Interim Results

Hornby PLC 17 November 2000 Hornby PLC Interim Results for the six months to 30 September 2000 HORNBY REPORTS BENEFITS OF REPOSITIONING PROGRAMME AS PROFITS DOUBLE AT INTERIMS AND ANNOUNCES RETURN OF FUNDS TO SHAREHOLDERS Hornby PLC, the models and collectibles manufacturer announced today its interim results for the six months to 30 September 2000. Main points: - Pre-tax profits more than doubled to £524,000 (£253,000) - Turnover ahead 10.5% to £9.3m (£8.4m) - Earnings per share almost doubled to 4.03p (2.11p) - Retailers experiencing increasing consumer demand - Rising levels of direct and export sales - Outsourcing programme resulting in stronger margins and higher quality products - Interim dividend of 2.0p (2.0p) - Return of funds to be made to shareholders early in 2001 Peter Newey, Chairman, commented: 'I am pleased to report that Hornby has made an encouraging start to the year. Retailers are reporting increasing demand for our products and the policy to improve product quality is leading to particularly strong sales in the model and hobby shop sector. It is also pleasing to see levels of direct and export sales increasing significantly. 'The outsourcing programme has been a major factor in the improvement of the Company's performance. All Hornby and Scalextric products are now bought-in, mainly from China, which has resulted in a considerable improvement in gross margins. The move to China has also increased the Company's cash position, as it is no longer necessary to finance work in progress. 'The task of repositioning the Company for the future is now complete. Hornby has undergone successfully a major programme of necessary structural changes to improve the operational efficiency of the business. These changes have created a solid platform from which the Company can achieve future growth. Consequently, I believe it is now appropriate for a new management team to take over who will lead Hornby into the next stage of its development. After seven years on the Board and five years as Chairman I have, therefore, decided to step down as Executive Chairman at the end of November. I will leaving the Board with effect from 22 December 2000. Neil Johnson will become non- executive Chairman and Frank Martin has accepted the position of Chief Executive. 'The current financial year has begun extremely well, particularly as it followed on from last year's excellent Christmas and the high level of sales in the January to March period of this year. The trend continues to be promising. 'The performance in the second half of the year will depend on Sterling's exchange rate with the US dollar. However, the product range is strong and highly competitive and the outsourcing programme has enabled us to deliver high quality products at competitive prices. Going forward, the trading position is strong and the prospects for the rest of the year are encouraging.' Date: 17 November 2000 For further information contact: Peter Newey Hornby PLC 020 7499 2041 Jonathan Shillington City Profile 020 7726 8588 Ed Senior City Profile 020 7726 8588 Hornby PLC Interim Results for the six months to 30 September 2000 Operating Review I am pleased to report that the results for the six months to 30 September 2000 were encouraging. Turnover increased by 10.5% from £8.4m last year to £9.3m and profits before tax at £524,000 were more than double last year's £253,000. The sales increase followed the January to March quarter, which had been 24% better than the same period in the previous year. It illustrates that our retail customers not only purchased our products to replenish their stocks after last year's Christmas trading, but are now continuing to buy to meet increased customer demand. Sales were particularly strong in the independent model and hobby shop retail sector. This justifies the investment we have made to improve the quality of all our products and shows that this policy is beginning to pay dividends, particularly with the enthusiast and collector. These are important sectors for Hornby where in the past it has lost market share to international competitors but which the Company is now beginning to regain. Hornby has continued to strengthen its direct sales by introducing Hornby concessions into twenty-six Beatties retail outlets. Other concessions are being opened throughout the country so that by the end of the year there should be fifty in total. Export sales have performed well, particularly in the USA where we purchased the business assets of our former distributor, 'A Day at the Races' in October last year. This is now fully integrated into Hornby. Sales to Europe in the six month period to 30 September 2000 are ahead of last year's, despite the strength of Sterling against the Euro, because of improved product quality and availability and better commercial management. Recent exchange rate fluctuations have not affected the figures for the six months to 30 September 2000 as the Company had bought forward sufficient Hong Kong dollars to meet its requirements. Sterling's current weakness against the US dollar will in future affect the cost of our imports from China as these prices are denominated in Hong Kong dollars which are pegged to the US dollar. Gross margins improved, primarily as a result of the outsourcing programme. All Hornby and Scalextric products are now bought-in, mainly from China. The benefits which the Company is achieving from the outsourcing programme (the last items were transferred in October) will continue to improve the Company's performance over the next two years after which the full benefits will be completely reflected in the Company's figures. Overheads in the UK in the six months to 30 September 2000 were 3% below last year. Depreciation was significantly higher, reflecting the high level of investment in the past to make the product range competitive. The relative level of stock and debtors reflects the improved sales position. In total these figures for the six months to 30 September 2000 are similar to last year's, however there has been a shift from stock to debtors as our customers, more confident of consumer demand and Christmas trading, have purchased more of our product. The levels of finished product are significantly lower than last year, resulting in a higher overall stock turn. The cash position of the Company has also been increased because our in-house production and associated work in progress has been reduced with production moving to China. Hornby no longer needs to finance work in progress and consequently, together with higher sales and lower finished goods stocks, cash at 30 September 2000 was £0.9m, £1.5m better than last year. The freehold factory and warehouse in Margate are now in excess of our requirements and we are therefore in the process of selling these properties and will replace them with modern premises. It is unlikely that contracts will be exchanged before the end of this financial year as negotiations are still in progress. Board The task of repositioning the Company for the future is now complete. Hornby has successfully undergone a major programme of necessary structural changes to improve the operational efficiency of the business. The Company has concentrated solely on the Hornby and Scalextric core business since discontinuing its toy range. It has invested in the Hornby and Scalextric product ranges to regain market share in the model market for the enthusiast and collector and improve its product quality, reliability and availability in the toy sector. It has sought to improve its channels of distribution internationally by appointing new distributors and acquiring 'A Day at the Races' in the USA and in the UK by opening concessions. Finally it has reduced its cost base, and in the process improved product quality and reliability, by outsourcing its production, in particular to China, where our main supplier Sanda Kan has provided considerable assistance. These changes have created a solid platform from which the Company can achieve future growth. Consequently, I believe it is now appropriate for a new management team to take over that will lead Hornby into the next stage of its development. After seven years on the Board and five years as Chairman I have, therefore, decided to step down as Executive Chairman at the end of November. I will leaving the Board with effect from 22 December 2000. Neil Johnson, who has been a non-executive director of Hornby since July 1998 has been Deputy Chairman since February of this year, will become the non- executive Chairman. Neil was previously the Chief Executive of RAC. His earlier career was spent predominantly in the engineering and automotive industry where he was the Board Director at Jaguar Cars responsible for world-wide sales and marketing. He was later appointed Director General of the Engineering Employers' Federation. He also sits on the boards of a number of quoted and private companies. He currently heads BABi, the leading US/UK trade promotion organisation. We are also pleased to announce that Frank Martin has accepted the position of Chief Executive of Hornby. Frank is currently the Chief Executive of Humbrol Ltd who manufacture enamel paints, craft materials and Airfix models. Recently he has held a number of Managing Director appointments in consumer goods businesses including Denby Tableware. Previously Frank worked in the toy industry where for a period he was the Group Marketing Director of Hasbro UK Ltd. Until Frank is able to join Hornby Tim Nabbs, Hornby's Sales and Marketing Director, will be acting Managing Director. I am sure that the combination of Neil and Frank's international experience and knowledge of the toy and model industry will enable the Company to develop and grow the Hornby and Scalextric businesses. Dividends The Board wishes to announce that the interim dividend will be maintained at 2.0p per ordinary share payable on 26 January for those shareholders on the register as at 3 January 2001. Return of Funds to Shareholders I reported in the last Annual Report and Accounts (30 June 2000) that the Company would return funds in excess of business requirements early in 2001, if discussions to acquire or merge the Company did not lead to a satisfactory offer. An announcement was made to the Stock Exchange on 13 October 2000 that Hornby was no longer in talks concerning a possible offer for the Company. It is therefore the intention of the Board, after consultation with our financial advisers and bankers and subject to shareholder approval, to return surplus funds to shareholders in the most appropriate manner. This will be done as soon as is practical in the new year. Outlook The current financial year has begun extremely well, particularly as it followed on from last year's excellent Christmas trading and the high level of sales in the January to March period of this year. The trend continues to be promising. As referred to in the Operating Review, the performance in the second half of the year will depend in part on Sterling's exchange rate with the US dollar and, of course, on the level of Christmas trading. However, the product range is strong and highly competitive and the outsourcing programme has enabled us to deliver high quality products at competitive prices and enabled the Company to reduce its overhead cost structure and financing requirements. Going forward, the trading position is strong and the prospects for the rest of this year are encouraging. Peter Newey Chairman 17 November 2000 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 Six months Six months Year ended to 30 to 2 31 March September October 2000 2000 1999 (unaudited) (unaudited) (audited) £'000 £'000 £'000 --------------------------------------- TURNOVER 9,298 8,417 21,477 Operating costs (8,785) (8,168) (20,277) -------------------------- OPERATING PROFIT 513 249 1,200 Net interest receivable 11 4 7 -------------------------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 524 253 1,207 Tax on profit on ordinary (187) (77) (398) activities -------------------------- PROFIT FOR THE PERIOD 337 176 809 Dividends (167) (167) (585) -------------------------- RETAINED PROFIT FOR THE PERIOD 170 9 224 -------------------------- EARNINGS PER ORDINARY SHARE Basic 4.03p 2.11p 9.68p Diluted 4.03p 2.11p 9.68p Dividend per ordinary share 2.0p 2.0p 7.0p All the activities of the Group are continuing. STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES £'000 £'000 £'000 Profit for the financial 337 176 809 period Exchange adjustments offset in 13 - 1 reserves -------------------------- TOTAL RECOGNISED GAINS FOR THE 350 176 810 PERIOD CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2000 30 September 2 October 31 March 1999 1999 2000 (unaudited) (unaudited) (audited) £'000 £'000 £'000 FIXED ASSETS Intangible assets 40 - 40 Tangible assets 4,189 4,805 4,478 -------------------------- 4,229 4,805 4,518 CURRENT ASSETS Stocks 6,580 7,488 6,083 Debtors 7,948 6,971 4,944 Cash at bank and in hand 854 332 3,565 -------------------------- 15,382 14,791 14,592 CREDITORS: Amounts falling due within one year Borrowings - (1,000) - Other creditors (4,950) (4,432) (4,660) -------------------------- NET CURRENT ASSETS 10,432 9,359 9,932 -------------------------- TOTAL ASSETS LESS CURRENT LIABILITIES 14,661 14,164 14,450 CREDITORS: Amounts falling due after more than one year (153) (18) (148) PROVISIONS FOR LIABILITIES AND CHARGES (829) (866) (806) -------------------------- NET ASSETS 13,679 13,280 13,496 -------------------------- CAPITAL AND RESERVES Share capital and reserves 7,448 7,465 7,456 Profit and loss account 6,231 5,815 6,040 -------------------------- EQUITY SHAREHOLDERS' FUNDS 13,679 13,280 13,496 __________________________ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS £'000 £'000 £'000 Profit for the financial period 337 176 809 Dividends (167) (167) (585) Exchange gain on investment 13 - 1 -------------------------- NET ADDITIONS TO SHAREHOLDERS'FUNDS 183 9 225 Opening shareholders' funds 13,496 13,271 13,271 CLOSING SHAREHOLDERS' FUNDS 13,679 13,280 13,496 -------------------------- CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 Six months Six months Year ended to 30 to 2 31 March September October 2000 2000 1999 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net cash (outflow)/inflow from operating activities (1,719) (3,348) 1,694 Returns on investments and servicing of finance 11 4 7 Taxation (194) (42) (171) Capital expenditure - additions (385) (623) (964) - disposals - 6 40 Acquisitions - - (103) Overdraft held upon - - (66) acquisition Equity dividends paid (418) (418) (585) ------------------------ Net cash (outflow)/inflow before financing (2,705) (4,421) (148) Financing Decrease in debt (6) (19) (59) ------------------------ Decrease in cash in the period (2,711) (4,440) (207) ------------------------ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS £'000 £'000 £'000 Decrease in cash in the period (2,711) (4,440) (207) Cash outflow from decrease in lease financing 6 19 59 ------------------------ Change in net funds resulting from cash flows (2,705) (4,421) (148) New finance leases - - (59) New finance leases upon - - (13) acquisition ------------------------ Movement in net funds in the (2,705) (4,421) (220) period Net funds at 1 April 2000 3,478 3,698 3,698 ------------------------ Net funds/(debt) at 30 September 2000 773 (723) 3,478 ________________________ NOTES TO THE CASH FLOW STATEMENT NET CASH FLOW FROM OPERATING ACTIVITIES Six months Six months Year ended to 30 to 2 31 March September October 2000 2000 1999 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Operating profit 513 249 1,200 Increase in reserves - exchange gain on investment 13 - 1 Depreciation charges 609 584 1,363 Goodwill written off - - 2 Decrease/ (increase) in stocks (497) (1,833) 125 (Increase) in debtors (3,004) (2,847) (655) Increase/(decrease) in 614 437 (353) creditors Increase in sales returns 33 62 11 provision ------------------------ Net cash (outflow)/inflow from operating activities (1,719) (3,348) 1,694 ________________________ GEOGRAPHICAL SEGMENT INFORMATION Six months Six months Year ended to 30 to 2 31 March September October 2000 2000 1999 (unaudited) (unaudited) (audited) BY ORIGIN £'000 £'000 £'000 TURNOVER United Kingdom 8,454 8,417 20,747 United States of America 844 - 730 ------------------------ Group 9,298 8,417 21,477 ------------------------ Inter company sales to Scalextric USA, Inc. were £432,000 in the six months to 30 September 2000 (£238,000 in the six months to 30 September 1999 were included in United Kingdom turnover). £'000 £'000 £'000 PROFIT BEFORE TAX United Kingdom 425 253 1,097 United States of America 99 - 110 ------------------------ Group 524 253 1,207 ________________________ £'000 £'000 £'000 NET ASSETS United Kingdom 13,420 13,280 13,324 United States of America 259 - 172 ------------------------ Group 13,679 13,280 13,496 ________________________ BY DESTINATION £'000 £'000 £'000 TURNOVER United Kingdom 6,829 6,763 17,495 Rest of the world 2,469 1,654 3,982 ------------------------ Group 9,298 8,417 21,477 ________________________ NOTES: 1.Basis of preparation The interim financial information has been prepared on the basis of accounting policies set out in the Report & Accounts for the year ended 31 March 2000. The taxation charge for the six months ended 30 September 2000 has been calculated on the basis of the estimated tax rate for the twelve months ending 31 March 2001. 2.Non statutory accounts These statements do not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985. The comparative figures for the year ended 31 March 2000 are an abridged statement of the full financial statements for that period which have been delivered to the Registrar of Companies and on which the auditors made an unqualified report. No financial statements will be filed for the six months ended 30 September 2000. 3.Earnings per share The Company has adopted the provisions of Financial Reporting Standard no.14 on earnings per share. The calculation of earnings per ordinary share is based on the profits after taxation for the period of £337,000 (six months ended 2 October 1999 - £176,000) and the weighted average number of ordinary shares in issue during the period of 8,357,320 (six months ended 2 October 1999 - 8,357,320). The diluted earnings per share is the same as the basic earnings per share as the performance criteria required to exercise options have not been achieved in the period. 4.Copies of this statement will be sent to all shareholders and are available from the Company's registered office.

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