Final Results

Hornby PLC 01 June 2007 HORNBY SALES INCREASE AS INTERNATIONAL OPERATIONS GATHER MOMENTUM Hornby Plc ('Hornby'), the international hobby products group, has today announced its preliminary results for the year ended 31 March 2007. â€¢ Turnover up by 6% to Â£46.9 million (2006 - Â£44.1 million) â€¢ Sales growth and improved profits in overseas subsidiaries â€¢ UK sales recovery in second half â€¢ Operating profit before amortisation Â£8.3 million (2006 - Â£8.1 million) â€¢ Pre-tax profits Â£8.1 million (2006 - Â£8.0 million)* â€¢ Earnings per share up 1.4% to 15.58p (2006 - 15.36p)* â€¢ Acquisition of Humbrol and Airfix absorbed and bedding in well â€¢ Final dividend of 5.6p proposed - Total dividend for the year up 5.2% to 8.1p (2006 - 7.7p) * Pre-tax profit and earnings per share before amortisation of intangibles and foreign exchange translational adjustments on inter company loans. Frank Martin, Chief Executive of Hornby, said, ' This has been an important developmental year for the Group. All our overseas subsidiaries have made excellent progress in terms of sales and profits growth and the establishment of a platform for future profitable growth. Sales in the UK, our biggest market, grew by 3% and total Group sales grew by 6% due to the continuing increase in momentum of our international subsidiaries. ' First half sales were below the previous year but in the second half we were able to recover more than this shortfall, thus demonstrating once again the robust nature of the hobbyist market. Our international operations are now beginning to show their true potential, and we are confident that they will continue to deliver encouraging progress in the future. ' The acquisition of the Humbrol and Airfix assets has added new and complementary high margin business to the Group and integration is in line with plan. The effect on Group profits of this acquisition was broadly neutral in the year just ended. However, going forward, as we continue to rebuild sales and distribution of these famous brands through the Hornby infrastructure, we expect them to make a significant contribution to Group sales and profits. ' Our core businesses of model railways and slot racing products continue to benefit from our ongoing commitment to investment in product development. Both the Scalextric and Hornby digital control systems have been extremely well received and enjoyed a strong Christmas season. In both market sectors digital control brings significant improvements in consumer enjoyment of our products. The consumer is prepared to pay higher retail prices for these benefits. ' We have continued to broaden Hornby's revenue base. In terms both of geographical coverage and sector exposure we have become a significant force in the worldwide hobby market. We will continue to explore opportunities to develop the Group further.' -ends- Date: 1 June 2007 For further information contact: Hornby Plc cityPROFILE Frank Martin, Chief Executive Simon Courtenay John Stansfield, Finance Director William Attwell 01843-233500 020-7448-3244 or 07958-754273 On 1 June 2007: 020-7448-3244 Web: www.hornby.com or: www.scalextric.com High resolution images are available for the media by contacting William Attwell at cityPROFILE CHAIRMAN'S REVIEW Year ended 31 March 2007 Introduction I am delighted once again to report an encouraging performance for the year. As we reported at the time of the Interim results, sales in our main market the UK were lower during the first half of the financial year. I am therefore pleased to report that the improvement in sales that we experienced in the Autumn of 2006, continued through the Christmas period and into the final quarter of the financial year. This resulted in sales for the full year in our UK subsidiary Hornby Hobbies Limited in line with the previous year. Sales in all of our International subsidiaries also improved in the second half of the financial year with the result that for the full year Group sales increased by 6% to Â£46.9 million. Pre-tax profit prior to amortisation and foreign exchange translational adjustments on inter company loans increased slightly to Â£8.1 million (2006 - Â£8.0 million) (see note 4). Basic earnings per share were 14.64p (2006 - 15.64p) but basic earnings per share before the effect of amortisation of intangibles and foreign exchange translational adjustments on inter company loans, a non-cash item, increased by 1.4% to 15.58p (2006 - 15.36p). Underlying these results there are also a number of encouraging trends. Notably all of our international subsidiaries, for which a comparative period exists, showed improved performance and profits. The process of transferring to China the production of the acquired businesses has continued apace, and we enter the new financial year with a growing portfolio of high quality products at attractive price points available for sale in the main European markets. As part of our strategy to diversify and strengthen the Group's revenue streams into complementary product categories we acquired the Humbrol and Airfix brands and associated assets from the receiver of Humbrol Limited in November 2006 for a total consideration of Â£2.28 million, in addition to acquiring stock valued at Â£327,000. This strategic move represents a major opportunity for the Group. All assets are now under our direct control and we have set up manufacturing relationships with suppliers in the UK, China and have broadened our supplier network into India. Dividend The Board is recommending an increase in the final dividend to 5.6p per ordinary share. This will be paid to shareholders on the register at 29 June 2007 and will be paid on 17 August 2007. Taken together with the interim dividend of 2.5p, this gives a total dividend for the year of 8.1p, an increase of 5.2% over the dividend of 7.7p declared in the previous financial year. This marks the seventh consecutive year of dividend growth. The Board believes that it is appropriate to continue the upward progression of dividend payments, established in recent years, based on the strongly cash-generative nature of the business and the belief that much of the capital and acquisition investment we have made in recent years underpins the long-term future progression of the business. Review of the Business After the first half of the financial year, in which sales compared to the previous year fell by 3%, due primarily to weaker consumer demand in the UK, our largest market, it was encouraging to see sales in the second half increase by 13% compared to the corresponding period last year. Strong consumer demand for our products in the UK market prior to Christmas, resulted in low retailer stocks in January, allowing us to maximise sales in the final quarter of the financial year. In particular, sales of the Scalextric Sport Digital System (SSD) gathered strong momentum in 2006, both in the UK and overseas. SSD has further consolidated its reputation worldwide as the system of choice for digitally controlled slot-car racing, combining easy compatibility with existing systems and an excellent record of reliability. We continue to believe that, over time, the market will move decisively towards digital control. Hornby is well placed to take advantage of this shift in the market. Deliveries of the Hornby Digital Control System for model railways commenced just before Christmas and initial deliveries of the flagship 'Elite' digital controller arrived on the market in March 2007. As planned we extended the launch of this system via our European subsidiaries at the Nurnberg Toy fair in February. We expect an increasing proportion of our model railway products to be sold as digital-enabled over the coming years. International subsidiaries The UK market for model railways represents only c.10% of the total European market. The major manufacturers in Europe continue to experience difficulties as a result of their continuing focus on manufacturing in Europe. Although some of these manufacturers are now beginning to move some production into lower cost economies, this process will be long, arduous and expensive to complete. Hornby however now has a network of low-overhead subsidiaries throughout the major European markets, which have begun to demonstrate, in the year to 31 March 2007, their ability to increase sales and profits significantly. The European subsidiaries in total contributed operating profits of Â£1,115,000 to the Group result on sales of Â£9.7 million, compared to Â£453,000 in the previous year on sales of Â£7.0 million. This includes Â£134,000 of operating losses whilst setting up our German business which was acquired in September 2006. We expect Hornby Deutschland to make a positive contribution to profits in the new financial year. All other European subsidiaries posted increased profits in the year. We acquired the assets of Heico-Modell, for a nominal consideration, via a newly formed subsidiary Hornby Deutschland, in September 2006. Market reaction to our recently introduced products in Germany has been good, although we recognise that there are strong competitor brands in the market. In this connection, the re-launch of our Arnold 'N' scale brand has been favourably received. It appears that there are a significant number of Arnold enthusiasts who were unable to buy, due to lack of product availability during the difficult times prior to our acquisition of the Lima assets, which included Arnold. In Spain, Electrotren, now renamed Hornby Espana, had an excellent year, making a substantially improved contribution to Group profits. This was achieved by a greater proportion of sales being made in model railways, arising from an increased programme of product introductions, and greater volumes being achieved per model introduced. This pattern of increased demand was experienced in the UK after production was moved to China some years ago. It appears that the consumer is at first uncertain as to whether quality and detail can be maintained. However experience then shows that there is in fact a significant improvement in these areas, resulting in increases in volume demand. We expect this trend to continue, and we are beginning also to observe the same positive changes in consumer perception and demand in our other European subsidiaries. In Hornby Italia, sales and profits increased substantially as production in China gathered momentum. After some initial market uncertainty, as we have experienced both in the UK and in Spain, the consumer now recognises the improvements in quality and detail that have been achieved and demand has increased accordingly. However we are still at a relatively early stage in this process, and we can therefore expect a continuing trend of increased sales and profits in Hornby Italia. Hornby France also achieved significantly higher sales and profits. The strength of the Jouef brand in France is, if anything, greater than we had anticipated. Retailers and consumers have been delighted with our reinvigoration of this iconic French brand and demand has grown accordingly. Sales in Scalextric USA were up by 8% at $5.6 million, producing a profit before tax of $82,000 (2006 - $116,000) but upon translation into Sterling, due to a weakened US$, sales were Â£2.83 million (2006 - Â£2.95 million) and profit before tax of Â£42,000 (2006 - Â£67,000). However the result this year was adversely affected by the closure costs of the Scalextric Race World retail store in Tacoma. This store was set up on a trial basis two years ago. It has incurred losses since the start. At the outset we determined to trade for a minimum of two years in order to allow sales to develop. In the event sales have not been sufficient to generate profits, although we have learnt some valuable lessons in respect of product format and in-store merchandising, that have already been implemented in our range development and presentation. In 2007 the store incurred a $68,000 trading loss and closure costs of $42,000. In the absence of the store, Scalextric USA profits before tax would have been $192,000 (2006 - $180,000). In addition, as previously reported, margins generated in Hornby Hobbies in the UK on sales made to Scalextric USA have the effect of increasing significantly the overall contribution to Group profit of our US operation. Product development Our product development programme continues to be the engine room of our business and we have increased further our resources in this area, to cope with the additional demands of our subsidiaries and also the newly acquired Humbrol and Airfix brands. Outlook Our strategy of expanding the geographical reach of the Group by acquiring model railway businesses in Europe has proven to be successful and has laid the foundations for a broadly based model and hobby group with strong defensive attributes. Thus, in a year in which sales in our main UK market were broadly in line with the previous year, Group sales increased by 6%. The acquisition of the Humbrol and Airfix brands now allows us to take further advantage of our distribution network and product development skills. We have made a good start to the new financial year in all subsidiaries and markets. As we continue to rebuild sales and distribution of the Humbrol and Airfix brands, and growth in sales of our model railway and slot-racing brands continues, we look forward to resuming significant and sustainable sales and profit progression. Neil Johnson Chairman 1 June 2007 GROUP INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2007 Group 2007 2006 (unaudited) (restated*) Â£'000 Â£'000 REVENUE 46,911 44,113 Cost of sales (21,438) (21,412) _______ _______ GROSS PROFIT 25,473 22,701 Distribution costs (1,678) (1,504) Selling and marketing costs (10,760) (9,924) Administrative expenses (3,506) (3,354) Foreign exchange (losses)/gains (888) 303 Other operating expenses (420) (217) _______ _______ GROUP OPERATING PROFIT 8,221 8,005 Finance income 7 319 Finance costs (566) (160) _______ _______ PROFIT BEFORE TAXATION 7,662 8,164 Taxation (2,149) (2,306) _______ _______ PROFIT FOR THE YEAR AFTER TAXATION 5,513 5,858 _______ _______ EARNINGS PER ORDINARY SHARE Basic 14.64p 15.64p Diluted 14.11p 15.08p All of the activities of the Group are continuing. * See note 3. GROUP BALANCE SHEET AT 31 MARCH 2007 Group 2007 2006 (unaudited) Â£'000 Â£'000 ASSETS NON-CURRENT ASSETS Goodwill 9,206 8,116 Intangible assets 2,321 1,608 Property, plant and equipment 7,458 5,539 Deferred tax assets 421 369 _______ _______ 19,406 15,632 _______ _______ CURRENT ASSETS Inventories 8,441 8,227 Trade and other receivables 10,164 9,325 Cash and cash equivalents 329 829 _______ _______ 18,934 18,381 _______ _______ LIABILITIES CURRENT LIABILITIES Borrowings (1,005) (124) Trade and other payables (7,418) (6,914) Provisions (293) (300) Current tax liabilities (1,368) (1,542) _______ _______ (10,084) (8,880) _______ _______ NET CURRENT ASSETS 8,850 9,501 _______ _______ NON-CURRENT LIABILITIES Borrowings (53) (39) Deferred tax liabilities (358) (231) _______ _______ (411) (270) _______ _______ NET ASSETS 27,845 24,863 _______ _______ SHAREHOLDERS' EQUITY Share capital 378 376 Share premium 5,236 5,050 Other reserves 1,743 1,743 Retained earnings 20,488 17,694 _______ _______ TOTAL EQUITY 27,845 24,863 _______ _______ GROUP STATEMENT OF CHANGES IN EQUITY for the years ended 31 March 2007 and 31 March 2006 Capital Share Share redemption Other Retained Total capital premium reserve reserves earnings* equity GROUP Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 April 2005 373 4,906 55 1,688 14,712 21,734 Profit for the period - - - - 5,858 5,858 Issue of shares 3 144 - - - 147 Share based payments - - - - 158 158 Exchange adjustment offset in reserves - - - - (111) (111) Purchase of own shares - - - - (364) (364) Shares vested - - - - 138 138 Dividends - - - - (2,697) (2,697) ____ _____ _____ ______ ______ ______ Balance at 31 March 2006 376 5,050 55 1,688 17,694 24,863 Profit for the period - - - - 5,513 5,513 Issue of shares 2 186 - - - 188 Share based payments - - - - 237 237 Deferred tax on share based payments - - - - 52 52 Exchange adjustment offset in reserves - - - - 8 8 Fair value of hedged derivative contracts - - - - (133) (133) Purchase of own shares - - - - (177) (177) Shares vested - - - - 231 231 Dividends - - - - (2,937) (2,937) ____ _____ _____ ______ ______ ______ Balance at 31 March 2007 378 5,236 55 1,688 20,488 27,845 ____ _____ _____ ______ ______ ______ * Attributable to equity shareholders of the Company. Retained earnings includes Â£706,000 at 31 March 2007 (2006 - Â£723,000) which is not distributable and relates to a 1986 revaluation of land and buildings. GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2007 Group 2007 2006 (unaudited) Â£'000 Â£'000 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 10,372 7,546 Interest received 7 30 Interest paid (224) (160) Tax paid (2,213) (1,939) _______ _______ Net cash generated from operating activities 7,942 5,477 _______ _______ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of trade assets and related costs (2,653) (1,072) Proceeds from sale of property, plant and equipment 33 23 Purchase of property, plant and equipment (3,657) (2,545) _______ _______ Net cash utilised in investing activities (6,277) (3,594) _______ _______ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of ordinary shares 188 147 Repayment of loans (192) - Purchase of own shares by Short Term Incentive Plan (177) (364) Finance lease capital payments (47) (23) Dividends paid to Company's shareholders (2,937) (2,697) _______ _______ Net cash utilised in financing activities (3,165) (2,937) _______ _______ Effect of exchange rate movements 127 (60) _______ _______ Net decrease in cash and cash equivalents (1,373) (1,114) Cash and cash equivalents at beginning of the year 746 1,860 _______ _______ CASH AND BANK OVERDRAFTS AT END OF YEAR (627) 746 _______ _______ CASH AND CASH EQUIVALENTS CONSIST OF: Cash and cash equivalents 329 829 Bank overdrafts (956) (83) _______ _______ CASH AND CASH EQUIVALENTS AT END OF YEAR (627) 746 _______ _______ NOTES TO THE CASH FLOW STATEMENT CASH FLOW FROM OPERATING ACTIVITIES Group 2007 2006 (unaudited) Â£'000 Â£'000 Profit for the financial year 5,513 5,858 Taxation 2,149 2,306 Interest payable 224 160 Interest receivable (7) (30) Amortisation of intangible assets 114 97 Depreciation 2,107 2,075 Loss/(profit) on disposal of tangible fixed assets 21 (11) Share based payments 237 158 Loss/(gain) on financial derivatives 69 (38) Decrease in provisions (7) (69) Decrease/(increase) in inventories 184 (219) Increase in trade and other receivables (814) (2,058) Increase/(decrease) in trade and other payables 582 (683) _______ _______ CASH GENERATED FROM OPERATIONS 10,372 7,546 _______ _______ SEGMENTAL REPORTING The primary reporting format for segmental purposes is geographic, as this is the basis on which the Group is organised and managed. Transactions with and balances to the other segments have been identified above and eliminated. Hornby's secondary segment is business and as the Group operates on a single business segment, further analysis is not required here. Rest Total of Reportable Intra Year ended 31 March 2007 UK USA Europe Segment Group Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue - External 34,399 2,829 9,683 46,911 - 46,911 - Other segments 2,964 - 2,046 5,010 (5,010) - Operating profit 7,036 70 1,115 8,221 - 8,221 Interest expense - External (190) - (34) (224) - (224) - Other segments (79) (29) (667) (775) 775 - Foreign exchange (342) - - (342) - (342) Interest income - External 1 1 5 7 - 7 - Other segments 775 - - 775 (775) - ______ ______ ______ ______ ______ ______ Profit before tax 7,201 42 419 7,662 - 7,662 Taxation (1,822) (8) (319) (2,149) - (2,149) ______ ______ ______ ______ ______ ______ Profit for the year 5,379 34 100 5,513 - 5,513 ______ ______ ______ _____ ______ ______ Segment assets 35,434 1,037 16,982 53,453 (15,113) 38,340 Less inter company debtors (14,397) - (716) (15,113) 15,113 - ______ ______ ______ _____ ______ ______ Total assets 21,037 1,037 16,266 38,340 - 38,340 ______ ______ ______ _____ ______ ______ Segment liabilities 7,949 977 16,722 25,648 (15,153) 10,495 Less inter company creditors (34) (954) (14,165) (15,153) 15,153 - ______ ______ ______ ______ ______ ______ Total liabilities 7,915 23 2,557 10,495 - 10,495 ______ ______ ______ ______ ______ ______ Other segment items Capital expenditure 2,725 2 1,403 4,130 - 4,130 (including acquisitions) Depreciation 1,578 11 518 2,107 - 2,107 Amortisation of intangible assets 14 - 100 114 - 114 Short Term Incentive Plan - shares vested 231 - - 231 - 231 ______ ______ ______ ______ ______ ______ Rest Total of Reportable Intra Year ended 31 March 2006 UK USA Europe Segment Group Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue - External 34,196 2,952 6,965 44,113 - 44,113 - Other segments 3,301 - 566 3,867 (3,867) - Operating profit 7,458 94 453 8,005 - 8,005 Interest expense - External (151) - (9) (160) - (160) - Other segments - (30) (551) (581) 581 - Foreign exchange 289 - - 289 - 289 Interest income - External 13 3 14 30 - 30 - Other segments 581 - - 581 (581) - ______ ______ ______ ______ _____ ______ Profit/(loss) before tax 8,190 67 (93) 8,164 - 8,164 Taxation (2,307) (16) 17 (2,306) - (2,306) ______ ______ ______ ______ ______ ______ Profit/(loss) for the year 5,883 51 (76) 5,858 - 5,858 ______ ______ ______ ______ ______ ______ Segment assets 32,400 990 15,483 48,873 (14,860) 34,013 Less inter company debtors (14,403) - (457) (14,860) 14,860 - ______ ______ ______ ______ ______ ______ Total assets 17,997 990 15,026 34,013 - 34,013 ______ ______ ______ ______ ______ ______ Segment liabilities 7,618 916 15,476 24,010 (14,860) 9,150 Less inter company creditors (13) (899) (13,948) (14,860) 14,860 - ______ ______ ______ ______ ______ ______ Total liabilities 7,605 17 1,528 9,150 - 9,150 ______ ______ ______ ______ ______ ______ Other segment items Capital expenditure 1,800 42 1,719 3,561 - 3,561 (including acquisitions) Depreciation 1,779 9 287 2,075 - 2,075 Amortisation of intangible assets - - 97 97 - 97 Impairment of trade receivables 73 17 8 98 - 98 Short Term Incentive Plan - shares vested 138 - - 138 - 138 ______ ______ ______ ______ ______ ______ NOTES: 1. Basis of preparation The financial information for the year ended 31 March 2007 has been prepared in accordance with International Accounting Standards ('IAS') and International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') and also as issued by the International Accounting Standards Board, International Financial Reporting Interpretations Committee interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. It is also prepared in accordance with the Group's accounting policies which have been consistently applied as set out in the 2006 financial statements (except as set out below). This information does not constitute statutory accounts and has not been audited. 2. Non statutory accounts These statements do not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985. The financial statements for the year ended 31 March 2006 were prepared in accordance with IFRS and have been delivered to the Registrar of Companies and on which the auditors made an unqualified report. 3. 2006 Restatement The directors are constantly reviewing accounting policies and classification for appropriateness and believe that the foreign exchange translational adjustments are more appropriately shown within operating expenses other than year end foreign exchange translational adjustments of inter company currency loans that are more appropriately included in finance income. In 2006 these were included in cost of sales. Accordingly foreign exchange gains of Â£592,000, previously included in cost of sales, have been reallocated to operating expenses (Â£303,000) and finance income (Â£289,000). 4. Reconciliation of non statutory information used in the preliminary announcement of statutory information. Group 2007 2006 Â£'000 Â£'000 Operating profit 8,221 8,005 Add back amortisation 114 97 _______ _______ Operating profit before amortisation 8,335 8,102 Finance income 7 30 Finance cost (excluding foreign exchange) (224) (160) _______ _______ Profit before amortisation and foreign exchange on inter company loans 8,118 7,972 Amortisation (114) (97) _______ _______ Profit before foreign exchange on inter company loans 8,004 7,875 Foreign exchange on inter company loans (342) 289 _______ _______ Profit before tax 7,662 8,164 _______ _______ 5. Earnings per share The calculation of earnings per ordinary share is based on the profits after taxation for the period of Â£5,513,000 (year ended 31 March 2006 - Â£5,858,000) and the weighted average number of ordinary shares in issue during the period of 37,647,278 (year ended 31 March 2006 - 37,447,229). The calculation of diluted earnings per ordinary share is based on the weighted average number of ordinary shares in issue as adjusted to assume conversion of all dilutive potential ordinary shares, 39,065,431 (year ended 31 March 2006 - 38,842,053). The calculation of adjusted earnings per ordinary share is based on profit after tax adjusted for amortisation of intangibles of Â£114,000 (year ended 31 March 2006 - Â£97,000) and foreign exchange translational adjustments on inter company loans after tax of Â£239,400 (year ended 31 March 2006 - Â£202,300). 6. Short Term Incentive Plan 66,766 ordinary shares to the value of Â£177,595 were acquired by the Employee Benefit Trust in December 2006 in accordance with the incentive plan, details of which were included in the 2006 Annual Report and Accounts. The Trust waives its right to dividends. This information is provided by RNS The company news service from the London Stock Exchange

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