Horizon Gold Limited Annual Report 2022

FY2022 Annual Report · Horizon Gold Limited

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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 2022

02 Executive Chairman’s Report

07 Section 172 Statement

08 Operating and Financial Review of

the Year

10 Our Key Performance Indicators (‘KPIs’)

12 Corporate Governance Report

16 Audit Committee Report

18 Remuneration and Nomination

33 Group and Company statements

Committee Report

of Changes in Equity

20 Directors and Corporate Information

34 Group and Company Cash

21 Directors’ Report

26 Independent Auditors’ Report to the

Flow Statements

35 Notes to the Financial Statements

Members of Hornby PLC

69 Shareholders’ Information Service

31 Group and Company Statements of

Comprehensive Income

32 Group and Company Statements of

Financial Position

Hornby PLC Annual Report and Accounts 2022

Highlights 2022

“ Our sales increased despite difficulties in the supply chain. The Company has
ambitious plans for the future, it is an exciting time to be at Hornby.”

“Lyndon Davies, Executive Chairman

Revenue
(2021: £48.5m)

£53.7m

Operating profit
(2021: £0.6m)

£1.0m

Reported profit before taxation
(2021: £0.3m)

£0.6m

Underlying1 profit before taxation
(2021: £1.5m)

Reported profit after taxation
(2021: £1.4m)

Reported profit per share
(2021: 0.82p)

£3.2m

£1.5m

0.89p

Underlying2 basic profit per share
(2021: 1.36p)

Net cash
(2021: 4.7m) (see Note 29)

2.18p

£3.8m

1. Underlying profit before taxation is before amortisation of intangibles (brand names and customer lists), and net unrealised foreign exchange movements on intercompany loans,

exceptional items and shared-based payments (see page 8).

2. Underlying basic profit per share is before amortisation of intangibles (brand names and customer lists), and net unrealised foreign exchange movements on intercompany loans,

exceptional items and shared-based payments (see note 7).

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportExecutive Chairman’s Report

INTRODUCTION

Key Performance Indicators (‘KPIs’)

Supply Chain

Revenue for the year increased to £53.7
million (2021: £48.5million), up over 10%
from the previous year. Underlying profit
before tax was £3.2 million (2021: £1.5
million). Reported profit before tax was £0.6
million (2021: £0.3 million). We continue to
make good progress.

Sales continue on an upward trend, though
delays in shipping and in the supply chain
have held them back as well as increasing
our costs. We were particularly impacted in
the case of Hornby and Scalextric sets, many
of which arrived after the Christmas season.

The points I will cover in my statements are
as follows:

Variable costs, fixed costs, gross profit and
operating profit.

The issues we faced and our medium-
term plan.

Key Performance Indicator 1: Costs

Brexit, Covid-19 and World Events

How and why our cost levels are what
they are.

Key Performance Indicator 2: Capital
Expenditure Productivity

Gross profit in relation to essential
capital expenditure.

Where Hornby is in this context.

Staff Profit Share Scheme

Return to profit means that our
employees benefit.

New CEO

Key Performance Indicator 3: Inventory

The importance of the inventory balance in
relation to sales.

Key Performance Indicator 4: The
Digital Change

We are behind schedule, but we are
gaining momentum.

Current Trading & Outlook

Governance

KEY PERFORMANCE INDICATORS (‘KPIs’)

In 2022, we again generated enough gross profit to cover our fixed costs. By improving our KPIs we will ensure that this is sustainable
and growing.

Sales

Variable Costs

Gross Profit

Fixed Costs

Operating Profit/(Loss)

Underlying Operating Profit/(Loss)

2022
(£'000)

2021
(£'000)

53,739

48,549

(28,023)

(26,795)

25,716

21,754

2020
(£'000)

37,842

(21,140)

16,702

(24,632)

(20,976)

(19,444)

1,085

3,246

778

1,456

(2,742)

(3,241)

2019
(£'000)

32,759

(19,348)

13,411

(18,041)

(4,630)

(4,401)

2018
(£'000)

35,651

(21,900)

13,751

(21,309)

(7,578)

(7,574)

Hornby PLC Annual Report and Accounts 2022

KPI No. 1 Costs

Variable Costs

These have reduced further in proportion to sales. Our long-term target is for these to be below 40% of sales, and there was a point during
this financial year when it appeared that we were closing in on 50%.

Further automation took place at the warehouse with the introduction of robots to improve our efficiency in fulfilling orders and in recent
months we have increased our operating hours in order to despatch products more quickly.

This graph shows our variable costs as a percentage of sales since 2001. After a period of all-time high variable costs, we are now getting
closer to our all-time low.

Variable Costs as a Percentage of Sales

65%

60%

55%

50%

45%

40%

1
0
0
2

2
0
0
2

3
0
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4
0
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Fixed Costs

In the last Annual Report, I reported that our current fixed cost base could service a business bringing in £50 million to £55 million of sales.
Our fixed costs have now risen, as they must, if they are to support sales of £60 million to £70 million. These increases in fixed costs are in
several parts of the business, but mainly in our Digital Team and the support that they require. This started to bring rewards in the second half
of the 2021/22 financial year.

We are investing today for the future. I expect this percentage to be closer to 40% for the 2022/23 financial year.

This graph shows 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%

46%

44%

43%

46%

44%

32% 33% 34% 34%

30%

25%

24%

39%

38% 38%

39%

36%

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
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8
0
0
2

9
0
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0
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1
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0
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1
2
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2

2
2
0
2

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportExecutive Chairman’s Report continued

KPI No. 2: Capital Expenditure Productivity

In this financial year we spent £3,348,000 (2021: £4,124,000) on Product Tooling.

Our “Capex Productivity” has declined in 2021/22, because products in which we have invested, that we would have expected to be
selling in the 2021/22 financial year arrived late and so the sales have not happened. This is disappointing, but those sales are not lost;
they will just occur in future years.

A good example of how we are intending to increase our Capex Productivity is to discuss our Pocher brand, a range of highly detailed
models. Four years ago, annual sales in this category were only £1,500. They have now risen to more than £1 million pounds per annum
and we anticipate this doubling during 2022/23. To achieve this, we have been layering the development of consecutive products. Work
started on the highly anticipated Lotus 72 in 2020. An unannounced item is in design for release in 2023 which will triple our Pocher sales.
We then have further releases of both of these products in alternative liveries that will require little additional capex but will provide significant
profits. If you also factor in our move to more direct sales through our digital channels, it begins to make the numbers look quite exciting in
this category alone.

Gross Profit Per £ of Capital Expenditure

£18.00

£16.00

£14.00

£12.00

£10.00

£8.00

£6.00

£4.00

£2.00

£0.00

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E

t
i

p
a
C

1
0
0
2

2
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3
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4
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5
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6
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0
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fi
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P

s
s
o
r
G

Gross Profit per £ of Capital Expenditure

Gross Profit

KPI No. 3: Inventory

Inventory has increased in the period due to the acquisition of LCD Enterprises Limited but is lower than I expected considering the late
receipt of stock over the Christmas period.

Year End Inventory as a Percentage of Sales

40%

35%

30%

25%

20%

15%

10%

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
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2

2
1
0
2

3
1
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4
1
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5
1
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2

6
1
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8
1
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2

9
1
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2

0
2
0
2

1
2
0
2

2
2
0
2

Hornby PLC Annual Report and Accounts 2022

KPI No. 4: The Digital Change

I had believed that at the beginning of 2020 we would begin the move to increase direct sales to consumers through our digital channels.
Covid-19 arrived on our shores, however, so instead much of my time was spent in just trying to hold this business together.

This slow transformation to digital was disappointing, but I wanted to prioritise building the engine, interface, and pipework that would be
required to make Digital work for us in the long run. Like a Hornby layout, this will now evolve, develop and change constantly.

We entered 2021 bringing on stream 27 websites in place of the one website we previously operated. This took until mid-year to settle
down and only then did we begin to put the Digital Team together, along with our partners that were necessary to support this change.
This structure started to come together in our third quarter and we are now starting to see the real benefits of this investment.

This new KPI will report where we are and what our ambitions are. Therefore, to be transparent it is better to report this performance in terms
of sales value. Our short-term ambition is to at least double those sales over the next two financial years.

Sales Via Our Websites

£2,500,00

£2,000,00

£1,500,00

£1,000,00

£500,000

£0

£2,128,918

£1,687,916

£1,574,834

£1,222,578

£1,169,936

£976,711

£1,038,172

£849,782

£582,434

£479,767

£301,100

£362,688

£497,494

£426,382

£731,252

£638,260

2018/19

2019/20

2020/21

2021/22

Sales in Quarter 3 over the Christmas period will always be heavily loaded, but as part of the digital change we will move to announcing
more products outside of the January window, which has always been the traditional time in our industry. The change will vary by brand; for
example Corgi has already started staggering releases and Airfix will follow in 2023. Hornby will also announce certain products outside of
the January window next year.

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportExecutive Chairman’s Report continued

SUPPLY CHAIN

These affected us as follows during
this period:

• Container Availability – previously two to
three days, but recently we have been
experiencing two to three weeks.

• Port Closures – Covid-19 shut down

the Yantian port for two to three weeks
in May/June 2021, with continual
sporadic outbreaks.

• Container Ship Availability – diversion of
pre-booked ships due to above, rising
demand and a lack of capacity.

• Shipping Times – previously 30 to 35
days total transit time, we experienced
over 70 days during the year.

• Container shipping costs – previously

£3,000 for a 40-foot container, but we
experienced prices as high as £17,000.

• Power shortages to factories in September
/October 2021 – this had the potential
to severely impact Christmas sales.

• Labour shortages caused by restrictions
in movement – making it harder to find
the required capacity.

Over the last 12 months we have been
planning more production outside of our
main China base. This involves laying
down duplicate tooling on some evergreen
products in other countries. This should not
be seen as a movement out of China, but
rather an opportunity to work with new
manufacturers on our extensive range of
existing products; not just to supply ourselves,
but also to build new demand in their
local markets.

BREXIT, COVID-19 AND WORLD
EVENTS

Brexit continued to affect us in the first
quarter of the financial year, but things
settled down, and there are now very few
problems arising. With most of the world
back to normality, Covid-19 now impacts us
most in the supply chain. Recent events in
Ukraine have not impacted us so far,
although there are some specialist materials
we are watching closely.

STAFF PROFIT SHARE SCHEME

I am delighted to announce that another
year of profitability means that the second
part of the profit share scheme kicks in with
15% of the operating profit shared with our
staff as we move forward. I am grateful to
our shareholders for supporting this scheme.

Once again I thank our employees for all
their enthusiasm and backing over the last
year. They have supported me throughout.

NEW CEO

In January we announced that we had started
a search for a new CEO. We will take our
time to ensure that we find the right person
to lead the Company over the next decade.

CURRENT TRADING & OUTLOOK

Sales for April/May 2022 have been in
line with expectations, but it is only when
we move into our busier second and third
quarters that we can be certain that the supply
chain will be able to support our demand.

Hornby PLC Annual Report and Accounts 2022

We have a strong balance sheet with net
cash of £3,800,000 as at 31 March 2022
and we appreciate the strong support from
our customers and shareholders.

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
(‘QCA’). 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
polices 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.

We will hold our Annual General Meeting
on 14 September 2022 and will provide
further details nearer the time.

Lyndon Davies

Executive Chairman

15 June 2022

Section 172 Statement and Stakeholder Engagement

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

• need to act fairly between members 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. 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 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.

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 12 to 15. The Board reviews
feedback received from institutional investors
following publication of our financial results.
At the AGM we encourage our shareholders
to ask questions and participate in debate
about our performance and products.

CUSTOMERS

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 and
sharing our plans, allowing them to plan their
factories capacity well into the future. We are
planning to reintroduce regular visits this year
as the Covid-19 restrictions in China are lifted.

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 25.

COMMUNITY AND ENVIRONMENT

We are proud to employ people in the
communities that we operate. The strength
of our brands allows 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 2022

OverviewFinancial StatementsGovernanceStrategic ReportOperating and Financial Review of the Year

FINANCIAL REVIEW

Revenue

Gross profit

Gross profit margin

Overheads

Exceptionals

Reported profit before tax

Underlying profit before tax*

Reported profit after tax

Basic profit per share

Underlying basic profit per share*

Net cash

Undrawn Facilities

2022

2021

£53.7m

£25.7m

47.9%

£24.6m

£0.1m

£0.6m

£3.25m

£1.5m

0.93p

2.19p

£3.8m

£48.5m

£21.8m

44.9%

£21.0m

£0.2m

£0.3m

£1.5m

£1.4m

0.82p

1.36p

£4.7m

£12.6m

£14.4m

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 2022 was £53.7 million, an
increase of 11% compared to the previous
year’s £48.5 million due to increase in direct
sales and acquisition of the LCD group on
31 July 2021. The revenue in the second half
of the year of £31.9 million was ahead of
previous year which was £27.4 million.
Gross profit margin was higher, at 47.9%
(2021: 44.9%).

Overheads increased year-on-year by 17%
from £21.0 million to £24.6 million
predominantly as a result of planned
recruitment of additional staff and selling
related costs linked to higher revenues,
especially direct sales. UK distribution costs
were similar to prior year costs despite higher
volumes. Sales and marketing costs increased
by £1.0 million year-on-year due to ongoing
investment in direct relationships with our
customers and costs related to running the
LCD business. Administration costs were £2.4
million higher due to the £2.3 million LTIP
payment accrual that has gone through the
Statement of Comprehensive Income this
year (2021: £0.7 million). This is detailed
further in Note 23. Other operating expenses
in the year of £0.03 million (2021: £0.2
million) includes foreign exchange losses
and amortization of brand names.

Exceptional costs totalling £0.01 million
(2021: £0.2 million) are predominantly
restructuring costs in the UK, an adjustment
on acquisition of LCD Enterprises Limited both
offset by an amortisation adjustment to
correct prior year over amortisation.

PERFORMANCE ON AN UNDERLYING
BASIS

The underlying profit 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: shared-based payments and the
amortisation of intangibles which result from
historical acquisitions. Additionally, exceptional
items including refinance, relocation and
restructuring costs are one off items and
therefore have also been added back in
calculating the underlying profit before taxation.

Hornby PLC Annual Report and Accounts 2022

Group

FINANCING

Statutory Profit before taxation

Adjustments:

Amortisation of intangibles – brands

Share-based payments

Exceptional items:

Restructuring costs

LCD Acquisition

Relocation costs

Amortisation adjustment

Underlying profit before taxation

2022
£’000

583

194

2,341

219

(177)

3,257

2021
£’000

345

227

673

136

–

1,456

SEGMENTAL ANALYSIS

STATEMENT OF FINANCIAL POSITION

Third party sales by the UK business of £37.7
million increased by 1% in the year as a result
of improvements in the choice of products on
offer and a significant increase in direct sales
via the website. The profit before taxation of
£0.5 million compared to £1.0 million last
year reflects the LTIP charge for the year of
£2.3 million within administration costs.

Sales by the European businesses of
£11.4 million increased by 93% in the year
reflecting the Group’s focus on growing
these markets through correct product
selection and overcoming the shipping
issues we experienced post Brexit.
The profit before tax was £0.8 million
compared to £0.5 million loss last year.

Sales in the US business of £4.6 million
decreased by 13%. The trading loss of
£0.7 million compares to £0.3 million loss
in last year. We expect sales to increase in
this key market in the longer term and
overheads to reduce.

Property, plant and equipment increased
year-on-year by £3.4 million to £10.1
million as a result of increased expenditure
in tooling for new products and technologies
and the acquisition of LCD. Group inventories
increased from £15.1 million to £16.5 million
due to the acquisition of LCD offset by a very
strong fourth quarter sales. Trade and other
receivables increased by £1.5 million or
21% largely due the increase in sales
compared to the prior year. Trade and
other payables are similar to the prior year.
Overall investment in new tooling, new
intangible computer software and other
capital expenditure was £4.0 million
(2021: £5.0 million).

DIVIDEND

The Group is still in the turnaround phase
and there will not be a dividend payment
this year (2021: £nil). The Board continues
to keep the dividend policy under review.

At 31 March 2022 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 PNC facility
was replaced with a £12 million Asset
Based Lending facility with Secure Trust
Bank (“STB”) on 21 April 2022.

The facility with STB is a floating facility
based on the current asset position capped
at £12 million ends October 2024 and
carries a margin of 2.5‐3% over base rate.
The STB Facility has a fixed and floating
charge on the assets of the Group. The
Company provides customary operational
covenants to STB on a monthly basis.

The Phoenix Facility is a £9 million facility
which attracts interest at a margin of 5%
over SONIA on funds drawn. Undrawn
funds attract a non‐utilisation fee of the
higher of 1% or SONIA. This facility is
currently due to expire December 2023.

Borrowings in the year ended 31 March
2022 were £327,000 (2021: nil). This
consist of a CBIL loan with £217,000
outstanding (acquired with LCD) and
£110,000 shareholder loan drawdown.

Net cash at 31 March 2022 was £3.8
million compared with net cash of £4.7
million at 31 March 2021.

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportOur Key Performance Indicators (‘KPIs’)

The Directors are of the opinion that the financial KPIs are revenues, gross margins, underlying profit before tax and 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 Capex Productivity, Inventory, Digital Change, Variable and Fixed Costs as percentage of Sales should be monitored.
We provide current and historical analysis in the Executive Chairman Report on pages 2 to 6 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 to identify the major risks and has reviewed and determined any
mitigating actions required as set out below. The risk assessment has been completed in the context of the overall strategic objectives and the
Business Plan of the Group.

PRINCIPAL RISKS AND UNCERTAINTIES

Risk

Description

Impact/Sensitivity

Mitigation/Comment

Market
competition

The
Business
Plan

Hobby
market

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 Business Plan may not fully
achieve the aims of returning
the Group to positive cash
generation in 2022/23.

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.

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.

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.

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

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 could
make the US Dollar purchase of its
goods more expensive.

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.

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. We have also implemented tiering and
only allowing certain percentage of our goods to go wholesale
with balance only being available on our website.

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.

In particular the negative impact on Sterling of Brexit and the
continuing uncertainties world wide will make the US Dollar
purchase of its goods more expensive.

Hornby PLC Annual Report and Accounts 2022

Risk

Description

Impact/Sensitivity

Mitigation/Comment

Supply
chain

The Group’s products are
manufactured by artisan labour
in China, India and Vietnam.
Risk that capacity is lost which
could lead to delays in
production.

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.

Capital
allocation

New tooling is important to
support the production of
new 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.

System and
cyber risk

The Group continues to invest
in the development of its
website and ERP systems.

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

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.

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

Covid-19

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

Further outbreaks in the UK,
US and Europe and within
our supply chain.

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

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

MAIN CONTROL PROCEDURES

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 to identify and
deal with issues as they arise. The Group has its own storage
facilities in China where its tooling is secured and managed.

The Group manages the supply chain forecasts continuously
and communicates regularly with suppliers and customers in
turn. The Group maintains significant stock levels in the UK at
any time and therefore this allows additional time to plan for
stock output variances from overseas suppliers in time for the
peak season.

The business plan includes significant capital expenditure to
fund suitable products to underpin the implementation of the
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.

The Group has a £12.0 million ABL facility with Secure Trust
Bank (STB) 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 went live in January
2021 which has 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. All employees (after 12 months’ service)
participate in profits of the Group.

The ongoing situation is being monitored and direction is
taken from the Department of Business and Central
Government as the situation evolves.

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

15 June 2022

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic Report
Corporate Governance Report

CORPORATE GOVERNANCE

For the year ended 31 March 2022, and up to the date of this report, the Company has applied the main principles of the QCA Corporate
Governance Code (“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 16 to 19 and the Directors’ Report on pages 21 to 25.

BOARD OF DIRECTORS

JOHN STANSFIELD

Independent
Non-Executive Director

Aged 67

LYNDON DAVIES

Executive Chairman

Aged 61

KIRSTIE GOULD

Chief Finance Officer &
Company Secretary

Aged 49

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.

Lyndon joined the Board as Chief
Executive in October 2017 and was
appointed to Executive Chairman in
February 2022.

He is a highly-experienced model and
hobby professional with 45 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 was the majority
shareholder of LCD Enterprises Limited,
the ultimate owner of the Oxford
Diecast brands until July 2021 when
Hornby acquired the remaining stake.

Kirstie Gould was appointed as Chief
Finance Officer of the Company in
January 2018 after spending over
two 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.

Our Board and Committees Membership

Board

Audit

Remuneration & Nomination

Chair

Hornby PLC Annual Report and Accounts 2022

OUR BOARD AND COMMITTEES MEMBERSHIP

Director

John Stansfield

Lyndon Davies

Kirstie Gould

Daniel Carter

Henry De Zoete

Board

Member

Chair

Member

Audit

Chair

Remuneration &
Nomination

Member

Chair

Member

DANIEL CARTER

Independent
Non-Executive Director

Aged 27

HENRY DE ZOETE

Independent
Non-Executive Director

Aged 40

Daniel Carter was appointed as
a Non-Executive Director in
July 2020.

Daniel is an Investment Analyst at
Phoenix Asset Management which
controls the funds that own 74.7% of
the ordinary shares of Hornby PLC.

Daniel studied Economics at The
University of Bath.

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

Henry de Zoete was appointed as a
Non-Executive Director in January 2022.

Henry is an entrepreneur and alumnus
of renowned Silicon Valley start-up
accelerator Y Combinator.

Henry has previously served on the
Board of grassroots campaigning
organisation 38 Degrees (2015-2018)
and was a Special Adviser in the
Department of Education (2010-2014).
Henry is currently an angel investor in
tech start-ups and a Non-Executive
Board Member of the Cabinet Office.

Henry is a member of the Remuneration
and Nomination Committee and the
Audit Committee.

COMPOSITION AND INDEPENDENCE
OF THE BOARD

The Board is comprised of two Executive
Directors and three Non-executive Directors.
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. Daniel Carter is
considered independent as he has no
control over the voting shares of Phoenix
Asset Management. Henry de Zoete is
considered independent.

The Board members collectively have skills
and expertise embracing a range of areas
including finance, auditing, e-commerce,
engineering, manufacturing, design, general
management, sales and innovation. The
Executive Chairman and John Stansfield in
particular, have extensive, directly applicable
experience of working within the toy and
hobby products industry. We do however
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 Director’s background and
experience are set out in the table opposite.

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 16 to 19.

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportCorporate Governance Report continued

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.

DIVISION OF RESPONSIBILITIES

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 Exec Chairman is responsible
for overseeing the Board and the implementation of the Company’s
strategy and its operational performance.

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’s 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;

• the Company’s compliance with relevant legislations and

EXECUTIVE DIRECTORS

regulations; and

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 Executive Chairman.

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.

Non-Executive Directors are contracted to work no less than 15
days per year.

SUCCESSION PLANNING

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. We have identified a number of employees that
have the potential to succeed the Executive Team.

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.

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/.

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

principal advisors.

The Board met 12 times during the year. All Directors attended all
12 meetings apart from Henry who joined near the end of the year.
Henry attended three board meetings.

THE MAIN ACTIVITIES OF THE BOARD DURING THE YEAR

Key Board activities this year included:

• dealing with the impact of Covid-19;

• dealing with the impact of supply chain issues in China due to

power outages;

• discussing strategic priorities;

• 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

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/.

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 16 to 19.

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

Hornby PLC Annual Report and Accounts 2022

The Remuneration and Nomination Committee meet at least once
a year with all members being present. The members are all Non-
executive Directors. 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.

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

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.

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.

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 20.

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 2022 by its Nominated Advisors, Liberum
Capital Limited. This refresher is designed to enable Directors to
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 Exec 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. In
addition, no one member of the Board has unfettered powers to
make decisions.

PERFORMANCE EVALUATION

The Exec 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

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.

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.

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportAudit 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 2022.

MEMBERSHIP

EXTERNAL AUDITOR

The Audit Committee comprises three members, Daniel Carter,
Henry de Zoete and myself, John Stansfield. All 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 pages 12 to 13.

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 is 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.

MEETINGS AND ATTENDANCE

The Committee met three times during the year ended 31 March 2022.
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:

Having reviewed the auditor’s independence and performance to
date, the Committee has recommended to the Board that they be
reappointed for the 2023 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 2022.

POLICIES FOR NON-AUDIT SERVICES

In addition to the audit services they provide, Crowe U.K. LLP do
not currently provide any other services.

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:

AUDIT PROCESS

• 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 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.

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

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.

• a review of the year-end external audit plan, consideration of the

scope of the audit 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, the consistency in the application of
accounting policies and the going concern review;

• a review and approval of the internal financial statement;

• approving revised borrowing and credit facilities.

Hornby PLC Annual Report and Accounts 2022

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

15 June 2022

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportRemuneration 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 2022 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 three independent Non-Executive
Directors, John Stansfield, Henry de Zoete and myself, Daniel Carter,
whose biographies are set out on pages 12 to 13.

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 twice. Only members of the Committee
have the right to attend meetings, although other individuals, such
as the Executive Chairman 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;

• 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 any 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;

• 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 21% (one) female and 80% (four) male Board members.
The Board’s age demographic ranges from 27 to 67. The business
consists of 65% male employees and 35% female employees.

Hornby PLC Annual Report and Accounts 2022

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;

• considers pay and employment conditions within the Company

and salary levels within listed companies of a similar size;

• considers Directors’ personal performance; and

• 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.

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

The existing LTIP scheme completes this year based on operating Profit
for the year ended 31 March 2022. The Remuneration Committee
will review and consider a suitable scheme for the future.

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.

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

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

Employees’ pay

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

A profit share scheme exists for all employees (excluding Executive
Directors), and 15% of operating profit is shared among employees
proportionately. 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 is decided by
the Exec Chairman and Non-Executive Directors (but excluded from
discussing their personal fees). The remuneration payable to the
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 months. John
Stansfield signed a letter on 2 January 2018, Daniel Carter signed
his on 16 July 2020 and Henry de Zoete signed his on 4 January
2022. The contract continues as long as the Non-Executive Directors
are re-elected at the AGM. All three Non-executive Directors will
stand for re-election at the next AGM in September 2022.

Daniel Carter

Chairman of the Remuneration and Nomination Committee

15 June 2022

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportDirectors and Corporate Information

DIRECTORS

INDEPENDENT AUDITORS

The full details of all Directors who served in the year ended
31 March 2022 can be found below.

Lyndon Davies

Executive Chairman

Kirstie Gould

Chief Finance Officer

Daniel Carter

Non-Executive Director

John Stansfield

Non-Executive Director

Henry de Zoete

Non-Executive Director

Kirstie Gould

Company Secretary

REGISTERED OFFICE

Enterprise Road
Westwood Industrial Estate
Margate,
Kent CT9 4JX

COMPANY REGISTERED NUMBER

Registered in England Number: 01547390

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

NOMINATED ADVISOR 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 2022

Directors’ Report

The Directors present their Annual Report together with the audited consolidated
and Company financial statements for the year ended 31 March 2022.

STATUTORY INFORMATION CONTAINED ELSEWHERE IN THE
ANNUAL REPORT

Information required to be part of the Directors’ Report can be found
elsewhere in this document, as indicated, and is incorporated into
this report by reference:

The Group’s business review is set out in the Strategic Report on
pages 8 to 9.

The Corporate Governance statement on pages 12 to 15.

Details of the Directors who served during the year including their
salaries, bonuses, benefits and share interests are on pages 24 to 25.

Directors’ responsibility statements on page 22.

Likely future events are disclosed within the Exec Chairman report
on page 6.

Post balance sheet events are set out in note 32.

GOING CONCERN

The Group has in place a £12.0 million Asset Based Lending (ABL)
facility with Secure Trust Bank PLC (“STB”) through to October 2024.
The Covenants are customary operational covenants applied on a
monthly basis. In addition, the Group has a committed £9.0 million
loan facility with Phoenix Asset Management Partners Limited (the
Group’s largest shareholder) if it should be required currently expires
December 2023.

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
STB and Phoenix 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.

PRINCIPAL ACTIVITIES

RESEARCH AND DEVELOPMENT

The Company is a holding Company, limited by shares, registered
(and domiciled) in England Reg. No. 01547390 with a Spanish
branch and has seven 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, Hornby
Deutschland GmbH in Germany and LCD Enterprises Limited in the
United Kingdom. Hornby PLC is a public limited Company which
is a member of 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 2022 are set out in the
Group Statement of Comprehensive Income. Revenue for the year
was £53.7 million compared to £48.5 million last year. The profit
for the year attributable to equity holders amounted to £0.6 million
(2021: £0.3 million). 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 Executive
Chairman Statement.

No interim dividend was declared in the year (2021: £nil) and the
Directors do not recommend a final dividend (2021: £nil).

The Board considers that research and development into products
continues to play an important role in the Group’s success. R&D
costs of £1.5 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.

STREAMLINED ENERGY AND CARBON REPORTING (SECR)

Streamlined Energy and Carbon Reporting (SECR) is the UK
Government’s name for energy and carbon reporting and taxation.

As a largely office-based business, the Group has a relatively low
carbon presence. Under the SECR requirements we are reporting
energy use and business mileage for all our UK operations.

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportDirectors’ Report continued

Scope

Activity

Scope 1

Scope 2

Business Mileage

Purchased Electricity

Purchased Gas

2022
Consumption
kWh

2022
Consumption
(tCO2e)

2021
Consumption
kWh

2021
Consumption
(tCO2e)

112,647

548,850

343,019

1,004,515

27.3

128.0

69.0

224.3

38,263

446,069

493,767

978,099

9.3

104.0

100.6

213.9

Intensity metric

An intensity metric of tCO2e per £m revenue has been applied for
the annual total consumption.

tCO2e/£m Revenue

2022

3.68

2021

4.22

During the reporting year, the Group’s business miles have
considerably increased reflecting the return to normal working
conditions. The gas consumption has fallen due to proactive
efforts to reduce our consumption with Head Office offset by an
increase in electricity consumption following a return to working
from the office.

SUBSTANTIAL SHAREHOLDINGS

The Company has been notified that at close of business on
15 June 2022 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

• state whether applicable UK-adopted international accounting
standards in conformity with the Companies Act 2006 have
been followed, subject to any material departures disclosed and
explained in the financial statements;

• make judgements and accounting estimates that are reasonable

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.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

Directors’ confirmations

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
UK-adopted international accounting standards in conformity with
the requirements of the Companies Act 2006. 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;

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

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

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

Hornby PLC Annual Report and Accounts 2022

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.

FINANCIAL RISK MANAGEMENT

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

makes sound business sense;

• 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.

SHARE CAPITAL

The share capital of the Company comprises ordinary shares of 1p
each. Each share carries the right to one vote at general meetings of
the Company. The issued share capital of the Company, together
with movements in the Company’s issued share capital is shown in
Note 22. 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.

AUTHORITY TO PURCHASE OWN SHARES

The Company was authorised by shareholder resolution at the 2021
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.

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic ReportDirectors’ Report continued

CHANGE OF CONTROL – SIGNIFICANT AGREEMENTS

ANNUAL GENERAL MEETING

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.

The Annual General Meeting is to be scheduled for 14 September
2022. A notice of the Annual General Meeting will be sent out to
shareholders separately to this Annual Report and Accounts.

POLITICAL DONATIONS

The Company has made no political donations during the year.

INDEPENDENT AUDITOR

A resolution to reappoint the auditor Crowe U.K. LLP, will be
proposed at the forthcoming Annual General Meeting.

AUDITED

DIRECTORS’ REMUNERATION

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 2021/22 and 2020/21
in line with the Companies Act 2006 requirement:

Year ended 31 March 2022

Year ended 31 March 2021

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)

D Carter (Appointed 16 July 2020)

J Stansfield (Appointed 4 January 2018)

H De Zoete (appointed 5 January 2022)

Total

241

158

–

481

–

241

187

–

510

222

151

–

444

–

222

179

–

472

Performance Share Plan awards outstanding (Audited)

At 31 March 2022, outstanding awards to Directors under the PSP were as follows:

Director

Lyndon Davies

Kirstie Gould

Award
date

Nov-20

Vesting
date

Jun-22

Market
price at
award date

54p

At 1 April 2021

Lapsed during
the year

As at
31 March
2022

2,670,846

(988,213)

1,682,633

2,670,846

(988,213)

1,682,633

Under the terms of the LTIP, awards are subject to strict vesting
criteria. These are linked to the Company’s in the year ended
31 March 2022.

The level of vesting is determined by the level of Operating Profit
announced in the 2021/22 Group results. 63% of the target
has been met and 63% of the total share options on offer will
be granted.

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.

Hornby PLC Annual Report and Accounts 2022

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.

DIRECTORS’ INTERESTS

Interests in shares

Interests of the Directors in the shares of the Company at
31 March 2022 and 31 March 2021 were:

Executive Directors

L Davies

K Gould

Non-Executive Directors

H De Zoete

D Carter

J Stansfield

At
31 March
2022
number

At
31 March
2021
number

795,144

55,006

–

85,358

All the interests detailed above are beneficial. Two of the Directors
also have share options as detailed in Note 22. 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. Daniel
Carter is also an employee 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

15 June 2022

Hornby PLC Annual Report and Accounts 2022

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 2022 which comprise:

• the Group and parent company statements of comprehensive income for the year ended 31 March 2022;

• the Group and parent company statements of financial position as at 31 March 2022;

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

• the Group and parent company statements of cash flows 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 in accordance
with UK adopted international accounting standards.

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 2022 and of the Group’s profit

and Parent Company’s loss for the period then ended;

• have been properly prepared in accordance with UK adopted international accounting standards; and

• 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 Company 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 as applied to listed entities, 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

In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of
the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group’s and Parent Company’s ability to continue to
adopt the going concern basis of accounting included:

• reviewing the cash flow model provided by management and challenging the assumptions made;

• reviewing management’s forecasts which show continued growth in both revenue and profitability. Our assessment therefore considered if

this will be feasible in light of past losses and recent economic conditions;

• considering the accuracy of past budgeting since the new management team took over, as well as a review of the April management

accounts compared to forecast; and

• considering the cash position of the business along with current facilities available for drawdown.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s or Parent Company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

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.

Hornby PLC Annual Report and Accounts 2022

Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be £250,000
(2021: £215,000), based on turnover and the underlying profitability of the business. We consider these to be the key performance metrics
reported by management to shareholders to assess the performance of the business. Materiality represents approximately 0.5% of turnover
and 8% of underlying profit (2021: 0.5% of turnover and 15% of underlying profit).

Overall Parent Company materiality was set at £200,000 (2021: £200,000) based on net assets, restricted so as not to exceed Group
materiality. Materiality represents 0.3% of net assets. The Parent Company acts as holding company for the investments in the trading
subsidiaries and therefore net assets was considered a more relevant measure than turnover or profitability.

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. Performance materiality was set at £175,000 (2021:
£150,500) for the Group and £140,000 (2021: £140,000) for the Parent Company.

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 (2021: £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 financial information of four full scope components, Hornby Plc, Hornby Hobbies Limited, LCD Enterprises
Limited and Oxford Diecast Limited. The European sales offices and US trading subsidiary were audited using a component materiality level
of £200,000 for the purposes of the consolidation only.

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 and
investments – Notes 9, 10 and 12

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

The Group holds goodwill at a carrying value of £4.5m
and brand relations at a carrying value of £1.9m.

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.

The audit work 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, terminal growth rates applied and discount rate
applied. This work was conducted with the support of our valuations team. As part of
our testing 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. Management prepared a discounted cashflow model to support
the value recorded. We tested this model with the support of our valuations team and
challenged management on the assumptions made.

Inventory provisioning

We obtained the aged inventory reports and recalculated the provision.

The Group was holding £16.5m of inventory at the year
end. There a risk that old inventory may become difficult to
sell and thereby become impaired.

We compared the assumptions used to those used in 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 sold below cost.

Hornby PLC Annual Report and Accounts 2022

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

Key audit matter

How the scope of our audit addressed the key audit matter

Acquisition of LCD Enterprises Limited – Note 12

On 31 July the company acquired the remaining 51% of
the share capital of LCD Enterprises Limited. The company
previously held a 49% stake.

There is a risk that the transaction had been incorrectly
accounted for. Key risks were considered to be the fair
value of assets acquired at acquisition, the calculation of
cost and related goodwill and the disclosure surrounding
the acquisition in the accounts.

We obtained a copy of the acquisition documents and agreed the cost of the
acquisition and calculation of goodwill.

We completed audit procedures on the opening position including reviewing the stock
at acquisition and the fair value of intangibles not previously recognised. Our internal
valuations team were used to audit the calculation of the fair value of intangibles acquired.

We checked the disclosures in the accounts to ensure these reflected the underlying
agreement and complied with accounting standards.

Our audit procedures in relation to these matters 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 strategic report and directors’ report have been prepared in accordance with applicable legal requirements.

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.

Hornby PLC Annual Report and Accounts 2022

RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS

As explained more fully in the directors’ responsibilities statement set out on page 22 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.

EXTENT TO WHICH THE AUDIT IS CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We identified and assessed the risks of material
misstatement of the financial statements from irregularities, whether due to fraud or error, and discussed these between our audit team
members. We then designed and performed audit procedures responsive to those risks, including obtaining audit evidence sufficient and
appropriate to provide a basis for our opinion.

We obtained an understanding of the legal and regulatory frameworks within which the company operates, focusing on those laws and
regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. The laws and
regulations we considered in this context were the Companies Act 2006 and Taxation legislation.

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors
and other management and inspection of regulatory and legal correspondence, if any.

We identified the greatest risk of material impact on the financial statements from irregularities, including fraud, to be the override of controls
by management and the recognition of revenue. Our audit procedures to respond to these risks included:

• enquiry of management about the Group’s policies, procedures and related controls regarding compliance with laws and regulations

and if there are any known instances of non-compliance;

• examining supporting documents for all material balances, transactions and disclosures;

• review of the board meeting minutes;

• enquiry of management and review of legal expenditure;

• detailed testing of a sample of sales made during the year and around the year and agreeing these through to invoices and

despatch records;

• testing the appropriateness of a sample of significant journal entries recorded in the general ledger and other adjustments made in the

preparation of the financial statements; and

• review of accounting estimates for biases.

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the
financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. We are not
responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

Hornby PLC Annual Report and Accounts 2022

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

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

15 June 2022

Hornby PLC Annual Report and Accounts 2022

Group and Company Statements of Comprehensive Income

for the Year Ended 31 March 2022

Revenue

Cost of sales

Gross profit

Distribution costs

Selling and marketing costs

Administrative expenses

Other operating (expenses)/income

Operating profit/(loss) before Exceptional items

Exceptional items

Operating profit/(loss)

Finance income

Finance costs

Net finance expense

Share of profit of investments accounted for using the
equity method

Profit/(Loss) before taxation

Income tax credit

Profit/(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

Total comprehensive (loss)/income for the year

Comprehensive income attributable to:

Equity holders of the Company

Non-controlling interests

Profit/(loss) per ordinary share

Basic

Diluted

All results relate to continuing operations.

The notes on pages 35 to 69 form part of these accounts.

Group

2022
£’000

2021
£’000

53,739

48,549

(28,023)

(26,795)

25,716

21,754

(6,991)

(8,832)

(8,514)

(294)

1,085

(139)

946

(358)

(343)

(20)

583

896

1,479

858

175

1,033

2,512

2,500

0.89p

0.85p

(6,798)

(7,804)

(6,133)

(241)

778

(211)

567

(334)

(331)

109

345

1,018

1,363

(597)

(187)

(784)

579

–

0.82p

0.80p

Note

Company

2022
£’000

1,071

–

1,071

–

2021
£’000

933

–

933

–

(2,258)

(1,315)

–

(1,187)

(219)

(1,406)

175

(209)

(34)

(20)

(1,460)

–

(1,460)

–

(1,407)

–

(382)

–

(382)

175

(220)

(45)

109

(318)

–

(318)

–

246

(72)

–

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic Report

Group and Company Statements of Financial Position

as at 31 March 2022

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
Equity attributable to PLC shareholders

Non-controlling interests

Total equity

Group

2022
£’000

2021
£’000

Company

2022
£’000

2021
£’000

Note

4,644

3,187

10,057

–

2,584

3,425

23,897

16,462

8,786

504

4,139

29,891

(50)

(7,372)

(433)

–

(7,855)

22,036

(277)

(2,313)

(233)

(2,823)

43,110

1,669

52,857

(1,814)

377

1,688

(11,734)

43,098

43,110

4,561

3,017

6,680

1,839

2,690

2,956

–

26,092

23,860

–

21,743

26,092

23,860

15,152

7,247

4,685

27,116

–

(7,131)

(365)

(513)

(8,009)

19,107

–

47,410

48,518

–

47,412

48,520

–

(6,958)

(6,722)

–

(6,958)

40,454

(6,722)

41,798

–

(5,643)

(5,689)

(2,443)

(150)

(2,593)

38,257

1,669

52,857

(1,989)

(481)

1,688

(15,542)

38,257

–

(5,643)

60,903

1,669

52,857

(963)

–

19,145

(11,860)

60,903

–

(5,689)

59,969

1,669

52,857

(1,016)

–

19,145

(12,741)

59,969

–

The notes on pages 35 to 69 form part of these accounts. The financial statements on pages 31 to 69 were approved by the Board of
Directors on 15 June 2022 and were signed on its behalf by:

K Gould
Director

Registered Company Number: 01547390

Hornby PLC Annual Report and Accounts 2022

Group and Company Statements of Changes in Equity

for the Year Ended 31 March 2022

GROUP

Share
capital
£’000

Share
premium
£’000

Capital
redemption
reserve
£’000

Translation
reserve
£’000

Hedging
reserve
£’000

Other
reserves
£’000

Non-
controlling
interests
£’000

Balance at 31 March and 1 April 2020

1,669 52,857

(1,802)

116

1,688

Profit for the year

Other comprehensive (expense)/income for the year

Total comprehensive (loss)/income for the year

Transactions with owners

Share-based payments (Note 23)

Total transactions with owners

–

(187)

–

(597)

–

Retained
earnings
£’000

Total
equity
£’000

(17,578) 37,005

1,363

–

(784)

1,363

579

673

Balance at 31 March and 1 April 2021

1,669 52,857

(1,989)

(481)

1,688

– (15,542) 38,257

Profit for the year

Other comprehensive (expense)/income for the year

Total comprehensive (loss)/income for the year

Transactions with owners

Share-based payments (Note 23)

Total transactions with owners

–

175

–

858

–

1,467

1,479

–

1,033

1,467

2,512

–

2,341

Balance at 31 March 2022

1,669 52,857

(1,814)

377

1,688

12 (11,734) 43,110

COMPANY

Share
capital
£’000

Share
premium
£’000

Capital
redemption
reserve
£’000

Translation
reserve
£’000

Other
reserves
£’000

Retained
earnings
£’000

Total

equity
£’000

Balance at 31 March and 1 April 2020

1,669

52,857

(1,262)

19,145

(13,096)

59,368

Loss for the year

Other comprehensive expense for the year

Total comprehensive income/(expense) for the year

Transactions with owners

Share-based payments (Note 23)

Total transactions with owners

–

246

–

(318)

–

673

(318)

246

673

Balance at 31 March and 1 April 2021

1,669

52,857

(1,016)

19,145

(12,741)

59,969

Loss for the year

Other comprehensive expense for the year

Total comprehensive income/(expense) for the year

Transactions with owners

Share-based payments (Note 23)

Total transactions with owners

–

(1,460)

–

(1,460)

(1,407)

2,341

Balance at 31 March and 1 April 2022

1,669

52,857

(963)

19,145

(11,860)

60,903

The notes on pages 35 to 69 form part of these accounts.

Hornby PLC Annual Report and Accounts 2022

OverviewFinancial StatementsGovernanceStrategic Report

Group and Company Cash Flow Statements

for the Year Ended 31 March 2022

Cash flows from operating activities

Cash generated from operations

Interest paid

Interest element of lease payments

Tax received/(paid)

Group

2022
£’000

2021
£’000

Note

4,862

4,372

(192)

(166)

–

(75)

(165)

Company

2022
£’000

(209)

–

2021
£’000

(220)

–

Net cash generated from/(used in) operating activities

4,504

4,222

(175)

(174)

Cash flows from investing activities

Purchase of business (net of cash acquired)

Purchase of property, plant and equipment

Purchase of intangible assets

Interest received

(1,015)

(3,551)

(149)

–

(4,249)

(726)

Net cash (used in)/generated from investing activities

(4,700)

(4,972)

Cash flows from financing activities

Repayment of CBIL Loan

Proceeds from shareholder loan

Payment of lease liability

Net cash (used in)/generated from financing activities

Net (decrease)/increase 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

(25)

110

(446)

(361)

(557)

4,685

4,139

–

(462)

(1,212)

5,921

(24)

4,685

–

175

–

175

–

Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

Accounting policies for the year ended 31 March 2022

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 2022 has been prepared in accordance with UK-adopted international accounting
standards. 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 Secure Trust Bank PLC (“STB”) through to October 2024.
The Covenants are customary operational covenants applied on a monthly basis. In addition, the Group has a committed £9.0 million
loan facility with Phoenix Asset Management Partners Limited (the Group’s largest shareholder) if it should be required. This facility currently
expires December 2023.

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 STB and Phoenix 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 2022

OverviewFinancial StatementsGovernanceStrategic Report1. SIGNIFICANT ACCOUNTING POLICIES continued

Adoption of new and revised standards

The following standards and interpretations relevant to the Group are in issue but are not yet effective and have not been applied in the
historical financial information. In some cases these standards and guidance have not been endorsed for use.

• IAS 1 Presentation of liabilities as current or non-current

• IAS 1 Disclosure of accounting policies

• IAS 8 Definition of accounting estimates

Adoption of these standards is not expected to have a material impact on the Group.

Revenue recognition

The Group’s revenue is mostly from product sales and 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 when the performance obligation is satisfied.

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, 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.

36
36

Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

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.

(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 10 years. Customer lists have been valued
according to discounted incremental operating profit expected to be generated from each of them over their useful lives of 10 years.

Computer software expenditure is capitalised at the value at the date of acquisition and depreciated over a useful economic life of
4–6 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. Tools and moulds purchased but not ready for production are not depreciated.

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.

Hornby PLC Annual Report and Accounts 2022

37
37

OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report

1. SIGNIFICANT ACCOUNTING POLICIES continued

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 2022 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).

Cash and cash equivalents

Cash and cash equivalents for the purpose of the cash flow statement includes cash in hand, deposits at banks, other liquid investments with
original maturities of three months or less and bank overdrafts. Bank overdrafts or loans where there is no right of set off are shown within
borrowings in current or non-current liabilities on the balance sheet as appropriate.

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.

38
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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continuedTrade 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 26.

The Group has a profit share scheme for all employees below Executive level. This scheme commenced in 2020/21 with a 5% bonus for
all when the Group broke even. Thereafter, 15% of all Group operating profit will be shared between the employees every year.

R&D costs

Research and development expenditure that does not meet the criteria for capitalisation under IAS 36 is expensed as incurred.

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.

Share based payments

The Group has issued share options to Executive Directors. The fair value of the award granted is recognised as an employee expense within
the Income Statement with a corresponding increase in equity. The fair value is measured at the grant date and allocated over the vesting
period based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is
any indication that the number of share options expected to vest differs from previous estimates. The fair value of the grants is measured using
the Black-Scholes model.

Hornby PLC Annual Report and Accounts 2022

39
39

OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report1. SIGNIFICANT ACCOUNTING POLICIES continued

Financial risk management

Financial risk factors

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

(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 to 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
were £327,000.

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

(d) Liquidity risk

At 31 March 2022 the UK had a £12 million Asset Based Lending facility with Secure Trust Bank PLC 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 within Other Comprehensive Income. The gain or loss
relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income within operating expenses.

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

40
40

Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

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

Non derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade
and other payables. Unless otherwise indicated, the carrying amounts of the Group’s and the Company’s financial assets and liabilities
are a reasonable approximation of their fair values.

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 20.

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.

(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 9.

Hornby PLC Annual Report and Accounts 2022

41
41

OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report

1. SIGNIFICANT ACCOUNTING POLICIES continued

Critical estimates and judgements in applying the accounting policies continued

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 make decisions as to whether the lease is likely to be broken and calculations
are based on this judgement.

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 21) and the basis of preparation (page 35).

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.

42
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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued2. 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 31 and its assets and liabilities given in the Company Statement of Financial Position on page 32. Other Company information is
provided in the other notes to the accounts.

Year ended 31 March 2022

Revenue

– External

37,748

4,551

2,181

3,401

5,858

53,739

–

53,739

UK
£’000

USA
£’000

Spain
£’000

Italy
£’000

Rest of
Europe
£’000

Total
Reportable
Segments
£’000

Intra
Group
£’000

Group
£’000

– Other segments

2,791

Operating (loss)/profit

Finance income

– External

– Other segments

Finance costs

– External

– Other segments

Share of profit of investments accounted for
using the equity method

Profit/(Loss) before taxation

Taxation

489

471

(339)

(175)

(20)

440

911

–

2,791

–

125

–

(1)

–

(655)

–

(12)

(209)

–

(667)

–

(85)

–

(85)

–

337

–

(2)

(16)

–

319

(15)

304

269

649

–

(4)

(71)

–

575

–

945

471

(358)

(471)

(20)

582

896

575

1,478

4,743

78,265

Profit/(Loss) for the year

1,351

(667)

Segment assets

63,951

2,663

6,639

Less intercompany receivables

Add tax assets

Total assets

Segment liabilities

(17,572)

3,488

–

49,867

2,663

(5,876)

(497)

(3,957)

(27,902)

–

763

(63)

(291)

3,425

786

53,788

(25,098)

(6,968)

(5,399)

(897)

(6,540)

(44,902)

Less intercompany payables

14,917

6,872

5,322

Add tax liabilities

Total liabilities

Other segment items

Capital expenditure

Depreciation

Amortisation of intangible assets

238

(9,943)

6,086

2,217

485

–

(96)

–

(77)

–

520

6,340

33,971

–

253

(362)

(200)

(10,678)

–

6,094

2,239

485

All transactions between Group companies are on normal commercial terms.

–

945

–

(358)

–

(20)

582

896

1,478

78,265

(27,902)

3,425

53,788

(44,902)

33,971

253

(10,678)

6,094

2,239

485

–

(471)

–

471

–

Hornby PLC Annual Report and Accounts 2022

43
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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report

2. SEGMENTAL REPORTING continued

Year ended 31 March 2021

Revenue

– External

37,428

5,233

1,012

1,719

3,157

48,549

–

48,549

UK
£’000

USA
£’000

Spain
£’000

Italy
£’000

Rest of
Europe
£’000

Total
Reportable
Segments
£’000

Intra
Group
£’000

Group
£’000

– Other segments

2,603

–

2,603

(2,603)

–

567

–

(334)

–

109

345

1,018

1,363

71,645

(25,742)

2,956

48,859

(36,494)

25,742

150

(10,602)

4,975

1,721

(148)

533

–

(486)

–

486

–

Operating (loss)/profit

Finance income

– External

– Other segments

Finance costs

– External

– Other segments

Share of profit of investments accounted for
using the equity method

Profit/(Loss) before taxation

Taxation

Profit/(Loss) for the year

Segment assets

Less intercompany receivables

Add tax assets

Total assets

Segment liabilities

969

486

(308)

(176)

109

1,083

1,018

2,101

–

(279)

–

(56)

–

(3)

(220)

–

(279)

–

(279)

59,490

2,245

5,827

(16,442)

3,019

–

46,067

2,245

(5,738)

–

(21)

(17)

–

(28)

–

(28)

(116)

(106)

(63)

(285)

(77)

–

(2)

(73)

–

(152)

567

486

(334)

(486)

109

345

–

1,018

(152)

1,363

4,199

71,645

(3,456)

(25,742)

2,956

743

48,859

(17,628)

(6,235)

(5,213)

(811)

(6,607)

(36,494)

Less intercompany payables

8,098

5,687

5,103

503

6,351

25,742

Add tax liabilities

Total liabilities

Other segment items

Capital expenditure

Depreciation

Net foreign exchange on intercompany loans

Amortisation of intangible assets

150

–

150

(9,380)

(548)

(110)

(308)

(256)

(10,602)

4,953

1,701

(148)

533

–

(2)

–

4,975

1,721

(148)

533

All transactions between Group companies are on normal commercial terms.

44
44

Hornby PLC Annual Report and Accounts 2022

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

2022
£’000

Company

2021
£’000

2022
£’000

2021
£’000

(100)

(92)

(166)

–

(358)

–

(85)

(84)

(165)

–

(334)

–

(209)

–

175

(34)

–

(220)

–

175

(45)

Net finance expense

(343)

(331)

4. PROFIT/(LOSS) BEFORE TAXATION

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

Staff costs

Inventories:

Group

2022
£’000

Company

2021
£’000

2022
£’000

2021
£’000

11,761

9,257

1,747

834

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

22,982

22,429

– Stock provision

Depreciation of property, plant and equipment:

– Owned assets

– Leased assets

Repairs and maintenance expenditure on property, plant and equipment

Research and development expenditure

Impairment of trade receivables

Share-based payment charge

Other operating expenses/(income):

– Foreign exchange on trading transactions

– Amortisation of intangible brand assets

Exceptional items comprise:

– Restructuring costs

– Relocation

– Adjustment on Acquisition

– Amortisation adjustment

263

2,239

489

1,501

(61)

2,341

101

194

219

(177)

139

1,721

492

1,320

–

673

533

136

–

211

–

219

–

219

–

The exceptional items totalling £95,000 (2021: £211,000) include restructuring costs relating to redundancy costs and dilapidation costs on
relocation of the Hong Kong office. These are classified as exceptional as they are one off, non-recurring costs. In addition there is a one off
cost £219k relating to the Acquisition of LCD Enterprises Limited as detailed in Note 8 and an overstatement of the amortisation charge in
prior years as a credit of £221,000).

Hornby PLC Annual Report and Accounts 2022

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report

4. PROFIT/(LOSS) BEFORE TAXATION continued
Services provided by the Company’s auditors and network firms

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

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

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

– The auditing of accounts of the Company’s subsidiaries

– Audit-related assurance services

– Tax services

Group

2022
£’000

Company

2021
£’000

2022
£’000

2021
£’000

–

Current year subsidiary fees relate to Hornby Italia (£8,000) and Hornby Hobbies Limited (£33,000) and LCD Enterprises Limited (£12,750).

In the prior financial year the level of non-audit fees were £6k and related to tax services and 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

UK Taxation:

– Current

– Adjustments in respect of prior years

Overseas taxation

Deferred tax (Note 21)

Origination and reversal of temporary differences

Effect of tax rate change on opening balance

Total tax credit to the loss before tax

Group

2022
£’000

–

(87)

–

(886)

(896)

2021
£’000

–

(92)

–

(926)

–

(1,018)

Company

2022
£’000

–

2021
£’000

–

46
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Hornby PLC Annual Report and Accounts 2022

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:

Profit/(Loss)before taxation

Loss on ordinary activities multiplied by rate of

Corporation tax in UK of 19% (2021: 19%)

Effects of:

Adjustments to tax in respect of prior years

Permanent differences

Non taxable income

Plant and machinery super-deduction

Difference on overseas rates of tax

Deferred tax not recognised

Effect of tax rate change

Total taxation

Group

Company

2022
£’000

582

2021
£’000

345

2022
£’000

(1,460)

2021
£’000

(318)

111

(277)

(60)

(87)

259

–

(207)

(152)

(886)

(896)

(92)

(138)

(21)

–

(40)

(792)

–

(1,018)

150

–

128

–

(21)

–

The Company’s profits for this accounting year are taxed at an effective rate of 19% (2021:19%).

UK deferred tax balances have been restated in these accounts and carried forward at a rate of 25% (2021:19%).

The current rate of tax is 19%. The new rate of corporation tax of 25% comes into effect on 1 April 2023. Therefore timing differences
expected to reverse after this rate are recognised for Deferred Tax purposes at 25%, those expected to reverse before this date will continue
to be recognised at 19%.

Unrecognised deferred tax relates to UK and overseas subsidiaries and is not recognised, except to the extent of the prior year movement in
the change in tax rate noted above. This is due to the Directors taking the view that deferred tax should only be recognised to the extent
significant taxable profits are likely to be achieved in the short term. More detail can be found in Note 21.

6. DIVIDENDS

No interim or final dividends were paid in relation to the year ended 31 March 2021 and no interim dividend has been paid in relation to
the year ended 31 March 2022. The Directors are not proposing a final dividend in respect of the financial year ended 31 March 2022.

7. PROFIT PER SHARE

Basic profit 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 profit 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 2022.

The underlying profit 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, share-based payments and exceptional items including relocation, refinance and restructuring costs
are one off items and therefore have also been added back in calculating underlying profit/(loss) per share.

Hornby PLC Annual Report and Accounts 2022

47
47

OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report7. PROFIT PER SHARE continued

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

2022

Weighted
average
number of
shares
’000s

(Loss)/
earnings
£’000

Per-share
amount
pence

(Loss)/
earnings
£’000

2021

Weighted
average
number of
shares
’000s

Per-share
amount
pence

REPORTED

Basic profit per share

Profit attributable to ordinary shareholders

1,479

166,929

Effect of dilutive share options

Diluted profit per share

UNDERLYING

Profit attributable to ordinary shareholders

Share-based payments

Amortisation of intangibles

Restructuring costs

Amortisation adjustment

Relocation

Acquisition adjustment

Underlying basic profit/EPS

Underlying diluted profit/EPS

–

6,731

1,479

173,660

1,479

1,896

157

(143)

177

166,929

–

3,644

166,929

173,660

0.89

–

0.85

0.89

1.14

0.09

0.04

(0.09)

(0.00)

0.11

2.18

2.10

1,363

166,929

–

4,127

1,363

171,056

1,363

166,929

545

432

110

–

2,511

–

166,929

171,056

0.82

–

0.80

0.82

0.33

0.26

0.07

–

0.04

–

1.50

1.47

The above numbers used to calculate the EPS for the year ended 31 March 2022 and 31 March 2021 have been tax effected at the rate
of 19%.

8. BUSINESS COMBINATIONS

On 31 July 2021 the Company acquired the remaining 51% of the issued share capital of LCD Enterprises Limited (“LCD”) which it did not
already hold from Lyndon Davies, CEO of the Company, and his wife Catherine Davies, who together owned this remaining stake.

LCD owns the Oxford Diecast Group, which supplies diecast model vehicles and railway products to the collector, gift and hobby markets in
the UK, Hong Kong and North America.

Summary of the Acquisition

On 8 December 2017 the Company completed the acquisition of 49% of the issued ordinary share capital of LCD, for a consideration of
£1.6 million payable in cash pursuant to the LCD SPA.

The Company acquired the remaining 51% of the issued share capital of LCD, for a total cash consideration of £1.3 million on 31 July 2021.
Management assessed the value of the existing holding of 49% and did not consider that the investment was impaired on the basis that the
51% was obtained at a favourable price.

A purchase price allocation exercise has been completed which identified £0.3 million of acquired intangible assets relating to the Oxford
Diecast brand.

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

The fair value of the assets acquired at completion and the consideration payable:

Intangible assets

Property, plant and equipment

ROU Assets

Inventories

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Deferred tax liability

Income tax

Net assets

Cash consideration

Goodwill

Acquisition related costs

Book cost
£’000

Fair value adj
£’000

Fair value
£’000

–

2,064

–

2,200

299

285

(2,015)

(263)

2,570

330

–

180

–

(180)

(83)

–

247

330

2,064

180

2,200

299

285

(2,195)

(83)

(263)

2,817

(2,900)

Acquisition related costs of £nil are included in operating expenses in the income statement.

Revenue and profit contribution

The acquired business contributed revenues of £1,897,000 and net profit of £132,000 to the Group for the period 1 August to 31 March 2022.
If the acquisition had completed 1 April 2021 the contribution would have been revenue of £2,688,000 and net profit of £136,000.

9. GOODWILL

GROUP

COST

At 1 April 2021

Acquired on business combination

At 31 March 2022

AGGREGATE IMPAIRMENT

At 1 April 2021 and 31 March 2022

Net book amount at 31 March 2022

COST

At 1 April 2021

Exchange adjustments

At 31 March 2022

AGGREGATE IMPAIRMENT

At 1 April 2021 and 31 March 2022

Net book amount at 31 March 2022

Net book amount at 31 March 2021

The Company has no goodwill.

£’000

13,052

13,135

8,491

4,644

13,052

–

13,052

8,491

4,644

4,561

Hornby PLC Annual Report and Accounts 2022

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9. GOODWILL 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 2022 and 31 March 2021 is as follows:

GROUP

At 31 March 2022

At 31 March 2021

UK
£’000

4,075

3,992

USA
£’000

France
£’000

364

Germany
£’000

196

Total
£’000

4,644

4,561

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 business plan.

The relative risk adjusted (or ‘beta’) discount rate applied reflects the risk inherent in hobby-based product companies. The 31 March 2022
forecasts are based on a four year business plan for the years ending 31 March 2023 to 31 March 2026. Cash flows beyond these years
are extrapolated using an estimated 5.0% year on year growth rate to 2030 and 2% thereafter. The cash flows were discounted using a
pre-tax discount rate of 11.6% (2021: 9.9%) which management believes is appropriate for all territories.

The key assumptions used for value-in-use calculations for the year ended 31 March 2022 and 2021 are as follows:

2022

GROUP

Gross Margin1

Growth rate to perpetuity2

UK
(Corgi)

59.2%

2.0%

UK
(Airfix &
Humbrol)

63.7%

2.0%

France

59.1%

2.0%

Germany

59.0%

2.0%

1. Average of the variable yearly gross margins used over the period 22/23 to 29/30.

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

2021

GROUP

Gross Margin1

Growth rate to perpetuity2

UK
(Corgi)

63.7%

2.0%

UK
(Airfix &
Humbrol)

64.5%

2.0%

France

57.0%

2.0%

Germany

56.7%

2.0%

1. Average of the variable yearly gross margins used over the period 22/23 to 29/30.

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

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

For the UK CGU, the recoverable amount calculated based on value in use exceeded carrying value by £9.6 million. A reduction of the
average gross margin to respectively 56.0% for Corgi and 54.5% for Airfix/Humbrol, or a rise in discount rate to respectively 14.6% for
Corgi and 30.6% 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 £14.0 million. A reduction of the
average gross margin to 6.8%, or a rise in discount rate to 75.1% would remove the remaining headroom.

For the Germany CGU, the recoverable amount calculated based on value in use exceeded carrying value by £11.2million. A reduction of
the average gross margin to 12.3%, or a rise in discount rate to 113.6% would remove the remaining headroom.

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued10. INTANGIBLE ASSETS

GROUP

INTANGIBLE ASSETS

COST

At 1 April 2021

Additions

At 31 March 2022

ACCUMULATED AMORTISATION

At 1 April 2022

Charge for the year

Adjustment related to prior years

At 31 March 2022

Net book amount at 31 March 2022

GROUP

INTANGIBLE ASSETS

COST

At 1 April 2020

Additions

At 31 March 2021

ACCUMULATED AMORTISATION

At 1 April 2020

Charge for the year

At 31 March 2021

Net book amount at 31 March 2021

Brand names
£’000

Customer lists
£’000

Computer
Software and
Website
£’000

Total
£’000

4,914

286

5,200

1,415

1,459

4,176

149

4,325

10,505

479

10,984

3,439

1,415

2,634

194

(177)

3,456

1,744

–

1,415

291

–

2,925

1,399

Brand names
£’000

Customer lists
£’000

Computer
Software and
Website
£’000

4,914

–

4,914

3,212

227

3,439

1,475

1,415

–

1,415

–

1,415

–

3,450

726

4,176

2,328

306

2,634

1,542

7,488

485

(177)

7,796

3,187

Total
£’000

9,779

726

10,505

6,955

533

7,488

3,017

All amortisation charges in the year have been charged in other operating expenses. The Company held no intangible assets. The Company
holds intangible computer software and website assets that are fully amortised but still in use and therefore the cost is still included.

The adjustment in the amortisation charge in relation to prior years relates to a Group adjustment on transfer of intangibles from overseas
subsidiaries into the UK. The adjustment has been classed within exceptional costs.

Hornby PLC Annual Report and Accounts 2022

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11. PROPERTY, PLANT AND EQUIPMENT

GROUP

COST

At 1 April 2021

Exchange adjustments

Additions at cost

Acquired from business combination

Disposals

At 31 March 2022

ACCUMULATED DEPRECIATION

At 1 April 2021

Exchange adjustments

Charge for the year

Disposals

At 31 March 2022

Net book amount at 31 March 2022

Plant and
equipment
£’000

Motor
Vehicles
£’000

Tools and
moulds
£’000

Total
£’000

1,525

71,601

73,180

203

–

(28)

1,706

1,251

(28)

1,320

386

–

3,348

2,064

–

3,551

2,064

(28)

77,013

78,774

65,204

66,500

–

2,143

–

67,347

9,666

2,239

(28)

68,717

10,057

Depreciation is charged in the Group’s statement of comprehensive income within Administrative expenses.

Plant and
equipment
£’000

Motor
Vehicles
£’000

Tools and
moulds
£’000

Total
£’000

1,529

(53)

125

(76)

1,525

(1)

–

67,477

69,061

–

4,124

–

(54)

4,249

(76)

71.601

73,180

1,237

63,617

64,896

(41)

130

(76)

1,251

274

(1)

–

1,587

–

(41)

1,721

(76)

65,204

66,500

6,397

6,680

GROUP

COST

At 1 April 2020

Exchange adjustments

Additions at cost

Disposals

At 31 March 2021

ACCUMULATED DEPRECIATION

At 1 April 2020

Exchange adjustments

Charge for the year

Disposals

At 31 March 2021

Net book amount at 31 March 2021

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

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

12. INVESTMENTS

Company

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

At 1 April 2021

Share of profit of investments accounted for using the equity method

LCD Acquisition

Capital contribution relating to share-based payment

At 31 March 2022

At 1 April 2020

Share of profit of investments accounted for using the equity method

Capital contribution relating to share-based payment

Interests in
subsidiary
undertakings
£’000

17,672

2,900

1,171

21,743

17,336

–

336

Interests in
associate
undertakings
£’000

Loans to
subsidiary
undertakings
£’000

Total
£’000

1,839

(20)

(1,819)

–

1,730

109

–

4,349

23,860

–

4,349

–

(20)

1,081

1,171

26,092

23,415

109

336

At 31 March 2021

17,672

1,839

4,349

23,860

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

Loans are unsecured and exceed five years’ maturity.

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., Hornby Deutschland GmbH,
LCD Enterprises Limited and Oxford Diecast Limited are distributors of models. Hornby Industries Limited,H&M (Systems) Limited and Hornby
World Limited are dormant companies. All subsidiaries are held directly by Hornby PLC with the exception of Oxford Diecast Limited which
is held by LCD Enterprises Limited.

Country of incorporation, registration and business

Hornby Hobbies Limited

Westwood, Margate, Kent CT9 4JX, UK

Hornby America Inc.

3900 Industry Dr E, Fife, WA 98424, USA

Description of
shares held

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

Oeslauer StraBe 36, 96472, Rodental, Germany

Hornby Industries Limited

Westwood, Margate, Kent CT9 4JX, UK

H&M (Systems) Limited

Westwood, Margate, Kent CT9 4JX, UK

Hornby World Limited

Westwood, Margate, Kent CT9 4JX, UK

Ordinary shares

LCD Enterprises Limited

Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB

Ordinary shares

Oxford Diecast Limited

Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB

Ordinary shares

Proportion of nominal value
of issued shares held

Group % Company %

100

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13. RIGHT OF USE ASSETS

GROUP

COST

At 1 April 2021

Additions at cost

Acquired from business combination

At 31 March 2022

ACCUMULATED DEPRECIATION

At 1 April 2021

Charge for the year

At 31 March 2022

Net book amount at 31 March 2022

GROUP

COST

At 1 April 2020

Additions at cost

At 31 March 2021

ACCUMULATED DEPRECIATION

At 1 April 2020

Charge for the year

At 31 March 2021

Net book amount at 31 March 2021

14. 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

Acquired from business combination

Exchange adjustments

At 31 March

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Hornby PLC Annual Report and Accounts 2022

Property
£’000

Motor
Vehicles
£’000

Fixtures, Fittings
and Equipment
£’000

3,376

189

161

3,726

851

415

1,266

2,460

317

346

156

226

120

Property
£’000

Motor
Vehicles
£’000

Fixtures, Fittings
and Equipment
£’000

2,898

478

3,376

445

406

851

2,525

192

125

317

156

161

Group

Company

2022
£’000

16,462

2021
£’000

15,152

2022
£’000

–

2022
£’000

1,205

(56)

(211)

1,486

2,428

Total
£’000

3,710

204

180

4,094

1,020

490

1,510

2,584

Total
£’000

3,101

609

3,710

528

492

1,020

2,690

2021
£’000

–

2021
£’000

1,179

207

(160)

–

(21)

1,205

Notes to the Financial Statements continued

15. TRADE AND OTHER RECEIVABLES

CURRENT:

Trade receivables

Less: loss allowance for receivables

Trade receivables – net

Other receivables

Prepayments

Amounts owed by subsidiary undertaking

Group

2022
£’000

Company

2021
£’000

2022
£’000

2021
£’000

6,208

(789)

5,419

1,724

1,643

–

8,786

6,893

(853)

6,010

270

967

–

7,247

–

47,322

47,409

48,431

48,518

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

2022
£’000

4,470

949

789

2021
£’000

5,320

690

853

6,208

6,863

As of 31 March 2022 trade receivables of £949,000 (2021: £690,000) 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 2022, trade receivables of £789,000 (2021: £853,000) 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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15. TRADE AND OTHER RECEIVABLES 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

2022
£’000

853

(61)

–

(3)

789

2021
£’000

1,050

(25)

(140)

(32)

853

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

16. CASH AND CASH EQUIVALENTS

Cash at bank and in hand

Group

Company

2022
£’000

–

3,188

2,657

1,318

7,163

2021
£’000

2022
£’000

2021
£’000

–

47,322

48,431

4,396

979

905

–

6,280

47,322

48,431

Group

Company

2022
£’000

4,139

2021
£’000

4,685

2022
£’000

2021
£’000

Cash at bank of £4,139,000 (2021: £4,685,000) is with financial institutions with a credit rating of A3 per Moody’s rating agency.

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued17. TRADE AND OTHER PAYABLES

CURRENT:

Trade payables

Other taxes and social security

Other payables

Refund liability

Accruals and contract liabilities

Group receivables guarantee

Group

2022
£’000

Company

2021
£’000

2022
£’000

2021
£’000

3,919

730

578

252

1,893

–

7,372

2,833

1,294

603

231

2,170

–

7,131

–

856

–

6,020

6,958

–

599

–

6,020

6,722

Contract liabilities relate to payments of £178,777 (2021: £438,308) received upfront for products where delivery is yet to take place.
Delivery is expected to take place over the next three months. Revenue of £438,308, deferred in 2021, was recognised as income in the
year ended 31 March 2022.

18. RIGHT OF USE LEASE LIABILITIES

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

As at 1 April

New leases

Acquired from business combination

Interest payable

Repayment of lease liabilities

As at 31 March

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

Group

Company

2022
£’000

2,808

192

190

166

(610)

2,746

433

664

1,649

2,746

2021
£’000

2,639

609

–

165

(605)

2,808

365

791

1,652

2,808

2022
£’000

2021
£’000

–

Hornby PLC Annual Report and Accounts 2022

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18. RIGHT OF USE LEASE LIABILITIES continued

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

19. BORROWINGS

Secured borrowing at amortised cost

CBIL Bank Loan

Shareholder Loan

Loan from subsidiary undertakings

Total borrowings

Amount due for settlement within 12 months

Amount due for settlement after 12 months

Group

Company

2022
£’000

575

1,134

2,299

4,008

(1,262)

2,746

2021
£’000

522

1,378

2,304

4,204

(1,396)

2,808

2022
£’000

2021
£’000

–

Group

2022
£’000

Company

2021
£’000

2022
£’000

2021
£’000

217

110

–

327

277

327

–

5,643

–

5,643

–

5,689

–

5,689

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.

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

At 31 March 2022 the UK had a £12 million Asset Based Lending facility with PNC Credit Limited (replaced on 13 April 2022 with a £12
million Asset Based Lending facility with Secure Trust Bank PLC (STB)) and a £9 million loan facility with Phoenix Asset Management Partners.

The £12 million facility with STB extends until October 2024 and carries a margin of 2.5‐3% over base rate. The STB Facility has a fixed and
floating charge on the assets of the Group. The Company is expected to provide customary operational covenants to STB on a monthly basis.

The Phoenix Facility is a £9 million facility with a current expiration date of December 2023 and attracts interest at a margin of 5% over
SONIA on funds drawn. Undrawn funds attract a non‐utilisation fee of the higher of 1% or SONIA.

LCD Enterprises Limited has a CBIL loan of £217,000 being repaid at £4,167 per month. This should be repaid by August 2026.

Undrawn borrowing facilities

At 31 March 2022, the Group had available £12,611,165 (2021: £14,380,773) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. The facility from Secure Trust Bank PLC has limits based on the Group’s asset position at any
one time.

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

20. FINANCIAL INSTRUMENTS

Classification and measurement

Under IFRS 9 the Group classifies and measures 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.

Carrying value and fair value of financial assets and liabilities

Amortised Cost

Held at Fair Value

Financial
Assets
£’000

Financial
Liabilities
£’000

Cash flow
hedges
£’000

Carrying
value
£’000

At 31 March 2022

Trade and other receivables

Trade and other payables

Derivative financial instruments

Cash and cash equivalents

Lease liabilities

At 31 March 2021

Trade and other receivables

Trade and other payables

Derivative financial instruments

Cash and cash equivalents

Lease liabilities

Fair
value
£’000

7,143

(4,496)

504

4,139

7,143

–

4,139

–

(4,496)

–

(2,746)

–

504

–

7,143

(4,496)

504

4,139

(2,746)

Amortised Cost

Held at Fair Value

Financial
Assets
£’000

Financial
Liabilities
£’000

Cash flow
hedges
£’000

Carrying
value
£’000

6,279

–

4,685

–

(3,342)

–

(2,808)

–

(481)

–

6,279

(3,342)

(481)

4,685

(2,808)

Fair
value
£’000

6,279

(3,342)

(481)

4,685

(2,808)

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

2022
£’000

Liabilities

2021
£’000

2022
£’000

2021
£’000

Forward foreign currency contracts – cash flow hedges

504

–

(513)

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 2022 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.

Hornby PLC Annual Report and Accounts 2022

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20. FINANCIAL INSTRUMENTS continued

At 31 March 2022 and 31 March 2021, the gross value of forward currency contracts was as follows:

US Dollar

2022
’000s

2021
’000s

20,025

22,000

The net fair value for the forward foreign currency contracts is an asset of £504,000 (2021: £32,000 asset) and a liability of nil (2021:
£513,000) of which £504,000 net asset (2021: £481,000 liability) represents an effective hedge at 31 March 2022 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 five years

More than five years

COMPANY

More than five years (Note 19)

Hierarchy of financial instruments

2022
£’000

3,730

1,134

2,299

7,163

2021
£’000

3,957

1,378

2,304

7,639

2022
Intercompany
Debt
£’000

2021
Intercompany
Debt
£’000

5,643

5,689

The following tables present the Group’s assets and liabilities that are measured at fair value at 31 March 2022 and 31 March 2021.
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).

• 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.

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

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 2022

Liabilities

Derivatives used for hedging

Total liabilities at 31 March 2022

Assets

Derivatives used for hedging

Total assets as at 31 March 2021

Liabilities

Derivatives used for hedging

Total liabilities at 31 March 2021

Interest rate sensitivity

Level 1
£’000

Level 2
£’000

Level 3
£’000

Total
£’000

–

504

–

504

–

Level 1
£’000

Level 2
£’000

Level 3
£’000

Total
£’000

–

(513)

–

(513)

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
£17,000 (2021: £nil) 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.

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

Comprehensive Income and
Equity Sensitivity

2022
£’000

1,559

660

2,219

2021
£’000

670

655

1,325

Hornby PLC Annual Report and Accounts 2022

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20. FINANCIAL INSTRUMENTS continued

Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net (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 19)

Less:

Total cash and cash equivalents (Note 16)

Net (cash)

Total equity

Total capital

Gearing

21. DEFERRED TAX

2022
£’000

327

(4,139)

(3,812)

43,110

39,298

(10%)

2021
£’000

–

(4,685)

38,257

33,572

(14%)

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

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.

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.

Fixed Asset &
Other UK
temporary timing
differences
£’000

Acquisition
intangibles
£’000

150

–

(233)

(150)

–

(150)

–

294

127

485

–

Total
£’000

150

377

127

718

150

–

150

Deferred tax liabilities

At 1 April 2021

Acquired on business combination

Charge to Statement of Comprehensive Income

Charge to Other Comprehensive Income

At 31 March 2022

At 1 April 2020

Charge to Statement of Comprehensive Income

At 31 March 2021

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

Deferred tax liabilities

At 1 April 2021

Acquired on business combination

Charge to Statement of Comprehensive Income

Charge to Other Comprehensive Income

At 31 March 2022

At 1 April 2020

Charge to Statement of Comprehensive Income

At 31 March 2021

Deferred tax assets

At 1 April 2021

Acquired on business combination

Credit to Statement of Comprehensive Income

At 31 March 2022

At 1 April 2020

Credit to Statement of Comprehensive Income

At 31 March 2021

Net deferred tax (liability)/asset

At 31 March 2022

At 31 March 2021

GROUP

Deferred tax comprises:

Depreciation in excess of capital allowances

Losses and other temporary differences – UK

Losses and other temporary differences – Overseas

Deferred tax asset

Fixed Asset &
Other UK
temporary timing
differences
£’000

Acquisition
intangibles
£’000

150

–

233

150

–

150

–

294

127

485

–

Company

Total
£’000

150

377

127

718

150

–

150

Total
£’000

Short-term
incentive plan
£’000

Total
£’000

Group

Fixed Asset and
other UK
temporary timing
differences
£’000

Acquisition
intangibles
£’000

–

(233)

(150)

2,956

893

3,910

2,030

926

2,956

3,425

2,956

893

3,910

2,030

926

2,956

3,192

2, 806

–

2022

2021

Recognised
£’000

Not recognised
£’000

Recognised
£’000

Not recognised
£’000

2,032

1,159

–

3,191

–

2,817

4,557

2,912

7,469

(11)

–

2,806

461

3,360

3,327

7,148

Hornby PLC Annual Report and Accounts 2022

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21. DEFERRED TAX continued

COMPANY

Deferred tax comprises:

Other timing differences

Deferred tax (asset)/liability

2022

2021

Recognised
£’000

Not recognised
£’000

Recognised
£’000

Not recognised
£’000

–

(589)

–

(320)

The UK deferred tax asset not recognised of £4,557,000 primarily relates to unrecognised losses in Hornby Hobbies Limited of £15,136,000
(potential deferred tax asset of £3,784,000) and Hornby PLC of £1,459,000 (potential deferred tax asset of £365,000). It also relates to
an unrecognised gross temporary difference of £1,632,000 related primarily to share options and timing difference on the provision for
unrealised profit.

The deferred tax asset not recognised in respect of overseas losses carried forward of £2,912,000 relates to losses carried forward of
£1,444,000 in respect of Hornby Espana SA (potential deferred tax asset of £361,000), £2,597,000 in respect of Hornby France SAS
(potential deferred tax asset of £649,000), £1,506,000 in respect of Hornby Deutschland GmbH (potential deferred tax asset of £452,000),
£3,650,000 in respect of Hornby Italia srl (potential deferred tax asset of £876,000) and £2,734,000 in respect of Hornby America Inc
(potential deferred tax asset of £574,000).

22. SHARE CAPITAL

Group and Company

Allotted, issued and fully paid:

Ordinary shares of 1p each:

At 1 April and 31 March

23. SHARE-BASED PAYMENTS (‘PSP’)

2022

2021

Number of
shares

£’000

Number of
shares

£’000

166,927,838

1,669

166,927,838

1,669

All Performance Share Plan (‘PSP’) awards outstanding at 31 March 2022 vest only if performance conditions are met. Awards granted
under the PSP must be exercised within six months of the relevant award vesting date.

The Group operates the PSP for Executive Directors and senior executives. Awards under the scheme are granted in the form of a nominal-
priced option, and are satisfied using market-purchased shares. The awards in previous years vest in full or in part dependent on the
satisfaction of specified performance targets.

The 2020 awards vest in full or in part dependent on the satisfaction of specified performance targets.

All plans are subject to continued employment. To the extent that such shares in the above plans are awarded to employees below fair value,
a charge calculated in accordance with IFRS 2 ‘Share-based payment’ is included within other operating expenses in the Statement of
Comprehensive Income. This charge for the Group amounts to £2,341,000 and the charge for the Company amounted to £1,171,000 in
the year ended 31 March 2022 (2021: £673,000 charge for the Group and £337,000 charge for the Company).

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continuedNo options were granted during the year.

Fair Value

Options pricing model used

Share price at grant date (p)

Exercise price (p)

Risk-free rate (0.5%)

Expected option term (years)

Expected dividends (per year, %)

2021 PSP

53.0p

Black-Scholes (Stochastic)

54.0p

1.0p

0.5%

1.5

Assumptions on expected volatility and expected option return have been made on the basis of historical data, wherever available, for the
period corresponding with the vesting of the option. Best estimates have been used where historical data is not available in this respect.
No reasonable change in volatility would impact on the fair value of the options granted.

24. RESERVES

Group

Capital Redemption Reserve

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

Share Premium reserve

Share premium represents the excess of the fair value of consideration received for the equity shares, net of expenses of the share issue, over
the nominal value of the equity shares.

Accumulated losses

This reserve represents accumulated gains and losses less distributions to the shareholders.

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.

Share-based payment reserve

The share-based payment reserve arises from the requirement to value share options in existence at the fair value at the date they are granted.

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.

Accumulated losses

This reserve represents accumulated gains and losses less distributions to the shareholders.

Hornby PLC Annual Report and Accounts 2022

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic ReportCompany

2022
£’000

2021
£’000

25. EMPLOYEES AND DIRECTORS

Staff costs for the year:

Wages and salaries

Furlough scheme

Share-based payment (Note 23)

Social security costs

Other pension costs (Note 26)

Redundancy and compensation for loss of office

Group

2022
£’000

7,940

(1)

2,341

869

478

134

2021
£’000

7,514

(184)

673

823

411

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:

Group

Company

11,761

9,257

1,751

482

–

1,171

–

408

–

337

–

834

–

2021
£’000

445

337

–

810

2022
£’000

2021
£’000

2022
£’000

210

2021
£’000

193

Group

Company

2022
£’000

900

2,341

–

2021
£’000

853

673

–

2022
£’000

482

1,171

–

3,279

1,562

1,682

Operations

Sales, marketing and distribution

Administration

Key management compensation:

Salaries and short-term employee benefits

Share-based payments

Other pension costs

Redundancy and compensation for loss of office

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 21 to 25 and forms part of these financial statements.

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued26. 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 £478,000 (2021: £411,000) representing the actual contributions payable in the year and certain
scheme administration costs. The Company pension cost for the year was £29,000 (2021: £28,000). No contributions were outstanding at
the year end of 31 March 2022.

27. 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

2022
£’000

2021
£’000

1,967

1,847

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.

28. CASH (USED IN)/GENERATED FROM OPERATIONS

Profit/(loss) before taxation

Interest payable

Interest paid on Lease liabilities

Interest receivable

Share of profit of investments accounted for using the equity method

Disposal of equity interest

Amortisation of intangible assets

Depreciation

Depreciation on right of use assets

Share-base payments (non cash)

Decrease/(Increase) in inventories

(Increase)/Decrease in trade and other receivables

Increase/(Decrease) in trade and other payables

Cash generated from/(used in) operations

Group

Company

2022
£’000

583

192

166

(15)

219

308

2,239

490

2,341

994

(1,150)

(1,525)

4,862

2021
£’000

345

169

165

(3)

(109)

–

533

1,721

492

673

(1,223)

(764)

2,373

4,372

2022
£’000

(1,460)

209

–

(175)

240

–

1,171

–

(175)

224

2021
£’000

(318)

220

–

(175)

(109)

–

337

–

(64)

154

Hornby PLC Annual Report and Accounts 2022

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OverviewFinancial StatementsGovernanceStrategic ReportOverviewFinancial StatementsGovernanceStrategic Report29. NET FUNDS RECONCILIATION

Cash and cash equivalents

Borrowings – repayable within one year

Borrowings – repayable after one year

Net Funds

Cash and liquid investments

Gross debt – variable interest rates

Net Funds

30. RELATED PARTY DISCLOSURES

2022
£’000

4,139

(50)

(277)

3,812

4,139

(327)

3,812

2021
£’000

4,685

–

4,685

–

4,685

Hornby Hobbies Limited purchased services from a company called Rawnet Limited which is 100% owned by Phoenix Asset Management,
the controlling party of the Group.

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

Company

Rawnet Limited

Transactions
£’000

Balance at
year end
£’000

656

Phoenix Asset Management Partners who own the majority shareholding in Hornby PLC have also provided a funding facility to the Group
(see note 19).

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 £1,071,000 (2021: £933,000), interest of £175,000 (2021: £175,000) and
incurred interest of £209,000 (2021: £220,000) on intercompany borrowings.

Hornby PLC has provided a guarantee of £6.109m against intercompany receivables in Hornby Hobbies. This guarantee is included
in liabilities.

31. 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.

32. EVENTS AFTER THE END OF THE REPORTING PERIOD

On the 21 April 2022 we transferred our Asset Based Lending Facility from PNC Credit Limited to Secure Trust Bank PLC.

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

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Hornby PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

Shareholders’ 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

Westwood
Margate
Kent CT9 4JX
www.hornby.com

Hornby PLC Annual Report and Accounts 2022

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