Interim Results

Hornby PLC 10 November 2006 HORNBY MAKING PROGRESS WITH INTERNATIONAL SALES GROWTH AS AIRFIX / HUMBROL ACQUISITION UNVEILED Hornby Plc, ('Hornby') the international models and collectables Group, has today announced its interim results for the six months to 30 September 2006. Hornby's two main products in the UK are Hornby model railways and Scalextric slot car racing systems. It also operates a number of overseas subsidiaries including Hornby Italia in Italy, Hornby Deutschland in Germany and Electrotren in Spain. • Pre-tax profit of £1.4 million • Sales of £17.9 million • Overseas subsidiaries making good progress • Hornby Digital Railway system introduced • Acquisition of Heico Modell in Germany completed • Acquisition of certain assets of Humbrol Limited announced today - Brands include: Airfix / Humbrol Paints / Young Scientist • Dividend increased by 9% to 2.5p (2005:2.3p) Frank Martin, Chief Executive of Hornby, said, ' The group is making excellent progress towards our objective of building an international hobby business and reducing our dependency on the UK market. ' We are delighted to announce today that we have agreed to acquire certain assets of the Humbrol business. The brands include Airfix, Humbrol Paints and Young Scientist. This is an important acquisition and we believe that these brands can be re-invigorated in the same way that we have been able to develop our existing brands over the past few years. ' Looking ahead to Christmas, we are in good shape. We have an excellent product range and current indications are that we will experience a significantly stronger performance in the second half.' -ends- Date: 10 November 2006 For further information contact: Hornby Plc cityPROFILE Frank Martin, Chief Executive Simon Courtenay John Stansfield, Finance Director William Attwell Tel: 01843-233500 Tel: 020-7448-3244 On 10 November - Tel: 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 The Group continues to make excellent progress towards its objectives of building an international Hobby business and reducing its dependency on the UK market. However, for the time being, the UK remains the main driver of Group sales and profits. In common with many consumer goods retailers, we began to experience slower retail take-up during the early summer - particularly during the period of the World Cup. These conditions continued during the rest of the summer due, we believe, to the unusually warm weather which is not conducive to indoor hobby activities. We have therefore experienced lower sales in the UK during the first half of the current financial year. Sales in all our international subsidiaries were higher than the previous year, but the net effect was a decline in total sales of 3% to £17.9m (2005 - £18.5m). However, a strengthening order book in the UK and further progress at our international subsidiaries, including a first time contribution from Hornby Deutschland, give the board confidence in the outturn for the full year. Reflecting the conditions in the UK, profit before tax of £1.4m was below the same period last year (2005 - £2.5m). Diluted earnings per share were 2.29p (2005 - 4.48p). Dividend Your Board is continuing its policy of paying one third of the previous year's full dividend at the half-year. Consistent with this policy, I am therefore pleased to announce a 9% increase in the interim dividend to 2.5p (2005 - 2.3p) per ordinary share, payable on 26 January 2007 for those shareholders on the register as at 6 January 2007. Operating Review At the Annual General Meeting in July we recognised that the balance of profits in the current year would be more heavily skewed towards the second half. We have recently experienced improved trading in the UK and the reaction to our new product introduction programme in the second half, including the Hornby Digital system, has been excellent. Our overseas subsidiaries have all made good progress in the first half. Scalextric USA reported an improvement in sales, and this trend is expected to continue in the second half. Electrotren has increased sales as a result of a stronger new product introduction programme in its model railways business. In addition, Electrotren has supplied model railway products in component form for use in a 'part-work' publication in Spain. This has contributed to the sales increase whilst also having the additional benefit of broadening the base of model railway users in Spain. Over the previous year Hornby Italia has doubled its sales and is on track to continue to show a significant level of improvement in the second half. Hornby France, contributing to Group sales and profits for the first time, achieved all its targets in the first half and is expected to continue this strong performance in the second half. Hornby Deutschland, established to acquire certain assets and liabilities of Heico Modell on 1 September 2006, did not contribute to Group sales in the half, but is expected to contribute to sales and profits in the second half. The Company's net debt position rose to £3.8m as at 30 September 2006, an increase of £0.5m compared to 30 September 2005. However this position is after the payment of £1.3m in aggregate for the Hornby France and Hornby Deutschland assets and associated working capital requirements. The Company therefore continues to demonstrate its ability to generate significant positive cash flow from its operations. Current Trading Despite some difficult market conditions in the first half in our main market, we are pleased with the Group's overall progress. Current indications for Christmas trading in the UK are better than last year, and provided that this trend continues we are expecting a significantly stronger second half in the UK. All our international subsidiaries are also expected to perform better than last year in the second half. Acquisition of certain assets of Humbrol Limited in Administration (Humbrol) I am pleased to report that Hornby has entered into contracts to acquire certain assets of Humbrol. These assets include the Airfix, Humbrol and Young Scientist brands, together with their associated assets, and Intellectual Properties. The acquired assets achieved sales in the year to 31 December 2005 of £6.5m, at gross margins similar to those currently achieved by Hornby. The consideration for this acquisition will be £2.6m. It is our intention to integrate these brands into the current Hornby structure, with a relatively modest increase in fixed overhead. We believe the acquired brands can be substantially re-invigorated, in the same way as we have been able to develop our existing brands over the past few years. We expect this acquisition to be broadly earnings neutral in the current financial year, but to be earnings enhancing thereafter. This acquisition consolidates the Group's strategy to build an international hobby business with a broad range of brands, allied to a tightly controlled cost-base. Neil Johnson 10 November 2006 GROUP INCOME STATEMENT for the six months ended 30 September 2006 Six months Six months Year ended to 30 September to 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 REVENUE 17,905 18,460 44,113 Cost of sales (9,510) (9,043) (20,820) -------------------------------------------------------------------------------- GROSS PROFIT 8,395 9,417 23,293 Distribution costs (673) (658) (1,504) Selling and marketing costs (4,186) (4,190) (9,924) Administrative expenses (1,830) (1,842) (3,354) Other operating expenses (218) (110) (217) -------------------------------------------------------------------------------- OPERATING PROFIT 1,488 2,617 8,294 Finance income 3 17 30 Finance costs (70) (119) (160) -------------------------------------------------------------------------------- PROFIT BEFORE TAXATION 1,421 2,515 8,164 Taxation (527) (777) (2,306) -------------------------------------------------------------------------------- PROFIT FOR THE PERIOD AFTER TAXATION 894 1,738 5,858 ================================================================================ EARNINGS PER ORDINARY SHARE Basic 2.38p 4.65p 15.64p Diluted 2.29p 4.48p 15.08p GROUP BALANCE SHEET as at 30 September 2006 30 September 30 September 31 March 2006 2005* 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 ASSETS NON-CURRENT ASSETS Goodwill 8,154 7,719 8,116 Intangible assets 1,513 1,356 1,608 Property, plant and equipment 6,252 5,130 5,539 Deferred income tax assets 378 438 369 -------------------------------------------------------------------------------- 16,297 14,643 15,632 -------------------------------------------------------------------------------- CURRENT ASSETS Inventories 10,645 9,568 8,227 Trade and other receivables 11,456 11,910 9,325 Derivative financial instruments - 13 - Cash and cash equivalents 621 727 829 -------------------------------------------------------------------------------- 22,722 22,218 18,381 -------------------------------------------------------------------------------- LIABILITIES CURRENT LIABILITIES Borrowings (4,423) (4,042) (124) Derivative financial instruments (51) - - Trade and other payables (9,258) (9,181) (6,914) Current tax liabilities (806) (1,241) (1,542) Provisions (425) (510) (300) -------------------------------------------------------------------------------- (14,963) (14,974) (8,880) -------------------------------------------------------------------------------- NET CURRENT ASSETS 7,759 7,244 9,501 -------------------------------------------------------------------------------- NON-CURRENT LIABILITIES Borrowings (92) (45) (39) Deferred tax liabilities (220) (233) (231) -------------------------------------------------------------------------------- (312) (278) (270) -------------------------------------------------------------------------------- NET ASSETS 23,744 21,609 24,863 ================================================================================ SHAREHOLDERS' EQUITY Share capital 376 375 376 Share premium 5,081 5,010 5,050 Other reserves 1,743 1,743 1,743 Retained earnings 16,544 14,481 17,694 -------------------------------------------------------------------------------- TOTAL EQUITY 23,744 21,609 24,863 -------------------------------------------------------------------------------- * Deferred income tax assets and liabilities at 30 September 2005 have been disclosed gross rather than net which is consistent with 31 March 2006 and 30 September 2006. GROUP STATEMENT OF CHANGES IN EQUITY for the six months ended 30 September 2006 and 30 September 2005, and the year ended 31 March 2006 Share Share Redemption Other Retained Total Capital Premium Reserve Reserves Earnings* Equity (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 £'000 £'000 £'000 At 31 March 2005 373 4,906 55 1,688 14,750 21,772 Adoption of IAS32 and IAS39 - - - - (38) (38) ------------------------------------------------------------------------------------------------------------------- Balance at 1 April 2005 373 4,906 55 1,688 14,712 21,734 Profit for the period - - - - 1,738 1,738 Issue of shares 2 104 - - - 106 Share based payments - - - - 110 110 Exchange adjustment offset in - - - - (8) (8) reserves Purchase of own shares - - - - (364) (364) Shares vested - - - - 138 138 Dividends - - - - (1,845) (1,845) ------------------------------------------------------------------------------------------------------------------- Balance at 30 September 2005 375 5,010 55 1,688 14,481 21,609 Profit for the period - - - - 4,120 4,120 Issue of shares 1 40 - - - 41 Share based payments - - - - 48 48 Exchange adjustment offset in - - - - (103) (103) reserves Dividends - - - - (852) (852) ------------------------------------------------------------------------------------------------------------------- Balance at 31 March 2006 376 5,050 55 1,688 17,694 24,863 Profit for the period - - - - 894 894 Issue of shares - 31 - - - 31 Share based payments - - - - 117 117 Exchange adjustment offset in - - - - 23 23 reserves Transfer to STIP fund - - - - (178) (178) Dividends - - - - (2,006) (2,006) ------------------------------------------------------------------------------------------------------------------- Balance at 30 September 2006 376 5,081 55 1,688 16,544 23,744 =================================================================================================================== * Attributable to equity holders of the Company. Retained Earnings includes £715,000 at 30 September 2006 (2005 - £732,000) which is not distributable and relates to a 1986 revaluation reserve of land and buildings. This reserve was reclassified at 31 March 2006 in accordance with the exemption taken under IFRS1 'First Time Adoption of International Financial Reporting Standards' whereby the Group elected to use this valuation as deemed cost at the date of transition. As a result the comparatives set out above have been reclassified accordingly, recognising this reserve within Retained Earnings rather than Other Reserves. GROUP CASH FLOW STATEMENT for the six months ended 30 September 2006 Six months Six months Year ended to 30 September to 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from/ 318 (1,228) 7,546 (utilised in) operations Interest received 3 17 30 Interest paid (70) (119) (160) Tax paid (1,336) (811) (1,939) -------------------------------------------------------------------------------- Net cash (utilised in)/ (1,085) (2,141) 5,477 generated from operating activities -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of trade assets (36) - (1,072) and related costs Proceeds from sale of property, 32 - 23 plant and equipment Purchase of property, plant (1,515) (916) (2,545) and equipment -------------------------------------------------------------------------------- Net cash utilised in investing (1,519) (916) (3,594) activities -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of 31 106 147 ordinary shares Repayment of loans (52) - - Purchase of own shares by STIP - (364) (364) Finance lease capital payments (37) (11) (23) Dividends paid to Company's (2,006) (1,845) (2,697) shareholders -------------------------------------------------------------------------------- Net cash utilised in financing (2,064) (2,114) (2,937) activities -------------------------------------------------------------------------------- Effect of exchange rate movements 140 43 (60) -------------------------------------------------------------------------------- Net decrease in cash and (4,528) (5,128) ( 1,114) cash equivalents Cash and cash equivalents 746 1,860 1,860 at beginning of the period -------------------------------------------------------------------------------- CASH AND BANK OVERDRAFTS (3,782) (3,268) 746 AT END OF PERIOD -------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS CONSIST OF: Cash and cash equivalents 621 727 829 Bank overdrafts (4,403) (3,995) (83) -------------------------------------------------------------------------------- CASH AND BANK OVERDRAFTS (3,782) (3,268) 746 AT END OF PERIOD -------------------------------------------------------------------------------- NOTES TO THE CASH FLOW STATEMENT Cash flows from operating activities Six months Six months Year ended to 30 September to 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit for the financial 894 1,738 5,858 period Taxation 527 777 2,306 Interest payable 70 119 160 Interest receivable (3) (17) (30) Amortisation of intangible 50 51 97 assets Depreciation 944 899 2,075 Profit on disposal of tangible - - (11) fixed assets Share based payments 117 110 158 Loss/(gain) on financial 51 (13) (38) derivatives Increase/(decrease) in provisions 125 141 (69) Increase in inventories (2,291) (2,042) (219) Increase in trade and other receivables (2,070) (4,610) (2,058) Increase/(decrease) in trade and other payables 1,904 1,619 (683) -------------------------------------------------------------------------------- CASH GENERATED FROM (UTILISED IN)/OPERATIONS 318 (1,228) 7,546 -------------------------------------------------------------------------------- NOTES: 1. GEOGRAPHICAL SEGMENT INFORMATION Six months Six months Year ended to 30 September to 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) BY ORIGIN £'000 £'000 £'000 REVENUE United Kingdom 13,149 15,312 34,196 United States of America 1,203 1,171 2,952 Rest of Europe 3,553 1,977 6,965 -------------------------------------------------------------------------------- Group 17,905 18,460 44,113 -------------------------------------------------------------------------------- £'000 £'000 £'000 PROFIT BEFORE TAXATION United Kingdom 1,510 2,891 8,190 United States of America 16 (50) 67 -------------------------------------------------------------------------------- Rest of Europe - operating profit 238 (51) 491 - interest (343) (275) (584) -------------------------------------------------------------------------------- Rest of Europe (105) (326) (93) -------------------------------------------------------------------------------- Group 1,421 2,515 8,164 -------------------------------------------------------------------------------- £'000 £'000 £'000 NET ASSETS United Kingdom 8,889 8,651 10,392 United States of America 1,354 1,314 973 Rest of Europe 13,501 11,644 13,498 -------------------------------------------------------------------------------- Group 23,744 21,609 24,863 -------------------------------------------------------------------------------- BY DESTINATION £'000 £'000 £'000 REVENUE United Kingdom 10,963 12,634 29,330 Rest of the world 6,942 5,826 14,783 -------------------------------------------------------------------------------- Group 17,905 18,460 44,113 -------------------------------------------------------------------------------- On 1 September 2006 a newly formed 100% owned subsidiary of Hornby Plc, namely Hornby Deutschland GmbH, acquired the trade and certain assets and liabilities of Heico Modell. This Company commenced trading on 1 September 2006. Its results are included within Rest of Europe in the table above and are revenue of £3,000 and a loss before tax of £14,000. It is not possible or practical to determine what this business's revenue and profit/loss would have been for the full six months ended 30 September 2006 had the acquisition date commenced at the start of this reporting period, as a new business has been formed out of some of the assets and liabilities of another business. The acquisition cost was £nil and the fair value of the assets and liabilities acquired were as follows: £'000 Fixed assets 21 Stock 127 Debtors 8 Creditors (54) Loans (221) Goodwill 119 -------------------------------------------------------------------------------- (119) Acquisition cost nil -------------------------------------------------------------------------------- Goodwill 119 -------------------------------------------------------------------------------- Intangible assets acquired have not been identified and split out from goodwill at 30 September 2006 in accordance with IFRS3 'Business Combinations'. This will be performed in the second half of the financial year. The impact is not expected to be material on the numbers included in this report. 2. BASIS OF PREPARATION The interim financial information has been prepared in accordance with the accounting policies set out in the Hornby Plc Report and Accounts for the year ended 31 March 2006, which is 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 ('IFRIC') interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. References to IFRS throughout refer to the application of International Accounting Standards and International Financial Reporting Standards. The financial statements of the Company and its subsidiaries have been prepared under the historical cost convention, except in respect of certain financial instruments and certain land and buildings that are included in the financial statements at valuation. 3. NON STATUTORY ACCOUNTS These statements do not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985. Hornby Plc consolidated 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. The comparative figures for the year ended 31 March 2006 have been prepared as set out above and are an abridged statement of the full financial statements for that period. No financial statements will be filed for the six months ended 30 September 2006. 4. EARNINGS PER SHARE The calculation of earnings per ordinary share is based on the profits after taxation for the period of £894,000 (six months ended 30 September 2005 - £1,738,000) and the weighted average number of ordinary shares in issue during the period of 37,605,661 (six months ended 30 September 2005 - 37,360,169). 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, 38,971,133 (six months ended 30 September 2005 - 38,837,156). 5. SHORT TERM INCENTIVE PLAN £177,596 was transferred to the Employee Benefit Trust in June 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. 6. DIVIDENDS During the period a dividend of 5.4p per share was paid to shareholders on 18 August 2006 totalling £2,006,000 that related to the year ended 31 March 2006 (2005 - £1,845,000). 7. INTERIM STATEMENT Copies of this statement will be sent to all shareholders and are available from the Company's registered office. This information is provided by RNS The company news service from the London Stock Exchange

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