Annual Financial Report

Hornby PLC

22 June 2023

 

22 June 2023

HORNBY PLC

HORNBY ANNOUNCES ANNUAL RESULTS

Hornby Plc ("Hornby" or the "Group"), the international models and collectibles group, today announces its results for the year ended 31 March 2023

Highlights 2023

Revenue (2022: £53.7m)

£55.1m

Operating loss (2022: £0.9m profit)

(£5.0m)

Reported loss before taxation (2022: £0.6m profit)

(£5.9m)

Underlying1 loss before taxation (2022: £3.2m profit)

(£1.1m)

Reported loss after taxation (2022: £1.5m profit)

(£5.9m)

Reported loss per share (2022: 0.89p profit)

(3.50p)

Underlying2 basic loss per share (2022: 2.18p)

(1.22p)

Net funds (2022: £3.8m) (see Note 27)

(£5.5m)

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 11).

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

Olly Raeburn, CEO

Kirstie Gould, CFO

01843 233500

Web: www.hornby.plc.uk

Liberum Capital Limited (Nominated Advisor & Broker)

Andrew Godber

Edward Thomas

Miquela Bezuidenhoudt 

020 3100 2222 

Non-Executive Chairman's Report

The Strategic Report comprises the Non-Executive Chairman's report, the Chief Executive's Report, the Operating and Financial Review of the year and our Key Performance Indicators ('KPIs')

Revenue in the year of £55.1 million (2022: £53.7 million) was 2.5% above the previous year. Underlying loss before tax was (£1.1) million (2022: £3.2 million profit). Reported loss was (£5.9) million (2022: £0.6 million profit)

The year started well, but in the most important trading period October- December the sales were very disappointing and did not hit the levels that had been forecasted just a few months earlier.

The UK economy struggled in 2022, with growth slowing and inflation rising. The war in Ukraine caused energy prices to rise sharply, which put a squeeze on households who were facing higher costs and uncertainty. Our own prices rose as factory costs increased, these were passed on to our customers. Against this background, our manufacturing was at its highest level ever, we closed the year with stocks of £21.3 million an increase of 29% (2022: £16.5 million). These increased stocks put a squeeze on cash.

New Product Development

In late 2022 we announced the new HM7000 system to control trains. It completely replaces the traditional systems of train control, instead it uses a Bluetooth® equipped phone or tablet. Key parts of the new system are patented, it is 'backwards compatible', and it works in all the main scales worldwide; 1:87, 1:76. N scale and Hornby's newly-launched TT scale. Importantly, this new system doesn't just work with Hornby model trains, it will also control trains made by competitors. Decoders will no longer be unique to a specific train; sounds and locomotive characteristics will in future be downloadable direct from the Hornby website. The latest Bluetooth® mesh technology will permit thousands of trains to be controlled over the largest model railway.

CEO

In January 2022 we announced that we had started a search for a new CEO. In January 2023 Olly Raeburn was appointed and he is evaluating all parts of the business and developing the strategy to move us forwards. I am very supportive of him during this process as he get to grips with our many brands and the short-term challenges that he faces.

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.

I am delighted that once again this year, we will be hosting our Annual General Meeting at the Hornby headquarters in Margate on Wednesday 13 September 2023. This will be an excellent opportunity for shareholders to see the new products for themselves and to understand the progress that the Company is making. Personally I am looking forward to welcoming as many shareholders as possible that are able to attend.

Lyndon Davies

Non Executive Chairman

21 June 2023

CEO Report

Having only taken up my position as CEO in January 2023, in my first report on the business I will be reviewing performance over the last 12 months, before highlighting some of the challenges and opportunities that lie ahead.

Whilst it's too soon to lay out a definitive strategy for the future, I will talk to the progress that is being made and the key building blocks that will inevitably define that strategy as it continues to take shape over the coming months.

With that in mind, this report will address:

1.     Headlines and financial overview

·      Revenue growth of 2.5%, improved gross margin and D2C growth of 49%

·      A shortfall versus management expectations at the top line

2.     Key initiatives and continuous improvement

·      Successful launches for TT:120 and Hobby Rewards, and meaningful improvements in digital metrics

·      Opportunities to further scale through ongoing focus on execution  

3.     A focus on the next 12 months

·      Brand and product development, pricing initiatives and evolution of customer experience

·      An outline of a few of the primary building blocks for the year ahead

4.     A return to profitable growth

·      Our key focus for the future and the route to sustainable growth

·      Indicative performance expectations for the year ahead

1.     Headlines and financial overview

We saw a modest improvement in sales at the top line, growing 2.5% and representing a fourth consecutive year of growth.

However, £55.1million of revenue was c10% behind management expectations.

H1 revenues were in line with budget, and a strong Q4 was ahead of plan, but this was not sufficient to mitigate disappointing revenues in the crucial third quarter. This Q3 underperformance was due to a mixture of overestimating demand based on trajectory and a weakening consumer environment.

Gross margin grew from 48% to 49% and gross profit lifted by 8.5% to £26.9 million. An increase in fixed costs of c14%, ahead of anticipated revenue growth resulted in the posting of a small underlying operating loss.

This growth in fixed costs was due to a combination of inflation in certain cost lines (warehousing, utilities and insurance), and discretionary increases in operating costs in regard to both digital resource and digital marketing. These investments in operating costs equated to £1.9 million, which was 57% of the total £3.4 million increase in the year.

Digital performance was one of the highlights of the year, delivering a 49% revenue uplift from £5.7 million to £8.5 million.

The significant increase in gross debt from £0.3 million to £6.9m was in part due to an over-commitment to stock derived from an expectation that the top line revenue growth trajectory would have continued to follow that of recent years. As a result, inventory has risen by 30%. In the year ahead, we will seek to lower our inventory in a measured way without impacting long-term brand equity.

Managing this inventory position and improving the way our key growth-driving initiatives affect the top line, some of which are outlined in the following sections of this report, are fundamental building blocks in our return to profitability.

In the coming year we expect to deliver high single digit / low double digit percentage growth in revenues at the top line and see a further improvement in gross margins.

Sales and margins are in line with budget for the first two months of the current year.

Key figures and KPI's:

	2023	2022
Sales	55,105	53,739
Growth	2.5%	10.7%
Variable Costs	(28,165)	(28,023)
Gross Profit	26,940	25,716
Margin %	49%	48%
Fixed Costs	(28,009)	(24,631)
Operating Profit	(1,069)	1,085
Operating margin %	(1.5)%	2.0%
Underlying Operating Profit	(309)	3,246
Underlying margin %	(0.6%)	6.0%
KPI's
Digital sales	8,501	5,704
Growth	49.0%	15.4%
Capex	4,640	3,348
Gross profit per capex (PY capex)	£8.24	£6.27
Net debt	6,867	327
Gross cash	1,337	4,139
Inventory	21,505	16,462
% of sales	39%	31%

2.     Key initiatives and continuous improvement

The last 12 months have seen encouraging developments in a number of areas. It is important that this initial momentum is maintained and built upon over the coming year.

TT:120 Launch

November 2022 saw the launch of TT:120, arguably the first major development in model railway systems in the UK for decades. TT:120 revenues to date are c£1.5 million.

The TT ('Table Top') system, leverages all of our existing intellectual property, but is at 1:120 scale, just over 35% smaller than the standard 00 gauge which is 1:76 scale.

The relative sizes of 00 and TT can be seen in the image below;

TT:120 was conceived to both create additional growth from existing enthusiasts and to open up the hobby to a new customer group, for whom the space required for the current OO gauge was perhaps too much of a barrier to entry.

TT:120 was initially launched as a web exclusive, driving interest through our direct to consumer ('D2C') channel. The first wave of sets all but sold out in a matter of weeks, demonstrating a real appetite for the new system and the effectiveness of our new digital platform.

This early success, driven by the anticipation created pre-launch through D2C marketing activities, created some challenges. It meant, for example, that the quicker than anticipated uptake left us in a position where stock availability of the crucial entry level sets was very limited.

Sales momentum was maintained, however, through creation of bundles of available stock.

Regular deliveries of further volumes of sets between August 2023 and January 2024, along with additional locos, coaches and system products will drive a second significant uplift in growth of TT:120 throughout the coming year.

Hobby Rewards

Launched in November 2022, Hobby Rewards is a loyalty currency that will allow us to create value in the relationships with our customers, vertically, within each of our brands, and horizontally across the portfolio.

36,000 customers have signed up since launch and on average, spend from Hobby Rewards members is c2.5 times greater than that of non-members.

Our efforts since launch have been focused on converting customers to the programme, with an emphasis on earning rewards and accumulating value. Next steps will see us focusing on increasing engagement and driving redemption of rewards. With these customers signed up to a loyalty programme we can now further grow their value over time, in a targeted and controlled way.

The opportunity for the future lies in using the data we glean from Hobby Rewards transactions to allow us to segment and evolve customer relationships over time. This analysis and segmentation will form the basis of an ongoing and effective CRM programme over the coming months and years.

Digital platform

One of the largest potential drivers of value for the group is increasing the scale and value of our direct-to-consumer business through ongoing development in the digital channel. We started investing, with purpose, for this future with our website re-platforming c18 months ago and continued to develop our relationship with Rawnet, our digital development partners, throughout this time.

This investment enabled a 49% increase in digital revenues last year. Whilst D2C sales were only c15.5% of total sales, representing c8% of volume, this clearly highlights the potential for future growth.

Traffic to the site increased by +5% year on year and transaction volumes grew by +37%, driven by a +29% improvement on conversion, up to c2% across the year.

Building on this growth through engaging with existing customers and growing our addressable market efficiently, we are expecting to increase D2C revenues by over 20% in the current year.

D2C represents multiple benefits including higher average sales prices, higher gross margins and full control over pricing.

We are still at the tip of the iceberg of the potential here and it has scope to transform the Group's profitability as we continue to both scale up and improve execution.

The three initiatives outlined above took varying lengths of time, and varying levels of investment, to bring to fruition and they are all still at relatively early stages in their lifecycles. Each of them will continue to be the subject of significant and constant energy and focus through the coming year and will begin to make a more meaningful impact on overall performance over time.

3.     A focus on the next 12 months

I have said that it's too soon to lay out the details of a full and rounded strategy at this stage. It is, however, clear that there are number of foundational activities that need focus, attention and energy over the coming months as they will provide some of the building blocks for growth into the future.

Brand Vision and Proposition Development

Building solid foundations for future growth requires a purposeful strategy, based on a clear understanding of each of our portfolio of brands, how they relate to each other and how they are differentiated.

Hornby Hobbies is in a privileged position of owning a portfolio of 13 brands, representing an unrivalled opportunity to create distinctive propositions, tones of voice and communications plans.

The four largest revenue contributors, and best known, of these brands are AIRFIX, CORGI, HORNBY and SCALEXTRIC. Working with a collection of such rich, recognisable, heritage brands and defining distinctive propositions for each, is a foundational piece of work that will form the basis of marketing planning and investment in the coming months and years.

Developing these distinctive and authentic visions for each of the brands will help us clearly define existing and target customers, and how we will meet their needs most appropriately.

We have already completed the work that defines the vision and proposition for the Hornby Hobbies umbrella brand, concluding that BUILDING HAPPINESS is the emotional thread that runs through all of our brands, underpinned by five key values and guiding principles.

We are now working through the portfolio brands, building a clear and distinctive proposition for each of them that represents the ways in which they feed the overall proposition of BUILDING HAPPINESS.
 

Product development and merchandising

The current inventory position clearly points to an over-commitment of stock ahead of increased sales, but part of the story also relates to the specifics of product development.

In some instances, like the TT:120 launch highlighted earlier, we were not ambitious enough in our initial commitments, and in other cases we find ourselves over-stocked on slower moving lines.

We need to improve the effectiveness of the linear relationship between analysis of product performance, resultant product development, ranging, inventory management and merchandising. This will have a positive impact on our inventory position, working capital and top line performance.

Feeding the outputs of the brand work, indicated above, through the product development process will also go some way to ensure that we are developing product and ranges, across all brands, in a purposeful and informed way into the future.

This brand-led, customer-led, structured, approach to product selection is something that has not had enough focus in recent years and is a contributor to the current Inventory position.

An increase in emphasis on commercial analysis of performance of specific product categories, and subject matter, will improve the quality of our decision-making moving forwards.  

Entry level product and pricing

The nature of our development process, our high standards and the complexity of some of our products, has seen our pricing create challenges in certain scenarios.

In the domestic market, the National retailers are demanding better value and lower prices at all times, and our pricing has also limited some of our opportunities to grow our distribution in certain International markets.

We are, therefore, starting the process of reengineering a capsule range that allows us to present entry level products, across some of our key brands, at prices that are more attractive to some domestic partners and to new markets and distributors. Bringing new customers to our brands in an affordable way is critical to future growth.

This capsule of entry level product is likely to include re-engineered versions of products from the Airfix, Scalextric and Hornby ranges.

Data, Loyalty and Segmentation

Our existing customer data represents a rich source of insight for developing more targeted communications to clearly defined customer groups, segmented by value, frequency and product choice.

We have 5 years of transaction history from our D2C channel but have not taken full advantage of that information to develop relationships and drive purposeful growth.

Analysing all existing customer data and building an effective and workable customer segmentation, by brand, is a priority this year.

This segmentation work will drive our customer relationship management ('CRM') activities moving forward, with Hobby Rewards as a currency and key tool for establishing and growing those relationships.

We will continue to build on the initial segmentation as we gather more data and insights from CRM campaigns over time; these insights will, in turn, drive our decision making and resultant actions.

An effective segmentation and CRM programme are two of the fundamental building blocks that will drive the D2C growth that represents such a powerful opportunity for the future.

Customer Experience and Retail Development

Bringing our brands to life in a meaningful way in both physical and virtual touchpoints will deepen engagement and drive growth as a result. Projects that improve our online experience on our websites, as well as through social and email channels are underway and will be completed well within the current financial year.

Furthermore, we have been experimenting with the development of a retail format. The fact that we own a set of established, complementary, yet differentiated brands, that can be combined in a physical format that is powerful and experiential, presents a great opportunity to reach, and appeal to, a wide demographic of new customers.

We have spent time and money developing a solution and speaking to potential partners who have cited interest in helping us roll out the format. The first expression of the retail experience will be opened in Margate, on the site of the current Hornby Visitor Centre, with the ambition of opening further sites in a more traditional retail environment, in 2024 and beyond.

Given that the group currently has no direct retail presence, outside of the Hornby Visitor Centre, we are confident that this can be a significant future growth opportunity.

The above list is by no means exhaustive, but is indicative of the areas of focus in the short and mid-term. Equally, it should be evident that there is a common underlying theme across all of them that points to a greater emphasis on better understanding, and servicing, the needs of our customers.

4.     A return to profitable growth

A swing from an underlying operating profit of £3.3m to a loss of (£310K) in 12 months is obviously disappointing to have to report, and I have already highlighted some of the factors that have resulted in this outcome.

Addressing the top line sales miss of c10% vs management expectations, the year on year growth in the level of Net Debt and the high Inventory position are, clearly, all priority KPIs for the year ahead.

This will be achieved through a combination of continued effort on the various initiatives outlined in this report, most notably TT:120, Hobby Rewards and overall Digital Improvements, and the upweighting of resource in our sales function. A new Head of Export Sales joins the business in July and we are well advanced in the recruitment of a new Group Sales Director.

Successfully navigating these initiatives will naturally build profitability, allowing us to invest more in product development, creating a cycle where the growth delivered will continually build on itself.

The business, and its current cost base, can support a materially higher level of revenue than the level achieved in the last 12 months and we are targeting high single digit / low double digit revenue growth in the year ahead. Gross margins have risen, and they can rise further with increased D2C penetration. Operating leverage should support a strong improvement in profitability.

Joining an organisation with such a rich heritage is a real privilege, but it's the opportunity of leading the business into the future, and back into profitable growth, that fills me with most excitement.

I look forward with great enthusiasm to leading the business through this next stage of its evolution as we continue on the journey towards becoming a truly effective, omni-channel organisation, for the 21^st century.

Olly Raeburn

CEO

21 June 2023

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 13 to 16. 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 future success of Hornby. We listen and talk to them using all of the tools at our disposal. Our customers operate in a global, but niche market, we interact with them either directly, or via our retailers, wholesalers and distributors.

Suppliers

We have long-standing close relationships with our suppliers overseas, who we would normally visit on a regular basis. During the pandemic we have communicated via video conferencing, working together with a common goal, giving them visibility, sharing our plans allowing them to plan their factories capacity well into the future. We are planning to reintroduce regular visits this year as the COVID restrictions in China are lifted.

Employees

A key to the Group's future success is an 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.

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 and is an environmentally friendly way as possible.

Operating and Financial Review of the Year

Financial Review

	2023	2022
Revenue	£55.1m	£53.7m
Gross profit	£26.9m	£25.7m
Gross profit margin	49.3%	47.9%
Overheads	£28.0m	£24.6m
Exceptionals	£4.0m	£0.1m
Reported (loss)/profit before tax	(£5.9m)	£0.6m
Underlying (loss)/profit  before tax*	(£1.1m)	£3.26m
Reported (loss)/profit after tax	(£5.9m)	£1.5m
Basic (loss)/profit per share	(3.50p)	0.93p
Underlying basic (loss)/profit per share*	(1.23p)	2.19p
Net (debt)/funds	(£5.5m)	£3.8m
Undrawn Facilities	£11.7m	£12.6m

* 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 2023 was £55.1 million, an increase of 2.5% compared to the previous year's £53.7 million due to a very strong fourth quarter. The revenue in the second half of the year of £32.7 million was ahead of previous year which was £31.9 million. Gross profit margin was higher, at 49.3% (2022: 47.9%).

Overheads increased year-on-year by 13.7% from £24.6 million to £28.0 million. UK distribution costs were higher than prior year due to increased head count to speed up dispatch and the increased variable cost of B2C shipments. Sales and marketing costs increased by £2.6 million year-on-year due to ongoing investment in direct relationships with our customers. Administration costs were £0.8 million lower due to lower PSP costs of £0.5 million (2022: £2.3 million) offset by increased insurance and utility costs. Other operating expenses in the year of £0.7 million (2022: £0.03 million) includes foreign exchange losses and amortization of brand names.

Exceptional costs totalling £4 million (2022: £0.01 million) are predominantly Corgi goodwill impairment of £2.9 million, a write off of £0.91 million of Hornby World costs and refinancing costs of £0.1 million.

We have spent the last year developing plans to launch a multi-brand retail experience, bringing our key brands to life in a meaningful way. The aim of this work was to explore routes for creating and testing concepts that customers love and that can be subsequently rolled out across multiple sites, if successful. We have learned a great deal from the development process and, in January 2023 concluded that creating the first iteration of a new retail experience should be done on site in Margate, by reimagining and redeveloping the current Hornby Visitors' Centre. Whilst this decision undoubtedly means we will be able to test and learn more effectively, helping us get to the best solution in a controlled way, it's fair to say that the need to pivot our approach only became clear once we had carried out a substantial amount of development work. Consequently, we're required to write down the value of any capitalised costs related to the development work carried out over the last 12 months, although we have taken many learnings from decisions made during the development of the project so far, into the proposed scheme.

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.

	Group
	2023 £'000	2022 £'000
Statutory loss before taxation	(5,875)	583
Adjustments:
Amortisation of intangibles - brands	227	194
Share-based payments	532	2,341
Exceptional items:
Restructuring costs	-	88
Costs relating to Hornby World	910	-
Goodwill impairment	2,915	-
Refinancing	149	-
LCD Acquisition	-	219
Relocation costs	-	9
Amortisation adjustment	-	(177)
Underlying profit before taxation	(1,142)	3,257

Segmental analysis

Third party sales by the UK business of £40 million increased by 5% in the year as a result a significant increase in direct sales via the website. The loss before taxation of £2.7 million compared to £0.6 million profit last year reflects the increased overheads as a result of investment in direct sales and a significant increase in the cost of finance (as a result of base rate increases).

Sales by the European businesses of £10.6 million decreased by 7% in the year as a result of supply chain delays. The profit before tax was £0.7 million compares to £0.8 million profit last year.

Sales in the US business of £4.9 million increased by 7%. The trading loss of £0.6 million compares to £0.7 million loss in last year. We expect sales to increase in this key market in the longer term and overheads to reduce.

Statement of Financial Position

Property, plant and equipment increased year-on-year by £2 million to £12 million as a result of increased expenditure in tooling for new products and technologies. Group inventories increased from £16.5 million to £21.3 million due to a weak Q3. Trade and other receivables increased by £0.4 million or 4% largely due the increase in sales compared to prior year in fourth quarter. Trade and other payables are £0.7 million higher than previous year due to timing of supplier payments falling due. Overall investment in new tooling, new intangible computer software and other capital expenditure was £5.1 million (2022: £4.0 mil lion).

Dividend

The Group is still in the turnaround phase and there will not be a dividend payment this year (2022: £nil). The Board continues to keep the dividend policy under review.

Financing

At 31 March 2023 the UK had a £12 million Asset Based Lending facility with Secure Trust Bank Limited ("STB") and a £9 million loan facility with Phoenix Asset Management Partners.

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 2023 were £6,867,000 (2022: 327,000). This consists of a CBIL loan with £167,000 outstanding (acquired with LCD), amounts owing to STB of £4,590,000 and £2,110,000 shareholder loan drawdown.

Net debt at 31 March 2023 was £5.5 million compared with net cash of £3.8 million at 31 March 2022.

Our Key Performance Indicators ('KPIs')

The Directors are of the opinion that the financial KPIs are revenues, gross margins, underlying operating profit, capex productivity, Inventory, Digital Change, Variable and Fixed Costs the information for which is available in these financial statements and summarised on the financial highlights section earlier in this report.  We provide current and historical analysis in the CEO's Report on pages 3 to 7 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 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 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 Business Plan	The Business Plan may not fully achieve the aims of returning the Group to positive cash generation in 2023/24.	The increase in business scale and reduction of costs and the increase in direct sales currently anticipated is not achieved and the Group does not achieve sustainable profit and cash generation.	The Group has developed clear targets and has cost saving contingencies in the plan being actioned to put the necessary resources in place to deliver the aims of the plan.
Hobby market	Overall decline in the hobby market could lead to greater levels of competition in the medium term, which could have a negative impact on the Group's results.	Failing interest in traditional hobbies may impact our core Independent and National retailers and have a consequent impact upon the Group's performance.	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.
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.	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 continues to hedge short-term exposures by establishing forward currency purchases using fixed rate and participating forward contracts up to twelve months ahead. It is deemed impractical to hedge exchange rate movements beyond that period. 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.
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.	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.
Capital allocation	New tooling is important to support the production of new products.	The risk is that the Group has insufficient capital to fund new tooling or invests ineffectively in the wrong products.	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.
Product compliance	The Group's products are subject to compliance with toy safety legislation around the world.	Failure to comply could lead to a product recall resulting in damage to Company and brand reputation along with an adverse impact on the Group's results.	Robust internal processes and procedures, active monitoring of proposed legislation and involvement in policy debate and lobbying of the relevant authorities.
Liquidity	Insufficient financing to meet the needs of the business.	Without the appropriate level of financing, it would be increasingly difficult to execute the Group's business plans.	The Group has a £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.
System and cyber risk	The Group continues to invest in the development of its website and ERP systems.	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.	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 previous system. We are also working on upgrading the current ERP system.
Talent and skills	Recruitment, development and retention of talented people are the key to the success of any business.	The Group fails to retain the necessary skills and talent to deliver the Group's plans.	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.
Economic climate	Further cost of living increases could impact our sales	The further increase could inhibit sales as less residual income.	The ongoing situation is being monitored and we are ensuring that our products are priced competitively.

Main control procedures

Management establishes control policies and procedures in response to each of the key risks identified. Control procedures operate to ensure the integrity of the Group's financial statements and are designed to meet the Group's requirements and both financial and operational risks identified in each area of the business. Control procedures are documented where appropriate and reviewed by management and the Board on an ongoing basis to ensure control weaknesses are mitigated.

The Group operates a comprehensive annual planning and budgeting system. The annual plans and budgets are approved by the Board. The Board reviews the management accounts at its monthly meetings and financial forecasts are updated monthly. Performance against budget is monitored and where any significant deviations are identified appropriate action is taken.

The Strategic Report incorporates the statements on pages 3 to 12 and has been signed on behalf of the Board.

Kirstie Gould

Chief Finance Officer

21 June 2023

Corporate Governance Report

Corporate Governance

For the year ended 31 March 2023, 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 17 to 21 and the Directors report on pages 23 to 28.

Board of Directors

John Stansfield - aged 68 Independent Non-Executive Director	Lyndon Davies - aged 62 Non-Executive Chairman	Kirstie Gould - aged 50 Chief Finance Officer & Company Secretary	Daniel Carter - aged 28 Independent Non-Executive Director	Henry de Zoete - aged 41 Independent Non-Executive Director	Oliver Raeburn - aged 52 Chief Executive Officer
John Stansfield was Non-Executive Chairman in August 2018 to February 2022. 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 2 years with Hornby as a consultant in the finance department. Kirstie also acts as Company Secretary. Kirstie is a Fellow of the Institute of Chartered Accountants in England and Wales, qualifying with PricewaterhouseCoopers in 1997 and has since held senior management and directorship roles across a number of high growth SME firms including Affini Technology Limited (part of the TTG Group) and Gamma Communications plc.	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 73.38% 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 de Zoete 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.	Oliver Raeburn was appointed as CEO on 23 January 2023. A psychology graduate of the University of Leicester, Olly's career started out in advertising, including a 9 year stint as owner / manager of a London agency. A move into the corporate world saw Olly spend the next 6 years as Marketing Director at Coral and subsequently Brand Director for Ladbrokes and Coral in the newly formed Ladbrokes Coral PLC. Two years as Chief Marketing Officer at Rank PLC were followed by a move to Paperchase as CMO in 2019.  Having been promoted to CEO in 2020 he guided the company through an administration process during the Covid pandemic, followed by a turnaround process, refinancing and sale of the business in August 2022.

Our Board and Committees Membership

Director	Board	Audit	Remuneration & Nomination
John Stansfield	Member	Chair	Member
Lyndon Davies	Chair	Member	Member
Kirstie Gould	Member
Daniel Carter	Member	Member	Chair
Henry De Zoete	Member	Member	Member
Oliver Raeburn	Member

Composition and independence of the Board

The Board is comprised of two executive directors and four 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. Lyndon is not considered independent due to the time elapsed since his employment and his shareholding.

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 Non-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 Directors' background and experience are set out in the table above.

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 17 to 21.

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 Non-executive Chairman is responsible for overseeing the Board and the implementation of the Company's strategy and its operational performance.

Executive Directors

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

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, as a result a new CEO was recruited.

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/.

The Board is responsible for:

-overall management of the business;

-developing the Company's strategy, business planning, budgeting and risk management;

-monitoring performance against agreed objectives;

-setting the business' values, standards and culture;

-internal control and risk management;

-remuneration;

-membership and chairmanship of Board and Board Committees;

-relationships with shareholders and other stakeholders;

-determining the financial and corporate structure of the business;

-major investment and divestment decisions;

-the Company's compliance with relevant legislations and regulations; and

-other ad hoc matters such as the approval of the Company's principal advisors.

The Board met eleven times during the year. All directors attended all eleven meetings apart from Henry and John attended 10 board meetings and Oliver who attended 3 as he started late in the year.

The main activities of the Board during the year

Key Board activities this year included:

·      recruitment of a new CEO

·      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.

·      approving revised borrowing and credit facilities.

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 21 to 27.

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

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

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

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 22.  

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

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

Accountability

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

Risk Management and Internal Control

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

Financial and Business Reporting

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

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

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.

Audit Committee Report

As Chair of the Audit Committee ("the Committee"), I am pleased to present our Audit Committee Report for the year ended 31 March 2023.

Membership

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 page 13.

Meetings and attendance

The Committee met three times during the year ended 31 March 2023. All members of the Committee at the time of each meeting were present at the meetings. At least one of these meetings was with the external auditor, without the executive Board members present. Lyndon Davies and Kirstie Gould also attended meetings by invitation.

Duties:

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

- External Audit;

- Financial Reporting;

- Internal Control and Risk Management;

- Internal Audit; and

- Reporting on activities of the Committee.

The terms of reference for the Committee are reviewed annually and approved by the Board.

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

- a review of the year-end 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;

External Auditor

The Committee has the primary responsibility for recommending the appointment of the external auditor and reviewing the findings of the auditor's work. The Company's external auditor 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.

Having reviewed the auditor's independence and performance to date, the Committee has recommended to the Board that they be reappointed for the 2024 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 2023. 

Non-audit services

In addition to the audit services they provide, Crowe U.K. LLP also provide tax compliance services.  These fees are within the 1:1 ratio of audit services.

Audit process

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

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

Internal Audit                                                                                        

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

Risk Management and Internal Controls

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

- UK market dependence and conditions;

- the New Business Plan;

- the status of the model/hobby market;

- exchange rates;

- the supply chain function;

- capital allocation;

- product compliance;

- liquidity;

- systems and cyber risks;

- talent and skills; and

- Brexit

The Committee also reviews the effectiveness of control policies and procedures in place to deal with the risks mentioned. Further details on the business risks identified and the actions being taken are set out on pages 11 to 12 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                       

21 June 2023

Remuneration and Nomination Committee Report 

As Chairman of the Remuneration and Nomination Committee ("the Committee"), I am pleased to present our report for the year ended 31 March 2023 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 page 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 CEO 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;

·      Succession planning and the search for and appointment of a new CEO

·      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 17% (one) female and 83% (five) male Board members. The Board's age demographic ranges from 28 to 68. The business consists of 65% male employees and 35% female employees.

Remuneration policy

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

The CEO receives an annual bonus based on performance criteria. There is also a new bonus scheme for the CEO based on the increase in the share price over the next three years. Management have taken an accounting policy choice to only recognise the cost when a liability actually arises which is at the date the share price is met and the bonus determined.

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.

Service agreements and termination payments

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

Director	Date of Contract	Unexpired Term	Notice period by Company	Notice period by Director
Oliver Raeburn	23 January 2023	Rolling contract	3 months	3 months
Kirstie Gould	21 December 2017	Rolling contract	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 Non-executive Chairman and Non-Executive Directors (but excluded from discussing their personal fees). The remuneration payable to the Non-exec 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 non-executive directors will stand for re-election at the next AGM in September 2023 with the exception of Henry de Zoete who is standing down 30 June 2023.

Daniel Carter

Chairman of the Remuneration and Nomination Committee

21 June 2023

Directors and Corporate Information

Directors	Independent Auditors
The full details of all directors who served in the year ended 31 March 2023 can be found below.	Crowe U.K. LLP
Lyndon Davies	Riverside House
Non-Executive Chairman	40-46 High Street
Oliver Raeburn	Maidstone
Chief Executive Officer	Kent ME14 1JH
Kirstie Gould
Chief Finance Officer	Solicitors
Daniel Carter	Taylor Wessing LLP
Non-Executive Director	5 New Street Square
John Stansfield	London EC4A 3TW
Non-Executive Director	Principal Bankers
Henry de Zoete	Barclays Bank PLC
Non-Executive Director	9 St George's Street
Kirstie Gould	Canterbury
Company Secretary	Kent CT1 2JX
	Nominated Advisor and Brokers
Registered office	Liberum Capital Limited
Enterprise Road	Ropemaker Place
Westwood Industrial Estate	25 Ropemaker Street
Margate, Kent CT9 4JX	London EC2Y 9LY
	Registrars and Transfer Agents
Company Registered Number	Link Asset Services
Registered in England Number: 01547390	The Registry
	34 Beckenham Road
	Beckenham
	Kent BR3 4TU

Directors' Report

The Directors present their Annual Report together with the audited consolidated and Company financial statements for the year ended 31 March 2023.

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 9 to 10.

The Corporate Governance statement on page 13 to 16.

Details of the Directors who served during the year including their salaries, bonuses, benefits and share interests are on pages 26 to 27.

Directors' responsibility statements on page 25.

Likely future events are disclosed within the CEO report on page 7.

Post balance sheet events are set out in note 30.

Principal activities

The Company is a holding Company, limited by shares, registered (and domiciled) in England Reg. No. 01547390 with a Spanish branch and has seven operating subsidiaries: Hornby Hobbies Limited and Hornby World 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. Hornby Hobbies India Private Limited was established post year end but is yet to trade.

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 2023 are set out in the Group Statement of Comprehensive Income. Revenue for the year was £55.1 million compared to £53.7 million last year. The loss for the year attributable to equity holders amounted to £5.9 million (2022: £0.6 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 CEO Statement.

No interim dividend was declared in the year (2022: £nil) and the Directors do not recommend a final dividend (2022: £nil).

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. The Company has received a letter of support from Phoenix Asset Management confirming their intention to provide funds to support the Company's business plan for a minimum of twelve months from the date of signing the financial statements. For these reasons, the Directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Research and development

The Board considers that research and development into products continues to play an important role in the Group's success. R&D costs of £1.7 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.

		2023	2023	2022	2022
Scope	Activity	Consumption kWh	Consumption (tCO2e)	Consumption kWh	Consumption (tCO2e)
Scope 1	Business Mileage	112,748	28.3	112,647	27.3
Scope 2	Purchased Electricity	529,956	112.5	548,850	128.0
	Purchased Gas	199,449	40.6	343,019	69.0
		842,153	181.4	1,004,516	224.3
Intensity metric
An intensity metric of tCO2e per £m revenue has been applied for the annual total consumption
		2023	2022
tCO2e/£m Revenue		3.29	3.68

During the reporting year the gas and electricity consumption has fallen due to proactive efforts to reduce our consumption at Head Office.

Substantial shareholdings

The Company has been notified that at close of business on 19 June 2023 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	73.38
Artemis Fund Managers Limited	27,551,350	16.50

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Company financial statements in accordance with 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;

·      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.

Directors' confirmations

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.

In the case of each director in office at the date the Directors' Report is approved:

·      so far as the director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and

·      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.

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 21. Ordinary shareholders are entitled to receive notice and to attend and speak at general meetings.

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

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

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

Authority to purchase own shares

The Company was authorised by shareholder resolution at the 2022 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.

Change of control - significant agreements

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

POLITICAL DONATIONS

The Company has made no political donations during the year.

Independent auditor

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

Annual General Meeting

The Annual General Meeting is to be scheduled for 13 September 2023. A notice of the Annual General Meeting will be sent out to shareholders separately to this Annual Report and Accounts.

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 2022/23 and 2021/22 in line with the Companies Act 2006 requirement:

AUDITED
	Year ended 31 March 2023										Year ended 31 March 2022
		Basic salary		Pension		LTIP		LTIP		Total	Basic salary		Pension		Total
		& fees		contributions		- shares		- cash			& fees		contributions
		£'000		£'000		£'000		£'000		£'000	£'000		£'000		£'000
L Davies (Appointed 5 October 2017)		247		6		186		178		617	241		-		241
O Raeburn (Appointed 23 January 2023)		51		2		-		-		53	-		-		-
K Gould (Appointed 4 January 2018)		191		36		186		178		591	158		29		187
D Carter (Appointed 16 July 2020)		-		-		-		-		-	-		-		-
J Stansfield (Appointed 4 January 2018)		51		-		-		-		51	71		-		71
H De Zoete (appointed 5 January 2022)		45		-		-		-		45	11		-		11
Total		585		44		372		356		1,357	481		29		510

Performance Share Plan awards outstanding (Audited)

At 31 March 2023, outstanding awards to Directors under the PSP were as follows:

Director	Award date	Vesting date	Market  price at award date	At 1 April 2022	Exercised during the year	As at 31 March 2023
Lyndon Davies	Nov-20	Jun-22	54p	1,682,633	(1,682,633)	-
Kirstie Gould	Nov-20	Jun-22	54p	1,682,633	(1,682,633)	-

Under the terms of the LTIP, awards are subject to strict vesting criteria. These are linked to the Company's performance 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 was achieved and 63% of the total share options on offer were 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.

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 2023 and 31 March 2022 were:

	At 31 March 2023 number			At 31 March 2022 number
Executive Directors
O Raeburn	-			-
K Gould	786,489			55,006
Non-Executive Directors
L Davies	1,526,627			795,144
H De Zoete	-			-
D Carter	-			-
J Stansfield	85,358			85,358

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

XX June 2023

Independent auditor's 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 2023, which comprise:

·      the Group statement of comprehensive income for the year ended 31 March 2023;

·      the Group and Parent Company statements of financial position as at 31 March 2023;

·      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 significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and 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 2023 and of the Group's loss for the period then ended;

·      have been properly prepared in accordance with UK-adopted international accounting standards;

·      have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent 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 directors' 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 revenue and a return to profitability;

·      considering whether the forecasts will be feasible in light of past losses and recent economic conditions;

·      considering whether the group will continue to comply with existing covenants in respect of its facilities;

·      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;

·      consideration of the support provided by Phoenix Asset Management;

·      considering the cash position of the business along with current facilities available for drawdown; and

·      considering the appropriateness of the related disclosures against the requirements of the accounting standards.

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 and 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.

Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be £250,000 (2022 £250,000), based on turnover but while considering the underlying profitability of the business. We consider these to be the key performance metric reported by management to shareholders to assess the performance of the business. Materiality represents approximately less than 0.5% of turnover and 9% of loss before tax (2022: 0.5% of turnover and 17% of profit before tax).

Overall Parent Company materiality was set at £200,000 (2022: £200,000) based on net assets, restricted so as not to exceed Group materiality.

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 (2022: £175,000) for the Group and £140,000 (2022: £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 (2022: £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, Oxford Diecast Limited and Hornby World 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.

We considered going concern to be a key audit matter.  Our observations on this area are set out in the Conclusions relation to Going Concern section of the auditors' report.

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 8, 9 and 11 The Group holds goodwill at a carrying value of £1.7m and brand relations at a carrying value of £1.5m. The Parent Company also holds significant investments and debtor balances with Group companies. Recovery of these assets is dependent upon future cash flows which are required to be discounted.  There is a risk that forecasts for these future cash flows are not met or that the cash flows have not been discounted at an appropriate rate.  If the cash flows do not meet expectations the assets may become impaired	We obtained an understanding of the design and tested the implementation of controls over the valuation of these assets. We tested management's impairment review which includes impairment reviews for investments and intercompany debt in the parent and goodwill and intangible assets at group level. The audit work was directed at obtaining evidence on the accuracy of the forecasts of future cash flows which were 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 utilising the expertise 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). For investments and intercompany balances were considered the fair value of the group with reference to market capitalisation of the group. We ensured that the impairment recorded had been determined in accordance with IAS 36.
Inventory provisioning - Note 13 The Group was holding £21.3m of inventory at the year end.  The inventory balance increased by £4.8m (29%) over the previous year with a risk that older inventory is difficult to sell and there is inadequate provision.	We obtained an understanding of how the inventory provision was determined and considered whether it was a reasonable basis for making such a provision. We obtained the aged inventory reports and tested the accuracy of the reports and then recalculated the provision.  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 inventory year on year to consider whether the inventory was correctly valued at the lower of cost and net realisable value.  We considered whether the increase in inventory during the year resulted in an overstatement of inventory and challenged management to consider whether an additional provision was required in respect of older inventory. For a sample of inventory items, we reviewed sales post year end to consider if any items were being sold below cost. For a sample of older inventory items we obtained an inventory movement report and tested the report for accuracy.  We considered the time it will take for the inventory to sell through based upon the current run rate and whether management's sales plans would be achievable. Based on the audit work performed we made a significant judgement about whether the inventory provision was appropriate.

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

Other information

The directors are responsible for the other information contained within the annual report. 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.

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 this gives rise to a material misstatement in the financial statements themselves. 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.

Responsibilities of the directors for the financial statements

As explained more fully in the directors' responsibilities statement set out on page 25, 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.

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 of laws and regulations and as regards fraud;

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

• review of the board meeting minutes;

• enquiry of management and review and inspection of relevant correspondence with any legal firms;

• 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.

A further description of our responsibilities is available on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

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

Mark Sisson (Senior Statutory Auditor

for and on behalf of

Crowe U.K. LLP

Riverside House

40-46 High Street

Maidstone

Kent ME14 1JH

21 June 2023

Group Statement of Comprehensive Income

for the Year Ended 31 March 2023

		Group
	Note	2023 £'000	2022 £'000
Revenue	2	55,105	53,739
Cost of sales		(28,166)	(28,023)
Gross profit		26,939	25,716
Distribution costs		(8,196)	(6,991)
Selling and marketing costs		(11,448)	(8,832)
Administrative expenses		(7,712)	(8,514)
Other operating expenses	4	(653)	(294)
Operating (loss)/profit before Exceptional items	4	(1,070)	1,085
Exceptional items	4	(3,974)	(139)
Operating (loss)/profit	2	(5,044)	946
Finance income	3	11	15
Finance costs	3	(843)	(358)
Net finance expense	3	(832)	(343)
Share of loss of investments using the equity method	11	-	(20)
(Loss)/Profit before taxation	4	(5,876)	583
Income tax credit	5	(46)	896
(Loss)/Profit for the year after taxation		(5,922)	1,479
Other comprehensive income
Items that may be subsequently reclassified to profit or loss:
Cash flow hedges, net of tax		(932)	858
Currency translation gains/(losses)		161	175
Other comprehensive (loss)/income for the year, net of tax		(771)	1,033
Total comprehensive (loss)/income for the year		(6,693)	2,512
Comprehensive income attributable to:
Equity holders of the Company		(6,676)	2,500
Non-controlling interests		(17)	12
(Loss)/Profit per ordinary share
Basic	7	(3.50p)	0.89p
Diluted	7	(3.50p)	0.85p

All results relate to continuing operations.

The notes on pages 37 to 69 form part of these accounts.

Group and Company Statements of Financial Position as at 31 March 2023		Group		Company
	Note	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Assets
Non-current assets
Goodwill	8	1,732	4,644	-	-
Intangible assets	9	2,986	3,187	-	-
Property, plant and equipment	10	12,041	10,057	-	-
Investments	11	-	-	25,509	26,092
Right of Use Assets	12	2,087	2,584	-	-
Deferred tax assets	20	3,571	3,425		-
		22,417	23,897	25,509	26,092
Current assets
Inventories	13	21,282	16,462	-	-
Trade and other receivables	14	9,181	8,786	14,978	47,410
Derivative financial instruments	19	2	504	-	-
Cash and cash equivalents	15	1,337	4,139	1	2
		31,802	29,891	14,979	47,412
Liabilities
Current liabilities
Borrowings	18	(6,750)	(50)	-	-
Trade and other payables	16	(8,067)	(7,372)	(11,065)	(6,958)
Lease liabilities	17	(409)	(433)	-	-
Derivative financial instruments	19	(557)	-	-	-
		(15,783)	(7,855)	(11,065)	(6,958)
Net current assets		16,019	22,036	3,914	40,454
Non-current liabilities
Borrowings	18	(117)	(277)	(5,871)	(5,643)
Lease liabilities	17	(2,047)	(2,313)	-	-
Deferred tax liabilities	20	(233)	(233)	-	-
		(2,397)	(2,823)	(5,871)	(5,643)
Net assets		36,039	43,110	23,552	60,903

Group and Company Statements of Financial Position as at 31 March 2023

		Group		Company
	Note	2023	2022	2023	2022
		£'000	£'000	£'000	£'000
Equity attributable to owners of the parent
Share capital	21	1,699	1,669	1,699	1,669
Share premium		52,857	52,857	52,857	52,857
Capital redemption reserve		55	55	55	55
Translation reserve	23	(1,653)	(1,814)	(1,232)	(963)
Hedging reserve	23	(555)	377	-	-
Other reserves	23	1,688	1,688	19,145	19,145
Accumulated losses	23	(18,047)	(11,734)	(48,972)	(11,860)
Equity attributable to PLC shareholders		36,044	43,098	23,552	60,903
Non-controlling interests		(5)	12
Total equity		36,039	43,110

The Company made a loss after tax of £36,704,000 (2022: £1,460,000).

The notes on page 38 to 69 form part of these accounts. The financial statements on pages 33 to 68 were approved by the Board of Directors on 15 June 2023 and were signed on its behalf by:

K Gould, Director, Registered Company Number: 01547390

Group and Company Statements of Changes in Equity

For the Year Ended 31 March 2023

GROUP		Share capital	Share premium	Capital redemption   reserve	Translation reserve	Hedging reserve	Other      reserves	Non-controlling interests	Retained earnings	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March and 1 April 2021		1,669	52,857	55	(1,989)	(481)	1,688	-	(15,542)	38,257
Profit for the year		-	-	-	-	-	-	12	1,467	1,479
Other comprehensive (expense)/income for the year		-	-	-	175	858	-	-	-	1,033
Total comprehensive (loss)/income for the year		-	-	-	175	858	-	12	1,467	2,512
Transactions with owners
Share-based payments (Note 22)		-	-	-	-	-	-		2,341	2,341
Total transactions with owners		-	-	-	-	-	-		2,341	2,341
Balance at 31 March 2022 and 1 April 2022		1,669	52,857	55	(1,814)	377	1,688	12	(11,734)	43,110
Loss for the year		-	-	-	-	-	-	(17)	(5,905)	(5,922)
Other comprehensive (expense)/income for the year		-	-	-	161	(932)	-	-	-	(771)
Total comprehensive (loss)/income for the year		-	-	-	161	(932)	-	(17)	(5,905)	(6,693)
Transactions with owners
Share-based payments - cash (Note 22)		30	-	-	-	-	-	-	(940)	(910)
Share-based payments - noncash (Note 22)		-	-	-	-	-	-	-	532	532
Total transactions with owners		30	-	-	-	-	-	-	(408)	(378)
Balance at 31 March 2023		1,699	52,857	55	(1,653)	(555)	1,688	(5)	(18,047)	36,039

COMPANY	Share Capital	Share  premium	Capital redemption reserve	Translation reserve	Other reserves	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March and 1 April 2021	1,669	52,857	55	(1,016)	19,145	(12,741)	59,969
Loss for the year	-	-	-	-	-	(1,460)	(1,460)
Other comprehensive expense for the year	-	-	-	53	-	-	53
Total comprehensive income/(expense) for the year	-	-	-	53	-	(1,460)	(1,407)
Transactions with owners
Share-based payments (Note 22)	-	-	-	-	-	2,341	2,341
Total transactions with owners	-	-	-	-	-	2,341	2,341
Balance at 31 March and 1 April 2022	1,669	52,857	55	(963)	19,145	(11,860)	60,903
Loss for the year	-	-	-	-	-	(36,704)	(36,704)
Other comprehensive expense for the year	-	-	-	(269)	-	-	(269)
Total comprehensive income/(expense) for the year	-	-	-	(269)	-	(36,704)	(36,973)
Transactions with owners
Share-based payments (Note 22)	30	-	-	-	-	(408)	(378)
Total transactions with owners	30	-	-	-	-	(408)	(378)
Balance at 31 March 2023	1,699	52,857	55	(1,232)	19,145	(48,972)	23,552

The notes on page 37 to 69 form part of these accounts.

Group and Company Cash Flow Statements

for the Year Ended 31 March 2023

		Group		Company
	Note	2023	2022	2023	2022
		£'000	£'000	£'000	£'000
Loss before taxation		(5,875)	583	(36,704)	(1,460)
Interest payable		322	192	212	209
Interest paid on Lease liabilities		153	166	-	-
Interest receivable		(11)	(15)	(175)	(175)
Share of profit of Minority Interest		-	20	-	240
Disposal of equity interest		-	219	-	-
Amortisation of intangible assets		553	308	-	-
Impairment of goodwill/intercompany balances		2,915	-	33,389	-
Depreciation		2,762	2,239	-	-
Depreciation on right of use assets		528	490	-	-
Share-based payments (non cash)		532	2,341	266	1,171
Share-based payments (cash)		(940)	-	-	-
Decrease / (increase) in inventories		(4,680)	994	-	-
Decrease / (increase) in trade and other receivables		(373)	(1,150)	(870)	-
(Decrease) / increase in trade and other payables		733	(1,525)	3,851	15
Cash flows from operating activities		(3,381)	4,862	(31)	-
Interest paid		(322)	(192)	-	-
Interest element of ROU lease payments		(153)	(166)	-	-
Net cash (used in)/generated from operating activities		(3,856)	4,504	-	-
Cash flows from investing activities
Purchase of business (net of cash acquired)	11	-	(1,015)	-	-
Purchase of property, plant and equipment	10	(4,744)	(3,551)	-	-
Purchase of intangible assets	9	(351)	(149)	-	-
Interest received		11	15	-	-
Net cash (used in)/generated from investing activities		(5,084)	(4,700)	-	-
Cash flows from financing activities
Proceeds from issuance of ordinary shares		30	-	30	-
Repayment of CBIL loan		(50)	(25)	-	-
Proceeds from Asset Based Lending Facility		4,590	-	-	-
Shareholder Loan		2,000	110	-	-
Payment of lease liabilities		(460)	(446)	-	-
Net cash generated from/(used in) financing activities		6,110	(361)	30	-
Net (decrease)/increase in cash and cash equivalents		(2,830)	(557)	(1)	-
Cash, cash equivalents and bank overdrafts at beginning of the year		4,139	4,685	2	2
Effect of exchange rate movements		28	11	-	-
Cash, cash equivalents and bank overdrafts at end of year		1,337	4,139	1	2
Cash, cash equivalents and bank overdrafts consist of:
Cash and cash equivalents	15	1,337	4,139	1	2
Cash, cash equivalents and bank overdrafts at end of year		1,337	4,139	1	2

Notes to the Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

Accounting policies for the year ended 31 March 2023

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 2023 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. Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own income statement or statement of comprehensive income.

The preparation of financial statements in conformity with UK-adopted IAS 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, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. The Company has received a letter of support from Phoenix Asset Management confirming their intention to provide funds to support the Company's business plan for a minimum of twelve months from the date of signing the financial statements. 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.

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 depending on the terms of the contract and the amount of revenue can be measured reliably.

(c) Sales returns

              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). Goods to be returned are not recognised as assets until they are returned and have been inspected.

(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 are separately identified and valued, and subject to amortisation over their estimated economic lives.

GOODWILL

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

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or Groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment. 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 ten years. Customer lists have been valued according to discounted incremental operating profit expected to be generated from each of them over their useful lives of 10 years.

 (c) Computer software and website costs

Computer software and website 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.

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 reporting 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 twelve months before 31 March 2023 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).

CUSTOMER LOYALTY LIABILITY

Loyalty points issued by Hornby when a customer purchases goods from the website are a separate performance obligation providing a material right to a future discount.  The amount allocated to loyalty points is deferred as a contract liability within trade and other payables. Revenue is recognised as the points are redeemed by the customer.

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 statement of financial position as appropriate.

BORROWING COSTS

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of Comprehensive Income over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs and subsequently amortised over the life of the facility. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

TRADE PAYABLES

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

TAXATION INCLUDING DEFERRED TAX

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

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

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

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

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

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

EMPLOYEE BENEFIT COSTS

During the year the Group operated a defined contribution money purchase pension scheme under which it pays contributions based upon a percentage of the members' basic salary. The scheme is administered by trustees either appointed by the Company or elected by the members (to constitute one third minimum).

Contributions to defined contribution pension schemes are charged to the Statement of Comprehensive Income according to the year in which they are payable.

Further information on pension costs and the scheme arrangements is provided in Note 25.

The Group has a profit share scheme for all employees below Executive level. This scheme 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.

There is a new bonus scheme for the CEO based on the increase in the share price over the next three years. Management have taken and accounting policy choice to only recognise the cost when a liability actually arises which is at the date the share price is met and the bonus determined.

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.

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-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 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 £6,867,000.

(c)   Credit risk

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

(d)   Liquidity risk

At 31 March 2023 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.

      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 19.

FOREIGN CURRENCY

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

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

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

DIVIDEND DISTRIBUTION

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

CRITICAL ESTIMATES AND JUDGEMENTS IN APPLYING THE ACCOUNTING POLICIES

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

Critical accounting estimates and assumptions:

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a)   Impairment of goodwill, intangibles and investments

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

Other estimates and assumptions:

(a)   Inventory provision

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

(b)   Receivables provision

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

(c)   Fair value of derivatives

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 23) and the basis of preparation (page 42).

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.

2. SEGMENTAL REPORTING

Management has determined the operating segments based on the reports reviewed by the Board (chief operating decision-maker) that are used to make strategic decisions.

The Board considers the business from a geographic perspective. Geographically, management considers the performance in the UK, USA, Spain, Italy and the rest of Europe.

Although the USA segment does not meet the quantitative thresholds required by IFRS 8, management has concluded that this segment should be reported, as it is closely monitored by the Board as it is outside Europe.

The Company is a holding Company operating in the UK with its results given in the Company Statement of Comprehensive Income on page 33 and its assets and liabilities given in the Company Statement of Financial Position on page 34. Other Company information is provided in the other notes to the accounts.

Year ended 31 March 2023

	UK	USA	Spain	Italy	Rest of	Total Reportable	Intra	Group
					Europe	Segments	Group	£'000
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue - External	39,617	4,875	1,464	3,494	5,655	55,105	-	55,105
- Other segments	3,193	-	-	-	-	3,193	(3,193)	-
Operating (Loss)/Profit before exceptional items	(1.467)	(598)	21	371	603	(1.070)	-	(1,070)
Exceptional items	(3,974)	-	-	-	-	(3,974)	-	(3,974)
Operating Profit/(Loss)	(5,441)	(598)	21	371	603	(5,044)	-	(5,044)
Finance income - External	11	-	-	-	-	11	-	11
- Other segments	473	-	-	-	-	473	(473)	-
Finance costs - External	(825)	(12)	(1)	(2)	(3)	(843)	-	(843)
- Other segments	(174)	-	(212)	(15)	(72)	(473)	473	-
Profit/(Loss) before taxation	(5,956)	(610)	(192)	354	528	(5,876)	-	(5,876)
Taxation	(21)	-	-	(25)	-	(46)	-	(46)
Profit/(Loss) for the year	(5,977)	(610)	(192)	329	528	(5,922)	-	(5,922)
Segment assets	65,951	2,307	6,222	198	5,401	80,079	-	80,079
Less intercompany receivables	(18,215)	-	(6,136)	(424)	(4,657)	(29,432)	-	(29,432)
Add tax assets	3,637	-	-	(65)		3,572	-	3,572
Total assets	51,373	2,307	86	(291)	744	54,219	-	54,219
Segment liabilities	(33,244)	(7,611)	(5,852)	(442)	(6,756)	(53,905)	-	(53,905)
Less intercompany payables	15,523	7,537	5,760	127	6,545	35,492	-	35,492
Add tax liabilities	233	-	-	-	-	233	-	233
Total liabilities	(17,488)	(74)	(92)	(315)	(211)	(18,180)	-	(18,180)
Other segment items
Capital expenditure	4,721	16	-	7	-	4,744	-	4,744
Depreciation	2,739	17	2	4	-	2,762	-	2,762
Net foreign exchange on intercompany loans	(313)	-	-	-	-	(313)	-	(313)
Amortisation of intangible assets	553	-	-	-	-	553	-	553

Year ended 31 March 2022

	UK	USA	Spain	Italy	Rest of	Total Reportable	Intra	Group
					Europe	Segments	Group	£'000
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue - External	37,748	4,551	2,181	3,401	5,858	53,739	-	53,739
- Other segments	2,791	-	-	-	-	2,791	(2,791)	-
Operating Profit/(Loss)	489	(655)	125	337	649	945	-	945
Finance income - External	15	-	-	-	-	15	-	15
- Other segments	471	-	-	-	-	471	(471)	-
Finance costs - External	(339)	(12)	(1)	(2)	(4)	(358)	-	(358)
- Other segments	(175)		(209)	(16)	(71)	(471)	471	-
Share of profit of investments accounted for using the equity method	(20)	-	-	-	-	(20)	-	(20)
Profit/(Loss) before taxation	440	(667)	(85)	319	575	582	-	582
Taxation	911	-	-	(15)	-	896	-	896
Profit/(Loss) for the year	1,351	(667)	(85)	304	575	1,478	-	1,478
Segment assets	63,951	2,663	6,639	269	4,743	78,265	-	78,265
Less intercompany receivables	(17,572)	-	(5,876)	(497)	(3,957)	(27,902)	-	(27,902)
Add tax assets	3,488	-	-	(63)		3,425	-	3,425
Total assets	49,867	2,663	763	(291)	786	53,788	-	53,788
Segment liabilities	(25,098)	(6,968)	(5,399)	(897)	(6,540)	(44,902)	-	(44,902)
Less intercompany payables	14,917	6,872	5,322	520	6,340	33,971	-	33,971
Add tax liabilities	238	-	-	15	-	253	-	253
Total liabilities	(9,943)	(96)	(77)	(362)	(200)	(10,678)	-	(10,678)
Other segment items
Capital expenditure	6,086	2	2	4	-	6,094	-	6,094
Depreciation	2,217	15	3	4	-	2,239	-	2,239
Amortisation of intangible assets	485	-	-	-	-	485	-	485

3. NET FINANCE EXPENSE

	Group
	2023 £'000	2022 £'000
Finance costs:
Interest expense on bank borrowings	(322)	(100)
Interest expense on shareholder loan	(368)	(92)
Interest element of lease payments made	(153)	(166)
	(843)	(358)
Finance income:
Bank interest	11	15
Interest income on intercompany loans	-	-
	11	15
Net finance costs	(832)	(343)

4. PROFIT/(LOSS) BEFORE TAXATION

	Group
	2023	2022
	£'000	£'000
The following items have been included in arriving at loss before taxation:
Staff costs	10,315	11,761
Inventories:
- Cost of inventories recognised as an expense (included in cost of sales)	22,754	22,982
- Stock provision	29	263
Depreciation of property, plant and equipment:
- Owned assets	2,763	2,239
- Leased assets	492	489
Repairs and maintenance expenditure on property, plant and equipment	65	55
Research and development expenditure	1,719	1,501
Impairment of trade receivables	(31)	(61)
Share-based payment charge	532	2,341
Goodwill impairment	2,915	-
Other operating expenses/(income):
- Foreign exchange on trading transactions	426	101
- Amortisation of intangible brand assets and customer lists	227	194

	Group
	2023 £'000	2022 £'000
Exceptional items comprise:
- Refinancing costs	149	-
- Hornby World Experience	910	-
- Goodwill impairment	2,915
- Restructuring costs	-	88
- Relocation	-	9
- Adjustment on Acquisition	-	219
- Amortisation adjustment	-	(177)
	3,974	139

The group exceptional items totalling £3,974,000 (2022: £139,000) are refinance costs relating to the take on fees for moving to Secure Trust Bank Plc, £2,915,000 relating to Corgi goodwill impairment and costs relating to the Hornby World customer experience. These are classified as exceptional as they are one off, non-recurring costs. Further detail can be found on Page 10.

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:

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Fees payable to the Company's auditors for the audit of Parent Company and consolidated accounts	36	33	12	11
Fees payable to the Company's auditors and its associates for other services:
- The auditing of accounts of the Company's subsidiaries	98	54	-	-
- Audit-related assurance services	-	-	-	-
- Tax services	8	7	-	-
	142	94	12	11

In the prior financial year the level of non-audit fees were £8k 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

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Current tax	-	-	-	-
UK Taxation:
-       Current	-	5	-	-
-       Adjustments in respect of prior years	(32)	(87)	-	-
Overseas taxation	97	15	-	-
Deferred tax (Note 20)	-	-	-	-
Origination and reversal of temporary differences	(19)	57	-	-
Effect of tax rate change on opening balance	-	(886)	-	-
Total tax credit to the loss before tax	46	(896)	-	-

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

	Group
	2023 £'000	2022 £'000
Profit/(Loss)before taxation	(5,876)	582
Loss on ordinary activities multiplied by rate of
Corporation tax in UK of 19% (2022: 19%)	(1,116)	111
Effects of:
Adjustments to tax in respect of prior years	(32)	(87)
Permanent differences	(35)	259
Non taxable income	-	-
Plant and machinery super-deduction	(265)	(207)
Difference on overseas rates of tax	57	66
Deferred tax not recognised	1,437	(152)
Effect of tax rate change	-	(886)
Total taxation	46	(896)

The Company's profits for this accounting year are taxed at an effective rate of 19% (2022: 19%)

UK deferred tax balances have been carried forward at a rate of 25% (2022: 25%)

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%.

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 20.

6. DIVIDENDS

No interim or final dividends were paid in relation to the year ended 31 March 2022 and no interim dividend has been paid in relation to the year ended 31 March 2023. The Directors are not proposing a final dividend in respect of the financial year ended 31 March 2023.

7. LOSS 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 2023.

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 refinance and R&D World development costs are one off items and therefore have also been added back in calculating underlying profit/(loss) per share.

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

	2023			2022
	(Loss) / earnings	Weighted average number of shares	Per-share amount	(Loss) / earnings	Weighted average number of shares	Per-share amount
	£'000	'000s	pence	£'000	'000s	pence
REPORTED
Basic (loss)/profit per share
(Loss)/Profit attributable to ordinary shareholders	(5,904)	168,812	(3.50)	1,479	166,929	0.89
Effect of dilutive share options	-	-	-	-	6,731	-
Diluted (loss)/profit per share	(5,904)	168,812	(3.50)	1,479	173,660	0.85
UNDERLYING
(Loss)/Profit attributable to ordinary shareholders	(5,904)	168,812	(3.50)	1,479	166,929	0.89
Share-based payments	431	-	0.26	1,896	-	1.14
Amortisation of intangibles	180	-	0.11	157	-	0.09
Refinance costs	121	-	0.07	-	-	-
Hornby World costs	737	-	0.44	-	-	-
Goodwill impairment	2,361	-	1.40
Restructuring costs	-	-	0.00	71	-	0.04
Amortisation adjustment	-	-	0.00	(143)	-	(0.09)
Relocation	-	-	0.00	7	-	-
Acquisition adjustment	-	-	0.00	177	-	0.11
Underlying basic (loss)/profit /EPS	(2,074)	168,812	(1.22)	3,644	166,929	2.18

The above numbers used to calculate the EPS for the year ended 31 March 2023 and 31 March 2022 have been tax effected at the rate of 19%.

8. GOODWILL

GROUP	£'000
COST
At 1 April 2022	13,135
Exchange adjustments	3
At 31 March 2023	13,138
AGGREGATE IMPAIRMENT
At 1 April 2022	8,491
Impairment charge in the year	2,915
At 31 March 2023	11,406
Net book amount at 31 March 2023	1,732
Net book amount at 31 March 2022	4,644

The Company has no goodwill.

The goodwill impairment in the year relates to goodwill on Corgi, acquired in 2008. The Directors have taken the approach of no longer recognising this goodwill due to an increase in the discount rate and a more prudent forecast over the next couple of years. Details of valuation method are detailed below in impairment tests for goodwill. The impairment charge for the year has been included with exceptional items (see note 4).

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 2023 and 31 March 2022 is as follows:

GROUP	UK £'000	France £'000	Germany £'000	USA £'000	Total £'000
At 31 March 2023	1,160	365	197	10	1,732
At 31 March 2022	4,075	364	196	9	4,644

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 2023 forecasts are based on a 4 year business plan for the years ending 31 March 2024 to 31 March 2027. Cash flows beyond these years are extrapolated using an estimated 2.0% year on year growth rate. The cash flows were discounted using a pre-tax discount rate of 15.5% (2022: 11.6%) which management believes is appropriate for all territories.

The key assumptions used for value-in-use calculations for the year ended 31 March 2023 and 2022 are as follows:

2023

GROUP	UK	UK	France	Germany
	(Corgi)	(Airfix & Humbrol)
Gross Margin1	61.38%	65.60%	60.40%	66.90%
Growth rate to perpetuity2	2.00%	2.00%	2.00%	2.00%

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.
2022
GROUP		UK	UK	France	Germany
		(Corgi)	(Airfix & Humbrol)
Gross Margin1		59.2%	63.7%	59.1%	59.0%
Growth rate to perpetuity2		2.0%	2.0%	2.0%	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.

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 £3.1 million. A reduction of the average gross margin to 61.0% for Airfix / Humbrol, or a rise in discount rate to respectively 29.4% 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 £9.9 million. A reduction of the average gross margin to 9.6%, or a rise in discount rate to 154.0% would remove the remaining headroom.

For the Germany CGU, the recoverable amount calculated based on value in use exceeded carrying value by £10.4 million. A reduction of the average gross margin to 14.2%, or a rise in discount rate to 155.1% would remove the remaining headroom.

9. INTANGIBLE ASSETS

GROUP	Brand names £'000	Customer lists  £'000	Computer Software and Website £'000	Total £'000
COST
At 1 April 2022	5,200	1,459	4,325	10,984
Additions	-	-	351	351
At 31 March 2023	5,200	1,459	4,676	11,335
ACCUMULATED AMORTISATION
At 1 April 2023	3,456	1,415	2,925	7,796
Charge for the year	223	4	326	553
At 31 March 2023	3,679	1,419	3,251	8,349
Net book amount at 31 March 2023	1,521	40	1,425	2,986

GROUP	Brand names £'000	Customer lists  £'000	Computer Software and Website £'000s	Total £'000
COST
At 1 April 2021	4,914	1,415	4,176	10,505
Additions	286	44	149	479
At 31 March 2022	5,200	1,459	4,325	10,984
ACCUMULATED AMORTISATION
At 1 April 2022	3,439	1,415	2,634	7,488
Charge for the year	194	-	291	485
Adjustment related to prior years	(177)	-	-	(177)
At 31 March 2022	3,456	1,415	2,925	7,796
Net book amount at 31 March 2022	1,744	44	1,399	3,187

All amortisation charges in the year relating to brand names and customer lists have been charged in other operating expenses. Amortisation in relation to computer software and website is withing admin costs. The Group holds intangible computer software and website assets that are fully amortised but still in use and therefore the cost is still included.

The Company held no intangible assets.

10. PROPERTY, PLANT AND EQUIPMENT

GROUP		Plant and equipment £'000	Motor Vehicles	Tools and moulds	Total
			£'000	£'000	£'000
COST
At 1 April 2022		1,706	55	77,013	78,774
Exchange adjustments		31	1	-	32
Additions at cost		104	-	4,640	4,744
Disposals		(80)	(3)	-	(83)
At 31 March 2023		1,761	53	81,653	83,467
ACCUMULATED DEPRECIATION
At 1 April 2022		1,320	50	67,347	68,717
Exchange adjustments		26	1	-	27
Charge for the year		150	4	2,609	2,763
Disposals		(79)	(2)	-	(81)
At 31 March 2023		1,417	53	69,956	71,426
Net book amount at 31 March 2023		344	-	11,697	12,041

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

GROUP		Plant and equipment £'000	Motor Vehicles	Tools and moulds	Total
			£'000	£'000	£'000
COST
At 1 April 2021		1,525	54	71,601	73,180
Exchange adjustments		6	1	-	7
Additions at cost		203	-	3,348	3,551
Acquired from business combination		-	-	2,064	2,064
Disposals		(28)	-	-	(28)
At 31 March 2022		1,706	55	77,013	78,774
ACCUMULATED DEPRECIATION
At 1 April 2021		1,251	45	65,204	66,500
Exchange adjustments		5	1	-	6
Charge for the year		92	4	2,143	2,239
Disposals		(28)	-	-	(28)
At 31 March 2022		1,320	50	67,347	68,717
Net Book Value at 31 March 2022		386	5	9,666	10,057

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

11. INVESTMENTS

COMPANY

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

	Interests in subsidiary undertakings  £'000	Interests in associate undertakings £'000	Loans to subsidiary undertakings	Total
			£'000	£'000
At 1 April 2022	21,743	-	4,349	26,092
Capital contribution relating to share-based payment	266	-	-	266
Options granted	(849)	-	-	(849)
At 31 March 2023	21,160	-	4,349	25,509
At 1 April 2021	17,672	1,839	4,349	23,860
Share of profit of investments accounted for using the equity	-	(20)	-	(20)
LCD Acquisition	2,900	(1,819)	-	1,081
Capital contribution relating to share-based payment	1,171	-	-	1,171
At 31 March 2022	21,743	-	4,349	26,092

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, Hornby Hobbies India Private Limited, Hornby LCD Enterprises Limited and Oxford Diecast Limited are distributors of models. Hornby World Limited is a retail and consumer experience business. Hornby Industries Limited and H&M (Systems) 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 and Hornby Hobbies India Private Limited with 1% ownership by Hornby Hobbies Limited.

			Proportion of nominal value of issued shares held
	Registered office	Description of shares held	Group %	Company  %
Hornby Hobbies Limited	Westwood, Margate, Kent CT9 4JX, UK	Ordinary shares	100	100
Hornby America Inc.	3900 Industry Dr E, Fife, WA 98424, USA	Ordinary shares	100	100
Hornby España S.A	C/Federico Chueca, S/N, E28806 ALCALA DE HENARES Spain	Ordinary shares	100	100
Hornby Italia s.r.l.	Viale dei Caduti, 52/A6 25030 Castel Mella (Brescia), Italy	Ordinary shares	100	100
Hornby France S.A.S.	31 Bis rue des Longs Pres, 92100 Boulogne, Billancourt, France	Ordinary shares	100	100
Hornby Deutschland GmbH	Oeslauer StraBe 36, 96472, Rodental, Germany	Ordinary shares	100	100
Hornby Industries Limited	Westwood, Margate, Kent CT9 4JX, UK	Ordinary shares	100	100
H&M (Systems) Limited	Westwood, Margate, Kent CT9 4JX, UK	Ordinary shares	100	100
Hornby World Limited	Westwood, Margate, Kent CT9 4JX, UK	Ordinary shares	100	100
Hornby Hobbies India Private Limited	205, 2nd Floor, Plot 67, Hem Bldg Hatkesh Society, N S Road No. 8, JVPD Scheme, Vileparle West, Juhu, Mumbai-400049	Ordinary shares	100	99
LCD Enterprises Limited	Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB	Ordinary shares	100	100
Oxford Diecast Limited	Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB	Ordinary shares	91	91

12. RIGHT OF USE ASSETS

GROUP		Property £'000	Motor Vehicles	Fixtures, Fittings and Equipment	Total
			£'000	£'000	£'000
COST
At 1 April 2022		3,726	346	22	4,094
Additions at cost		207	-	-	207
Adjustment		(176)	-	-	(176)
Disposal		-	(36)	-	(36)
At 31 March 2023		3,757	310	22	4,089
ACCUMULATED DEPRECIATION
At 1 April 2022		1,266	226	18	1,510
Charge for the year		431	61	-	492
At 31 March 2023		1,697	287	18	2,002
Net book amount at 31 March 2023		2,060	23	4	2,087

GROUP		Property £'000	Motor Vehicles	Fixtures, Fittings and Equipment	Total
			£'000	£'000	£'000
COST
At 1 April 2021		3,376	317	17	3,710
Additions at cost		189	13	2	204
Acquired from business combination		161	16	3	180
At 31 March 2022		3,726	346	22	4,094
ACCUMULATED DEPRECIATION
At 1 April 2021		851	156	13	1,020
Charge for the year		415	70	5	490
At 31 March 2022		1,266	226	18	1,510
Net book amount at 31 March 2022		2,460	120	4		2,584

The adjustment in the year relates to a lease incentive previously classified under accruals.

13. INVENTORIES

		Group				Company
		2023 £'000		2022 £'000		2023 £'000		20212 £'000
Finished goods		21,282		16,462		-		-
		21,282		16,462		-		-
Movements on the Group provision for impairment of inventory is as follows:
			2023		2022
			£'000		£'000
At 1 April			2,428		1,205
Provision for inventory impairment			29		(56)
Inventory written-off during the year			-		(211)
Acquired from LCD			-		1,486
Exchange adjustments			(4)		4
At 31 March			2,453		2,428

14. TRADE AND OTHER RECEIVABLES

	Group		Company
	2023	2022	2023	2022
	£'000	£'000	£'000	£'000
CURRENT:
Trade receivables	7,425	6,208	-	-
Less: loss allowance for receivables	(777)	(789)	-	-
Trade receivables - net	6,648	5,419	-	-
Other receivables	543	1,724	-	-
Prepayments	1,990	1,643	58	87
Amounts owed by subsidiary undertaking	-	-	14,920	47,322
	9,181	8,786	14,978	47,409

We initially recognise trade and other receivables at fair value, which is usually the original invoiced 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 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:

	2023  £'000	2022 £'000
Fully performing	6,426	4,470
Past due	222	949
Fully impaired	777	789
Trade receivables	7,425	6,208

As of 31 March 2023 trade receivables of £222,000 (2022: £949,000) 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 2023, trade receivables of £777,000 (2022: £789,000) 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.

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

	2023  £'000	2022 £'000
At 1 April	789	853
(Decrease)/increase in loss allowance	(31)	(61)
Receivables written-off during the year as uncollectible	-	-
Exchange adjustments	19	(3)
At 31 March	777	789

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. Recoverability review is performed annually and balances impaired if not considered recoverable. In the year the Company has provided for an impairment on the intercompany balances of £33,389,000 which is included within exceptional items. The fair value of the business was used to calculate the impairment and was determined with reference to the company's market capitalisation and share price at 31 March 2023 but adjusted based on management's understanding of the business.

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:

	Group		Company
	2023	2022	2023	2022
	£'000	£'000	£'000	£'000
Sterling Intercompany	-	-	14,978	47,322
Sterling	3,103	3,188	-	-
Euro	2,657	2,657	-	-
US Dollar	1,318	1,318	-	-
	7,078	7,163	14,978	47,322

15. CASH AND CASH EQUIVALENTS

		Group		Company
		2023 £'000	2022 £'000	2023 £'000	2022 £'000
	Cash at bank and in hand	1,337	4,139	1	2

Cash at bank of £1,337,000 (2021: £4,139,000) is with financial institutions with a credit rating of A3 per Moody's rating agency.

16. TRADE AND OTHER PAYABLES

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
CURRENT:
Trade payables	4,194	3,919	-	-
Other taxes and social security	913	730	36	32
Other payables	1,034	578	1,124	856
Refund liability	260	252	-	-
Accruals and contract liabilities	1,666	1,893	47	50
Group receivables guarantee (note 28)	-	-	9,858	6,020
	8,067	7,372	11,065	6,958

Contract liabilities relate to payments of £320,461 (2022: £178,777) received upfront for products where delivery is yet to take place. Delivery is expected to take place over the next 3 months. Revenue of £178,777, deferred in 2022, was recognised as income in the year ended 31 March 2023.

Hornby Plc have provided a guarantee of £9.858 million against intercompany receivables in Hornby Hobbies.  This guarantee is included in liabilities

17. RIGHT OF USE LEASE LIABILITIES

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

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
As at 1 April	2,746	2,808	-	-
New leases	206	192	-	-
Disposals	(36)
Acquired from business combination	-	190	-	-
Interest payable	153	166	-	-
Repayment of lease liabilities	(613)	(610)	-	-
As at 31 March	2,456	2,746	-	-
Lease liability less than one year	409	433	-	-
Lease liability greater than one year and less than five years	677	664	-	-
Lease liability greater than five years	1,370	1,649	-	-
Total Liability	2,456	2,746	-	-

Maturity analysis of contracted undiscounted cashflows is as follows:

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Lease liability less than one year	544	575	-	-
Lease liability greater than one year and less than five years	1,191	1,134	-	-
Lease liability greater than five years	1,836	2,299	-	-
Total Liability	3,571	4,008	-	-
Finance charges included above	(1,115)	(1,262)	-	-
	2,456	2,746	-	-

18. BORROWINGS

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Secured borrowing at amortised cost
CBIL Bank Loan	167	217	-	-
Asset Based Lending Facility	4,590	-	-	-
Shareholder Loan	2,110	110	-	-
Loan from subsidiary undertakings	-	-	5,871	5,643
	6,867	327	5,871	5,643
Total borrowings
Amount due for settlement within 12 months	6,750	50	-	-
Amount due for settlement after 12 months	117	277	5,871	5,643
	6,867	327	5,643	5,643

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 twelve months.

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

At 31 March 2023 the UK had 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 £167,000 being repaid at £4,167 per month. This should be repaid by August 2026.

Undrawn borrowing facilities

At 31 March 2023, the Group had available £11,742,338 (2022: £12,611,165) 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.

19. 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	Financial Liabilities	Cash flow hedges	Carrying value	Fair value
	£'000	£'000	£'000	£'000	£'000
At 31 March 2023
Trade and other receivables	7,191	-	-	7,191	7,191
Trade and other payables	-	(5,228)	-	(5,228)	(5,228)
Derivative Financial instruments	-	-	(555)	(555)	(555)
Cash and cash equivalents	1,337	-	-	1,337	1,337
Lease liabilities	-	(2,456)	-	(2,456)	(2,456)
	Amortised Cost		Held at Fair Value
	Financial Assets	Financial Liabilities	Cash flow hedges	Carrying value	Fair value
	£'000	£'000	£'000	£'000	£'000
At 31 March 2022
Trade and other receivables	7,143	-	-	7,143	7,143
Trade and other payables	-	(4,496)	-	(4,496)	(4,496)
Derivative Financial instruments	-	-	504	504	504
Cash and cash equivalents	4,139	-	-	4,139	4,139
Lease liabilities	-	(2,746)	-	(2,746)	(2,746)

The Group's policies and strategies in relation to risk and financial instruments are detailed in note 1.

	Assets		Liabilities
GROUP	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Carrying values of derivative financial instruments
Forward foreign currency contracts - cash flow hedges	2	504	(557)	-

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 2023 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 twelve months from the balance sheet date.

At 31 March 2023 and 31 March 2022, the gross value of forward currency contracts was as follows:

	2023 '000s	2022 '000s
US Dollar	18,750	20,025

The contracts are expected to be used at various dates within the next twelve months. The average rate for the outstanding contracts is 1.20.

The fair value for the forward foreign currency contracts is an asset of £2,000 (2022: £504,000 asset) and a liability of £557,000 (2022: £nil) of which £555,000 net liability (£504,000 net asset) represents an effective hedge at 31 March 2023 and has therefore been credited to Other Comprehensive Income. During the year hedge ineffectiveness was not considered material and therefore no amount has been expensed.

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	2023	2022
	£'000s	£'000s
Less than one year	7,743	3,730
Between one and five years	117	1,134
More than five years		2,299
	7,860	7,163

COMPANY	2023 Intercompany Debt £'000	2022 Intercompany Debt £'000
More than five years (Note 18)	5,871	5,643

HIERARCHY OF FINANCIAL INSTRUMENTS

The following tables present the Group's assets and liabilities that are measured at fair value at 31 March 2023 and 31 March 2022. 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.

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

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Assets
Derivatives used for hedging	-	2	-	2
Total assets as at 31 March 2023	-	2	-	2
Liabilities
Derivatives used for hedging	-	(557)	-	(557)
Total liabilities at 31 March 2023	-	(557)	-	(557)
	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Assets
Derivatives used for hedging	-	504	-	504
Total assets as at 31 March 2022	-	504	-	504
Liabilities
Derivatives used for hedging	-	-	-	-
Total liabilities at 31 March 2022	-	-	-	-

Interest rate sensitivity

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

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

The effect on both income and equity based on exposure to borrowings at the balance sheet date for a 1% increase in interest rates is £41,000 (2022: £17,000) before tax. A 1% fall in interest rates gives the same but opposite effect.

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.

	Comprehensive Income and Equity Sensitivity
	2023 £'000	2022 £'000
US dollars	714	1,559
Euros	120	660
	834	2,219

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.

	2023 £'000		2022 £'000
Total borrowings (Note 18)	6,867		327
Less:
Total cash and cash equivalents (Note 15)	(1,337)		(4,139)
Net debt (cash)	5,530		(3,812)
Total equity	36,040		43,110
Total capital	41,570		39,298
Gearing	(13%)		(10%)

20. DEFERRED TAX

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.

					Acquisition intangibles	Fixed Asset & Other UK temporary timing       differences
							Total
Deferred tax liabilities					£'000	£'000	£'000
At 1 April 2022					233	485	718
Charge to Statement of Comprehensive Income					-	(19)	(19)
Charge to Other Comprehensive Income					-	(127)	(127)
At 31 March 2023					233	339	572
At 1 April 2021					150	-	150
Acquired on business combination					83	294	377
Charge to Statement of Comprehensive Income					-	64	64
Charge to Other Comprehensive Income					-	127	127
At 31 March 2022					233	485	718

	Group			Company
Deferred tax assets	Acquisition intangibles	Fixed Asset and other UK temporary timing differences	Total	Short-term incentive plan	Total
	£'000	£'000	£'000	£'000	£'000
At 1 April 2022	-	3,910	3,910	-	-
At 31 March 2023	-	3,910	3,910	-	-
At 1 April 2021	-	2,956	2,956	-	-
Acquired on acquisition of LCD Enterprises Limited	-	61	61	-	-
Charge to Statement of Comprehensive Income		893	893
At 31 March 2022	-	3,910	3,910	-	-
Net deferred tax (liability)/asset
At 31 March 2023	(233)	3,571	3,338	-	-
At 31 March 2022	(233)	3,425	3,192	-	-

Management consider the deferred tax asset t be recoverable based on forecasts to support the asset and a history of profits in the last two years.

	2023		2022
GROUP	Recognised £'000	Not recognised £'000	Recognised £'000	Not recognised £'000
Deferred tax comprises:
Depreciation in excess of capital allowances	3,338	249	2,032	-
Losses and other temporary differences - UK	-	5,513	1,159	4,557
Losses and other temporary differences - Overseas	-	2,212	-	2,912
Deferred tax asset	3,338	7,974	3,191	7,469
	2023		2022
COMPANY	Recognised £'000	Not recognised £'000	Recognised £'000	Not recognised £'000
Deferred tax comprises:
Other timing differences	-	(206)	-	(589)
Deferred tax (asset)/liability	-	(206)	-	(589)

The UK deferred tax asset not recognised of £5,762,000 primarily relates to unrecognised losses in Hornby Hobbies Limited of £19,044,000 (potential deferred tax asset of £4,761,000) and Hornby Plc of £824,000 (potential deferred tax asset of £206,000). It also relates to an unrecognised gross temporary difference of £795,000 related to timing difference on the provision for unrealised profit.

The deferred tax asset not recognised in respect of overseas losses carried forward of £2,212,000 relates to losses carried forward of £1,418,000 in respect of Hornby Espana SA (potential deferred tax asset of £355,000), £1,173,000 in respect of Hornby France SAS (potential deferred tax asset of £353,000), £1,176,000 in respect of Hornby Deutschland GmbH (potential deferred tax asset of £353,000), £3,324,000 in respect of Hornby Italia srl (potential deferred tax asset of £798,000) and £3,364,000 in respect of Hornby America Inc (potential deferred tax asset of £706,000).

No further deferred tax has been recognised at this point as management prefer to be prudent.

21. SHARE CAPITAL

GROUP AND COMPANY

Allotted, issued and fully paid:

	2023		2022
	Number of shares	£'000	Number of shares	£'000
Ordinary shares of 1p each:
At 1 April and 31 March	169,853,770	1,699	166,927,838	1,669

22. SHARE-BASED PAYMENTS ('PSP')

The 2020 awards vested in part in June 2022 and were exercised. 63% achievement was awarded through a mixture of shares and cash. The cash amount totalled the employees tax liabilities on exercise of the options.

 There are no Performance Share Plan ('PSP') awards outstanding at 31 March 2023.

23. 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.

24. EMPLOYEES AND DIRECTORS

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Staff costs for the year:
Wages and salaries	8,301	7,940	585	482
Furlough scheme	-	(1)	-	-
Share-based payment (Note 22	532	2,341	266	1,171
Social security costs	963	869	82	69
Other pension costs (Note 25)	520	478	44	29
Redundancy and compensation for loss of office	-	134	-	-
	10,316	11,761	977	1,751

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
	2023	2022	2023	2022
Operations	80	83	-	-
Sales, marketing and distribution	98	92	-	-
Administration	34	35	4	4
	212	210	4	4

Key management compensation:

	Group		Company
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Salaries and short-term employee benefits	1,022	900	585	482
Share-based payments	532	2,341	266	1,171
Other pension costs	47	38	44	29
	1,601	3,279	895	1,682

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 25 to 28 and forms part of these financial statements.

25. PENSION COMMITMENTS

The Group operates a defined contribution pension scheme by way of a Stakeholder Group Personal Pension Plan set up through the Friends Provident Insurance Group.

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

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

The Group pension cost for the year was £520,000 (2022: £478,000) representing the actual contributions payable in the year and certain scheme administration costs. The Company pension cost for the year was £38,000 (2022: £29,000). No contributions were outstanding at the year end of 31 March 2023.

26. FINANCIAL COMMITMENTS

GROUP	2023 £'000	2022 £'000
At 31 March capital commitments were:
Contracted for but not provided	2,757	1,967

The commitments relate to the acquisition of property, plant and equipment.

The Company does not have any capital commitments.

Contingent Liabilities

The Company and its subsidiary undertakings are, from time to time, parties to legal proceedings and claims, which arise in the ordinary course of business. The Directors do not anticipate that the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect upon the Group's financial position.

27. NET FUNDS RECONCILIATION

	2023	2022
	£'000	£'000
Cash and cash equivalents	1,337	4,139
Borrowings - repayable within one year	(6,750)	(50)
Borrowings - repayable after one year	(117)	(277)
Net Funds	(5,530)	3,812
Cash and liquid investments	1,337	4,139
Gross debt - variable interest rates	(6,867)	(327)
Net Funds	(5,530)	3,812

Maturity of financial liabilities
GROUP	Borrowings	Leases	Total
	£'000s	£'000s	£'000s
At 31 March 2021	-	2,808	2,808
New leases	-	192	192
Cash flows	110	(610)	(500)
Interest	-	166	166
Aquired as part of acquisition	217	190	407
At 31 March 2022	327	2,746	3,073
New leases	-	206	206
Cash flows	6,540	(613)	5,927
Interest	-	153	153
Disposal	-	(36)	(36)
Balance at 31 March 2023	6,867	2,456	9,323

28. RELATED PARTY DISCLOSURES

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:

	Transactions	Balance at year end
Company	£'000	£'000
Rawnet Limited	1,201	72

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

There were no other contracts with the Company or any of its subsidiaries existing during or at the end of the financial year in which a Director of the Company or any of its subsidiaries was interested. There are no other related-party transactions.

The Company received management fees from subsidiaries of £2,188,000 (2022: £1,071,000), interest of £175,000 (2022: £175,000) and incurred interest of £212,000 (2022: £209,000) on intercompany borrowings.

Hornby Plc have provided a guarantee of £9,858,000 (2022: £6,020,000) against intercompany receivables in Hornby Hobbies.  This guarantee is included in liabilities.

29. ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY

The Group is 73.38% owned by Phoenix Asset Management. Artemis Fund Managers Limited hold 16.28%. The remaining 10.34% 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.

30. EVENTS AFTER THE END OF THE REPORTING PERIOD

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

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

Hornby PLC

Westwood

Margate

Kent CT9 4JX

www.hornby.com

 

END