Horizon Gold Limited Annual Report 2020

FY2020 Annual Report · Horizon Gold Limited

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ANNUAL REPORT AND ACCOUNTS 2 020

Hornby PLC

The Group’s principal business is the development, production
and supply of toy and hobby products for a global market,
through a series of heritage brands. The Group distributes its
products through a network of hobby specialists, multiple
retailers and its own website in the UK and overseas.

CONTENTS

01 Highlights 2020

19 Audit Committee Report

33 Group and Company Statements

02 Non-Executive Chairman’s Report

21 Remuneration and Nomination

04 CEO’s Statement

09 Section 172 Statement

10 Operating and Financial Review

of the Year

12 Our Key Performance Indicators (‘KPIs’)

14 Corporate Governance Report

Committee Report

23 Directors and Corporate Information

24 Directors’ Report

28 Independent Auditors’ Report to
the Members of Hornby PLC

32 Group and Company Statements

of Comprehensive Income

of Financial Position

34 Group and Company Statements

of Changes in Equity

35 Group and Company Cash

Flow Statements

36 Notes to the Financial Statements

68 Shareholders’ Information Service

Hornby PLC Annual Report and Accounts 2020

Highlights 2020

“Our performance continues to improve despite the challenges of the Global
Pandemic that hit our shores earlier this year. We are custodians of incredible
brands which have survived World Wars and economic crises. We are well
placed to achieve a secure and profitable future.”

Lyndon Davies, Chief Executive

Revenue
(2019: £32.8m)

Operating loss
(2019: £(5.2)m loss)

Reported loss before taxation
(2019: £(5.3)m loss)

£37.8m

£(2.8)m

£(3.4)m

Underlying1 loss before taxation
(2019: £(4.4)m loss)

Reported loss after taxation
(2019: £(5.3)m loss)

Reported loss per share
(2019: (4.24)p loss)

£(3.2)m

£(3.4)m

(2.67)p

Underlying basic loss per share
(2019: (3.65)p basic loss)

Net cash/(debt)
(2019: £(1.8)m) (see note 28)

(2.56)p

£5.9m

Underlying figures are before amortisation of intangibles (brand names and customer lists), and net unrealised foreign exchange movements on intercompany loans and
exceptional items (see pages 10 and 11).

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportNon-Executive Chairman’s Report

The Strategic Report comprises the Non-Executive Chairman’s Report, the CEO
Report, the Director’s Section 172 statement and the Operating and Financial
Review of the Year and Our Key Performance Indicators (‘KPIs’).

I report to shareholders during an extremely
challenging period for our Company and
the entire world economy due to COVID-19.

Revenue in the year of £37.8 million (2019:
£32.8 million) was 15% above the previous
year. The reported loss before tax reduced
significantly to £(3.4) million (2019: £(5.3)
million) as we continue to implement our
turnaround strategy.

In the year we have made further
considerable progress within the Group.
Measures implemented to cease deep
discounting has helped stabilise the market,
particularly new releases, and the benefit
is evident in the improved gross margin.
We have reviewed elements of our
customer base and trading terms to make
sure we support the right routes to market.

The product development cycle has been
further improved and investment has been
increased to have more new releases –
the lifeblood of any model company.
We are innovating more and have
identified opportunities in existing ranges
to incorporate technology such as wireless
vehicle control from a smart phone in both
Hornby and Scalextric. We also have a
highly collectible range of products to
celebrate Hornby’s Centenary.

Overheads increased by 8% mainly due to
sales related costs and planned increase in
headcount. Cost savings were achieved in
many areas including further rationalisation
in logistics to suit our business size and
reduced rent achieved in returning to our
ancestral home in Margate.

Hornby PLC Annual Report and Accounts 2020

BREXIT

Brexit remains in transition and we have
assessed the effect of various Brexit outcomes
across the business. The major concerns are
importation of stock and export of sales in
a ‘no deal’ scenario. We are confident
importation issues can be overcome although
we may experience delays in the short-term
whilst customs procedures and potential
tariffs bed down.

SHAREHOLDERS

We will hold our Annual General Meeting
in September.

John Stansfield

Chairman

16 June 2020

SHARE PLACING AND OPEN OFFER

On 12 March 2020 the Company
successfully raised £15 million (£14.7 million
net of costs) through the placing and open
offer of new shares. The main reasons to
raise new capital were:

• accelerate product development;

• build modern online routes to market;

A limited number of employees have
been furloughed where their function
is temporarily curtailed or not possible
to be fulfilled at home.

Fortunately, our warehouse in the UK has
remained operational under strict distancing
protocols and we continue to despatch
goods at a good rate.

• upgrade central systems and processes;

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
the executive management to control and
achieve the maximum performance of the
Company. I am pleased to report that the
Board believes it applies the ten principles
of the Quoted Companies Alliance Code.
In the current uncertain economic and
political period, management of risks 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 those risks on
an annual basis carrying out regular reviews
and annual updates on our compliance with
the QCA Code.

• improve balance sheet strength

and efficiency; and

• potential opportunistic acquisitions.

In the short-term our balance sheet is very
strong and we believe it will support the
Company during the current global
economic uncertainty.

COVID-19

COVID-19 has completely changed the
landscape for every company in the world.
We were confronted by the effects of
the virus very early during January at our
Far East suppliers and Hong Kong office
and devoted much time in developing
procedures to help us deal with the risks
and disruption. Our main priorities are to
keep our employees safe and ensure our
survival as an organisation.

All our offices in Europe, Hong Kong and
America formulated lockdown plans that
were implemented in line with the relevant
government policies. UK staff vacated the
Margate offices almost immediately after
the announcement of the lock-down on 23
March 2020 and the majority of staff were
able to work from home. I would like to
thank the incredible efforts of all employees
to implement the change which involved
installing significant electronic infrastructure
to facilitate home working and subsequently
juggling the complications of combining
home and work commitments. Everyone
has continued to work very efficiently in
this new environment and maintained
their enthusiasm and good spirits.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportCEO’s Statement

INTRODUCTION

It has been such a sad and difficult time for
so many people. Business interruption is
a minor issue compared with the human
disaster that has affected lives throughout
the world. I will address our performance
and try and explain how COVID-19 has
affected our business.

The points I will cover are as follows:

Key Performance Indicators (KPIs)
Variable costs, fixed costs, gross profit
and operating profit.

New Key Performance Indicators: Costs
How and why our cost levels are what
they are.

Key Performance Indicator 1: Capital
Expenditure Productivity
Gross profit in relation to essential
capital expenditure.

Key Performance Indicator 2: Inventory
The importance of the inventory balance
in relation to sales.

The Global Pandemic
Our actions and responses to COVID-19.

Current Trading & Outlook
The new capital injection, growth in direct
online sales, and the future.

KEY PERFORMANCE INDICATORS (KPIs)

I want to start each year with a little
introduction to the basic economics of our
business. This is to help those who are new
to the business. Apologies, therefore, for the
repetition if you are a regular reader of our
shareholder communications, and also if
you are a highly sophisticated business
person, but it is important that everyone
understands the situation, no matter how
inexperienced they may be in these matters.

I like to think how I would explain it to my
grandfather. He was smart and numerate,
but he did not have any formal business
experience or training. He worked from
his instincts, for which he was awarded
an MBE for his services during the Second
World War. The citation reads “during the

Hornby PLC Annual Report and Accounts 2020

period of acute enemy air activity at
Swansea… in spite of injury to his wife and
damage to his house…”. During these past
few months I have drawn strength from my
memories of his calmness whilst all around
seemed chaotic.

The KPIs discussed here should be seen
against the background of the pandemic
impacting on our business in the first quarter
of calendar 2020 (January to March).
The best way to think about our business
is in terms of fixed costs and variable costs.
You will find these in the Statement of
Comprehensive Income (SOCI) on
page 32.

When we sell our products there are
variable costs directly related to individual
items. This includes such elements as the
materials used to make the products and the
costs our manufacturers charge us to turn the
raw materials into an exciting model, a tub
of paint, a diecast car or any other complex
end product. These costs are variable
because they vary with how many products
we sell. You will see these called ‘Cost of
Sales’ in the SOCI.

When we add up all our sales and take
away the variable costs, the resulting
amount is called the ‘Gross Profit’. Our
Gross Profit has to exceed our fixed costs in
order to leave some profits for shareholders
and our employee bonus scheme.

Our fixed costs are not completely fixed in
the academic definition, but I think of them
as all the overheads we need to get our
product to market in the right way. As well
as the normal things like wages for the
finance team or the electricity bill for the
headquarters, these fixed costs include
such items as the cost of sending samples
to magazines and influencers. In the SOCI
you will find these fixed costs under the
headings ‘Distribution costs, Selling &
Marketing, Administrative and Other’.

In 2020, we did not generate enough gross profit to cover our fixed costs:

Sales

Variable Costs

Gross Profit

Fixed Costs

Operating Loss

When you take our fixed costs away
from the gross profit, you get the Operating
Profit (or Loss). We were £2,742,000 short
of covering our costs. Whilst losses are
narrowing rapidly, a loss is still a loss,
and it has been paid for by shareholders.
I will not rest until we reach sustainable
profitability; I live and breathe for that
moment and beyond.

It is essential that we reach profitability as
soon as possible, and that will be achieved
in part by improving our KPIs. I set these out
in the last Annual Report and have brought

them up to date below. I have also added
a new one to help you further understand
our journey.

NEW KPI: COSTS

Making profits results from maximising
revenue and minimising costs, so here
are some more insights into how our
costs are unfolding and why.

An important element of the current stage
of the turnaround plan is to reduce both
the fixed costs and variable costs as a
percentage of our sales.

Here is a graph which shows our variable costs as a percentage of sales since 2001:

Variable Costs as a Percentage of Sales

2020
£’000

37,842

(21,140)

16,702

(19,444)

(2,742)

2019
£’000

32,759

(19,348)

13,411

(18,041)

(4,630)

2018
£’000

35,651

(21,900)

13,751

(21,329)

(7,578)

Variable Costs

We can reduce variable costs in several
ways. For example, if we are able to
produce a wonderful new product that has
very wide appeal, then we can order large
quantities of it. When we order a lot of this
new wonder product, our manufacturers are
able to spread the cost of production across
the larger order quantity. This results in a
lower cost per item to us, which brings
the variable costs down as a percentage
of sales.

Reducing our reliance on middlemen
(distributors etc.) in our routes to market
also helps to reduce the variable costs.

65%

60%

55%

50%

45%

40%

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Our variable costs have reduced as a
percentage of sales this year, but they are
still quite high compared to where they used
to be when the Group was profitable.

Our products must be affordable and they
must offer great value for money, so just
increasing the price would lead to lower
sales volumes, and thus to higher product
costs. We also have inflationary cost

pressures that must be offset. It is a difficult
balance, but we think there are ways to
continue to reduce variable costs as a
percentage of sales and we will report
on our progress each year.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportCEO’s Statement continued

Fixed Costs

It always seems that there is relatively little that can be done to reduce fixed costs. I stated in the last Annual Report that our current fixed cost
base could service a business bringing in £45 million to £50 million of sales. If we can increase our sales, but maintain our fixed costs at much
the same level, fixed costs will be a smaller percentage of sales, and will leave more gross profit to cover (and ideally exceed) our fixed costs.

Here is a graph to show how our fixed costs have varied as a percentage of sales since 2001:

Fixed Costs as a Percentage of Sales

65%

60%

55%

50%

45%

40%

35%

30%

25%

20%

59%

55%

51%

54%

52%

39%

38%

39%

46%

44%

43%

32%

33%

30%

34%

36%

25%

24%

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Our fixed costs as a percentage of sales
have been going in the wrong direction for
a long time. Now that we no longer offer
discounts on our products, and we have
managed to get sales growing again,
these fixed costs have begun to shrink
as a percentage of sales.

Our aim is to keep increasing sales volumes
so that the fixed cost percentage will be lower
with each subsequent report. Our culture of
frugality has offered some interesting ways to
reduce our fixed costs. I will also report to you
next year in this section regarding our cost
reduction efforts.

Gross Profit Per £ of Capital Expenditure

KPI NO. 1: CAPITAL EXPENDITURE
PRODUCTIVITY

We need to invest in tooling to produce
new, innovative and exciting models. You will
find the money we put into these endeavours
in note 10 of the Financial Statements.

As you will see, this year, we spent
£2,400,000 on Product Tooling. The
important thing to remember about this capital
expenditure is that the money we spend in
any given year is, roughly speaking, used to
manufacture tooling for models and products
that will be sold in firstly in the following year
and then for several more years. We thus
have a time lag between expenditure and

revenue. Our failures to invest in 2016/17,
impacted on us in these last few years. Our
increased expenditure now will have positive
impacts on the results for many years to come.

A good measure of how good a job we
are doing is to check the amount of Capex
we are incurring in one year and comparing
it to the gross profit we are generating in the
following year. If you divide the gross profit
generated in a year by the Capex in the
previous year, it will tell you how many
pounds of gross profit we generated per
pound of capital expenditure. The aim is
to get this number as high as possible.
Let’s call it ‘Capex Productivity’.

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Gross Profit per £ of Capital Expenditure

Gross Profit

We expect the trend to keep improving for many years to come. We know which products bring the quickest sell through on the lowest levels of
CAPEX, equally we know the higher cost CAPEX projects that take longer to develop but can bring in richer rewards.

Apologies, for the jargon, but this is a good example of how we are focusing the business on ‘return on investment’, which we think is a key
driver for shareholder value creation. It is my intention to add a Group return on investment KPI once we get back to profitability and beyond.

Hornby PLC Annual Report and Accounts 2020

KPI NO. 2: INVENTORY

Here is the table of inventory as a percentage of sales I showed you last year, with the latest year added:

Year End Inventory as a Percentage of Sales

40%

35%

30%

25%

20%

15%

10%

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In an ideal situation, if we made the right
products we would start the year with very
little inventory, then sell out of most of it as
it arrives in the UK, only leaving a small
inventory balance at the end of the year.

Unfortunately, this rarely happens in reality.
It is normal in our industry for some products
to take a couple of years to sell through.
Even when the business is firing on all
cylinders, there is likely to be some
inventory left at the end of the year.
It is important to keep this remaining
inventory balance as low as possible.

The best way to think about that inventory
balance at the end of the year is as a
percentage of our sales for that year.
This puts the inventory balance in context
against the sales volume of the business.
If our remaining inventory doubled in
value, you might think that was a bad
thing. However, if the sales were ten
times higher with only a doubled inventory
balance, then that would be a great result.

As you can see from the table our year-end
inventory balance relative to our sales
ended up higher than the previous year,
despite a 15% increase in sales this year.
In fact, relative to our sales, our inventory
balance is the highest it has ever been,
by quite a large margin.

This is partly due to accelerated inventory
purchases ahead of Chinese New Year and
growing concerns over impact of COVID-19

on our suppliers. However ultimately the
reduction in inventory this year was one
of our main objectives and we have failed.
It is very important that cash is not tied up
unnecessarily in inventory; we must do a
lot better in future on this measure.

We will be finalising our order quantities
soon for the rest of the financial year and
we will be using the lessons we have
learned to improve how we decide what
to order and when.

The Global Pandemic

In the past when the country has experienced
a crisis, I have found that people often turn
inwards, to find things of comfort from things
they know and love. I have also observed
that people crave things to keep themselves
challenged and stimulated.

There are very few brands and products
which satisfy these desires, but we are
fortunate to have some of them. Hornby,
Scalextric, Airfix, Corgi, Humbrol and our
international brands have a level of familiarity
and goodwill associated with them that our
competitors can only dream for.

Hornby has become a synonym for model
railways and in January 2020 at toy fairs
across the world we announced one of
the strongest releases of products for many
years. It is the 100th anniversary since Frank
Hornby introduced his clockwork train and
railway system in 1920, and oh boy have
we put a range together to make him proud.

To celebrate the classics from the past we
announced a raft of new products carrying
other iconic names which sit in our archives.
The return of Triang Railways, Hornby Dublo
and even Rovex, have added some truly
nostalgic fire power to our product line up.
With the engine of our Company repaired
and our product planning horizons advanced
we were able to release the first of these
items, the Stephenson’s Rocket, early. It
subsequently sold out within days of release!

Then the Global Pandemic hit. We ensured
first that we were able to survive the crisis
physically, emotionally and financially.
During this time we have found many
new and returning customers purchasing
our products. Families have been building
plastic kits together, bringing out their old
railway systems and dusting off their slot car
racing sets. People have come back and
have started to stoke the fire of the hobby
in the younger generation again. A lot of
these customers have come back to find
us online, and it is now up to us to keep
them engaged.

After we had dealt with our own business
challenges, we then looked for ways
to help others. Our main focus was on
supporting the National Health Service,
offering discounts to NHS and Emergency
Service operatives. As the situation
developed, and our employees suffered
the loss of their loved ones throughout
March and April in our offices around
the world, we felt that we had to do more.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportCEO’s Statement continued

The wonderful fundraising effort by Captain
Tom Moore inspired us to design a model
diesel locomotive named after him, with the
proceeds going straight to the NHS. We
experienced overwhelming demand and
we sold out within hours of release, raising
approximately £140,000 for NHS Charities
Together, which we will donate on the
release of the model, later this year.
https://www.hornby.com/uk-en/captain_tom

Alongside our deep concern about everyone
who has been affected during the Pandemic,
it is also essential that we safely navigate
all the current difficulties, so that we retain
a profitable business to support our
employees and shareholders for many
decades to come.

Before the Coronavirus impacted our
markets, we had already raised some
more capital from shareholders, and
we were a little over two years into a
long-term plan to rebuild our brands.
In the results, you will see that our sales
in FY 19/20 bounced back strongly from
the previous year, growing by around
15%. Losses also narrowed significantly,
but there is still much more work to do.

Despite the impending Brexit uncertainty
and the current COVID-19 situation, we
are still working through Stage 3 of the
turnaround programme which I have
described in detail in previous Annual
Reports. This is Getting the Group back
to sustainable profitability and beyond.

CURRENT TRADING & OUTLOOK

When we raised new capital at the start
of the year, two of the key uses of this new
money were to:

• invest in digital marketing, in order to
more efficiently find customers and to
establish a platform to build relationships
with customers; and

• upgrade central systems building
a scalable operating platform for
future growth.

We have been very busy on both of these
initiatives; we have hired new technical
resource directly, and we have been
engaging in some rapid development
programmes with a new digital partner to
get us where we want to be as quickly as
possible. It is too early to discuss progress
in detail, but I expect these projects will
have begun to yield profitable results by
the time of the next Annual Report.

Hornby PLC Annual Report and Accounts 2020

Since the end of March, our sales have
been in line with expectations, with a
greater weighting towards customers finding
us on the web directly. This skew towards
customers shopping with us direct online
has given us higher gross margins than
we were expecting.

There has been a noticeable growth in
traffic to our website. Retail customers have
had more time to spend on their hobbies
during lockdown, and others that know and
love our brands have seen this period as
a chance to re-engage with our products.
We have managed to keep our warehouse
and supply chain open to service those
customers, and we have had a solid start
to the year as a result.

Despite this, we are wary of how the
government’s responses to the virus will
affect consumer confidence and spending.
This is the Centenary year for our main
brand, Hornby, and we will be delivering
a very strong product range, but we remain
cautious about how consumers will behave
post the lockdown.

We have a strong balance sheet with net
cash of £5,921,000 and we appreciate
the strong support from our customers and
shareholders. Throughout the pandemic our
wonderful staff have adapted and risen to
the challenges they faced which has
minimised the impact on our business.

We are custodians of incredible brands
which have survived World Wars and
previous economic crises. I think our
management team have rekindled the
passion (Hwyl) that got this business
through previous crises and we are well
placed to achieve a profitable future.

Lyndon Davies

Chief Executive Officer

16 June 2020

Section 172 Statement

For the year ended 31 March 2020

As required by Section 172 of the
Companies Act, a director of a company
must act in the way he or she considers,
in good faith, would likely promote the
success of the company for the benefit of
the shareholders. In doing so, the director
must have regard, amongst other matters,
to the following issues:

• likely consequences of any decisions in

the long term;

• interests of the company’s employees;

• need to foster the company’s business
relationships with suppliers/customers
and others;

• impact of the company’s operations
on the community and environment;

• the company’s reputation for high

standards of business conduct; and

The Board acknowledges that every
decision it makes will not necessarily
result in a positive short-term outcome for
all of the Group’s stakeholders. We believe
in creating solid foundations for the future,
so there is a balance between short-term
success and longer-term prosperity.

SHAREHOLDERS

The primary mechanism for engaging with
our shareholders is through the Company’s
AGM and also through the publication of
the Group’s financial results for the half
year and full year. Further information is
disclosed in the Corporate Governance
Statement on pages 14 to 18. At the AGM
we encourage our shareholders to ask
questions and participate in debate
about our performance and products.

• need to act fairly between members

CUSTOMERS

of the company.

CULTURE

Our values and leadership behaviours
are a vital part of our culture to ensure that
through good governance, our conduct and
decision making we do the right thing for
the business and our stakeholders.

Understanding our customers and what
matters to them is key to the success
of Hornby. We listen and talk to them
using all of the tools at our disposal.
Our customers operate in a global,
but niche market, we interact with
them either directly, or via our retailers,
wholesalers and distributors.

SUPPLIERS

We have long-standing close relationships
with our suppliers overseas, who we would
normally visit on a regular basis. During
the pandemic we have communicated via
video conferencing, working together with a
common goal, giving them visibility, sharing
our plans allowing them to plan their
factories capacity well into the future.

EMPLOYEES

A key to the Group’s renewed success
has been its engaged workforce. The
Group’s Directors, alongside our executive
management teams, work hard to provide
a positive working environment. As a
well-respected local employer within
each of the communities we operate, it is
important for us to provide opportunities
for all of our staff to allow them to grow
and achieve their potential. More detail
can be found in note 24.

COMMUNITY AND ENVIRONMENT

We are proud to employ people in the
communities that we operate. The strength
of our brands allow us to promote both
local and national charitable causes.
We have product standards, policies
and guidance covering the products
we make to help ensure that they are
manufactured safely, legally and to
the required quality standards.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportOperating and Financial Review of the Year

FINANCIAL REVIEW

Revenue

Gross profit

Gross profit margin

Overheads

Exceptionals

Reported loss before tax

Underlying loss before tax*

Reported loss after tax

Basic loss per share

Underlying basic loss per share*

Net (debt)/cash

Undrawn Facilities

2020

£37.8m

£16.7m

44.1%

£19.4m

£0.1m

£(3.4)m

£(3.2)m

£(3.4)m

(2.67)p

(2.56)p

£5.9m

£14.2m

2019

£32.8m

£13.4m

40.9%

£18.0m

£0.6m

£(5.3)m

£(4.4)m

£(5.3)m

(4.24)p

(3.65)p

£(1.8)m

£5.5m

Stated before amortisation of intangibles (brands and customer lists), net unrealised foreign exchange movements
on intercompany loans, goodwill impairments and exceptional items.

PERFORMANCE ON A STATUTORY BASIS

Consolidated revenue for the year ended
31 March 2020 was £37.8 million, an
increase of 15% compared to the previous
year’s £32.8 million due to improved
efficiency in product development and supply
chain. The revenue in the second half of the
year of £21.7 million was ahead of previous
year which was £19.0 million. Gross profit
margin was slightly higher, at 44% (2019:
41%) due to cessation of stock discounting
and more desirable product lines and
improved efficiencies within supply chains.

Overheads increased year-on-year by
8% from £18.0 million to £19.4 million
predominantly as a result of planned
recruitment of additional heads and selling
related costs linked to higher revenues. UK
distribution costs reduced by £0.4 million
due to continued close management of
costs. Sales and marketing costs increased
by £1.3 million year-on-year due to planned
increase in headcount in sales, customer
support and product development along
with various customer support initiatives.
Administration costs were £0.9 million higher
due to increased headcount with IT and
finance departments and the impact of IFRS
16. Other operating income in the year of
£0.2 million (2019: £0.2 million expense)
include foreign exchange gains netted
against the amortisation of brand names.

Exceptional costs totalling £0.1 million
(2019: £0.6 million) are predominantly
restructuring costs incurred in the UK.

PERFORMANCE ON AN
UNDERLYING BASIS

The underlying loss before taxation is shown
to present a clearer view of the trading
performance of the business. Management
identified the following items, whose inclusion
in performance distorts underlying trading
performance: net foreign exchange (gains)/
losses on intercompany loans which are
dependent on exchange rate fluctuations
and can be volatile, and the amortisation
of intangibles which result from historical
acquisitions. Additionally, exceptional items
including refinance and restructuring costs
are one off items and therefore have also
been added back in calculating the
underlying loss before taxation.

Hornby PLC Annual Report and Accounts 2020

Statutory Loss before taxation

Adjustments:

Net foreign exchange impact on intercompany loans

Amortisation of intangibles – brands and customer lists

Exceptional items:

Restructuring costs

COVID-19 support

Refinancing costs

Relocation costs

Group

2020
£’000

2019
£’000

(3,395)

(5,312)

(148)

227

(3)

–

227

–

172

373

Underlying loss before taxation

(3,232)

(4,401)

The underlying loss before taxation above
was £3.2 million (2019: loss of £4.4 million).

The basic loss per share calculated on
underlying loss before taxation (hereafter
referred to as underlying basic loss per
share) was (2.56)p (2019: (3.65)p).

The income tax credit for the year is £nil
(2019: £nil).

Reported pre-tax loss was £3.4 million
(2019: loss of £5.3 million) and reported
basic loss per share was (2.67)p (2019:
(4.24)p loss per share).

Segmental analysis

Third party sales by the UK business of
£28.6 million increased by 11% in the year
as a result of improvements in the choice
of products on offer and improved design
and supply chain processes. The loss
before taxation of £2.0 million compared
to £3.9 million loss last year reflects the
continued focus on getting products to
market and out the door to end customers
without discounting.

Sales by the European businesses of
£6 million increased by 50% in the year
reflecting the year’s increased product
range and investment in new product
for the European market. The loss before
tax was £0.3 million compared to
£0.5 million loss last year.

Sales in the US business of £3.3 million
increased by 14%. The trading loss of
£1 million in the US was a result of
investment in promotion and increased
spend in Sales and Marketing. We expect
sales to increase in this key market in the
longer term and overheads to reduce.

Statement of Financial Position

Property, plant and equipment increased
year-on-year by £0.4 million from £3.8
million as a result of increased expenditure in
tooling for new products. Group inventories
increased from £10.9 million to £14.2 million
due to earlier arrival of stock to ensure we
had sufficient stocks ahead of Chinese New
Year and growing coronavirus reports in the
far east. In addition, we had to increase
production on Quickbuild products to enable
us to move production to India. Trade and
other receivables decreased by 9% largely
due to an improvement in debtor days
outstanding at year end. Trade and other
payables decreased by £0.6 million due
to the reductions of accruals and deferred
revenue. Overall investment in new tooling,
new intangible computer software and
other capital expenditure was £2.7 million
(2019: £2.7 million).

Dividend

The Group is still in the turnaround phase
and there will not be a dividend payment
this year (2019: £nil). The Board continues
to keep the dividend policy under review.

Capital structure

A Placing and Open Offer of 41,666,666
new ordinary shares at a price of 36p
each, raising £14.7 million net of costs,
was completed on 12 March 2020 with
the funds being used to accelerate product
development and additional capital
expenditure, to invest in digital marketing,
upgrade central systems and strengthen
the Group’s balance sheet.

Financing

At 31 March 2020 the UK had a
£12 million Asset Based Lending facility
with PNC Credit Limited (‘PNC’) and a
£9 million loan facility with Phoenix
Asset Management Partners.

The £12 million facility with PNC extends
for five years ending June 2023 and carries
a margin of 2.5–3% over LIBOR. The PNC
Facility has a fixed and floating charge
on the assets of the Group. The Company
will be expected to provide customary
operational and financial covenants to
PNC on a monthly basis.

The Phoenix Facility is a £9 million facility
with a rolling three-year term and attracts
interest at a margin of 5% over LIBOR on
funds drawn. Undrawn funds attract a non‐
utilisation fee of the higher of 1% or LIBOR.

Borrowings in the year ended
31 March 2020 peaked in March
2020 at £10.2 million.

Net cash at 31 March 2020 was
£5.9 million compared with net debt
of £(1.8) million at 31 March 2019.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportOur Key Performance Indicators (‘KPIs’)

The Directors are of the opinion that the financial KPIs are revenues, gross margins, underlying (loss)/profit before tax and (loss)/earnings
per share, the information for which is available in these Financial Statements and summarised on the financial highlights section earlier in
this report. We additionally think that moving forward Capex Productivity, Inventory and Fixed Costs as percentage of Sales should be
monitored. We provide current and historical analysis in the CEO Report on pages 04 to 08 and will continue to report in future Annual
Reports. The Board monitors progress against plan on a regular basis adjusting future objectives annually in line with current circumstances.

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 completes an annual 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 New Business Plan of the Group.

PRINCIPAL RISKS AND UNCERTAINTIES

Risk

Description

Impact/Sensitivity

Mitigation/Comment

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 or alternative
hobbies would have a negative
impact on the Group’s results. Failure
to evolve and innovate products
may lead to brands becoming
less relevant in the marketplace.

The New Business Plan may not fully
achieve the aims of returning the
Group to positive cash generation
in 2020/21.

The Group performance is impacted by
the actions of competitors and changes
in the wider retail landscape.

In many of our markets the Group still enjoys a
strong market position due to the continued
development of our brands. We will strive to
further improve the strength of our brands.
Production of high-quality products which
customers want is a key mitigating factor.

The increase in business scale and
reduction of costs and the re-conversion
of concession sales currently anticipated
is not achieved and the Group does
not achieve sustainable profit and
cash generation.

The Group has developed clear targets and
has cost saving contingencies in the plan being
actioned to put the necessary resources in place
to deliver the aims of the plan.

Market
competition

The New
Business
Plan

Hobby
market

Overall decline in the hobby market
could lead to greater levels of
competition in the medium term,
which could have a negative
impact on the Group’s results.

Failing interest in traditional hobbies
may impact our core Independent
and National retailers and have
a consequent impact upon the
Group’s performance.

Exchange
rates

The Group purchases goods in US
Dollars and sells in Pounds Sterling,
Euros and US Dollars and is
therefore exposed to exchange
rate fluctuations.

Supply
chain

The Group’s products are
manufactured by specialist
labour in China and India.

Significant fluctuations in exchange
rates to which the Group is exposed
could have a material adverse effect on
the Group’s future results. In particular
the negative impact on Sterling of Brexit
and the continuing uncertainties will
make the US Dollar purchase of its
goods more expensive.

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.

Hornby PLC Annual Report and Accounts 2020

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. In the short term there is an opportunity
to regain market share lost through previous
underperformance.

The Group continues to hedge short-term
exposures by establishing forward currency
purchases using fixed rate and participating
forward contracts up to 12 months ahead.
It is deemed impractical to hedge exchange
rate movements beyond that period.

The Group is continuing to develop and review its
vendor portfolio and has started diversifying the
supplier base. A 26-step critical path analysis tool
has been developed to monitor the whole
manufacturing process in order to identify and
deal with issues as they arise. The Group has its
own facilities in China where its tooling is secured
and managed.

Risk

Description

Impact/Sensitivity

Mitigation/Comment

Capital
allocation

New tooling is important to support
the production of new products.

The risk is that the Group has insufficient
capital to fund new tooling or invests
ineffectively in the wrong products.

Product
compliance

The Group’s products are subject
to compliance with toy safety
legislation around the world.

Liquidity

Insufficient financing to meet the
needs of the business.

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.

Without the appropriate level of
financing it would be increasingly
difficult to execute the Group’s
business plans.

System and
cyber risk

The Group continues to invest in
the development of its website
and implemented a new ERP
system in 2015.

This exposes the business to greater risk
of financial loss, disruption or damage
to the reputation of an organisation
from a failure of its information
technology systems.

Talent
and skills

Recruitment, development and
retention of talented people
are the key to the success of
any business.

The Group fails to retain the necessary
skills and talent to deliver the Group’s
plans.

Brexit

Leaving the EU without suitable
trade deals in place.

COVID-19

Further outbreaks in the UK.

As the UK government continues its
negotiations, uncertainty remains as to
the extent to which our operations and
financial performance will be affected
in the longer term.

The Government may issue instructions
that result in our warehouse being
unable to transport goods in or out.

The new business plan includes significant capital
expenditure to fund suitable products to underpin the
implementation of the New Business plan strategy of
the Group. This process will be underpinned by a
robust capital allocation process aligned to brand
strategies and brand delivery targets.

Robust internal processes and procedures,
active monitoring of proposed legislation and
involvement in policy debate and lobbying of
the relevant authorities.

A new share issue in March 2020 raised £15 million
of additional funding for the Group. In addition, the
Group has a £12.0 million ABL facility with PNC
and a £9.0 million revolving loan facility with Phoenix
Asset Management Partners. The Group’s policy on
liquidity risk is to maintain adequate facilities to meet
the future needs of the business.

The Group has invested significant time and cost
in the new website and ERP system in the last three
years. The Group has dedicated web and ERP
teams to monitor and maintain the Group’s systems
and holds appropriate insurance policies to
minimise material risk. A new website is currently
being developed which will have even higher
security than the existing system. We are also
working on upgrading the current ERP system.

Management team to encourage and empower
employees. Key lost talent has been reacquired and
brought back into the Company. An all employee
scheme was announced last year where all
employees will participate in profits of the Group.

At a Group and business level, we have
continued to prepare for changes in legislation,
trade agreements and working practices in
order to mitigate risk. We have contributed to
government led consultations on the potential
changes and their likely impact on businesses
and markets to help inform the exit strategy.

The Group is currently working predominantly
from home locations. Our warehousing is a
third-party supplier who follows stringent safe
working rules. Should the warehouse be closed
we have sufficient funding to weather the storm.

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. Performance against
budget is monitored and where any significant deviations are identified appropriate action is taken.

The Strategic Report has been signed on behalf of the Board

Kirstie Gould

Chief Finance Officer

16 June 2020

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportCorporate Governance Report

CORPORATE GOVERNANCE

For the year ended 31 March 2020, and up to the date of this report, the Company has applied the main principles of the Code and
complied with its detailed provisions throughout the period under review. Full details of our approach to governance are set out below and,
as a Board, we continue to be committed to good standards in governance practices and will continue to review the governance structures
in place, to ensure that the current practices are appropriate for our current shareholder base and that, where necessary, changes are made.

The key governance principles and practices are described in the statement below, together with the Audit and Nomination and
Remuneration Committees’ reports on pages 19 to 22 and the Directors’ Report on pages 24 to 27.

BOARD OF DIRECTORS

JOHN STANSFIELD

LYNDON DAVIES

KIRSTIE GOULD

JAMES WILSON

Independent
Non-Executive Chairman

Chief Executive Officer

Chief Finance Officer &
Company Secretary

Independent
Non-Executive Director

Aged 65

Aged 59

Aged 47

Aged 34

Lyndon joined the Board
as Chief Executive in
October 2017.

He is a highly-experienced
model and hobby
professional with 40 years’
experience in the industry.
He has built Oxford Diecast
into a successful international
business over the past two
decades, focusing on
Diecast vehicles, aircraft
and, more recently,
rail-based products.

Lyndon is also Chairman of
Oxford Diecast (‘Oxford’),
a business founded in
1993. He remains the
majority shareholder of
LCD Enterprises Limited,
the ultimate owner of the
Oxford Diecast brands.

Kirstie Gould was appointed
as Chief Finance Officer of
the Company in January
2018 after spending over
2 years with Hornby as a
consultant in the finance
department. Kirstie also
acts as Company Secretary.

Kirstie is a Fellow of the
Institute of Chartered
Accountants in England
and Wales, qualifying with
PricewaterhouseCoopers in
1997 and has since held
senior management and
directorship roles across a
number of high growth
SME firms including Affini
Technology Limited (part
of the TTG Group) and
Gamma Communications
plc.

James Wilson was
appointed as a Non-
Executive Director in
August 2017.

James is a partner at
Phoenix Asset Management
which controls the funds that
own 74.7% of the ordinary
shares of Hornby Plc.

James is a Chartered
Financial Analyst.

James is Chair of the
Remuneration and
Nomination Committee
and a member of the
Audit Committee.

John Stansfield was
appointed Non-Executive
Chairman in August 2018.
Prior to that, he had been a
Non-Executive Director of
the Company, having been
appointed in January 2018.

John is a Fellow of the
Chartered Institute of
Management Accountants
and spent 31 years with
the Group, 12 years of
which he was Group
Finance Director.

He re-joined the Company,
after having left in 2013.

John helped to deliver
some of the Group’s most
profitable years and has a
wealth of experience in the
toy and hobby sectors.

John is also Chair of
the Audit Committee
and a member of the
Remuneration and
Nomination Committee.

Our Board and Committees Membership

Board

Audit

Remuneration and Nomination

Chair

Hornby PLC Annual Report and Accounts 2020

COMPOSITION AND INDEPENDENCE OF THE BOARD

DIVISION OF RESPONSIBILITIES

The Board is comprised of two Executive Directors and two
Non-Executive Directors, (including the Independent Non-Executive
Chairman). During the year, the Board is of the opinion that the
composition of the Board, continues to represent an appropriate
balance between executive and Non-Executive Directors, given our
size and our operations. John Stansfield is considered independent
due to the time elapsed since his employment with the Group
originally. James Wilson is considered independent as he has no
control over the voting shares of Phoenix Asset Management.

The Board members collectively have skills and expertise embracing a
range of areas including finance, auditing, engineering, manufacturing,
design, general management, sales and innovation. The Chairman
and Chief Executive in particular, have extensive, directly applicable
experience of working within the toy and hobby products industry.
That said, we intend to carry out periodic reviews of the composition
of the Board to ensure that its skillset and experience are appropriate
for the effective leadership and long-term success of the business as it
develops. These reviews will give due consideration to having more
diversity on the Board, as well as to other priorities.

Details of each Directors’ background and experience are set out
in the table on page 14.

APPOINTMENTS TO THE BOARD AND RE-ELECTION

The Board takes decisions regarding the appointment of new
Directors as a whole following the recommendations of its
Remuneration and Nomination Committee. The task of searching
for appropriate candidates and assessing potential candidates’ skills
and suitability for the role has been delegated to the Remuneration
and Nomination Committee. Further information on the roles of the
Remuneration and Nomination Committee and also the Audit
Committee of the Board can be found on pages 19 to 22.

The Company’s Articles of Association require that one-third of
Directors (excluding any Directors who have been appointed since
the last Annual General Meeting (AGM)), retire by rotation at each
AGM. In accordance with best practice in corporate governance,
all the Directors will offer themselves for re-election.

There is a formal schedule of matters reserved for the Board
which is set out in detail on the Hornby Plc corporate website at
http://www.hornby.plc.uk/ and summarised further on in this report.

The Board is responsible for the formulating of the overall business
strategy and the Executive team is responsible for the managing
of the business to realise this strategy. The roles of Chairman and
Chief Executive Officer are separate and clearly-defined, in line
with the recommendations of the QCA Corporate Governance
Code. Responsibility for overseeing the Board is the responsibility
of the Chairman and the Chief Executive Officer is responsible for
overseeing the implementation of the Company’s strategy and its
operational performance.

EXECUTIVE DIRECTORS

The Executive Directors, as with the Non-Executive Directors, are
encouraged to use their independent judgement in the discharging
of their duties. They are responsible for the day-to-day management
of the business, including its trading, financial and operational
performance. Issues and progress made are reported to the
Board by the Chief Executive Officer.

Executive Directors are full-time employees of the Company and
have entered into service agreements with the Company. Directors’
contracts are available for inspection at the Company’s registered
office and at the Annual General Meeting.

NON-EXECUTIVE DIRECTORS

The Board considers the Non-Executive Directors to be sufficiently
competent. They provide objectivity and substantial input to the
activities of the Board, from their various areas of expertise.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportCorporate Governance Report continued

SUCCESSION PLANNING

THE MAIN ACTIVITIES OF THE BOARD DURING THE YEAR

During the year, the Remuneration and Nomination Committee
was delegated with the task of formulating succession plans for the
business, identifying areas where there is a skills shortage, extending
the area of focus to senior management level and ensuring that the
plans cover several years.

Key Board activities this year included:

• new equity share issue to raise £15 million;

• dealing with the impact of COVID-19;

• discussing strategic priority;

The Board also recognises that diversity is a key element in
strengthening the contribution made to Board deliberations and
in the course of our search for suitable candidates, due regard is
given to this, in addition to the skills and experience a potential
candidate brings.

• reviewing feedback from our institutional shareholders following

our full and half year results; and

• input into implementing the next phase of the Turnaround Plan.

THE BOARD COMMITTEES

HOW THE BOARD OPERATES

The Board retains control of certain key decisions through the
Schedule of Matters reserved for the Board. Other matters,
responsibilities and authorities have been delegated to its Audit
and Remuneration and Nomination Committees and these are
documented in the Terms of Reference of each of those Committees,
which can be found on the Company’s corporate website at
http://www.hornby.plc.uk/.

The Board delegates authority to two Committees: the Audit and
the Remuneration and Nomination Committees, to assist in meeting
its business objectives. The Committees meet independently of
Board meetings.

Each Committee has Terms of Reference setting out their responsibilities,
which were reviewed and approved by the Board during the
year. These are available on the Company’s corporate website
http://www.hornby.plc.uk/

The Board is responsible for:

• overall management of the business;

• developing the Company’s strategy, business planning,

budgeting and risk management;

• monitoring performance against agreed objectives;

• setting the business’ values, standards and culture;

• internal control and risk management;

• remuneration;

• membership and chairmanship of Board and Board Committees;

• relationships with shareholders and other stakeholders;

• determining the financial and corporate structure of the business;

• major investment and divestment decisions, for example the

strategic global partnership with Warner Bros;

• the Company’s compliance with relevant legislations and

regulations; and

• other ad hoc matters such as the approval of the Company’s

principal advisors.

The Board met 12 times during the year.

We have made some improvements in our governance
arrangements including introducing reporting by the Remuneration
and Nomination Committee as well as the Audit Committee in
our Annual Report and Accounts. These reports can be found
on pages 19 to 22.

The Audit Committee comprises the Independent Non-Executive
Directors of the Company and met three times during the year.
The Chief Executive Officer, Chief Finance Officer and other
managers attend by invitation. The external auditors attend
meetings and have direct access to the Committee.

The Remuneration and Nomination Committee meet at least
once a year with all members being present. The members are all
Non-Executive Directors, including the Chairman. The Committee is
responsible for establishing and reporting to the Board, procedures
for determining policy on executive remuneration and also the
performance-related elements of remuneration, which align the
interest of the Directors with those of the shareholders.

Its remit also includes matters of nomination and succession planning
for Directors and senior key executives, with the final approval for
appointments resting with the Board. Directors excuse themselves
from meetings where the matter under discussion is their own
succession when appropriate.

Hornby PLC Annual Report and Accounts 2020

EXTERNAL ADVISORS

The Board makes use of the expertise of external advisors where
necessary, to enhance knowledge or gain access to particular skills
or capabilities. Areas where external advisors are used include and
are not limited to: diligence work on major contracts; recruitment;
and Company secretarial and corporate governance. The list of
external advisors is set out on page 23.

DIRECTORS’ INDUCTION, DEVELOPMENT, INFORMATION
AND SUPPORT

The Board considers all Directors to be effective and committed
to their roles.

All Directors receive regular and timely information on the business’
operational and financial performance. Ahead of the Board and
Committee meetings, papers are circulated to all Directors to ensure
that they are fully informed and can participate fully in discussions.

Directors keep their skillset up to date through a combination of
attendance at industry events, individual professional development
and experience gained from other Board roles. The Company
Secretary ensures that the Board is aware of any applicable
regulatory changes and updates as and when relevant. The Board
is also given an annual refresher in AIM Rules and this was last
provided in January 2020 by its Nominated Advisors, Liberum
Capital Limited. This refresher is designed to enable Directors
keep abreast of corporate governance developments.

Directors are also able to take independent professional advice
in the furtherance of their duties, if necessary, at the Company’s
expense. Directors also have direct access to the advice and
services of the Company Secretary. The Company Secretary
supports the Chairman in ensuring that the Board receives the
information and support it needs to carry out its roles.

CONFLICTS OF INTEREST

Outside interests and commitments of Directors, and changes to
these commitments are reported to and agreed by the Board.
Lyndon Davies’ potential conflict of interest as a majority shareholder
in LCD Enterprises Limited is mitigated by the fact that he is one of
four Directors on the Hornby Plc Board and also by the fact that the
Board has effective procedures in place to monitor and manage
conflicts of interests. In addition, no one member of the Board
has unfettered powers to make decisions.

LCD Enterprises Limited owns Oxford Diecast Limited and Oxford
Diecast (HK) Limited. Both companies provide service and/or
goods to the Group at arms-length pricing. Details can be found
in note 29.

PERFORMANCE EVALUATION

The Chairman considers the operation of the Board and
performance of the Directors on an ongoing basis as part of
his duties and will bring any areas of improvement he considers
are needed to the attention of the Board. However, the Board
recognises the need to put in place an annual formal evaluation
process for the Board, its Committees and individual Directors.

The effectiveness of the Board, its Committees and Directors will
be reviewed on an annual basis.

ACCOUNTABILITY

Although the Board delegates authority to its Committees and
also the day-to-day management of the business to the Executive
Directors, it is accountable for the overall leadership, strategy and
control of the business in order to achieve its strategic aims in
accordance with good corporate governance principles.

RISK MANAGEMENT AND INTERNAL CONTROL

Mitigating the risks that a Company faces as it seeks to create
long-term value for its shareholders, is the positive by-product of
applying good corporate governance. At Hornby, all employees
are responsible for identifying and monitoring risks across their
areas. However, the Board sets the overall risk strategy for the
business. The business maintains a Risk Register and a Fraud
Register, which are presented and considered at the Audit
Committee meetings.

FINANCIAL AND BUSINESS REPORTING

In our half-year, final and any other ad hoc reports and other
information provided by the Company, the Board seeks to present
a fair, balanced and understandable assessment of the business’
position and prospects. The Board receives a number of reports,
including those from the Audit Committee, to enable it to monitor
and clearly understand the business’ financial position.

The Board considers that this Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportCorporate Governance Report continued

BUSINESS ETHICS

Our commitment to our customers and having a people-oriented
ethos is central to the success of achieving our strategy. We value
the skills of our employees and it is through the efforts of these
dedicated people that we are able to grow our customer base.

We endeavour to conduct our business affairs in a way that reflects
our values. Our suppliers are audited to ensure that their policies
and procedures comply with the Modern Slavery and Human
Trafficking Act, which ensures that workplace and conditions of
employment for their employees are of an acceptable standard.
We reinforce our expectations to achieve and maintain these
standards. Our Statement on Modern Slavery and Human
Trafficking can be found on our corporate website
http://www.hornby.plc.uk/.

WHISTLEBLOWING

The business has procedures in place for detecting fraud and
for whistleblowing to ensure that arrangements are in place for
all employees to raise concerns in confidence, about possible
irregularities and non-compliance in matters of financial reporting
or other matters. These procedures and policies are reviewed
by the Audit Committee.

SHAREHOLDERS

The Board values the views of our shareholders and recognises
their interest in our strategy and performance. We endeavour to
update shareholders on the Board’s expectations for the outlook
of the business and as and when this changes. As much as
possible, we try to provide information that is relevant to our
shareholders on our corporate website; in our Annual Report
and Accounts; and through regulatory news announcements
throughout the year.

We also believe in knowing and understanding our shareholders.
We encourage our shareholders to attend our Annual General
Meetings (AGMs) and we welcome questions from them. At our
AGMs, we provide the platform for robust discussions with our
shareholders, during which the participants, both Directors and
shareholders alike, are engaged with the proceedings. We believe
this reflects the connection to the business which we have cultivated
and continue to cultivate in our shareholders. In addition, the review
of investor relations activity and analysis of our shareholder register
is a standing item at each Board meeting. Our corporate website
http://www.hornby.plc.uk/ also includes the outcomes of
shareholder votes cast at the AGMs, as well as Annual and
Interim Reports from previous years.

Hornby PLC Annual Report and Accounts 2020

Audit Committee Report

As Chair of the Audit Committee (‘the Committee’), I am pleased to present our
Audit Committee Report for the year ended 31 March 2020.

MEMBERSHIP

The Audit Committee comprises two members, James Wilson and
myself, John Stansfield. Both of us are independent Non-Executive
Directors of the Company. I am the member of the Committee,
who with the background as a chartered management accountant
has significant, recent and relevant financial experience. Our
biographies are set out on page 14.

MEETINGS AND ATTENDANCE

The Committee met three times during the year ended 31 March
2020. All members of the Committee at the time of each meeting
were present at the meetings. At least one of these meetings was
with the external auditor, without the executive Board members
present. Lyndon Davies and Kirstie Gould also attended meetings
by invitation.

DUTIES:

The full list of the Committee’s responsibilities is set out in its Terms
of Reference, which is available on the Company’s website at
http://www.hornby.plc.uk/ and is summarised below as follows:

• external Audit;

• financial Reporting;

• internal Control and Risk Management;

• internal Audit; and

• reporting on activities of the Committee.

The Terms of Reference for the Committee are reviewed annually
and approved by the Board.

The main items of business considered by the Committee during the
year included:

• a review of the year-end audit plan, consideration of the scope
of the audit, the consistency in the application of accounting
policies and the external auditor’s fees;

• consideration and approval of the external audit report and

management representation letter;

• a review of the Annual Report and Financial Statements, including
consideration of the significant accounting issues relating to the
Financial Statements, and the going concern review;

• a review and approval of the internal financial statement; and

• approving revised borrowing and credit facilities.

EXTERNAL AUDITOR

The Committee has the primary responsibility for recommending
the appointment of the external auditor and reviewing the findings
of the auditor’s work. The Company’s external auditor was
PricewaterhouseCoopers LLP, however during the year we reviewed
auditors and felt that it would be an appropriate time to change.
As a result the new auditors are Crowe U.K. LLP. There will be
ongoing dialogue between the Committee and the auditor on
actions to improve the effectiveness of the external audit process.

Having reviewed the auditor’s independence and performance
to date, the Committee has recommended to the Board that they
be reappointed for the 2021 audit. A resolution to reappoint
Crowe U.K. LLP as the Company’s auditor is to be proposed at the
forthcoming Annual General Meeting (AGM) in September 2020.

POLICIES FOR NON-AUDIT SERVICES

In addition to the audit services they provide, Crowe U.K. LLP may
also be engaged to carry out non-audit services for the business
however no such engagement has happened in the year.

AUDIT PROCESS

The external auditor prepares an audit plan setting out how the
auditor will review the interim and audit the full-year Financial
Statements. The audit plan is reviewed, agreed in advance and
overseen by the Committee. The plan includes the proposed
scope of the work, the approach to be taken with the audit and
also describes the auditor’s assessment of the principal risks facing
the business.

Prior to approval of the Financial Statements, the external auditor
presents its findings to the Committee, highlighting areas of
significant financial judgement for discussion.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportAudit Committee Report continued

INTERNAL AUDIT

The Audit Committee has considered the need for an internal audit
function during the year and is of the view that, given the size and
nature of the Company’s operations and finance team, there is no
current requirement to establish a separate internal audit function.

RISK MANAGEMENT AND INTERNAL CONTROLS

Through the work of the Committee, the Board carries out an
annual risk assessment programme to identify the principal
risks to the business and these include:

• UK market dependence and conditions;

• the New Business Plan;

• the status of the model/hobby market;

• exchange rates;

• the supply chain function;

• capital allocation;

• product compliance;

• liquidity;

• systems and cyber risks;

• talent and skills; and

• Brexit.

The Committee also reviews the effectiveness of control policies
and procedures in place to deal with the risks mentioned. Further
details on the business risks identified and the actions being taken
are set out on pages 10 to 11 of the Operating and Financial
Review Report.

The process of risk management in the business is continually
reviewed.

John Stansfield

Chairman of the Audit Committee

16 June 2020

Hornby PLC Annual Report and Accounts 2020

Remuneration and Nomination Committee Report

As Chairman of the Remuneration and Nomination Committee (‘the Committee’),
I am pleased to present our report for the year ended 31 March 2020 which
sets out details of the composition, structure and activities of the Committee
and remuneration paid to Directors during the year.

The Board has taken the decision to expand the schedule of matters
it has delegated to its Remuneration Committee, to include matters
which are typically within the remit of a nomination committee. Its
Terms of Reference were revised accordingly and the Committee
was renamed the Remuneration and Nomination Committee.

MEMBERSHIP

The Committee currently comprises two independent Non-Executive
Directors, John Stansfield and myself, James Wilson, whose
biographies are set out on page 14.

MEETINGS AND ATTENDANCE

The Committee meets at least once a year and at such other times
during the year as is necessary to discharge its duties. During the
year, the Committee met once. Only members of the Committee
have the right to attend meetings, although other individuals, such
as the Chief Executive Officer and external advisers, may be invited
to attend for all or part of any meeting.

DUTIES

The Committee works closely with the Board to formulate remuneration
policy and consider succession plans and possible internal candidates
for future Board roles, having regard to the views of shareholders. The
main duties of the Committee are set out in its Terms of Reference, which
are available on the Company’s website (http://www.hornby.plc.uk/)
and include the following key responsibilities:

Remuneration

• set remuneration policy for all Executive Directors (including
pension rights and any compensation payments), and in the
process, review and give due consideration to pay and
employment conditions throughout the Company, especially
when determining annual salary increases;

• approve the design of, and determine targets for any

performance-related pay schemes operated by the Company;

• recommend and monitor the level and structure of remuneration

for senior management; and

• review the design of all share incentive plans for approval by

the Board and shareholders.

Nomination

• regularly review the structure, size and composition, (including the

skills, experience, knowledge and diversity) of the Board and make
recommendations to the Board as to any changes necessary;

• give full consideration to succession planning for Directors and
other senior executives in the course of its work, taking into
account the challenges and opportunities facing the Company
and the skills and expertise needed on the Board in the future;

• lead the process for all potential appointments to the Board
and making recommendations to the Board in relation to
them; and

• evaluate the balance of skills, experience, independence and

knowledge on the Board; and following any evaluation, identify
and nominate for approval by the Board, potential candidates to
fill Board vacancies as and when they arise.

PRINCIPAL ACTIVITIES DURING THE YEAR

The Committee considered:

• Executive Directors’ bonuses and salaries;

• performance criteria for the new LTIP and future awards under

the LTIP;

• succession planning and the search for an additional

Non-Executive Director;

• election and re-election of Directors at the AGM; and

• a review of the Committee’s Terms of Reference.

The Committee considers business’ strategy when recommending
the appointment of Directors and setting and reviewing remuneration.

DIVERSITY

It is the Board’s view and commitment that recruitment, promotion
and any other selection exercises are conducted on the basis
of merit against objective criteria that avoid discrimination. No
individual should be discriminated against on the ground of race,
colour, ethnicity, religious belief, political affiliation, gender, age
or disability, and this extends to Board appointments.

The Board recognises the benefits of diversity, including gender
diversity, on the Board, although it believes that all appointments
should be made on merit, while ensuring there is an appropriate
balance of skills and experience within the Board. The Board
currently consists of 25% (one) female and 75% (three) male
Board members. The Board’s age demographic ranges from
34 to 65. The business consists of 66% male employees and
34% female employees.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportRemuneration and Nomination Committee Report continued

REMUNERATION POLICY

Service agreements and termination payments

The objective of the remuneration policy is to promote the long-term
success of the Company, giving due regard to the views of
shareholders and stakeholders. In formulating remuneration
policy for the Executive Directors, the Committee:

• considers Directors’ experience and the nature and complexity
of their work in order to pay a competitive salary, (in line with
comparable companies), that attracts and retains Directors of
the highest quality;

Details of the Executive Directors’ service agreements are set out below.

Director

Date of Contract

Lyndon
Davies

Kirstie
Gould

5 October 2017

21 December 2017

Unexpired
Term

Rolling
contract

Notice
period by
Company

Notice
period by
Director

9 months 6 months

• considers pay and employment conditions within the Company

and salary levels within listed companies of a similar size;

Compensation for loss of office is based on the base salary of
the Director.

• considers Directors’ personal performance; and

Employees’ pay

• links individual remuneration packages to the business’ long-term
performance and continued success of the business through the
award of annual bonuses and share-based incentive schemes.

Employees’ pay and conditions throughout the business are considered
when reviewing remuneration policy for Executive Directors.

EXECUTIVE DIRECTORS

Base salary

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 the salary levels within listed companies
of a similar size.

Annual bonus

Executive Directors do not receive annual bonuses.

Long-Term Incentive Plan

A new Long-Term Incentive Plan, (‘LTIP’) award is currently
being created.

Other benefits

Policies concerning benefits are reviewed periodically. Currently
taxable benefits comprise Company car allowance or a travel
allowance and private health cover. The Committee also retains
the discretion to offer additional benefits as appropriate.

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 Board approved a profit share scheme for all employees
(excluding Executive Directors), whereby a one-off bonus of 5%
of salary is paid out when the Company breaks even and 15%
of operating profit is shared among employees proportionately
thereafter. This is a mechanism aimed at addressing issues of
motivation of employees below Board level. It is also to ensure
that the Company attracts and retains the best talent and that
their interests align with that of shareholders.

NON-EXECUTIVE DIRECTORS

The remuneration payable to Non-Executive Directors (other than
the Non-Executive Chairman) is decided by the Chairman and
Executive Directors. The remuneration payable to the Non-Executive
Chairman is decided by the other Board members.

Fees are designed to ensure the Company attracts and retains high
calibre individuals. They are reviewed on an annual basis and account
is taken of the level of fees paid by other companies of a similar size
and complexity. Non-Executive Directors do not participate in any
annual bonus, share options or pension arrangements. The Company
repays the reasonable expenses that Non-Executive Directors incur in
carrying out their duties as Directors.

Terms of appointment

Each of the Non-Executive Directors signed a letter of appointment for
an initial period of two years which can be terminated by either party
giving to the other prior written notice of three month(s). John Stansfield
signed a letter on 2 January 2018 and James Wilson signed his on
1 August 2017. The contract continues as long as the Non-Executive
Directors are re-elected at the AGM. Both John Stansfield and myself
were re-elected at the last AGM in September 2019.

James Wilson

Chairman of the Remuneration and Nomination Committee

16 June 2020

Hornby PLC Annual Report and Accounts 2020

Directors and Corporate Information

DIRECTORS

John Stansfield

Non-Executive Chairman

Lyndon Davies

Chief Executive

Kirstie Gould

Chief Finance Officer

James Wilson

Non-Executive Director

Kirstie Gould

Company Secretary

The full details of all Directors who served in the year ended
31 March 2020 can be found on page 14.

REGISTERED OFFICE

Enterprise Road
Westwood Industrial Estate
Margate
Kent CT9 4JX

COMPANY REGISTERED NUMBER

Registered in England Number: 01547390

INDEPENDENT AUDITORS

Independent Auditors
Crowe U.K. LLP
Riverside House
40–46 High Street
Maidstone
Kent ME14 1JH

SOLICITORS

Taylor Wessing LLP
5 New Street Square
London EC4A 3TW

PRINCIPAL BANKERS

Barclays Bank PLC
9 St George’s Street
Canterbury
Kent CT1 2JX

FINANCIAL ADVISORS AND BROKERS

Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY

REGISTRARS AND TRANSFER AGENTS

Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportDirectors’ Report

The Directors present their Annual Report together with the audited consolidated
and Company Financial Statements for the year ended 31 March 2020.

The Group’s business review along with future developments and the
principal risks and uncertainties facing the Group are included in the
Strategic Report.

expectation that the Group and Company have adequate resources
to continue in operational existence for the foreseeable future. For
these reasons, they continue to adopt the going concern basis of
accounting in preparing the annual Financial Statements.

PRINCIPAL ACTIVITIES

The Company is a holding Company, limited by shares, registered
(and domiciled) in England Reg. 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 US, 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 Alternative Investment Market (‘AIM’)
and incorporated and operating in the United Kingdom.

The Group is principally engaged in the development, design,
sourcing and distribution of hobby and interactive products.

RESULTS AND DIVIDENDS

The results for the year ended 31 March 2020 are set out in the
Group Statement of Comprehensive Income. Revenue for the year
was £37.8 million compared to £32.8 million last year. The loss
for the year attributable to equity holders amounted to £3.4 million
(2019: £5.3 million loss). The position of the Group and Company
is set out in the Group and Company Statements of Financial
Position. Future developments are set out within the CEO Statement.

No interim dividend was declared in the year (2019: £nil) and
the Directors do not recommend a final dividend (2019: £nil).

GOING CONCERN

The Group has in place a £12.0 million Asset Based Lending (ABL)
facility with PNC Credit Limited through to June 2023. The PNC
Covenants are customary operational covenants applied on a
monthly basis. In addition, the Group entered a committed
£9.0 million loan facility with Phoenix Asset Management Partners
Limited (the Group’s largest shareholder) if it should be required
which is a three-year rolling facility.

A Placing and Open Offer of 41,666,666 new ordinary shares at a
price of 36p each, raising £14.7 million net of costs, was completed
on 12 March 2020 with the funds being used to accelerate product
development and additional capital expenditure, to invest in digital
marketing, upgrade central systems and strengthen the Group’s
balance sheet.

Hornby PLC Annual Report and Accounts 2020

RESEARCH AND DEVELOPMENT

The Board considers that research and development into products
continues to play an important role in the Group’s success. R&D
costs of £1.2 million (see note 4) incurred in the year have been
charged to the Statement of Comprehensive Income as these costs
all relate to research activities.

DIRECTORS’ INDEMNITIES

The Company maintained 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 15 June
2020 the following parties were interested in 3% or more of the
Company’s ordinary share capital.

Shareholder

Number of
ordinary shares

Percentage
held

Phoenix Asset Management

124,634,330

Artemis Fund Managers Limited

27,551,350

74.66

16.50

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare Financial Statements
for each financial year. Under that law the Directors have prepared
the Group and 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
Company and of the profit or loss of the Group and Company for
that period. In preparing the Financial Statements, the Directors are
required to:

• select suitable accounting policies and then apply them consistently;

• 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;

• make judgements and accounting estimates that are reasonable

FINANCIAL RISK MANAGEMENT

and prudent; and

• prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.

The Directors are also responsible for safeguarding the assets of the
Group and Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company and
enable them to ensure that the Financial Statements comply with the
Companies Act 2006.

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.

DIRECTORS’ CONFIRMATIONS

The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and
Company’s position and performance, business model and strategy.

In the case of each Director in office at the date the Directors’ Report
is approved:

• so far as the Director is aware, there is no relevant audit

information of which the Group and Company’s auditors
are unaware; and

The financial risk is managed by the Group and more information
on this can be found within the Notes to the Financial Statements.

PERSONNEL POLICIES

Hornby is committed to eliminating discrimination and encouraging
diversity amongst our workforce. Our aim is that our workforce will
be truly representative of all sections of society and each employee
feels respected and able to give of their best.

To that end the purpose of personnel policies are to provide equality
and fairness for all in our employment and not to discriminate
on grounds of gender, marital status, race, ethnic origin, colour,
nationality, national origin, disability, sexual orientation, religion or
age. We oppose all forms of unlawful and unfair discrimination.

All employees, whether part time, full time or temporary, are treated
fairly and with respect. Selection for employment, promotion,
training or any other benefit is on the basis of aptitude and ability.
All employees are helped and encouraged to develop their full
potential and the talents and resources of the workforce are fully
utilised to maximise the efficiency of the organisation.

Our commitments are:

• to create an environment in which individual differences and the

contributions of all our staff are recognised and valued;

• every employee is entitled to a working environment that

promotes dignity and respect to all. No form of intimidation,
bullying or harassment is tolerated;

• training, development and progression opportunities are

available to all staff;

• equality in the workplace is good management practice and

• they have taken all the steps that they ought to have taken as a

makes sound business sense;

Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company’s
auditors are aware of that information.

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 provide finance for the
Group’s operations. The Group 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.
It is, and has been throughout the period under review, the Group’s
policy that no speculative trading in financial instruments shall
be undertaken.

• to regularly review all our employment practices and

procedures to ensure fairness;

• breaches of our equality policy are regarded as misconduct

and may lead to disciplinary proceedings; and

• these policies will be monitored and reviewed on a

regular basis.

The Group places importance on the contributions made by all
employees to the progress of the Group and aims to keep them
informed via formal and informal meetings.

ARTICLES OF ASSOCIATION

The rules governing the appointment and replacement of Directors
are set out in the Company’s Articles of Association. The Articles
of Association may be amended by a special resolution of the
Company’s shareholders.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportDirectors’ Report continued

SHARE CAPITAL

CHANGE OF CONTROL – SIGNIFICANT AGREEMENTS

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 issued share capital of the Company, together
with movements in the Company’s issued share capital is shown in
note 21. Ordinary shareholders are entitled to receive notice and to
attend and speak at general meetings.

Each shareholder present in person or by proxy (or by duly
authorised corporate representatives) has, on a show of hands,
one vote. On a poll, each shareholder present in person or by
proxy has one vote for each share held.

Other than the general provisions of the Articles (and prevailing
legislation) there are no specific restrictions of the size of a holding
or on the transfer of the ordinary shares.

The Directors are not aware of any agreements between holders of
the Company’s shares that may result in the restriction of the transfer
of securities or on voting rights. No shareholder holds securities
carrying any special rights or control over the Company’s
share capital.

There are a number of agreements that may take effect, alter or terminate
on a change of control of the Company. None of these are considered
to be significant in their likely impact on the business as a whole.

POLITICAL DONATIONS

The Company has made no political donations during the year.

INDEPENDENT AUDITORS

During the year a decision was made to change auditors from
PricewaterhouseCoopers LLP to Crowe U.K. LLP. A resolution to
reappoint the auditors, Crowe U.K. LLP, will be proposed at the
forthcoming Annual General Meeting.

ANNUAL GENERAL MEETING

The Annual General Meeting is to be scheduled for 23 September
2020. Due to the COVID-19 outbreak and our duty to our employees
we will be holding a virtual AGM this year. A notice of the Annual
General Meeting will be sent out to shareholders separately to this
Annual Report and Accounts.

AUTHORITY TO PURCHASE OWN SHARES

DIRECTORS’ REMUNERATION

The Company was authorised by shareholder resolution at the
2019 Annual General Meeting to purchase up to 10% of its issued
share capital. A resolution will be proposed at the forthcoming
Annual General Meeting and authority sought to purchase up to
10% of its issued share capital. Under this authority, any shares
purchased must be held as treasury shares or, otherwise, cancelled
resulting in a reduction of the Company’s issued share capital.

No shares were purchased by the Company during the year.

Executive Directors’ base salaries are reviewed annually by the
Remuneration and Nomination 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.

The following table summarises the total salary and pension
contributions received by Directors for 2019–20 and 2018–19
in line with the Companies Act 2006 requirement:

AUDITED

Year ended 31 March 2020

Year ended 31 March 2019

Basic salary,
allowances
and fees
£’000

Pension
contributions
£’000

Total salary
and pension
contributions
£’000

Basic salary,
allowances
and fees
£’000

Pension
contributions
£’000

Total salary
and pension
contributions
£’000

L Davies (Appointed 5 October 2017)

K Gould (Appointed 4 January 2018)

J Wilson (Appointed 1 August 2017)

J Stansfield (Appointed 4 January 2018)

M George1 (Resigned 9 November 2018)

Total

222

136

–

428

–

222

161

–

453

226

136

–

450

–

226

161

–

475

1 Excluded from within this amount is compensation for loss of office totalling £26,000.

Hornby PLC Annual Report and Accounts 2020

Performance Share Plan awards outstanding (Audited)

DIRECTORS’ INTERESTS

At 31 March 2020, there are no schemes in place.

Interests in shares (Audited)

Future incentive schemes are currently being formalised for
the management team.

Interests of the Directors in the shares of the Company at 31 March
2020 and 31 March 2019 were:

Benefits and Pension (Unaudited)

Policies concerning benefits, including the Group’s Company car
policy, are reviewed periodically. Currently, benefits in kind comprise
motor cars or a travel allowance and private health cover, both of
which are non-performance related. 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.

Executive Directors’ service contracts (Unaudited)

Executive Directors do not have fixed period contracts.

Payments to Past Directors, policy on payment of loss of
office and termination payments (Audited)

There were no payments to past Directors made during the year.
Notice periods are set under individual service contracts but the
Company has a policy for Executive Directors of a notice period
of nine months to be given by the Company and of six months to
be given by the individual. The compensation for loss of office is
based upon the respective service contracts and the components
are based on the base salary of the Director.

Executive Directors

L Davies

K Gould

Non-Executive Directors

M George

J Wilson

J Stansfield

At 31 March
2020

number

At 31 March
2019

number

795,144

596,670

55,006

41,276

–

41,311

85,358

–

31,000

64,052

All the interests detailed above are beneficial. Apart from the
interests disclosed above no Directors were interested at any time in
the year in the share capital of any other Group Company. James
Wilson is also a partner at Phoenix Asset Management Partners
Limited who hold a substantial shareholding in Hornby PLC.

On behalf of the Board

Kirstie Gould

Chief Finance Officer

Westwood
Margate
CT9 4JX

16 June 2020

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportIndependent Auditors’ Report to the Members
of Hornby PLC

OPINION

We have audited the financial statements of Hornby Plc (the “Parent Company”) and its subsidiaries (the “Group”) for the year ended
31 March 2020 which comprise:

• the Group and parent company statements of comprehensive income for the year ended 31 March 2020;

• the Group and parent company statements of financial position as at 31 March 2020;

• the Group and parent company statements of cash flows for the year then ended;

• the Group and parent company statements of changes in equity for the year then ended; and

• the notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.

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 2020

and of the Group’s and Parent’s loss for the period then ended;

• the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

CONCLUSIONS RELATING TO GOING CONCERN

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

• The directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• The directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the Group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of
at least twelve months from the date when the financial statements are authorised for issue.

OVERVIEW OF OUR AUDIT APPROACH

Materiality

In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be
expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our
testing and to evaluate the impact of misstatements identified.

Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be £215,000
(FY19 £310,000), based on loss before tax.

Overall company materiality was set at £200,000 based on net assets, restricted so as not to exceed group materiality.

Subsidiary materiality (covering Hornby Hobbies and the European sales offices and US trading subsidiaries) was set at £180,000.

Hornby PLC Annual Report and Accounts 2020

We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements.
Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of
the specific risk of each audit area having regard to the internal control environment.

Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and
directors’ remuneration.

We agreed with the Audit Committee to report to it all identified errors in excess of £10,000 (2019: £10,000). Errors below that threshold
would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds.

OVERVIEW OF THE SCOPE OF OUR AUDIT

We performed an audit of the complete financial information of two full scope components, Hornby Plc and Hornby Hobbies Limited.
The European sales offices and US trading subsidiary were audited using a component materiality level of £180,000 for the purposes
of the consolidation only. No separate audit opinion will be issued on these entities.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

Key audit matter

How the scope of our audit addressed the key audit matter

Carrying value of goodwill and intangibles

The group holds goodwill at a carrying value of £4.5m
and brand relations at a carrying value of £1.7m.

The parent company also holds significant investments
and debtor balances with group companies.

Recovery of these assets is dependent upon future cash
flows which are required to be discounted. There is a risk
that forecasts for these future cash flows are not met or that
the cash flows have not been discounted at an appropriate
rate. If the cash flows do not meet expectations the assets
may become impaired.

We reviewed management’s impairment review which includes impairment reviews
for investments, goodwill and intangible assets.

The reviews relied on forecasts of future cash flows based on board approved
forecasts. We challenged management on the assumptions made, including the
forecast growth rate, profitability and terminal growth rates applied. We also
challenged management on the discount rate applied to these forecasts. This review
was conducted with the support of our valuations team. As part of our review we
benchmarked assumptions such as the terminal growth rate and inputs into the
calculation of the cost of capital (discount rate).

We also considered the recoverability of intercompany debt in the parent company
financial statements.

Inventory provisioning

We obtained the aged inventory reports and recalculated the provision.

The group was holding £14.2m of inventory at the
year end. There was considered to be a risk that old
inventory may become difficult to sell and thereby
become impaired.

We reviewed assumptions made in comparison to the prior year and
challenged management where assumptions had either changed or no
longer appeared appropriate.

We compared the aging of stock year on year to consider if stock was getting
older and questioned management on the increase in stock from the prior year.

For a sample of inventory items we reviewed sales post year end to consider if
any items were being valued below cost.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportIndependent Auditors’ Report to the Members
of Hornby PLC continued

Key audit matter

Going concern

Due to the losses generated by the group and the
emergence of Coronavirus there was considered to be a
risk that the group and company are unable to continue as
a going concern.

Revenue recognition

Auditing standards require us to make a rebuttable
presumption that the fraud risk from revenue recognition is
a significant risk. We do not consider it appropriate to
rebut this presumption given the level of revenue is material
to the group.

How the scope of our audit addressed the key audit matter

We reviewed the cash flow model provided by management and challenged the
assumptions made.

Management are forecasting continued growth along with a return to profitability
in future periods. Our assessment therefore considered if this was feasible in light
of past losses and recent economic conditions.

In making our assessment we considered the accuracy of past budgeting since
the new management team took over, as well as a review of the April numbers
against forecast.

We also considered the cash position of the business noting the £15m share issue
received in March 2020, part of which has been made to repay debt.

We reviewed the revenue recognition process and found the policy to be in
accordance with IFRS 15.

We performed detailed testing by selecting a sample of sales made in the year and
agreeing these through to invoices, despatch records and ultimately cash received.

We tested a sample of sales around the year end to ensure that cut off was
working appropriately.

Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to
enable us to express an opinion on these matters individually and we express no such opinion.

OTHER INFORMATION

The directors are responsible for the other information. The other information comprises the information included in the annual report, other
than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion based on the work undertaken in the course of our audit

• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared

is consistent with the financial statements; and

• the directors’ report and strategic report have been prepared in accordance with applicable legal requirements.

Hornby PLC Annual Report and Accounts 2020

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

In light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us 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 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.

RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS

As explained more fully in the directors’ responsibilities statement set out on page 24 the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and parent company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

USE OF OUR REPORT

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Mark Sisson (Senior Statutory Auditor)

for and on behalf of Crowe U.K. LLP

Riverside House
40-46 High Street
Maidstone
Kent ME14 1JH

16 June 2020

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic ReportGroup and Company Statements of Comprehensive Income

for the Year Ended 31 March 2020

Group

Company

Note

Revenue

Cost of sales

Gross profit

Distribution costs

Selling and marketing costs

Administrative expenses

Other operating expenses

Operating (loss)/profit before Exceptional items

Exceptional items

Operating loss

Finance income

Finance costs

Net finance expense

Share of profit of investments accounted for using the equity method

Loss before taxation

Income tax credit

Loss for the year after taxation

Other comprehensive income

Items that may be subsequently reclassified to profit or loss:

Cash flow hedges, net of tax

Currency translation (losses)/gains

Other comprehensive (loss)/income for the year, net of tax

2020
£’000

37,842

(21,140)

16,702

(5,787)

(8,153)

(5,685)

181

(2,742)

(75)

(2,817)

(615)

(612)

2019
£’000

32,759

(19,348)

13,411

(6,177)

(6,826)

(4,812)

(226)

(4,630)

(593)

(5,223)

(177)

(170)

2020
£’000

1,065

–

1,065

–

2019
£’000

1,104

–

1,104

–

(1,069)

(1,078)

–

(4)

(6,051)

(6,055)

175

(217)

(42)

(3,395)

(5,312)

(6,063)

–

(3,395)

(5,312)

(6,063)

247

(332)

(85)

292

(45)

247

–

(119)

–

(103)

(77)

175

(217)

(42)

(38)

–

(38)

–

Total comprehensive (loss)/income for the year

(3,480)

(5,065)

(6,182)

Loss per ordinary share

Basic

Diluted

All results relate to continuing operations.

The notes on pages 36 to 67 form part of these accounts.

(2.67)p

(4.24)p

Hornby PLC Annual Report and Accounts 2020

Group and Company Statements of Financial Position

as at 31 March 2020

Assets

Non-current assets

Goodwill

Intangible assets

Property, plant and equipment

Investments

Right of Use Assets

Deferred tax assets

Current assets

Inventories

Trade and other receivables

Derivative financial instruments

Cash and cash equivalents

Liabilities

Current liabilities

Borrowings

Trade and other payables

Lease liabilities

Derivative financial instruments

Net current assets

Non-current liabilities

Borrowings

Lease liabilities

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

Accumulated losses
Total equity

Group

2020
£’000

2019
£’000

Company

2020
£’000

2019
£’000

Note

4,564

2,824

4,165

1,730

2,573

2,030

17,886

14,235

6,525

116

5,921

26,797

–

(4,889)

(384)

–

(5,273)

21,524

–

(2,255)

(150)

(2,405)

37,005

1,669

52,857

(1,802)

116

1,688

(17,578)

37,005

4,563

3,190

3,783

1,696

–

2,030

15,262

10,860

7,180

704

–

23,415

23,381

–

23,415

23,381

–

48,454

33,506

–

18,769

48,456

33,507

(1,893)

(5,472)

–

(156)

(7,521)

11,248

(561)

–

(150)

(711)

25,799

1,253

38,587

(1,470)

(131)

1,688

(14,183)

25,799

–

(6,596)

–

(6,596)

41,860

–

(265)

–

(265)

33,242

(5,907)

(5,759)

–

(5,907)

59,368

(5,759)

50,864

1,669

52,857

(1,262)

–

19,145

(13,096)

59,368

1,253

38,587

(1,143)

–

19,145

(7,033)

50,864

The notes on page 36 to 67 form part of these accounts. The Financial Statements on pages 32 to 67 were approved by the Board of
Directors on 16 June 2020 and were signed on its behalf by:

K Gould

Director

Registered Company Number: 01547390

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic Report

Group and Company Statements of Changes in Equity

for the Year Ended 31 March 2020

GROUP

Share
capital
£’000

Share
premium
£’000

Capital
redemption
reserve
£’000

Translation
reserve
£’000

Hedging
reserve
£’000

Other
reserves
£’000

Retained
earnings/
(accumulated
losses)
£’000

Total
equity
£’000

Balance at 31 March 2018 and 1 April 2018

1,253

38,587

(1,425)

(423)

1,688

(8,871) 30,864

Loss for the year

Other comprehensive expense for the year

Total comprehensive (expense)/income for the year

–

(45)

–

292

–

(5,312)

–

247

(5,312)

(5,065)

Balance at 31 March and 1 April 2019

1,253

38,587

(1,470)

(131)

1,688

(14,183) 25,799

Loss for the year

Other comprehensive (expense)/income for the year

Total comprehensive (expense)/income for the year

Transactions with owners

Net proceeds from issue of ordinary shares

Total transactions with owners

Balance at 31 March 2020

–

416

14,270

–

(332)

–

247

–

(3,395)

–

(85)

(3,395)

(3,480)

– 14,686

1,669

52,857

(1,802)

116

1,688

(17,578) 37,005

COMPANY

Share
capital
£’000

Share
premium
£’000

Capital
redemption
reserve
£’000

Translation
reserve
£’000

Other
reserves
£’000

Retained
earnings/
(accumulated
losses)
£’000

Total
equity
£’000

Balance at 31 March 2018 and 1 April 2018

1,253

38,587

(1,220)

19,145

(6,995) 50,825

Loss for the year

Other comprehensive expense for the year

Total comprehensive (expense)/income for the year

–

(38)

–

(38)

Balance at 31 March and 1 April 2019

1,253

38,587

(1,143)

19,145

(7,033) 50,864

Loss for the year

Other comprehensive income for the year

Total comprehensive income/(expense) for the year

Transactions with owners

Net proceeds from issue of ordinary shares

Total transactions with owners

Balance at 31 March 2020

–

416

14,270

–

(119)

–

(6,063)

–

(119)

(6,063)

(6,182)

– 14,686

1,669

52,857

(1,262)

19,145

(13,096) 59,368

The notes on page 36 to 67 form part of these accounts.

Hornby PLC Annual Report and Accounts 2020

Group and Company Cash Flow Statements

for the Year Ended 31 March 2020

Group

2020
£’000

Note

Company

2019
£’000

2020
£’000

2019
£’000

Cash flows from operating activities

Cash (used in)/generated from operations

(3,241)

(2,805)

(14,672)

Interest paid

Interest element of lease payments

Net cash (used in) operating activities

Cash flows from investing activities

Purchase of property, plant and equipment

Purchase of intangible assets

Interest received

(446)

(169)

(116)

–

(217)

–

(3,856)

(2,921)

(14,889)

(2,481)

(237)

(2,144)

(512)

Net cash (used in)/generated from investing activities

(2,715)

(2,649)

Cash flows from financing activities

Proceeds from issuance of ordinary shares

Share issue costs

Net (repayments to)/proceeds from ABL facility

Proceeds from shareholder loan

Repayment of shareholder loan

Payment of lease liability

Advances to subsidiary undertakings

Net cash generated from/(used in) financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Effect of exchange rate movements

Cash and cash equivalents

Cash and cash equivalents consist of:

Cash and cash equivalents

Cash and cash equivalents at the end of the year

15,000

(314)

(1,893)

7,776

(8,337)

(462)

–

11,770

5,199

704

5,921

–

1,893

500

–

2,393

(3,177)

3,878

704

(217)

–

(165)

–

175

–

(13)

(3)

–

175

15,000

(314)

–

14,715

–

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic Report

Notes to the Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

Accounting policies for the year ended 31 March 2020

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 Statements are presented in Sterling, which is the Parent’s functional currency and the Group’s presentation currency. The figures
shown in the Financial Statements are rounded to the nearest thousand pounds.

The financial information for the year ended 31 March 2020 has been prepared in accordance with International Financial Reporting
Standards (‘IFRS’) as adopted by the European Union (‘EU’), IFRS Interpretations Committee (‘IFRS-IC’) interpretations and with those parts of
the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated Group and Parent Company Financial Statements
have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of certain financial
assets and liabilities (including derivative instruments) at fair value through profit or loss.

The preparation of Financial Statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates.

Going concern

The Group has in place a £12.0 million Asset Based Lending (ABL) facility with PNC Credit Limited through to June 2023. The PNC
Covenants are customary operational covenants applied on a monthly basis. In addition, the Group entered a committed £9.0 million
loan facility with Phoenix Asset Management Partners Limited (the Group’s largest shareholder) if it should be required which is a three-year
rolling facility.

A Placing and Open Offer of 41,666,666 new ordinary shares at a price of 36p each, raising £14.7 million net of costs, was completed
on 12 March 2020 with the funds being used to accelerate product development and additional capital expenditure, to invest in digital
marketing, upgrade central systems and strengthen the Group’s balance sheet.

The Group has prepared trading and cash flow forecasts for a period of three years, which have been reviewed and approved by the
Board. On the basis of these forecasts, the facilities with PNC and Phoenix, the recent equity raise of £14.7 million and after a detailed
review of trading, financial position and cash flow models (taking COVID-19 into account), the Directors have a reasonable expectation that
the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they
continue to adopt the going concern basis of accounting in preparing the annual Financial Statements.

Basis of consolidation

Subsidiaries are all entities over which the Group has control. The Group controls an entity where the Group is exposed to, or has the rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the
entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date
that control ceases.

The acquisition 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, liabilities incurred or assumed at the date of exchange, plus costs
directly attributable to the acquisition. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost
of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses
are also eliminated but considered an impairment indicator of the asset concerned. Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies adopted by the Group.

Hornby PLC Annual Report and Accounts 2020

Adoption of new and revised standards

The Group applies for the first time IFRS 16 ‘Leases’.

IFRS 16 ‘Leases’ (effective date 1 January 2019)

The Group has adopted IFRS 16 ‘Leases’ as of 1 April 2019. The modified retrospective approach was applied on transition. Prior period
comparatives have not been restated, and there was no adjustment to equity on transition.

IFRS 16 requires the capitalisation of operating leases, such as the Group’s building and vehicle leases, as right-of-use leased assets with
an offsetting financial liability. The Group has elected to measure the right-of-use leased assets at an amount equal to the lease liabilities.
Right-of-use assets and liabilities are presented separately in the Statement of Financial Position. On transition to IFRS 16 the weighted
average incremental borrowing rate used to measure lease liabilities was 5.96%.

In the Group Statement of Comprehensive Income the previous rental charge has been replaced with a combination of depreciation from
the right-of-use leased assets and an interest charge from the lease liabilities. Further details on the right-of-use assets and liabilities are in
notes 12 and 17 respectively.

The impact on transition is as follows:

GROUP

Total operating lease commitments as disclosed 31 March 2019

Adjustments to commitments disclosure

Right of use lease liability before discounting

Discount using incremental borrowing rate

Right of use lease liabilities recognised at 1 April 2019

£’000

3,692

723

4,415

(1,406)

3,009

The adjustments to commitments disclosure above relates to the incorrect calculation of operating lease commitments for properties in the prior
year accounts.

The effect on the year end 31 March 2020 is as follows:

GROUP

Rental lease charges under IAS 17

Depreciation of right of use leased assets

Increase in operating profit due to IFRS 16

Interest charge on right of use liabilities

Decrease in profit before tax due to IFRS 16

Decrease in earnings per share due to IFRS 16

£’000

631

(528)

103

(169)

(66)

(0.05p)

In the year of adoption operating profit increases, but profit before tax decreases, and earnings per share is reduced. Assuming no further
changes to the Group’s leases, the increase in operating profit will endure, however in future years the interest charge will reduce as the
discount unwinds.

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or
future reporting periods.

Hornby PLC Annual Report and Accounts 2020

OverviewFinancial StatementsGovernanceStrategic Report1. SIGNIFICANT ACCOUNTING POLICIES continued

Revenue recognition

IFRS 15 establishes a framework that applies to revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an
amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The Group’s revenue is mostly from product sales. Revenue recognition has not been impacted by the adoption of IFRS 15 and method of
recognition is detailed as follows;

Revenue is recognised as follows:

(a) Sale of goods

Sales of goods are recognised when a Group entity has delivered 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 at the later of when the performance obligation is satisfied and when the sales or usage occurs.

The Group establishes a refund liability (included in trade and other payables) at the period end that reduces revenue in anticipation of
customer returns of goods sold in the period. Accumulated experience is used to estimate such returns at the time of sale at a portfolio
level (expected value method).

(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. Revenue from management services are recognised in the accounting period
in which the services are rendered.

Exceptional items

Where items of income and expense included in the statement of comprehensive income are considered to be material and exceptional in
nature, separate disclosure of their nature and amount is provided in the Financial Statements. These items are classified as exceptional items.
The Group considers the size and nature of an item both individually and when aggregated with similar items when considering whether it is
material, for example impairment of intangible assets or restructuring costs.

Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been
identified as the Board of the Company that makes strategic decisions.

Operating profit of each reporting segment includes revenue and expenses directly attributable to or able to be allocated on a reasonable basis.
Segment assets and liabilities are those operating assets and liabilities directly attributable to or that can be allocated on a reasonable basis.

Business combinations

Goodwill arising on a business combination before and after 1 April 2004, the date of transition to IFRS, is not subject to amortisation
but tested for impairment on an annual basis. Intangible assets, excluding goodwill, arising on a business combination subsequent to
1 April 2004, are separately identified and valued, and subject to amortisation over their estimated economic lives.

Associate with equity accounting

The investment in December 2017 in 49% of LCD Enterprises Limited is included in these accounts using the Equity Method.

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity
method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor’s share of
the profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously
recognised in other comprehensive income is reclassified to profit and loss where appropriate.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

The Group’s share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in
other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the
investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf
of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is
the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying
value and recognises the amount adjacent to ‘share of profit/(loss) of associates’ in the income statement.

Gains resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group’s Financial
Statements only to the extent of unrelated investor’s interests in the associates. Unrealised losses are eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Any dilution gains and losses arising in investments in associates are recognised in the
income statement.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the
acquired subsidiary at the date of acquisition.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not
reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is
allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or Groups of
cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to
operating segment. Goodwill is recorded in the currency of the cash generating unit to which it is allocated.

Intangibles

Other intangibles include brands, customer lists and computer software. They are recognised initially at fair value determined in accordance
with appropriate valuation methodologies and subjected to amortisation and annual impairment reviews, as follows:

(a) Brand names

Brand names, acquired as part of a business combination, 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, acquired as part of a business combination, are capitalised at fair value as at the date of acquisition. They are carried
at their fair value less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line
method to allocate the fair value of customer relationships over their estimated economic life of ten years. Customer lists have been valued
according to discounted incremental operating profit expected to be generated from each of them over their useful lives.

Computer software expenditure is capitalised at the value at the date of acquisition and depreciated over a useful economic life of
four to six years.

Property, plant and equipment

Land and buildings are shown at cost less accumulated depreciation. Assets revalued prior to the transition to IFRS use this valuation as
deemed cost at this date. Other property, plant and equipment are shown at historical cost less accumulated depreciation. Cost includes
the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.

Depreciation is provided at rates calculated to write off the cost or valuation of each asset, on a straight-line basis (with the exception of tools
and moulds) over its expected useful life to its residual value, as follows:

Plant and equipment

– 5 to 10 years

Motor vehicles

– 4 years

Tools and moulds are depreciated at varying rates in line with the related product production on an item-by-item basis up to a maximum of
four years.

Hornby PLC Annual Report and Accounts 2020

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report

1. SIGNIFICANT ACCOUNTING POLICIES continued

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 in associates
are recognised using the equity method of accounting, where the investments are initially recognised at cost and adjusted thereafter to recognise
the Group’s share of the profits or losses of the investee. Dividend income is shown separately in the Statement of Comprehensive Income.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is predominantly determined using the first-in, first-out (‘FIFO’) method.
Alternative methods may be used when proven to generate no material difference. The cost of finished goods comprise item cost, freight and
any product specific development costs.

Net realisable value is based on anticipated selling price less further costs expected to be incurred to completion and disposal. Provisions
are made against those stocks considered to be obsolete or excess to requirements on an item-by-item basis.

The replacement cost, based upon latest invoice prices before the balance sheet date, is considered to be higher than the balance sheet
value of inventories at the year end due to price rises and exchange fluctuations. It is not considered practicable to provide an accurate
estimate of the difference at the year end date.

Financial instruments

Financial assets and financial liabilities are recognised in the Group and Company’s statements of financial position when the Group or
Company becomes a party to the contractual provisions of the instrument.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment.
To establish the provision for impairment, the Group applies IFRS 9 simplified approach to measuring expected credit losses which
uses a lifetime expected loss allowance for all trade receivable.

To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past
due. The expected loss rates are based on the payment profiles of sales over a period of 12 months before 31 March 2020 and the
corresponding historical credit losses experienced within this period.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.

An equity instrument is any contract that evidences a residual interest in the assets of the Group and Company after deducting all of
its liabilities. Equity instruments issued by the Group and Company are recorded at the proceeds received, net of direct issue costs.

Refund liability

Provisions for sales returns are recognised for the products expected to be returned. Accumulated experience is used to estimate such
returns at the time of sale at a portfolio level (expected value method).

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continuedCash 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.

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.

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Taxation including deferred tax

Corporation tax, where payable, is provided on taxable profits at the current rate.

The taxation liabilities of certain Group undertakings are reduced wholly or in part by the surrender of losses by fellow Group undertakings.

Deferred tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of
unused tax assets and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the
taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Tax relating
to items recognised directly in equity is recognised in equity and not in the Statement of Comprehensive Income.

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 25.

The Group has a profit share scheme for all employees below Executive level. This scheme commences with a 5% bonus for all when the
Group breaks even. Thereafter, 15% of all Group operating profit will be shared between the employees every year.

Hornby PLC Annual Report and Accounts 2020

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report1. SIGNIFICANT ACCOUNTING POLICIES continued

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.

Financial risk management

Financial risk factors

The Group’s operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchange rates, market
interest rates, credit risk and its liquidity position. The Group has in place a risk management programme that seeks to limit adverse effects on
the financial performance of the Group by using foreign currency financial instruments. In addition, other instruments are used to manage the
Group’s interest rate exposure.

(a) Foreign exchange risk

The Group is exposed to foreign exchange risks against Sterling primarily on transactions in US Dollars. It enters into forward currency
contracts to hedge the cash flows of its product sourcing operation (i.e. it buys US Dollars forwards in exchange for Sterling) and looks
forward six–twelve months on a rolling basis at forecasted purchase volumes. The policy framework requires hedging between 70% and
100% of anticipated import purchases that are denominated in US Dollars. The Company has granted Euro denominated intercompany
loans to subsidiary companies that are translated to Sterling at statutory period ends thereby creating exchange gains or losses. The loans
to the subsidiaries, Hornby Deutschland GmbH, Hornby Italia s.r.l. and Hornby France S.A.S. are classified as long-term loans and
therefore the exchange gains and losses on consolidation are reclassified to the translation reserve in Other Comprehensive Income as
per IAS 21. The loan to the branch in Spain is classified as a long-term loan however repayable on a shorter timescale than those of the
other subsidiaries and therefore the exchange gains or losses are taken to Statement of Comprehensive Income.

(b) Interest rate risk

The Group finances its operations through a mixture of retained profits, Asset Based lending facilities and shareholder loans. The Group
borrows, principally in Sterling, at floating rates of interest to meet short-term funding requirements. At the year end the Group’s borrowings
comprised a revolving credit facility, bank overdrafts and a fixed-term loan agreement.

The Group manages its credit risk through a combination of internal credit management policies and procedures.

(d) Liquidity risk

At 31 March 2020 the UK had a £12 million Asset Based Lending facility with PNC Credit Limited and a £9 million loan facility with
Phoenix Asset Management Partners. The funding 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, also known as derivative financial instruments.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at
their fair value at the end of each reporting period. 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 accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so
the nature of the item being hedged.

(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 the hedging reserve within equity and through the Statement of Comprehensive Income. The gain or loss relating to the ineffective
portion is recognised immediately in the Statement of Comprehensive Income within operating expenses.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

Amounts accumulated in Other Comprehensive Income are recycled in the Statement of Comprehensive Income in the periods when
the hedged item affects profit or loss (for instance when the forecast purchase that is hedged takes place). The gain or loss relating to
the effective portion of forward foreign exchange contracts hedging import purchases is recognised in the Statement of Comprehensive
Income within ‘cost of sales’. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for
example, inventory) the gains and losses previously deferred in Other Comprehensive Income are transferred from Other Comprehensive
Income and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods
sold in the case of inventory.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain
or loss existing in equity at that time remains in equity and is recognised in income when the forecast transaction is ultimately recognised
in the Statement of Comprehensive Income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss is
immediately transferred to the Statement of Comprehensive Income.

(b) Derivatives that do not qualify for hedge accounting

Certain derivative instruments are not considered effective and do not qualify for hedge accounting. Such derivatives are classified at fair
value through the Statement of Comprehensive Income and changes in the fair value of derivative instruments that do not qualify for hedge
accounting are recognised immediately in the Statement of Comprehensive Income.

Fair value estimation

The fair values of short-term deposits, loans and overdrafts with a maturity of less than one year are assumed to approximate to their book values.

The fair values of the derivative financial instruments used for hedging purposes are disclosed in note 19.

Foreign currency

Transactions denominated in foreign currencies are recorded in the relevant functional currency at the exchange rates ruling at the date of the
transaction. Foreign exchange gains and losses resulting from such transactions are recognised in the Statement of Comprehensive Income,
except when deferred and disclosed in Other Comprehensive Income as qualifying cash flow hedges. Monetary assets and liabilities
denominated in foreign currencies are translated at the exchange rates ruling at the balance sheet date and any exchange differences are
taken to the Statement of Comprehensive Income.

Foreign exchange gains/losses recognised in the Statement of Comprehensive Income relating to foreign currency loans and other foreign
exchange adjustments are included within operating profit.

On consolidation, the Statement of Comprehensive Income and cash flows of foreign subsidiaries are translated into Sterling using average
rates that existed during the accounting period. The balance sheets of foreign subsidiaries are translated into Sterling at the rates of exchange
ruling at the balance sheet date. Gains or losses arising on the translation of opening and closing net assets are recognised in Other
Comprehensive Income.

Dividend distribution

Final dividends are recorded in the Statement of Changes in Equity in the period in which they are approved by the Company’s shareholders.
Interim dividends are recorded in the period in which they are approved and paid.

Critical estimates and judgements in applying the accounting policies

The Group’s estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptions:

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 have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are addressed below.

Hornby PLC Annual Report and Accounts 2020

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report

1. SIGNIFICANT ACCOUNTING POLICIES continued

(a) Impairment of goodwill, intangibles and investments

The Group tests annually whether any goodwill, investment or intangible asset has suffered any impairment. The recoverable amounts of
cash-generating units (CGUs) have been determined based on value-in-use calculations. The critical areas of estimation applied within the
impairment reviews conducted include the weighted average cost of capital used in discounting the cash flows of the cash generating
units, the forecast margin growth rate, the growth rate in perpetuity of the cash flows and the forecast operating profits of the cash
generating units. The judgements used within this assessment are set out within note 8.

Other estimates and assumptions:

(a) Inventory provision

Whenever there is a substantiated risk that an item of stock’s sellable value may be lower than its actual stock value, a provision for the
difference between the two values is made. Management review the stock holdings on a regular basis and consider where a provision
for excess or obsolete stock should be made based on expected demand for the stock and its condition.

(b) Receivables provision

The Group reviews the amount of credit loss associated with its trade receivables, intercompany receivables and other receivables based
on forward looking estimates that consider current and forecast credit conditions as opposed to relying on past historical default rates.

The fair value of the financial derivatives is determined by the mark to market value at the year end date with any movement in fair value
going through Other Comprehensive Income.

(d) Refund liability

The refund liability is based on accumulated experience of returns at the time of sale at a portfolio level (expected value method).
Because the number of products returned has been steady for years, it is highly probable that a significant reversal in the cumulative
revenue recognised will not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting
date. The right to the returned goods is measured by reference to the carrying amount of the goods.

(e) IFRS 16 Estimates

The Group makes judgement to estimate the incremental borrowing rate used to measure lease liabilities based on expected third party
financing costs when the interest rate implicit in the lease cannot be readily determined. This is explained further in the Leases accounting
policy. Where leases include break dates the management have made a judgement these will not be exercised.

Critical judgements in applying the Group’s accounting policies:

(a) Recognition of deferred tax on losses

Deferred tax assets are recognised for deductible temporary differences, carry-forward of unused tax assets and unused tax losses,
to the extent that it is probable that the 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 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.

(b) Going concern

The Directors apply judgement to assess whether it is appropriate for the Group to be reported as a going concern by considering the
business activities and the Group’s principal risks and uncertainties. Details of the consideration made are included within the Directors’
Report (page 24) and the basis of preparation (page 36).

A number of assumptions and estimates are involved in arriving at this judgement including management’s projections of future trading
performance and expectations of the external economic environment.

Other judgements in applying the Group’s accounting policies:

(a) Equity accounting for LCD Enterprises Limited

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the
equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the Group’s
share of the change in net assets of LCD Enterprises Limited since the date of the acquisition.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

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, USA,
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
32 and its assets and liabilities given in the Company Statement of Financial Position on page 33. Other Company information is provided in
the other notes to the accounts.

Year ended 31 March 2020

Revenue

– External

28,622

3,263

1,199

1,469

3,289

37,842

–

37,842

UK
£’000

USA
£’000

Spain
£’000

Italy
£’000

Rest of
Europe
£’000

Total
Reportable
Segments
£’000

Intra
Group
£’000

Group
£’000

– Other segments

3,088

–

Operating (loss)/profit

(1,794)

(1,015)

Finance income

– External

– Other segments

Finance costs

– External

– Other segments

Share of profit of investments accounted for
using the equity method

605

(579)

(303)

–

(29)

–

(18)

–

(2)

(217)

–

(Loss) before taxation

(2,034)

(1,044)

(237)

3,088

(3,088)

–

(1)

–

(2)

(73)

(2,817)

735

(615)

(735)

–

(735)

–

735

–

130

(3)

(142)

–

(4)

–

(76)

(3,395)

(76)

(3,395)

(29)

(65)

(222)

(744)

524

–

(3,579)

(27,123)

–

2,030

795

44,683

(6,651)

(34,951)

6,533

27,123

–

150

(220)

(118)

(7,678)

(2,817)

–

(615)

–

(3,395)

69,776

(27,123)

2,030

44,683

(34,951)

27,123

150

(7,678)

2,481

2,100

(148)

603

–

Taxation

(Loss) for the year

Segment assets

(2,034)

(1,044)

(237)

56,516

2,913

6,101

(128)

4,374

69,776

Less intercompany receivables

(17,484)

(63)

(5,968)

Add tax assets

Total assets

Segment liabilities

2,095

–

41,127

2,850

–

133

(15,552)

(6,841)

(5,163)

Less intercompany payables

8,655

6,347

5,064

150

–

(6,747)

(494)

–

(99)

Add tax liabilities

Total liabilities

Other segment items

Capital expenditure

Depreciation

Net foreign exchange on intercompany loans

Amortisation of intangible assets

2,461

2,076

(148)

603

–

2,481

2,100

(148)

603

All transactions between Group companies are on normal commercial terms.

Hornby PLC Annual Report and Accounts 2020

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report

Rest of
Europe
£’000

Total
Reportable
Segments
£’000

Italy
£’000

Intra
Group
£’000

Group
£’000

872

2,250

32,759

–

32,759

–

2,753

(2,753)

–

(138)

–

141

–

(154)

–

(151)

–

(151)

(98)

(5,223)

–

(74)

761

(177)

(761)

–

(172)

(5,312)

–

(172)

(5,312)

–

(761)

(5,223)

–

(177)

(761)

–

(5,312)

–

(5,312)

63,545

(31,800)

2,030

33,775

39,923

(31,797)

(150)

7,976

2,656

2,855

(90)

690

2. SEGMENTAL REPORTING continued

Year ended 31 March 2019

UK
£’000

USA
£’000

Revenue

– External

25,867

2,867

– Other segments

Operating (loss)/profit

Finance cost

– External

– Other segments

Finance income

– External

– Other segments

Share of profit of investments accounted for
using the equity method

2,753

(4,142)

–

(883)

620

(177)

(316)

–

Spain
£’000

903

–

(217)

–

(Loss) before taxation

(3,927)

(883)

(179)

Taxation

(Loss) for the year

Segment assets

–

(3,927)

(883)

(179)

47,871

1,973

5,925

3,357

4,419

63,545

Less intercompany receivables

(18,721)

(60)

(5,808)

(3,567)

(3,644)

(31,800)

Add tax assets

Total assets

Segment liabilities

2,060

–

31,210

1,913

–

117

(64)

(274)

2,030

809

33,775

20,022

4,321

4,778

4,214

6,588

39,923

Less intercompany payables

(12,344)

(4,236)

(4,716)

(4,019)

(6,482)

(31,797)

Add tax liabilities

Total liabilities

Other segment items

Capital expenditure

Depreciation

Net foreign exchange on intercompany loans

Amortisation of intangible assets

(150)

7,528

2,620

2,857

(90)

690

–

(20)

–

195

–

(150)

106

7,976

–

2,656

2,855

(90)

690

All transactions between Group companies are on normal commercial terms.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

3. NET FINANCE EXPENSE

Finance costs:

Interest expense on borrowings

Interest expense on shareholder loan

Interest element of leases

Interest expense on intercompany borrowings

Finance income:

Bank interest

Interest income on intercompany loans

Group

2020
£’000

Company

2019
£’000

2020
£’000

2019
£’000

(165)

(281)

(169)

–

(615)

–

(116)

(61)

–

(177)

–

(217)

–

175

(42)

–

(217)

–

175

(42)

Net finance expense

(612)

(170)

4. LOSS BEFORE TAXATION

The following items have been included in arriving at loss before taxation:

Staff costs (note 24)

Inventories:

Group

2020
£’000

Company

2019
£’000

2020
£’000

2019
£’000

8,014

7,042

513

514

– Cost of inventories recognised as an expense (included in cost of sales)

18,240

15,464

– Increase in stock provision

Depreciation of property, plant and equipment:

– Owned assets

– Leased assets

Profit/(loss) on disposal of fixed assets

Other operating lease rentals payable:

– Plant and machinery

– Property

Repairs and maintenance expenditure on property, plant and equipment

Research and development expenditure

Increase in impairment of trade receivables

Other operating expenses/(income):

– Foreign exchange on trading transactions

– Net impact of foreign exchange on intercompany loans

– Amortisation of intangible assets – brands and customer lists

186

2,100

528

–

1,244

(118)

(260)

(148)

227

2,855

–

773

1,011

(290)

(120)

(90)

227

–

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4. LOSS BEFORE TAXATION continued

Exceptional items comprise:

– Restructuring costs

– Refinancing

– Relocation

– Coronavirus impact

– Impairment of receivable

Group

2020
£’000

2019
£’000

Company

2020
£’000

2019
£’000

–

(3)

–

172

372

–

593

–

6,020

6,051

–

103

The exceptional items totalling £75,000 (2019: £593,000) include restructuring costs relating to redundancy costs and professional fees
relating to refinance of the Group.

The Company’s exceptional items include £6,020,000 (2019: nil). Hornby Plc have issued a guarantee against intercompany debts due to
Hornby Hobbies Limited. A liability has been recognised for the expected cash outflow in order to settle these debts. The expense has been
recorded as an exceptional cost.

Services provided by the Company’s auditors and network firms

During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditors and network firms
as detailed below:

Fees payable to the Company’s auditors for the audit of Parent Company and
consolidated accounts

Fees payable to the Company’s auditors and its associates for other services:

– The auditing of accounts of the Company’s subsidiaries

– Audit-related assurance services

Group

2020
£’000

2019
£’000

Company

2020
£’000

2019
£’000

–

Prior year fees relate to the previous auditors, PricewaterhouseCoopers. Current year subsidiary fees relate to Hornby Italia s.r.l.. The audit of
Hornby Hobbies Limited is included with the £66,000 and not separately split out.

In the current financial year the level of non-audit fees was within the 1:1 ratio to audit fees as per Audit Committee policy.

5. INCOME TAX (CREDIT)/CHARGE

Analysis of tax (credit)/charge in the year

Current tax

Deferred tax (note 20)

Origination and reversal of temporary differences

Effect of tax rate change on opening balance

Total tax credit to the loss before tax

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Hornby PLC Annual Report and Accounts 2020

Group

2020
£’000

–

221

(221)

–

2019
£’000

Company

2020
£’000

2019
£’000

–

Notes to the Financial Statements continuedThe tax for the year differs to the standard rate of corporation tax in the UK of 19%. Any differences are explained below:

Loss before taxation

Loss on ordinary activities multiplied by rate of
Corporation tax in UK of 19% (2018: 19%)

Effects of:

Permanent differences

Non-taxable income

Difference on overseas rates of tax

Deferred tax not recognised

Remeasurement of deferred tax

Total taxation

Group

2020
£’000

2019
£’000

(3,395)

(5,312)

(645)

(1,009)

(6)

(33)

885

(221)

–

(3)

(15)

(49)

1,069

–

Company

2020
£’000

(43)

2019
£’000

(38)

(8)

–

(6)

–

(7)

–

(15)

–

The Company’s profits for this accounting year are taxed at an effective rate of 19%. The UK corporation tax rate was due to decrease
further to 17% on 1 April 2020 however the rate has been kept at 19%, being substantively enacted on 17 March 2020.

UK deferred tax balances have been restated in these accounts and carried forward at a rate of 19% from 1 April 2020.

Unrecognised deferred tax relates to UK and overseas subsidiaries and is not recognised except to the extent of the movement in the change
in tax rate noted above. This is due to the Directors taking the view that it would be inappropriate to recognise further deferred tax assets
relating to losses until taxable profits are being delivered by the Group. More detail can be found in note 20.

6. DIVIDENDS

No interim or final dividends were paid in relation to the year ended 31 March 2019 and no interim dividend has been paid in relation to
the year ended 31 March 2020. The Directors are not proposing a final dividend in respect of the financial year ended 31 March 2020.

7. LOSS PER SHARE

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year.

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential
ordinary shares that have satisfied the appropriate performance criteria at 31 March 2020. For the year ended 31 March 2020, there was
no difference in the weighted average number of shares used for basic and diluted net loss because there are no outstanding share options.

The underlying loss per share is shown to present a clearer view of the trading performance of the business. Management identified
the following items, whose inclusion in performance distorts underlying trading performance: net foreign exchange (gains)/losses on
intercompany loans which are dependent on exchange rate fluctuations and can be volatile, and the amortisation of intangibles which
results from historical acquisitions. Additionally, exceptional items including relocation, refinance and restructuring costs are one off items
and therefore have also been added back in calculating underlying loss per share.

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report7. LOSS PER SHARE continued

Reconciliations of the loss and weighted average number of shares used in the calculations are set out below.

2020

Weighted
average
number of
shares
’000s

(Loss)/
earnings
£’000

2019

Weighted
average
number of
shares
’000s

Per-share
amount
pence

(Loss)/
earnings
£’000

REPORTED

Basic loss per share

Loss attributable to ordinary shareholders

(3,395)

127,196

(2.67)

(5,312)

125,261

(4.24)

Effect of dilutive securities

Diluted loss per share

UNDERLYING

–

(3,395)

127,196

(2.67)

(5,312)

125,261

(4.24)

Loss attributable to ordinary shareholders

(3,395)

127,196

(2.67)

(5,312)

125,261

Amortisation of intangibles

Restructuring costs

Coronavirus impact

Refinancing

Relocation

Net foreign exchange translation adjustments

Underlying basic loss/EPS

Underlying diluted loss/EPS

184

(2)

–

(120)

–

(3,270)

127,196

(3,270)

127,196

0.14

0.05

0.00

–

(0.09)

(2.57)

184

–

140

302

–

(4,573)

125,261

(4,573)

125,261

(4.24)

0.15

0.03

–

0.11

0.24

0.06

(3.65)

The above numbers used to calculate the EPS for the year ended 31 March 2020 and 31 March 2019 have been tax effected at the rate of 19%.

8. GOODWILL

GROUP

COST

At 1 April 2019

Exchange adjustments

At 31 March 2020

AGGREGATE IMPAIRMENT

At 1 April 2019 and 31 March 2020

Net book amount at 31 March 2020

COST

At 1 April 2018

Exchange adjustments

At 31 March 2019

AGGREGATE IMPAIRMENT

At 1 April 2018 and 31 March 2019

Net book amount at 31 March 2019

Net book amount at 31 March 2018

The Company has no goodwill.

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Hornby PLC Annual Report and Accounts 2020

£’000

13,054

13,055

8,491

4,564

13,055

(1)

13,054

8,491

4,563

4,564

Notes to the Financial Statements continued

The goodwill has been allocated to cash-generating units and a summary of carrying amounts of goodwill by geographical segment
(representing cash-generating units) at 31 March 2020 and 31 March 2019 is as follows:

GROUP

At 31 March 2020

At 31 March 2019

£’000

3,992

USA

£’000

France
£’000

364

Germany
£’000

198

Total

£’000

4,564

4,563

Goodwill allocated to the above cash-generating units of the Group has been measured based on benefits each geographical segment is
expected to gain from the business combination.

Impairment tests for goodwill

Management reviews the business performance based on geography. Budgeted revenue was based on expected levels of activity
given results to date, together with expected economic and market conditions. Budgeted operating profit was calculated based upon
management’s expectation of operating costs appropriate to the business as reflected in the New Business Plan.

The relative risk adjusted (or ‘beta’) discount rate applied reflects the risk inherent in hobby based product companies. In determining this
discount rate, management has applied an adjustment for risk of such companies in the industry on average determined using the betas of
comparable hobby based product companies. The 31 March 2020 forecasts are based on a four-year business plan for the years ending
31 March 2021 to 31 March 2024. The 31 March 2019 forecasts are based on a three-year business plan for the years ending 31 March
2020 to 31 March 2022. Cash flows beyond these years are extrapolated using an estimated 2.0% year on year growth rate. The cash
flows were discounted using a pre-tax discount rate of 9.9% (2019: 12.3%) which management believes is appropriate for all territories.

The key assumptions used for value-in-use calculations for the year ended 31 March 2020 are as follows:

GROUP

Gross Margin1

Growth rate to perpetuity2

(Corgi)

61.0%

2.0%

UK
(Airfix &
Humbrol)

61.1%

2.0%

France

58.7%

2.0%

Spain

n/a

1 Average of the variable yearly gross margins used over the period 20’21 to 27’28.

2 Weighted average growth rate used to extrapolate cash flows beyond the budget period reflecting the long-term future growth rate of the economy.

The key assumptions used for value-in-use calculations for the year ended 31 March 2019 are as follows:

GROUP

Gross Margin1

Growth rate to perpetuity2

(Corgi)

61.3%

2.0%

UK
(Airfix &
Humbrol)

62.8%

2.0%

France

62.6%

2.0%

Spain

n/a

1 Average of the variable yearly gross margins used over the period 19’20 to 25’26.

2 Weighted average growth rate used to extrapolate cash flows beyond the budget period.

These assumptions have been used for the analysis of each CGU within the operating segments.

Italy

n/a

Italy

n/a

Germany

54.6%

2.0%

Germany

57.2%

2.0%

For the UK CGU, the recoverable amount calculated based on value in use exceeded carrying value by £13.9 million. A reduction of the
average gross margin to respectively 56.9% for Corgi and 53.7% for Airfix/Humbrol, or a rise in discount rate to respectively 14.6% for
Corgi and 27.7% for Airfix/Humbrol would remove the remaining headroom.

For the France CGU, the recoverable amount calculated based on value in use exceeded carrying value by £14.3 million. A reduction of the
average gross margin to 16.4%, or a rise in discount rate to 240.0% would remove the remaining headroom.

For the Germany CGU, the recoverable amount calculated based on value in use exceeded carrying value by £7.7 million. A reduction of
the average gross margin to 15.1%, or a rise in discount rate to 328.0% would remove the remaining headroom.

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report9. INTANGIBLE ASSETS

GROUP

INTANGIBLE ASSETS

COST

At 1 April 2019

Additions

At 31 March 2020

ACCUMULATED AMORTISATION

At 1 April 2019

Charge for the year

At 31 March 2020

Net book amount at 31 March 2020

GROUP

INTANGIBLE ASSETS

COST

At 1 April 2018

Additions

At 31 March 2019

ACCUMULATED AMORTISATION

At 1 April 2018

Charge for the year

At 31 March 2019

Net book amount at 31 March 2019

Brand names

Customer lists

Computer Software

£’000

Total

£’000

4,914

–

4,914

2,985

227

3,212

1,702

1,415

–

1,415

–

1,415

–

3,213

237

3,450

1,952

376

2,328

1,122

9,542

237

9,779

6,352

603

6,955

2,824

Brand names

Customer lists

Computer Software

£’000

Total

£’000

4,914

–

4,914

2,758

227

2,985

1,929

1,415

–

1,415

–

1,415

–

2,701

512

3,213

1,489

463

1,952

1,261

9,030

512

9,542

5,662

690

6,352

3,190

All amortisation charges in the year have been charged in other operating expenses. The Company held no intangible assets.

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Notes to the Financial Statements continued

10. PROPERTY, PLANT AND EQUIPMENT

GROUP

COST

At 1 April 2019

Exchange adjustments

Additions at cost

Disposals

At 31 March 2020

ACCUMULATED DEPRECIATION

At 1 April 2019

Exchange adjustments

Charge for the year

Disposals

At 31 March 2020

Net book amount at 31 March 2020

Plant and
equipment

£’000

Motor Vehicle

£’000

Tools and
moulds
£’000

Total

£’000

1,575

65,077

66,706

(153)

1,529

1,046

319

(152)

1,237

292

–

2,400

–

2,481

(153)

67,477

69,061

61,840

62,923

–

1,777

–

63,617

3,860

2,100

(152)

64,896

4,165

Depreciation is charged in the Group’s Statement of Comprehensive Income within Administrative expenses.

GROUP

COST

At 1 April 2018

Exchange adjustments

Additions at cost

Disposals

At 31 March 2019

ACCUMULATED DEPRECIATION

At 1 April 2018

Exchange adjustments

Charge for the year

Disposals

At 31 March 2019

Net book amount at 31 March 2019

Net book amount at 31 March 2018

The Company does not hold any property, plant and equipment.

Plant and
equipment

£’000

Motor Vehicles
£’000

Tools and
moulds
£’000

Total

£’000

1,567

300

(303)

1,575

1,175

168

(303)

1,046

529

392

–

63,252

64,853

–

1,825

–

2,144

(303)

65,077

66,706

59,155

60,364

–

2,685

–

2,855

(303)

61,840

62,923

3,237

4,097

3,783

4,489

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11. INVESTMENTS

The Group holds a direct investment in LCD Enterprises Limited (‘LCD’), holding 49% of ordinary shares. The company is based in South
Wales registered at Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB. This investment is included in the consolidated Financial
Statements using the equity method. The last accounts were of LCD were drawn up to 31 December. As an associate it does not have the
same accounting year end.

Summarised Financial Information of LCD

As at 31 March 2020

Current Assets

Non-current assets

Current Liabilities

For the period ended 31 March

Revenues

Profit after tax

Group

The movements in the net book value of interests in associated undertakings are as follows:

At 1 April 2018

Share of profit of investments accounted for using the equity method

At 31 March and 1 April 2019

Share of profit of investments accounted for using the equity method

At 31 March 2020

Company

The movements in the net book value of interests in subsidiary and associated undertakings are as follows:

2020
£’000

2019
£’000

2,277

2,244

(2,182)

3,024

1,741

2,542

(2,083)

3,369

165

Interests in
associated
undertakings at
valuation
£’000

1,615

1,696

1,730

At 1 April 2019

Share of profit of investments accounted for using the equity method

At 31 March 2020

At 1 April 2018 (restated)

Share of profit of investments accounted for using the equity method

At 31 March 2019 (restated)

Interests in
subsidiary
undertakings
at valuation

Interests in
associate
undertakings
at valuation

£’000

17,336

–

17,336

–

17,336

£’000

1,696

1,730

1,615

1,696

Loans to
subsidiary
undertakings
at cost
£’000

Total

£’000

4,349

23,381

–

4,349

–

23,415

23,300

4,349

23,381

The split between investments and long-term intercompany balances has been amended to reflect a historical allocation difference.

Interest was charged on loans to subsidiary undertakings at Sterling three-month Libor + 3.6%.

Loans are unsecured and exceed five years’ maturity.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

Group subsidiary undertakings

Details of the subsidiaries of the Group are set out below. Hornby Hobbies Limited is engaged in the development, design, sourcing and
distribution of models. Hornby America Inc., Hornby Italia s.r.l., Hornby France S.A.S., Hornby España S.A. and Hornby Deutschland GmbH
are distributors of models. Hornby Industries Limited and H&M (Systems) Limited are dormant companies. All subsidiaries are held directly by
Hornby PLC.

Proportion of nominal value
of issued shares held

Group % Company %

Hornby Hobbies Limited

Westwood, Margate, Kent CT9 4JX, UK

Country of incorporation, registration and business

Description of
shares held

Ordinary shares

Hornby America Inc.

4620 95th St SW suite a, Lakewood, WA 98499, United States

Ordinary shares

Hornby España S.A.

C/Federico Chueca, S/N, E28806 ALCALA DE HENARES Spain

Ordinary shares

Hornby Italia s.r.l.

Viale dei Caduti, 52/A6 25030 Castel Mella (Brescia), Italy

Ordinary shares

Hornby France S.A.S.

31 Bis rue des Longs Pres, 92100 Boulogne, Billancourt, France

Ordinary shares

Hornby Deutschland GmbH

Koppelsdorfer Strasse 226, Sonneberg 96515, Germany

Hornby Industries Limited

Westwood, Margate, Kent CT9 4JX, UK

H&M (Systems) Limited

Westwood, Margate, Kent CT9 4JX, UK

Ordinary shares

100

12. RIGHT OF USE ASSETS

GROUP

COST

At 1 April 2019

Additions at cost

At 31 March 2020

ACCUMULATED DEPRECIATION

At 1 April 2019

Charge for the year

At 31 March 2020

Net book amount at 31 March 2020

13. INVENTORIES

Finished goods

Movements on the Group provision for impairment of inventory is as follows:

At 1 April

Provision for inventory impairment

Inventory written off during the year

Exchange adjustments

At 31 March

Property
£’000

Motor Vehicles
£’000

Fixtures, Fittings
and Equipment
£’000

2,893

2,898

–

445

2,453

105

192

–

117

–

Group

2020
£’000

14,235

2019
£’000

10,860

Company

2020
£’000

–

2020
£’000

993

180

–

1,179

100

Total

£’000

3,009

3,101

–

528

2,573

2019
£’000

–

2019
£’000

958

(60)

(1)

993

Hornby PLC Annual Report and Accounts 2020

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14. TRADE AND OTHER RECEIVABLES

CURRENT:

Trade receivables

Less: loss allowance for receivables

Trade receivables – net

Other receivables

Prepayments

Amounts owed by subsidiary undertaking

Group

2020
£’000

Company

2019
£’000

2020
£’000

2019
£’000

5,194

(1,050)

4,144

997

1,384

–

6,525

5,740

(1,168)

4,572

1,565

1,043

–

7,180

–

48,426

48,454

33,482

33,506

We initially recognise trade and other receivables at fair value, which is usually the original invoices amount. They are subsequently carried
at amortised cost using the effective interest method. The carrying amount of these balances approximates to fair value due to the short
maturity of amounts receivable.

We provide goods to consumer and business customers, mainly on credit terms. We know that certain debts due to us will not be paid
through the default of a small number of customers. Because of this, we recognise an allowance for doubtful debts on initial recognition of
receivables, which is deducted from the gross carrying amount of the receivable. The allowance is calculated by reference to credit losses
expected to be incurred over the lifetime of the receivable. In estimating a loss allowance we consider historical experience and informed
credit assessment alongside other factors such as the current state of the economy and particular industry issues. We consider reasonable
and supportive information that is relevant and available without undue cost.

Once recognised, trade receivables are continuously monitored and updated. Allowances are based on our historical loss experiences for
the relevant aged category as well as forward-looking information and general economic conditions.

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 loss allowance for trade receivables is deemed adequate. Other receivables include deposits paid to suppliers for tooling.

Gross trade receivables can be analysed as follows:

Fully performing

Past due

Fully impaired

Trade receivables

2020
£’000

3,500

644

1,050

5,194

2019
£’000

3,077

1,495

1,168

5,740

As of 31 March 2020, trade receivables of £644,000 (2019: £1,495,000) were past due but not impaired. These relate to a number of
independent customers for whom there is no recent history of default.

As of 31 March 2020, trade receivables of £1,050,000 (2019: £1,168,000) were impaired and provided for in full.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade receivables.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

Movements on the Group loss allowance for trade receivables is as follows:

At 1 April

(Decrease)/increase in loss allowance

Receivables written-off during the year as uncollectible

Exchange adjustments

At 31 March

2020
£’000

1,168

(5)

(136)

2019
£’000

1,458

(279)

(8)

(3)

1,050

1,168

The decrease in loss allowance has been included in ‘administrative expenses’ in the Statement of Comprehensive Income.

Amounts owed to the Company by subsidiary undertakings are repayable on demand, unsecured and interest bearing.

The carrying amounts of the Group and Company trade and other receivables except prepayments and Amounts owed by subsidiary
undertaking are denominated in the following currencies:

Sterling Intercompany

Sterling

Euro

US Dollar

15. CASH AND CASH EQUIVALENTS

Cash at bank and in hand

Group

Company

2020
£’000

–

3,143

931

1,067

5,141

2019
£’000

2020
£’000

2019
£’000

–

48,426

33,482

3,180

1,452

1,249

5,881

–

48,426

33,482

Group

Company

2020
£’000

5,921

2019
£’000

704

2020
£’000

2019
£’000

Cash at bank of £5,921,000 (2019: £704,000) is with financial institutions with a credit rating of A3 per Moody’s rating agency.

16. TRADE AND OTHER PAYABLES

CURRENT:

Trade payables

Other taxes and social security

Other payables

Refund liability

Accruals and deferred revenue

Group receivables guarantee (note 4)

Group

2020
£’000

Company

2019
£’000

2020
£’000

2019
£’000

2,501

2,763

394

123

206

1,665

–

4,889

336

101

165

2,107

–

5,472

–

386

–

158

6,020

6,596

–

150

–

265

Hornby PLC Annual Report and Accounts 2020

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17. RIGHT OF USE LEASE LIABILITIES

The movement in the right of use lease liability over the year was as follows:

As at 1 April 2019

New leases

Interest payable

Repayment of lease liabilities

As at 31 March 2020

Lease liability less than one year

Lease liability greater than one year and less than five years

Lease liability greater than five years

Total Liability

Maturity analysis of contracted undiscounted cashflows is as follows:

Lease liability less than one year

Lease liability greater than one year and less than five years

Lease liability greater than five years

Total Liability

Finance charges included above

18. BORROWINGS

Secured borrowing at amortised cost

Asset Based Lending facility

Shareholder Loan

Loan from subsidiary undertakings

Total borrowings

Amount due for settlement within 12 months

Amount due for settlement after 12 months

Group

Company

2020
£’000

3,009

168

(631)

2,639

384

799

1,456

2,639

2019
£’000

2020
£’000

2019
£’000

–

Group

Company

2020
£’000

531

1,222

2,133

3,886

(1,247)

2,639

2019
£’000

2020
£’000

2019
£’000

–

Group

2020
£’000

Company

2019
£’000

2020
£’000

2019
£’000

–

1,893

561

–

2,454

1,893

561

2,454

–

5,907

–

5,907

–

5,759

–

5,759

The Company borrowings are denominated in Sterling. All intercompany borrowings are formalised by way of 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.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

Analysis of borrowings by currency:

GROUP

31 March 2020

Asset Based Lending Facility

Shareholder Loan

31 March 2019

Asset Based Lending Facility

Shareholder Loan

Sterling
£’000

USD

£’000

Euros
£’000

Total

£’000

–

1,525

561

2,086

–

330

–

330

–

1,893

561

2,454

The principal features of the Group’s borrowings are as follows:

At 31 March 2020 the UK had a £12 million Asset Based Lending facility with PNC Credit Limited and a £9 million loan facility with
Phoenix Asset Management Partners.

The £12 million facility with PNC extends until June 2023 and carries a margin of 2.5–3% over LIBOR. The PNC Facility has a fixed and
floating charge on the assets of the Group. The Company is expected to provide customary operational covenants to PNC on a monthly basis.

The Phoenix Facility is a £9 million facility with a rolling three-year term and attracts interest at a margin of 5% over LIBOR on funds drawn.
Undrawn funds attract a non‐utilisation fee of the higher of 1% or LIBOR.

Undrawn borrowing facilities

At 31 March 2020, the Group had available £14,235,284 (2019: £5,500,000) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. The facility from PNC Credit Limited has limits based on the Group’s asset position, including a
£3,000,000 minimum headroom against the facility until March 2021.

19. FINANCIAL INSTRUMENTS

Classification and measurement

Under IAS 39 ‘Financial Instruments: Recognition and Measurement’ the Group previously classified and measured its financial instruments
as follows:

• derivative financial instruments: classified and measured at fair value through profit or loss;

• all other financial assets: classified as receivables and measured at amortised cost; and

• all other financial liabilities: classified as other liabilities and measured at amortised cost.

Under IFRS 9 the Group’s basis for classifying and measuring derivative financial instruments and other financial liabilities has remained
unchanged. In accordance with IFRS 9 the Group has performed an assessment on its non-derivative financial assets to ascertain the
appropriate accounting treatment. Under this assessment all such financial assets have been assessed as being held under the ‘hold to
collect’ business model, and the related cash flows have been assessed as representing ‘solely payments of principal and interest’ (‘SPPI’).
On this basis, this group of financial assets have continued to be classified and measured at amortised cost on adoption of IFRS 9.

Carrying value and fair value of financial assets and liabilities

At 31 March 2020

Trade and other receivables

Trade and other payables

Derivative Financial instruments

Cash and cash equivalents

Lease liabilities

Amortised Cost

Held at Fair Value

Financial
Assets
£’000

Financial
Liabilities
£’000

Cash flow
hedges
£’000

Carrying
value
£’000

5,141

–

5,921

–

(2,624)

–

(2,639)

–

116

–

5,141

(2,624)

116

5,921

(2,639)

Fair
value
£’000

5,141

(2,624)

116

5,921

(2,639)

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19. FINANCIAL INSTRUMENTS continued

At 31 March 2019

Trade and other receivables

Trade and other payables

Derivative Financial instruments

Cash and cash equivalents

Lease liabilities

Amortised Cost

Held at Fair Value

Financial
Assets
£’000

Financial
Liabilities
£’000

Cash flow
hedges
£’000

Carrying
value
£’000

Fair
value
£’000

6,137

–

704

–

(2,864)

–

(131)

–

6,137

(2,864)

(131)

704

–

6,137

(2,864)

(131)

704

–

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

Assets

2020
£’000

Liabilities

2019
£’000

2020
£’000

2019
£’000

Forward foreign currency contracts – cash flow hedges

116

–

(156)

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 2020 are recognised in the Statement of
Comprehensive Income first 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 2020 and 31 March 2019, the gross value of forward currency contracts was as follows:

US Dollar

2020
’000

2019
’000

8,750

20,791

The net fair value for the forward foreign currency contracts is an asset of £116,000 (2019: £131,000 liability) of which £116,000
asset (2019: £131,000 net liability) represents an effective hedge at 31 March 2020 and has therefore been credited to Other
Comprehensive Income.

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.

The Company has no derivative financial instruments.

Maturity of financial liabilities

GROUP

Less than one year

Between one and two years

Between two and five years

More than five years

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Hornby PLC Annual Report and Accounts 2020

2020
£’000

2,624

–

2019
£’000

2,864

2,454

–

2,624

5,318

Notes to the Financial Statements continued

COMPANY

More than five years (note 18)

Hierarchy of financial instruments

2020
Intercompany
Debt

2019
Intercompany
Debt

£’000

5,907

£’000

5,759

The following tables present the Group’s assets and liabilities that are measured at fair value at 31 March 2020 and 31 March 2019.
The table analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

• quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

• inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or

indirectly (that is, derived from prices) (Level 2); and

• inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

There were no transfers or reclassifications between Levels within the year. Level 2 hedging derivatives comprise forward foreign exchange
contracts and have been fair valued using forward exchange rates that are quoted in an active market. The effects of discounting are
generally insignificant for Level 2 derivatives.

The fair value of the following financial assets and liabilities approximate their carrying amount: Trade and other receivables, other current
financial assets, cash and cash equivalents (excluding bank overdrafts), trade and other payables.

Financial Instruments

Assets

Derivatives used for hedging

Total assets as at 31 March 2020

Liabilities

Derivatives used for hedging

Total liabilities at 31 March 2020

Assets

Derivatives used for hedging

Total assets as at 31 March 2019

Liabilities

Derivatives used for hedging

Total liabilities at 31 March 2019

Interest rate sensitivity

Level 1
£’000

Level 2
£’000

Level 3
£’000

Total

£’000

–

116

–

116

–

Level 1
£’000

Level 2
£’000

Level 3
£’000

Total

£’000

–

(156)

–

(156)

The Group is exposed to interest rate risk as the Group borrows funds at both fixed and floating interest rates. The exposure to these
borrowings varies during the year due to the seasonal nature of cash flows relating to sales.

In order to measure risk, floating rate borrowings and the expected interest costs are forecast on a monthly basis and compared to budget
using management’s expectations of a reasonably possible change in interest rates.

The effect on both income and equity based on exposure to borrowings at the balance sheet date for a 1% increase in interest rates is £nil
(2019: £17,000) before tax. A 1% fall in interest rates gives the same but opposite effect. 1% is considered an appropriate benchmark given
the minimum level of movement in the UK interest rate over recent years and expectation over the next financial year.

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19. FINANCIAL INSTRUMENTS continued

Foreign currency sensitivity in respect of financial instruments

The Group is primarily exposed to fluctuations in US 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 Dollars

Euros

Capital risk management

Comprehensive Income and
Equity Sensitivity

2020
£’000

1,252

384

1,636

2019
£’000

823

1,143

1,966

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 (cash)/debt divided by total capital. Net debt is
calculated as total borrowings as shown in the Statement of Financial Position less cash and cash equivalents. Total capital is calculated as
‘equity’ as shown in the Statement of Financial Position plus net debt.

Total borrowings (note 18)

Less:

Total cash and cash equivalents (note 15)

Net debt/(cash)

Total equity

Total capital

Gearing

20. DEFERRED TAX

2020
£’000

2019
£’000

–

2,454

(5,921)

37,005

31,084

(19%)

(704)

1,750

25,799

27,549

Deferred tax is calculated in full on temporary differences under the liability method.

The movement on the deferred tax account is as shown below:

At 1 April

At 31 March

Group

Company

2020
£’000

(1,880)

2019
£’000

(1,880)

2020
£’000

–

2019
£’000

–

Deferred tax assets have been recognised in respect of certain UK timing differences only. Temporary differences giving rise to deferred tax
assets have been recognised in the UK where it is probable that those assets will be recovered.

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Hornby PLC Annual Report and Accounts 2020

Notes to the Financial Statements continued

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 2019

Charge to Statement of Comprehensive Income

At 31 March 2020

At 1 April 2018

Charge to Statement of Comprehensive Income

At 31 March 2019

Deferred tax assets

At 1 April 2019

Credit to Statement of Comprehensive Income

At 31 March 2020

At 1 April 2018

Charge to Statement of Comprehensive Income

At 31 March 2019

Net deferred tax (liability)/asset

At 31 March 2020

At 31 March 2019

GROUP

Deferred tax comprises:

Depreciation in excess of capital allowances

Other temporary differences – UK

Other temporary differences – overseas

Deferred tax asset

Acquisition
intangibles

£’000

150

–

150

–

150

Group

Company

Acquisition
intangibles

£’000

Other
£’000

Total

£’000

Short-term
incentive plan
£’000

2,030

–

2,030

–

(150)

2,030

1,880

–

Total

£’000

150

–

150

–

150

Total

£’000

–

2020

2019

Recognised
£’000

Not recognised
£’000

Recognised
£’000

Not recognised
£’000

1,891

(11)

–

1,880

1,626

3,032

3,182

7,840

1,891

(11)

–

1,880

217

3,463

2,938

6,618

The UK deferred tax asset not recognised of £3,032k primarily relates to unrecognised losses in Hornby Hobbies Limited of £14,342k
(potential deferred tax asset of £2,724k) and Hornby Plc of £1,306k (potential deferred tax asset of £247k). It also relates to an
unrecognised temporary difference of £61,000.

The deferred tax asset not recognised in respect of overseas losses carried forward of £3,182k relates to losses carried forward of £1,565k
in respect of Hornby España S.A. (potential deferred tax asset of £391k), £2,520k in respect of Hornby France S.A.S. (potential deferred tax
asset of £837k), £1,924k in respect of Hornby Deutschland GmbH (potential deferred tax asset of £619k), £3,888k in respect of Hornby
Italia s.r.l. (potential deferred tax asset of £933k) and £1,916k in respect of Hornby America Inc. (potential deferred tax asset of £402k).

No deferred tax assets will be recognised on these losses incurred until the business is profit making.

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COMPANY

Deferred tax comprises:

Other timing differences

Deferred tax (asset)/liability

These unrecognised assets relate to tax losses carried forward in Hornby PLC.

2020

2019

Recognised
£’000

Not recognised
£’000

Recognised
£’000

Not recognised
£’000

–

(247)

–

(208)

21. SHARE CAPITAL

Group and Company

Allotted, issued and fully paid:

Ordinary shares of 1p each:

At 1 April

Issue of ordinary shares

At 31 March

22. SHARE-BASED PAYMENTS (‘PSP’)

2020

2019

Number of
shares

£’000

Number of
shares

125,261,172

41,666,666

1,253

125,261,172

416

–

166,927,838

1,669

125,261,172

£’000

1,253

–

1,253

There were no share-based performance plans in place at 31 March 2020 (2019: There were no awards outstanding at 31 March 2019
where awards either vested or lapsed during the year).

23. RESERVES

Group

Capital Redemption Reserve

This reserve records the nominal value of shares repurchased by the Company.

Translation Reserve

The translation reserve represents the foreign exchange movements arising from the translation of Financial Statements in foreign currencies.

Hedging Reserve

The hedging reserve comprises the effective portion of changes in the fair value of forward foreign exchange contracts that have not
yet occurred.

Other Reserves

This reserve represents historic negative goodwill arising prior to the transition to IFRS.

Company

Capital Redemption Reserve

This reserve records the nominal value of shares repurchased by the Company.

Translation Reserve

The translation reserve represents the foreign exchange movements arising from the translation of Financial Statements in foreign currencies.

Other Reserves

This reserve represents the revaluation of investments in subsidiaries as allowable under previous UK GAAP. The reserve was frozen on
transition to IFRS in 2006.

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Notes to the Financial Statements continued24. EMPLOYEES AND DIRECTORS

Staff costs for the year:

Wages and salaries

Social security costs

Other pension costs (note 25)

Redundancy and compensation for loss of office

Group

2020
£’000

Company

2019
£’000

2020
£’000

2019
£’000

6,867

6,049

732

365

654

300

8,014

7,042

430

–

513

431

–

514

The redundancy costs form part of the restructuring costs in the year classified as exceptional items.

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

Other pension costs

Redundancy and compensation for loss of office

Group

2020
£’000

191

2019
£’000

172

Company

2020
£’000

2019
£’000

–

Group

Company

2020
£’000

981

1,053

2019
£’000

910

–

943

2020
£’000

358

–

383

–

2019
£’000

362

–

387

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 benefits under money purchase pension schemes, is included in the Directors’ Report on pages 24 to 27 and forms part of
these Financial Statements.

25. 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 International is appointed as Independent Financial Adviser to work in liaison with the Group.

The level of contributions to the Group Personal Pension Plan for current members is fixed by the Group.

The Group pension cost for the year was £365,000 (2019: £300,000) representing the actual contributions payable in the year and
certain scheme administration costs. The Company pension cost for the year was £25,000 (2019: £25,000). No contributions were
outstanding at the year end of 31 March 2020.

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report26. FINANCIAL COMMITMENTS

GROUP

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.

Contingent Liabilities

2020
£’000

2019
£’000

1,845

1,155

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.

27. CASH (USED IN)/GENERATED FROM OPERATIONS

Loss before taxation

Interest payable

Interest paid on Lease liabilities

Interest receivable

Share of profit of Minority Interest

Amortisation of intangible assets

Depreciation

Depreciation on right of use assets

Profit on disposal of property, plant and equipment

(Decrease)/increase in provisions

Increase/(Decrease) in guarantee

(Increase) in inventories

Decrease/(increase) in trade and other receivables

(Decrease)/increase in trade and other payables

Cash (used in)/generated from operations

28. NET FUNDS/(DEBT) RECONCILIATION

Cash and cash equivalents

Borrowings – repayable within one year

Borrowings – repayable after one year

Net Funds/(Debt)

Cash and liquid investments

Gross debt – variable interest rates

Net Funds/(Debt)

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Hornby PLC Annual Report and Accounts 2020

Group

Company

2020
£’000

(3,395)

446

169

(3)

(34)

603

2,100

528

–

(3,277)

680

(1,058)

(3,241)

2019
£’000

(5,312)

177

–

(7)

(81)

690

2,855

–

(9)

–

(750)

(1,163)

794

2020
£’000

(6,063)

217

–

(175)

(34)

–

6,020

–

(14,948)

311

(2,805)

(14,672)

2020
£’000

5,921

–

5,921

–

5,921

2019
£’000

(38)

217

–

(175)

(81)

–

106

2019
£’000

704

(1,893)

(561)

(1,750)

704

(2,454)

(1,750)

Notes to the Financial Statements continued29. RELATED PARTY DISCLOSURES

Hornby Hobbies Limited purchased various items of stock for resale plus services from two companies that are part of the LCD Enterprises
Limited Group, a Company in which Lyndon Davies, a Director of the Company, owns a controlling 51% share and Hornby PLC the
remaining 49%.

Therefore transactions between the parties are related party transactions and disclosed below:

Company

Oxford Diecast Limited

Oxford Diecast (HK) Limited

Transactions

Balance at
year end

159,201

10,961

5,052

–

164,253

10,961

Phoenix Asset Management Partners who own the majority shareholding in Hornby PLC have also provided a funding facility to the Group
(see note 18).

There were no other 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 or any of its subsidiaries was interested. There are no other related-party transactions.

The Company received management fees from subsidiaries of £1,065,000 (2019: £1,104,000), interest of £175,000 (2019: £175,000)
and incurred interest of £217,000 (2019: £217,000) on intercompany borrowings.

30. ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY

The Group is 74.66% owned by Phoenix Asset Management. Artemis Fund Managers Limited hold 16.5%. The remaining 8.84% of the
shares are widely held. As a result of these arrangements, there is no ultimate parent undertaking, and the funds managed by Phoenix
Asset Management are therefore the controlling party.

31. EVENTS AFTER THE END OF THE REPORTING PERIOD

No other significant events have occurred between the end of the reporting period and the date of signature of the Annual Report
and Accounts.

Hornby PLC Annual Report and Accounts 2020

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic ReportShareholders’ Information Service

Hornby welcomes contact with its shareholders.

If you have questions or enquiries about the Group or its products, please contact:

K Gould

Chief Finance officer

Hornby PLC
Westwood
Margate
Kent CT9 4JX
www.hornby.com

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Hornby PLC Annual Report and Accounts 2020

Hornby PLC
Westwood, Margate, Kent, CT9 4JX
www.hornby.com