Interim Results

Hornby PLC 09 November 2007 HORNBY STEPS UP A GEAR AS CHRISTMAS APPROACHES Hornby Plc ('Hornby'), the international hobby products group, has today announced its interim results for the half year ended 30 September 2007. • Turnover up by 37% to £24.6 million (2006 - £17.9 million) • UK and Overseas subsidiaries delivering sales growth • Pre-tax profits up to £2.6 million (2006 - £1.8 million)* • Earnings per share up to 3.84p (2006 - 3.16p)* • Digital Technology Platform driving model railway and slot car demand • Airfix and Humbrol brands re-launched • Vodafone McLaren Mercedes Team and Transformers licences boost slot car product sales • Interim dividend of 2.7p proposed (2006 - 2.5p) * 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, ' We are delighted to report such a strong performance right across the group. Our UK and overseas businesses are delivering very encouraging growth. The key drivers of this performance have been the adoption of the Digital Technology Platform in model railways and slot-car racing, together with the increasing appeal of our exciting programme of product introductions. The performance of our European operations is particularly encouraging, as we have re-vitalised these much loved brands after years of under investment. ' Scalextric has enjoyed a boost from a surge of interest in Formula 1 Grand Prix Racing. In particular the ranges linked to our licence with the Vodafone McLaren Mercedes Team are set to become best-sellers. Higher sales both of Hornby and Scalextric sets have had a short term negative impact on gross margins. We expect higher set sales to give rise to higher sales of accessories as new hobbyists expand their collections. We are therefore forecasting an improvement in gross margins in the second half as the balance of sales moves back to accessories, particularly in the January - March period. ' Our strategy to develop new products associated with exciting licences also benefited from the success of the Hollywood blockbuster, Transformers, which was especially popular in the USA. The success of this licence has enabled us to open trading relationships with major US retailers. ' Our businesses in Europe are performing very well. We have been encouraged by the market reaction to the re-launch of our European brands and we are confident that our European businesses will continue to be key drivers of growth over the next five years. ' The re-launch of Airfix and Humbrol has been extremely well received by the market. The business is back on track in time for Christmas. We have restocked popular product in the shops and we have developed an exciting new product programme which offers significant potential. ' Looking forward, we are confident about the Group's prospects. As we enter the key Christmas period we are in excellent health. We have invested in the positioning of all of our businesses so that they appeal to a wider range of existing hobbyists and new entrants. Given the potential for our re-vitalised overseas businesses, together with an excellent pipeline of new products, we are confident that we will continue to deliver further growth.' High resolution images are available for the media to view and download free of charge from www.vismedia.co.uk -ends- Date: 9 November 2007 For further information contact: Hornby Plc cityPROFILE Frank Martin, Chief Executive Simon Courtenay - 07958-754273 John Stansfield, Finance Director William Attwell - 07973-281650 01843-233500 020-7448-3244 On 9 November: 020-7448-3244 Web: www.hornby.com or: www.scalextric.com or www.airfix.com HORNBY PLC INTERIM REPORT CONDENSED CONSOLIDATED HALF-YEARLY FINANCIAL REPORT SIX MONTHS TO 30 SEPTEMBER 2007 INTERIM MANAGEMENT REPORT I am pleased to report that the Group has made excellent progress during the first half of the year. Sales increased by 37% to £24.6m and profits increased to £2.7m. Our strategy to build a group comprising hobby businesses across a number of territories is proving successful. We have made great progress in strengthening and diversifying our revenue streams and the new businesses that have been added to the group are performing well. They are all responding positively to the action we have taken to re-vitalise them, by combining higher quality product manufacturing with a strong product development and marketing programme. This has helped each business to capitalise on the strength of their brands. The acquisition of Airfix and Humbrol has been successful and the products have been re-launched into a receptive market, with an exciting new product pipeline to support future sales growth. Sales have increased strongly in all of our operating subsidiaries, resulting in Group sales of £24.6m, 37% higher than the same period last year (2006 - £17.9m). Gross margins were 3.9 percentage points lower than the previous year. Higher charges for royalties and tooling amortisation, and a change in product/market mix towards Scalextric and Hornby sets sold via major retail and export channels impacted the gross margin percentage. Increased sales of sets generally result in increased sales of higher margin accessories as new entrants begin to build their collections. We are forecasting an improvement in margins in the second half of the financial year. Overheads, which comprise distribution costs, selling and marketing costs and administrative expenses, were £1.9m higher than the previous year due in part to additional overheads in respect of the Humbrol/Airfix business. In addition higher variable selling costs were incurred in our European subsidiaries where the majority of sales are made via commission agents, whose costs increase in line with sales. Profit before tax at £2.7m compares favourably with the prior year result of £1.4m. The Group net debt position of £8.9m as at 30 September 2007, has increased by £5.1m compared to the previous year. However this position is after payment of £2.6m for the Humbrol and Airfix assets in November 2006, and increased working capital requirements as a result of growth in all subsidiaries. The Group expects to be broadly cash neutral at the end of the financial year (2007 - £627,000 overdraft), thus demonstrating its ability to continue to generate cash from its operations. 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 an 8% increase in the interim dividend to 2.7p (2006 - 2.5p) per ordinary share, payable on 25 January 2008 for those shareholders on the register as at 14 December 2007. Operating Review As I reported at the Annual General Meeting in July, order intake across all of our operating subsidiaries has been significantly higher than in the previous year. This has resulted in higher sales in the first half. We enter the pre-Christmas period with a strong order book and with retail sales running at higher levels than last year. UK In the UK, it is encouraging to report that sales of both Hornby and Scalextric are higher than last year; driven in part by the growing uptake of our market leading digital control technology in both product categories. This has been a significant engine of growth as existing hobbyists and new market entrants adopt the new technology. In addition, the Airfix and Humbrol business, acquired in November 2006 made a positive contribution to sales and profits. These factors resulted in an overall increase in sales in Hornby Hobbies Limited of 32% compared to the previous year. USA Hornby America reported an improvement in sales of 11% in local currency, although the weakening Dollar reduced this increase to just 2% when translated into Sterling. The improvement in sales was driven in part by a good response to the Micro-Scalextric product based on the Transformers movie and made under licence from Hasbro Inc. We have also commenced trading with certain major nationwide retailers, and we expect to be able to continue to develop these trading relationships in the future. Continental Europe All of our subsidiaries in continental Europe made good progress in the half, resulting in an overall sales increase of 70% compared to the previous year. Spain Hornby Espana increased sales as a result of a strong new product introduction programme in its model railways business, coupled with an increase in sales of Superslot slot car products. This is partly as a result of our licence with the Vodafone McLaren Mercedes Team, under the terms of which we are able to use the images of Fernando Alonso and Lewis Hamilton on our products. In addition, Hornby Espana has supplied Superslot 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 brand awareness of Superslot in Spain. Italy Hornby Italia increased sales significantly in the half and is on track to continue this trend in the second half. Very encouragingly, sales growth in Italy is being derived not only from the re-launched model railway ranges under the Lima and Rivarossi brands, but also from significantly increased sales of Scalextric and Hornby branded products. In particular, the Thomas the Tank Engine range is gaining wide popularity in Italy, as a result of regular transmissions of the eponymous children's television series. France Hornby France increased sales at a lower rate than Italy and Spain, but, with the majority of new launches of Jouef model railway products taking place in the second half, we are looking forward to a strong full year performance in France. Germany Hornby Deutschland continues to establish itself as a credible supplier to this important market, which is the largest model railway market in Europe. The response to our re-launched Lima, Rivarossi and Arnold ranges has been good. It is clear however that, given the competitive pressures in the market, great emphasis will be placed on the successful launch of newly tooled products. In this connection the first such product, a BR58 steam locomotive, will be launched in Germany prior to Christmas 2007. This product features a die-cast body for both locomotive and tender. This is the first time Hornby Group has introduced such features. Product Pipeline Part of the Group's recent success can be attributed to our focus on strengthening our product pipeline. We have made excellent progress in continuing to extend the depth of our new product launch programme. We continue to seek exciting licenses which we can leverage to improve the distribution of product ranges to our various sales channels. Current Trading The Group has made a strong start in the current financial year and the prospects for the full year remain in line with our expectations. As always, consumer demand in the pre-Christmas period is a key determinant of the Group's result for the year. At this stage, order inflow from our retail customers is encouraging across the whole Group. Continued growth in our international subsidiaries as they re-establish distribution of our core brands now being manufactured in China, coupled with evidence of stronger consumer demand for our products in the UK market should ensure continued growth across the Group in the second half of the financial year. The Board looks to the future with confidence. Neil A Johnson Chairman 8 November 2007 INCOME STATEMENT for the six months ended 30 September 2007 Six months Six months to 30 September to 30 September 2007 2006 Restated* (unaudited) (unaudited) Note £'000 £'000 REVENUE 4 24,595 17,905 Cost of sales (12,745) (8,574) _______ _______ GROSS PROFIT 11,850 9,331 Distribution costs (897) (673) Selling and marketing costs (5,380) (4,186) Administrative expenses (2,274) (1,830) Foreign exchange losses (305) (936) Other operating expenses (127) (218) _______ _______ OPERATING PROFIT 2,867 1,488 Finance income 1 3 Finance costs (191) (70) _______ _______ PROFIT BEFORE TAXATION 4 2,677 1,421 Taxation 8 (1,214) (527) _______ _______ PROFIT FOR THE PERIOD ATTRIBUTABLE TO EQUITY HOLDERS 1,463 894 _______ _______ EARNINGS PER ORDINARY SHARE Basic 3.90p 2.38p Diluted 3.76p 2.29p All of the activities of the Group are continuing. * See note 2. The notes form an integral part of this condensed consolidated half-yearly financial information. BALANCE SHEET as at 30 September 2007 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) Note £'000 £'000 £'000 ASSETS NON-CURRENT ASSETS Goodwill 9,323 8,154 9,206 Intangible assets 2,284 1,513 2,321 Property, plant and equipment 7,634 6,252 7,458 Deferred income tax assets 199 378 421 _______ _______ _______ 19,440 16,297 19,406 _______ _______ _______ CURRENT ASSETS Inventories 12,142 10,645 8,441 Trade and other receivables 17,312 11,456 10,087 Cash and cash equivalents 134 621 329 _______ _______ _______ 29,588 22,722 18,857 _______ _______ _______ LIABILITIES CURRENT LIABILITIES Borrowings 7 (9,017) (4,423) (1,005) Derivative financial instruments (57) (51) (202) Trade and other payables (10,016) (9,258) (7,216) Provisions (596) (425) (293) Current tax liabilities (1,263) (806) (1,291) _______ _______ _______ (20,949) (14,963) (10,007) _______ _______ _______ NET CURRENT ASSETS 8,639 7,759 8,850 _______ _______ _______ NON-CURRENT LIABILITIES Borrowings 7 (47) (92) (53) Deferred tax liabilities (390) (220) (358) _______ _______ _______ (437) (312) (411) _______ _______ _______ NET ASSETS 4 27,642 23,744 27,845 _______ _______ _______ SHAREHOLDERS' EQUITY Share capital 6 378 376 378 Share premium 5,236 5,081 5,236 Other reserves 1,772 1,743 1,795 Retained earnings 20,256 16,544 20,436 _______ _______ _______ TOTAL EQUITY 27,642 23,744 27,845 _______ _______ _______ The notes form an integral part of this condensed consolidated half-yearly financial information. STATEMENT OF CHANGES IN EQUITY for the six months ended 30 September 2006 and 30 September 2007 Share Share Redemption Other Retained Total Capital Premium Reserve Reserves Earnings* Equity (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 April 2006 376 5,050 55 1,688 17,694 24,863 Currency translation differences - - - - 23 23 Profit for the period - - - - 894 894 ____ _____ ____ ______ ______ ______ Total recognised income for the period - - - - 917 917 ____ ______ ____ ______ ______ ______ Issue of shares - 31 - - - 31 Share based payments - - - - 117 117 Transfer to EBT - - - - (178) (178) Dividends - - - - (2,006) (2,006) ____ _____ ____ ______ ______ ______ - 31 - - (2,067) (2,036) ____ _____ ____ ______ ______ ______ Balance at 30 September 2006 376 5,081 55 1,688 16,544 23,744 Balance at 1 April 2007 378 5,236 55 1,740 20,436 27,845 Currency translation differences - - - - (34) (34) Cash flow hedges - - - - 81 81 ____ ____ ____ ______ ______ ______ Net expense recognised directly in reserves - - - - 47 47 Profit for the period - - - - 1,463 1,463 ____ _____ ____ ______ ______ ______ Total recognised income for the period - - - - 1,510 1,510 ____ _____ ____ ______ ______ ______ Issue of shares - - - - - - Share based payments - - - - 114 114 Deferred tax on share based payments - - - (23) - (23) Shares vested from EBT - - - - 295 295 Dividends - - - - (2,099) (2,099) ____ _____ ____ ______ ______ ______ - - - (23) (1,690) (1,713) ____ _____ ____ ______ ______ ______ Balance at 30 September 2007 378 5,236 55 1,717 20,256 27,642 * Retained earnings includes £698,000 at 30 September 2007 (2006 - £715,000) which is not distributable and relates to a 1986 revaluation of land and buildings. CASH FLOW STATEMENT for the six months ended 30 September 2007 Six months Six months to 30 September to 30 September 2007 2006 (unaudited) (unaudited) £'000 £'000 CASH FLOWS FROM OPERATING ACTIVITIES Cash (utilised in)/generated from operations (2,977) 318 Interest received 1 3 Interest paid (191) (70) Tax paid (1,088) (1,336) _______ _______ Net cash utilised in operating activities (4,255) (1,085) _______ _______ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of trade assets and related costs - (36) Proceeds from sale of property, plant and equipment 5 32 Purchase of property, plant and equipment (1,684) (1,515) _______ _______ Net cash utilised in investing activities (1,679) (1,519) _______ _______ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of ordinary shares - 31 Repayment of loans (16) (52) Finance lease capital payments (11) (37) Dividends paid to Company's shareholders (2,099) (2,006) _______ _______ Net cash utilised in financing activities (2,126) (2,064) _______ _______ Effect of exchange rate movements (152) 140 _______ _______ Net decrease in cash and cash equivalents (8,212) (4,528) Cash and cash equivalents at beginning of the period (627) 746 _______ _______ CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS AT END OF PERIOD (8,839) (3,782) _______ _______ CASH AND CASH EQUIVALENTS CONSIST OF: Cash and cash equivalents 134 621 Bank overdrafts (8,973) (4,403) _______ _______ CASH AND CASH EQUIVALENTS AT END OF PERIOD (8,839) (3,782) _______ _______ The notes form an integral part of this condensed consolidated half-yearly financial information. NOTES TO THE CASH FLOW STATEMENT Cash flows from operating activities Six months Six months to 30 September to 30 September 2007 2006 (unaudited) (unaudited) £'000 £'000 Profit for the financial period 1,463 894 Taxation 1,214 527 Interest payable 191 70 Interest receivable (1) (3) Amortisation of intangible assets 80 50 Depreciation 1,474 944 Loss on disposal of tangible fixed assets 6 - Share based payments 114 117 (Gain)/loss on financial derivatives (67) 51 Increase in provisions 303 125 Increase in inventories (3,701) (2,291) Increase in trade and other receivables (7,145) (2,070) Increase in trade and other payables 3,092 1,904 _______ _______ CASH (UTILISED IN)/GENERATED FROM OPERATIONS (2,977) 318 _______ _______ NOTES TO CONDENSED CONSOLIDATED HALF-YEARLY FINANCIAL REPORT 1. GENERAL INFORMATION The Company is a limited liability company incorporated and domiciled in the UK. The address of the registered office is Westwood, Margate, Kent CT9 4JX. The Company has its primary listing on the London Stock Exchange. This condensed consolidated half-yearly financial information was approved for issue on 8 November 2007. These interim financial results do not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 March 2007 were approved by the Board of Directors on 15 June 2007 and delivered to the Registrar of Companies. The Report of the Auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 237 of the Companies Act 1985. Forward Looking Statements Certain statements in this half-yearly report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of a new information, future events or otherwise. 2. BASIS OF PREPARATION This condensed consolidated half-yearly financial information for the half-year ended 30 September 2007 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 31 March 2007 which have been prepared in accordance with IFRSs as adopted by the European Union. 2006 Restatement The directors are constantly reviewing accounting policies and classification for appropriateness and believe that foreign exchange translation adjustments are more appropriately shown within operating expenses. Foreign exchange losses of £936,000 previously included in cost of sales have been reallocated to operating expenses. 3. ACCOUNTING POLICIES The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 March 2007, as described in those annual financial statements. The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year ending 31 March 2008. • IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006. This interpretation has not had any impact on the recognition of share-based payments in the Group. • IFRIC 9, 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006. This interpretation has not had a significant impact on the reassessment of embedded derivatives as the Group already assessed if embedded derivative should be separated using principles consistent with IFRIC 9. • IFRIC 11, 'IFRS 2 - Group and treasury share transactions', effective for annual periods beginning on or after 1 March 2007. Management do not expect this interpretation to be relevant to the Group. • IFRS 7, 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007. IAS 1, 'Amendments to capital disclosures', effective for annual periods beginning on or after 1 January 2007. As this interim report contains only condensed financial statements, and as there are no material financial instrument related transactions in the period, full IFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, will be given in the annual financial statements. 4. GEOGRAPHICAL SEGMENT INFORMATION Six months Six months to 30 September to 30 September 2007 2006 (unaudited) (unaudited) BY ORIGIN £'000 £'000 REVENUE United Kingdom 17,327 13,149 United States of America 1,226 1,203 Rest of Europe 6,042 3,553 _______ _______ 24,595 17,905 _______ _______ £'000 £'000 OPERATING PROFIT BEFORE TAXATION United Kingdom 2,115 1,234 United States of America 27 31 Rest of Europe 725 223 _______ _______ Total operating profit 2,867 1,488 Interest (190) (67) _______ _______ Profit before taxation 2,677 1,421 _______ _______ £'000 £'000 NET ASSETS United Kingdom 11,055 8,889 United States of America 1,073 1,354 Rest of Europe 15,514 13,501 _______ _______ 27,642 23,744 _______ _______ BY DESTINATION £'000 £'000 REVENUE United Kingdom 14,306 10,963 Rest of the world 10,289 6,942 _______ _______ 24,595 17,905 _______ _______ 5. CAPITAL EXPENDITURE Six months ended 30 September 2007 Tangible and intangible assets (unaudited) £'000 Opening book amount 1 April 2007 18,985 Exchange adjustment 218 Additions 1,603 Disposals (11) Depreciation, amortisation, impairment and other movements (1,554) ______ Closing net book amount 30 September 2007 19,241 ______ The fixed asset additions primarily relate to new product tooling (£1,339,000), plant and equipment (£248,000) and motor vehicles (£16,000). Six months ended 30 September 2006 Tangible and intangible assets (unaudited) £'000 Opening book amount 1 April 2006 15,263 Exchange adjustment (203) Acquisition of subsidiary 169 Additions 1,683 Disposals (32) Depreciation, amortisation, impairment and other movements (961) ______ Closing net book amount 30 September 2006 15,919 ______ 2007 2006 (unaudited) (unaudited) CAPITAL COMMITMENTS £'000 £'000 At 30 September commitments were: Contracted for but not provided for 519 715 _______ _______ The commitments relate to the acquisition of property, plant and equipment. 6. SHARE CAPITAL The Group has 37,840,790 ordinary 1p shares in issue with nominal value £378,408 (2006 - £376,210). No employee share options were exercised during the first half to 30 September 2007 (2006 - 37,500 shares), with exercise proceeds of £nil (2006 - £31,275). The related weighted average price at the time of exercise was 228.2p in 2006. 7. BORROWINGS AND LOANS 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 CURRENT: Bank loans and overdrafts 8,973 4,403 956 Finance lease obligations 44 20 49 ______ ______ ______ 9,017 4,423 1,005 ______ ______ ______ NON-CURRENT: Finance lease obligations 47 92 53 ______ ______ ______ The Group has a £12,000,000 overdraft facility at 30 September 2007 (2006 - £7,000,000) that attracts interest at 1% above Barclays Bank base rate. 8. INCOME TAXATION The tax expense is recognised based on management's last estimate of the weighted average annual tax rate expected for the full financial year. 9. EARNINGS PER SHARE Earnings per share attributable to equity holders of the company arises from continuing and discontinued operations as follows: 30 September 30 September 2007 2006 (unaudited) (unaudited) Earnings per share for profit from continuing operations attributable to the equity of the Company - basic 3.90p 2.38p - diluted 3.76p 2.29p 10. DIVIDENDS A dividend that relates to the year ended to 31 March 2007 and that amounts £2,099,000 was paid in August 2007. 11. CONTINGENT LIABILITIES The Company and its subsidiary undertakings are, from time to time, parties to legal proceedings and claims, which arise in the ordinary course of business. The directors do not anticipate that the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect upon the Group's financial position. 12. RELATED-PARTY TRANSACTIONS Key management compensation amounted to £1,134,000 for the six months to 30 September 2007 (2006 - £1,054,000). 30 September 30 September 2007 2006 (unaudited) (unaudited) £'000 £'000 Salaries and other short-term benefits 967 869 Post-employment benefits 72 66 Share-based payments 95 119 ______ ______ 1,134 1,054 ______ ______ 13. EVENTS OCCURING AFTER THE BALANCE SHEET DATE The Directors propose an interim dividend of 2.7p per ordinary share which is payable on 25 January 2008. 14. SEASONALITY Sales are subject to seasonal fluctuations, with peak demand in the October - December quarter. For the six months ended 30 September 2007 sales represented 52% (2006 - 38%) of the annual sales for the year ended 31 March 2007. STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8. The Directors of Hornby Plc are listed in the Hornby Plc Annual Report for 31 March 2007. A list of current directors is maintained on the Hornby Plc website: www.hornby.com. Frank Martin Chief Executive 8 November 2007 John Watson Stansfield Finance Director 8 November 2007 INDEPENDENT REVIEW REPORT TO HORNBY PLC INTRODUCTION We have been engaged by the Company to review the condensed set of consolidated financial statements in the condensed consolidated half-yearly financial report for the six months ended 30 September 2007 which comprises the income statement, balance sheet, statement of changes in equity, cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements. DIRECTORS' RESPONSIBILITIES The half-yearly financial report is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union. OUR RESPONSIBILITY Our responsibility is to express to the company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency 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. We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2007 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. PRICEWATERHOUSECOOPERS LLP Chartered Accountants Gatwick 8 November 2007 Notes: (a) The maintenance and integrity of the Hornby Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange

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