Hornby Regulatory News (HRN)

1 Jun 2007 07:01

Hornby PLC01 June 2007 HORNBY SALES INCREASE AS INTERNATIONAL OPERATIONS GATHER MOMENTUM Hornby Plc ("Hornby"), the international hobby products group, has todayannounced its preliminary results for the year ended 31 March 2007. • Turnover up by 6% to £46.9 million (2006 - £44.1 million) • Sales growth and improved profits in overseas subsidiaries • UK sales recovery in second half • Operating profit before amortisation £8.3 million (2006 - £8.1 million) • Pre-tax profits £8.1 million (2006 - £8.0 million)* • Earnings per share up 1.4% to 15.58p (2006 - 15.36p)* • Acquisition of Humbrol and Airfix absorbed and bedding in well • Final dividend of 5.6p proposed - Total dividend for the year up 5.2% to 8.1p (2006 - 7.7p) * Pre-tax profit and earnings per share before amortisation of intangibles andforeign exchange translational adjustments on inter company loans. Frank Martin, Chief Executive of Hornby, said, " This has been an important developmental year for the Group. All our overseassubsidiaries have made excellent progress in terms of sales and profits growthand the establishment of a platform for future profitable growth. Sales in theUK, our biggest market, grew by 3% and total Group sales grew by 6% due to thecontinuing increase in momentum of our international subsidiaries. " First half sales were below the previous year but in the second half we wereable to recover more than this shortfall, thus demonstrating once again therobust nature of the hobbyist market. Our international operations are nowbeginning to show their true potential, and we are confident that they willcontinue to deliver encouraging progress in the future. " The acquisition of the Humbrol and Airfix assets has added new andcomplementary high margin business to the Group and integration is in line withplan. The effect on Group profits of this acquisition was broadly neutral in theyear just ended. However, going forward, as we continue to rebuild sales anddistribution of these famous brands through the Hornby infrastructure, we expectthem to make a significant contribution to Group sales and profits. " Our core businesses of model railways and slot racing products continue tobenefit from our ongoing commitment to investment in product development. Boththe Scalextric and Hornby digital control systems have been extremely wellreceived and enjoyed a strong Christmas season. In both market sectors digitalcontrol brings significant improvements in consumer enjoyment of our products.The consumer is prepared to pay higher retail prices for these benefits. " We have continued to broaden Hornby's revenue base. In terms both ofgeographical coverage and sector exposure we have become a significant force inthe worldwide hobby market. We will continue to explore opportunities to developthe Group further." -ends- Date: 1 June 2007For further information contact: Hornby Plc cityPROFILEFrank Martin, Chief Executive Simon CourtenayJohn Stansfield, Finance Director William Attwell01843-233500 020-7448-3244 or 07958-754273On 1 June 2007: 020-7448-3244Web: www.hornby.com or:www.scalextric.com High resolution images are available for the media by contacting William Attwell at cityPROFILE CHAIRMAN'S REVIEW Year ended 31 March 2007 Introduction I am delighted once again to report an encouraging performance for the year. Aswe reported at the time of the Interim results, sales in our main market the UKwere lower during the first half of the financial year. I am therefore pleasedto report that the improvement in sales that we experienced in the Autumn of2006, continued through the Christmas period and into the final quarter of thefinancial year. This resulted in sales for the full year in our UK subsidiaryHornby Hobbies Limited in line with the previous year. Sales in all of our International subsidiaries also improved in the second halfof the financial year with the result that for the full year Group salesincreased by 6% to £46.9 million. Pre-tax profit prior to amortisation andforeign exchange translational adjustments on inter company loans increasedslightly to £8.1 million (2006 - £8.0 million) (see note 4). Basic earnings pershare were 14.64p (2006 - 15.64p) but basic earnings per share before the effectof amortisation of intangibles and foreign exchange translational adjustments oninter company loans, a non-cash item, increased by 1.4% to 15.58p (2006 -15.36p). Underlying these results there are also a number of encouraging trends. Notablyall of our international subsidiaries, for which a comparative period exists,showed improved performance and profits. The process of transferring to Chinathe production of the acquired businesses has continued apace, and we enter thenew financial year with a growing portfolio of high quality products atattractive price points available for sale in the main European markets. As part of our strategy to diversify and strengthen the Group's revenue streamsinto complementary product categories we acquired the Humbrol and Airfix brandsand associated assets from the receiver of Humbrol Limited in November 2006 fora total consideration of £2.28 million, in addition to acquiring stock valued at£327,000. This strategic move represents a major opportunity for the Group. Allassets are now under our direct control and we have set up manufacturingrelationships with suppliers in the UK, China and have broadened our suppliernetwork into India. Dividend The Board is recommending an increase in the final dividend to 5.6p per ordinaryshare. This will be paid to shareholders on the register at 29 June 2007 andwill be paid on 17 August 2007. Taken together with the interim dividend of 2.5p, this gives a total dividend for the year of 8.1p, an increase of 5.2% over the dividend of 7.7p declared in the previous financial year. This marks the seventh consecutive year of dividendgrowth. The Board believes that it is appropriate to continue the upwardprogression of dividend payments, established in recent years, based on thestrongly cash-generative nature of the business and the belief that much of thecapital and acquisition investment we have made in recent years underpins thelong-term future progression of the business. Review of the Business After the first half of the financial year, in which sales compared to theprevious year fell by 3%, due primarily to weaker consumer demand in the UK, ourlargest market, it was encouraging to see sales in the second half increase by13% compared to the corresponding period last year. Strong consumer demand forour products in the UK market prior to Christmas, resulted in low retailerstocks in January, allowing us to maximise sales in the final quarter of thefinancial year. In particular, sales of the Scalextric Sport Digital System (SSD) gatheredstrong momentum in 2006, both in the UK and overseas. SSD has furtherconsolidated its reputation worldwide as the system of choice for digitallycontrolled slot-car racing, combining easy compatibility with existing systemsand an excellent record of reliability. We continue to believe that, over time,the market will move decisively towards digital control. Hornby is well placedto take advantage of this shift in the market. Deliveries of the Hornby Digital Control System for model railways commencedjust before Christmas and initial deliveries of the flagship "Elite" digitalcontroller arrived on the market in March 2007. As planned we extended thelaunch of this system via our European subsidiaries at the Nurnberg Toy fair inFebruary. We expect an increasing proportion of our model railway products to besold as digital-enabled over the coming years. International subsidiaries The UK market for model railways represents only c.10% of the total Europeanmarket. The major manufacturers in Europe continue to experience difficulties asa result of their continuing focus on manufacturing in Europe. Although some ofthese manufacturers are now beginning to move some production into lower costeconomies, this process will be long, arduous and expensive to complete. Hornbyhowever now has a network of low-overhead subsidiaries throughout the majorEuropean markets, which have begun to demonstrate, in the year to 31 March 2007,their ability to increase sales and profits significantly. The European subsidiaries in total contributed operating profits of £1,115,000to the Group result on sales of £9.7 million, compared to £453,000 in theprevious year on sales of £7.0 million. This includes £134,000 of operatinglosses whilst setting up our German business which was acquired in September2006. We expect Hornby Deutschland to make a positive contribution to profits inthe new financial year. All other European subsidiaries posted increased profitsin the year. We acquired the assets of Heico-Modell, for a nominal consideration, via a newlyformed subsidiary Hornby Deutschland, in September 2006. Market reaction to ourrecently introduced products in Germany has been good, although we recognisethat there are strong competitor brands in the market. In this connection, there-launch of our Arnold "N" scale brand has been favourably received. It appearsthat there are a significant number of Arnold enthusiasts who were unable tobuy, due to lack of product availability during the difficult times prior to ouracquisition of the Lima assets, which included Arnold. In Spain, Electrotren, now renamed Hornby Espana, had an excellent year, makinga substantially improved contribution to Group profits. This was achieved by agreater proportion of sales being made in model railways, arising from anincreased programme of product introductions, and greater volumes being achievedper model introduced. This pattern of increased demand was experienced in the UKafter production was moved to China some years ago. It appears that the consumeris at first uncertain as to whether quality and detail can be maintained.However experience then shows that there is in fact a significant improvement inthese areas, resulting in increases in volume demand. We expect this trend tocontinue, and we are beginning also to observe the same positive changes inconsumer perception and demand in our other European subsidiaries. In Hornby Italia, sales and profits increased substantially as production inChina gathered momentum. After some initial market uncertainty, as we haveexperienced both in the UK and in Spain, the consumer now recognises theimprovements in quality and detail that have been achieved and demand hasincreased accordingly. However we are still at a relatively early stage in thisprocess, and we can therefore expect a continuing trend of increased sales andprofits in Hornby Italia. Hornby France also achieved significantly higher sales and profits. The strengthof the Jouef brand in France is, if anything, greater than we had anticipated.Retailers and consumers have been delighted with our reinvigoration of thisiconic French brand and demand has grown accordingly. Sales in Scalextric USA were up by 8% at $5.6 million, producing a profit beforetax of $82,000 (2006 - $116,000) but upon translation into Sterling, due to aweakened US$, sales were £2.83 million (2006 - £2.95 million) and profit beforetax of £42,000 (2006 - £67,000). However the result this year was adverselyaffected by the closure costs of the Scalextric Race World retail store inTacoma. This store was set up on a trial basis two years ago. It has incurredlosses since the start. At the outset we determined to trade for a minimum oftwo years in order to allow sales to develop. In the event sales have not beensufficient to generate profits, although we have learnt some valuable lessons inrespect of product format and in-store merchandising, that have already beenimplemented in our range development and presentation. In 2007 the storeincurred a $68,000 trading loss and closure costs of $42,000. In the absence ofthe store, Scalextric USA profits before tax would have been $192,000 (2006 -$180,000). In addition, as previously reported, margins generated in HornbyHobbies in the UK on sales made to Scalextric USA have the effect of increasingsignificantly the overall contribution to Group profit of our US operation. Product development Our product development programme continues to be the engine room of ourbusiness and we have increased further our resources in this area, to cope withthe additional demands of our subsidiaries and also the newly acquired Humbroland Airfix brands. Outlook Our strategy of expanding the geographical reach of the Group by acquiring modelrailway businesses in Europe has proven to be successful and has laid thefoundations for a broadly based model and hobby group with strong defensiveattributes. Thus, in a year in which sales in our main UK market were broadly inline with the previous year, Group sales increased by 6%. The acquisition of theHumbrol and Airfix brands now allows us to take further advantage of ourdistribution network and product development skills. We have made a good start to the new financial year in all subsidiaries andmarkets. As we continue to rebuild sales and distribution of the Humbrol andAirfix brands, and growth in sales of our model railway and slot-racing brandscontinues, we look forward to resuming significant and sustainable sales andprofit progression. Neil JohnsonChairman1 June 2007 GROUP INCOME STATEMENTFOR THE YEAR ENDED 31 MARCH 2007 Group 2007 2006 (unaudited) (restated*) £'000 £'000 REVENUE 46,911 44,113Cost of sales (21,438) (21,412) _______ _______ GROSS PROFIT 25,473 22,701 Distribution costs (1,678) (1,504)Selling and marketing costs (10,760) (9,924)Administrative expenses (3,506) (3,354)Foreign exchange (losses)/gains (888) 303Other operating expenses (420) (217) _______ _______ GROUP OPERATING PROFIT 8,221 8,005Finance income 7 319Finance costs (566) (160) _______ _______ PROFIT BEFORE TAXATION 7,662 8,164Taxation (2,149) (2,306) _______ _______PROFIT FOR THE YEAR AFTER TAXATION 5,513 5,858 _______ _______ EARNINGS PER ORDINARY SHAREBasic 14.64p 15.64pDiluted 14.11p 15.08p All of the activities of the Group are continuing. * See note 3. GROUP BALANCE SHEETAT 31 MARCH 2007 Group 2007 2006 (unaudited) £'000 £'000ASSETSNON-CURRENT ASSETSGoodwill 9,206 8,116Intangible assets 2,321 1,608Property, plant and equipment 7,458 5,539Deferred tax assets 421 369 _______ _______ 19,406 15,632 _______ _______ CURRENT ASSETSInventories 8,441 8,227Trade and other receivables 10,164 9,325Cash and cash equivalents 329 829 _______ _______ 18,934 18,381 _______ _______ LIABILITIESCURRENT LIABILITIESBorrowings (1,005) (124)Trade and other payables (7,418) (6,914)Provisions (293) (300)Current tax liabilities (1,368) (1,542) _______ _______ (10,084) (8,880) _______ _______ NET CURRENT ASSETS 8,850 9,501 _______ _______ NON-CURRENT LIABILITIESBorrowings (53) (39)Deferred tax liabilities (358) (231) _______ _______ (411) (270) _______ _______ NET ASSETS 27,845 24,863 _______ _______SHAREHOLDERS' EQUITY Share capital 378 376Share premium 5,236 5,050Other reserves 1,743 1,743Retained earnings 20,488 17,694 _______ _______ TOTAL EQUITY 27,845 24,863 _______ _______ GROUP STATEMENT OF CHANGES IN EQUITYfor the years ended 31 March 2007 and 31 March 2006 Capital Share Share redemption Other Retained Total capital premium reserve reserves earnings* equityGROUP £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 April 2005 373 4,906 55 1,688 14,712 21,734 Profit for the period - - - - 5,858 5,858Issue of shares 3 144 - - - 147Share based payments - - - - 158 158Exchange adjustment offset in reserves - - - - (111) (111)Purchase of own shares - - - - (364) (364)Shares vested - - - - 138 138Dividends - - - - (2,697) (2,697) ____ _____ _____ ______ ______ ______ Balance at 31 March 2006 376 5,050 55 1,688 17,694 24,863 Profit for the period - - - - 5,513 5,513Issue of shares 2 186 - - - 188Share based payments - - - - 237 237Deferred tax on share based payments - - - - 52 52Exchange adjustment offset in reserves - - - - 8 8Fair value of hedged derivative contracts - - - - (133) (133)Purchase of own shares - - - - (177) (177)Shares vested - - - - 231 231Dividends - - - - (2,937) (2,937) ____ _____ _____ ______ ______ ______ Balance at 31 March 2007 378 5,236 55 1,688 20,488 27,845 ____ _____ _____ ______ ______ ______ * Attributable to equity shareholders of the Company. Retained earnings includes £706,000 at 31 March 2007 (2006 - £723,000) which isnot distributable and relates to a 1986 revaluation of land and buildings. GROUP CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2007 Group 2007 2006 (unaudited) £'000 £'000 CASH FLOWS FROM OPERATING ACTIVITIESCash generated from operations 10,372 7,546Interest received 7 30Interest paid (224) (160)Tax paid (2,213) (1,939) _______ _______ Net cash generated from operating activities 7,942 5,477 _______ _______ CASH FLOWS FROM INVESTING ACTIVITIESPurchase of trade assets and related costs (2,653) (1,072)Proceeds from sale of property, plant and equipment 33 23Purchase of property, plant and equipment (3,657) (2,545) _______ _______ Net cash utilised in investing activities (6,277) (3,594) _______ _______ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of ordinary shares 188 147Repayment of loans (192) -Purchase of own shares by Short Term Incentive Plan (177) (364)Finance lease capital payments (47) (23)Dividends paid to Company's shareholders (2,937) (2,697) _______ _______ Net cash utilised in financing activities (3,165) (2,937) _______ _______ Effect of exchange rate movements 127 (60) _______ _______ Net decrease in cash and cash equivalents (1,373) (1,114)Cash and cash equivalents at beginning of the year 746 1,860 _______ _______ CASH AND BANK OVERDRAFTS AT END OF YEAR (627) 746 _______ _______ CASH AND CASH EQUIVALENTS CONSIST OF:Cash and cash equivalents 329 829Bank overdrafts (956) (83) _______ _______ CASH AND CASH EQUIVALENTS AT END OF YEAR (627) 746 _______ _______ NOTES TO THE CASH FLOW STATEMENT CASH FLOW FROM OPERATING ACTIVITIES Group 2007 2006 (unaudited) £'000 £'000 Profit for the financial year 5,513 5,858Taxation 2,149 2,306Interest payable 224 160Interest receivable (7) (30)Amortisation of intangible assets 114 97Depreciation 2,107 2,075Loss/(profit) on disposal of tangible fixed assets 21 (11)Share based payments 237 158Loss/(gain) on financial derivatives 69 (38)Decrease in provisions (7) (69)Decrease/(increase) in inventories 184 (219)Increase in trade and other receivables (814) (2,058)Increase/(decrease) in trade and other payables 582 (683) _______ _______ CASH GENERATED FROM OPERATIONS 10,372 7,546 _______ _______ SEGMENTAL REPORTING The primary reporting format for segmental purposes is geographic, as this isthe basis on which the Group is organised and managed. Transactions with andbalances to the other segments have been identified above and eliminated. Hornby's secondary segment is business and as the Group operates on a singlebusiness segment, further analysis is not required here. Rest Total of Reportable IntraYear ended 31 March 2007 UK USA Europe Segment Group Group £'000 £'000 £'000 £'000 £'000 £'000 Revenue - External 34,399 2,829 9,683 46,911 - 46,911 - Other segments 2,964 - 2,046 5,010 (5,010) - Operating profit 7,036 70 1,115 8,221 - 8,221 Interest expense - External (190) - (34) (224) - (224) - Other segments (79) (29) (667) (775) 775 -Foreign exchange (342) - - (342) - (342)Interest income - External 1 1 5 7 - 7 - Other segments 775 - - 775 (775) - ______ ______ ______ ______ ______ ______ Profit before tax 7,201 42 419 7,662 - 7,662Taxation (1,822) (8) (319) (2,149) - (2,149) ______ ______ ______ ______ ______ ______ Profit for the year 5,379 34 100 5,513 - 5,513 ______ ______ ______ _____ ______ ______ Segment assets 35,434 1,037 16,982 53,453 (15,113) 38,340Less inter company debtors (14,397) - (716) (15,113) 15,113 - ______ ______ ______ _____ ______ ______ Total assets 21,037 1,037 16,266 38,340 - 38,340 ______ ______ ______ _____ ______ ______ Segment liabilities 7,949 977 16,722 25,648 (15,153) 10,495Less inter company creditors (34) (954) (14,165) (15,153) 15,153 - ______ ______ ______ ______ ______ ______ Total liabilities 7,915 23 2,557 10,495 - 10,495 ______ ______ ______ ______ ______ ______ Other segment items Capital expenditure 2,725 2 1,403 4,130 - 4,130(including acquisitions) Depreciation 1,578 11 518 2,107 - 2,107Amortisation of intangible assets 14 - 100 114 - 114Short Term Incentive Plan - shares vested 231 - - 231 - 231 ______ ______ ______ ______ ______ ______ Rest Total of Reportable IntraYear ended 31 March 2006 UK USA Europe Segment Group Group £'000 £'000 £'000 £'000 £'000 £'000 Revenue - External 34,196 2,952 6,965 44,113 - 44,113 - Other segments 3,301 - 566 3,867 (3,867) - Operating profit 7,458 94 453 8,005 - 8,005 Interest expense - External (151) - (9) (160) - (160) - Other segments - (30) (551) (581) 581 - Foreign exchange 289 - - 289 - 289Interest income - External 13 3 14 30 - 30 - Other segments 581 - - 581 (581) - ______ ______ ______ ______ _____ ______ Profit/(loss) before tax 8,190 67 (93) 8,164 - 8,164Taxation (2,307) (16) 17 (2,306) - (2,306) ______ ______ ______ ______ ______ ______ Profit/(loss) for the year 5,883 51 (76) 5,858 - 5,858 ______ ______ ______ ______ ______ ______ Segment assets 32,400 990 15,483 48,873 (14,860) 34,013Less inter company debtors (14,403) - (457) (14,860) 14,860 - ______ ______ ______ ______ ______ ______ Total assets 17,997 990 15,026 34,013 - 34,013 ______ ______ ______ ______ ______ ______ Segment liabilities 7,618 916 15,476 24,010 (14,860) 9,150Less inter company creditors (13) (899) (13,948) (14,860) 14,860 - ______ ______ ______ ______ ______ ______ Total liabilities 7,605 17 1,528 9,150 - 9,150 ______ ______ ______ ______ ______ ______ Other segment itemsCapital expenditure 1,800 42 1,719 3,561 - 3,561(including acquisitions)Depreciation 1,779 9 287 2,075 - 2,075Amortisation of intangible assets - - 97 97 - 97Impairment of trade receivables 73 17 8 98 - 98Short Term Incentive Plan - shares vested 138 - - 138 - 138 ______ ______ ______ ______ ______ ______ NOTES: 1. Basis of preparation The financial information for the year ended 31 March 2007 has been prepared inaccordance with International Accounting Standards ('IAS') and InternationalFinancial Reporting Standards ('IFRS') as adopted by the European Union ('EU')and also as issued by the International Accounting Standards Board,International Financial Reporting Interpretations Committee interpretations andwith those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. It is also prepared in accordance with the Group's accountingpolicies which have been consistently applied as set out in the 2006 financialstatements (except as set out below). This information does not constitutestatutory accounts and has not been audited. 2. Non statutory accounts These statements do not constitute statutory financial statements within themeaning of Section 240 of the Companies Act 1985. The financial statements forthe year ended 31 March 2006 were prepared in accordance with IFRS and have beendelivered to the Registrar of Companies and on which the auditors made anunqualified report. 3. 2006 Restatement The directors are constantly reviewing accounting policies and classificationfor appropriateness and believe that the foreign exchange translationaladjustments are more appropriately shown within operating expenses other thanyear end foreign exchange translational adjustments of inter company currencyloans that are more appropriately included in finance income. In 2006 these wereincluded in cost of sales. Accordingly foreign exchange gains of £592,000,previously included in cost of sales, have been reallocated to operatingexpenses (£303,000) and finance income (£289,000). 4. Reconciliation of non statutory information used in the preliminaryannouncement of statutory information. Group 2007 2006 £'000 £'000 Operating profit 8,221 8,005Add back amortisation 114 97 _______ _______ Operating profit before amortisation 8,335 8,102Finance income 7 30Finance cost (excluding foreign exchange) (224) (160) _______ _______ Profit before amortisation and foreign exchange oninter company loans 8,118 7,972 Amortisation (114) (97) _______ _______ Profit before foreign exchange on inter company loans 8,004 7,875Foreign exchange on inter company loans (342) 289 _______ _______ Profit before tax 7,662 8,164 _______ _______ 5. Earnings per share The calculation of earnings per ordinary share is based on the profits aftertaxation for the period of £5,513,000 (year ended 31 March 2006 - £5,858,000)and the weighted average number of ordinary shares in issue during the period of37,647,278 (year ended 31 March 2006 - 37,447,229). The calculation of diluted earnings per ordinary share is based on the weightedaverage number of ordinary shares in issue as adjusted to assume conversion ofall dilutive potential ordinary shares, 39,065,431 (year ended 31 March 2006 -38,842,053). The calculation of adjusted earnings per ordinary share is based on profit aftertax adjusted for amortisation of intangibles of £114,000 (year ended 31 March2006 - £97,000) and foreign exchange translational adjustments on inter companyloans after tax of £239,400 (year ended 31 March 2006 - £202,300). 6. Short Term Incentive Plan 66,766 ordinary shares to the value of £177,595 were acquired by the EmployeeBenefit Trust in December 2006 in accordance with the incentive plan, details ofwhich were included in the 2006 Annual Report and Accounts. The Trust waives its right to dividends. This information is provided by RNS The company news service from the London Stock Exchange