Hornby Regulatory News (HRN)

3 Jun 2005 07:00

Hornby PLC03 June 2005 HORNBY REPORTS STRONG SALES AND PROFITS GROWTH FOCUS NOW SHIFTS TO INTERNATIONAL Hornby Plc, ("Hornby") the models and collectables Group, has today announcedits preliminary results for the year ended 31 March 2005. Hornby's two mainproducts are Hornby model railways and Scalextric slot car racing systems. * Pre-tax profits before goodwill amortisation up 16% to £7.5 million (2004: £6.5 million) * Earnings per share before goodwill amortisation up 21% to 14.78p (2004: 12.20p) * Statutory profits up 11% to £7.2 million (2004: £6.5 million) * Statutory earnings per share up 14% to 13.88p (2004: 12.20p) * Turnover up 15% to £45.0 million (2004: £39.0 million) * Successful implementation of a 5 for 1 share split * Acquisition of certain assets of Lima S.p.A completed * Final dividend of 5.0p declared - Total dividend up 17% to 7.0p (2004: 6.0p) Frank Martin, Chief Executive of Hornby, said, " The Group has made excellent progress in its strategy to create a broaderbase to its hobby activities. The recent acquisitions of Electrotren in Spainand certain assets of the Lima Group in Italy offer significant additionalpotential to enable us to grow market share worldwide. " The product pipeline is also looking strong. Our Digital technology ishelping us to make real strides in positioning both our slot car racing systemsand model railways at the cutting edge of technology. We are honoured that theScalextric Sport Digital system was recently recognised by the British Toy andHobby Association as the recipient of the prestigious "Best new product designaward" for 2004. We have secured a number of key licences and we are delightedthat in Spain, the largest per capita slot car racing market in the world, wehave the exclusive rights to use images of Fernando Alonso the Spanish Formula 1star and Sete Gibernau, the MotoGP motorbike rider on our slot racing packaging. " Looking forward, we are confident that despite a slowdown in consumerspending, our core hobbyist market place will remain robust. We are developingthe right product and we are nurturing the mix of distribution channels. We havereached an important stage in the Group's development and I am convinced that wewill be able to repeat the process of re-invigorating the performance of theinternational markets as we have done in the UK." -ends-Date: 3 June 2005For further information contact: Hornby Plc City Profile GroupFrank Martin, Chief Executive Simon CourtenayJohn Stansfield, Finance Director James CooperTel: 01843-233500 Tel: 020-7448-3244On 3 June - Tel: 020-7448-3244Web: www.hornby.com or: www.scalextric.com High resolution images are available for the media by contacting James Cooper of City Profile Group. Chairman's Statement I am delighted once again to report a most encouraging performance for the year.Sales increased by 15% to £45.0 million, and pre-tax profit before goodwillamortisation at £7.5 million is 16% above last year's result (£6.5 million).Basic earnings per share before goodwill amortisation rose by 21% to 14.78p.Statutory pre-tax profit was £7.2 million and basic statutory earnings per sharewere 13.88p. The Group has made excellent progress in its strategy to create a broader baseto its hobby activities. The recent acquisitions of Electrotren in Spain and theassets of the Lima Group in Italy offer significant additional potential toenable us to grow market share worldwide. Dividend Reflecting the Group's continued progress, the Board is recommending a finaldividend of 5.0p per ordinary share. This will be paid on 19 August 2005 tothose shareholders on the register at 29 July 2005. Taken together with the interim dividend, this gives a total dividend for theyear of 7.0p, an increase of 17% over the dividend of 6.0p declared in theprevious financial year (adjusted for the share split which took place lastyear). The Company policy continues to be to reward our shareholders with adividend of approximately 50% of earnings per share in the absence of unforeseencircumstances. Statutory profit and earnings per share were reduced in the yearby £332,000 and 0.90p respectively, in accordance with UK accounting standards,relating to the amortisation of goodwill in respect of the acquisition ofElectrotren and the Lima assets. Business Review We were encouraged that once again we have achieved solid growth in the UK andin international markets, before taking into account the additional sales of theacquired overseas subsidiaries. For the future, we are targeting significantlyincreased activity and revenues from our international subsidiaries. Trading in our core UK market has remained robust during the year. Despitenervousness in the retail sector, our products have retained their popularityand sales have remained good. We are conscious that some retailers are reportingthe impact of wider economic pressures but the hobby-based characteristics ofour products lend resilience in such times and market feedback remainsencouraging. During the year, we have made good progress in developing ournetwork of concessions and have extended our portfolio to 121 outlets. Sales inour concessions grew by 34% in the year and represented 15% of our total UKsales. In Hornby model railways, the newly tooled "A4" class locomotives and theGresley coaches - in both teak and British Rail liveries, set new standards ofperformance, detail and authenticity. The launch of Scalextric Sport Digital (SSD) has opened a new chapter in slotracing. We believe that the appeal of racing up to six cars on a single track,the challenge of overtaking manoeuvres and team tactics will generatesignificant new interest in the hobby. We are honoured that the importance ofthis development was recently recognised in the choice of Scalextric SportDigital for the prestigious "Best new product design award" by the British Toyand Hobby Association. In designing SSD we were also conscious of the need forcompatibility with our existing track and cars. An additional benefit of thiscompatibility is that we have been able to enter technology sharing agreementswith other international manufacturers of slot cars. Under these agreements, thethird party manufacturers will be able to market their cars as compatible withSSD. In this way we believe the worldwide slot car market will come toacknowledge SSD as the industry standard for digital slot car racing. Exploiting the potential from new licences remains a very important part of ourbusiness. This year we have secured licences to produce products related to thenew Harry Potter film - Harry Potter and the Goblet of Fire and the new BatmanBegins movie. In addition we have retained the worldwide exclusive licence toproduce Scalextric cars based on the highly successful Renault F1 cars and wehave also secured a licence to produce models based on both classic and currentFerrari F1 and street cars. Overseas Subsidiaries During the year, we completed the acquisition of certain assets of Lima S.p.Afrom the Liquidators. This brings into Hornby ownership the iconic model railwaybrands of Lima, Rivarossi, Jouef and Arnold, and Pocher, the well-knownautomobile kit brand. With these assets we have acquired a mould tool bank ofapproximately 10,000 tools. Already around 1,000 of these tools have beenshipped to China to commence production of the first ranges, which will beavailable prior to Christmas this year. We are already making further shipmentsof tools to China to facilitate further product introductions in 2006. The Limaoperation in Italy has been completely restructured to match the needs of theongoing distribution business. The old premises have been vacated and a newwarehouse and administration facility is now occupied. Staff numbers have beenaligned with the ongoing needs of the business. We have every confidence thatover the coming years the combination of the acquired brands, Hornby's existingdesign and marketing expertise, and the enthusiastic cooperation of ourprincipal suppliers in China, will enable us to grow significantly ourinternational model railway business. The Lima subsidiary is also now marketingand distributing our Scalextric range in Italy. As we have demonstrated in theUK, the combination of a market leading model railway brand and a strong slotracing presence provides an exceptionally powerful trading platform from whichto build sales across all major channels of distribution. Our Spanish operation Electrotren has made excellent progress since itsacquisition in March 2004. We have accelerated our plans for improving both themarketing and sales distribution network. We are delighted to announce that wehave acquired the exclusive rights to use images of Spanish Renault F1 driverFernando Alonso on our slot car racing packaging in Spain. This, and ourpresence on the ground through Electrotren has given us an excellent platform togrow our market share of the largest per capita slot racing market in the world.The MotoGP bikes have proved to be a very popular addition to the product rangeand we have also negotiated the image rights for MotoGP rider Sete Gibernau foruse on our MotoGP packaging in Spain. We believe that these personalendorsements, together with a renewed marketing and promotional campaign inSpain, will ensure that we achieve significant growth in this important slotracing market this year. As is well known, trading in the USA has been under pressure during the past 12months and results in Scalextric USA were therefore less encouraging. Sales weredown by 13% at $4.7 million. Profit before tax of $128,000 in the previous yearhas deteriorated and the operation reported a loss of $(141,000). Whereas allother parts of the Hornby Group have benefited from the sustained weakness ofthe US dollar, Scalextric USA has seen its sales and margins eroded. ScalextricUSA acts as distributor for a number of European slot car manufacturers inaddition to Hornby. The relative strength of the Euro and of Sterling has forcedup prices and depressed sales. However it should be borne in mind that as aresult of margins generated in Hornby Hobbies Limited on sales made toScalextric USA, the US subsidiary remains an overall net contributor to Groupprofit. Entering the new financial year, action has been taken to reduceoverheads and increase sales efforts. Product Development The lifeblood of our business remains the product pipeline. During the yearunder review, we have made great strides in developing our digital technology.Scalextric Sport Digital looks set to become the system of choice for theindustry going forward. The Hornby Digital control system for model railways isat an advanced stage of development and will be launched early in 2006. Following the successful launch of the Live Steam range in 2003, we will shortlycommence deliveries of the Live Steam "Flying Scotsman" set, which will providea further boost to this unique new product category. Our development programme for Hornby and Scalextric models is as comprehensiveand exciting as ever. Electrotren continues to innovate in European modelrailways and we are currently finalising plans for new tooling projects tounderpin the reinvigoration of the acquired Lima brands. Outlook We believe the Group is at a pivotal point in its development. Havingrevitalised our UK market, we now have the opportunity to repeat this exercisein other major world markets. We have been able to attract first classmanagement for our international subsidiaries. This will ensure that, whilst theUK Company continues to provide support where necessary, there will be no lossof focus on the core UK market. Trading in the new financial year has started well, despite a widely reportedslowdown in discretionary consumer spending. We recognise that we may face awider economic slowdown, but we expect to be less affected than other sectors asinterest amongst our core customer base of hobbyists remains strong. In the UKour mix of distribution channels means that we are not reliant on a few dominantretailers and we are able to retain our pricing power. However it should beborne in mind that during the first half of the new financial year the Limabusiness will be incurring overheads, prior to sales revenues starting to flowin the autumn. Therefore as anticipated it is likely that Group PBT will bedepressed in the half-year to September 30th 2005, although not for the year asa whole. Finally I would like to take this opportunity to thank the entire Hornby teamfor their efforts in delivering another successful performance during the year.It is testament to their efforts that we have made considerable progress onpositioning Hornby for the next important phase of its growth. Neil JohnsonChairman3 June 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 31 MARCH 2005 2005 2004 Before amortisation Amortisation Total Total £'000 £'000 £'000 £'000 TURNOVER 45,006 - 45,006 38,970Cost of sales (22,613) - (22,613) (20,083) -------- -------- -------- --------GROSS PROFIT 22,393 - 22,393 18,887 Net operating expenses (14,730) (332) (15,062) (12,524) -------- -------- -------- --------OPERATING PROFIT 7,663 (332) 7,331 6,363Net interest (payable)/receivable (129) - (129) 106PROFIT ON ORDINARY ACTIVITIESBEFORE TAXATION 7,534 (332) 7,202 6,469Tax on profit on ordinary activities (2,046) - (2,046) (1,974) -------- -------- -------- --------PROFIT ON ORDINARY ACTIVITIESAFTER TAXATION 5,488 (332) 5,156 4,495Dividends (2,588) - (2,588) (2,199) -------- -------- -------- --------RETAINED PROFITFOR THE FINANCIAL YEAR 2,900 (332) 2,568 2,296 ======== ======== ======== ========ATTRIBUTED TO:The Company 162 (30)Subsidiary undertakings 2,406 2,326 -------- -------- 2,568 2,296 ======== ======== EARNINGS PER ORDINARY SHAREBasic 13.88p 12.20pDiluted 13.26p 11.64pBasic - adjusted* 14.78p 12.20pDiluted - adjusted* 14.11p 11.64p * Adjusted earnings per share before amortisation of goodwill. All of the activities of the Group are continuing. The results of theacquisition of Lima S.p.A.'s assets during the year are set out in the segmentalinformation in the notes. STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSESFOR THE YEAR ENDED 31 MARCH 2005 2005 2004 £'000 £'000 Profit for the financial year 5,156 4,495Exchange adjustments offset in reserves 26 (33) -------- --------Total recognised gains for the year 5,182 4,462 ======== ======== CONSOLIDATED BALANCE SHEETAT 31 MARCH 2005 2005 2004 £'000 £'000FIXED ASSETSIntangible assets 8,870 4,017Tangible assets 5,096 4,436 -------- -------- 13,966 8,453 -------- -------- CURRENT ASSETSStocks 7,526 7,369Debtors 7,543 6,217Cash at bank and in hand 1,860 5,806 -------- -------- 16,929 19,392CREDITORS: Amounts falling due within one year (10,625) (9,886) -------- --------NET CURRENT ASSETS 6,304 9,506 -------- -------- TOTAL ASSETS LESS CURRENT LIABILITIES 20,270 17,959CREDITORS: Amounts falling due after more than one year (80) (103)PROVISIONS FOR LIABILITIES AND CHARGES (369) (527) -------- --------NET ASSETS 19,821 17,329 ======== ======== CAPITAL AND RESERVESCalled up share capital 373 370Capital redemption reserve 55 55Share premium account 4,906 4,797Revaluation reserve 740 757Other reserves 1,688 1,688Profit and loss account 12,059 9,662 -------- --------EQUITY SHAREHOLDERS' FUNDS 19,821 17,329 ======== ======== CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2005 2005 2004 £'000 £'000 £'000 £'000Net cash inflow fromoperating activities 9,247 8,210Returns on investments and servicing of finance - net interest (paid)/received (129) 106Taxation (2,557) (1,864) Capital expenditure andfinancial investment - purchase of fixed assets (2,245) (1,370) - sale of fixed assets 227 27 - purchase of own shares (278) (224) -------- -------- (2,296) (1,567) Acquisitions - purchase of subsidiary undertakings - (5,303) - cash held upon acquisition - 222 - purchase of trade and assets and related costs (5,971) - -------- -------- (5,971) (5,081)Equity dividends paid (2,349) (1,968) -------- --------Net cash (outflow) before financing (4,055) (2,164) FinancingIssue of ordinary shares 112 104Capital element of finance lease payments (30) (26) -------- --------(Decrease) in cash in the year (3,973) (2,086) ======== ======== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2005 2004 £'000 £'000 (Decrease) in cash in the year (3,973) (2,086)Cash outflow from decrease in lease financing 30 26 -------- --------Change in net funds resulting from cash flows (3,943) (2,060)New finance leases - (105)New finance leases upon acquisition - (12)Exchange movements 27 (17) -------- --------Movement in net funds in the year (3,916) (2,194) Net funds at 1 April 2004 5,673 7,867 -------- --------Net funds at 31 March 2005 1,757 5,673 ======== ======== NOTES TO THE CASH FLOW STATEMENT NET CASH FLOW FROM OPERATING ACTIVITIES 2005 2004 £'000 £'000 Operating profit 7,331 6,363Depreciation charges 1,875 1,364Amortisation of goodwill 332 3(Profit)/loss on sale of tangible fixed assets (29) 2Decrease/(increase) in stocks 258 (830)(Increase) in debtors (1,171) (401)Increase in creditors 809 1,659(Decrease)/increase in sales returns provision (158) 50 -------- --------Net cash inflow from operating activities 9,247 8,210 ======== ======== SEGMENTAL INFORMATION The directors consider there to be one class of business, being the development,manufacture and distribution of model products. BY ORIGIN Turnover Profit/(loss) before tax Net assets 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 United Kingdom 39,572 36,028 7,115 6,399 16,930 15,762United States of America 2,488 2,942 (74) 70 192 254Spain 2,743 - 547 - 1,710 1,313Italy 203 - (386) - 989 - -------- -------- -------- -------- -------- --------Group 45,006 38,970 7,202 6,469 19,821 17,329 ======== ======== ======== ======== ======== ======== On 31 March 2004 the Spanish branch of Hornby Plc acquired the equity ofElectrotren S.A. The results of this prior year acquisition are set out underSpain in the table above. On 15 December 2004 a newly formed subsidiary ofHornby Plc, Hornby Italia s.r.l., acquired certain assets of Lima S.p.A. Theresults of this acquisition are set out under Italy in the table above. Theoperating loss of Hornby Italia s.r.l. for the period is £307,000. TURNOVER BY DESTINATION 2005 2004 £'000 £'000 United Kingdom 33,928 30,961Rest of World 11,078 8,009 -------- --------Group 45,006 38,970 ======== ======== NOTES 1. The calculation of basic earnings per ordinary share is based on the profitattributable to ordinary shareholders for the financial year of £5,156,000 (2004- £4,495,000) and the weighted average number of ordinary shares in issue duringthe year of 37,141,538 (2004 - 36,832,085). 2005 2004 Earnings Earnings Earnings per share Earnings per share £'000 pence £'000 penceEarnings per shareBasic 5,156 13.88 4,495 12.20Diluted 5,156 13.26 4,495 11.64Basic - adjusted* 5,488 14.78 4,495 12.20Diluted - adjusted* 5,488 14.11 4,495 11.64 * Adjusted earnings per share before amortisation of goodwill of £332,000 (2004 - nil). The following table shows a reconciliation of the weighted average number ofshares used for calculating the basic and diluted earnings per share. 2005 2004 Number Number of shares of shares Used for calculating basic earnings per share 37,141,538 36,832,085Dilution due to share option schemes 1,746,783 1,781,810 ------------ ------------Used for calculating diluted earnings per share 38,888,321 38,613,895 ============ ============ 2. The proposed dividend will be paid on 19 August 2005 to members on theregister as at 29 July 2005. The ex-dividend date will be 27 July 2005. 3. The consolidated profit and loss account, statement of group total recognisedgains and losses and consolidated balance sheet set out above for the year ended31 March 2005 are not statutory accounts, are abridged and audited. Full auditedaccounts will be filed with the Registrar of Companies in due course. Fullaudited accounts for the year ended 31 March 2004 containing an unqualifiedaudit report have been filed with the Registrar of Companies. 4. The preliminary financial information has been prepared on the basis ofaccounting policies set out in the Report & Accounts for the year ended 31 March2004. 5. This preliminary announcement was approved by the Board on 2 June 2005. 6. Copies of this preliminary announcement are available from J W Stansfield,Finance Director, Hornby Plc, Westwood, Margate, Kent, CT9 4JX. This information is provided by RNS The company news service from the London Stock Exchange