Interim Results
Hornby PLC
11 November 2005
HORNBY MAKING PROGRESS WITH
INTERNATIONAL SALES GROWTH
Hornby Plc, ('Hornby') the international models and collectables Group, has
today announced its interim results for the six months to 30 September 2005.
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 and Electrotren in Spain.
• Pre-tax profits in line with prior year at £2.52 million (2004: £2.59million)
• Diluted earnings per share 4.48p (2004: 4.55p)
• Turnover £18.5 million
• Hornby Italia, ex-Lima assets performing ahead of expectations
• Fernando Alonso - F1 Licence agreed in Spain
• Interim dividend increased 15% to 2.3p (2004: 2.0p)
Frank Martin, Chief Executive of Hornby, said,
' Despite a challenging economic backdrop, we are continuing to make good
progress. Our international subsidiaries are performing ahead of expectations.
Hornby Italia, the ex-Lima business, has a detailed plan in place to re-launch
the brand. Given the potential of the re-invigorated European brands we have
high hopes for a growth in European sales in the second half of the year.
Strategically we are pleased that the group has now diversified and expanded the
range of subject matter that we sell into different territories.
' In the UK sales of model trains have remained robust and we have introduced
several new locomotives which are performing well in the run up to Christmas. We
are also extending the Thomas the Tank Engine range which continues to grow in
its appeal.
' New licences remain the life-blood of our business. We are delighted that our
Spanish subsidiary has won the exclusive rights to use images of the new Formula
One World Champion Fernando Alonso. His victory this year has helped to generate
enormous interest in the sport in Spain. Significantly this is helping the
profile of our slot car products in Europe, and has provided a major boost to
Spanish sales.
' This is an exciting time - despite market challenges, the continued focus on
improving the quality of our products is paying off. Hornby products continue to
appeal across a broad spectrum of ages. Despite the backdrop of a consumer
slowdown in the UK, we are confident that we remain well placed to continue the
long-term progress of the Group.'
-ends-
Date: 11 November 2005
For further information contact:
Hornby Plc cityPROFILE
Frank Martin, Chief Executive Simon Courtenay
John Stansfield, Finance Director Andrew Harris
Tel: 01843-233500 Tel: 020-7448-3244
On 11 November - Tel: 020-7448-3244
Web: www.hornby.com or: www.scalextric.com
High resolution images are available for the media by contacting
Andrew Harris at cityPROFILE
CHAIRMAN'S REVIEW
The Group continues to make excellent progress towards its objective of building
an international Hobby business by broadening the range of brands and markets in
which we operate. This in turn reduces our dependency on our UK operations.
However, given the well-documented slowdown in UK retail spending, we have not
been immune to the effects of a more difficult trading environment in our home
market. Against this background total sales declined by 3% to £18.5m.
Reporting for the first time under IFRS, profit before tax at £2.5m was broadly
in line with the same period last year (£2.6m). This is a pleasing result, given
the reduction in sales and the fact that, as previously reported, the Group has
carried the costs of the Lima subsidiary during this period, prior to the
benefit of revenues from products now being manufactured in China. Diluted
earnings per share were similar to the same period last year at 4.48p (2004 -
4.55p).
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 15% increase in the interim dividend of 2.3p (2004 - 2.0p)
per ordinary share, payable on 27 January 2006 for those shareholders on the
register as at 6 January 2006.
Operating Review
As I reported at the Annual General meeting in July we recognised that we may
face a wider economic slowdown during the current financial year. However, our
brand position and established distribution base in the UK market mean that,
whilst sales have been slower, our margins have remained strong. This, coupled
with early action to reduce overheads where possible, has enabled the Group to
report profits in line with the same period last year.
Our overseas subsidiaries have all made good progress in the first half.
Our Spanish subsidiary Electrotren has secured wide distribution for our
Superslot brand, particularly as a result of securing the image rights to
Formula One World Champion Fernando Alonso in relation to our slot-car products
in Spain. Some sales benefits have been felt in the first half but the bulk of
the revenue gains will come in the second half.
Scalextric USA reported an improvement in sales, and this trend is expected to
continue in the second half.
Hornby Italia, responsible for the Lima brands acquired in December 2004,
reported a better result than anticipated as a result of tight overhead control
and higher than forecast revenues from stock included in the Lima assets
acquired. The product development, marketing and operational infrastructure
required for the future development of the business is now in place. Production
from China is now starting to arrive in Italy, and we are confident that we can
continue to grow the Lima business substantially during the second half of the
current financial year and beyond.
The economic case for manufacturing model railways and other hobby products
outside the main economies of Western Europe continues to be compelling. We
believe there will be further opportunities to leverage our experience and
expand both brand and geographic market coverage. This would further reduce
dependence on any one market.
In addition to the encouraging developments in our overseas subsidiaries we have
also been active in ensuring that we have access to the best licences to develop
and promote our product ranges to the widest possible audience.
The Company's net debt position of £3.4m as at 30 September 2005 has increased
by £3.1m compared to the previous year. However this position is after payment
for the Lima assets of £6.0m. The Company therefore continues to demonstrate its
ability to generate significant positive cash flow from its operations.
Current Trading
Against difficult market conditions in its main market, the UK, your Company has
made a creditable start in the current financial year. However market
indications for Christmas trading in the UK are not encouraging, and I must
therefore sound a cautionary note in respect of trading in the second half.
Nevertheless the actions we have already taken towards our longer term objective
of building a profitable hobby business across Europe are now beginning to bear
fruit. This leaves us better balanced to offset variations in demand in
individual markets. We are therefore confident that, notwithstanding the impact
of short term pressures on trading, the benefits of the strategic direction we
have taken will have positive effects on the Group for a number of years to
come.
Neil Johnson
11 November 2005
GROUP INCOME STATEMENT
for the six months ended 30 September 2005
Six months Six months Year ended
to 30 September to 30 September 31 March
2005 2004 2005
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000
Revenue 18,460 18,970 45,006
Cost of sales (9,043) (9,721) (22,613)
-------------------------------------------------------------------------------
Gross profit 9,417 9,249 22,393
Distribution costs (658) (555) (1,312)
Selling and marketing costs (4,190) (4,069) (9,508)
Administrative expenses (1,842) (1,942) (3,910)
Other operating expenses (110) (48) 51
-------------------------------------------------------------------------------
Group operating profit 2,617 2,635 7,714
Finance income 17 32 47
Finance costs (119) (80) (176)
-------------------------------------------------------------------------------
Profit before taxation 2,515 2,587 7,585
Taxation (777) (818) (1,993)
-------------------------------------------------------------------------------
Profit for the period after taxation 1,738 1,769 5,592
===============================================================================
EARNINGS PER ORDINARY SHARE
Basic 4.65p 4.78p 15.06p
Diluted 4.48p 4.55p 14.38p
GROUP BALANCE SHEET
as at 30 September 2005
30 September 30 September 31 March
2005 2004 2005
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000
ASSETS
NON-CURRENT ASSETS
Goodwill 7,719 4,017 7,751
Intangible assets 1,356 - 1,418
Property, plant and equipment 5,130 4,559 5,096
Deferred income tax assets 205 42 131
-------------------------------------------------------------------------------
14,410 8,618 14,396
-------------------------------------------------------------------------------
CURRENT ASSETS
Stocks 9,568 9,398 7,526
Trade and other receivables 11,910 11,302 7,199
Derivative financial instruments 13 - -
Cash and cash equivalents 727 317 1,860
-------------------------------------------------------------------------------
22,218 21,017 16,585
-------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Borrowings 4,042 478 23
Trade and other payables 9,181 8,562 7,637
Current income tax liabilities 1,241 1,028 1,100
-------------------------------------------------------------------------------
14,464 10,068 8,760
-------------------------------------------------------------------------------
NET CURRENT ASSETS 7,754 10,949 7,825
===============================================================================
NON-CURRENT LIABILITIES
Borrowings 45 92 80
Provisions for other liabilities and charges 510 686 369
-------------------------------------------------------------------------------
555 778 449
-------------------------------------------------------------------------------
NET ASSETS 21,609 18,789 21,772
===============================================================================
SHAREHOLDERS' EQUITY
Share capital 375 372 373
Share premium 5,010 4,862 4,906
Other reserves 2,475 2,492 2,483
Retained earnings 13,749 11,063 14,010
-------------------------------------------------------------------------------
TOTAL EQUITY 21,609 18,789 21,772
===============================================================================
GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2005 and 30 September 2004, and the year
ended 31 March 2005
Capital
Share Share Redemption Revaluation Other Retained Total
Capital Premium Reserve Reserve Reserves Earnings* Equity
(unaudited)(unaudited)(unaudited)(unaudited)(unaudited)(unaudited)(unaudited)
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2004 370 4,797 55 757 1,688 11,022 18,689
Profit for the period - - - - - 1,769 1,769
Amortisation of revaluation surplus - - - (8) - 8 -
Issue of shares 2 65 - - - - 67
Share based payments - - - - - 49 49
Exchange adjustment offset
in reserves - - - - - 41 41
Purchase of own shares - - - - - (278) (278)
Shares vested - - - - - 64 64
Dividends - - - - - (1,612) (1,612)
--------------------------------------------------------------------------------------------------------------------
Balance at 30 September 2004 372 4,862 55 749 1,688 11,063 18,789
Profit for the period - - - - - 3,823 3,823
Amortisation of revaluation surplus - - - (9) - 9 -
Issue of shares 1 44 - - - - 45
Share based payments - - - - - (133) (133)
Exchange adjustment offset
in reserves - - - - - (15) (15)
Dividends - - - - - (737) (737)
--------------------------------------------------------------------------------------------------------------------
Balance at 31 March 2005 373 4,906 55 740 1,688 14,010 21,772
Adoption of IAS 32 and IAS 39 - - - - - (38) (38)
--------------------------------------------------------------------------------------------------------------------
Balance at 1 April 2005 373 4,906 55 740 1,688 13,972 21,734
Profit for the period - - - - - 1,738 1,738
Amortisation of revaluation surplus - - - (8) - 8 -
Issue of shares 2 104 - - - - 106
Share based payments - - - - - 110 110
Exchange adjustment offset
in reserves - - - - - (8) (8)
Purchase of own shares - - - - - (364) (364)
Shares vested - - - - - 138 138
Dividends - - - - - (1,845) (1,845)
--------------------------------------------------------------------------------------------------------------------
Balance at 30 September 2005 375 5,010 55 732 1,688 13,749 21,609
====================================================================================================================
* Attributable to equity holders of the Company.
GROUP CASH FLOW STATEMENT
for the six months ended 30 September 2005
Six months Six months Year ended
to 30 September to 30 September 31 March
2005 2004 2005
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000
Cash flows from operating activities
Cash (utilised in)/generated from operations (1,228) (1,609) 9,222
Finance cost paid (119) (80) (176)
Income tax paid (811) (1,354) (2,557)
--------------------------------------------------------------------------------------
Net cash (utilised in)/generated
from operating activities (2,158) (3,043) 6,489
--------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of trade assets and related costs - - (5,971)
Proceeds from sale of property, plant and equipment - 13 227
Purchase of property, plant and equipment (916) (1,107) (2,220)
Finance income received 17 32 47
--------------------------------------------------------------------------------------
Net cash utilised in investing activities (899) (1,062) (7,917)
--------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 106 67 112
Purchase of own shares by STIP (364) (278) (278)
Finance lease capital payments (11) (16) (30)
Dividends paid to Company's shareholders (1,845) (1,612) (2,349)
--------------------------------------------------------------------------------------
Net cash utilised in financing activities (2,114) (1,839) (2,545)
--------------------------------------------------------------------------------------
Effect of exchange rate movements 43 2 27
--------------------------------------------------------------------------------------
Net decrease in cash and bank overdrafts (5,128) (5,942) (3,946)
Cash and bank overdrafts at beginning of the period 1,860 5,806 5,806
--------------------------------------------------------------------------------------
Cash and bank overdrafts at end of period 3,268 (136) 1,860
--------------------------------------------------------------------------------------
Cash and cash equivalents consist of:
Cash and cash equivalents 727 317 1,860
Bank overdrafts (3,995) (453) -
----------------------------------------------------------------------------------------
Cash and bank overdrafts at end of period (3,268) (136) 1,860
----------------------------------------------------------------------------------------
NOTES TO THE CASH FLOW STATEMENT
(a) Cash flow from operating activities
Six months Six months Year ended
to 30 September 30 September 31 March
2005 2004 2005
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000
Profit for the financial period 1,738 1,769 5,592
Taxation 777 818 1,993
Interest payable 119 80 176
Interest receivable (17) (32) (47)
Amortisation of intangible assets 51 - 33
Depreciation 899 927 1,850
Profit on disposal of tangible fixed assets - (7) (29)
Share based payments 110 49 (84)
Gain on financial derivatives (13) - -
Movements in provisions 141 159 (158)
Changes in stocks (2,042) (2,029) 258
Changes in debtors (4,610) (5,285) (1,171)
Changes in creditors 1,619 1,942 809
---------------------------------------------------------------------------------------
Cash (utilised in)/generated from operations (1,228) (1,609) 9,222
=======================================================================================
(b) Analysis of net debt
At 30 September 31 March Net Cash Foreign 30 September
2004 2004 Flows Exchange 2005
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 317 1,860 (1,176) 43 727
Bank overdrafts (453) - (3,995) - (3,995)
---------------------------------------------------------------------------------------
(136) 1,860 (5,171) 43 (3,268)
Due within on year:
Finance leases (25) (23) (24) - (47)
Due after one year:
Finance leases (92) (80) 35 - (45)
---------------------------------------------------------------------------------------
Net debt (253) 1,757 (5,160) 43 (3,360)
=======================================================================================
GEOGRAPHICAL SEGMENT INFORMATION
Six months Six months Year ended
to 30 September to 30 September 31 March
2005 2004 2005
(unaudited) (unaudited) (unaudited)
BY ORIGIN £'000 £'000 £'000
TURNOVER
United Kingdom 15,312 16,643 39,572
United States of America 1,171 994 2,488
Rest of Europe 1,977 1,333 2,946
--------------------------------------------------------------------------------
Group 18,460 18,970 45,006
================================================================================
£'000 £'000 £'000
PROFIT BEFORE TAX
United Kingdom 2,891 2,458 7,657
United States of America (50) (86) (74)
Rest of Europe - operating profit (51) 346 341
- interest (275) (131) (339)
(326) 215 2
--------------------------------------------------------------------------------
Group 2,515 2,587 7,585
================================================================================
£'000 £'000 £'000
NET ASSETS
United Kingdom 18,954 16,965 18,881
United States of America 170 198 192
Rest of Europe 2,485 1,626 2,699
--------------------------------------------------------------------------------
Group 21,609 18,789 21,772
================================================================================
On 15 December 2004 a newly formed subsidiary of Hornby Plc, Hornby Italia
s.r.l., acquired the trade and certain assets of Lima S.p.A. The results of this
acquisition are included within Rest of Europe in the table above. For the year
ended 31 March 2005 turnover was £203,000 incurring a loss before tax of
£289,000.
BY DESTINATION £'000 £'000 £'000
TURNOVER
United Kingdom 12,634 13,537 33,928
Rest of the world 5,826 5,433 11,078
--------------------------------------------------------------------------------
Group 18,460 18,970 45,006
================================================================================
NOTES:
1. Basis of preparation
The interim financial information has been prepared in accordance with the
accounting policies the Group expects to be applicable at 31 March 2006 based on
those IFRS and IFRIC interpretations issued and effective or issued and early
adopted as at the time of preparing these statements. The IFRS standards and
IFRIC interpretations that will be applicable at 31 March 2006, including those
that will be applicable on an optional basis, are not known with certainty at
the time of preparing these interim financial statements. These figures may
therefore require amendment to change the basis of accounting or presentation of
certain financial information, before their inclusion in the IFRS financial
statements for the year ending 31 March 2006, which will be the Group's first
full set of IFRS financial statements.
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.
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 2005 were prepared in accordance with UK GAAP 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 2005
have been prepared as set out above and are an abridged statement of the full
financial statements (as restated) for that period. No financial statements will
be filed for the six months ended 30 September 2005.
3. Earnings per share
The calculation of earnings per ordinary share is based on the profits after
taxation for the period of £1,738,000 (six months ended 30 September 2004 -
£1,769,000) and the weighted average number of ordinary shares in issue during
the period of 37,360,169 (six months ended 30 September 2004 - 37,036,552).
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, 38,837,156 (six months ended
30 September 2004 - 38,860,832).
4. Short Term Incentive Plan
164,861 ordinary shares to the value of £364,397 were acquired by the Employee
Benefit Trust in June 2005 in accordance with the incentive plan, details of
which were included in the 2005 Annual Report and Accounts.
The Trust waives its right to dividends.
5. Interim Statement
Copies of this statement will be sent to all shareholders and are available from
the Company's registered office.
6. International Financial Reporting Standards
The interim financial information for the six months ended 30 September 2005 has
been prepared in accordance with International Accounting Standards ('IAS') and
International Financial Reporting Standards ('IFRS') as adopted by the European
Union ('EU') (see note 1).
References to IFRS throughout the Interim Report refer to the application of
International Accounting Standards and International Financial Reporting
Standards.
Hornby Plc consolidated financial statements were prepared in accordance with UK
Generally Accepted Accounting Principles ('UK GAAP') until 31 March 2005. In
preparing Hornby Plc 2005 consolidated interim financial information, management
has amended certain accounting, valuation and consolidation methods applied in
the UK GAAP financial statements to comply with IFRS. The comparative figures in
respect of the year ended 31 March 2005 were restated to reflect these
adjustments, except as described in the accounting policies.
Reconciliations and descriptions of the effect of the transition from UK GAAP to
IFRS on the Group's equity and its net income and cash flows are provided in
this note.
First time adoption of International Financial Reporting Standards
The Group will apply IFRS 1 'First Time Adoption of International Financial
Reporting Standards' for its initial implementation of IFRS. The Group's date of
transition to IFRS is 1 April 2004 and comparative information in the financial
statements will be restated to reflect the Group's adoption of IFRS except where
otherwise required or permitted by IFRS 1.
IFRS 1 requires an entity to comply with each IFRS effective at the reporting
date for its first financial statements prepared under IFRS. As a general rule,
IFRS 1 requires such standards to be applied retrospectively. However, the
standard permits several optional exemptions from full retrospective
application. The Group will elect to take advantage of the following exemptions:
•The Group will adopt IFRS 3 'Business Combinations' to the extent that it
applies to acquisitions after 1 April 2004. Acquisitions before that date will
be recorded under previous accounting rules as the Group intends to take
advantage of the exemption permitted in IFRS 1. All goodwill will be tested for
impairment in accordance with our accounting policy. In addition, the Group will
take advantage of the exemption allowed in IFRS 1 which means that IAS 21 'The
Effects of Changes in Foreign Exchange Rates' will not apply retrospectively to
fair value adjustments and goodwill arising in business combinations that
occurred before the date of transition to IFRS.
•The Group will elect to take advantage of the exemption in IFRS 1 regarding
cumulative translation differences. Accordingly, the cumulative translation
differences for all foreign operations are deemed to be nil at the date of
transition to IFRS.
•The Group will elect to apply the exemptions in IAS 32 'Financial Instruments:
Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and
Measurement', and will apply these standards from 1 April 2005 only.
•The Group will elect to take advantage of the exemptions allowed in IFRS 1
regarding IFRS 2 'Share based payments'. The Company will apply the exemptions
for share based payments granted on or before 7 November 2002. The Company will
meet all the disclosure requirements of IFRS 2.
•The Group considers the land and buildings revaluation performed under UK GAAP
as comparable to the fair value at the date of the revaluation. Accordingly, the
Group has elected to use this valuation as deemed cost at the date of transition
to IFRS, and stated the property at valuation, net of accumulated depreciation.
•Main impacts of International Financial Reporting Standards
•Outlined below are those International Financial Reporting Standards which will
have an impact upon the financial statements of Hornby Plc. Details of
adjustments are set out in the reconciliations to UK GAAP below.
IFRS 3 - 'Business Combinations'
The standard deals with accounting for business combinations including goodwill
and intangible assets. The Group's previous policy under UK GAAP was to amortise
goodwill, which will now cease, and to test for impairment , normally on an
annual basis, when there is an indication that the carrying value of an asset
might not be recoverable. Where appropriate, in respect of business combinations
completed after the date of transition to IFRS, separately identified intangible
assets will be valued and will be subject to amortisation.
IAS 12 - 'Income Taxes'
This standard requires entities to provide for deferred taxation based on
temporary differences between the carrying amount of assets and liabilities and
their tax base. Consequently, the Group will make additional provision for
deferred taxation on tax deductible amortisation on purchased goodwill and
deferred tax adjustments in respect of share based payments.
IAS 21 - 'The Effects of Changes in Foreign Exchange Rates'
Income statements and cash flows of foreign subsidiaries are reported in
sterling using average rates of exchange that existed during the accounting
period rather than the closing rates at the end of the accounting period as was
previously permitted by UK GAAP.
IAS 10 - 'Events after the balance sheet date'
The standard does not permit dividends declared after the balance sheet date to
be recognised as a liability. Consequently, under IFRS, the Company will no
longer make provision for dividends not approved by the period end. Actual
dividends paid in the period will be charged to shareholders' equity.
IFRS 2 - 'Share Based Payments'
Previously the cost of awards to employees (including conditional rights) was
charged to the income statement over the period to which the employees'
performance related. Historically, provision has been made for the cost of
awards based on the share price ruling at grant date. Under IFRS 2, share awards
will be measured at fair value at grant date and recognised as an expense over
the vesting period. The impact of this standard on the financial statements of
the Group will be a small reduction in the charge to the income statement for
the year ended 31 March 2005 and an equivalent increase in shareholders' funds,
net of deferred tax. Additionally there will be a small reduction in the
cumulative charge to retained earnings at the date of transition to IFRS.
IAS 14 - 'Segment Reporting'
As previously, the Group will present segmental reporting based on its three
primary geographic regions being the UK, the USA and Rest of Europe. Secondary
segments have not been identified.
Principal Accounting Policies
The principal accounting policies that the Group anticipates adopting in its 31
March 2006 financial statements to be prepared under IFRS, and which have been
consistently applied in the preparation of the Interim Report, are set out
below.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and all its subsidiaries as at 31 March each year prepared under IFRS
using consistent accounting policies. The results of subsidiaries acquired are
included in the consolidated profit and loss account from the date control
passes. Intra group sales are eliminated on consolidation.
Foreign currency translation
Transactions in foreign currencies are translated at the exchange rate ruling at
the date of the transaction. 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 income statement.
On consolidation, income statements and cash flows of foreign subsidiaries are
translated into pounds sterling using average rates that existed during the
accounting period. The balance sheets of foreign subsidiaries are translated
into pounds 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 the statement of changes in equity.
Tangible fixed assets
Land and buildings are shown at cost or valuation less accumulated depreciation.
Assets revalued prior to the issue of FRS15 are retained at their book amounts
as though they were the historical cost amounts.
Depreciation is provided at rates calculated to write off the cost or valuation,
less any estimated residual value, of each asset on a straight-line basis (with
the exception of tools and moulds) over its expected useful life, as follows:
Freehold buildings - 30 to 50 years
Plant and equipment - 5 to 10 years
Motor vehicles - 4 years
Residual value is calculated on prices prevailing at the date of acquisition or
revaluation where this has taken place.
Tools and moulds are depreciated at varying rates in line with the related
estimated product sales on an item-by-item basis up to a maximum of 4 years.
Intangible assets
(a) 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 recognised under UK GAAP prior to 1 April
2004, the date of transition to IFRS, is stated at net book value as at this
date. Goodwill on business combinations recognised subsequent to 1 April 2004 is
tested annually for impairment and carried at cost less accumulated impairment
losses.
(b) Trade names
Trade names 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 trade names over their
estimated economic life of 20 years.
(c) Existing customer relationships
Existing customer relationships are capitalised at fair value as at the date of
acquisition. They are carried at their fair value less accumulated amortisation
and any accumulated impairment losses. Amortisation is calculated using the
straight-line method to allocate the fair value of customer relationships over
their estimated economic life of 10 years.
(d) Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on
development projects (relating to the design and testing of new products) are
recognised as intangible assets when it is probable that the project will be a
success, considering its commercial and technological feasibility, and costs can
be measured reliably. Other development expenditures are recognised as an
expense as incurred.
Stocks
Stocks are stated at the lower of cost and net realisable value. Cost is
determined using the first-in, first-out (FIFO) method. The cost of finished
goods and work in progress comprises raw materials, direct labour, other direct
costs and related production overheads (based on normal operating capacity).
Net realisable value is based on the 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.
There are no significant differences between balance sheet and replacement cost
values. For these purposes replacement cost is based upon latest invoice prices
before the balance sheet date.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts. Bank overdrafts are shown within
current liabilities on the balance sheet.
Deferred income tax
Deferred income tax is provided on all temporary differences at the balance
sheet date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
Deferred income 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 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. Income tax relating to items
recognised directly in equity are recognised in equity and not in the income
statement.
Pension 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 income
statement according to the year in which they are payable.
Share option scheme
The Group operates an executive share scheme. For all grants of share options
and awards, the fair value as at the date of grant is calculated using an
appropriate option pricing model and the corresponding expense is recognised
over the vesting period. The Company has taken advantage of the transitional
provisions of IFRS 2 'Share Based Payments' in respect of equity-settled awards
and has applied IFRS 2 only to equity settled awards granted after 7 November
2002 that had not vested before 1 January 2005.
Short term incentive plan (STIP)
The STIP investment is carried at the cost of the shares acquired less the cost
of the shares vested. This investment in own shares is presented as a deduction
from shareholders' funds.
The matched element of the STIP which has a condition of employment attached to
it is spread over the vesting period of the shares and recognised in the income
statement over this period.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events and it is more likely than not that an
outflow of resources will be required to settle the obligation and the amount
has been reliably estimated. The expense relating to any provision is presented
in the income statement net of any reimbursement.
Provisions are measured at the present value of management's best estimate of
the expenditure required to settle the present obligation at the balance sheet
date. If material, provisions are determined by discounting the expected future
cash flows of the Group at rates that reflect current market assessments of the
time value of money.
Revenue recognition
Revenue comprises the fair value of the sale of goods and services, net of
value-added tax, rebates and discounts and after eliminating sales within the
Group. Revenue is recognised as follows:
(a) Sales of goods
Sales of goods are recognised when a Group entity has delivered products to the
customer; the customer has accepted the products; and collectibility of the
related receivables is reasonably assured.
(b) Sales of services
Sales of services are recognised in the accounting period in which the services
are rendered, by reference to completion of the specific transaction, assessed
on the basis of the actual service provided as a proportion of the total
services to be provided.
(c) Royalty income
Royalty income is recognised on an accruals basis in accordance with the
substance of the relevant agreements.
(d) Sales returns
The Group establishes a sales returns provision at the period end that reduces
income in anticipation of customer returns of goods sold in the period.
Leases
The Group enters into operating and finance leases.
Assets held under finance leases are initially reported at the fair value of the
asset with an equivalent liability categorised as appropriate under creditors
due within or after one year. The assets are depreciated over the shorter of the
lease term and their useful economic lives. Finance charges are allocated to
accounting periods over the period of the lease to produce a constant rate of
return on the outstanding balance. Rentals are apportioned between finance
charges and the reduction of the liability, and allocated to net interest.
Assets under operating leases are charged on a straight-line basis over the
lease term.
Derivative financial instruments
From 1 April 2004 to 31 March 2005
In accordance with IFRS 1, First-time Adoption of International Financial
Reporting Standards, the Group has elected not to apply IAS 32, Financial
Instruments: Disclosure and Presentation, and IAS 39, Financial Instruments:
Recognition and Measurement to the period ended 31 March 2005. The Group has
continued to adopt UK GAAP in the accounting for and disclosure of financial
instruments in that period.
The derivative instruments used by the group to manage its currency risk are
forward rate contracts. Forward currency contracts entered into with respect to
trading transactions were accounted for under UK GAAP as hedges, with the
instruments impact on profit not recognised until the underlying transaction was
recognised in the profit and loss account. The notional amounts of interest rate
swaps and forward currency contracts were not recorded on the balance sheet.
From 1 April 2005 onwards
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured at their fair value.
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 Group also
documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values of the hedged items.
(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair
value hedges are recorded in the income statement, together with any changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk.
(b) Derivatives that do not qualify for hedge accounting
Certain derivative instruments are not considered effective and do not qualify
for hedge accounting. Such derivatives are classified as at fair value through
the income statement, and changes in the fair value of derivative instruments
that do not qualify for hedge accounting are recognised immediately in the
income statement.
Reconciliation of IFRS Income Statement
Six months Six months Year ended
to 30 September to 30 September 31 March
2005 2004 2005
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000
Profit for the period per UK GAAP 1,484 1,768 5,156
Share-based payments (110) (49) 84
Amortisation of goodwill reversal 358 1 297
Amortisation of intangible reversal - - 35
Amortisation of intangible assets (51) - (33)
Financial derivatives 13 - -
Taxation 6 49 53
--------------------------------------------------------------------------------
Profit for the period under IFRS 1,738 1,769 5,592
================================================================================
Reconciliation of Balance Sheet - UK GAAP to IFRS
At 1 April 2004 At 30 September 2004 At 31 March 2005
UK GAAP Effect of IFRS UK GAAP Effect of IFRS UK GAAP Effect of IFRS
IFRS IFRS IFRS
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
ASSETS
NON-CURRENT ASSETS
Goodwill 4,017 - 4,017 4,016 1 4,017 7,503 248 7,751
Intangible assets - - - - - - 1,367 51 1,418
Property, plant and equipment 4,436 - 4,436 4,559 - 4,559 5,096 - 5,096
Deferred income tax assets 240 (240) - 259 (217) 42 344 (213) 131
------------------------------------------------------------------------------------------------------------------
8,693 (240) 8,453 8,834 (216) 8,618 14,310 86 14,396
------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Stocks 7,369 - 7,369 9,398 - 9,398 7,526 - 7,526
Trade and other receivables 5,977 - 5,977 11,302 - 11,302 7,199 - 7,199
Cash and cash equivalents 5,806 - 5,806 317 - 317 1,860 - 1,860
------------------------------------------------------------------------------------------------------------------
19,152 - 19,152 21,017 - 21,017 16,585 - 16,585
------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Borrowings - 30 30 453 25 478 - 23 23
Trade and other payables 8,443 (1,656) 6,787 9,330 (768) 8,562 9,525 (1,888) 7,637
Current income tax liabilities 1,443 - 1,443 1,028 - 1,028 1,100 - 1,100
------------------------------------------------------------------------------------------------------------------
9,886 (1,626) 8,260 10,811 (743) 10,068 10,625 (1,865) 8,760
------------------------------------------------------------------------------------------------------------------
NET CURRENT ASSETS 9,266 1,626 10,892 10,206 743 10,949 5,960 1,865 7,825
==================================================================================================================
NON-CURRENT LIABILITIES
Borrowings 103 - 103 92 - 92 80 - 80
Deferred income tax liabilities - 26 26 - - - - - -
Provisions for other liabilities and charges 527 - 527 686 - 686 369 - 369
------------------------------------------------------------------------------------------------------------------
630 26 656 778 - 778 449 - 449
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
NET ASSETS 17,329 1,360 18,689 18,262 527 18,789 19,821 1,951 21,772
==================================================================================================================
SHAREHOLDERS' EQUITY
Share capital 370 - 370 372 - 372 373 - 373
Share premium 4,797 - 4,797 4,862 - 4,862 4,906 - 4,906
Other reserves 2,500 - 2,500 2,492 - 2,492 2,483 - 2,483
Retained earnings 9,662 1,360 11,022 10,536 527 11,063 12,059 1,951 14,010
------------------------------------------------------------------------------------------------------------------
TOTAL EQUITY 17,329 1,360 18,689 18,262 527 18,789 19,821 1,951 21,772
==================================================================================================================
IFRS Adjustments
At At At
1 April 2004 30 September 2004 31 March 2005
£'000 £'000 £'000
Goodwill - per UK GAAP 4,017 4,016 7,503
Amortisation written back - 1 297
Lima intangibles fair value adjustment - - (49)
--------------------------------------------------------------------------------
4,017 4,017 7,751
--------------------------------------------------------------------------------
Goodwill amortisation relating to acquisitions prior to 1 April 2004 and charged
to profit since that date have been reversed.
Goodwill related to Lima assets acquired was reduced and reallocated to
intangible assets.
Intangible assets - per UK GAAP - - 1,367*
Amortisation written back - - 35
Lima intangibles fair value adjustment - - 49
Amortisation of fair value - - (33)
--------------------------------------------------------------------------------
- - 1,418
--------------------------------------------------------------------------------
Intangible assets amortisation relating to acquisitions prior to 1 April 2004
and charged to profit since that date have been reversed.
Intangible assets related to Lima assets acquired increased upon fair valuing.
Intangible assets relating to acquisitions post 31 March 2004 are amortised over
their useful life.
* Shown in the 31 March 2005 Report and Accounts within goodwill.
Deferred Income tax assets - per UK GAAP 240 259 344
Accelerated capital allowances 9 23 63
Short term incentive plan (73) (52) (108)
Share options - 12 29
Revaluations (227) (225) (222)
Pensions 15 15 14
Trade discount 3 3 3
General provisions 7 7 8
--------------------------------------------------------------------------------
(26) 42 131
--------------------------------------------------------------------------------
Borrowings - per UK GAAP - 453 -
Finance lease commitments < 1 year 30 25 23
--------------------------------------------------------------------------------
30 478 23
--------------------------------------------------------------------------------
Finance lease capital commitments due in less than one year.
Trade and other payables- per UK GAAP 8,443 9,330 9,525
Finance lease commitments transferred to
borrowings (30) (25) (23)
Dividend reversal (1,626) (743) (1,865)
--------------------------------------------------------------------------------
6,787 8,562 7,637
--------------------------------------------------------------------------------
Dividends accrued but not declared, proposed or approved are reversed.
Retain earnings - per UK GAAP 9,662 10,536 12,059
Dividend reversal 1,626 729 2,588
Dividend payment - 14 (723)
Amortisation of goodwill reversal - 1 297
Amortisation of intangibles reversal - - 35
Amortisation of intangibles fair value - - (33)
Deferred taxation (266) (217) (213)
--------------------------------------------------------------------------------
11, 022 11,063 14,010
--------------------------------------------------------------------------------
INDEPENDENT REVIEW REPORT TO HORNBY PLC
Introduction
We have been instructed by the Company to review the financial information for
the 6 months ended 30 September 2005 which comprises the group interim income
statement, the group interim balance sheet at 30 September 2005, the group
interim cash flow statement, the group statement of changes in equity for the
six months then ended and the related notes. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with the accounting standards adopted for use in the
European Union. This interim report has been prepared in accordance with the
basis set out in note 1.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC Interpretations that will be applicable and adopted
for use in the European Union at 31 March 2006 are not known with certainty at
the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the Company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
Gatwick
11 November 2005
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