18.
Results and dividends
The results for the year ended 31 March 2013 are set out in the Group
Statement of Comprehensive Income on page 28. Revenue for the
year was £57.4 million compared to £64.4 million last year. The loss
for the year attributable to equity holders amounted to £2.5 million
(2012 – £3.2 million profit). The position of the Group and Company
is set out in the Group and Company Balance Sheets on page 29.
No interim dividend was declared in the year (2012 – £0.7 million)
and the directors do not recommend a final dividend.
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. In light of the work currently
being performed on the supply chain and distribution channels,
management are currently constructing additional KPIs to monitor
progress on these key measures which are considered fundamental to
performance going forward. 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.
Roger Canham, aged 49, was appointed to the Board on 7
November 2012 and became Chairman on 1 February 2013.
Roger has been Chairman of Phoenix Asset Management Partners
Limited (“Phoenix”) since 2009 and also owns and manages a
number of property development companies. Prior to that, he was
a Non-executive Director of Goshawk Insurance Holdings PLC from
2007 until the business was acquired in 2008, and a director of Brake
Bros Limited, for a year following its acquisition of W. Pauley & Co
Limited in 2002. Mr Canham joined W. Pauley & Co Limited in 1990
and became Managing Director in 1996.
Frank Martin, aged 61, was appointed Chief Executive on 3 January
2001 and Deputy Chairman on 1 April 2013. 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 contract of employment is for a fixed term expiring
on 30 June 2014.
Nick P Stone, aged 49, joined the Group on 14 January 2013 and
was appointed Group Finance Director on 1 February 2013. Nick was
previously the Operations and Finance Director at KBC Advanced
Technologies PLC and earlier in his career was interim Finance
Director at Accidentcare Group PLC, Finance Director at Lambert
Fenchurch Limited and held positions at Mobil Oil Corporation. His
conditions of employment include a notice period of six months to
be given by the Company which will increase to one year after six
months service and of six months to be given by him.
FINANCIALSgoveRNANCeOVERVIEWDirectors’ Report 12 Hornby PLC Annual Report and Accounts 2013
Nigel M Carrington, aged 57, was appointed a non-executive director
on 1 December 2007. Nigel is currently Vice-Chancellor and Chief
Executive of University of the Arts London and a member of the
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 54, 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.
Neil A Johnson, aged 64, was originally appointed a non-executive
director on 1 July 1998 and he assumed the responsibilities of
Chairman on 22 December 2000. He resigned from the Board on
1 February 2013.
Andrew J Morris, aged 50, was appointed Group Finance Director
on 26 November 2007. Andrew resigned from the Group on
15 February 2013.
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 21 to 25.
The number of Board meetings held during the year and attendance
by the directors is set out on page 14.
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 24 May
2013 the following parties were interested in three per cent or more
of the Company’s ordinary share capital.
Shareholder
New Pistoia Income Limited
Phoenix Asset Management Partners
Limited
Electra Quoted Partners
P J Wood
J J Hosking
Number of
Ordinary
Shares
6,215,401
5,432,573
2,995,150
2,821,500
1,597,234
Percentage
held
15.87
13.87
7.65
7.20
4.08
Financial instruments
The Group’s financial instruments, other than derivatives, comprise
borrowings, 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
the Group’s borrowings is to raise finance for the Group’s operations.
The Group also has financial assets comprising cash and trade and
other receivables.
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 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.
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. One of the
Company’s incentive schemes includes share scheme options for
directors and senior management further detail of which is covered
within the Directors’ Remuneration Report on pages 21 to 25.
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 2013 was 40 days (2012 – 39 days). The Company itself
does not trade and therefore has no external trade payables.
governanceDirectors’ Report continued
13 Hornby PLC Annual Report and Accounts 2013
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.
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 notice of the Annual General Meeting is set out on pages 64
to 67.
Resolution 9
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 6 June 2013 (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 12 noon on 24 July 2018. 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 10
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 6 June 2013 (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.
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.
Resolution 11
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
6 June 2013 (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 365,809 (approximately 0.9% 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 11 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
N P Stone
group Finance Director
Westwood
Margate
Kent CT9 4JX
7 June 2013
FINANCIALSgoveRNANCeOVERVIEW 14 Hornby PLC Annual Report and Accounts 2013
Corporate governance Statement
UK Corporate governance Code
The Company recognises the importance of maintaining high
standards of corporate governance. This report has been structured
to report corporate governance arrangements and practices against
the requirements of the UK Corporate Governance Code published
in 2010.
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 11 and 12.
Throughout the year ended 31 March 2013, the Company has been
in compliance with the Code provisions. However on 1 April 2013
Frank Martin stood down as Chief Executive and took the role of
Deputy Chairman. The search for a new Chief Executive was started
immediately and for the interim period Roger Canham became
Executive Chairman. He will revert to a non-executive Chairman role
once a new Chief Executive is appointed.
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 led the Board from December 2000 until standing
down on 1 February 2013 when he was replaced by Roger Canham.
Roger’s recruitment process was managed by a professional search
and selection firm and major shareholders were consulted during
the process.
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 or three non-executive directors. The third
non-executive director was a temporary situation from 7 November
2012 until 1 February 2013 as part of the transition of the Chairman
role from Neil Johnson to Roger Canham.
Chairman and Chief executive
In the year to 31 March 2013, the roles of Chairman and Chief
Executive were separate, with a clear division of responsibility. With
effect from 1 April 2013 and for a temporary interim period as
explained above whilst a new Chief Executive is recruited, the two roles
will be combined and Roger Canham will be Executive Chairman.
Senior Independent Director
The Board has appointed Nigel 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 Chief
Executive 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.
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.
Neil Johnson served on the Board for more than thirteen years and
was its Chairman for twelve years. In line with the UK Corporate
Governance Code the Senior Independent Director, Nigel Carrington,
undertook 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 discussions with other members of the Board, and has
concluded that the Chairman operated effectively and executed
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. Roger Canham, Nigel Carrington and Mark Rolfe are all
experienced company directors.
Appointments to the Board
Nominations Committee
The Nominations Committee comprises the Chairman, executive
and non-executive directors. There were two appointments to the
Board during the year ended 31 March 2013, Roger Canham in
November 2012 and Nick Stone in February 2013, both to replace
existing directors who were standing down. Appointments to the
Board require the Board’s authorisation and are conducted by the
Nominations Committee.
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
governance 15 Hornby PLC Annual Report and Accounts 2013
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 formal discussions. In the year
under review the discussions held identified no areas of concern.
Re-election
The Company’s Articles of Association currently require newly
appointed directors to offer themselves for election and one third of
the directors to retire by rotation at each Annual General Meeting.
Therefore, Roger Canham, Nick Stone and Frank Martin offer
themselves for election and re-election at the forthcoming Annual
General Meeting. In accordance with the UK Corporate Governance
Code, the non-retiring directors have conducted a review of their
contribution to the Board and can confirm that they continue to be
effective directors and to execute commitment to the role.
Audit Committee and Auditors
The Audit Committee comprises Nigel Carrington and Mark Rolfe.
Mark 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. Nigel
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 UK Corporate Governance 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 ‘whistleblowing’ 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.
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 £130,000 and the
non-audit fee (principally tax services) was £61,000, 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
2013. 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.
FINANCIALSgoveRNANCeOVERVIEW 16 Hornby PLC Annual Report and Accounts 2013
Corporate governance Statement continued
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 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.
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 whistleblowing 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 Nigel Carrington
and Mark Rolfe. Nigel Carrington is the Chairman of the
Remuneration Committee.
The Committee met 3 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 Board regularly reviews the effectiveness of the Group’s system
of internal control. The Board’s monitoring covers all key 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 Audit Committee reviews and discusses with management and
the external auditor the half-year and annual financial statements
focusing on, amongst other matters; the quality and acceptability of
accounting policies and practices, the clarity of the disclosures and
compliance with financial reporting standards and relevant financial
and governance reporting requirements; and material areas in which
significant judgements have been applied.
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
ongoing 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.
Nigel 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 and following Roger Canham’s appointment he visited
most of the major shareholders between November 2012 and
February 2013. 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.
governance 17 Hornby PLC Annual Report and Accounts 2013
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 quality and heritage of the brands allows us to re-introduce product lines to the market that we have done over the last few
years with Airfix and now Pocher. We are also continuing to grow the European train brands and to explore opportunities in developing markets.
The Group has the opportunity to develop a number of new license properties within the existing brand structure as well as developing other
distribution opportunities. 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. Some other product lines are developed outside China where
cost effective such as Airfix in India and we will continue to seek other opportunities to diversify production capacity including bringing it back
to the UK.
vision/Mission
Strategic objectives
Company Mission and Strategic objectives
To be the most successful model, hobby and collectables toy company in the world.
‘Success through our people’
‘Success through focused execution’
‘Success through passion for our brands’
• To develop high quality consumer led branded product.
• To develop complementary product categories for organic development.
• To broaden global reach through additional markets and products.
• To add complementary distribution channels to accelerate growth.
Business Model
Internally developed branded intellectual property
Product categories
Model Trains
Slot car racing
Kits/Paints
Die-cast
Brands
Hornby Electrotren Lima
Rivarossi Jouef Arnold
Scalextric Superslot
Airfix Humbrol
Corgi Pocher
% share of revenue
39% (2012 – 48%)
27% (2012 – 26%)
16% (2012 – 14%)
18% (2012 – 12%)
Supply source
Internal Product
development
China
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
Routes to market
Subsidiaries:
UK
Spain
Italy
France
Germany
USA
Independent toy/model stores
Key accounts/major retailers
3rd party internet retailers
Concession stores (UK only)
Direct to consumer Internet/ online
3rd party branded intellectual property distributed by Hornby
Brands
Breyer (Model horses)
Slot-it (Slot car racing)
Territory : UK
Territory : USA
% share of revenue
This currently represents less than 2% of revenue.
FINANCIALSgoveRNANCeOVERVIEW 18 Hornby PLC Annual Report and Accounts 2013
Corporate governance Statement continued
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
Description
Impact/Sensitivity
Mitigation/Comment
UK market
dependence
The UK market represents a significant
part of Group revenue; 65% in 2013
(2012 – 61%).
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.
Distribution
channels
The retail landscape is changing with
the Group’s traditional high street
independent distribution network
under significant commercial pressure
from online retailers and discounters.
High street failures will reduce
traditional customer base sales levels
and increase credit risk.
Competing
brands
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. An
increased focus on direct web based
selling, selling directly at exhibitions
and other events and expanding
own retail concession network are
all being developed to protect the
brand position.
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.
governance 19 Hornby PLC Annual Report and Accounts 2013
Risk
Description
Impact/Sensitivity
Mitigation/Comment
Supply Chain
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 suppliers to the Group are
Refined, Kader, CLT, Zindart and Micro
Plastics (India), who between them are
expected to contribute 88% in 2013.
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
more recently in the UK, and closely
monitors production through an
increased number of locally based
employees (who also ensure the
maintenance of quality standards).
Capital
Allocation
The Group now holds over 5,000
product lines across its own brand range.
Product
compliance
The Group’s products are subject to
compliance with toy safety legislation
around the world.
Producing smaller quantities of more
products puts pressure on gross
margins and can lead to increased
stock levels.
An improved capital allocation
process is being developed to deliver
a more focused product range in line
with consumer demand with robust
gross margins.
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 of
£4.5 million as at 31 March 2013
(£7.5 million at 31 March 2012) and
a revolving credit facility of £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, and are designed to meet the Group’s requirements and both financial and operational risks
identified in each area of the business. Control procedures are documented where appropriate and reviewed by management and the Board
on an ongoing 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 proactive 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 should satisfy 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.
FINANCIALSgoveRNANCeOVERVIEW 20 Hornby PLC Annual Report and Accounts 2013
Corporate governance Statement continued
Share Capital
Details of our Share Capital structure can be found on page 12 of the
Director’s report and in Note 21.
going Concern
A review of Group business activities and future outlook are set out
on pages 4 to 5 of the Chairman’s Statement. 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 18 to 19, whilst the risks arising from the
Group’s financial instruments are covered on page 12.
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.
governance 21 Hornby PLC Annual Report and Accounts 2013
Directors’ Remuneration Report
for the Year Ended 31 March 2013
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 UK Corporate Governance 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 (Deputy Chairman) 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 2012 and 2013 are as follows:
Director
Role
R T Canham Executive Chairman(i)
F Martin
A J Morris
N P Stone
Deputy Chairman(ii)
Finance Director(iii)
Finance Director(iii)
Salary at
Salary at
1 April 2012
1 April 2013
–
£300,000
£100,000 £267,909
– £176,802
–
£180,000
(i) Roger Canham became Executive Chairman on 1 April 2013.
(ii) Frank Martin stepped down as Chief Executive on 1 April 2013 and became Deputy Chairman
on that date.
(iii) Andrew Morris left the Group on 15 February 2013 and Nick Stone was appointed on
1 February 2013.
Policies concerning benefits, including the Group’s company car
policy, are reviewed periodically. Currently, benefits in kind comprise
motor cars and private health cover. For the year ending 31 March
2013 100% of pay and benefits were non-performance related.
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 save that Mr Canham
is not a member of the pension scheme and receives no benefits or
contributions in respect of pensions. Mr Martin will continue to receive
a pension contribution until the expiry of his service contract on 30
June 2014. For Mr Martin the balance of £3,582 pension in excess of
the HMRC approved limit was paid by way of a salary supplement
included in taxable benefits in the emoluments table.
FINANCIALSgoveRNANCeOVERVIEW
22 Hornby PLC Annual Report and Accounts 2013
Directors’ Remuneration Report continued
Performance-related annual bonus
Mr Stone participates in a performance-related bonus scheme which
is capped at 75% of salary. Neither Mr Canham nor Mr Martin is
entitled to a performance-related bonus.
and retains the discretion to adjust the targets if circumstances
make a consideration of this necessary. The TSR condition will
be unchanged.
• The Committee is comfortable that the blend of TSR and EPS
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 2013 none of the executive
directors who served during the year 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 maximum 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 2013, 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.
• In the case of all awards made to date, 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.
• It is intended that any awards granted during the year to 31
March 2014 will have EPS targets based upon underlying profit
before tax of £4m for 25% vesting and will increase straight-line
to full vesting at £5m. The Committee has set these targets
appropriate to the economic outlook prevailing at the time
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 in shares.
executive directors’ service contracts
The executive directors do not have fixed period contracts.
Frank Martin’s service contract dated 26 February 2001 included
a notice period of one year to be given by the Company and of six
months to be given by him. On 28 March 2013 he stepped down
as Chief Executive and became Deputy Chairman on a fixed term
contract that will expire on 30 June 2014. 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 between the
actual termination date and 30 June 2014.
Nick Stone’s service contract dated 1 February 2013 includes a
notice period of six months to be given by the Company which is
extended to one year after six months service and of six months to be
given by him. 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’ service contract dated 23 November 2007
included a notice period of one year to be given by the Company and
of six months to be given by him. In lieu of giving notice the Company
could 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 was entitled under this agreement.
governance 23 Hornby PLC Annual Report and Accounts 2013
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.
Roger Canham was appointed non-executive Chairman with effect
from 1 February 2013 under a contract dated 7 November 2012
for an initial term of three years subject to termination on three
months notice, to be given by either the Company or himself at a fee
of £100,000 per annum 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 to which he is entitled
under the agreement. He was appointed Executive Chairman on
1 April 2013. Upon becoming Executive Chairman, his fees were
increased to £300,000 per annum until such a time as a new Chief
Executive is appointed and he reverts to Chairman.
Neil Johnson was appointed non-executive Chairman on 22
December 2000 having initially joined the Board on 1 July 1998 and
received salary and fees for his services to the Company of £95,000
per annum effective 1 April 2012. 80% was paid to a third-party
consultancy company and 20% treated as earnings. His service
contract dated 13 February 2006, amended March 2007, was
subject to termination on six months notice to be given by either
the Company or himself. In lieu of giving notice the Company could
terminate the agreement on payment of a lump sum (subject to tax
and national insurance) equal to the salary and fee to which he was
entitled under this agreement. Neil resigned from the Board with
effect from 1 February 2013.
Nigel 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. Nigel’s
service contract dated 3 November 2007 is subject to termination on
six months notice to be given by either the Company or himself. 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 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. Mark’s service contract
dated 22 November 2007 is subject to termination on six months
notice to be given by either the Company or himself. 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.
FINANCIALSgoveRNANCeOVERVIEW 24 Hornby PLC Annual Report and Accounts 2013
Directors’ Remuneration Report continued
AUDITeD INFoRMATIoN
Directors’ interests
Interests in shares
The interests of the directors in the shares of the Company in the year were:
R Canham
F Martin
N P Stone
N M Carrington
M E Rolfe
At
31 March
2013
number
40,000
401,602
10,000
18,000
10,000
At
31 March
2012
number
–
388,282
–
18,000
10,000
All the interests detailed above are beneficial. At 31 March 2012 Neil Johnson had a shareholding of 100,000 shares and Andrew Morris
8,404 shares. 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.
On 3 April 2013 Frank Martin sold 400,000 shares at 0.82p per share.
There have been no other changes in the interests set out above between 31 March 2013 and 7 June 2013.
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:
executive Chairman:
R T Canham
Chairman:
N A Johnson
executive:
F Martin
N P Stone
A J Morris
Non-executive
N M Carrington
M E Rolfe
2013
£’000
674
90
764
2012
£’000
635
86
721
Salary &
Fees
£
26,103
79,167
267,909
39,286
155,554
40,000
40,000
648,019
Bonus¹
£
Taxable
Benefits²
£
Pension
Contribution
£
2013
Total
£
2012
Total³
£
–
–
–
–
–
–
–
–
–
–
–
–
26,103
–
79,167
95,000
15,329
1,067
9,256
50,000 333,238
48,210
31,821 196,631
7,857
326,741
–
219,011
–
–
25,652
–
–
40,000
40,000
89,678 763,349
40,000
40,000
720,752
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%). 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
2012/13 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 2012 total column includes pension contributions which were F Martin (£50,000) and A J Morris (£35,628).
governance 25 Hornby PLC Annual Report and Accounts 2013
Performance Share Plan
At 31 March 2013, outstanding awards to directors under the Performance Share Plan were as follows:
Director
F Martin
A J Morris
Award date
Vesting date
July 2012
July 2009
June 2010 June 2013
June 2011 June 2014
June 2012 June 2015
Market
price at
Award date
136.0p
139.5p
136.4p
81.0p
At
1 April
2012
183,824
183,692
192,591
–
Awarded
during
year
Lapsed
during
year
– (183,824)
–
–
–
–
–
330,752
Vested
At
during
31 March
year
2013
–
–
– 183,692
– 192,591
– 330,752
July 2009
July 2012
June 2010 June 2013
June 2011 June 2014
June 2012 June 2015
136.0p
139.5p
136.4p
81.0p
121,324
121,237
127,110
–
– (121,324)
– (121,237)
– (127,110)
218,274 (218,274)
–
–
–
–
–
–
–
–
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.
The awards issued in July 2009 lapsed during the year because the performance criteria were not satisfied and the remaining awards made
to Andrew Morris lapsed upon his resignation and departure from the Group.
Interests in share options
At 31 March 2013, there were no outstanding share options held by directors.
During the year to 31 March 2012, F Martin exercised 600,000 share options and the market price at the date of exercise was 120.0p, realising
a gain of £259,200.
Short Term Incentive Plan
At 31 March 2013, there were no outstanding awards to directors under the Short Term Incentive Plan.
On 20 June 2012, 27,191 shares of the 2008 Award were vested to F Martin. The share price on this date was 78.5p.
On 20 June 2012, 1,702 shares of the 2008 Award were vested to A J Morris. The share price on this date was 78.5p.
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 2013. This index has been selected given that the Company is a constituent of the FTSE Small Cap.
Total shareholder return
Source: Thomson reuters (Datastream)
140
120
100
80
60
40
20
0
31 Mar 2008
31 Mar 2009
31 Mar 2010
31 Mar 2011
31 Mar 2012
31 Mar 2013
This graph shows the value, by 31 March 2013, of £100 invested in Hornby plc on 31 March 2008 compared with
the value of £100 invested in the FTSE Small Cap Index (excluding investment trusts). The other points plotted are:
Hornby plc FTSE Small Cap Index (excluding investment trusts)
N M Carrington
Remuneration Committee Chairman
7 June 2013
FINANCIALSgoveRNANCeOVERVIEW 26 Hornby PLC Annual Report and Accounts 2013
Statement of Directors’ Responsibilities
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
N P Stone
Company Secretary
7 June 2013
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
loss of the Group and profit of the Company; and
• the Operating and Financial Review 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.
governance 27 Hornby PLC Annual Report and Accounts 2013
Independent auditors’ Report
to the Members of Hornby plc
We have audited the financial statements of Hornby plc for the
year ended 31 March 2013 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 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 Statement of Directors’ Responsibilities
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 2013 and of the Group’s
loss and the 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 IAS 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 14 to 20 with respect to internal control and
risk management systems and about share capital structures is
consistent with the financial statements.
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 20, 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
7 June 2013
FINANCIALSgoveRNaNCeOVERVIEW 28 Hornby PLC Annual Report and Accounts 2013
group and Company Statement of Comprehensive
Income
for the Year Ended 31 March 2013
Revenue
Cost of sales
gross profit
Distribution costs
Selling and marketing costs
Administrative expenses
Other operating expenses
operating (loss)/profit
Income from shares in Group undertakings
Finance income
Finance costs
(Loss)/profit before taxation
Analysed as:
Underlying profit before taxation
Net foreign exchange impact on intercompany loans
Amortisation of intangibles
Exceptional items:
Re-structuring costs
Impairment of goodwill
(Loss)/profit before taxation
Taxation
(Loss)/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 (loss)/income for the year
(Loss)/earnings per ordinary share
group
Company
Note
2
2
3
3
4
1
2013
£’000
57,395
(32,917)
24,478
(2,408)
(12,768)
(9,415)
(2,726)
(2,839)
–
13
(561)
(3,387)
147
20
(385)
(723)
(2,446)
(3,387)
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
2013
£’000
1,316
–
1,316
–
–
(859)
(34)
423
783
174
(213)
1,167
1,216
–
–
(49)
–
1,167
5
886
(2,501)
(825)
3,164
390
1,557
2012
£’000
1,278
–
1,278
–
–
(808)
(144)
326
1,932
175
(234)
2,199
2,199
–
–
–
–
2,199
22
2,221
461
(67)
300
(16)
–
(74)
–
305
394
(2,107)
284
3,448
(74)
1,483
305
2,526
Basic
Diluted
7
7
(6.39)p
(6.39)p
8.19p
8.12p
All results relate to continuing operations.
The notes on pages 33 to 63 form part of these accounts.
FINANCIALS 29 Hornby PLC Annual Report and Accounts 2013
group and Company Balance Sheet
at 31 March 2013
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’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
The notes on pages 33 to 63 form part of these accounts.
8
9
10
11
20
12
13
19
17
14
18
19
15
16
17
18
20
21
–
–
1,275
37,165
–
38,440
–
–
1,309
36,601
7
37,917
10,598
3,978
10,048
–
1,714
26,338
13,637
9,603
367
512
3,554
27,673
13,059
4,350
10,022
–
538
27,969
17,867
13,169
104
61
1,952
33,153
(3,907)
(2,194)
(8,834)
(235)
(466)
(15,636)
12,037
(3,474)
(2,155)
(9,822)
(324)
(705)
(16,480)
16,673
–
33
–
110
2
145
–
–
(68)
–
(105)
(173)
(28)
(1,815)
(159)
(1,974)
36,401
392
6,180
55
(612)
274
1,688
28,424
36,401
(4,888)
(573)
(5,461)
39,181
392
6,180
55
(545)
(187)
1,688
31,598
39,181
(5,093)
(148)
(5,241)
33,171
392
6,180
55
(1,059)
–
19,145
8,458
33,171
–
33
–
9
2
44
–
–
(88)
–
(245)
(333)
(289)
(5,018)
(159)
(5,177)
32,451
392
6,180
55
(985)
–
19,145
7,664
32,451
The financial statements on pages 28 to 31 were approved by the Board of directors on 7 June 2013 and were signed on its behalf by:
N P Stone
group Finance Director
Registered Company Number: 01547390
FINANCIALSgovernanceOVERVIEW 30 Hornby PLC Annual Report and Accounts 2013
group and Company Statement of Changes in
equity
Year ended 31 March 2013 and 31 March 2012
gRoUP
Balance at 1 april 2011
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 2012
Total comprehensive income for the year
Transactions with owners
Share-based payments
Shares vested from employee benefit trust
Dividends
Balance at 31 March 2013
Share
capital
£’000
385
–
Share
premium
£’000
5,643
–
Capital
redemption
reserve
£’000
55
–
Translation
reserve
£’000
(529)
(16)
Hedging
reserve
£’000
(487)
300
Other
reserves
£’000
1,688
–
7
–
–
–
7
392
–
–
–
–
–
392
537
–
–
–
537
6,180
–
–
–
–
–
6,180
–
–
–
–
–
55
–
–
–
–
–
55
–
–
–
–
–
(545)
(67)
–
–
–
–
(612)
–
–
–
–
–
(187)
461
–
–
–
–
274
–
–
–
–
–
1,688
–
–
–
–
–
1,688
Retained
earnings
£’000
30,014
3,164
–
262
90
(1,932)
(1,580)
31,598
(2,501)
20
90
(783)
(673)
28,424
Total
equity
£’000
36,769
3,448
544
262
90
(1,932)
(1,036)
39,181
(2,107)
20
90
(783)
(673)
36,401
Retained earnings includes £604,000 at 31 March 2013 (2012 – £621,000) which is not distributable and relates to a 1986 revaluation of land
and buildings.
CoMPaNY
Balance at 1 april 2011
Total comprehensive income for the year
Transactions with owners
Issue of shares
Share-based payments
Dividends
Balance at 31 March 2012
Total comprehensive income for the year
Transactions with owner
Share-based payments
Dividends
Balance at 31 March 2013
The notes on pages 33 to 63 form part of these accounts.
Share
capital
£’000
385
–
Share
premium
£’000
5,643
–
Capital
redemption
reserve
£’000
55
–
Translation
reserve
£’000
(1,290)
305
Other
reserves
£’000
19,145
–
Retained
earnings
£’000
7,113
2,221
7
–
–
7
392
–
–
–
–
392
537
–
–
537
6,180
–
–
–
–
6,180
–
–
–
–
55
–
–
–
–
55
–
–
–
–
(985)
(74)
–
–
(74)
(1,059)
–
–
–
–
19,145
–
–
–
–
19,145
–
262
(1,932)
(1,670)
7,664
1,557
20
(783)
794
8,458
Total
equity
£’000
31,051
2,526
544
262
(1,932)
(1,126)
32,451
1,483
20
(783)
720
33,171
FINANCIALS 31 Hornby PLC Annual Report and Accounts 2013
group and Company Cash Flow Statement
for the Year Ended 31 March 2013
group
2013
£’000
2012
£’000
Company
2013
£’000
Cash flows from operating activities
Cash generated from operations
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
Interest received
Dividends received
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Repayments of loans
Finance lease capital payments
Dividends paid to Company’s shareholders
Loans to subsidiary undertakings
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash, cash equivalents and bank overdrafts at beginning of the year
Effect of exchange rate movements
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
The notes on pages 33 to 63 form part of these accounts.
10,407
(561)
(1,394)
8,452
97
(3,457)
13
–
(3,347)
–
(3,046)
(62)
(783)
–
(3,891)
1,214
1,591
(80)
2,725
3,554
(829)
2,725
5,856
(779)
(656)
4,421
1
(3,787)
26
–
(3,760)
544
(2,577)
(29)
(1,932)
–
(3,994)
(3,333)
4,397
527
1,591
1,952
(361)
1,591
918
(213)
(302)
403
–
–
174
783
957
–
–
–
(783)
(578)
(1,361)
(1)
2
1
2
2
–
2
2012
£’000
466
(234)
62
294
–
–
175
1,932
2,107
544
–
–
(1,932)
(1,014)
(2,402)
17
11
(8)
2
2
–
2
FINANCIALSgovernanceOVERVIEW
32 Hornby PLC Annual Report and Accounts 2013
Notes to the Cash Flow Statement
Group and Company Cash Flows from Operating Activities
(Loss)/profit before taxation
Interest payable
Interest receivable
Dividend income
Amortisation of intangible assets
Impairment of Goodwill
Depreciation
Loss on disposal of property, plant and equipment
Share-based payments
Loss/(gain) on financial derivatives
Decrease in provisions
Decrease/(increase) in inventories
Decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operations
group
Company
2013
£’000
(3,387)
561
(13)
–
385
2,446
3,664
8
20
58
(89)
4,230
3,566
(1,042)
10,407
2012
£’000
3,989
779
(26)
–
392
–
3,914
–
262
(18)
(89)
(1,654)
479
(2,172)
5,856
2013
£’000
1,167
213
(174)
(783)
–
–
34
–
34
–
–
–
–
427
918
2012
£’000
2,199
234
(175)
(1,932)
–
–
35
–
144
–
–
–
5
(44)
466
FINANCIALS 33 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements
1. SIgNIFICaNT aCCoUNTINg PoLICIeS
aCCoUNTINg PoLICIeS FoR THe YeaR eNDeD 31 MaRCH 2013
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 2013 has been prepared in accordance with International Financial Reporting
Standards (‘IFRS’) as adopted by the European Union (‘EU’), IFRS Interpretations Committee (‘IFRS-IC’) interpretations and with those parts
of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated Group and Parent Company financial statements
have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of certain financial assets
and liabilities (including derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates.
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 if incurred prior to the adoption of IFRS. 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 IFRS-IC interpretations that are effective for the first time for the financial year beginning on 1 April 2012 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 2012 but are not
relevant to the Group’s operations in the current year:
Amendment to IAS 12
Amendment to IFRS 7
‘Income taxes’, on deferred tax, subject to endorsement by the EU
‘Financial instruments: Disclosures’
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 2013 or later periods, but the Group has not early adopted them:
Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income, the main change resulting from these
amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they
are potentially re-classifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are
presented in OCI. 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.
IFRS 7 ‘Financial instruments: Assets and liability offsetting’ issued in December 2011, amended the required disclosures to include information
that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of
set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position. The Group is
yet to assess IFRS 7’s full impact and intends to adopt the amendment no later than the accounting period beginning on 1 April 2013.
FINANCIALSgovernanceOVERVIEW
34 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
1. SIgNIFICaNT aCCoUNTINg PoLICIeS continued
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 or after 1 April 2015, subject to endorsement by the EU. The Group will also consider the impact of the remaining phases of IFRS
9 when completed by the Board.
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 2013.
Annual Improvements Project 2011; these annual improvements, address six issues in the 2009–2011 reporting cycle, it includes changes to
IFRS 1, First time adoption’, IAS 1, ‘Financial statement presentation’, IAS 16, ‘Property, plant and Equipment’, IAS 32, ‘Financial instruments;
Presentation’ and IAS 34, ‘Interim financial reporting’. The Group is yet to assess the full impact of these annual improvements and intends to
adopt them no later than the accounting period beginning on 1 April 2013.
There are no other IFRSs or IFRS-IC 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 oPeRaTINg
aND FINaNCIaL RevIew
Underlying profit before taxation is shown to present a clearer view of the trading performance of the business. Management has identified
the following non-trivial adjustments, whose inclusion in earnings could distort underlying trading performance: net foreign exchange gains/
losses on intercompany loans which are dependent on exchange rates from time to time and can be volatile and amortisation of intangibles
which result from historic acquisitions and re-structuring. Additionally exceptional items, re-structuring costs and impairments to goodwill, add
volatility as these are considered to be one-off items and therefore have also been added back in calculating underlying profit before taxation.
(Loss)/profit before taxation
Foreign exchange on intercompany loans including impact of foreign exchange collar
Amortisation of intangibles (note 9)
Impairment of goodwill (note 8)
Re-structuring costs
Underlying profit before taxation
group
2013
£’000
(3,387)
(20)
385
2,446
723
147
2012
£’000
3,989
145
392
–
–
4,526
The Statement of Comprehensive Income discloses foreign exchange movements, amortisation of intangibles and impairment of goodwill
within other operating expenses. Re-structuring costs are disclosed within administrative expenses.
The amount shown above comprises gains on translation of intercompany loans of £199,000 (2012 – loss of £875,000), offset by a loss on
marking to market the foreign exchange collar of £179,000 (2012 – gain of £730,000).
FINANCIALS 35 Hornby PLC Annual Report and Accounts 2013
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 2013 that will be re-valued
by an approximately similar but opposite Sterling value at each period end.
The foreign exchange collar is for a principal amount of Euro 16 million (2012 – Euro 16.5 million) and is in place to minimise exposure to Euro
denominated intercompany loans.
Beneficial impact of the collar as at 3 October 2013 is expected to be a minimum of £330,000 if the exchange rate exceeds the strike rate of
1.4300 €:£, increasing to a maximum of £676,000 at the participation cap rate of 1.3870 €:£ compared to the intercompany loans Sterling
valuation at 31 March 2007 (1.4734 €:£).
As at 31 March 2013 the cumulative profit impact is a gain of £671,000. Therefore in the period 1 April 2013 to 30 September 2013 there will
be an adjustment to the Statement of Comprehensive Income between a £5,000 profit and £341,000 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
31 Mar 2013
Total cumulative gain to profit before tax
Foreign
exchange
rate €:£
1.47
1.25
1.08
1.12
1.13
1.20
1.18
€16.5 million
intercompany
loan in sterling
£’000
11,199
13,156
15,288
14,722
14,606
13,750
13,531
Gain/(loss)
on loan
£’000
–
1,957
4,089
3,523
3,407
2,551
2,671
Fair value
collar
£’000
–
(1,346)
(3,270)
(2,774)
(2,552)
(1,821)
(2,000)
Net
gain/(loss)
in profit
before tax
£’000
–
611
208
(70)
106
(125)
(59)
671
Prior to expiry in October 2013 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.
Reconciliation of net debt:
Cash
Total borrowings excluding finance leases (note 18)
Net debt
group
2013
£’000
3,554
(5,685)
(2,131)
2012
£’000
1,952
(8,263)
(6,311)
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.
(b) Royalty income
Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements.
(c) Sales returns
The Group establishes a sales returns provision at the period end that reduces income in anticipation of customer returns of goods sold in
the period.
(d) Hornby Visitor Centre
Revenue is generated from the ticket and product sales at our Visitor Centre in Margate and recognised at the point of sale.
Dividend income in the Company is recognised upon receipt. Management fees are recognised in the Company on an accruals basis in relation
to costs incurred on behalf of subsidiary companies.
FINANCIALSgovernanceOVERVIEW
36 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
1. SIgNIFICaNT aCCoUNTINg PoLICIeS continued
eXCePTIoNaL ITeMS
Where items of income and expense included in the income statement are considered to be material and exceptional in nature, separate
disclosure of their nature and amount is provided in the financial statements. These items are classified as exceptional items. The Group
considers the size and nature of an item both individually and when aggregated with similar items when considering whether it is material, for
example impairment of intangible assets or re-structuring costs.
oPeRaTINg SegMeNTS
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The
chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been
identified as the Board of the 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 and after 1 April 2004, the date of transition to IFRS, is not subject to amortisation but
tested for impairment on an annual basis. Intangible assets, excluding goodwill, arising on a business combination subsequent to 1 April 2004,
are separately identified and valued, and subject to amortisation over their estimated economic lives.
gooDwILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating
to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or
groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to
operating segment.
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.
PRoPeRTY, PLaNT aND eQUIPMeNT
Land and buildings are shown at cost less accumulated depreciation. Assets re-valued 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.
FINANCIALS
37 Hornby PLC Annual Report and Accounts 2013
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 re-valued
using the equity method of valuation prior to the transition to IFRS use this valuation as deemed cost at this date. Prior to the year ended 31
March 2012 dividend income was presented in finance income. This has 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.
BoRRowINg CoSTS
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of Comprehensive Income
over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all
of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs and subsequently amortised over the life of the
facility. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a
prepayment for liquidity services and amortised over the period of the facility to which it relates.
SaLeS ReTURNS PRovISIoNS
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.
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.
FINANCIALSgovernanceOVERVIEW 38 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
1. SIgNIFICaNT aCCoUNTINg PoLICIeS continued
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. The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that may have an element of risk causing an adjustment to the carrying amounts of
assets and liabilities within the next financial year include provisions for stock obsolescence, customer returns, doubtful debts, impairment
reviews, fair values of share-based payments, fair values of derivatives and recoverability of deferred tax assets. All of the above are estimated
with reference to historical data, expectation of future events and reviewed regularly.
Whenever there is a substantiated risk that an item of stock’s sellable value may be lower than its actual stock value, a provision for the
difference between the two values should be made. Management review the stock holdings on a regular basis and consider where a provision
for excess or obsolete stock should be made based on expected demand for the stock and its condition.
The provision for sales returns are based on historic returns data applied to sales for the current year and this provision is reviewed by
management on an on-going basis.
Specific debtors are provided for when there is significant doubt that a repayment of debt will be fulfilled considering specific knowledge of the
customer and sales terms of the debt outstanding.
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 but only if
reimbursement is virtually certain and will be settled simultaneously.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at
the balance sheet date. If material, provisions are determined by discounting the expected future cash flows of the Group at rates that reflect
current market assessments of the time value of money.
CaSH aND CaSH eQUIvaLeNTS
Cash and cash equivalents for the purpose of the cash flow statement includes cash in hand, deposits at banks, other liquid investments with
original maturities of three months or less and bank overdrafts. Bank overdrafts or loans where there is no right of set off are shown within
borrowings in current or non-current liabilities on the balance sheet as appropriate.
SHaRe-BaSeD PaYMeNT
Hornby Plc operates three share-based payment plans:
• Share Option Scheme
• Short Term Incentive Plan
Performance Share Plan
•
FINANCIALS 39 Hornby PLC Annual Report and Accounts 2013
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. The Share Option Scheme is now
dormant as at 31 March 2013.
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. The STIP scheme is now dormant as at
31 March 2013.
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 depreciated on a straight-line basis to the Statement of Comprehensive Income over the lease term.
FINANCIALSgovernanceOVERVIEW 40 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
1. SIgNIFICaNT aCCoUNTINg PoLICIeS continued
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 Hong Kong 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% and 100% of anticipated import purchases that are denominated in Hong Kong 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 2013 that will be re-valued to 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 borrowings comprised 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 (£4.5
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 2013 was £9.9 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 on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes
in fair values of the hedged items.
(a) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in
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.
FINANCIALS
41 Hornby PLC Annual Report and Accounts 2013
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 the relevant functional currency at the exchange rates ruling at the date of the
transaction. Foreign exchange gains and losses resulting from such transactions are recognised in the Statement of Comprehensive Income,
except when deferred 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 Statements of Changes in Equity in the period in which they are approved by the Company’s shareholders.
Interim dividends are recorded in the period in which they are approved and paid.
2. SegMeNTaL RePoRTINg
Management has determined the operating segments based on the reports reviewed by the Board (chief operating decision-maker) that are
used to make strategic decisions.
The Board considers the business from a geographic perspective. Geographically, management considers the performance in the UK, US,
Spain, Italy and the rest of Europe.
Although the USA segment does not meet the quantitative thresholds required by IFRS 8, management has concluded that this segment
should be reported, as it is closely monitored by the Board as it is outside Europe.
The Company is a holding company operating in the UK with its results given in the Company Statement of Comprehensive Income on page
28 and its assets and liabilities given in the Company Balance Sheet on page 29. Other Company information is provided in the other notes to
the accounts.
FINANCIALSgovernanceOVERVIEW
42 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
2. SegMeNTaL RePoRTINg continued
Year ended 31 March 2013
Revenue
– External
– Other segments
operating (loss)/profit
Finance cost
– External
– Other segments
Finance income – External
– Other segments
(Loss)/profit before taxation
Analysed as:
Underlying profit/(loss) before taxation
Net foreign exchange impact on
intercompany loans
Amortisation of intangibles
Reorganisation costs
Impairment of goodwill
(Loss)/profit before taxation
Taxation
(Loss)/profit for the year
Segment assets
Less intercompany receivables
Add tax assets
Total assets
Segment liabilities
Less intercompany payables
Add tax liabilities
Total liabilities
other segment items
Capital expenditure
Depreciation
Net foreign exchange on intercompany loans
Amortisation of intangible assets
Impairment of goodwill
Share-based payment
UK
£’000
43,195
2,936
337
(478)
–
11
586
456
1,370
20
(264)
(670)
–
456
(284)
172
48,938
(17,530)
1,315
32,723
13,571
–
539
14,110
2,337
2,774
(20)
264
–
20
Spain
£’000
2,655
3,617
(132)
(50)
(213)
–
–
(395)
Italy
£’000
3,234
99
(2,754)
(1)
(271)
2
–
(3,024)
Rest of
Europe
£’000
5,615
–
(302)
(32)
(100)
–
–
(434)
Total
Reportable
Segments
£’000
57,395
6,652
(2,839)
(561)
(586)
13
586
(3,387)
Intra
Group
£’000
–
(6,652)
–
–
586
–
(586)
–
(395)
(435)
(403)
147
–
–
–
–
(395)
148
(247)
10,459
(1,273)
129
9,315
9,439
(7,806)
86
1,719
1,377
713
–
–
–
–
–
(90)
(53)
(2,446)
(3,024)
936
(2,088)
6,829
(189)
637
7,277
6,823
(6,236)
–
587
31
126
–
90
2,446
–
–
(31)
–
–
(434)
86
(348)
3,069
–
145
3,214
4,695
(3,664)
–
1,031
9
31
–
31
–
–
20
(385)
(723)
(2,446)
(3,387)
886
(2,501)
70,777
(18,992)
2,226
54,011
35,977
(18,992)
625
17,610
3,780
3,664
(20)
385
2,446
20
–
–
–
–
–
–
–
–
(18,992)
18,992
–
–
(18,992)
18,992
–
–
–
–
–
–
–
–
Group
£’000
57,395
–
(2,839)
(561)
–
13
–
(3,387)
147
20
(385)
(723)
(2,446)
(3,387)
886
(2,501)
51,785
–
2,226
54,011
16,985
–
625
17,610
3,780
3,664
(20)
385
2,446
20
USA
£’000
2,696
–
12
–
(2)
–
–
10
10
–
–
–
–
10
–
10
1,482
–
–
1,482
1,449
(1,286)
–
163
26
20
–
–
–
–
All transactions between Group companies are on normal commercial terms and an arm’s length basis.
FINANCIALS 43 Hornby PLC Annual Report and Accounts 2013
Year ended 31 March 2012
Revenue
– External
– Other segments
operating profit
Finance cost
– External
– Other segments
Finance income – 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
Segment assets
Less intercompany receivables
Add tax assets
Total assets
Segment liabilities
Less intercompany payables
Add tax liabilities
Total liabilities
other segment items
Capital expenditure
Depreciation
Net foreign exchange on intercompany loans
Amortisation of intangible assets
Share-based payment
USA
£’000
2,729
–
58
–
(6)
–
–
52
52
–
–
52
–
52
1,318
(1)
–
1,317
1,303
(1,175)
–
128
6
16
–
–
–
Spain
£’000
3,693
6,910
845
(73)
(234)
1
–
539
539
–
–
539
(428)
111
11,961
(2,464)
9
9,506
9,530
(8,092)
382
1,820
977
787
–
–
–
Rest of
Europe
£’000
7,630
–
284
(25)
(111)
–
–
148
Total
Reportable
Segments
£’000
64,447
10,011
4,742
(779)
(663)
26
663
3,989
Intra
Group
£’000
–
(10,011)
–
–
663
–
(663)
–
Italy
£’000
4,911
48
605
(6)
(312)
1
–
288
384
180
4,526
–
(96)
288
–
(32)
148
(145)
(392)
3,989
–
–
–
–
(142)
146
10,669
(453)
17
10,233
7,757
(7,196)
242
803
25
237
–
96
–
(48)
100
3,771
(8)
35
3,798
4,991
(3,700)
11
1,302
53
28
–
32
–
(825)
3,164
80,897
(20,374)
599
61,122
41,032
(20,374)
1,283
21,941
3,881
3,914
145
392
262
–
–
(20,374)
20,374
–
–
(20,374)
20,374
–
–
–
–
–
–
–
Group
£’000
64,447
–
4,742
(779)
–
26
–
3,989
4,526
(145)
(392)
3,989
(825)
3,164
60,523
–
599
61,122
20,658
–
1,283
21,941
3,881
3,914
145
392
262
UK
£’000
45,484
3,053
2,950
(675)
–
24
663
2,962
3,371
(145)
(264)
2,962
(207)
2,755
53,178
(17,448)
538
36,268
17,451
(211)
648
17,888
2,820
2,846
145
264
262
All transactions between Group companies are on normal commercial terms and an arm’s length basis.
FINANCIALSgovernanceOVERVIEW 44 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
3. FINaNCe CoSTS
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
Net finance costs
4. (LoSS)/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)
– Stock provision
Depreciation of property, plant and equipment:
– Owned assets
– Under finance leases
Loss 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
Re-structuring costs
Other operating expenses:
– 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
– Impairment of goodwill assets
group
2013
£’000
2012
£’000
(558)
–
(3)
(561)
13
–
13
(548)
(774)
–
(5)
(779)
26
–
26
(753)
Company
2013
£’000
–
(213)
–
(213)
–
174
174
(39)
2012
£’000
–
(234)
–
(234)
–
175
175
(59)
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
10,274
10,276
737
923
26,793
762
27,704
25
3,649
15
8
172
444
170
1,507
(105)
260
723
(163)
(20)
58
20
385
2,446
2,726
3,889
25
–
169
395
214
1,635
255
187
–
273
145
(18)
262
392
–
1,054
–
–
34
–
–
–
–
–
–
–
–
49
–
–
–
34
–
–
34
–
–
35
–
–
–
–
–
–
–
–
–
–
–
–
144
–
–
144
Re-structuring costs of £723,000 relate to redundancies and compensation for loss of office as well as the associated legal costs, a full
accrual for these costs is made from the point at which employees have been notified. These costs are considered to be exceptional in nature.
Additionally the goodwill impairment charge of £2,446,000 is also classed as an exceptional item further analysis of which can be found in
Note 8 of these financial statements.
FINANCIALS 45 Hornby PLC Annual Report and Accounts 2013
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 and fees 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 the Company’s subsidiaries
– Audit-related assurance services
– Tax advisory services
– Tax compliance services
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
92
38
32
17
12
191
87
36
39
12
18
192
15
–
24
8
5
52
15
–
26
–
5
46
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 (credit)/charge to the profit before tax
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
286
951
(440)
–
797
(15)
(730)
(938)
(1,683)
(886)
643
(30)
491
–
1,104
(145)
127
(261)
(279)
825
106
–
(45)
(447)
(386)
(4)
–
–
(4)
(390)
36
(3)
(46)
–
(13)
(9)
–
–
(9)
(22)
The tax for the year differs to the standard rate of corporation tax in the UK (24%). Any differences are explained below:
(Loss)/profit before taxation
(Loss)/profit on ordinary activities multiplied by rate of Corporation tax in UK of 24%
(2012 – 26%)
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
Company
2013
£’000
(3,387)
2012
£’000
3,989
2013
£’000
1,167
2012
£’000
2,199
(813)
1,037
280
572
13
–
(198)
21
(51)
142
(886)
(30)
–
2
–
(18)
(166)
825
(447)
(188)
5
–
6
(46)
(390)
(3)
(502)
10
–
13
(112)
(22)
FINANCIALSgovernanceOVERVIEW 46 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
5. TaXaTIoN continued
During the year, the UK main corporation tax rate was reduced from 26% to 24%. This was substantially enacted on 26 March 2012 and became
effective from 1 April 2012. As a result of this, an effective rate of 24% has been used to calculate tax payable on taxable income in the year.
At the balance sheet date, the Finance Act 2012 had been substantively enacted confirming that the main UK corporation tax rate will be 23%
from 1 April 2013. Therefore, at 31 March 2013, deferred tax assets and liabilities have been calculated based on a rate of 23% where the
timing difference is expected to reverse after 1 April 2013.
The proposed reduction of the rate to 21%, expected to apply from 1 April 2014, was not substantially enacted at the balance sheet date and
is therefore not included in these financial statements. In addition, a further reduction of this rate to 20% as of 1 April 2015 was announced in
the 2013 UK Budget Statement, but this has also not been substantially enacted and is therefore not included in these financial statements.
6. DIvIDeNDS
2.0p final paid per share in relation to year ended 31 March 2012 (2012 – 3.3p paid in relation to year ended
31 March 2011)
No interim paid per share in relation to year ended 31 March 2013 (2012 – 1.7p paid in relation to year ended
31 March 2012)
group and Company
2013
£’000
2012
£’000
783
–
783
1,267
665
1,932
The directors are not proposing a final dividend in respect of the financial year ended 31 March 2013.
7. (LoSS)/eaRNINgS PeR SHaRe
Basic (loss)/earnings per share is calculated by dividing the (loss)/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 (loss)/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 2013. For the year ended 31 March 2013, there
was no difference in the weighted average number of shares used for basic and diluted net loss per ordinary share as the effect of all potentially
dilutive ordinary shares was anti-dilutive.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.
RePoRTeD
Basic (loss)/earnings per share
(Loss)/earnings attributable to ordinary shareholders
Effect of dilutive securities
Options
Diluted (loss)/ePS
UNDeRLYINg
Earnings attributable to ordinary shareholders
Amortisation of intangibles
Impairment of goodwill
Re-structuring costs
Net foreign exchange translation adjustments
Underlying basic ePS
Underlying diluted ePS
2013
weighted
average
number
of shares
000s
earnings
£’000
Per-share
amount
pence
Earnings
£’000
2012
Weighted
average
number
of shares
000s
Per-share
amount
pence
(2,501)
39,152
(6.39)
3,164
38,626
8.19
–
(2,501)
–
39,152
(2,501)
293
1,859
549
(15)
185
39,152
–
–
–
–
39,152
185
39,152
–
(6.39)
(6.39)
0.75
4.75
1.40
(0.04)
0.47
0.47
–
3,164
3,164
392
–
–
107
3,663
3,663
328
38,954
38,626
–
–
–
–
38,626
38,954
(0.07)
8.12
8.19
1.01
–
–
0.28
9.48
9.40
FINANCIALS 47 Hornby PLC Annual Report and Accounts 2013
£’000
13,059
76
13,135
–
2,446
91
2,537
10,598
13,372
(313)
13,059
–
13,059
8. gooDwILL
gRoUP
CoST
At 1 April 2012
Exchange adjustments
at 31 March 2013
aggRegaTe IMPaIRMeNT
At 1 April 2012
Charge for the year
Exchange adjustments
at 31 March 2013
Net book amount at 31 March 2013
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
The Company had no 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 2013 is as follows:
gRoUP
At 31 March 2013
At 31 March 2012
UK
£’000
3,992
3,992
USA
£’000
8
8
Spain
£’000
3,990
3,990
Italy
£’000
2,056
4,526
Rest of
Europe
£’000
552
543
Total
£’000
10,598
13,059
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.
Impairment tests for goodwill
Management reviews the business performance based on geography. 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 rate applied reflects the risk inherent in hobby based product companies. In determining this
discount rate, management has applied an adjustment for risk of such companies in the industry on average determined using the betas of
comparable hobby based product companies. The forecasts are based on approved budgets for the year ending 31 March 2014. Subsequent
cash flows for the following 4 years have been increased in line with expectation. Cash beyond the five-year period are extrapolated using the
estimated growth rates stated below. The cash flows were discounted using a pre-tax discount rate of 10.8% (2012 – 11%) which management
believes is appropriate for all territories.
FINANCIALSgovernanceOVERVIEW 48 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
8. gooDwILL continued
The key assumptions used for value-in use calculations for the year ending 31 March 2013 are as follows:
gRoUP
Gross Margin(i)
Growth rate to perpetuity(ii)
UK
(Humbrol)
UK (Corgi)
Germany
31.1% 43.1% 38.6% 33.9% 32.6% 32.6%
3.0%
3.0%
2.0%
3.0%
1.7%
3.0%
France
Spain
Italy
The key assumptions used for value-in use calculations for the year ending 31 March 2012 are as follows:
gRoUP
Gross Margin(i)
Growth rate to perpetuity(ii)
UK
(Humbrol)
UK (Corgi)
Germany
36.1% 41.8% 39.4% 37.7% 34.1% 34.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
France
Spain
Italy
(i) Budgeted gross margin
(ii) Weighted average growth rate used to extrapolate cash flows beyond the budget period
These assumptions have been used for the analysis of each CGU within the operating segments.
The carrying value of Hornby Italy has been reduced through the recognition of an impairment loss against goodwill of £2,446,000. This
charge has been included within exceptional items in the Statement of Comprehensive Income. During 2012 Hornby Italy experienced a
difficult year of trading with results falling short of management’s expectations, primarily due to the restriction in supply from the Far East and
local economic conditions, and as a consequence forecasts have been revised resulting in an impairment charge arising.
Following this decision, the Group reassessed the depreciation policies of its property, plant and equipment in Italy and estimated that their
useful lives would not be affected. No class of asset other than goodwill was impaired. In Germany, the recoverable amount calculated based
on value in use exceeded carrying value by £75,000. A reduction in gross margin of 7%, or a rise in discount rate to 24% would remove the
remaining headroom. In Italy a reduction in the gross margin of 1% would result in a further impairment charge of £340,000, or a rise in
the discount rate by 1% would result in a further impairment of £783,000. A reduction in the growth rate would result in a further charge
of £552,000.
9. INTaNgIBLe aSSeTS
gRoUP
aCQUIReD INTaNgIBLe aSSeTS
CoST
At 1 April 2012
Exchange adjustments
At 31 March 2013
aCCUMULaTeD aMoRTISaTIoN
At 1 April 2012
Charge for the year
Exchange adjustments
At 31 March 2013
Net book amount at 31 March 2013
Brand
names
£’000
Customer
lists
£’000
Rent free
period
£’000
Total
£’000
4,899
24
4,923
1,271
243
12
1,526
3,397
1,426
6
1,432
704
142
5
851
581
–
–
–
–
–
–
–
–
6,325
30
6,355
1,975
385
17
2,377
3,978
FINANCIALS 49 Hornby PLC Annual Report and Accounts 2013
Brand
names
£’000
Customer
lists
£’000
Rent free
period
£’000
Total
£’000
5,001
(102)
–
4,899
1,057
248
(34)
–
1,271
3,628
1,452
(26)
–
1,426
576
144
(16)
–
704
722
36
(3)
(33)
–
36
–
(3)
(33)
–
–
6,489
(131)
(33)
6,325
1,669
392
(53)
(33)
1,975
4,350
Freehold
land and
buildings
£’000
3,030
9
–
–
3,039
1,252
2
47
–
1,301
1,738
Plant and
equipment
£’000
Motor
vehicles
£’000
Tools and
moulds
£’000
6,008
23
202
(325)
5,908
4,123
21
508
(325)
4,327
1,581
401
2
–
(98)
305
270
1
37
(53)
255
50
46,960
132
3,578
(912)
49,758
40,732
127
3,072
(852)
43,079
6,679
Total
£’000
56,399
166
3,780
(1,335)
59,010
46,377
151
3,664
(1,230)
48,962
10,048
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
All amortisation charges in the year have been charged in other operating expenses.
The Company held no intangible assets.
10. PRoPeRTY, PLaNT aND eQUIPMeNT
gRoUP
CoST
At 1 April 2012
Exchange adjustments
Additions at cost
Disposals
At 31 March 2013
aCCUMULaTeD DePReCIaTIoN
At 1 April 2012
Exchange adjustments
Charge for the year
Disposals
At 31 March 2013
Net book amount at 31 March 2013
FINANCIALSgovernanceOVERVIEW 50 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
10. PRoPeRTY, PLaNT aND eQUIPMeNT continued
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
Freehold land amounting to £786,000 (2012 – £786,000) has not been depreciated.
Assets held by the Group under finance leases have the following net book amount:
Cost
Aggregate depreciation
Net book amount
Freehold
land and
buildings
£’000
3,068
(38)
–
–
3,030
1,210
(7)
49
–
1,252
1,778
Plant and
equipment
£’000
Motor
vehicles
£’000
Tools and
moulds
£’000
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
44,122
(495)
3,333
–
46,960
37,784
(389)
3,337
–
40,732
6,228
Total
£’000
53,125
(591)
3,881
(16)
56,399
42,917
(439)
3,914
(15)
46,377
10,022
2013
£’000
69
(33)
36
2012
£’000
167
(71)
96
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.
CoMPaNY
CoST
At 1 April 2012 and at 31 March 2013
aCCUMULaTeD DePReCIaTIoN
At 1 April 2012
Charge for the year
At 31 March 2013
Net book amount at 31 March 2013
Freehold
land and
buildings
£’000
Plant and
equipment
£’000
2,428
1,119
34
1,153
1,275
4
4
–
4
–
Total
£’000
2,432
1,123
34
1,157
1,275
FINANCIALS 51 Hornby PLC Annual Report and Accounts 2013
CoMPaNY
CoST
At 1 April 2011 and 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
The Company does not hold any assets under finance leases.
11. INveSTMeNTS
CoMPaNY
The movements in the net book value of interests in subsidiary undertakings are as follows:
At 1 April 2012
Capital reduction relating to share-based payment
Net increase in loans to subsidiary undertakings
at 31 March 2013
At 1 April 2011
Capital contribution relating to share-based payment
Net increase in loans to subsidiary undertakings
At 31 March 2012
Freehold
land and
buildings
£’000
Plant and
equipment
£’000
2,428
1,084
35
1,119
1,309
4
4
–
4
–
Total
£’000
2,432
1,088
35
1,123
1,309
Interests in
subsidiary
undertakings
at valuation
£’000
28,111
(14)
–
28,097
27,993
118
–
28,111
Loans to
subsidiary
undertakings
at cost
£’000
8,490
–
578
9,068
7,179
–
1,311
8,490
Total
£’000
36,601
(14)
578
37,165
35,172
118
1,311
36,601
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
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
Company
%
100
100
100
100
100
100
Group
%
100
100
100
100
100
100
FINANCIALSgovernanceOVERVIEW 52 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
12.
INveNToRIeS
Raw materials
Work in progress
Finished goods
13. TRaDe aND oTHeR ReCeIvaBLeS
CURReNT:
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments
group
Company
2013
£’000
299
35
13,303
13,637
2012
£’000
354
39
17,474
17,867
2013
£’000
–
–
–
–
2012
£’000
–
–
–
–
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
8,518
(401)
8,117
262
1,224
9,603
11,608
(230)
11,378
400
1,391
13,169
–
–
–
–
33
33
–
–
–
–
33
33
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated and
therefore the provision for receivables impairments are 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 2013 to the value of £6.3 million (2012 – £8.9 million).
Gross trade receivables can be analysed as follows:
Fully performing
Past due
Impaired
Trade receivables
2013
£’000
6,341
1,727
450
8,518
2012
£’000
9,252
2,078
278
11,608
As of 31 March 2013, trade receivables of £1,727,000 (2012 – £2,078,000) 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
2013
£’000
1,583
144
1,727
2012
£’000
1,946
132
2,078
As of 31 March 2013, trade receivables of £450,000 (2012 – £278,000) were impaired and provided for. The amount of provision was £401,000
(2012 – £230,000) as of 31 March 2013.
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.
FINANCIALS 53 Hornby PLC Annual Report and Accounts 2013
The ageing of these receivables is as follows:
1 – 120 days
>120 days
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
2013
£’000
56
394
450
2013
£’000
230
260
(101)
12
401
2012
£’000
37
241
278
2012
£’000
195
187
(145)
(7)
230
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
group
Company
2013
£’000
5,503
3,440
530
130
9,603
2012
£’000
7,206
5,174
570
219
13,169
2013
£’000
33
–
–
–
33
2012
£’000
33
–
–
–
33
group
Company
2013
£’000
3,554
2012
£’000
1,952
2013
£’000
2
2012
£’000
2
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
4,098
854
2,159
1,723
8,834
5,047
1,198
2,332
1,245
9,822
1
15
–
52
68
–
18
–
70
88
FINANCIALSgovernanceOVERVIEW 54 Hornby PLC Annual Report and Accounts 2013
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
2013
£’000
324
580
(669)
235
2012
£’000
413
649
(738)
324
Company
2013
£’000
2012
£’000
–
–
–
–
–
–
–
–
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 aND LIaBILITIeS
Current tax assets
Overseas Corporation tax recoverable
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
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
512
391
75
466
61
324
381
705
110
105
–
105
9
36
209
245
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
829
4,856
37
–
5,722
3,907
1,815
5,722
361
7,902
99
–
8,362
3,474
4,888
8,362
–
–
–
5,093
5,093
–
5,093
5,093
–
–
–
5,018
5,018
–
5,018
5,018
The Group complied with all loan covenants during the year. The Company borrowings are denominated in Sterling. All intercompany
borrowings are secured by way of formal loan agreements. The loans can be repaid at any time however the Company has received
confirmation from its subsidiary that they will not require payment within the next 12 months.
FINANCIALS 55 Hornby PLC Annual Report and Accounts 2013
Sterling
£’000
Euros
£’000
Total
£’000
–
4,500
37
4,537
–
7,500
99
7,599
829
356
–
1,185
361
402
–
763
829
4,856
37
5,722
361
7,902
99
8,362
Analysis of borrowings by currency:
group
31 March 2013
Bank overdrafts
Bank loan
Finance leases
31 March 2012
Bank overdrafts
Bank loan
Finance leases
The other principal features of the Group’s borrowings are as follows:
At 31 March 2013 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 (£4.5 million as at 31 March 2013). The future interest rates of these facilities are Libor + 3.6%
for the revolving credit facility and Libor + 3.6% for the fixed-term loan.
A reduction of 0.5% was applied to these rates in the year in accordance with the loan agreements as covenants were not breached in the
financial year.
The average effective interest rate on bank overdrafts approximated to 3.34% (2012 – 3.63%) per annum and is determined based on 3.6%
above 3-month Libor from December 2012.
Undrawn borrowing facilities
At 31 March 2013, the Group had available £10.8 million (2012 – £10.6 million) of undrawn committed borrowing facilities in respect of which
all conditions precedent had been met. In addition, European subsidiaries had available £1.7 million (2012 – £1.6 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
Interest rate swap – cash flow hedge
assets
2013
£’000
2012
£’000
Liabilities
2013
£’000
2012
£’000
–
367
–
367
–
104
–
104
(2,000)
(89)
(105)
(2,194)
(1,821)
(120)
(214)
(2,155)
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 2013 are recognised in Other Comprehensive Income
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.
At 31 March 2013 outstanding forward currency contracts were as follows:
Hong Kong Dollar
US Dollar
Euro
2013
000’s
125,926
7,918
897
2012
000’s
156,776
6,732
–
FINANCIALSgovernanceOVERVIEW 56 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
19. FINaNCIaL INSTRUMeNTS continued
The notional principal amount of the outstanding interest rate swap contract at 31 March 2013 was £1.8 million (2012 – £3.0 million). At 31
March 2013, the interest rate swap fixes the interest rate on £1.8 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 2013 will be continuously released to the Statement of Comprehensive
Income until the maturity of the swap. The £2.7 million (2012 – £4.5 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 £173,000 asset (2012 – £230,000
liability) of which £274,000 asset (2012 – £187,000 liability) has been effectively hedged at 31 March 2013 and therefore charged to reserves
in accordance with IAS 39. The liability balance of £105,000 (2012 – £43,000 liability) was the unhedged 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 2013 and 31 March 2012, 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 1.0% 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.
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
1,556
178
69
1,803
Bank loan
£’000
3,053
1,669
129
4,851
Finance
leases
£’000
12
–
–
12
Finance
leases
£’000
25
12
–
37
2013
Debt
£’000
2013
Total
£’000
1,568
178
69
1,815
2012
Total
£’000
3,078
1,681
129
4,888
2012
Debt
£’000
5,093
5,018
2013
£’000
26
12
38
(1)
37
2012
£’000
63
38
101
(2)
99
FINANCIALS 57 Hornby PLC Annual Report and Accounts 2013
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 1.0% increase in interest rates is
£63,000 (2012 – £106,000) before tax. A 1% fall in interest rates gives 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 Hong Kong Dollars
Euros
Income and equity
Sensitivity
2013
£’000
109
145
254
2012
£’000
815
148
963
Capital risk management
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
2013
£’000
5,722
2012
£’000
8,362
(3,554)
2,168
36,401
38,569
6%
(1,952)
6,410
39,181
45,591
14%
FINANCIALSgovernanceOVERVIEW 58 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
20. DeFeRReD TaX
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 23% (2012 – 24%).
The movement on the deferred tax account is as shown below:
At 1 April
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
2013
£’000
35
(1,683)
(23)
116
(1,555)
2012
£’000
228
(279)
(2)
88
35
2013
£’000
152
(4)
–
–
148
2012
£’000
161
(9)
–
–
152
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 2012
(Credit)/charge to Statement of Comprehensive Income
Foreign exchange
at 31 March 2013
At 1 April 2011
(Credit)/charge to Statement of Comprehensive Income
At 31 March 2012
group
Accelerated
capital
allowances
£’000
175
(166)
–
9
135
40
175
Revaluation
£’000
149
(10)
–
139
166
(17)
149
Other
£’000
249
(235)
(3)
11
36
213
249
Total
£’000
573
(411)
(3)
159
337
236
573
Revaluation
£’000
149
(10)
–
139
166
(17)
149
Company
Accelerated
capital
allowances
£’000
10
(1)
–
9
11
(1)
10
Total
£’000
159
(11)
–
148
177
(18)
159
Of the total deferred tax liability of £159,000, £5,000 was due within one year for the Group (2012 – £5,000) and £5,000 for the Company
(2012 – £5,000).
FINANCIALS 59 Hornby PLC Annual Report and Accounts 2013
Deferred tax assets
At 1 April 2012
Charge/(credit) to Statement of Comprehensive Income
Foreign exchange
Deferred tax losses utilised
at 31 March 2013
At 1 April 2011
Charge/(credit) to Statement of Comprehensive Income
At 31 March 2012
Net deferred tax (asset)/liability
at 31 March 2013
At 31 March 2012
Short-term
incentive
plan
£’000
(15)
15
–
–
–
(35)
20
(15)
group
Acquisition
intangibles
£’000
(99)
(22)
–
–
(121)
(74)
(25)
(99)
Other
£’000
(424)
(1,265)
(20)
116
(1,593)
–
(424)
(424)
Company
Short-term
incentive
plan
£’000
(7)
7
–
–
–
(16)
9
(7)
148
152
Total
£’000
(538)
(1,272)
(20)
116
(1,714)
(109)
(429)
(538)
(1,555)
35
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 of £1,714,000 (2012 – £538,000) and deferred tax liability of £159,000 (2012 – £573,000) at 31 March 2013
and 31 March 2012 have been recognised separately.
gRoUP
Deferred tax comprises:
(Depreciation in excess of capital allowances)/accelerated capital allowances
Other temporary differences – UK
Other temporary differences – overseas
Deferred tax (asset)/liability
CoMPaNY
Deferred tax comprises:
Accelerated capital allowances
Other timing differences
Deferred tax liability
21. SHaRe CaPITaL
gRoUP aND CoMPaNY
Allotted, issued and fully paid:
Ordinary shares of 1p each
At 1 April
Allotted under share option schemes
2013
2012
Recognised
£’000
Not
recognised
£’000
Recognised
£’000
Not
recognised
£’000
(824)
(343)
(388)
(1,555)
–
–
(21)
(21)
175
(389)
249
35
–
–
–
–
2013
2012
Recognised
£’000
Not
recognised
£’000
Recognised
£’000
Not
recognised
£’000
9
139
148
–
–
–
10
142
152
–
–
–
2013
2012
Number
of shares
39,164,100
–
39,164,100
Number
of shares
£’000
392 38,464,100
700,000
392 39,164,100
–
£’000
385
7
392
FINANCIALSgovernanceOVERVIEW 60 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
21. SHaRe CaPITaL continued
At 31 March 2013 options granted under the Company’s share option schemes were outstanding as follows:
Date granted
19 June 2002
09 June 2005
Number of options
2013
–
365,809
365,809
2012
447,500
400,000
847,500
Exercise price
83.4p
201.0p
Period of option
June 2005 – June 2012
June 2008 – June 2015
The total number of options outstanding as at the date of this document represent approximately 0.9% (2012 – 2.2%) of the issued share
capital of the Company.
If Resolution 11 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. The above options would represent 1.0% (2012 – 2.4%) of the issued share capital of the Company.
22. SHaRe-BaSeD PaYMeNTS
Hornby Plc operates three share-based payment 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 re-structuring 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 2013 and 31 March 2012 was as follows:
2013
2012
Outstanding at 1 April
Exercised
Lapsed
Outstanding at 31 March
Number
847,500
–
(481,691)
365,809
weighted
average
exercise
price
Number
138.9p 1,547,500
– (700,000)
–
847,500
91.7p
201.0p
Weighted
average
exercise
price
111.2p
77.7p
–
138.9p
No Options were exercised within the financial year. (2012 – 700,000 Options exercised at 125.5p weighted average share price).
The following table summarises information relating to the number of shares under option (SOS awards) and those which were exercisable at
31 March 2013.
Range of exercise prices
£0.80 – £0.90
£2.00 – £2.10
Weighted
average
remaining
contractual
life Months
options
exercisable
at
31 March
2013
Number
27 365,809
365,809
Total shares
under
option
Number
365,809
365,809
exercisable
weighted
average
exercise
price for
options
exercisable
at
31 March
2013
201.0p
201.0p
Options
exercisable
at
31 March
2012
Number
447,500
400,000
847,500
FINANCIALS 61 Hornby PLC Annual Report and Accounts 2013
Performance Share Plan
All Performance Share Plan (PSP) awards outstanding at 31 March 2013 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 £20,000 in the year ended 31 March 2013 (2012 – £262,000).
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
–
–
–
–
–
–
–
–
2013
STIP
PSP*
–
36.68p
– Stochastic
81.0p
–
–
n/a
36.0%
–
n/a
–
3
–
0%
–
SOS
–
–
–
–
–
–
–
–
2012
STIP
–
–
–
–
–
–
–
–
PSP*
102.25p
Stochastic
136.4p
n/a
48.0%
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.
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 vested
At 31 March
2013
£’000
90
(90)
–
2012
£’000
180
(90)
90
Details of the Short Term Incentive Plan are given in the Directors’ Remuneration Report on pages 21 to 25.
The Employee Benefit Trust acquired no ordinary shares in the year.
On 20 June 2012, the final third of the 2008 allocation (57,766 ordinary shares) were vested.
At 31 March 2013, a total of nil (2012 – 57,766) ordinary shares are held by the Trust and allotted to the directors and senior management
under the plan with a nominal value of £nil (2012 – £578) and a market value of £nil (2012 – £54,878). The costs of the plan are borne by
Hornby plc. The Trust has waived its right to dividends.
FINANCIALSgovernanceOVERVIEW 62 Hornby PLC Annual Report and Accounts 2013
Notes to the Financial Statements continued
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
Average monthly number of people (including executive directors) employed by the Group:
Operations
Sales, marketing and distribution
Administration
Key management compensation:
Salaries and short-term employee benefits
Share-based payments
Post-employment benefits
Redundancy and compensation for loss of office
group
2013
£’000
2012
£’000
Company
2013
£’000
2012
£’000
7,828
20
1,032
668
726
10,274
8,171
262
1,081
669
93
10,276
552
34
86
65
–
737
group
Company
2013
£’000
101
107
40
248
2012
£’000
99
107
40
246
2013
£’000
1
1
3
5
628
144
93
58
–
923
2012
£’000
1
1
3
5
group
Company
2013
Number
1,977
20
249
517
2,763
2012
Number
2,002
261
244
–
2,507
2013
Number
421
34
65
–
520
2012
Number
469
144
58
–
671
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 21 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 £668,000 (2012 – £669,000) representing the actual contributions payable in the year and certain
scheme administration costs. The Company pension cost for the year was £65,000 (2012 – £58,000).
FINANCIALS 63 Hornby PLC Annual Report and Accounts 2013
25. FINaNCIaL CoMMITMeNTS
At 31 March capital commitments were:
Contracted for but not provided
The commitments relate to the acquisition of property, plant and equipment.
The Company does not have any capital commitments.
group
2013
£’000
2012
£’000
2,100
1,879
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.
26. oPeRaTINg LeaSe CoMMITMeNTS
The total of future minimum lease payments in respect of non-cancellable property, 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
2013
£’000
499
873
–
1,372
2012
£’000
417
794
–
1,211
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 £1,316,000 (2012 – £1,278,000), interest of £174,000 (2012 – £175,000) and
dividends from subsidiaries of £783,000 (2012 – £1,932,000) and incurs interest of £213,000 (2012 – £234,000) on intercompany borrowings.
FINANCIALSgovernanceOVERVIEW 64 Hornby PLC Annual Report and Accounts 2013
Notice of annual general Meeting (unaudited)
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 second Annual General Meeting of Hornby Plc (the “Company”) will be held at the offices of Hornby Plc,
Ramsgate Road, Westwood, Margate Kent, CT9 4JX on Thursday 25 July 2013 at 12 noon for the following purposes:
To consider and, if thought fit, to pass the following resolutions, of which numbers 1 to 9 (inclusive) will be proposed as ordinary resolutions and
numbers 10 and 11 as special resolutions.
oRDINaRY ReSoLUTIoNS
1. To receive and adopt the Company’s Annual Report and Accounts for the financial year ended 31 March 2013 together with the Report of
the Directors and Auditors.
2. To approve the Directors’ Remuneration Report, as set out on pages 21 to 25 of the Company’s Annual Report and Accounts, for the
financial year ended 31 March 2013.
3. To re-elect R T Canham, as a Director.
4. To re-elect F Martin, who retires by rotation, as a Director.
5. To re-elect N P Stone, as a Director.
6. 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.
7. To authorise the Directors to agree the auditors’ remuneration.
8. 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.
9. 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 24 July 2018 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.
FINANCIALS
65 Hornby PLC Annual Report and Accounts 2013
SPeCIaL ReSoLUTIoNS
10. THAT, subject to and conditional on the passing of resolution 9, 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 9” 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.
11. 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)
(b)
(c)
(d)
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 6 June 2013 (being the latest practicable date prior to the publication of this notice);
the minimum price, exclusive of any expenses, which may be paid for an Ordinary Share is 1 pence;
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
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
N P Stone
Company Secretary
Dated: 7 June 2013
Registered office: Westwood, Margate, Kent CT9 4JX
Registered in England and Wales with number 01547390
FINANCIALSgovernanceOVERVIEW
66 Hornby PLC Annual Report and Accounts 2013
Notice of annual general Meeting (unaudited)
continued
NoTeS (UNaUDITeD)
1. 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.
2. 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.
3. 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.
4. 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 12 noon on 23 July 2013.
5. 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.
6. 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.
7. 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 12 noon on 23 July 2013 (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.
FINANCIALS 67 Hornby PLC Annual Report and Accounts 2013
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 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 6 June 2013 (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 7 June 2013 are 39,164,100.
FINANCIALSgovernanceOVERVIEW 68 Hornby PLC Annual Report and Accounts 2013
Five Year Summary (unaudited)
Revenue
(Loss)/Profit on ordinary activities before taxation
Taxation
(Loss)/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
2013
£’000
57,395
(3,387)
886
(2,501)
26,338
12,037
(1,815)
(159)
36,401
36,401
2012
£’000
64,447
3,989
(825)
3,164
27,969
16,673
(4,888)
(573)
39,181
39,181
2011
£’000
63,372
4,129
(1,274)
2,855
28,509
16,623
(8,026)
(337)
36,769
36,769
2010
£’000
63,863
5,215
(1,530)
3,685
28,803
18,653
(10,547)
(281)
36,628
36,628
2009
£’000
60,803
6,121
(1,909)
4,212
29,903
9,133
(7,181)
(301)
31,554
31,554
(6.4)p
(6.4)p
–
92.9p
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
Shareholders’ information service
Hornby welcomes contact with its shareholders.
If you have questions or enquiries about the Group or its products, please contact:
N P Stone,
Group Finance Director
Hornby Plc
Westwood
Margate
Kent CT9 4JX
FINANCIALS Designed and produced by Emperor Design Consultants Ltd
Telephone +44 (0)20 7729 9090 www.emperordesign.co.uk
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Hornby PLC
Westwood
Margate
Kent
CT9 4JX
www.hornby.com