Hornby Regulatory News (HRN)

9 Nov 2007 07:01

Hornby PLC09 November 2007 HORNBY STEPS UP A GEAR AS CHRISTMAS APPROACHES Hornby Plc ("Hornby"), the international hobby products group, has todayannounced its interim results for the half year ended 30 September 2007. • Turnover up by 37% to £24.6 million (2006 - £17.9 million) • UK and Overseas subsidiaries delivering sales growth • Pre-tax profits up to £2.6 million (2006 - £1.8 million)* • Earnings per share up to 3.84p (2006 - 3.16p)* • Digital Technology Platform driving model railway and slot car demand • Airfix and Humbrol brands re-launched • Vodafone McLaren Mercedes Team and Transformers licences boost slot car product sales • Interim dividend of 2.7p proposed (2006 - 2.5p) * Pre-tax profit and earnings per share before amortisation of intangibles andforeign exchange translational adjustments on inter company loans. Frank Martin, Chief Executive of Hornby, said, " We are delighted to report such a strong performance right across the group.Our UK and overseas businesses are delivering very encouraging growth. The keydrivers of this performance have been the adoption of the Digital TechnologyPlatform in model railways and slot-car racing, together with the increasingappeal of our exciting programme of product introductions. The performance ofour European operations is particularly encouraging, as we have re-vitalisedthese much loved brands after years of under investment. " Scalextric has enjoyed a boost from a surge of interest in Formula 1 GrandPrix Racing. In particular the ranges linked to our licence with the VodafoneMcLaren Mercedes Team are set to become best-sellers. Higher sales both ofHornby and Scalextric sets have had a short term negative impact on grossmargins. We expect higher set sales to give rise to higher sales of accessoriesas new hobbyists expand their collections. We are therefore forecasting animprovement in gross margins in the second half as the balance of sales movesback to accessories, particularly in the January - March period. " Our strategy to develop new products associated with exciting licences alsobenefited from the success of the Hollywood blockbuster, Transformers, which wasespecially popular in the USA. The success of this licence has enabled us toopen trading relationships with major US retailers. " Our businesses in Europe are performing very well. We have been encouraged bythe market reaction to the re-launch of our European brands and we are confidentthat our European businesses will continue to be key drivers of growth over thenext five years. " The re-launch of Airfix and Humbrol has been extremely well received by themarket. The business is back on track in time for Christmas. We have restockedpopular product in the shops and we have developed an exciting new productprogramme which offers significant potential. " Looking forward, we are confident about the Group's prospects. As we enter thekey Christmas period we are in excellent health. We have invested in thepositioning of all of our businesses so that they appeal to a wider range ofexisting hobbyists and new entrants. Given the potential for our re-vitalisedoverseas businesses, together with an excellent pipeline of new products, we areconfident that we will continue to deliver further growth." High resolution images are available for the media to view and download free ofcharge from www.vismedia.co.uk -ends- Date: 9 November 2007 For further information contact: Hornby Plc cityPROFILEFrank Martin, Chief Executive Simon Courtenay - 07958-754273John Stansfield, Finance Director William Attwell - 07973-28165001843-233500 020-7448-3244On 9 November: 020-7448-3244Web: www.hornby.com or: www.scalextric.com or www.airfix.com HORNBY PLC INTERIM REPORT CONDENSED CONSOLIDATED HALF-YEARLY FINANCIAL REPORTSIX MONTHS TO 30 SEPTEMBER 2007 INTERIM MANAGEMENT REPORT I am pleased to report that the Group has made excellent progress during thefirst half of the year. Sales increased by 37% to £24.6m and profits increasedto £2.7m. Our strategy to build a group comprising hobby businesses across a number ofterritories is proving successful. We have made great progress in strengtheningand diversifying our revenue streams and the new businesses that have been addedto the group are performing well. They are all responding positively to theaction we have taken to re-vitalise them, by combining higher quality productmanufacturing with a strong product development and marketing programme. Thishas helped each business to capitalise on the strength of their brands. The acquisition of Airfix and Humbrol has been successful and the products havebeen re-launched into a receptive market, with an exciting new product pipelineto support future sales growth. Sales have increased strongly in all of our operating subsidiaries, resulting inGroup sales of £24.6m, 37% higher than the same period last year (2006 -£17.9m). Gross margins were 3.9 percentage points lower than the previous year. Highercharges for royalties and tooling amortisation, and a change in product/marketmix towards Scalextric and Hornby sets sold via major retail and export channelsimpacted the gross margin percentage. Increased sales of sets generally resultin increased sales of higher margin accessories as new entrants begin to buildtheir collections. We are forecasting an improvement in margins in the secondhalf of the financial year. Overheads, which comprise distribution costs, selling and marketing costs andadministrative expenses, were £1.9m higher than the previous year due in part toadditional overheads in respect of the Humbrol/Airfix business. In additionhigher variable selling costs were incurred in our European subsidiaries wherethe majority of sales are made via commission agents, whose costs increase inline with sales. Profit before tax at £2.7m compares favourably with the prior year result of£1.4m. The Group net debt position of £8.9m as at 30 September 2007, has increased by£5.1m compared to the previous year. However this position is after payment of£2.6m for the Humbrol and Airfix assets in November 2006, and increased workingcapital requirements as a result of growth in all subsidiaries. The Groupexpects to be broadly cash neutral at the end of the financial year (2007 -£627,000 overdraft), thus demonstrating its ability to continue to generate cashfrom its operations. Dividend Your Board is continuing its policy of paying one third of the previous year'sfull dividend at the half-year. Consistent with this policy, I am thereforepleased to announce an 8% increase in the interim dividend to 2.7p (2006 - 2.5p)per ordinary share, payable on 25 January 2008 for those shareholders on theregister as at 14 December 2007. Operating Review As I reported at the Annual General Meeting in July, order intake across all ofour operating subsidiaries has been significantly higher than in the previousyear. This has resulted in higher sales in the first half. We enter thepre-Christmas period with a strong order book and with retail sales running athigher levels than last year. UK In the UK, it is encouraging to report that sales of both Hornby and Scalextricare higher than last year; driven in part by the growing uptake of our marketleading digital control technology in both product categories. This has been asignificant engine of growth as existing hobbyists and new market entrants adoptthe new technology. In addition, the Airfix and Humbrol business, acquired inNovember 2006 made a positive contribution to sales and profits. These factors resulted in an overall increase in sales in Hornby Hobbies Limitedof 32% compared to the previous year. USA Hornby America reported an improvement in sales of 11% in local currency,although the weakening Dollar reduced this increase to just 2% when translatedinto Sterling. The improvement in sales was driven in part by a good response tothe Micro-Scalextric product based on the Transformers movie and made underlicence from Hasbro Inc. We have also commenced trading with certain majornationwide retailers, and we expect to be able to continue to develop thesetrading relationships in the future. Continental Europe All of our subsidiaries in continental Europe made good progress in the half,resulting in an overall sales increase of 70% compared to the previous year. Spain Hornby Espana increased sales as a result of a strong new product introductionprogramme in its model railways business, coupled with an increase in sales ofSuperslot slot car products. This is partly as a result of our licence with theVodafone McLaren Mercedes Team, under the terms of which we are able to use theimages of Fernando Alonso and Lewis Hamilton on our products. In addition,Hornby Espana has supplied Superslot products in component form for use in a"part-work" publication in Spain. This has contributed to the sales increasewhilst also having the additional benefit of broadening the brand awareness ofSuperslot in Spain. Italy Hornby Italia increased sales significantly in the half and is on track tocontinue this trend in the second half. Very encouragingly, sales growth inItaly is being derived not only from the re-launched model railway ranges underthe Lima and Rivarossi brands, but also from significantly increased sales ofScalextric and Hornby branded products. In particular, the Thomas the TankEngine range is gaining wide popularity in Italy, as a result of regulartransmissions of the eponymous children's television series. France Hornby France increased sales at a lower rate than Italy and Spain, but, withthe majority of new launches of Jouef model railway products taking place in thesecond half, we are looking forward to a strong full year performance in France. Germany Hornby Deutschland continues to establish itself as a credible supplier to thisimportant market, which is the largest model railway market in Europe. Theresponse to our re-launched Lima, Rivarossi and Arnold ranges has been good. Itis clear however that, given the competitive pressures in the market, greatemphasis will be placed on the successful launch of newly tooled products. Inthis connection the first such product, a BR58 steam locomotive, will belaunched in Germany prior to Christmas 2007. This product features a die-castbody for both locomotive and tender. This is the first time Hornby Group hasintroduced such features. Product Pipeline Part of the Group's recent success can be attributed to our focus onstrengthening our product pipeline. We have made excellent progress incontinuing to extend the depth of our new product launch programme. We continueto seek exciting licenses which we can leverage to improve the distribution ofproduct ranges to our various sales channels. Current Trading The Group has made a strong start in the current financial year and theprospects for the full year remain in line with our expectations. As always,consumer demand in the pre-Christmas period is a key determinant of the Group'sresult for the year. At this stage, order inflow from our retail customers isencouraging across the whole Group. Continued growth in our international subsidiaries as they re-establishdistribution of our core brands now being manufactured in China, coupled withevidence of stronger consumer demand for our products in the UK market shouldensure continued growth across the Group in the second half of the financialyear. The Board looks to the future with confidence. Neil A JohnsonChairman8 November 2007 INCOME STATEMENTfor the six months ended 30 September 2007 Six months Six months to 30 September to 30 September 2007 2006 Restated* (unaudited) (unaudited) Note £'000 £'000 REVENUE 4 24,595 17,905Cost of sales (12,745) (8,574) _______ _______GROSS PROFIT 11,850 9,331 Distribution costs (897) (673)Selling and marketing costs (5,380) (4,186)Administrative expenses (2,274) (1,830)Foreign exchange losses (305) (936)Other operating expenses (127) (218) _______ _______OPERATING PROFIT 2,867 1,488 Finance income 1 3Finance costs (191) (70) _______ _______PROFIT BEFORE TAXATION 4 2,677 1,421 Taxation 8 (1,214) (527) _______ _______PROFIT FOR THE PERIOD ATTRIBUTABLE TO EQUITY HOLDERS 1,463 894 _______ _______ EARNINGS PER ORDINARY SHARE Basic 3.90p 2.38pDiluted 3.76p 2.29p All of the activities of the Group are continuing. * See note 2. The notes form an integral part of this condensed consolidated half-yearlyfinancial information. BALANCE SHEETas at 30 September 2007 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) Note £'000 £'000 £'000 ASSETSNON-CURRENT ASSETSGoodwill 9,323 8,154 9,206Intangible assets 2,284 1,513 2,321Property, plant and equipment 7,634 6,252 7,458Deferred income tax assets 199 378 421 _______ _______ _______ 19,440 16,297 19,406 _______ _______ _______ CURRENT ASSETSInventories 12,142 10,645 8,441Trade and other receivables 17,312 11,456 10,087Cash and cash equivalents 134 621 329 _______ _______ _______ 29,588 22,722 18,857 _______ _______ _______ LIABILITIESCURRENT LIABILITIESBorrowings 7 (9,017) (4,423) (1,005)Derivative financial instruments (57) (51) (202)Trade and other payables (10,016) (9,258) (7,216)Provisions (596) (425) (293)Current tax liabilities (1,263) (806) (1,291) _______ _______ _______ (20,949) (14,963) (10,007) _______ _______ _______ NET CURRENT ASSETS 8,639 7,759 8,850 _______ _______ _______ NON-CURRENT LIABILITIESBorrowings 7 (47) (92) (53)Deferred tax liabilities (390) (220) (358) _______ _______ _______ (437) (312) (411) _______ _______ _______NET ASSETS 4 27,642 23,744 27,845 _______ _______ _______ SHAREHOLDERS' EQUITY Share capital 6 378 376 378Share premium 5,236 5,081 5,236Other reserves 1,772 1,743 1,795Retained earnings 20,256 16,544 20,436 _______ _______ _______TOTAL EQUITY 27,642 23,744 27,845 _______ _______ _______ The notes form an integral part of this condensed consolidated half-yearlyfinancial information. STATEMENT OF CHANGES IN EQUITYfor the six months ended 30 September 2006 and 30 September 2007 Share Share Redemption Other Retained Total Capital Premium Reserve Reserves Earnings* Equity (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 April 2006 376 5,050 55 1,688 17,694 24,863 Currency translation differences - - - - 23 23Profit for the period - - - - 894 894 ____ _____ ____ ______ ______ ______Total recognised income for the period - - - - 917 917 ____ ______ ____ ______ ______ ______ Issue of shares - 31 - - - 31Share based payments - - - - 117 117Transfer to EBT - - - - (178) (178)Dividends - - - - (2,006) (2,006) ____ _____ ____ ______ ______ ______ - 31 - - (2,067) (2,036) ____ _____ ____ ______ ______ ______ Balance at 30 September 2006 376 5,081 55 1,688 16,544 23,744 Balance at 1 April 2007 378 5,236 55 1,740 20,436 27,845 Currency translation differences - - - - (34) (34)Cash flow hedges - - - - 81 81 ____ ____ ____ ______ ______ ______Net expense recognised directly in reserves - - - - 47 47 Profit for the period - - - - 1,463 1,463 ____ _____ ____ ______ ______ ______Total recognised income for the period - - - - 1,510 1,510 ____ _____ ____ ______ ______ ______ Issue of shares - - - - - -Share based payments - - - - 114 114Deferred tax on share based payments - - - (23) - (23)Shares vested from EBT - - - - 295 295Dividends - - - - (2,099) (2,099) ____ _____ ____ ______ ______ ______ - - - (23) (1,690) (1,713) ____ _____ ____ ______ ______ ______ Balance at 30 September 2007 378 5,236 55 1,717 20,256 27,642 * Retained earnings includes £698,000 at 30 September 2007 (2006 - £715,000)which is not distributable and relates to a 1986 revaluation of land andbuildings. CASH FLOW STATEMENTfor the six months ended 30 September 2007 Six months Six months to 30 September to 30 September 2007 2006 (unaudited) (unaudited) £'000 £'000 CASH FLOWS FROM OPERATING ACTIVITIESCash (utilised in)/generated from operations (2,977) 318Interest received 1 3Interest paid (191) (70)Tax paid (1,088) (1,336) _______ _______Net cash utilised in operating activities (4,255) (1,085) _______ _______ CASH FLOWS FROM INVESTING ACTIVITIESPurchase of trade assets and related costs - (36)Proceeds from sale of property, plant and equipment 5 32Purchase of property, plant and equipment (1,684) (1,515) _______ _______Net cash utilised in investing activities (1,679) (1,519) _______ _______ CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of ordinary shares - 31Repayment of loans (16) (52)Finance lease capital payments (11) (37)Dividends paid to Company's shareholders (2,099) (2,006) _______ _______Net cash utilised in financing activities (2,126) (2,064) _______ _______Effect of exchange rate movements (152) 140 _______ _______ Net decrease in cash and cash equivalents (8,212) (4,528)Cash and cash equivalents at beginning of the period (627) 746 _______ _______ CASH, CASH EQUIVALENTS AND BANK OVERDRAFTSAT END OF PERIOD (8,839) (3,782) _______ _______ CASH AND CASH EQUIVALENTS CONSIST OF:Cash and cash equivalents 134 621Bank overdrafts (8,973) (4,403) _______ _______ CASH AND CASH EQUIVALENTS AT END OF PERIOD (8,839) (3,782) _______ _______ The notes form an integral part of this condensed consolidated half-yearlyfinancial information. NOTES TO THE CASH FLOW STATEMENT Cash flows from operating activities Six months Six months to 30 September to 30 September 2007 2006 (unaudited) (unaudited) £'000 £'000 Profit for the financial period 1,463 894Taxation 1,214 527Interest payable 191 70Interest receivable (1) (3)Amortisation of intangible assets 80 50Depreciation 1,474 944Loss on disposal of tangible fixed assets 6 -Share based payments 114 117(Gain)/loss on financial derivatives (67) 51Increase in provisions 303 125Increase in inventories (3,701) (2,291)Increase in trade and other receivables (7,145) (2,070)Increase in trade and other payables 3,092 1,904 _______ _______CASH (UTILISED IN)/GENERATED FROM OPERATIONS (2,977) 318 _______ _______ NOTES TO CONDENSED CONSOLIDATED HALF-YEARLY FINANCIAL REPORT 1. GENERAL INFORMATION The Company is a limited liability company incorporated and domiciled in the UK.The address of the registered office is Westwood, Margate, Kent CT9 4JX. The Company has its primary listing on the London Stock Exchange. This condensed consolidated half-yearly financial information was approved forissue on 8 November 2007. These interim financial results do not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31 March 2007 were approved by the Board of Directors on 15 June 2007and delivered to the Registrar of Companies. The Report of the Auditors on thoseaccounts was unqualified, did not contain an emphasis of matter paragraph anddid not contain any statement under Section 237 of the Companies Act 1985. Forward Looking Statements Certain statements in this half-yearly report are forward-looking. Although theGroup believes that the expectations reflected in these forward-lookingstatements are reasonable, we can give no assurance that these expectations willprove to have been correct. Because these statements involve risks anduncertainties, actual results may differ materially from those expressed orimplied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as aresult of a new information, future events or otherwise. 2. BASIS OF PREPARATION This condensed consolidated half-yearly financial information for the half-yearended 30 September 2007 has been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34, 'Interimfinancial reporting' as adopted by the European Union. The half-yearly condensedconsolidated financial report should be read in conjunction with the annualfinancial statements for the year ended 31 March 2007 which have been preparedin accordance with IFRSs as adopted by the European Union. 2006 Restatement The directors are constantly reviewing accounting policies and classificationfor appropriateness and believe that foreign exchange translation adjustmentsare more appropriately shown within operating expenses. Foreign exchange lossesof £936,000 previously included in cost of sales have been reallocated tooperating expenses. 3. ACCOUNTING POLICIES The accounting policies adopted are consistent with those of the annualfinancial statements for the year ended 31 March 2007, as described in thoseannual financial statements. The following new standards, amendments to standards or interpretations aremandatory for the first time for the financial year ending 31 March 2008. • IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006. This interpretation has not had any impact on the recognition of share-based payments in the Group. • IFRIC 9, 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006. This interpretation has not had a significant impact on the reassessment of embedded derivatives as the Group already assessed if embedded derivative should be separated using principles consistent with IFRIC 9. • IFRIC 11, 'IFRS 2 - Group and treasury share transactions', effective for annual periods beginning on or after 1 March 2007. Management do not expect this interpretation to be relevant to the Group. • IFRS 7, 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007. IAS 1, 'Amendments to capital disclosures', effective for annual periods beginning on or after 1 January 2007. As this interim report contains only condensed financial statements, and as there are no material financial instrument related transactions in the period, full IFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, will be given in the annual financial statements. 4. GEOGRAPHICAL SEGMENT INFORMATION Six months Six months to 30 September to 30 September 2007 2006 (unaudited) (unaudited) BY ORIGIN £'000 £'000 REVENUE United Kingdom 17,327 13,149United States of America 1,226 1,203Rest of Europe 6,042 3,553 _______ _______ 24,595 17,905 _______ _______ £'000 £'000OPERATING PROFIT BEFORE TAXATION United Kingdom 2,115 1,234United States of America 27 31Rest of Europe 725 223 _______ _______ Total operating profit 2,867 1,488 Interest (190) (67) _______ _______Profit before taxation 2,677 1,421 _______ _______ £'000 £'000 NET ASSETS United Kingdom 11,055 8,889United States of America 1,073 1,354Rest of Europe 15,514 13,501 _______ _______ 27,642 23,744 _______ _______ BY DESTINATION £'000 £'000 REVENUE United Kingdom 14,306 10,963Rest of the world 10,289 6,942 _______ _______ 24,595 17,905 _______ _______ 5. CAPITAL EXPENDITURE Six months ended 30 September 2007 Tangible and intangible assets (unaudited) £'000 Opening book amount 1 April 2007 18,985Exchange adjustment 218Additions 1,603Disposals (11)Depreciation, amortisation, impairment and other movements (1,554) ______Closing net book amount 30 September 2007 19,241 ______ The fixed asset additions primarily relate to new product tooling (£1,339,000),plant and equipment (£248,000) and motor vehicles (£16,000). Six months ended 30 September 2006 Tangible and intangible assets (unaudited) £'000 Opening book amount 1 April 2006 15,263Exchange adjustment (203)Acquisition of subsidiary 169Additions 1,683Disposals (32)Depreciation, amortisation, impairment and other movements (961) ______Closing net book amount 30 September 2006 15,919 ______ 2007 2006 (unaudited) (unaudited) CAPITAL COMMITMENTS £'000 £'000 At 30 September commitments were: Contracted for but not provided for 519 715 _______ _______ The commitments relate to the acquisition of property, plant and equipment. 6. SHARE CAPITAL The Group has 37,840,790 ordinary 1p shares in issue with nominal value £378,408(2006 - £376,210). No employee share options were exercised during the first half to 30 September2007 (2006 - 37,500 shares), with exercise proceeds of £nil (2006 - £31,275).The related weighted average price at the time of exercise was 228.2p in 2006. 7. BORROWINGS AND LOANS 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000CURRENT: Bank loans and overdrafts 8,973 4,403 956Finance lease obligations 44 20 49 ______ ______ ______ 9,017 4,423 1,005 ______ ______ ______ NON-CURRENT: Finance lease obligations 47 92 53 ______ ______ ______ The Group has a £12,000,000 overdraft facility at 30 September 2007 (2006 -£7,000,000) that attracts interest at 1% above Barclays Bank base rate. 8. INCOME TAXATION The tax expense is recognised based on management's last estimate of theweighted average annual tax rate expected for the full financial year. 9. EARNINGS PER SHARE Earnings per share attributable to equity holders of the company arises fromcontinuing and discontinued operations as follows: 30 September 30 September 2007 2006 (unaudited) (unaudited) Earnings per share for profit from continuing operations attributable to the equity of the Company - basic 3.90p 2.38p - diluted 3.76p 2.29p 10. DIVIDENDS A dividend that relates to the year ended to 31 March 2007 and that amounts£2,099,000 was paid in August 2007. 11. CONTINGENT LIABILITIES The Company and its subsidiary undertakings are, from time to time, parties tolegal proceedings and claims, which arise in the ordinary course of business.The directors do not anticipate that the outcome of these proceedings andclaims, either individually or in aggregate, will have a material adverse effectupon the Group's financial position. 12. RELATED-PARTY TRANSACTIONS Key management compensation amounted to £1,134,000 for the six months to 30September 2007 (2006 - £1,054,000). 30 September 30 September 2007 2006 (unaudited) (unaudited) £'000 £'000 Salaries and other short-term benefits 967 869Post-employment benefits 72 66Share-based payments 95 119 ______ ______ 1,134 1,054 ______ ______ 13. EVENTS OCCURING AFTER THE BALANCE SHEET DATE The Directors propose an interim dividend of 2.7p per ordinary share which ispayable on 25 January 2008. 14. SEASONALITY Sales are subject to seasonal fluctuations, with peak demand in the October -December quarter. For the six months ended 30 September 2007 sales represented52% (2006 - 38%) of the annual sales for the year ended 31 March 2007. STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The Directors of Hornby Plc are listed in the Hornby Plc Annual Report for 31March 2007. A list of current directors is maintained on the Hornby Plc website:www.hornby.com. Frank MartinChief Executive8 November 2007 John Watson StansfieldFinance Director8 November 2007 INDEPENDENT REVIEW REPORT TO HORNBY PLC INTRODUCTION We have been engaged by the Company to review the condensed set of consolidatedfinancial statements in the condensed consolidated half-yearly financial reportfor the six months ended 30 September 2007 which comprises the income statement,balance sheet, statement of changes in equity, cash flow statement and relatednotes. We have read the other information contained in the half-yearly financialreport and considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of consolidatedfinancial statements. DIRECTORS' RESPONSIBILITIES The half-yearly financial report is the responsibility of, and has been approvedby the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. As disclosed in note 2, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of consolidated financial statements included in this half-yearlyfinancial report has been prepared in accordance with International AccountingStandard 34, 'Interim Financial Reporting', as adopted by the European Union. OUR RESPONSIBILITY Our responsibility is to express to the company a conclusion on the condensedset of consolidated financial statements in the half-yearly financial reportbased on our review. This report, including the conclusion, has been preparedfor and only for the company for the purpose of the Disclosure and TransparencyRules of the Financial Services Authority and for no other purpose. We do not,in producing this report, accept or assume responsibility for any other purposeor to any other person to whom this report is shown or into whose hands it maycome save where expressly agreed by our prior consent in writing. We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. CONCLUSION Based on our review, nothing has come to our attention that causes us to believethat the condensed set of consolidated financial statements in the half-yearlyfinancial report for the six months ended 30 September 2007 is not prepared, inall material respects, in accordance with International Accounting Standard 34as adopted by the European Union and the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority. PRICEWATERHOUSECOOPERS LLPChartered AccountantsGatwick8 November 2007 Notes: (a) The maintenance and integrity of the Hornby Plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock Exchange