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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hornby Plc | LSE:HRN | London | Ordinary Share | GB00B01CZ652 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 33.00 | 32.00 | 34.00 | 33.00 | 33.00 | 33.00 | 5,391 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Dolls And Stuffed Toys | 55.11M | -5.92M | -0.0349 | -9.46 | 56.05M |
From Apr 2019 to Apr 2024
TIDMHRN
RNS Number : 7571R
Hornby PLC
19 June 2018
19 June 2018
HORNBY PLC
HORNBY ANNOUNCES ANNUAL RESULTS
Hornby Plc ("Hornby"), the international models and collectibles Group, today announces its results for the year ended 31 March 2018.
Results Highlights
-- Revenue of GBP35.7 million (2017: GBP47.4 million) -- Reported loss before tax GBP10.1 million (2017: GBP9.5 million loss) -- Underlying(1) loss before tax of GBP7.6 million (2017: GBP6.3 million loss) -- Reported loss after tax GBP9.9 million (2017: GBP9.7 million loss)
-- Exceptional items of GBP2.3 million (2017: GBP3.3 million) including costs relating to the restructuring of the business and refinancing in 2017
-- Net cash at 31 March 2018: GBP3.9 million (2017: GBP1.5 million)
(1) Underlying figures are before amortisation of intangibles (brand names and customer lists), and net unrealised foreign exchange movements on intercompany loans and exceptional items
Current Trading
Group Sales for the 10 weeks to 8 June 2018 are lower than we expected. This is due to the ongoing impact of insufficient investment in tooling in the past, coupled with late placing of purchase orders with suppliers. There is also a backlog of stock at our retailers from previous decisions to bring sales forward by discounting, which will take time to work through.
Despite these difficulties, gross margin for the Group for the 10 weeks to 8 June 2018 was 5 percentage points higher compared with the same period last year, reflecting the absence of discounting initiatives since October 2017.
Lyndon Davies, Hornby Chief Executive Officer and Interim Chairman, said:
"In the first seven months that I have been at Hornby, we have assessed our position and confronted the reality of the situation in which we find ourselves. Tough decisions have now been taken and we are currently laying down the foundations for our future success. There is a new energy in the business and I am excited with our plans as we re-engage across both domestic and international markets with these well-loved brands."
For further information contact:
Hornby Plc
Lyndon Davies, Executive Chairman and CEO
Kirstie Gould, CFO
01843 233500
Web: www.hornby.plc.uk
Liberum (Nomad & Broker)
Neil Elliot
Neil Patel
020 3100 2200
Capital Access Group
Scott Fulton
020 3763 3400
Note:
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain. If you have any queries on this, then please contact Lyndon Davies, CEO of the Company (responsible for arranging release of this announcement) on 01843 233 500.
Strategic Report
Executive Chairman's Report
As I write this message to you I have been a Hornby employee for seven months, but I have both worked for and adjacent to the brands you own for 40 years. I started on the production line at the old Corgi factory in Wales when I was 16 and have been in the industry ever since.
I do not wish to dwell on the mistakes of the past, but please do not think I take them lightly. I have drawn on all my experience in assessing Hornby's current position and formulating my views on the future direction. I have a great deal of passion for these iconic brands and it has pained me to see them fall from grace. You, as shareholders, have had to bear the brunt of it, and so I do not feel the need to reopen those wounds you know so well.
My team and I are fully committed to developing a sustainable business that builds on our heritage. My job is to look forward and deliver the results for you. This report is an opportunity for me to give you an honest and humble account of our progress. We need to return this Group to profitability and I need to explain how we intend to do it.
The first step is understanding. The next step is fixing the basic issues once they are understood. The final step is to get us back to profitability with a logical and measured strategy that does not imperil the balance sheet. In doing these things we will build long term shareholder value in a sustainable way. Some of our brands have lasted for more than 100 years and it is my view that they should thrive for at least 100 more.
The Business Model
What we do is simple, but not easy. We have an office in Sandwich where most of our hard-working staff come to work every day. We also have a logistics hub approximately ten miles away in Hersden which most of our product will pass through on the way to both retailers and sometimes directly to customers via our own website. Before Sandwich and Hersden, we had all our operations (including manufacturing many years ago) in Margate, but we have now sold this building and retain only the Hornby visitor centre where we showcase the wonderful heritage of our brands.
Over the years we have acquired a diverse portfolio of market leading international brands. These brands are supported by similarly hard-working staff at offices in Italy, France, Spain and Germany. Further afield, we have a warehouse and office in Washington, USA.
We aspire to design high quality models and accessories for the toy and hobby markets which are not necessarily low-priced but provide great value for money. Most of the research and development for our product occurs in the UK, but the manufacturing is predominantly executed in China and India, in conjunction with the engineers and support staff at our satellite office in Hong Kong.
The design and delivery cycles of our products are quite long, sometimes up to two or three years between inception and delivery to the UK. Our customers tend to be quite particular about what they want and so it takes time to make sure that they will be acceptable to them.
The challenge is then to make sure we market our products in such a way as to make them desirable. It is also important to choose the correct retail partners and communication channels that help us cultivate a loyal following of collectors and fans from all age ranges.
Knowing the right products to produce and how many of each product to order requires an in-depth knowledge of the individual brands, the history, the competitive landscape and the various customer bases. We have to order all the products up front and wait for them to arrive to truly see how they sell through. We must take risks in this process and there is an element of uncertainty. Managing the cash flows through this cycle of investment is an extremely important part of the process of protecting and enhancing shareholder value.
If we order too much of an item that nobody wants, we tie cash up in inventory which means we don't have the cash available to deploy into new and exciting models for the following year. If we order too little, then we don't maximise the profitability and therefore shareholder value. It requires great coordination and deep expertise across engineering, development, marketing and sales to make sure this engine ticks over smoothly.
This challenge is made even more difficult by the seasonal element to our business. We are lucky enough to have customers that see our products as worthy of a gift to a friend or family member over the Christmas period. The final three months of the calendar year tend to be very busy for us from a sales perspective and so we have to coordinate the investment in inventory so that it can satisfy this peak in demand.
This cycle of development, manufacturing, marketing and distribution is our business engine. We have some wonderful talent in the Group but the engine as a whole doesn't perform optimally. Based on my in-depth knowledge of this industry and following an initial review, many trips to trade shows, retailers, suppliers, manufacturers and other important partners all over the world, I have now developed the understanding and have taken the first steps towards fixing the engine.
The Strategy
Over the last few years our competitors have gained strength in the marketplace. They are stronger and smarter than ever, and we must give ourselves every opportunity to compete successfully with them. In this situation, it is important that our competitors (who I am more than aware read our reports in detail) are not able to pick out, copy and better the moves we make to delight our customers. As a result, I will look to discuss some of the steps we have already taken to fix the engine here, instead of plotting out the battle plan for our competition to follow.
1. Discounting
From the description of the business model above, hopefully you can see how a business like ours can run into cash flow problems. If we have debt repayments to make and we order too much stock, then the cash that is tied up in the slow selling stock can create a liquidity problem. This can sometimes force us to hastily liquidate stock at a discount to pay the bills.
Discounting is a very difficult thing to do without materially affecting the perception of a brand or product. Many brand owners, not just in the toy and hobby sector, have fallen victim to choosing discounting to pay bills or to chase arbitrary sales targets, instead of thinking more about the longer-term impact on the brand.
Let us take the collector segment of our customers as an example to illustrate this. If a collector eagerly awaits the launch of the latest locomotive and snaps it up at full price on release day, the likely reason he or she will do this is because they anticipate it will be a desirable item to have, will sell out and will become a store of value over the long term as collectors fight over the few hundred that remain in circulation. If this collector then sees the item on sale for half price a few months after release, not only do they become disillusioned because the scarcity value and desirability seems to not be there, but also, they probably won't buy other products from that brand at the time of release again and will just wait for the inevitable discounts. If you keep following this discounting strategy, you will become more and more reliant on lower and lower prices after every round. You end up never selling anything at the prices you assumed when you made tooling investment and the economics of the business are impaired because the trust is gone in the brand. If you destroy the trust in the brand and collectors no longer see the products as a store of value, they will switch to a collectible that does satisfy their desire.
The discounting has also impacted the trust our retailers have in us too. If you take our independent retailers who generally do a great job of cultivating the hobby on our behalf, these are small businesses who have to choose their stock carefully because they have limited balance sheets to fund it. If we sell them a box of Airfix Sea Harriers at full wholesale price and then sell them at half price on a website, these retailers will not be able to compete on price without taking a loss on the item. The best they can do is sit on the stock until we have sold out. It makes life very difficult for them and it certainly makes them think about wanting to buy items at full price from us. It has pushed some of them to buy from competitors instead.
In both anecdotes, the sales figure the Group would report to you would be higher than otherwise, but the value of the brands over the long term would have reduced. Discounting is a strategy that wins sales in the short term, but history would suggest that the extra sales today does not compensate for the long-term loss of trust in the brands.
The first thing we have done is remove the discounting, which has had the effect of initially reducing sales. The strategy has been welcomed by our retail partners and customers, but this is just the beginning. We are only at the start of the long process of rebuilding trust.
In order to do this, we needed to remove the financial straight jacket. We have worked with our lenders and shareholders over the last six months to restructure the balance sheet and have started the new financial year with a structure that will allow us to hold the line. We will be able to sell our carefully curated and desirable models/accessories at the price that optimises the brand values over the long term and cultivates trust with our customers and retail partners.
2. Supply Chain
We are working to improve the infrastructure in our overseas supply chain to make it function more efficiently. We must guarantee that we get the right amount of product to the market at the right time and at the right cost. When this works efficiently we will greatly improve our sales performance.
We have a lack of new product arriving in the UK and therefore can't meet the demand. This is because of two main reasons:
- Order quantities were very low per item because of cash constraints and a lack of understanding about which designs would sell better than others.
- Not only were orders placed late, but the vitally important technical specifications were also supplied late to our manufacturers.
Manufacturers are like sharks - they survive and thrive by moving at pace. We must keep them busy. If we don't they will look elsewhere for orders, which is what they did, further delaying production of our products.
After the delays in submitting orders and specifications last year, the situation was similar to trying to book a table at a restaurant at the last minute. As you might expect, most of the restaurants were unavailable, so we desperately rang around and booked the best available table we could find.
We then arrived late with less people in the party than we'd promised, we didn't order all of the meals, forgot to tell the kitchen how we wanted our steaks cooked, changed our mind on the side dishes and then complained when we found the restaurant was closing and there was no time for a dessert.
The solution here is to pull forward the planning deadlines by six months and choose the right manufacturing partners for the long run. Considering the complexity of our design and ordering cycles it will take time, but the aim is for the new schedule to be fully operational and firing on all cylinders for the financial year ending 31 March 2020.
3. Knowledge & Experience
The skills required to produce the correct products in the right quantities needs decades of knowledge and experience of what the business has done before, what competitors have done before, what has worked, what hasn't worked and the understanding of why in all these scenarios.
We don't sell toothpaste. Our customers don't return once every couple of weeks for a new tube without thinking about it. It is difficult to generalise because the customer base for each brand is unique, but on the whole we have discerning customers who require only very specific models for their layouts, collections, gifts or playrooms. If a product sells well in a particular year, it doesn't necessarily mean the same one will sell well the next year. We are on a constant treadmill of innovation and this needs highly specialised and in-depth knowledge and experience for each of the brands.
Initially, I brought Simon Kohler and Tim Mulhall with me to help manage this turnaround. Simon alone spent 35 years with the Group during Hornby's most profitable years, before parting ways under a previous regime. Tim has a wealth of experience in this industry, bringing in knowledge of the international markets. All three of us together have over 100 years of directly applicable experience. This was a good start, but I realised we needed more. In 2018, we will take on more people who combined will add another 100 years of experience. These roles span all the major functions including sales, marketing, purchasing and operations.
This concerted effort to fill the Group with people who have decades of directly applicable experience to our rather esoteric markets is not limited to outside hires (or re-hires). Allowing the right internal talent to rise up and giving them a voice has started to yield great results too. Several existing employees with years of experience have been returned to their positions that they held during our most successful years.
We are assembling a team of experts who understand the customers and the markets in which each of the brands operate. We also have many stars moving through the ranks who now feel empowered to get on with rebuilding these brands and learn from the more experienced members. It's still only day one and we are rebuilding the foundations, but the early impact on morale and motivation is encouraging.
4. Costs
As I mentioned above, we have good visibility into the costs that we will need to incur to operate throughout the year. The challenge is to make enough gross profit to cover our operating costs and have some net profit left over for shareholders and/or future investment. In the simplest terms; there are two levers we can pull. We can sell more, and we can reduce our costs.
As it currently stands, we need to sell more product if we are to cover our costs. We have reset the business to a more sustainable level of sales without discounting. This has been painful in the short term from a profitability perspective, however, it is the right thing to do to ensure the business has a future. We aim to rebuild sales as the trust returns to our brands, but we are also working tirelessly to do more while spending less.
In the last announcement, we told you of the ongoing operational expenditure we had saved. We have found additional savings since the January update, and these savings are being found while improving service levels and product delivery schedules. We are instilling a culture of frugality which means we are doing more with less. This will be a key part of getting us back to profitability.
Outlook
As I said above, we don't want to give too much away to our competitors, but I can tell you that the changes to the strategy and the way we deal with our customers, suppliers, retailers and manufacturing partners has already yielded many opportunities to save cost, sell more and increase gross margins.
Dominant national retailers who were only a distant memory to the business have proactively re-engaged now the discounting has stopped. Licensors of important trademarks are engaging with us again and wanting to broaden ranges and partnerships. Previously lost talent is coming back to the Group and morale is starting to improve in our staff who will be the real champions of this turnaround.
Whilst there are green shoots starting to appear for the future, at the time of writing this, we have only been in place for seven months. The long design cycles mean that we have a largely inherited line plan for products being delivered this year. Nonetheless, we are at work doing the best with what we have as we seek to return the Group to profitability.
On behalf of the Board
Lyndon Davies
18 June 2018
Operating and Financial Review of the Year
Financial Review
Hot Features
Premium
2018 2017
--------------------------------- ---------- ---------
Revenue GBP35.7m GBP47.4m
Gross profit GBP13.8m GBP18.2m
Gross profit margin 39% 38%
Overheads GBP21.3m GBP24.0m
Exceptionals GBP2.3m GBP3.3m
Reported loss before tax GBP(10.1)m GBP(9.5)m
Underlying loss before tax* GBP(7.6)m GBP(6.3)m
Reported loss after tax GBP(9.9)m GBP(9.7)m
Basic loss per share (10.13)p (12.65)p
Underlying basic loss per share* (8.05)p (9.26)p
Net cash GBP3.9m GBP1.5m
Undrawn Facilities GBP6.0m GBP7.7m
* Stated before amortisation of intangibles (brands and customer lists), net unrealised foreign exchange movements on intercompany loans, goodwill impairments and exceptional items.
Performance on a statutory basis
Consolidated revenue for the year ended 31 March 2018 was GBP35.7million, a decrease of 25% compared to the previous year's GBP47.4 million as the previous management team's strategy of reducing stock lines and closing European operations took full effect. This strategy was reviewed in October 2017 and moves are underway to reverse these previous decisions. Gross profit margin was slightly higher, at 39% (2017: 38%) due to cessation of stock discounting post October 2017.
Overheads reduced year-on-year by 11% from GBP24.0 million to GBP21.3 million as a result of measures taken post October 2017 when the senior management and the Board were restructured. UK distribution costs reduced due to the smaller volume of products being handled through Hersden due to reduction in sales volume. Sales and marketing costs reduced by GBP2.6 million year-on-year due to the transfer of all trading from European subsidiaries to the UK enabling the reduction of sales and marketing spend in each continental European location. The exit from concessions reduced concession commissions. Administration costs were GBP0.3 million higher, largely due to increased depreciation on the writing down of B2B and B2C website investments as we create websites more suited to our customers' needs. Other operating expenses in the year of GBP0.4 million (2017: GBP0.4 million income) include foreign exchange costs and the amortisation of certain intangible assets (brand names and customer lists).
Exceptional costs totalling GBP2.3 million (2017: GBP3.3 million) and include GBP1.8 million relating to the restructuring of the UK business and Board changes, costs associated with the EGM ("Extraordinary General Meeting") and mandatory offer of GBP0.4million and costs relating to the 2017 equity issue and bank refinancing (GBP0.1 million).
Performance on an underlying basis
The underlying loss before taxation is shown to present a clearer view of the trading performance of the business. Management identified the following non-trivial items, whose inclusion in performance distorts underlying trading performance: net foreign exchange (gains)/losses on intercompany loans which are dependent on exchange rate fluctuations and can be volatile, and the amortisation of intangibles which result from historical acquisitions. Additionally, exceptional items including restructuring costs are one off items and therefore have also been added back in calculating underlying loss before taxation.
Group
==================
2018 2017
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Statutory Loss before taxation (10,066) (9,509)
-------------------------------------------------------- -------- --------
Net foreign exchange impact on intercompany loans (114) (410)
-------------------------------------------------------- -------- --------
Amortisation of intangibles - brands and customer lists 314 344
-------------------------------------------------------- -------- --------
Exceptional items:
-------------------------------------------------------- -------- --------
Restructuring costs 1,823 3,889
-------------------------------------------------------- -------- --------
EGM and Mandatory offer 399 -
-------------------------------------------------------- -------- --------
Refinancing costs 70 944
-------------------------------------------------------- -------- --------
Profit on disposal of property - (1,530)
-------------------------------------------------------- -------- --------
Underlying loss before taxation (7,574) (6,272)
-------------------------------------------------------- -------- --------
The underlying loss before taxation above was GBP7.6 million (2017: loss of GBP6.3 million).
The basic loss per share calculated on underlying loss before taxation (hereafter referred to as underlying basic loss per share) was (8.05)p (2017: (9.26)p).
The income tax credit for the year is GBP0.2 million (2017: GBP0.2 million charge).
Reported pre-tax loss was GBP10.1 million (2017: loss of GBP9.5 million) and reported basic loss per share was (10.13)p (2017: (12.65)p loss per share).
Segmental analysis
Third party sales by the UK business of GBP28.5 million fell by 24% in the year as a result of reduced investment in tooling and uncertainty in the customer base regarding discounting. The loss before taxation of GBP9.0 million compared to GBP11.8 million loss last year reflects the continued reduction in overheads during the latter part of the year.
Sales by the European businesses of GBP4.7m fell by 24% in the year reflecting the year's reduced product range and previous lack of investment in new product for the European market. The loss before tax was GBP0.6 million.
Sales in the US business of GBP2.5 million reduced by 30% on translation and by 20% on a constant currency basis. The trading loss of GBP0.5 million in the US was a result of lack of investment at group level in product suitable for the US market.
Statement of Financial Position
Property plant and equipment decreased year-on-year to GBP4.5 million from GBP5.7 million as depreciation of GBP2.8 million outweighed capital additions of GBP1.6 million. Group inventories increased slightly during the year due to the cessation of discounting as part of the New Business Plan from GBP9.7 million to GBP10.0 million. Trade and other receivables reduced by 36% due to reduced sales and improved sales ledger management. Trade and other payables reduced by GBP2.4 million largely due to the reduced size of the business. The net effect of these factors was a reduction in working capital of GBP1.0 million (a reduction of 38%). Overall investment in new tooling, new intangible computer software and other capital expenditure was GBP1.8 million (2017: GBP2.0 million).
Dividend
The Group has begun its New Business Plan under the new management team led by Lyndon Davis and so the decision has again been taken not to pay a dividend (2017: GBPnil). The Board continues to keep the dividend policy under review.
Financing and capital structure
A Placing and Open Offer of 40,677,968 new Ordinary Shares at a price of 29.5 pence each, raising GBP11.5 million net of costs, was completed on 7 December 2017 with the funds being used to allow the business to pay down debt at that point in time of GBP7.4 million, acquire 49% of LCD Enterprises Limited for GBP1.6 million and invest in the New Business Plan.
Borrowings in the year ended 31 March 2018 peaked towards the end of 2017 under the previous Barclays bank facility at GBP7.4 million. Since December 2017 the Company has operated without needing to utilise its new Barclays bank facility which has a limit of GBP6 million.
Net cash at 31 March 2018 was GBP3.9 million compared with net cash of GBP1.5 million at 31 March 2017 giving undrawn facilities and available cash of GBP9.9 million at 31 March 2018.
Post the year end the Group has moved its financing requirements away from Barclays. On 5 June 2018 the Group entered an Asset Based Lending ("ABL") facility of up-to GBP12.0m with PNC Credit Limited through to June 2023. The PNC Covenants are customary operational and financial covenants applied on a monthly basis. In addition, the Group entered a committed GBP6.0 million loan facility with The Phoenix UK Fund (the Group's largest shareholder) if it should be required, which is a three year rolling facility.
Our Key Performance Indicators ('KPIs')
The Directors are of the opinion that the financial KPIs are revenues, gross margins, underlying (loss)/profit before tax and (loss)/earnings per share. the information for which is available in these financial statements and summarised on the financial highlights section earlier in this report. The Board monitors progress against plan on a regular basis adjusting future objectives annually in line with current circumstances.
Identification of principal risks and uncertainties
The Board has the primary responsibility for identifying the major risks facing the Group and developing appropriate policies to manage those risks. The Board completes an annual risk assessment programme in order to identify the major risks and has reviewed and determined any mitigating actions required as set out below. The risk assessment has been completed in the context of the overall strategic objectives and the New Business Plan of the Group.
Principal risks and uncertainties
Risk Description Impact/Sensitivity Mitigation/Comment
================== ============================ ============================ =================================
Market competition The Group has competition The Group performance In many of our markets
in the model railway, is impacted by the the Group still enjoys
slot racing, model actions of competitors a strong market position
kits, die cast and and changes in the due to the continued development
paint markets. Failure wider retail landscape. of our brands. We will
to recruit new customers, strive to further improve
loss of market share the strength of our brands.
to increased competitor Production of high-quality
activity or alternative products which customers
hobbies would have want is a key mitigating
a negative impact factor.
on the Group's results.
Failure to evolve
and innovate products
may lead to brands
becoming less relevant
in the marketplace.
================== ============================ ============================ =================================
The New The New Business The increase in business The Group has developed
Business Plan may not fully scale and reduction clear targets and has
Plan achieve the aims of costs and the cost saving contingencies
of returning the re-conversion of in the plan being actioned
Group to positive concession sales to put the necessary resources
cash generation in currently anticipated in place to deliver the
2020/21. is not achieved and aims of the plan.
the Group does not
achieve sustainable
profit and cash generation.
================== ============================ ============================ =================================
Hobby market Overall decline in Failing interest In many of our markets
the hobby market in traditional hobbies the Group enjoys a strong
could lead to greater may impact our core market position due to
levels of competition Independent and National the continued development
in the medium term, retailers and have of our brands. Brands
which could have a consequent impact are extremely important
a negative impact upon the Group's in the model sector with
on the Group's results. performance. market entry costs being
prohibitive. In the short-term
there is an opportunity
to regain market share
lost through previous
underperformance
================== ============================ ============================ =================================
Exchange The Group purchases Significant fluctuations The Group continues to
rates goods in US Dollars in exchange rates hedge short-term exposures
and sells in Pounds to which the Group by establishing forward
Sterling, Euros and is exposed could currency purchases using
US Dollars and is have a material adverse fixed rate and participating
therefore exposed effect on the Group's forward contracts up to
to exchange rate future results. In twelve months ahead. It
fluctuations. particular the negative is deemed impractical
impact on sterling to hedge exchange rate
of Brexit and the movements beyond that
continuing uncertainties period.
will make the US
dollar purchase of
its goods more expensive.
------------------ ---------------------------- ---------------------------- ---------------------------------
Supply chain The Group's products The Group does not The Group is continuing
are manufactured have exclusive arrangements to develop and review
by specialist labour with its suppliers its vendor portfolio.
in China and India. and there is a risk A 26 step critical path
that competition analysis tool has been
for manufacturing developed to monitor the
capacity could lead whole manufacturing process
to delays in introducing in order to identify and
new products or servicing deal with issues as they
existing demand. arise. The Group has its
own facilities in China
where its tooling is secured
and managed
================== ============================ ============================ =================================
Capital New tooling is important The risk is that The new business plan
allocation to support the production Group has insufficient includes significant capital
of new products. capital to fund new expenditure to fund suitable
tooling or invests products to underpin the
ineffectively in implementation of the
the wrong products. New Business plan strategy
of the Group. This process
will be underpinned by
a robust capital allocation
process aligned to brand
strategies and brand delivery
targets
================== ============================ ============================ =================================
Product The Group's products Failure to comply Robust internal processes
compliance are subject to compliance could lead to a product and procedures, active
with toy safety legislation recall resulting monitoring of proposed
around the world. in damage to Company legislation and involvement
and brand reputation in policy debate and lobbying
along with an adverse of the relevant authorities.
impact on the Group's
results.
================== ============================ ============================ =================================
Liquidity Insufficient financing Without the appropriate The Group has a GBP12.0
to meet the needs level of financing million ABL facility and
of the business. it would be increasingly a GBP6.0m revolving loan
difficult to execute facility with Phoenix
the Group's business Asset Management Partners.
plans. The Group's policy on
liquidity risk is to maintain
adequate facilities to
meet the future needs
of the business.
================== ============================ ============================ =================================
System and The Group continues This exposes the The Group has invested
cyber risk to invest in the business to greater significant time and cost
development of its risk of financial in the new website and
website and implemented loss, disruption ERP system in the last
a new ERP system or damage to the three years. The Group
in 2015. reputation of an has dedicated web and
organisation from ERP teams to monitor and
a failure of its maintain the Group's systems
information technology and holds appropriate
systems. insurance policies to
minimise material risk.
================== ============================ ============================ =================================
Talent and Recruitment, development The Group fails to New Management team to
skills and retention of retain the necessary encourage and empower
talented people are skills and talent employees. Key lost talent
the key to the success to deliver the Group's has been reacquired and
of any business. plans. brought back into the
company.
================== ============================ ============================ =================================
Main control procedures
Management establishes control policies and procedures in response to each of the key risks identified. Control procedures operate to ensure the integrity of the Group's financial statements and are designed to meet the Group's requirements and both financial and operational risks identified in each area of the business. Control procedures are documented where appropriate and reviewed by management and the Board on an ongoing basis to ensure control weaknesses are mitigated.
The Group operates a comprehensive annual planning and budgeting system. The annual plans and budgets are approved by the Board. The Board reviews the management accounts at its monthly meetings and financial forecasts are updated monthly and quarterly. Performance against budget is monitored and where any significant deviations are identified appropriate action is taken.
Kirstie Gould
Chief Finance Officer
18 June 2018
Directors and Corporate Information
Directors
Lyndon Davies
Executive Chairman and Chief Executive
Kirstie Gould
Chief Finance Officer
James Wilson
Non-Executive Director
Martin George
Non-Executive Director
John Stansfield
Non-Executive Director
Company Secretary
Kirstie Gould
The full details of all directors who served in the year ended 31 March 2018 can be found below.
Registered office
3rd Floor The Gateway
Innovation Way
Discovery Park
Sandwich
Kent CT13 9FF
Company Registered Number
Registered in England Number: 01547390
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
The Portland Building
25 High Street
Crawley
West Sussex RH10 1BG
Solicitors
Taylor Wessing LLP
5 New Street Square
London EC4A 3TW
Principal Bankers
Barclays Bank PLC
9 St George's Street
Canterbury
Kent CT1 2JX
Financial Advisers and Brokers
Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Registrars and Transfer Agents
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Directors' Report
The Directors present their Annual Report together with the audited consolidated and Company financial statements for the year ended 31 March 2018.
The Group's business review along with future developments and the principal risks and uncertainties facing the Group are included in the Strategic Report.
Principal activities
The Company is a holding company, limited by shares, registered (and domiciled) in England Reg. No. 01547390 with a Spanish branch and has six operating subsidiaries: Hornby Hobbies Limited in the United Kingdom with a branch in Hong Kong, Hornby America Inc. in the US, Hornby Espana S.A. in Spain, Hornby Italia s.r.l in Italy, Hornby France S.A.S in France and Hornby Deutschland GmbH in Germany. Hornby PLC is a public limited company which is listed on the Alternative Investment Market ("AIM"),and incorporated and operating in the United Kingdom.
The Group is principally engaged in the development, design, sourcing and distribution of hobby and interactive products.
Results and dividends
The results for the year ended 31 March 2018 are set out in the Group Statement of Comprehensive Income. Revenue for the year was GBP35.7 million compared to GBP47.4 million last year. The loss for the year attributable to equity holders amounted to GBP9.9 million (2017: GBP9.7 million loss). The position of the Group and Company is set out in the Group and Company Statements of Financial Position. Future developments are set out within the Executive Chairman report.
No interim dividend was declared in the year (2017: GBPnil) and the Directors do not recommend a final dividend (2017: GBPnil).
EVENTS AFTER THE OF THE REPORTING PERIOD
On 5 June 2018 the Group entered into a GBP12 million Asset Based Lending Agreement with PNC Credit Limited for 5 years ending June 2023. In addition, Phoenix Asset Management Partners Limited, the majority shareholder, has provided an additional GBP6 million of loan to further fund the turnaround as part of the New Business Plan. Further details are given in Note 30.
GOING CONCERN
On 5 June 2018 the Group entered a GBP12.0 million Asset Based Lending (ABL) facility with PNC Credit Limited through to June 2023. The PNC Covenants are customary operational and financial covenants applied on a monthly basis. In addition, the Group entered a committed GBP6.0 million loan facility with Phoenix Asset Management Partners Limited (the Group's largest shareholder) if it should be required which is a three year rolling facility.
The Group has prepared trading, and cash flow forecasts for a period of three years, which have been reviewed and approved by the Board. On the basis of these forecasts, the facilities with PNC and Phoenix and after a detailed review of trading, financial position and cash flow models, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
Research and development
The Board considers that research and development into products continues to play an important role in the Group's success. R&D costs of GBP1.0 million (see note 4) incurred in the year have been charged to the Statement of Comprehensive Income as these costs of all relate to research costs.
Directors AND SHAREHOLDERS
During 2017 there was much change at the Group. The initial catalyst was an approach by the second largest shareholder, ROY Nominees Limited, to call a general meeting for the purposes of considering ordinary resolutions to remove Roger Canham from office as a director of the Company and to appoint a ROY Nominees representative as a director.
Irrevocable commitments were received from more than 50% of shareholders to vote against the resolution, and so the meeting was adjourned, and Roger Canham remained as a director.
Following the publication of the Group's final results in June 2017, it was announced that the funds controlled by Phoenix Asset Management Partners (The Concert Party) had acquired a further 20% of the shares outstanding from ROY Nominees Limited. The City Code on Takeovers and Mergers rules required The Concert Party to submit a formal bid for the rest of the shares outstanding, and as a member of the Phoenix Concert Party, Roger Canham decided to step down from the Board.
The Hornby Board considered the offer and deemed it to undervalue the prospects of the Group. The Board recommended that shareholders reject the offer.
In July, the offer closed and the final level of acceptances elevated the Phoenix stake to 71.5% of the shares outstanding. Shortly after the offer closed, the Board appointed James Wilson, a partner at Phoenix Asset Management Partners, as a non-executive director.
In September it was mutually agreed that Steve Cooke would step down as CEO. Shortly after this it was announced that Lyndon Davies, a highly experienced model and hobby professional would join the Group as CEO. Lyndon also brought with him Simon Kohler and Tim Mulhall as operational consultants. Simon Kohler is a highly-respected industry veteran in the model and hobby industry, having spent 35 years with Hornby and Tim Mulhall specialises in building routes to market and strategic sales development. Lyndon, Simon and Tim combined have over 100 years of experience in the industry.
In the interim results announcement in November, the Board outlined a disappointing performance in the first half, a new strategy to maximise the value of the brands and a capital raise to address both the underperformance and provide funds for additional investment.
The Board also announced the acquisition of a 49% stake in LCD Enterprises, the parent company of the Oxford Diecast model and hobby brand. Lyndon Davies, the current Group CEO, is the ultimate owner of LCD Enterprises.
The placing and open offer announced with the interim results was concluded and the Phoenix stake increased to 74.66% of the shares outstanding of the Group.
Towards the end of the year, there were further Board changes. At December 31, David Adams (Interim Chairman) and David Mulligan (CFO), stepped down.
Kirstie Gould replaced David Mulligan as CFO. Kirstie has spent over 2 years with Hornby and has stepped up from her previous role as a consultant in the finance department. Kirstie qualified as a chartered accountant with PricewaterhouseCoopers LLP in 1997 and since then has held senior management and directorship roles across a number of high growth SME firms.
John Stansfield also joined the Board as a non-executive director. John is a qualified accountant and previously spent 31 years with the Group, completing 12 years as Group Finance Director.
Lyndon Davies, the CEO of the Group, became Interim Executive Chairman and CEO until the search for an Independent Non-Executive Chairman is completed.
The potential conflict with Lyndon Davies being CEO (and Interim Chairman) or Hornby PLC and majority shareholder of LCD Limited is mitigated by the fact that the Board is comprised of 4 other directors and the Company is ultimately controlled by the major shareholder, Phoenix Asset Management Partners Limited. The Board intends to introduce a list of matters which require consideration of the Board to ensure conflicts of interest, if any can be managed.
The directors who served during the year up to the date of signing the financial statements were:
L Davies (Appointed 5 October 2017) K Gould (Appointed 4 January 2018) J Wilson (Appointed 1 August 2017) J Stansfield (Appointed 4 January 2018) S Cooke (Resigned 3 October 2017) D Mulligan (Resigned 31 December 2017) M George (Appointed 22 December 2016) R Canham (Resigned 21 June 2017) D Adams (Resigned 31 December 2017)
Directors' indemnities
The Company maintained liability insurance for its Directors and officers during the financial year and up to the date of approval of the Annual Report and Accounts. The Company has also provided an indemnity for its Directors and the secretary, which is a qualifying third party indemnity provision for the purposes of the Companies Act 2006.
Substantial shareholdings
The Company has been notified that at close of business on 12 June 2018 the following parties were interested in 3% or more of the Company's ordinary share capital.
Number
of ordinary Percentage
Shareholder shares held
============================== ------------ ----------
Phoenix Asset Management 93,524,498 74.66
------------------------------ ------------ ----------
Artemis Fund Managers Limited 18,242,460 14.56
------------------------------ ------------ ----------
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.
Each of the directors, whose names and functions are listed in Annual Report and Accounts 2018 confirm that, to the best of their knowledge:
-- the Group and Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the group and loss of the company; and
-- the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.
In the case of each director in office at the date the Directors' Report is approved:
-- so far as the director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and
-- they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.
Financial instruments
The Group's financial instruments, other than derivatives, comprise borrowings, cash and liquid resources, and various items, such as trade receivables, trade payables, etc. that arise directly from its operations. The Group's financial liabilities comprise borrowings, trade payables, other payables and finance leases. The main purpose of the Group's borrowings is to provide finance for the Group's operations. The Group has financial assets comprising cash and trade and other receivables.
The Group also enters into derivatives transactions (principally forward foreign currency contracts). The purpose of such transactions is to manage the currency risks arising from the Group's operations. It is, and has been throughout the period under review, the Group's policy that no speculative trading in financial instruments shall be undertaken.
FINANCIAL RISK MANAGEMENT
The financial risk is managed by the Group and more information on this can be found within the Notes to the financial statements.
Personnel policies
Hornby is committed to eliminating discrimination and encouraging diversity amongst our workforce. Our aim is that our workforce will be truly representative of all sections of society and each employee feels respected and able to give of their best.
To that end the purpose of personnel policies are to provide equality and fairness for all in our employment and not to discriminate on grounds of gender, marital status, race, ethnic origin, colour, nationality, national origin, disability, sexual orientation, religion or age. We oppose all forms of unlawful and unfair discrimination.
All employees, whether part time, full time or temporary, are treated fairly and with respect. Selection for employment, promotion, training or any other benefit is on the basis of aptitude and ability. All employees are helped and encouraged to develop their full potential and the talents and resources of the workforce are fully utilised to maximise the efficiency of the organisation.
Our commitments are:
-- To create an environment in which individual differences and the contributions of all our staff are recognised and valued;
-- Every employee is entitled to a working environment that promotes dignity and respect to all. No form of intimidation, bullying or harassment is tolerated;
-- Training, development and progression opportunities are available to all staff; -- Equality in the workplace is good management practice and makes sound business sense; -- To regularly review all our employment practices and procedures to ensure fairness;
-- Breaches of our equality policy are regarded as misconduct and may lead to disciplinary proceedings; and
-- These policies will be monitored and reviewed on a regular basis.
The Group places importance on the contributions made by all employees to the progress of the Group and aims to keep them informed via formal and informal meetings.
Share capital
The share capital of the Company comprises ordinary shares of 1p each. Each share carries the right to one vote at general meetings of the Company. The issued share capital of the Company, together with movements in the Company's issued share capital is shown in note 21.
Independent auditors
A resolution to reappoint the auditors, PricewaterhouseCoopers LLP, will be proposed at the forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting is to be scheduled for late September 2018. A notice of the Annual General Meeting will be sent out to shareholders separately to this Annual Report and Accounts.
DIRECTORS' REMUNERATION
Executive Directors' base salaries are reviewed annually by the Remuneration Committee taking into account the responsibilities, skills and experience of each individual, pay and employment conditions within the Company and salary levels within listed companies of a similar size.
The following table summarises the total salary and pension contributions received by Directors for 2017-18 and 2016-17 in line with the Companies Act 2006 requirement:
AUDITED Year ended 31 March Year ended 31 March 2017
2018
Basic Pension Total Basic Pension Bonus Total
salary, contributions salary salary, contributions GBP'000 salary
allowances GBP'000 and pension allowances GBP'000 and pension
and fees contributions and fees contributions
GBP'000 GBP'000 GBP'000 GBP'000
------------- --------------- -------------- ----------- -------------- -------- --------------
L Davies (Appointed 5
October 2017) 100 - 100 - - - -
============= =============== ============== =========== ============== ======== ==============
K Gould (Appointed 4
January
2018) 34 6 40 - - - -
============= =============== ============== =========== ============== ======== ==============
J Wilson (Appointed 1 - - - - - - -
August 2017)
============= =============== ============== =========== ============== ======== ==============
J Stansfield
(Appointed
4 January 2018) 9 - 9 - - - -
============= =============== ============== =========== ============== ======== ==============
S Cooke(1,4) (Resigned
3 October 2017) 365(1) 38 403(4) 283 51 148 482
============= =============== ============== =========== ============== ======== ==============
D Mulligan(2)
(Resigned
31 December 2017) 218(2) 26 244 184 18 65 267
============= =============== ============== =========== ============== ======== ==============
M George (Appointed 22
December 2016) 49 - 49 11 - - 11
============= =============== ============== =========== ============== ======== ==============
R Canham(3) (Resigned
21 June 2017) 25(3) - 25 100 - - 100
============= =============== ============== =========== ============== ======== ==============
D Adams (Resigned 31
December
2017) 49 - 49 40 - - 40
============= =============== ============== =========== ============== ======== ==============
C Caminada (Resigned
22
December 2016) - - - 106 - - 106
------------- --------------- -------------- ----------- -------------- -------- --------------
Total 849 70 919 724 69 213 1,006
------------- --------------- -------------- ----------- -------------- -------- --------------
(1) - excluded from within this amount is compensation for
loss of office totalling GBP155,652
(2) - excluded from this amount is compensation for loss of
office totalling GBP174,697
(3) - excluded from this amount is compensation for loss of
office totalling GBP25,000
(4) - highest paid director
Performance Share Plan awards outstanding (Audited)
At 31 March 2018, outstanding awards to Directors under the Performance Share Plan were as follows:
Market At Awarded Lapsed Vested At
Vesting price at 1 April during during during 31 March
Director Award date date Award date 2017 year year year 2018
----------- ----------- --------- ----------- --------- ------- --------- ------- ---------
S Cooke Aug 2015 Aug 2018 105.0p 190,476 - 190,476 - -
Dec 2016 Mar 2019 29.0p 2,136,752 - 1,914,209 222,543 -
----------- --------------------- ----------- --------- ------- ---------
R Canham Dec 2016 Mar 2019 29.0p 170,940 - 153,137 17,803 -
D Mulligan Dec 2016 Mar 2019 29.0p 598,290 - 535,978 62,312 -
----------- ----------- --------- ----------- --------- ------- --------- ------- ---------
For the 2015 awards the outstanding awards lapsed during the year.
For the 2016 awards, these partially vested on 23 June 2017 when there was a change in control and Phoenix Asset Management Partners Limited became the majority shareholder and the rest lapsed.
Future incentive schemes are currently being formalised for the new management team.
Benefits and Pension (Unaudited)
Policies concerning benefits, including the Group's company car policy, are reviewed periodically. Currently, benefits in kind comprise motor cars or a travel allowance and private health cover, both of which are non-performance related. The Executive Directors and senior managers are members of defined contribution pension schemes and annual contributions are calculated by reference to base salaries, with neither annual bonuses nor awards under the share incentive schemes taken into account in calculating the amounts due.
Executive Directors' service contracts (Unaudited)
Executive Directors do not have fixed period contracts.
Payments to Past Directors, policy on payment of loss of office and termination payments (Audited)
Payments to past Directors totalled GBP355,349 made up of payments to Steve Cooke (GBP155,652), David Mulligan (GBP174,697) and Roger Canham (GBP25,000) under their respective settlement agreements. There were no other payments to past directors made during the year. Notice periods are set under individual service contracts but the Company has a policy for Executive directors of a notice period of nine months to be given by the Company and of six months to be given by the individual. The compensation for loss of office is based upon the respective service contracts and the components are based on the base salary of the director. Any outstanding awards under the Company's PSP share scheme are subject to good leaver provisions under the scheme's rules. Under certain circumstances and subject to certain criteria the Remuneration Committee has the power to determine the vesting of any outstanding awards.
DIRECTORS' INTERESTS
Interests in shares (Audited)
In addition to their interests in shares in the Performance Share Plans the interests of the Directors in the shares of the Company at 31 March 2018 and 31 March 2017 were:
At At
31 March 31 March
2018 2017
number number
----------------------- --------- ---------
Executive Directors
----------------------- --------- ---------
L Davies - N/A
----------------------- --------- ---------
K Gould - N/A
----------------------- --------- ---------
Non-Executive Directors
----------------------- --------- ---------
M George - -
----------------------- --------- ---------
J Wilson - N/A
----------------------- --------- ---------
J Stansfield 64,052 N/A
----------------------- --------- ---------
All the interests detailed above are beneficial. Apart from the interests disclosed above no Directors were interested at any time in the year in the share capital of any other Group company. James Wilson is also a partner at Phoenix Asset Management Partners Limited who hold a substantial shareholding in Hornby PLC.
On behalf of the Board
Kirstie Gould
Chief Finance Officer
3rd Floor The Gateway
Innovation Way
Discovery Park
Sandwich
Kent CT13 9FF
18 June 2018
Independent auditors' report to the members of Hornby PLC
Report on the audit of the financial statements
Opinion
In our opinion, Hornby PLC's Group financial statements and Company financial statements (the "financial statements"):
-- give a true and fair view of the state of the Group's and of the Company's affairs as at 31 March 2018 and of the Group's and the Company's loss and cash flows for the year then ended;
-- have been properly prepared in accordance with IFRS's as adopted by the European Union; and -- have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts 2018 (the "Annual Report"), which comprise: the Group and Company statements of financial position as at 31 March 2018; the Group and Company statements of comprehensive income, the Group and Company statements of changes in equity, and the Group and Company cash flow statements for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
* Overall Group materiality: GBP400,000 (2017:
GBP350,000), based on approximately 5% of underlying
loss before tax.
* Overall Company materiality: GBP320,000 (2017:
GBP315,000), based on 1% of total assets, restricted
so that it does not exceed group materiality
=======================================================================
* We performed an audit of the complete financial
information of two full scope components, being
Hornby PLC and Hornby Hobbies Limited. We also
performed desktop reviews over the European sales
offices and US trading subsidiary, and audited the
consolidation including consolidation adjustments.
* Our full scope components provided coverage of 93% of
Group revenue (2017: 84%), and 85% of Group
underlying loss before tax (2017: 66%), increasing to
100% coverage for both revenue and underlying loss
before tax when review and consolidation procedures
are included.
* All entities are managed from one central location in
the UK. All audit work was undertaken by the UK
engagement team.
=======================================================================
* Going concern (Group and Company).
* Impairment of goodwill, investments and intangibles
(Group and Company).
* Recording of revenue (Group).
* Royalty provision (Group).
* Inventory provisioning (Group).
* Classification of exceptional items (Group and
Company).
=======================================================================
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter How our audit addressed the key audit matter ========================================================== ========================================================== Going concern We have tested the cash flow model for mathematical Refer to Note 1 within the Notes to the Financial accuracy. We have discussed the key assumptions Statements for further information. in the cash flow model with the directors and assessed the Due to the recent trading performance of the Group, there reasonableness of each assumption, is a risk of the Group and Company noting that forecast improvements in gross margin are being unable to continue as a going concern. important factors in delivering the The Group had forecast that it would breach bank covenants plan. We have performed sensitivity analysis to assess associated with a GBP6m revolving whether a reasonably possible change credit facility at 31 March 2018. These covenants were in a key assumption would result in a need for further formerly waived and so no covenant financing. We have reviewed the covenants breach occurred. The Group have refinanced these within the new financing agreements and ensured that these borrowings with a GBP12m asset based facility are not breached based on the cash and GBP6m drawdown facility. flow model. We have also reviewed the post-year end The directors have prepared a cash flow model to 31 March performance of the Group. 2021 which incorporates the strategy Please see our conclusion within the "Conclusions relating of the new CEO, and the expected impact of the strategy on to going concern" section. trading results including revenue growth, margin improvement, and cost savings. This model shows that there is cash headroom throughout the forecast period, covenants associated with the new financing agreements will not be breached, and indicates that the Group will be able to continue as a going concern. Group and Company ========================================================== ========================================================== Impairment of goodwill, investments and intangibles We have reviewed the directors' impairment assessments for Refer to Note 8, Note 9 and Note 11 within the Notes to goodwill, investments and intangibles the Financial Statements for further for reasonableness. information. We have considered the directors' assessments, which The Group has GBP4.6m of goodwill (31 March 2017: GBP4.6m) contain a number of judgments and estimates and GBP2.2m of intangible assets including growth in profit margins, and use assumptions (31 March 2017: GBP2.5m) relating to brand names and for long-term growth rates and discount customer lists. Hornby PLC also holds rates.
an investment in subsidiaries of GBP23.3m (31 March 2017: We assessed the mathematical accuracy of the directors'
GBP22.7m) in the Company financial cash flow model and agreed the underlying
statements. forecasts to board approved budgets and assessed how these
Recovery of these amounts is dependent on future cash budgets were compiled. With the
flows associated with the respective support of our valuations experts, we assessed the
asset and there is risk that if these cash flows do not terminal growth rates and discount rates
meet the Group's expectations then applied by the directors to third party information and
assets might be impaired. applied our independent view of more
Group and Company appropriate rates to the directors' forecast.
We challenged the directors as to the appropriateness of
the level of aggregation of each
CGU and the independence of cash flows from other assets.
We considered the reliability of
the directors' historical forecasting for revenue, profit
and cash conversion by comparing
budgeted results to actual performance. As a result of our
work, we determined that it was
appropriate that no impairment charge was recognised for
goodwill and intangible assets in
the Group financial statements and that appropriate
disclosures had been made.
The directors identified that an impairment charge of
GBP1.0m should be recognised in respect
of investments in the Hornby plc financial statements.
========================================================== ==========================================================
Recording of revenue We reviewed the revenue recognition policy and found the
Refer to Note 1 within the Notes to the Financial policy to be appropriate and consistent
Statements for further information. with the prior year. For Hornby Hobbies Limited,
The Group has recorded GBP35.7m of revenue (2017: representing 93% of revenue, we performed
GBP47.4m). There is a risk that revenue a walkthrough of the revenue process to understand how
may be fraudulently recorded and may not exist. revenue is recognised and performed
Group detailed testing by selecting a sample of transactions and
agreed them to despatch notes and
cash receipts to gain assurance over the occurrence of
revenue. This was supported by testing
a sample of items to price lists and discount agreements,
testing a sample of manual journals
to supporting documentation and testing sales close to the
year end to shipping documentation.
We performed analytical procedures on sales for the other
territories. Our work did not identify
any exceptions.
========================================================== ==========================================================
Royalty provision We obtained an understanding of the methodology used by
Refer to Note 1 within the Notes to the Financial the Group for determining royalty
Statements for further information. accruals in relation to the sale of licensed goods. We
The Group has recorded a royalty provision of GBP0.7m as reconciled the value used for sales
at 31 March 2018 (31 March 2017: of licensed goods in the calculations back to sales in the
GBP0.2m). This includes amounts in relation to royalties year and tested a sample of royalty
for the sale of licensed goods. We percentages used to a sample of contacts. We tested
focussed on this area as it is a material provision and payments made during the year to bank
there is judgement in assessing the statement, and considered the director's ability to
amount of the provision. estimate the amount in the prior year.
Group In relation to ongoing discussions with suppliers, we
assessed the most likely outcome of
these discussions.
No issues arose from our work to suggest that the
provision was materially misstated.
========================================================== ==========================================================
Inventory provisioning We obtained an understanding of the methodology used in
Refer to Note 12 within the Notes to the Financial the inventory provision and agreed
Statements for further information. the values used in the calculation to the general ledger.
The Group held GBP10.0m of inventory as at 31 March 2018 For a sample of stock lines, we
(31 March 2017: GBP9.7m). The nature tested the aging and that they had been appropriately
of the Group's business model is to supply toy and hobby categorised for the purposes of calculating
products to the global market through the provision. We then recomputed the inventory provision
a series of brands. There is a risk that aged inventory based on the provisioning methodology,
may be difficult to sell. The completeness reviewed the completeness of the provision by assessing
of the inventory provision is an area of focus for the aged unprovided inventory balances
audit. against the sales plan, and performed some sensitivity
Group analysis to assess whether there was
a risk of material misstatement in the provision.
Nothing arose from our work to suggest that the provisions
recorded were materially misstated.
========================================================== ==========================================================
Classification of exceptional items We discussed with the directors and understood the events
Refer to Note 4 within the Notes to the Financial in the year which were considered
Statements for further information. to be exceptional. We considered whether the
The Group has recorded exceptional items of GBP2.3m (31 classification of items was consistent with the
March 2017: GBP3.3m) and the Company Group's accounting policy and treatment in prior years. We
has recorded exceptional items of GBP1.9m (31 March 2017: tested a sample of items to third
GBP5.8m). These items are considered party support, and challenged the directors on whether it
to be one-off and exceptional in nature. We focused on might be more appropriate to reflect
this area because the classification the costs in the underlying results. We considered whether
of items as exceptional requires judgement. the Group has taken a balanced
Group and Company approach to this area, and reviewed for potential one-off
items of income which would require
treatment consistent with one-off items of cost.
Our testing did not identify any costs that had been
inappropriately classified.
========================================================== ==========================================================
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.
The Group's business model is to supply toy and hobby products to the global market through a series of brands. The majority of operations are performed within the UK trading subsidiary, Hornby Hobbies Limited. There is also a trading company in the US and sales offices in France, Germany, Italy and Spain. All entities are managed from one central location in the UK. The scope of our audit includes a full scope audit of the financial information of Hornby PLC and Hornby Hobbies Limited. Analytical review procedures have been performed on the US company and European sales offices. We have also audited consolidation entries. All audit work was performed by the UK audit team.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Company financial statements
==========================================
Overall materiality GBP400,000 (2017: GBP350,000). GBP320,000 (2017: GBP315,000).
=============================== ========================================== =========================================
How we determined it Approximately 5% of underlying loss before 1% of total assets, restricted so that it
tax. does not exceed group materiality.
=============================== ========================================== =========================================
Rationale for benchmark applied Based on the benchmarks used in the annual The Company is primarily a holding
report, underlying loss before tax is the company and we consider that total assets
primary is the most appropriate
measure used by the shareholders in benchmark for assessing materiality.
assessing the performance of the Group,
and is a generally
accepted auditing benchmark on the basis
that the exceptional items are
non-recurring and
do not reflect the underlying performance
of the business.
=============================== ========================================== =========================================
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between GBP320,000 and GBP380,000.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above GBP12,500 (Group audit) (2017: 12,500) and GBP12,500 (Company audit) (2017: GBP12,500) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:
-- the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
-- the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group's and Company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's and Company's ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below.
Strategic Report and Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the year ended 31 March 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors' Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- the Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Graham Lambert (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Gatwick
18 June 2018
Group and Company Statements of Comprehensive Income
for the Year Ended 31 March 2018
Group Company
--------------------------------------------- ------------- ====================== =======================
2018 2017 2018 2017
Note GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------- ------------ -------- ------------- --------
Revenue 2 35,651 47,420 1,493 1,370
--------------------------------------------- ------------- ------------ -------- ------------- --------
Cost of sales (21,900) (29,270) - -
--------------------------------------------- ------------- ------------ -------- ------------- --------
Gross profit 13,751 18,150 1,493 1,370
--------------------------------------------- ------------- ------------ -------- ------------- --------
Distribution costs (7,224) (8,419) - -
--------------------------------------------- ------------- ------------ -------- ------------- --------
Selling and marketing costs (7,647) (10,294) - -
--------------------------------------------- ------------- ------------ -------- ------------- --------
Administrative expenses (6,021) (5,680) (1,416) (1,264)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Other operating (expenses) / gains (437) 358 - -
--------------------------------------------- ------------- ------------ -------- ------------- --------
Operating (loss) / profit before Exceptional
items 4 (7,578) (5,885) 77 106
--------------------------------------------- ------------- ------------ -------- ------------- --------
Exceptional items (2,292) (3,303) (1,889) (5,801)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Operating loss 2 (9,870) (9,188) (1,812) (5,695)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Finance income 3 7 5 175 175
--------------------------------------------- ------------- ------------ -------- ------------- --------
Finance costs 3 (218) (326) (216) (205)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Net finance expense 3 (211) (321) (41) (30)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Share of profit of investments accounted
for using the equity method 15 - 15 -
--------------------------------------------- ------------- ------------ -------- ------------- --------
Loss before taxation 4 (10,066) (9,509) (1,838) (5,725)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Income tax credit/(charge) 5 212 (157) - 100
--------------------------------------------- ------------- ------------ -------- ------------- --------
Loss for the year after taxation (9,854) (9,666) (1,838) (5,625)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Other comprehensive income
--------------------------------------------- ------------- ------------ -------- ------------- --------
Items that may be subsequently reclassified
to profit or loss:
--------------------------------------------- ------------- ------------ -------- ------------- --------
Cash flow hedges, net of tax (353) (452) - -
--------------------------------------------- ------------- ------------ -------- ------------- --------
Currency translation (losses)/gains (54) 15 (76) (390)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Other comprehensive expense for the year,
net of tax (407) (437) (76) (390)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Total comprehensive loss for the year (10,261) (10,103) (1,914) (6,015)
--------------------------------------------- ------------- ------------ -------- ------------- --------
Loss per ordinary share
--------------------------------------------- ------------- ------------ -------- ------------- --------
Basic 7 (10.13)p (12.65)p
--------------------------------------------- ------------- ------------ -------- ------------- --------
Diluted 7 (10.13)p (12.65)p
--------------------------------------------- ------------- ------------ -------- ------------- --------
All results relate to continuing operations.
Group and Company Statements of Financial Position as at 31 March 2018
Group Company
================== ==================
2018 2017 2018 2017
Note GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ---- -------- -------- -------- --------
Assets
--------------------------------------- ---- -------- -------- -------- --------
Non-current assets
--------------------------------------- ---- -------- -------- -------- --------
Goodwill 8 4,564 4,554 - -
--------------------------------------- ---- -------- -------- -------- --------
Intangible assets 9 3,368 4,214 - -
--------------------------------------- ---- -------- -------- -------- --------
Property, plant and equipment 10 4,489 5,683 - -
--------------------------------------- ---- -------- -------- -------- --------
Investments 11 1,615 - 23,300 22,657
--------------------------------------- ---- -------- -------- -------- --------
Deferred tax assets 20 2,030 1,974 - -
--------------------------------------- ---- -------- -------- -------- --------
16,066 16,425 23,300 22,657
--------------------------------------- ---- -------- -------- -------- --------
Current assets
--------------------------------------- ---- -------- -------- -------- --------
Inventories 12 10,030 9,680 - -
--------------------------------------- ---- -------- -------- -------- --------
Trade and other receivables 13 5,949 9,246 33,529 24,109
--------------------------------------- ---- -------- -------- -------- --------
Derivative financial instruments 19 - 120 - -
--------------------------------------- ---- -------- -------- -------- --------
Current tax assets 17 - 50 - 50
--------------------------------------- ---- -------- -------- -------- --------
Cash and cash equivalents 14 3,878 1,580 4 6
--------------------------------------- ---- -------- -------- -------- --------
19,857 20,676 33,533 24,165
--------------------------------------- ---- -------- -------- -------- --------
Liabilities
--------------------------------------- ---- -------- -------- -------- --------
Current liabilities
--------------------------------------- ---- -------- -------- -------- --------
Borrowings 18 - (82) - -
--------------------------------------- ---- -------- -------- -------- --------
Trade and other payables 15 (4,312) (6,664) (159) (27)
--------------------------------------- ---- -------- -------- -------- --------
Derivative financial instruments 19 (423) (190) - -
--------------------------------------- ---- -------- -------- -------- --------
Provisions 16 (174) (196) - -
--------------------------------------- ---- -------- -------- -------- --------
Current tax liabilities 17 - (212) - -
--------------------------------------- ---- -------- -------- -------- --------
(4,909) (7,344) (159) (27)
--------------------------------------- ---- -------- -------- -------- --------
Net current assets 14,948 13,332 33,374 24,138
--------------------------------------- ---- -------- -------- -------- --------
Non-current liabilities
--------------------------------------- ---- -------- -------- -------- --------
Borrowings 18 - - (5,849) (5,518)
--------------------------------------- ---- -------- -------- -------- --------
Deferred tax liabilities 20 (150) (94) - -
--------------------------------------- ---- -------- -------- -------- --------
(150) (94) (5,849) (5,518)
--------------------------------------- ---- -------- -------- -------- --------
Net assets 30,864 29,663 50,825 41,277
--------------------------------------- ---- -------- -------- -------- --------
Equity attributable to owners of the
parent
--------------------------------------- ---- -------- -------- -------- --------
Share capital 21 1,253 846 1,253 846
--------------------------------------- ---- -------- -------- -------- --------
Share premium 38,587 27,445 38,587 27,445
--------------------------------------- ---- -------- -------- -------- --------
Capital redemption reserve 23 55 55 55 55
--------------------------------------- ---- -------- -------- -------- --------
Translation reserve 23 (1,425) (1,371) (1,220) (1,144)
--------------------------------------- ---- -------- -------- -------- --------
Hedging reserve 23 (423) (70) - -
--------------------------------------- ---- -------- -------- -------- --------
Other reserves 23 1,688 1,688 19,145 19,145
--------------------------------------- ---- -------- -------- -------- --------
Retained earnings/(Accumulated losses) (8,871) 1,070 (6,995) (5,070)
--------------------------------------- ---- -------- -------- -------- --------
Total equity 30,864 29,663 50,825 41,277
--------------------------------------- ---- -------- -------- -------- --------
The Company made a total comprehensive loss for the year of GBP1,914,000 (2017: GBP6,015,000).
The notes form part of these accounts. The financial statements were approved by the Board of Directors on 13 June and were signed on its behalf by:
K Gould, Director, Registered Company Number: 01547390
Group and Company Statements of Changes in Equity
For the Year Ended 31 March 2018
Capital Retained
Share Share redemption Translation Hedging Other earnings/(Accumulated Total
capital premium reserve reserve reserve reserves losses) equity
GROUP GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Balance at 1 April
2016 550 20,205 55 (1,386) 382 1,688 10,642 32,136
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Loss for the year - - - - - - (9,666) (9,666)
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Other
comprehensive
income/(expense)
for the year - - - 15 (452) - - (437)
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Total
comprehensive
expense
for the year - - - 15 (452) - (9,666) (10,103)
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Transactions with
owners
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Net proceeds from
issue
of ordinary
shares 296 7,240 - - - - - 7,536
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Share-based
payments (note
22) - - - - - - 94 94
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Total transactions
with
owners 296 7,240 - - - - 94 7,630
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Balance at 31
March 2017
and 1 April 2017 846 27,445 55 (1,371) (70) 1,688 1,070 29,663
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Loss for the year - - - - - - (9,854) (9,854)
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Other
comprehensive
expense
for the year - - - (54) (353) - - (407)
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Total
comprehensive
expense
for the year - - - (54) (353) - (9,854) (10,261)
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Transactions with
owners
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Net proceeds from
issue
of ordinary
shares 407 11,142 - - - - - 11,549
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Share-based
payments (note
22) - - - - - - (87) (87)
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Total transactions
with
owners 407 11,142 - - - - (87) 11,462
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
Balance at 31
March 2018 1,253 38,587 55 (1,425) (423) 1,688 (8,871) 30,864
------------------ -------- -------- ----------- ----------- -------- --------- --------------------- --------
COMPANY Share Share Capital Translation Other Retained Total
capital premium redemption reserve reserves earnings/(Accumulated equity
GBP'000 GBP'000 reserve GBP'000 GBP'000 losses) GBP'000
GBP'000 GBP'000
-------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
Balance at 1 April
2016 550 20,205 55 (754) 19,145 461 39,662
-------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
Loss for the year - - - - - (5,625) (5,625)
-------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
Other comprehensive
expense
for the year - - - (390) - - (390)
-------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
Total comprehensive
expense
for the year - - - (390) - (5,625) (6,015)
-------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
Transactions with
owners
-------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
Net proceeds from
issue
of ordinary shares 296 7,240 - - - - 7,536
-------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
Share-based
payments - - - - - 94 94 -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Total transactions with owners 296 7,240 - - - 94 7,630 -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Balance at 31 March 2017 and 1 April 2017 846 27,445 55 (1,144) 19,145 (5,070) 41,277 -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Loss for the year - - - - - (1,838) (1,838) -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Other comprehensive expense for the year - - - (76) - - (76) -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Total comprehensive expense for the year - - - (76) - (1,838) (1,914) -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Transactions with owners -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Net proceeds from issue of ordinary shares 407 11,142 - - - - 11,549 -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Share-based payments - - - - - (87) (87) -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Total transactions with owners 407 11,142 - - - (87) 11,462 -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ---------- Balance at 31 March 2018 1,253 38,587 55 (1,220) 19,145 (6,995) 50,825 -------------------- --------- --------- ------------ ------------ ---------- ---------------------- ----------
The notes form part of these accounts.
Group and Company Cash Flow Statements
for the Year Ended 31 March 2018
Group Company
Note 2018 2017 2018 2017
-------------------------------------------- -----
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ----- -------- -------- -------- --------
Cash flows from operating activities
-------------------------------------------- ----- -------- -------- -------- --------
Cash (used in)/generated from operations 28 (5,489) 91 (640) (1,080)
-------------------------------------------- ----- -------- -------- -------- --------
Interest paid (218) (326) (198) (205)
-------------------------------------------- ----- -------- -------- -------- --------
Tax received/(paid) 50 118 50 (89)
-------------------------------------------- ----- -------- -------- -------- --------
Repayments of loans and cash settled
Share Based Payments (136) (188) (136) -
-------------------------------------------- ----- -------- -------- -------- --------
Net cash (used in)/generated from
operating activities (5,793) (305) (924) (1,374)
-------------------------------------------- ----- -------- -------- -------- --------
Cash flows from investing activities
-------------------------------------------- ----- -------- -------- -------- --------
Acquisition of associate 11 (1,600) - (1,600) -
-------------------------------------------- ----- -------- -------- -------- --------
Proceeds from sale of property, plant
and equipment 4 3,338 - 2,248
-------------------------------------------- ----- -------- -------- -------- --------
Purchase of property, plant and equipment 10 (1,648) (1,756) - -
-------------------------------------------- ----- -------- -------- -------- --------
Purchase of intangible assets 9 (146) (226) - -
-------------------------------------------- ----- -------- -------- -------- --------
Interest received 7 5 175 175
-------------------------------------------- ----- -------- -------- -------- --------
Net cash (used in)/generated from
investing activities (3,383) 1,361 (1,425) 2,423
-------------------------------------------- ----- -------- -------- -------- --------
Cash flows from financing activities
-------------------------------------------- ----- -------- -------- -------- --------
Proceeds from issuance of ordinary
shares 12,000 8,000 12,000 8,000
-------------------------------------------- ----- -------- -------- -------- --------
Share issue costs (451) (464) (451) (464)
-------------------------------------------- ----- -------- -------- -------- --------
Advances to subsidiary undertakings - - (9,202) (8,580)
-------------------------------------------- ----- -------- -------- -------- --------
Net cash generated from/(used in)
financing activities 11,549 7,536 2,347 (1,044)
-------------------------------------------- ----- -------- -------- -------- --------
Net increase/(decrease) in cash and
cash equivalents 2,373 8,592 (2) 5
-------------------------------------------- ----- -------- -------- -------- --------
Cash, cash equivalents and bank overdrafts
at beginning of the year 1,498 (7,029) 6 1
-------------------------------------------- ----- -------- -------- -------- --------
Effect of exchange rate movements 7 (65) - -
-------------------------------------------- ----- -------- -------- -------- --------
Cash, cash equivalents and bank overdrafts
at end of year 3,878 1,498 4 6
-------------------------------------------- ----- -------- -------- -------- --------
Cash, cash equivalents and bank overdrafts
consist of:
-------------------------------------------- ----- -------- -------- -------- --------
Cash and cash equivalents 14 3,878 1,580 4 6
-------------------------------------------- ----- -------- -------- -------- --------
Bank overdrafts 18 - (82) - -
-------------------------------------------- ----- -------- -------- -------- --------
Cash, cash equivalents and bank overdrafts
at end of year 3,878 1,498 4 6
-------------------------------------------- ----- -------- -------- -------- --------
Notes to the Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Accounting policies for the year ended 31 March 2018
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
BASIS OF PREPARATION
The financial information for the year ended 31 March 2018 has been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU'), IFRS Interpretations Committee ('IFRS-IC') interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated Group and Parent Company financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
GOING CONCERN
The Group has in place a GBP12 million banking facility with PNC through June 2023 and available net cash of GBP3.9 million at 31 March 2018. In addition, the Group has a rolling three year GBP6 million loan facility available with its main shareholder Phoenix Asset Management Partners Limited.
The Group has prepared trading, and cash flow forecasts for a period of three years, which have been reviewed and approved by the Board. On the basis of these forecasts, the facilities described above and after detailed review of trading, financial position and cash flow models, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
BASIS OF CONSOLIDATION
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset concerned. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
ADOPTION OF NEW AND REVISED STANDARDS
A number of new standards and amendments to standards and interpretations will be effective for future annual periods beginning after 1 January 2018 and, therefore, have not been applied in preparing these consolidated financial statements. The expected impact of IFRS 9 'Financial Instruments', IFRS 15 'Revenue from Contracts with Customers' and IFRS 16 'Leases' on the consolidated financial statements of the Group is disclosed below.
IFRS 9 'Financial Instruments'
IFRS 9 "Financial Instruments" was issued in July 2014 to replace IAS 39 "Financial Instruments: Recognition and Measurement" and has been endorsed by the EU. The standard is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the Group on 1 April 2018.
IFRS 9 will impact the classification and measurement of the Group's financial instruments and will require certain additional disclosures. The primary changes relate to the assessment of hedging arrangements and provisioning for potential future credit losses on financial assets; the Group is continuing to analyse the impact of these changes which are not currently considered likely to have any major impact on the Group's current accounting treatment or hedging activities. Management have concluded an initial assessment and the impact is not material.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 is effective for periods commencing on or after 1 January 2018. The standard was endorsed by the EU during 2016. The group has not adopted this standard early. IFRS 15 changes how and when revenue is recognised from contracts with customers. The group will be required to identify all contracts it has with customers in order to determine whether, how much and when revenue is recognised. The Group has not identified any revenue streams that will be impacted by the new standard. The group plans to adopt IFRS 15 in its consolidated financial statements for the year ending 31 March 2019. Management have concluded an initial assessment and the impact is not material.
IFRS 16 'Leases'
IFRS 16 is effective for periods commencing on or after 1 January 2019. The standard was endorsed by the EU during 2017. The Group does not plan to adopt this standard early. IFRS 16 eliminates the classification of leases as either operating leases or finance leases. The Group will be required to recognise all leases with a term of more than 12 months as a right-of-use lease asset on its balance sheet. The Group will also recognise a financial liability representing its obligation to make future lease payments. The Group has conducted an initial quantification of the impact of adopting the standard, based on its existing lease contracts. The most significant impact is in respect of its various office and warehouse premises. The impact using the modified retrospective approach is expected to be the recognition of a lease liability of GBP1.9 million, with a corresponding right-of-use asset.
REVENUE RECOGNITION
Revenue is measured at the fair value of the sale of goods net of value added tax, rebates and discounts, royalty income and after eliminating sales within the Group.
Revenue is recognised as follows:
(a) Sale of goods
Sales of goods are recognised when a Group entity has delivered products to the customer. The customer is either a trade customer or the consumer when sold through Hornby concessions in various retail outlets, or via the internet.
(b) Royalty income
Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements.
(c) Sales returns
The Group establishes a sales returns provision at the period end that reduces revenue in anticipation of customer returns of goods sold in the period.
(d) Hornby Visitor Centre
Revenue is generated from the ticket and product sales at our Visitor Centre in Margate and recognised at the point of sale.
Dividend income in the Company is recognised upon receipt. Management fees are recognised in the Company on an accruals basis in relation to costs incurred on behalf of subsidiary companies.
EXCEPTIONAL ITEMS
Where items of income and expense included in the statement of comprehensive income are considered to be material and exceptional in nature, separate disclosure of their nature and amount is provided in the financial statements. These items are classified as exceptional items. The Group considers the size and nature of an item both individually and when aggregated with similar items when considering whether it is material, for example impairment of intangible assets or restructuring costs.
OPERATING SEGMENTS
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of the Company that makes strategic decisions.
Operating profit of each reporting segment includes revenue and expenses directly attributable to or able to be allocated on a reasonable basis. Segment assets and liabilities are those operating assets and liabilities directly attributable to or that can be allocated on a reasonable basis.
BUSINESS COMBINATIONS
Goodwill arising on a business combination before and after 1 April 2004, the date of transition to IFRS, is not subject to amortisation but tested for impairment on an annual basis. Intangible assets, excluding goodwill, arising on a business combination subsequent to 1 April 2004, are separately identified and valued, and subject to amortisation over their estimated economic lives.
ASSOCIATE WITH EQUITY ACCOUNTING
The investment in December 2017 in 49% of LCD Enterprises Limited is included in these accounts using the Equity Method.
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit and loss where appropriate.
The Group's share of post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount adjacent to 'share of profit/(loss) of associates' in the income statement.
Gains resulting from upstream and downstream transactions between the Group and its associate are recognized in the Group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Any dilution gains and losses arising in investments in associates are recognized in the income statement.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment. Goodwill is recorded in the currency of the cash generating unit to which it is allocated.
INTANGIBLES
Other intangibles include brands, customer lists and computer software. They are recognised initially at fair value determined in accordance with appropriate valuation methodologies, and subjected to amortisation and annual impairment reviews, as follows:
(a) Brand names
Brand names, acquired as part of a business combination, are capitalised at fair value as at the date of acquisition. They are carried at their fair value less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method to allocate the fair value of brand names over their estimated economic life of 15-20 years. Brand names have been valued on a 'relief from royalty' basis.
(b) Customer lists
Customer lists, acquired as part of a business combination, are capitalised at fair value as at the date of acquisition. They are carried at their fair value less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method to allocate the fair value of customer relationships over their estimated economic life of ten years. Customer lists have been valued according to discounted incremental operating profit expected to be generated from each of them over their useful lives.
(c) Computer software
Computer software expenditure is capitalised at the value at the date of acquisition and depreciated over a useful economic life of 4-6 years.
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are shown at cost less accumulated depreciation. Assets revalued prior to the transition to IFRS use this valuation as deemed cost at this date. Other property, plant and equipment are shown at historical cost less accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.
Depreciation is provided at rates calculated to write off the cost or valuation of each asset, on a straight-line basis (with the exception of tools and moulds) over its expected useful life to its residual value, as follows:
Plant and equipment - 5 to 10 years Motor vehicles - 4 years
Tools and moulds are depreciated at varying rates in line with the related estimated product sales on an item-by-item basis up to a maximum of four years.
IMPAIRMENT OF NON-CURRENT ASSETS
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying value exceeds its recoverable amount, which is considered to be the higher of its value in use and fair value less costs to sell. In order to assess impairment, assets are grouped into the lowest levels for which there are separately identifiable cash flows (cash-generating units). Cash flows used to assess impairment are discounted using appropriate rates taking into account the cost of equity and any risks relevant to those assets.
INVESTMENTS
In the Company's financial statements, investments in subsidiary undertakings are stated at cost less any impairment. Investments revalued using the equity method of valuation prior to the transition to IFRS use this valuation as deemed cost at this date. Dividend income is shown separately in the Statement of Comprehensive Income.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost is predominantly determined using the first-in, first-out ('FIFO') method. Alternative methods may be used when proven to generate no material difference. The cost of finished goods 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 anticipated selling price less further costs expected to be incurred to completion and disposal. Provisions are made against those stocks considered to be obsolete or excess to requirements on an item-by-item basis.
The replacement cost, based upon latest invoice prices before the balance sheet date, is considered to be higher than the balance sheet value of inventories at the year end due to price rises and exchange fluctuations. It is not considered practicable to provide an accurate estimate of the difference at the year end date.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised in the Group and Company's statements of financial position when the Group or Company becomes a party to the contractual provisions of the instrument.
TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the Statement of Comprehensive Income.
FINANCIAL LIABILITIES AND EQUITY
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the Group and Company after deducting all of its liabilities. Equity instruments issued by the Group and Company are recorded at the proceeds received, net of direct issue costs.
SALES RETURNS PROVISIONS
Provisions for sales returns are recognised when the Group has a constructive obligation as a result of a past event. Provisions for sales returns are measured at the present value of the expenditure expected to be required to settle the obligation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents for the purpose of the cash flow statement includes cash in hand, deposits at banks, other liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts or loans where there is no right of set off are shown within borrowings in current or non-current liabilities on the balance sheet as appropriate.
BORROWING COSTS
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of Comprehensive Income over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs and subsequently amortised over the life of the facility. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
TRADE PAYABLES
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
TAXATION INCLUDING DEFERRED TAX
Corporation tax, where payable, is provided on taxable profits at the current rate.
The taxation liabilities of certain Group undertakings are reduced wholly or in part by the surrender of losses by fellow Group undertakings.
Deferred tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Tax relating to items recognised directly in equity is recognised in equity and not in the Statement of Comprehensive Income.
SHARE-BASED PAYMENT
The Group operates the PSP ('Performance Share Plan') for Executive Directors and senior executives. Awards under the scheme are granted in the form of a nil-priced option and are satisfied using market-purchased shares.
The PSP awards that were outstanding at 31 March 17 only vested if performance conditions were met. Awards granted under the PSP must be exercised within one year of the relevant award vesting date. There are no awards outstanding at 31 March 2018.
On 23 June 2017 Phoenix UK Fund Limited put forward a mandatory unconditional cash offer by Phoenix UK Fund for the Hornby shares not already held by members of the Phoenix Concert Party. As part of the rules of the PSP scheme this automatically caused the 2016-17 PSP awards to vest. Following on from the change of ownership and due to the subsequent changes to the board no PSP awards have been made in 2018. All the remaining PSP awards have now either vested as a result of the takeover offer or have lapsed.
EMPLOYEE BENEFIT COSTS
During the year the Group operated a defined contribution money purchase pension scheme under which it pays contributions based upon a percentage of the members' basic salary. The scheme is administered by trustees either appointed by the Company or elected by the members (to constitute one third minimum).
Contributions to defined contribution pension schemes are charged to the Statement of Comprehensive Income according to the year in which they are payable.
Further information on pension costs and the scheme arrangements is provided in note 25.
SHARE CAPITAL AND SHARE PREMIUM
Ordinary shares issued are shown as share capital at nominal value. The premium received on the sale of shares in excess of the nominal value is shown as share premium within total equity.
LEASES
The Group enters into operating leases only. Leases classed as operating leases are expensed on a straight-line basis to the Statement of Comprehensive Income over the lease term.
FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group's operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchange rates, market interest rates, credit risk and its liquidity position. The Group has in place a risk management programme that seeks to limit adverse effects on the financial performance of the Group by using foreign currency financial instruments. In addition, other instruments are used to manage the Group's interest rate exposure.
(a) Foreign exchange risk
The Group is exposed to foreign exchange risks against Sterling primarily on transactions in US Dollars. It enters into forward currency contracts to hedge the cash flows of its product sourcing operation (i.e. it buys US Dollars forwards in exchange for Sterling) and looks forward six-twelve months on a rolling basis at forecasted purchase volumes. The policy framework requires hedging between 70% and 100% of anticipated import purchases that are denominated in US Dollars. The Company has granted Euro denominated intercompany loans to subsidiary companies that are translated to Sterling at statutory period ends thereby creating exchange gains or losses. The loans to the subsidiaries, Hornby Deutschland GmbH, Hornby Italia s.r.l and Hornby France S.A.S are classified as long-term loans and therefore the exchange gains and losses on consolidation are reclassified to the translation reserve in Other Comprehensive Income as per IAS 21. The loan to the branch in Spain is classified as a long-term loan however repayable on a shorter timescale than those of the other subsidiaries and therefore the exchange gains or losses are taken to Statement of Comprehensive Income.
(b) Interest rate risk
The Group finances its operations through a mixture of retained profits and bank borrowings. The Group borrows, principally in Sterling, at floating rates of interest to meet short-term funding requirements. At the year end the Group's borrowings comprised a revolving credit facility, bank overdrafts and a fixed-term loan agreement.
(c) Credit risk
The Group manages its credit risk through a combination of internal credit management policies and procedures.
(d) Liquidity risk
At 31 March 2018 the Group had a credit facility of GBP6 million (2017: GBP7.75 million) expiring in December 2019 (2017: December 2019). Borrowings in the year ended 31 March 2018 peaked at GBP7.4 million. The funding needs are determined by monitoring forecast and actual cash flows. The Group regularly monitors its performance against its banking covenants to ensure compliance.
DERIVATIVE FINANCIAL INSTRUMENTS
To manage exposure to foreign currency risk, the Group uses foreign currency forward contracts, also known as derivative financial instruments.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. 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) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in Other Comprehensive Income. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income within operating expenses.
Amounts accumulated in Other Comprehensive Income are recycled in the Statement of Comprehensive Income in the periods when the hedged item affects profit or loss (for instance when the forecast purchase that is hedged takes place). The gain or loss relating to the effective portion of forward foreign exchange contracts hedging import purchases is recognised in the Statement of Comprehensive Income within 'cost of sales'. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) the gains and losses previously deferred in the Other Comprehensive Income are transferred from Other Comprehensive Income and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in income when the forecast transaction is ultimately recognised in the Statement of Comprehensive Income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss is immediately transferred to the Statement of Comprehensive Income.
(b) Derivatives that do not qualify for hedge accounting
Certain derivative instruments are not considered effective and do not qualify for hedge accounting. Such derivatives are classified at fair value through the Statement of Comprehensive Income, and changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognised immediately in the Statement of Comprehensive Income.
FAIR VALUE ESTIMATION
The fair values of short-term deposits, loans and overdrafts with a maturity of less than one year are assumed to approximate to their book values.
The fair values of the derivative financial instruments used for hedging purposes are disclosed in note 19.
FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded in the relevant functional currency at the exchange rates ruling at the date of the transaction. Foreign exchange gains and losses resulting from such transactions are recognised in the Statement of Comprehensive Income, except when deferred and disclosed in Other Comprehensive Income as qualifying cash flow hedges. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the balance sheet date and any exchange differences are taken to the Statement of Comprehensive Income.
Foreign exchange gains/losses recognised in the Statement of Comprehensive Income relating to foreign currency loans and other foreign exchange adjustments are included within operating profit.
On consolidation, the Statement of Comprehensive Income and cash flows of foreign subsidiaries are translated into Sterling using average rates that existed during the accounting period. The balance sheets of foreign subsidiaries are translated into Sterling at the rates of exchange ruling at the balance sheet date. Gains or losses arising on the translation of opening and closing net assets are recognised in Other Comprehensive Income.
DIVID DISTRIBUTION
Final dividends are recorded in the Statement of Changes in Equity in the period in which they are approved by the Company's shareholders. Interim dividends are recorded in the period in which they are approved and paid.
CRITICAL JUDGEMENTS IN APPLYING THE ACCOUNTING POLICIES
The Group's estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions:
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
(a) Impairment of goodwill, intangibles and investments
The Group tests annually whether any goodwill, investment or intangible asset has suffered any impairment. The recoverable amounts of cash-generating units (CGUs) have been determined based on value-in-use calculations. The critical areas of estimation applied within the impairment reviews conducted include the weighted average cost of capital used in discounting the cash flows of the cash generating units, the forecast margin growth rate, the growth rate in perpetuity of the cash flows and the forecast operating profits of the cash generating units. The judgements used within this assessment are set out within note 8.
Other estimates and assumptions:
(a) Inventory provision
Whenever there is a substantiated risk that an item of stock's sellable value may be lower than its actual stock value, a provision for the difference between the two values is made. Management review the stock holdings on a regular basis and consider where a provision for excess or obsolete stock should be made based on expected demand for the stock and its condition.
(b) Debtors provision
Specific debtors are provided for when there is significant doubt that a repayment of debt will be fulfilled considering specific knowledge of the customer and sales terms of the debt outstanding.
(c) Fair value of derivatives
The fair value of the financial derivatives is determined by the mark to market value at the year end date.
(d) Sales provision
The provision for sales returns is based on historic returns data applied to sales for the current year and this provision is reviewed by management on an ongoing basis.
(e) Provisions for Royalty payments
The provision for royalty payments is based on an estimate or royalty payments due as a % of total sales. This estimate is checked on a regular basis for accuracy and from 1 April 2018 the provisions will be calculated by the ERP system based on actual sales of licensed product at the point of sale.
Critical judgements in applying the Group's accounting policies:
(a) Recognition of deferred tax on losses
Deferred tax assets are recognised for deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that the taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
(b) Going concern
The directors apply judgement to assess whether it is appropriate for the Group to be reported as a going concern by considering the business activities and the Group's principal risks and uncertainties. Details of the consideration made are included within the Directors report and the basis of preparation .
A number of assumptions and estimates are involved in arriving at this judgement including management's projections of future trading performance and expectations of the external economic environment.
Other judgements in applying the Group's accounting policies:
(c) Equity accounting for LCD Enterprises Limited
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the Group's share of the change in net assets of LCD Enterprises Limited since the date of the acquisition.
2. SEGMENTAL REPORTING
Management has determined the operating segments based on the reports reviewed by the Board (chief operating decision-maker) that are used to make strategic decisions.
The Board considers the business from a geographic perspective. Geographically, management considers the performance in the UK, USA, Spain, Italy and the rest of Europe.
Although the USA segment does not meet the quantitative thresholds required by IFRS 8, management has concluded that this segment should be reported, as it is closely monitored by the Board as it is outside Europe.
The Company is a holding company operating in the UK with its results given in the Company Statement of Comprehensive Income and its assets and liabilities given in the Company Statement of Financial Position. Other Company information is provided in the other notes to the accounts.
Year ended 31 March 2018
UK USA Spain Italy Rest Total Intra Group
of Reportable
Segments
GBP'000
---------------------------- ------------
GBP'000 GBP'000 GBP'000 GBP'000 Europe Group GBP'000
---------------------------- ------------
GBP'000 GBP'000
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Revenue - External 28,497 2,461 940 1,118 2,635 35,651 - 35,651
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
- Other segments 1,326 - - - - 1,326 (1,326) 0
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Operating loss (9,084) (538) (124) (1) (123) (9,870) - (9,870)
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Finance cost - External 7 - - - - 7 - 7
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
- Other segments 618 - - 128 - 746 (746) -
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Finance income - External (218) - - - - (218) - (218)
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
- Other segments (303) - (216) (153) (74) (746) 746 -
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Share of profit of
investments accounted
for using the equity
method 15 - - - - 15 - 15
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
(Loss)/profit before
taxation (8,965) (538) (340) (26) (197) (10,066) - (10,066)
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Taxation 400 - (1) - (187) 212 - 212
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
(Loss)/profit for
the year (8,565) (538) (341) (26) (384) (9,854) - (9,854)
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Segment assets 48,573 1,072 6,066 3,433 4,655 63,799 - 63,799
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Less intercompany
receivables (16,691) (55) (5,901) (3,640) (3,799) (30,086) - (30,086)
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Add tax assets 2,230 - - (65) 45 2,210 - 2,210
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Total assets 34,112 1,017 165 (272) 901 35,923 - 35,923
---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
Segment liabilities 17,145 2,080 4,743 4,148 6,702 34,818 34,818 ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Less intercompany payables (12,769) (2,017) (4,655) (4,066) (6,578) (30,085) (30,085) ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Add tax liabilities 326 - - - - 326 - 326 ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Total liabilities 4,702 63 88 82 124 5,059 - 5,059 ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Other segment items - ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Capital expenditure 1,619 29 - - - 1,648 - 1,648 ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Depreciation 2,767 12 23 7 12 2,821 - 2,821 ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Net foreign exchange on intercompany loans 114 - - - - 114 - 114 ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Amortisation of intangible assets 992 - - - - 992 - 992 ---------------------------- --------- --------- -------- -------- -------- ------------ -------- --------- Share-based payment (87) - - - - (87) - (87) ---------------------------- --------- --------- -------- -------- -------- ------------ -------- ---------
All transactions between Group companies are on normal commercial terms.
Year ended 31 March 2017
UK USA Spain Italy Rest Total Intra Group
of Reportable
Segments
GBP'000
---------------------------- ------------
GBP'000 GBP'000 GBP'000 GBP'000 Europe Group GBP'000
---------------------------- ------------
GBP'000 GBP'000
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Revenue - External 37,720 3,519 1,071 1,622 3,488 47,420 - 47,420
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
- Other segments 6,956 - - - - 6,956 -6,956 -
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Operating loss -11,864 -323 2,037 534 428 -9,188 - -9,188
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Finance cost - External 5 - - - - 5 - 5
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
- Other segments 594 - - - - 594 -594 -
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Finance income -
External -324 - -2 - - -326 - -326
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
- Other segments -175 - -205 -145 -69 -594 594 -
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
(Loss)/profit before
taxation -11,764 -323 1,830 389 359 -9,509 - -9,509
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Taxation 100 -2 -5 -218 -32 -157 - -157
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
(Loss)/profit for
the year -11,664 -325 1,825 171 327 -9,666 - -9,666
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Segment assets 47,277 1,605 6,137 3,858 5,950 64,827 - 64,827
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Less intercompany
receivables -17,027 -65 -5,884 -3,280 -3,495 -29,751 - -29,751
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Add tax assets 2,024 - - - - 2,024 - 2,024
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Total assets 32,274 1,540 253 578 2,455 37,100 - 37,100
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Segment liabilities 17,966 2,189 4,552 4,544 7,803 37,054 -29,922 7,132
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Less intercompany
payables -12,329 -2,126 -4,396 -4,296 -6,775 -29,922 29,922 -
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Add tax liabilities 94 - - 212 - 306 - 306
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Total liabilities 5,731 63 156 460 1,028 7,438 - 7,438
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Other segment items
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Capital expenditure 1,834 20 91 37 - 1,982 - 1,982
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Depreciation 2,810 20 54 149 3 3,036 - 3,036
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Net foreign exchange
on intercompany loans 410 - - - - 410 - 410
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Amortisation of intangible
assets 728 - - 80 8 816 - 816
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Impairment of goodwill - - - - - - - -
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
Share-based payment 94 - - - - 94 - 94
---------------------------- -------- --------- -------- -------- -------- ------------ -------- --------
All transactions between Group companies are on normal commercial terms.
3. NET FINANCE EXPENSE
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- -------- -------- -------- --------
Finance costs:
-------------------------------------------- -------- -------- -------- --------
Interest expense on bank borrowings (218) (326) - -
-------------------------------------------- -------- -------- -------- --------
Interest expense on intercompany borrowings - - (216) (205)
-------------------------------------------- -------- -------- -------- --------
(218) (326) (216) (205)
-------------------------------------------- -------- -------- -------- --------
Finance income:
-------------------------------------------- -------- -------- -------- --------
Bank interest 7 5 - -
-------------------------------------------- -------- -------- -------- --------
Interest income on intercompany loans - - 175 175
-------------------------------------------- -------- -------- -------- --------
7 5 175 175
-------------------------------------------- -------- -------- -------- --------
Net finance expense (211) (321) (41) (30)
-------------------------------------------- -------- -------- -------- --------
4. LOSS BEFORE TAXATION
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------------ -------- -------- -------- --------
The following items have been included in arriving
at loss before taxation:
------------------------------------------------------------ -------- -------- -------- --------
Staff costs (note 24) 8,994 10,587 1,443 1,452
------------------------------------------------------------ -------- -------- -------- --------
Inventories:
------------------------------------------------------------ -------- -------- -------- --------
* Cost of inventories recognised as an expense
(included in cost of sales) 17,252 23,339 - -
------------------------------------------------------------ -------- -------- -------- --------
* Stock provision (44) (646) - -
------------------------------------------------------------ -------- -------- -------- --------
Depreciation of property, plant and equipment:
------------------------------------------------------------ -------- -------- -------- --------
* Owned assets 2,821 3,036 - -
------------------------------------------------------------ -------- -------- -------- --------
(Loss)/Profit on disposal of fixed assets (9) 1,439 - 926
------------------------------------------------------------ -------- -------- -------- --------
Other operating lease rentals payable:
------------------------------------------------------------ -------- -------- -------- --------
* Plant and machinery 88 92 - -
------------------------------------------------------------ -------- -------- -------- --------
* Property 717 719 - -
------------------------------------------------------------ -------- -------- -------- --------
Repairs and maintenance expenditure on property,
plant and equipment 114 86 - -
------------------------------------------------------------ -------- -------- -------- --------
Research and development expenditure 994 1,154 - -
------------------------------------------------------------ -------- -------- -------- --------
Foreign exchange (gains)/losses:
------------------------------------------------------------ -------- -------- -------- --------
Impairment of trade receivables 432 486 - -
------------------------------------------------------------ -------- -------- -------- --------
Share-based payment (credit)/ charge (87) 110 202 76
------------------------------------------------------------ -------- -------- -------- --------
Other operating expenses/(income):
------------------------------------------------------------ -------- -------- -------- --------
* Foreign exchange on trading transactions 221 (292) - -
------------------------------------------------------------ -------- -------- -------- --------
* Net impact of foreign exchange on intercompany loans (114) (410) - -
------------------------------------------------------------ -------- -------- -------- --------
* Amortisation of intangible assets - brands and
customer lists 314 344 - -
------------------------------------------------------------ -------- -------- -------- --------
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- -------- -------- --------
Exceptional items comprise:
---------------------------------------- -------- -------- -------- --------
* Restructuring costs 1,823 3,889 536 761
---------------------------------------- -------- -------- -------- --------
* Refinancing 70 944 - 191
---------------------------------------- -------- -------- -------- --------
- Profit on disposal of property - (1,530) - (926)
---------------------------------------- -------- -------- -------- --------
* Costs of EGM and Mandatory Offer 399 - 381 -
---------------------------------------- -------- -------- -------- --------
* Impairment of investment - - 972 5,775
---------------------------------------- -------- -------- -------- --------
2,292 3,303 1,889 5,801
---------------------------------------- -------- -------- -------- --------
The exceptional items totalling GBP2,292,000 (2017: GBP3,303,000) include restructuring costs relating to redundancy costs, professional fees, relating to the ongoing reorganisation in the UK and additionally in the prior year the costs of running the Margate site. In addition, there are costs relating to the 2017 equity issue and bank refinancing plus fees relating to the EGM and the Phoenix Mandatory Offer for shares.
The Company's exceptional items include GBP972,000 (2017: GBP5,775,000) in respect of impairment charges against investments in the Spanish, Italian and German subsidiaries following the restructuring of the senior management team and the associated forecasts.
Services provided by the Company's auditors and network firms
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company's auditors and network firms as detailed below:
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------- -------- -------- -------- --------
Fees payable to the Company's auditors for
the audit of Parent Company and consolidated
accounts 55 50 10 10
------------------------------------------------- -------- -------- -------- --------
Fees payable to the Company's auditors and
its associates for other services:
------------------------------------------------- -------- -------- -------- --------
* The auditing of accounts of the Company's
subsidiaries 44 62 - -
------------------------------------------------- -------- -------- -------- --------
* Audit-related assurance services 5 5 - -
------------------------------------------------- -------- -------- -------- --------
* Other advisory work - 95 - -
------------------------------------------------- -------- -------- -------- --------
104 212 10 10
------------------------------------------------- -------- -------- -------- --------
In the current financial year the level of non-audit fees was within the 1:1 ratio to audit fees as per Audit Committee policy. Other advisory work relates to the raising of equity in the year to 31 March 2017.
5. INCOME TAX (CREDIT)/CHARGE
Analysis of tax (credit)/charge in the year
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------- -------- -------- --------
Current tax
---------------------------------------------------- -------- -------- -------- --------
- -
* UK taxation - -
---------------------------------------------------- -------- -------- -------- --------
adjustments in respect of prior years - - - -
---------------------------------------------------- -------- -------- -------- --------
* overseas taxation - 212 - -
---------------------------------------------------- -------- -------- -------- --------
adjustments in respect of prior years (212) 45 - -
---------------------------------------------------- -------- -------- -------- --------
(212) 257 - -
---------------------------------------------------- -------- -------- -------- --------
Deferred tax (note 20)
---------------------------------------------------- -------- -------- -------- --------
* current year - (199) - (94)
---------------------------------------------------- -------- -------- -------- --------
- - - -
* overseas taxation
---------------------------------------------------- -------- -------- -------- --------
- - - -
* adjustments in respect of prior years
---------------------------------------------------- -------- -------- -------- --------
* effect of tax rate change on opening balance - 99 - (6)
---------------------------------------------------- -------- -------- -------- --------
- (100) - (100)
---------------------------------------------------- -------- -------- -------- --------
Total tax (credit)/charge to the loss before
tax (212) 157 - (100)
---------------------------------------------------- -------- -------- -------- --------
The tax for the year differs to the standard rate of corporation tax in the UK of 19%. Any differences are explained below:
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- -------- -------- -------- --------
Loss before taxation (10,066) (9,509) (1,838) (5,725)
----------------------------------------------- -------- -------- -------- --------
Loss on ordinary activities multiplied by rate
of
----------------------------------------------- -------- -------- -------- --------
Corporation tax in UK of 19% (2017: 20%) (1,913) (1,902) (349) (1,145)
----------------------------------------------- -------- -------- -------- --------
Effects of:
----------------------------------------------- -------- -------- -------- --------
Adjustments to tax in respect of prior years (212) 45 - -
----------------------------------------------- -------- -------- -------- --------
Permanent differences (19) 83 205 868
----------------------------------------------- -------- -------- -------- --------
Difference on overseas rates of tax (131) (110) - -
----------------------------------------------- -------- -------- -------- --------
Deferred tax not recognised 2,063 1,942 144 183
----------------------------------------------- -------- -------- -------- --------
Remeasurement of deferred tax
----------------------------------------------- -------- -------- -------- --------
* change in UK tax rate to 17% (2017:17%) - 99 - (6)
----------------------------------------------- -------- -------- -------- --------
Total taxation (212) 157 - (100)
----------------------------------------------- -------- -------- -------- --------
The Company's profits for this accounting year are taxed at an effective rate of 19%. The UK corporation tax rate is due to decrease further to 17% on 1 April 2020.
UK deferred tax balances have been restated in these accounts and carried forward at a rate of 17%, being the current rate substantively enacted for periods from 1 April 2020 onwards.
Unrecognised deferred tax relates to UK and overseas subsidiaries and is not recognised due the Directors taking the view that it would be inappropriate to recognise further deferred tax assets relating to losses until taxable profits are being delivered by the Group. More detail can be found in Note 20.
6. DIVIDS
No interim or final dividends were paid in relation to the year ended 31 March 2017 and no interim dividend has been paid in relation to the year ended 31 March 2018. The Directors are not proposing a final dividend in respect of the financial year ended 31 March 2018.
7. LOSS PER SHARE
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust (note 22) which are treated as cancelled.
For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares that have satisfied the appropriate performance criteria at 31 March 2018. For the year ended 31 March 2018, there was no difference in the weighted average number of shares used for basic and diluted net loss per ordinary because their inclusion would be anti-dilutive.
Reconciliations of the loss and weighted average number of shares used in the calculations are set out below.
2018 2017
================================== ==================================
Weighted Weighted
average average
(Loss) number Per-share (Loss) number Per-share
/ earnings of shares amount / earnings of shares amount
GBP'000 '000s pence GBP'000 '000s pence
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
REPORTED
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
Basic loss per share
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
Loss attributable to ordinary shareholders (9,854) 97,288 (10.13) (9,666) 76,384 (12.65)
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
Effect of dilutive securities
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
Options - - - - - -
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
Diluted loss per share (9,854) 97,288 (10.13) (9,666) 76,384 (12.65)
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
UNDERLYING
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
Loss attributable to ordinary shareholders (9,854) 97,288 (10.13) (9,666) 76,384 (12.65)
------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
Amortisation of intangibles 254 - 0.26 275 - 0.36
------------------------------------------- ----------- ---------- --------- ----------- ---------- --------- Restructuring costs 1,477 - 1.52 3,111 - 4.07 ------------------------------------------- ----------- ---------- --------- ----------- ---------- --------- Extraordinary General Meeting and Mandatory offer 323 - 0.33 - - - ------------------------------------------- ----------- ---------- --------- ----------- ---------- --------- Refinancing 57 - 0.06 755 - 0.99 ------------------------------------------- ----------- ---------- --------- ----------- ---------- --------- Profit on disposal of Property - - - (1,223) - (1.6) ------------------------------------------- ----------- ---------- --------- ----------- ---------- --------- Net foreign exchange translation adjustments (93) - (0.10) (328) - (0.43) ------------------------------------------- ----------- ---------- --------- ----------- ---------- --------- Underlying basic loss /EPS (7,836) 97,288 (8.05) (7,076) 76,384 (9.26) ------------------------------------------- ----------- ---------- --------- ----------- ---------- --------- Underlying diluted loss /EPS (7,836) 97,288 (8.05) (7,076) 76,384 (9.26) ------------------------------------------- ----------- ---------- --------- ----------- ---------- ---------
The above numbers used to calculate the EPS for the year ended 31 March 2018 and 31 March 2017 have been tax effected at the rate of 19% and 20% respectively.
8. GOODWILL
GROUP GBP'000 --------------------------------- ------- COST --------------------------------- ------- At 1 April 2017 13,045 --------------------------------- ------- Exchange adjustments 10 --------------------------------- ------- At 31 March 2018 13,055 --------------------------------- ------- AGGREGATE IMPAIRMENT --------------------------------- ------- At 1 April 2017 8,491 --------------------------------- ------- Charge for the year - --------------------------------- ------- Exchange adjustments - --------------------------------- ------- At 31 March 2018 8,491 --------------------------------- ------- Net book amount at 31 March 2018 4,564 --------------------------------- ------- COST --------------------------------- ------- At 1 April 2016 13,007 --------------------------------- ------- Exchange adjustments 38 --------------------------------- ------- At 31 March 2017 13,045 --------------------------------- ------- AGGREGATE IMPAIRMENT --------------------------------- ------- At 1 April 2016 8,491 --------------------------------- ------- Charge for the year - --------------------------------- ------- Exchange adjustments - --------------------------------- ------- At 31 March 2017 8,491 --------------------------------- ------- Net book amount at 31 March 2017 4,554 --------------------------------- ------- Net book amount at 31 March 2016 4,516 --------------------------------- -------
The Company has no goodwill.
The goodwill has been allocated to cash-generating units and a summary of carrying amounts of goodwill by geographical segment (representing cash-generating units) at 31 March 2018 and 31 March 2017 is as follows:
UK USA France Germany Total
GROUP GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------- --------- -------- --------
At 31 March 2018 3,992 9 365 198 4,564
----------------- -------- -------- --------- -------- --------
At 31 March 2017 3,992 10 358 194 4,554
----------------- -------- -------- --------- -------- --------
Goodwill allocated to the above cash-generating units of the Group has been measured based on benefits each geographical segment is expected to gain from the business combination.
Impairment tests for goodwill
Management reviews the business performance based on geography. Budgeted revenue was based on expected levels of activity given results to date, together with expected economic and market conditions. Budgeted operating profit was calculated based upon management's expectation of operating costs appropriate to the business as reflected in the New Business Plan.
The relative risk adjusted (or 'beta') discount rate applied reflects the risk inherent in hobby based product companies. In determining this discount rate, management has applied an adjustment for risk of such companies in the industry on average determined using the betas of comparable hobby based product companies. The forecasts are based on approved budgets for the year ending 31 March 2019 / 3 year business plan for the year ending 31 March 2021. Cash flows beyond the three-year period are extrapolated using an estimated 2% year on year growth rate. The cash flows were discounted using a pre-tax discount rate of 10.9% (2017: 13%) which management believes is appropriate for all territories.
The key assumptions used for value-in-use calculations for the year ended 31 March 2018 are as follows:
GROUP UK UK France Spain Italy Germany
------------------------------ ------- ------ ------ --------
(Corgi) (Airfix
& Humbrol)
------------------------------ -------- ------------ ------- ------ ------ --------
Gross Margin(1) 61.1% 63.3% 62.2% n/a n/a 56.9%
------------------------------ -------- ------------ ------- ------ ------ --------
Growth rate to perpetuity(2) 2.0% 2.0% 2.0% n/a n/a 2.0%
------------------------------ -------- ------------ ------- ------ ------ --------
1. Average of the variable yearly gross margins used over
the period 18'19 to 22'23.
2. Weighted average growth rate used to extrapolate cash
flows beyond the budget period.
The key assumptions used for value-in-use calculations for the
year ended 31 March 2017 are as follows:
GROUP UK UK France Spain Italy Germany
------------------------------ --------- ------ ------ ---------
(Corgi) (Airfix
& Humbrol)
------------------------------ --------- ------------ --------- ------ ------ ---------
EBITDA(1) 38.9%(1) 35.6%(1) 37.4%(2) n/a n/a 40.7%(2)
------------------------------ --------- ------------ --------- ------ ------ ---------
Growth rate to perpetuity(3) 1.0% 1.0% 1.0% n/a n/a 1.0%
------------------------------ --------- ------------ --------- ------ ------ ---------
1. Budgeted contribution: Corgi and Airfix / Humbrol.
2. Budgeted EBITDA: France and Germany.
3. Weighted average growth rate used to extrapolate cash flows beyond the budget period.
These assumptions have been used for the analysis of each CGU within the operating segments.
For the UK CGU, the recoverable amount calculated based on value in use exceeded carrying value by GBP14.7 million. A reduction of the average gross margin to respectively 56.0% for Corgi and 51.7% for Airfix / Humbrol, or a rise in discount rate to respectively 16.6% for Corgi and 51.9% for Airfix / Humbrol would remove the remaining headroom.
For the France CGU, the recoverable amount calculated based on value in use exceeded carrying value by GBP11.7 million. A reduction of the average gross margin to 13.5%, or a rise in discount rate to 220.4% would remove the remaining headroom.
For the Germany CGU, the recoverable amount calculated based on value in use exceeded carrying value by GBP9.2 million. A reduction of the average gross margin to 15.6%, or a rise in discount rate to 290.7% would remove the remaining headroom.
9. INTANGIBLE ASSETS
Brand Customer Computer
names lists Software Total
GROUP GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- --------- --------
INTANGIBLE ASSETS
--------------------------------- -------- -------- --------- --------
COST
--------------------------------- -------- -------- --------- --------
At 1 April 2017 4,914 1,415 2,555 8,884
--------------------------------- -------- -------- --------- --------
Additions - - 146 146
--------------------------------- -------- -------- --------- --------
At 31 March 2018 4,914 1,415 2,701 9,030
--------------------------------- -------- -------- --------- --------
ACCUMULATED AMORTISATION
--------------------------------- -------- -------- --------- --------
At 1 April 2017 2,526 1,333 811 4,670
--------------------------------- -------- -------- --------- --------
Charge for the year 232 82 678 992
--------------------------------- -------- -------- --------- --------
At 31 March 2018 2,758 1,415 1,489 5,662
--------------------------------- -------- -------- --------- --------
Net book amount at 31 March 2018 2,156 - 1,212 3,368
--------------------------------- -------- -------- --------- --------
Brand Customer Computer
names lists Software Total
GROUP GBP'000 GBP'000 GBP'000s GBP'000
--------------------------------- -------- -------- --------- --------
INTANGIBLE ASSETS
--------------------------------- -------- -------- --------- --------
COST
--------------------------------- -------- -------- --------- --------
At 1 April 2016 4,813 1,405 2,329 8,547
--------------------------------- -------- -------- --------- --------
Additions - - 226 226
--------------------------------- -------- -------- --------- --------
Exchange adjustments 101 10 - 111
--------------------------------- -------- -------- --------- --------
At 31 March 2017 4,914 1,415 2,555 8,884
--------------------------------- -------- -------- --------- --------
ACCUMULATED AMORTISATION
--------------------------------- -------- -------- --------- --------
At 1 April 2016 2,203 1,228 339 3,770
--------------------------------- -------- -------- --------- --------
Charge for the year 249 95 472 816
--------------------------------- -------- -------- --------- --------
Exchange adjustments 74 10 - 84
--------------------------------- -------- -------- --------- --------
At 31 March 2017 2,526 1,333 811 4,670
--------------------------------- -------- -------- --------- --------
Net book amount at 31 March 2017 2,388 82 1,744 4,214
--------------------------------- -------- -------- --------- --------
All amortisation charges in the year have been charged in other operating expenses. The Company held no intangible assets.
10. PROPERTY, PLANT AND EQUIPMENT
GROUP Plant and equipment Motor Tools and moulds Total
GBP'000 Vehicles
---------------------------------- --------------------
GBP'000 GBP'000 GBP'000
---------------------------------- -------------------- ---------- ----------------- --------
COST
---------------------------------- -------------------- ---------- ----------------- --------
At 1 April 2017 4,882 198 61,672 66,752
----------------------------------- -------------------- ---------- ----------------- --------
Exchange adjustments (14) (4) - (18)
----------------------------------- -------------------- ---------- ----------------- --------
Additions at cost 57 - 1,591 1,648
----------------------------------- -------------------- ---------- ----------------- --------
Disposals (3,358) (160) (11) (3,529)
----------------------------------- -------------------- ---------- ----------------- --------
At 31 March 2018 1,567 34 63,252 64,853
----------------------------------- -------------------- ---------- ----------------- --------
ACCUMULATED DEPRECIATION
---------------------------------- -------------------- ---------- ----------------- --------
At 1 April 2017 4,291 196 56,582 61,069
----------------------------------- -------------------- ---------- ----------------- --------
Exchange adjustments (8) (2) - (10)
----------------------------------- -------------------- ---------- ----------------- --------
Charge for the year 237 - 2,584 2,821
----------------------------------- -------------------- ---------- ----------------- --------
Disposals (3,345) (160) (11) (3,516)
----------------------------------- -------------------- ---------- ----------------- --------
At 31 March 2018 1,175 34 59,155 60,364
----------------------------------- -------------------- ---------- ----------------- --------
Net book amount at 31 March 2018 392 - 4,097 4,489
----------------------------------- -------------------- ---------- ----------------- --------
Depreciation is charged in the Group's statement of comprehensive income within Administrative expenses.
GROUP Plant and equipment Motor Tools and moulds Total
GBP'000 Vehicles
---------------------------------- --------------------
GBP'000 GBP'000 GBP'000
---------------------------------- -------------------- ---------- ----------------- --------------
COST
---------------------------------- -------------------- ---------- ----------------- --------------
At 1 April 2016 6,806 194 58,801 65,801
----------------------------------- -------------------- ---------- ----------------- --------------
Exchange adjustments 51 4 1,172 1,227
----------------------------------- -------------------- ---------- ----------------- --------------
Additions at cost 57 - 1,699 1,756
----------------------------------- -------------------- ---------- ----------------- --------------
Disposals (2,032) - - (2,032)
----------------------------------- -------------------- ---------- ----------------- --------------
At 31 March 2017 4,882 198 61,672 66,752
----------------------------------- -------------------- ---------- ----------------- --------------
ACCUMULATED DEPRECIATION
---------------------------------- -------------------- ---------- ----------------- --------------
At 1 April 2016 5,536 194 52,879 58,609
----------------------------------- -------------------- ---------- ----------------- --------------
Exchange adjustments 34 1 1,005 1,040
----------------------------------- -------------------- ---------- ----------------- --------------
Charge for the year 337 1 2,698 3,036
----------------------------------- -------------------- ---------- ----------------- --------------
Disposals (1,616) - - (1,616)
----------------------------------- -------------------- ---------- ----------------- --------------
At 31 March 2017 4,291 196 56,582 61,069
----------------------------------- -------------------- ---------- ----------------- --------------
Net book amount at 31 March 2017 591 2 5,090 5,683
----------------------------------- -------------------- ---------- ----------------- --------------
Net book amount at 31 March 2016 1,270 - 5,922 7,192
----------------------------------- -------------------- ---------- ----------------- --------------
The Company does not hold any assets
11. INVESTMENTS
GROUP
The movements in the net book value of interests in subsidiary undertakings are as follows:
Interests in subsidiary
undertakings at valuation
GBP'000
--------------------------------------------------- --------------------------
At 1 April 2017 -
--------------------------------------------------- --------------------------
Acquisition of 49% of LCD Enterprises 1,600
--------------------------------------------------- --------------------------
Share of profit of investments accounted for using
the equity method 15
--------------------------------------------------- --------------------------
At 31 March 2018 1,615
--------------------------------------------------- --------------------------
COMPANY
The movements in the net book value of interests in subsidiary undertakings are as follows:
Interests Loans
in subsidiary to subsidiary
undertakings undertakings
at valuation at cost Total
GBP'000 GBP'000 GBP'000
----------------------------------------------------- -------------- -------------- --------
At 1 April 2017 17,823 4,834 22,657
----------------------------------------------------- -------------- -------------- --------
Acquisition of 49% of LCD Enterprises 1,600 - 1,600
----------------------------------------------------- -------------- -------------- --------
Share of profit of investments accounted for using
the equity method 15 - 15
----------------------------------------------------- -------------- -------------- --------
Impairment of investment in subsidiary undertakings (972) - (972)
----------------------------------------------------- -------------- -------------- --------
At 31 March 2018 18,466 4,834 23,300
----------------------------------------------------- -------------- -------------- --------
At 1 April 2016 23,564 4,834 28,398
----------------------------------------------------- -------------- -------------- --------
Capital contribution relating to share-based payment 34 - 34
----------------------------------------------------- -------------- -------------- --------
Net increase in loans to subsidiary undertaking - - -
----------------------------------------------------- -------------- -------------- --------
Impairment of investment in subsidiary undertakings (5,775) - (5,775)
----------------------------------------------------- -------------- -------------- --------
At 31 March 2017 17,823 4,834 22,657
----------------------------------------------------- -------------- -------------- --------
Interest was charged on loans to subsidiary undertakings at Sterling three-month Libor + 3.6%.
Loans are unsecured and exceed five years' maturity.
The impairment of investments in the year relates to a write down to the investments held in Italy, Germany, and Spain. The impairment testing performed is on the same basis as the Goodwill impairment tests disclosed in Note 8.
GROUP SUBSIDIARY UNDERTAKINGS
Details of the subsidiaries of the Group are set out below. Hornby Hobbies Limited. is engaged in the development, design, sourcing and distribution of models. Hornby America Inc., Hornby Italia s.r.l., Hornby France S.A.S, Hornby España S.A. and Hornby Deutschland GmbH are distributors of models. Hornby Industries Limited and H&M (Systems) Limited are dormant companies. All subsidiaries are held directly by Hornby PLC.
Proportion
of nominal
value of issued
shares held
==================
Country of incorporation,
registration Description of Group Company
and business shares held % %
---------------- ------- ---------
Discovery Park,
Sandwich, Kent
Hornby Hobbies Limited CT13 9FF, UK Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
3900 Industry
Dr E, Fife, WA
Hornby America Inc. 98424, USA Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
C/Federico Chueca,
S/N, E28806 ALCALA
Hornby España S.A DE HENARES Spain Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
Viale dei Caduti,
52/A6 25030 Castel
Mella (Brescia),
Hornby Italia s.r.l. Italy Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
31 Bis rue des
Longs Pres, 92100
Boulogne, Billancourt,
Hornby France S.A.S. France Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
Oeslauer StraBe
36, 96472, Rodental,
Hornby Deutschland GmbH Germany Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
Discovery Park,
Sandwich, Kent
Hornby Industries Limited CT13 9FF, UK Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
Discovery Park,
Sandwich, Kent
H&M (Systems) Limited CT13 9FF, UK Ordinary shares 100 100
-------------------------- -------------------------- ---------------- ------- ---------
The Group also holds a direct investment in LCD Enterprises Limited, holding 49% of ordinary shares. This investment is accounted for as an associate and is a trading company registered at Unit 6 119 Ystrad Road, Fforestfach, Swansea, Wales, SA5 4JB.
12. INVENTORIES
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- -------- --------
Finished goods 10,030 9,680 - -
--------------- -------- -------- -------- --------
10,030 9,680 - -
--------------- -------- -------- -------- --------
Movements on the Group provision for impairment of inventory
is as follows:
2018 2017
---------------------------------------------------
GBP'000 GBP'000
--------------------------------------------------- ----------- --------
At 1 April 796 1,442
--------------------------------------------------- ----------- --------
Provision for inventory impairment 505 (234)
--------------------------------------------------- ----------- --------
Inventory written-off during the year (340) (423)
--------------------------------------------------- ----------- --------
Exchange adjustments (3) 11
--------------------------------------------------- ----------- --------
At 31 March 958 796
--------------------------------------------------- ----------- --------
13. TRADE AND OTHER RECEIVABLES
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- -------- -------- -------- --------
CURRENT:
---------------------------------------------- -------- -------- -------- --------
Trade receivables 5,931 8,884 - -
---------------------------------------------- -------- -------- -------- --------
Less: provision for impairment of receivables (1,458) (1,026) - -
---------------------------------------------- -------- -------- -------- --------
Trade receivables - net 4,473 7,858 - -
---------------------------------------------- -------- -------- -------- --------
Other receivables 358 803 - -
---------------------------------------------- -------- -------- -------- --------
Prepayments 1,118 585 9 48
---------------------------------------------- -------- -------- -------- --------
Amounts owed by subsidiary undertaking - - 33,520 24,061
---------------------------------------------- -------- -------- -------- --------
5,949 9,246 33,529 24,109
---------------------------------------------- -------- -------- -------- --------
Concentrations of credit risk with respect to trade receivables are limited due to the Group's customer base being large and unrelated and therefore the provision for receivables impairments are deemed adequate.
Gross trade receivables can be analysed as follows:
2018 2017
GBP'000 GBP'000
------------------ -------- --------
Fully performing 3,131 4,823
------------------ -------- --------
Past due 1,342 3,035
------------------ -------- --------
Fully impaired 1,458 1,026
------------------ -------- --------
Trade receivables 5,931 8,884
------------------ -------- --------
As of 31 March 2018, trade receivables of GBP1,342,000 (2017: GBP3,035,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
2018 2017
GBP'000 GBP'000
---------------- -------- --------
1 - 120 days 1,077 2,257
---------------- -------- --------
* 120 days 265 778
---------------- -------- --------
1,342 3,035
---------------- -------- --------
As of 31 March 2018, trade receivables of GBP1,458,000 (2017: GBP1,026,000) were impaired and provided for in full.
Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or financial reorganisation are considered indications that the trade receivable is impaired.
The ageing of these receivables, based on due date, is as follows:
2018 2017
GBP'000 GBP'000
---------------- -------- --------
1 - 120 days 356 233
---------------- -------- --------
* 120 days 1,102 793
---------------- -------- --------
1,458 1,026
---------------- -------- --------
Movements on the Group provision for impairment of trade receivables is as follows:
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
At 1 April 1,026 540
--------------------------------------------------------- -------- --------
Provision for receivables impairment 473 450
--------------------------------------------------------- -------- --------
Receivables written-off during the year as uncollectible (31) (53)
--------------------------------------------------------- -------- --------
Exchange adjustments (10) 89
--------------------------------------------------------- -------- --------
At 31 March 1,458 1,026
--------------------------------------------------------- -------- --------
The charge relating to the movement in provision has been included in 'administrative expenses' in the Statement of Comprehensive Income.
The carrying amounts of the Group and Company trade and other receivables except prepayments and Amounts owed by subsidiary undertaking are denominated in the following currencies:
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- -------- -------- --------
Sterling Intercompany - - 33,520 24,061
---------------------- -------- -------- -------- --------
Sterling 3,764 5,440 - -
---------------------- -------- -------- -------- --------
Euro 934 2,628 - -
---------------------- -------- -------- -------- --------
US Dollar 133 593 - -
---------------------- -------- -------- -------- --------
HK Dollar - - - -
---------------------- -------- -------- -------- --------
4,831 8,661 33,520 24,061
---------------------- -------- -------- -------- --------
14. CASH AND CASH EQUIVALENTS
Group Company
==================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- ---------- -------- --------
Cash at bank and in hand 3,878 1,580 4 6
------------------------- -------- ---------- -------- --------
15. TRADE AND OTHER PAYABLES
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------
CURRENT:
-------------------------------- -------- -------- -------- --------
Trade payables 2,245 3,212 - -
-------------------------------- -------- -------- -------- --------
Other taxes and social security 226 677 12 4
-------------------------------- -------- -------- -------- --------
Other payables 51 655 - -
-------------------------------- -------- -------- -------- --------
Accruals 1,790 2,120 146 23
-------------------------------- -------- -------- -------- --------
4,312 6,664 158 27
-------------------------------- -------- -------- -------- --------
16. PROVISIONS
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- -------- -------- -------- --------
Sales returns
-------------------------------------------- -------- -------- -------- --------
At 1 April 196 446 - -
-------------------------------------------- -------- -------- -------- --------
Charge to Statement of Comprehensive Income 636 811 - -
-------------------------------------------- -------- -------- -------- --------
Utilised in the year (658) (1,061) - -
-------------------------------------------- -------- -------- -------- --------
At 31 March 174 196 - -
-------------------------------------------- -------- -------- -------- --------
Provision is made for future sales returns based on historical trends. The provision is expected to be utilised within one year from the balance sheet date.
17. CURRENT TAX ASSETS AND LIABILITIES
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- -------- --------
Current tax assets
------------------------------------- -------- -------- -------- --------
UK Corporation tax recoverable - 50 - 50
------------------------------------- -------- -------- -------- --------
Overseas Corporation tax recoverable - - - -
------------------------------------- -------- -------- -------- --------
- 50 - 50
------------------------------------- -------- -------- -------- --------
Current tax liabilities
------------------------------------- -------- -------- -------- --------
UK Corporation tax liability - - - -
------------------------------------- -------- -------- -------- --------
Overseas Corporation tax liability - 212 - -
------------------------------------- -------- -------- -------- --------
- 212 - -
------------------------------------- -------- -------- -------- --------
18. BORROWINGS
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------- -------- -------- --------
Secured borrowing at amortised cost
------------------------------------------- -------- -------- -------- --------
Bank overdrafts - 82 - -
------------------------------------------- -------- -------- -------- --------
Loan from subsidiary undertakings - - 5,849 5,518
------------------------------------------- -------- -------- -------- --------
- 82 5,849 5,518
------------------------------------------- -------- -------- -------- --------
Total borrowings
------------------------------------------- -------- -------- -------- --------
Amount due for settlement within 12 months - 82 - -
------------------------------------------- -------- -------- -------- --------
Amount due for settlement after 12 months - - 5,849 5,518
------------------------------------------- -------- -------- -------- --------
- 82 5,849 5,518
------------------------------------------- -------- -------- -------- --------
The Company borrowings are denominated in Sterling. All intercompany borrowings are formalised by way of loan agreements. The loans can be repaid at any time however the Company has received confirmation from its subsidiary that they will not require payment within the next twelve months.
Analysis of borrowings by currency:
Sterling Euros Total
GROUP GBP'000 GBP'000 GBP'000
---------------- -------- -------- --------
31 March 2018
---------------- -------- -------- --------
Bank overdrafts - - -
---------------- -------- -------- --------
- - -
---------------- -------- -------- --------
31 March 2017
---------------- -------- -------- --------
Bank overdrafts 82 - 82
---------------- -------- -------- --------
82 - 82
---------------- -------- -------- --------
The principal features of the Group's borrowings are as follows:
At 31 March 2018 the Group had a revolving credit facility of GBP6,000,000 expiring December 2019 and the future interest rates on this facility are Libor + 3.5%.
The average effective interest rate on bank overdrafts in place during the year to 31 March 2018 approximated 3.95% (2016: 3.4%) per annum and is determined based on 3.5% (2016: 2.9%) above three-month Libor.
Net cash at bank and bank overdrafts of GBP3,878,000 (2017: GBP1,498,000) are with financial institutions with a credit rating of A2 per Moody's rating agency.
Undrawn borrowing facilities
At 31 March 2018, the Group had available GBP6,000,000 (2017: GBP7,668,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.
Change in facilities
On 5 June 2018 the Group signed a GBP12 million Asset Based Lending facility with PNC Credit Limited (ending June 2023) and a GBP6 million loan facility with Phoenix Asset Management Partners Limited (initial term of three years and then rolling annually).
19. FINANCIAL INSTRUMENTS
The Group's policies and strategies in relation to risk and financial instruments are detailed in note 1.
Assets Liabilities
================== ==================
2018 2017 2018 2017
GROUP GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------- -------- -------- --------
Carrying values of derivative financial instruments
---------------------------------------------------- -------- -------- -------- --------
Forward foreign currency contracts - cash flow
hedges - 120 (423) (190)
---------------------------------------------------- -------- -------- -------- --------
The hedged forecast transactions denominated in foreign currency are expected to occur at various dates during the next 12 months. Gains and losses recognised in reserves on forward foreign exchange contracts as of 31 March 2018 are recognised in the Statement of Comprehensive Income first in the period or periods during which the hedged forecast transaction affects the Statement of Comprehensive Income, which is within twelve months from the balance sheet date.
At 31 March 2018 and 31 March 2017, the gross value of forward currency contracts was as follows:
2018 2017
'000s '000s
---------- ------ ------
US Dollar 13,916 12,718
---------- ------ ------
The net fair value for the forward foreign currency contracts is a liability of GBP423,000 (2017: GBP70,000 liability) of which GBP423,000 net liability (2017: GBP70,000 net liability) represents an effective hedge at 31 March 2018 and has therefore been debited to Other Comprehensive Income in accordance with IAS 39.
In accordance with IAS 39, the Group has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard. No embedded derivatives have been identified.
The Company has no derivative financial instruments.
Fair values of non-derivative financial assets and liabilities
For the Group and the Company, as at 31 March 2018 and 31 March 2017, there is no difference between the carrying amount and fair value of each of the following classes of financial assets and liabilities, principally due to their short maturity: trade and other receivables, cash at bank and in hand, trade and other payables and current borrowings. Bank deposits attract interest within 1.0% of the ruling market rate. There is no significant difference between the fair value and carrying amount of non-current borrowings as the impact of discounting is not significant.
Maturity of financial liabilities
Accounts
payable 2018
and accruals Total
GBP'000s GBP'000
--------------------------- ------------- --------
Less than one year 4,312 4,312
--------------------------- ------------- --------
Between one and two years - -
--------------------------- ------------- --------
Between two and five years - -
--------------------------- ------------- --------
More than five years - -
--------------------------- ------------- --------
4,312 4,312
--------------------------- ------------- --------
2018 2017
Intercompany Intercompany
Debt Debt
COMPANY GBP'000 GBP'000
------------------------------- ------------- -------------
More than five years (note 18) 5,849 5,518
------------------------------- ------------- -------------
HIERARCHY OF FINANCIAL INSTRUMENTS
The following tables present the Group's assets and liabilities that are measured at fair value at 31 March 2018 and 31 March 2017. The table analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
-- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).
-- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
There were no transfers or reclassifications between Levels within the year. Level 2 hedging derivatives comprise forward foreign exchange contracts and have been fair valued using forward exchange rates that are quoted in an active market. The effects of discounting are generally insignificant for Level 2 derivatives.
The fair value of the following financial assets and liabilities approximate their carrying amount: Trade and other receivables, other current financial assets, cash and cash equivalents (excluding bank overdrafts), trade and other payables.
Financial Instruments
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- --------
Assets
----------------------------------- -------- -------- -------- --------
Derivatives used for hedging - - - -
----------------------------------- -------- -------- -------- --------
Total assets as at 31 March 2018 - - - -
----------------------------------- -------- -------- -------- --------
Liabilities
----------------------------------- -------- -------- -------- --------
Derivatives used for hedging - (423) - (423)
----------------------------------- -------- -------- -------- --------
Total liabilities at 31 March 2018 - (423) - (423)
----------------------------------- -------- -------- -------- --------
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- --------
Assets
----------------------------------- -------- -------- -------- --------
Derivatives used for hedging - 120 - 120
----------------------------------- -------- -------- -------- --------
Total assets as at 31 March 2017 - 120 - 120
----------------------------------- -------- -------- -------- --------
Liabilities
----------------------------------- -------- -------- -------- --------
Derivatives used for hedging - (190) - (190)
----------------------------------- -------- -------- -------- --------
Total liabilities at 31 March 2017 - (190) - (190)
----------------------------------- -------- -------- -------- --------
Interest rate sensitivity
The Group is exposed to interest rate risk as the Group borrows funds at both fixed and floating interest rates. The exposure to these borrowings varies during the year due to the seasonal nature of cash flows relating to sales.
In order to measure risk, floating rate borrowings and the expected interest costs are forecast on a monthly basis and compared to budget using management's expectations of a reasonably possible change in interest rates.
The effect on both income and equity based on exposure to borrowings at the balance sheet date for a 1% increase in interest rates is GBP3,000 (2017: GBP41,000) before tax. A 1% fall in interest rates gives the same but opposite effect. 1% is considered an appropriate benchmark given the minimum level of movement in the UK interest rate over recent years and expectation over the next financial year given the minimum level of movement in the UK interest rate over recent years and expectation over the next financial year.
Foreign currency sensitivity in respect of financial instruments
The Group is primarily exposed to fluctuations in US Dollars, and the Euro. The following table details how the Group's income and equity would increase on a before tax basis, given a 10% revaluation in the respective currencies against Sterling and in accordance with IFRS 7 all other variables remaining constant. A 10% devaluation in the value of Sterling would have the opposite effect. The 10% change represents a reasonably possible change in the specified foreign exchange rates in relation to Sterling.
Comprehensive
Income and
Equity Sensitivity
=====================
2018 2017
GBP'000 GBP'000
----------- ---------- ---------
US dollars 1,356 1,308
----------- ---------- ---------
Euros 964 1,163
----------- ---------- ---------
2,320 2,471
----------- ---------- ---------
Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net (cash)/debt divided by total capital. Net debt is calculated as total borrowings as shown in the consolidated balance sheet less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the balance sheet plus net debt.
2018 2017
GBP'000 GBP'000
------------------------------------------ -------- --------
Total borrowings (note 18) - 82
------------------------------------------ -------- --------
Less:
------------------------------------------ -------- --------
Total cash and cash equivalents (note 14) (3,878) (1,580)
------------------------------------------ -------- --------
Net (cash)/debt (3,878) (1,498)
------------------------------------------ -------- --------
Total equity 30,864 29,663
------------------------------------------ -------- --------
Total capital 26,986 28,165
------------------------------------------ -------- --------
Gearing -14% -5%
------------------------------------------ -------- --------
20. DEFERRED TAX
Deferred tax is calculated in full on temporary differences under the liability method.
The movement on the deferred tax account is as shown below:
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------- -------- -------- --------
At 1 April (1,880) (1,780) - 100
-------------------------------------------------- -------- -------- -------- --------
Charge to Statement of Comprehensive Income
(note 5) - origination and reversal of temporary
differences - (100) - (100)
-------------------------------------------------- -------- -------- -------- --------
At 31 March (1,880) (1,880) - -
-------------------------------------------------- -------- -------- -------- --------
Deferred tax assets have been recognised in respect of certain UK timing differences only. Temporary differences giving rise to deferred tax assets have been recognised in the UK where it is probable that those assets will be recovered.
No deferred tax is provided for tax liabilities which would arise on the distribution of profits retained by overseas subsidiaries because there is currently no intention that such profits will be remitted.
The movements in deferred tax assets and liabilities during the year are shown below.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset.
Acquisition
Revaluation intangibles Total Revaluation Total
Deferred tax liabilities GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------- ------------ -------- ----------- --------
At 1 April 2017 - 94 94 - -
------------------------- ----------- ------------ -------- ----------- --------
Charge to Statement of
Comprehensive Income - 56 56 - -
------------------------- ----------- ------------ -------- ----------- --------
At 31 March 2018 - 150 150 - -
------------------------- ----------- ------------ -------- ----------- --------
At 1 April 2016 100 111 211 100 100
------------------------- ----------- ------------ -------- ----------- --------
Credit to Statement of
Comprehensive Income (100) (17) (117) (100) (100)
------------------------- ----------- ------------ -------- ----------- --------
At 31 March 2017 - 94 94 - -
------------------------- ----------- ------------ -------- ----------- --------
Group Company
Deferred tax assets Acquisition Other Total Short-term Total
intangibles incentive
plan
--------------------------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ------------- -------- -------- ----------- ---------------
At 1 April 2017 - (1,974) (1,974) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
Credit to Statement of Comprehensive
Income - (56) (56) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
At 31 March 2018 - (2,030) (2,030) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
At 1 April 2016 - (1,991) (1,991) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
Charge to Statement of Comprehensive
Income - 17 17 - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
At 31 March 2017 - (1,974) (1,974) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
Net deferred tax liability/(asset) 150 (2,030) (1,880) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
At 31 March 2018 - - (1,880) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
At 31 March 2017 - - (1,880) - -
--------------------------------------- ------------- -------- -------- ----------- ---------------
2018 2017
========================== ==========================
Recognised Not recognised Recognised Not recognised
GROUP GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- -------------- ---------- --------------
Deferred tax comprises:
--------------------------------------------- ---------- -------------- ---------- --------------
Depreciation in excess of capital allowances (1,891) (514) (1,901) (71)
--------------------------------------------- ---------- -------------- ---------- --------------
Other temporary differences - UK 11 (2,539) 21 (1,510)
--------------------------------------------- ---------- -------------- ---------- --------------
Other temporary differences - overseas - (2,797) - (2,537)
--------------------------------------------- ---------- -------------- ---------- --------------
Deferred tax asset (1,880) (5,850) (1,880) (4,118)
--------------------------------------------- ---------- -------------- ---------- --------------
The UK deferred tax asset not recognised of GBP3,053,000 primarily relates to unrecognised losses in Hornby Hobbies Limited of GBP13,746,000 (potential deferred tax asset of GBP2,337,000) and Hornby PLC of GBP1,190,000 (potential deferred tax asset of GBP202,000). It also relates to a potential deferred tax asset in respect of accelerated capital allowances of GBP514,000.
The deferred tax asset not recognised in respect of overseas losses carried forward of GBP2,797,000 relates to losses carried forward of GBP1,569,000 in respect of Hornby Espana SA (potential deferred tax asset of GBP392,000), GBP2,351,000 in respect of Hornby France SAS (potential deferred tax asset of GBP784,000), GBP1,850,000 in respect of Hornby Deutschland GmbH (potential deferred tax asset of GBP590,000), GBP3,734,000 in respect of Hornby Italia srl (potential deferred tax asset of GBP896,000) and GBP538,000 in respect of Hornby America Inc (potential deferred tax asset of GBP135,000).
No deferred tax has been recognised on the losses incurred as there is not a high degree of certainty that they will be recovered in the future.
2018 2017
========================== ==========================
Recognised Not recognised Recognised Not recognised
COMPANY GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ---------- -------------- ---------- --------------
Deferred tax comprises:
------------------------------- ---------- -------------- ---------- --------------
Accelerated capital allowances - - - -
------------------------------- ---------- -------------- ---------- --------------
Other timing differences - (202) - (108)
------------------------------- ---------- -------------- ---------- --------------
Deferred tax (asset)/liability - (202) - (108)
------------------------------- ---------- -------------- ---------- --------------
These unrecognised assets relate to tax losses carried forward in Hornby PLC.
21. SHARE CAPITAL
GROUP AND COMPANY
Allotted, issued and fully paid:
2018 2017
--------------------------- ========================= =========================
Ordinary shares of 1p each Number of shares GBP'000 Number of shares GBP'000
--------------------------- ---------------- ------- ---------------- -------
At 1 April 84,583,204 846 54,953,574 550
--------------------------- ---------------- ------- ---------------- -------
Issue of ordinary shares 40,677,968 407 29,629,630 296
--------------------------- ---------------- ------- ---------------- -------
At 31 March 125,261,172 1,253 84,583,204 846
--------------------------- ---------------- ------- ---------------- -------
On 7 December 2017 the Company issued 40,677,968 Ordinary 1 pence shares for 29.5 pence per share, for net proceeds totalling GBP12,000,000. At 31 March 2018 there were no options granted under the Company's share option schemes which remained outstanding.
22. SHARE-BASED PAYMENTS ('PSP')
Performance Share Plan
The Group operates the Performance Share Plan ('PSP') for Executive Directors and senior executives. Awards under the scheme are granted in the form of a nil-priced option and are satisfied using market-purchased shares.
PSP awards outstanding only if performance conditions are met. Awards granted under the PSP must be exercised within one year of the relevant award vesting date.
On 23 June 2017 Phoenix UK Fund Limited put forward a mandatory unconditional cash offer by Phoenix UK Fund for the Hornby shares not already held by members of the Phoenix Concert Party. As part of the rules of the PSP scheme this automatically caused the 2016-17 PSP awards to vest. Following on from the change of ownership and due to the subsequent changes to the board no PSP awards have been made in 2018. All the remaining PSP awards have now either vested as a result of the takeover offer or have lapsed.
There are no awards outstanding at 31 March 2018.
All plans are subject to continued employment. To the extent that such shares in the above plans are awarded to employees below fair value, a charge calculated in accordance with IFRS 2 'Share-based payment' is included within other operating expenses in the Statement of Comprehensive Income. This credit for the Group amounts to GBP95,000, of which GBP87,000 has been taken to reserves and GBP9,000 to accruals representing the corresponding credit of National Insurance, and the charge for the Company amounted to GBP202,000 in the year ended 31 March 2018 (2017: GBP110,000 charge for the Group amount and the charge for the Company amounted to GBP16,000).
The following table summarises the key assumptions used for grants during the year:
2018 PSP(1) 2017 PSP(1)
----------------------------- ----------- -------------
Fair value (p) - 11.13p
----------------------------- ----------- -------------
- Black Scholes
Options pricing model used (Stochastic)
----------------------------- ----------- -------------
Share price at grant date
(p) - 29.0p
----------------------------- ----------- -------------
Exercise price (p) - nil
----------------------------- ----------- -------------
Expected volatility (%) - 58.00%
----------------------------- ----------- -------------
Risk-free rate (%) - n/a
----------------------------- ----------- -------------
Expected option term (years) - 2.5
----------------------------- ----------- -------------
Expected dividends (per
year, %) - 0%
----------------------------- ----------- -------------
(1) Assumptions for TSR component only.
Assumptions on expected volatility and expected option term have been made on the basis of historical data, wherever available, for the period corresponding with the vesting period of the option. Best estimates have been used where historical data is not available in this respect.
At 31 March 2018, outstanding awards to Directors under the Performance Share Plan were as follows:
Vesting Market At 1-Apr Awarded Lapsed Vested At 31-Mar
date price at 2017 during during during 2018
Award date award date year year year
----------- ----------- -------- ----------- --------- ------- --------- ------- ---------
S Cooke Aug-15 Aug-18 105.0p 190,476 - 190,476 - -
Dec-16 Mar-19 29.0p 2,136,752 - 1,914,209 222,543 -
----------- -------------------- ----------- --------- ------- --------- ------- ---------
R Canham Dec-16 Mar-19 29.0p 170,940 - 153,157 17,803 -
----------- ----------- -------- ----------- --------- ------- --------- ------- ---------
D Mulligan Dec-16 Mar-19 29.0p 598,290 - 535,978 62,312 -
----------- ----------- -------- ----------- --------- ------- --------- ------- ---------
For the 2015 awards the outstanding awards lapsed during the year.
For the 2016 awards, the award is subject to a TSR condition which are measured over a period of three financial years from 1 April 2016 to 31 March 2019. For the TSR condition, 25% of the award will vest if Hornby's TSR is equal to 15% compound annual growth each year, 75% vesting for 25% compound annual growth each year, with full vesting for 35% compound annual growth each year, with a sliding scale operating between these points. Additionally, for the award to vest, in the year ending 31 March 2019 operating cashflow has to be positive and profit before tax has to equal or exceed GBP1.5 million.
23. RESERVES
Capital Redemption Reserve
This reserve records the nominal value of shares repurchased by the company.
Translation Reserve
The translation reserve represents the foreign exchange movements arising from the translation of financial statements in foreign currencies.
Hedging Reserve
The hedging reserve comprises the effective portion of changes in the fair value of forward foreign exchange contracts that have not yet occurred.
Other Reserves
This reserve represents historic negative goodwill arising prior to the transition to IFRS.
24. EMPLOYEES AND DIRECTORS
Group Company
================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- -------- -------- -------- --------
Staff costs for the year:
----------------------------------------------- -------- -------- -------- --------
Wages and salaries 6,935 8,541 615 871
----------------------------------------------- -------- -------- -------- --------
Share-based payments (note 22) (87) 94 202 76
----------------------------------------------- -------- -------- -------- --------
Social security costs 707 911 90 104
----------------------------------------------- -------- -------- -------- --------
Other pension costs (note 25) 357 442 71 74
----------------------------------------------- -------- -------- -------- --------
Redundancy and compensation for loss of office 1,082 599 388 327
----------------------------------------------- -------- -------- -------- --------
8,994 10,587 1,366 1,452
----------------------------------------------- -------- -------- -------- --------
The redundancy costs form part of the restructuring costs in the year classified as exceptional items.
Average monthly number of people (including Executive Directors) employed by the Group:
Group Company
---------------------------------- ================ =================
2018 2017 2018 2017
Number Number Number Number
---------------------------------- ------- ------- -------- -------
Operations 61 60 - -
---------------------------------- ------- ------- -------- -------
Sales, marketing and distribution 70 100 - -
---------------------------------- ------- ------- -------- -------
Administration 32 30 3 3
---------------------------------- ------- ------- -------- -------
163 190 3 3
---------------------------------- ------- ------- -------- -------
Key management compensation:
Group Company
----------------------------------------------- ================== ==================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- -------- -------- -------- --------
Salaries and short-term employee benefits 1,423 1,688 720 917
----------------------------------------------- -------- -------- -------- --------
Share-based payments (87) 110 202 76
----------------------------------------------- -------- -------- -------- --------
Other pension costs 97 118 71 69
----------------------------------------------- -------- -------- -------- --------
Redundancy and compensation for loss of office 683 241 330 20
----------------------------------------------- -------- -------- -------- --------
2,116 2,157 1,323 1,082
----------------------------------------------- -------- -------- -------- --------
Key management comprise the individuals involved in major strategic decision making and includes all Group and subsidiary Directors.
A detailed numerical analysis of Directors' remuneration and share options showing the highest paid Director, number of Directors accruing benefits under money purchase pension schemes, is included in the Directors' Report and forms part of these financial statements.
25. PENSION COMMITMENTS
The Group operates a defined contribution pension scheme by way of a Stakeholder Group Personal Pension Plan set up through the Friends Provident Insurance Group.
Alexander Forbes International is appointed as Independent Financial Adviser to work in liaison with the Group.
The level of contributions to the Group Personal Pension Plan for current members is fixed by the Group.
The Group pension cost for the year was GBP357,000 (2017: GBP442,000) representing the actual contributions payable in the year and certain scheme administration costs. The Company pension cost for the year was GBP71,000 (2017: GBP74,000). No contributions were outstanding at the year end of 31 March 2018.
26. FINANCIAL COMMITMENTS
2018 2017
GROUP GBP'000 GBP'000
-------------------------------------- -------- --------
At 31 March capital commitments were:
-------------------------------------- -------- --------
Contracted for but not provided 921 412
-------------------------------------- -------- --------
The commitments relate to the acquisition of property, plant and equipment.
The Company does not have any capital commitments.
Contingent Liabilities
The Company and its subsidiary undertakings are, from time to time, parties to legal proceedings and claims, which arise in the ordinary course of business. The Directors do not anticipate that the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect upon the Group's financial position.
27. OPERATING LEASE COMMITMENTS
The total of future minimum lease payments in respect of non-cancellable property, plant and motor vehicle operating leases falling due are as follows:
Land & Buildings Other Total
2018 2017 2018 2017 2018 2017
GROUP GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ------------- -------------- -------------- -------------- --------
Not later than one year 681 657 87 82 768 739
---------------------------- ------------- ------------- -------------- -------------- -------------- --------
Later than one year but not
more than five years 1,175 1,238 80 123 1,255 1,362
---------------------------- ------------- ------------- -------------- -------------- -------------- --------
More than five years 107 166 - - 107 166
---------------------------- ------------- ------------- -------------- -------------- -------------- --------
1,963 2,061 167 205 2,130 2,267
---------------------------- ------------- ------------- -------------- -------------- -------------- --------
In addition to the above the distribution activities of the business are outsourced to a third party company, DS Logistics. The initial agreement with DS Logistics was for 5 years to August 2019. This has recently been extended to August 2021.The approximate costs under the contract are approximately GBP2.4 million a year (2017: GBP2.9 million).
28. CASH (USED IN) / GENERATED FROM OPERATIONS
Group Company
2018 2017 2018 2017
-----------------------------------------
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- --------- -------- -------- --------
Loss before taxation (10,066) (9,509) (1,838) (5,725)
----------------------------------------- --------- -------- -------- --------
Interest payable 218 326 198 205
----------------------------------------- --------- -------- -------- --------
Interest receivable (7) (5) (175) (175)
----------------------------------------- --------- -------- -------- --------
Share of profit of associate (15) - (15) -
----------------------------------------- --------- -------- -------- --------
Amortisation of intangible assets 992 816 - -
----------------------------------------- --------- -------- -------- --------
Impairment of Investment - - 972 5,775
----------------------------------------- --------- -------- -------- --------
Depreciation 2,821 3,036 - -
----------------------------------------- --------- -------- -------- --------
Profit on disposal of property, plant
and equipment 9 (1,439) - (1,179)
----------------------------------------- --------- -------- -------- --------
Share-based payments credit (non
cash) (87) 94 (87) 60
----------------------------------------- --------- -------- -------- --------
Share-based payments (cash) 136 - 136 -
----------------------------------------- --------- -------- -------- --------
Decrease in provisions (21) (250) - -
----------------------------------------- --------- -------- -------- --------
(Increase)/decrease in inventories (490) 4,311 - -
----------------------------------------- --------- -------- -------- --------
Decrease in trade and other receivables 3,396 4,335 37 26
----------------------------------------- --------- -------- -------- --------
(Decrease) / increase in trade and
other payables (2,375) (1,624) 132 (67)
----------------------------------------- --------- -------- -------- --------
Cash (used in)/generated from Operating
activities (5,489) 91 (640) (1,080)
----------------------------------------- --------- -------- -------- --------
29. RELATED PARTY DISCLOSURES
B Ahir was our Managing Director of Hornby Hobbies Asia and a Director of Hornby Hobbies Limited, a subsidiary of Hornby PLC. 28One Limited, owned by B Ahir has provided ongoing support to manage product delivery for which Hornby Hobbies has paid GBP271,000 (2017: GBP206,000) in relation to these services in the year. No payments remained outstanding to 28One Limited as at 31 March 2018. Hornby Hobbies Limited no longer uses these services.
L Davies joined the Group as CEO on 5 October 2017. Hornby Hobbies Limited subsequently purchased GBP4,346 of stock from Oxford Diecast Limited, a company which is wholly owned by LCD Enterprises Limited, a Company which L Davies owns a controlling 51% share in. Hornby PLC purchased a 49% stake in LCD Enterprises Limited on 7 December 2017. L Davies remains a director of Oxford Diecast Limited.
Phoenix Asset Management Partners who own the majority shareholding in Hornby PLC have also provided a funding facility to the Group after the financial year end, please see Note 30 below.
There were no other contracts with the Company or any of its subsidiaries existing during or at the end of the financial year in which a Director of the Company or any of its subsidiaries was interested. There are no other related-party transactions.
The Company received management fees from subsidiaries of GBP1,493,000 (2017: GBP1,369,000), interest of GBP175,000 (2017: GBP175,000) and dividends from subsidiaries of GBPnil (2017: GBP nil) and incurred interest of GBP216,000 (2017: GBP205,000) on intercompany borrowings.
30. EVENTS AFTER THE END OF THE REPORTING PERIOD
On 5 June 2018 the Group entered into a GBP12 million Asset Based Lending Agreement with PNC Credit Limited for 5 years ending June 2023. In addition, Phoenix Asset Management Partners Limited, the majority shareholder, has provided an additional GBP6 million facility to further fund the turnaround as part of the New Business Plan. Further details are given in Note 18.
No other significant events have occurred between the end of the reporting period and the date of signature of the Annual Report and Accounts.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR SFWFLAFASEEM
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June 19, 2018 02:00 ET (06:00 GMT)
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