Annual Financial Report

11 July 2024

HORNBY PLC

HORNBY ANNOUNCES ANNUAL RESULTS

Hornby Plc ("Hornby" or the "Group"), the international models and collectibles group, today announces its results for the year ended 31 March 2024

Highlights 2024

Revenue (2023: £55.1m)

£56.2m

Operating loss (2023: £5.0m loss)

(£7.1m)

Reported loss before taxation (2023: £5.9m loss)

(£8.7m)

Underlying1 loss before taxation (2023: £1.1m loss)

(£7.3m)

Reported loss after taxation (2023: £5.9m loss)

(£12.1m)

Reported loss per share (2023: 3.50p loss)

(7.10p)

Underlying2 basic loss per share (2023: 1.22p)

(6.40p)

Net debt (2023: £5.5m) (see Note 28)

(£14.3m)

1      Underlying profit before taxation is before amortisation of intangibles (brand names and customer lists), and net unrealised foreign exchange movements on intercompany loans, exceptional items and share-based payments (see page 10).

2      Underlying basic profit per share is before amortisation of intangibles (brand names and customer lists), and net unrealised foreign exchange movements on intercompany loans, exceptional items and shared-based payments (see note 7).

Hornby Plc

Olly Raeburn, CEO

Kirstie Gould, CFO

Holly Barnett, Head of PR

01843 233500

Web: www.hornby.plc.uk

Liberum Capital Limited (Nominated Advisor & Broker)

Andrew Godber

Edward Thomas

Anake Singh

020 3100 2222 

Non-Executive Chairman's Report

The Strategic Report comprises the Non-Executive Chairman's report, the Chief Executive's Report, the Operating and Financial Review of the year and our Key Performance Indicators ('KPIs')

Revenue in the year of £56.2 million (2023: £55.1 million) was 2% above the previous year. Underlying loss before tax was £7.3 million (2023: £1.1million loss). Reported loss after tax was £12.1 million (2023: £5.9 million loss).

Sales were slightly depressed in March compared to expectations by Red Sea delivery delays and the resultant movement of some high value containers into April.

Hornby group (pre-acquisition) stocks were £21.0 million (2023: £21.3 million) however total stock increased very slightly due to the acquisition of Corgi Model Club in March 2024 bringing total stock at year end to £21.5 million. Nevertheless net debt at year end increased to £14.3 million (2023: £5.5 million) due to increased overheads and capital expenditure on tooling and Wonderworks in Margate.

WonderWorks

During the year the Hornby Visitor Centre was totally refurbished and modernised into a state-of-the-art visitor attraction, rebranded WonderWorks and launched in November. The new facility displays the group's history and products in a modern environment and initial customer reaction has been extremely encouraging.

Board Changes

For personal, health related, reasons Lyndon Davies stepped down from his position as Chairman on 30 April 2024 and continues to serve on the Board as a Non-Executive Director. John Stansfield, an existing Non-Executive Director, and past Chairman of Hornby PLC, stepped into the role as Interim Chairman while the search for an Independent Non-Executive Chairman is conducted.

The group thanks Lyndon for his service in the role over the last 15 months and welcomes his continued involvement on the Board.

Governance

Good corporate governance provides a framework for delivering the objectives of the Company and is fundamental to a sound decision making process. It supports the executive management to control and achieve the maximum performance of the Company. I am pleased to report that the Board believes it applies the ten principles of the Quoted Companies Alliance Code ('QCA'). In the current uncertain economic and political period, management of risks remains a key focus for the Board. The Board has in place a robust process for identifying the major risks facing the business and for developing appropriate polices to manage those risks. The Board reviews those risks on an annual basis carrying out regular reviews and annual updates on our compliance with the QCA Code.

I am delighted that once again this year, we will be hosting our Annual General Meeting at the Hornby headquarters in Margate on Wednesday 11 September 2024. This will be an excellent opportunity for shareholders to see the new products for themselves and to understand the progress that the Company is making. Personally I am looking forward to welcoming as many shareholders as possible that are able to attend.

John Stansfield

Non-Executive Chairman

10 July 2024

CEO Report

As outlined in the last couple of trading statements, this has been a year of significant change - structurally, strategically, culturally and operationally. We have made promising progress on multiple fronts and there are many success stories to celebrate. Unsurprisingly, this progress has required investment in people, technology and time, impacting our profitability this year. All of which, however, has set solid foundations for future growth. 

In this report I will be covering;

1.     Headlines and financial overview

·      Revenue growth of 2%, D2C (direct to consumer) growth of 18%

·      Increase in fixed costs due to investments in future growth

·      £7.1 million operating loss, but improvements in H2

2.     Key initiatives and continuous improvement

·      Investments in people and structural change: Creation of Brand MD roles, plus strengthened Export Sales, Insights and Digital capabilities

·      Acquisitions and partnerships: Acquisitions of a 25% stake in Warlord Games and 100% of the trade and assets of The Corgi Model Club, plus a partnership with Mash Holdings following a further share purchase from Frasers Group

·      Retail Experience: Encouraging performance from our first site - footfall +42%, NPS (Net Promoter Score) above 50%

·      Loyalty and CRM: 80% increase in Hobby Rewards members and over £450K of incremental revenue from CRM initiatives

·      TT:120: Continued growth in this initiative with sales of £2.8 million since launch 

·      Digital Channel: Re-platforming almost completed and relaunch of all brand websites over the coming months

3.     A focus on the next 12 month

·      Improved inventory management and exploration of pricing and subject matter development

·      A robust approach to capital allocation

·      The journey to profitability

1.     Headlines and financial overview

H1 revenues were in line with expectations with £23.8 million being 6% ahead of last year. A strong third quarter, bolstered by highly effective Black Friday activities, driving a 10% outperformance vs last year for November, saw us hold that 6% outperformance to end of December.

Whilst fourth quarter revenue performance was ahead of management expectations, the compound impact of an early Easter and shipping delays due to Red Sea disruption saw us fall 8% behind the same period last year.

For the full year, and for the fifth year in a row, we saw an improvement in sales at the top line, growing 2% to £56.2 million. Another strong year of growth in our D2C channel saw digital revenues up 18% vs last year, to £10 million.

Gross margin fell by 5%, to 44%, for the full year, although we saw an improvement of 1.2% in H2. As highlighted in previous trading updates, the greatest contributor to margin reduction relates to high tooling amortisation charges, on account of higher CapEx in prior financial years. The balance of the negative impact was driven by rising costs, investment in growth initiatives and our decision to withhold from putting through any price increases. This was a deliberate and conscious choice in a year where consumer spending was impacted by ongoing rises in cost of living.

Gross profit reduced by £1.9 million, to £25.0 million, for the year, albeit 76% of that difference, or £1.3 million, directly relates to tooling amortisation charges. Critical investments for the future in sales, insights, data & loyalty, digital marketing and development, contributed to an 11% increase in fixed costs.  

Net debt still remains high at £14.3 million compared to £5.5 million at the end of March 2023, but shows a slight improvement from £14.6 million at the half year. Similarly, inventory is still too high at £21.0 million (excluding acquisition stocks of £471,000) compared to £21.3 million in the prior year, but has reduced by 12%, or £3 million, since the half year.

Whilst a full year operating loss of £7.1 million, versus an H1 operating loss of £4.9 million, is a disappointing outcome, the progress in several areas in H2 represents the start of the journey to the return to profitability, and the early signs of the positive impact of the investments that have been made in the year. 

Sales and margins are ahead of prior year for the first two months of the current year.

Key figures and KPI's:

*Underlying margin is pure cost of goods sold margin

2.     Key initiatives and continuous improvement

As will always be the case with a business going through a turnaround, there are many actions and initiatives being developed across the organisation and across the globe. All of the updates that follow represent momentum in a changing strategy that sees us broadening our footprint, appeal and opportunity to engage with new customers. Alongside all of these new growth initiatives there is a very clear focus on ensuring we continue to support and serve our existing customer base. Some of the more significant highlights include;

(i)            Investment in people and structural change

·      Brand MDs and Commercial Ownership

In the H1 Interims we talked about the need to give greater individuality to the brands, creating a structure that champions and supports their differing strengths, trajectories and opportunities. By creating a new role in the organisation, the Brand MD, we have restructured to give those at the coal face greater autonomy, accountability and responsibility for driving brands as business units. This restructuring is now complete, and we enter the new financial year with a far greater focus on the differences between the brands and their unique potential for growth.

We have appointed Brand MDs in 3 of our 5 core brands already; Martyn Weaver was promoted from Head of Brand to Brand MD for Hornby, Scott Elsey was promoted from Development Manager for Corgi and Pocher, to Brand MD for Pocher and Guy Stainthorpe, previously MD of Corgi Model Club (CMC), who joined the business as part of the CMC acquisition, has been appointed Brand MD for Corgi. We have yet to appoint Brand MDs for Airfix and Scalextric, although we will be doing so in due course.

The Brand MDs are entirely focused on driving profitable growth of their business unit, and charged with delivering positive contribution before shared costs. 
 

·      Export Sales

A Head of Export Sales was a key hire last summer, tasked with opening up new international retail partnerships, with an initial focus on the USA. Having had no national distribution in the US at the start of the year, we now find ourselves with orders for Airfix in 850 Michael's Craft stores and for Quickbuild in 1,600 Lowes stores, giving us presence in almost 2,500 locations across the states ahead of the peak season in 2024. In addition to these developments in the US, we have seen orders from new partners in Latin America, Indonesia and Australia.  

·      Insights

Another gap in our capabilities was insights and research. Our Head of Insights joined us, from Lego, in January 2024 and is making a significant impact on our ability to understand customer dynamics, desires and behaviours. With projects under way for Hornby, Airfix, Scalextric and Pocher, we are already starting to shape plans and initiatives for new product development and new subject matter, new propositions and new territories for expansion.

·      Digital Marketing and Development

A significant change in our operating model has seen us 'in-housing' digital marketing and development over the second half of the year. Having been outsourcing the majority of these competencies, at a cost of more than £1 million per annum, as we were building our digital proposition, we have since bolstered our internal team to include front-end and back-end development and full digital marketing capabilities. This delivers a significant cost saving, upskills our teams and gives us far greater flexibility and agility in execution.  

(ii)           Acquisitions and Partnerships

·      Warlord Games

In July 2023 we announced our acquisition of a 25% share of Warlord Games, a Nottingham-based designer and manufacturer of tabletop war games, miniatures and accessories. The last 9 months has seen us building a strong relationship with the team at Warlord and many initiatives are underway. In addition to collaborations around sales and distribution we are exploring the potential for a jointly branded range of paints, drawing on our Humbrol inventory and creating a Warlord specific set of products. 

·      Corgi Model Club

In March 2024 we announced the acquisition, via a trade and assets deal, of the Corgi Model Club, a subscription-based proposition set up in partnership with Hornby in 2021. The acquisition immediately brought in £2 million of annualised revenue at 15% operating margin and represents an excellent opportunity for further growth. In the early weeks since the acquisition we are in advanced stages of planning the launch of Corgi Model Club USA, cross selling the proposition within the wider Hornby Hobbies brand ecosystem (i.e. to existing customers of Corgi, Hornby and Airfix) and exploring new routes to market, including Direct Response TV. 

·      Frasers Group and Mash Holdings

We were delighted to report that Frasers increased their shareholding in the Group to 9.1% through two separate transactions across February and March. Our brands are already part of GAME's product offering and we're looking forward to exploring other opportunities, including leveraging Frasers Group's scale in retail logistics and distribution. An additional benefit from these transactions has been the consultancy agreement the Group has entered into with Mike Ashley, through Mash Holdings, which will see him providing support to the Board wherever relevant.  

(iii)          Retail Experience: The WonderWorks

As highlighted in the last report, we strongly believe that bringing our brands to life in a meaningful way in an experiential retail environment provides an opportunity to deepen engagement and drive growth as a result. Our first purposeful experiment in this space saw us opening The WonderWorks in Margate, on the site of the old Hornby Visitor Centre, at the end of October 2023.

The project encompassed the reimagining of 11,000 sq ft of space and creating a blended experience including a shop, a café and an engaging set of immersive attractions that showcase our key brands. After a successful opening, with significant broadcast, digital and print media coverage, we have continued to test and learn on site over the first 6 months since launch.

Footfall and ticket sales have lifted by 42%, café sales have lifted by 29% but shop sales are flat meaning overall revenue for the site has only lifted by 8%. Given that average transaction values in the shop have also remained flat, we surmise that we are driving more visits from the same captive audience and are not seeing retail spend increase with those return visits as a result.

Pleasingly, we are seeing the NPS (Net Promoter Score) from visitors consistently growing over time, as evidenced in the table below, suggesting that the experience is improving as the team is more settled over time. Also worth noting that anything above 50% is considered world class for this category so these are very encouraging results:

There were many good reasons for trialling our first WonderWorks on the site of the old Hornby Visitor Centre and we have benefitted from the proximity to the office in many ways. The insurmountable challenge is that there is almost no opportunity to capture passing footfall or drive new footfall to a trading estate on the outskirts of Margate.

We still believe in the value of bringing our brands to life in an experiential retail setting and are evaluating options and timings for the next iteration of The WonderWorks as a result. The likely outcome of this work will see us identifying a location with high footfall and creating a commercial model that ensures most effective allocation of capital, based on learnings to date

(iv)          TT:120

As highlighted this time last year, November 2022 saw the launch of TT:120, arguably the first major development in model railway systems in the UK for decades. TT:120 revenues to date are c£2.8 million, up from c£1.5 million at the end of March 2023.

TT:120 has been received extremely well by the Model Rail community attracting a lot of interest at events and through our owned media. In addition to owned media, specialist TT:120 social media groups have been formed with ever growing audiences and content.

Initially launched with 6 models, a further 8 have been added to broaden the scope of interest by era and region. By the end of March 2024, over 4,000 TT:120 sets had been sold, with an additional 8,000 locomotives and a staggering 30,000 coaches and wagons, reflecting the appetite for a new scale in the hobby.

TT:120 sets sales have surpassed our forecasts resulting in 3 re-orders on key product lines and the TT:120 Scotsman set has become the best-selling trainset, in value terms, from the entire Hornby catalogue over the last 18 months.

Initially launched as a D2C exclusive through www.hornby.com, TT:120 was opened up to the independent trade in late 2023 to grow the accessibility and footprint of the range and continues to be a focus for growth in the coming year.

(v)           Loyalty & Customer Relationship Management

·      Hobby Rewards

Launched in November 2022, Hobby Rewards is a loyalty currency that will allow us to create value in the relationships with our customers, vertically, within each of our brands, and horizontally across the portfolio.

From a base of 36,000 customers in March 2023 we have seen an 80% increase in membership to 65,000 at end of March 2024, and membership continues to grow at an average rate of 600 new customers per week.

Whilst this last year has seen Hobby Rewards members make up 39% of the total active D2C base, they have delivered over 53% of total D2C revenue, having contributed less than 50% in the previous year.

·      D2C CRM

Unlocking value from existing customer data was one of the things we highlighted as an opportunity in the last Annual Report. With expertise in place we started running our first CRM campaigns, focused on incentivising growth from our existing base, in August 2023. Key strategies have been concerned with (i) converting 'never purchased' and 'purchased once' to their first / next purchase, and (ii) targeted, 10-day, Spend Stretch campaigns designed to grow basket size through a time limited offer.

We have grown our consented customer volumes by 17% in the year, to 65,000, and have generated £435,000 of incremental revenue from these two initial CRM strategies since August.

The real beauty of these campaigns is that, outside of the cost of the incentive - which equates to £44,000 -  they require no investment in terms of production and distribution, and the number of concurrent campaigns and strategies can grow exponentially as they are all driven via automated journeys. As such, the year ahead will see us broadening the numbers of campaigns, and associated revenue will grow as a result.

·      B2B CRM

Off the back of the success of our initial D2C CRM activity we trialed our first B2B CRM campaign in the run up to Christmas with an Advent Calendar campaign. This resulted in c£150,000 of orders being written and is a clear indication of the opportunity to further expand these B2B initiatives throughout the coming financial year.

(vi)          Digital platform

In another year of solid growth we saw digital revenue increase by 18% and traffic to all sites increased by 15% to just over 10 million visits.

In the 12 months to end of March 2024 we saw an average basket value of £70.31, compared to £66.96 in the prior 12 months.

One of the deliberate changes in strategy across the year was to shift the focus of our marketing and merchandising towards increasing in-stock orders (i.e. transactions for products that were immediately available) and relying less on advanced pre-orders. The result was a 38% uplift in in-stock orders and a 22% reduction in pre-order cancellations.

In addition to the drive to upskill our in house digital marketing and development teams and reduce reliance on, and investment in, external support, our focus for 2024/25 is to migrate all of our websites to a headless ecommerce infrastructure. This will provide a framework which will significantly improve foundations for future growth and development, giving us greater control, flexibility and agility in our D2C actions.

With a new infrastructure in place we will also be launching newly designed websites, across the full suite of brands, which will build on our overall strategy of presenting each one in a more individual and engaging way.

3.     A focus on the next 12 months

(i)            Inventory Management

The current inventory position is still too high and in large part a reflection of an over-commitment to evergreen stock in prior years. Continuing to look at ways of reducing that number is a key focus in the next twelve months.

We have deliberately avoided the temptation to sell large quantities, and values, of stock at prices that would quickly reduce the volume and release some cash, as this short-term solution comes with unintended longer term consequences. Flooding the market with heavily discounted product, simply limits opportunities to build the business effectively in the following months and years.

Where we can find outlets that don't damage future potential (internationally, for example, where the dynamics and impact are different to the UK market), we will continue to do so.

Equally, we are very focused on ensuring that future buying decisions are firmly rooted in performance analysis and customer understanding, mitigating the likelihood of repeating or sustaining this over-stocked scenario.

A continued emphasis on commercial analysis of performance of specific product categories, and subject matter, will improve the quality of our decision-making moving forwards.  

(ii)           Pricing and Subject Matter

In the last Annual Report we highlighted the need to review our pricing and approach to entry level products across the brands. We have a very loyal base of existing customers who we continue to serve in ways we know to be effective. Acquiring new customers that help build our brands into the future requires some recalibration of pricing and subject matter to drive trial and engagement.

By way of example, in the last 12 months we have seen some good work on exploring the impact of more accessibly priced Scalextric Sets, driving significant uplifts in sales through our D2C channel with a test in the run up to Christmas. Reducing a 1:32 set to sub £100 drove a 100% increase in total set volumes from our website vs same period last year, and 66% of the total volume was driven by the sub £100 set.

Similarly, we have been working hard on successfully driving down the cost of goods (at source) for our Hornby train sets and our Micro Scalextric sets. Getting more sets into the market, at the right price, is a critical requirement for driving growth and new customer acquisition. We anticipate a positive impact from this work to flow through during peak trading in the current financial year.    

Our existing Airfix customers are huge fans of military subject matter and we have been serving their needs extremely well in recent years. Initial studies carried out by our Head of Insights, however, have highlighted the opportunities that exist in attracting new customers, pre-disposed to engaging in modelling, with alternative subject matter. We are at the early stages of this process but anticipate introducing new mini-ranges, of new subject matter, in the year ahead as part of our ongoing efforts to grow the brand and category.

These examples are indications of a new approach to driving growth through testing and learning, based on customer and market insight, and form a key component of our product strategy moving forwards.

(iii)          Capital Allocation

Investment in growth is a critical part of our strategy as we positively impact the trajectory and performance of the business. A key element of getting that right requires a greater focus on the merits of, and approach to, capital allocation on a case by case basis.

Strategic transactions like the acquisition of the business and assets of Corgi Model Club evidenced a thoughtful and effective approach to capital allocation, and we must ensure we continue to take a similar approach to the way we drive growth through investment on an ongoing basis.

Given that capital expenditure is fundamental requirement of a business that is concerned with introducing new product and driving customer growth, we are constantly reviewing and recalibrating our approach to capex in terms of volume and frequency across the brands.

In recent years we have allowed capex to grow disproportionately versus the returns it delivers, and this has been a key contributor to our high debt and inventory positions, as well as impacting our operating profit / loss position through amortisation charges.

Redressing this situation is a key focus for the year ahead.

(iv)          The journey to profitability

Our overall financial results for the year, culminating in a £6.5 million operating loss, are a long way from the desired outcomes for the business, but we have to recognise that a turnaround of this nature requires investment and takes time.

We came into the last financial year with a number of challenging headwinds relating to debt, inventory and operational inefficiencies, none of which could be addressed with quick fixes, without unintended consequences.

A year into the process, we have covered a huge amount of ground and made some very promising progress in many areas. The change in trajectory in the second half of the year gives us early indications that the investments in people, processes and product are starting to make a positive impact.

That notwithstanding, our commitment in the coming year is to get us back towards profitability with a continued effort on delivering more of the revenue driving initiatives outlined in this report, and a very clear focus on greater cost control, higher contribution and improved profitability.   

The past 12 months have been both challenging and rewarding, but I remain resolute that this is a business with enormous potential. We have wonderful product, loyal customers and a great opportunity to drive change and growth, as a result.

I am hugely enthusiastic about building on the progress we have made this year, and look forward to leading the business back to success and profitability in the future.   

Olly Raeburn

CEO

10 July 2024

Section 172 Statement and Stakeholder Engagement

As required by Section 172 of the Companies Act, a director of a company must act in the way he or she considers, in good faith, would likely promote the success of the company for the benefit of the shareholders. In doing so, the director must have regard, amongst other matters, to the following issues:

•         likely consequences of any decisions in the long term;

•         interests of the company's employees;

•         need to foster the company's business relationships with suppliers/customers and others;

•         impact of the company's operations on the community and environment;

•         the company's reputation for high standards of business conduct; and

•         need to act fairly between members of the company.

Culture

Our values and leadership behaviours are a vital part of our culture to ensure that through good governance, our conduct and decision making we do the right thing for the business and our stakeholders. The Board acknowledges that every decision it makes will not necessarily result in a positive short-term outcome for all of the Group's stakeholders. We believe in creating solid foundations for the future, so there is a balance between short term success and longer-term prosperity.

Shareholders

The Board values the views of our shareholders and recognises their interest in our strategy and performance. We endeavour to update shareholders on the Board's expectations for the outlook of the business and as and when this changes. As much as possible, we try to provide information that is relevant to our shareholders on our corporate website; in our annual report and accounts; and through regulatory news announcements throughout the year.

We also believe in knowing and understanding our shareholders. We encourage our shareholders to attend our Annual General Meetings (AGMs) and we welcome questions from them. At our AGMs, we provide the platform for robust discussions with our shareholders, during which the participants, both Directors and shareholders alike, are engaged with the proceedings. We believe this reflects the connection to the business which we have cultivated and continue to cultivate in our shareholders. In addition, the review of investor relations activity and analysis of our shareholder register is a standing item at each Board meeting.  Our corporate website http://www.hornby.plc.uk/ also includes the outcomes of shareholder votes cast at the AGMs, as well as Annual and Interim Reports from previous years.

The primary mechanism for engaging with our shareholders is through the Company's AGM and also through the publication of the Group's financial results for the half year and full year. Further information is disclosed in the Corporate Governance Statement on pages 13 to 16. The Board reviews feedback received from institutional investors following publication of our financial results. At the AGM we encourage our shareholders to ask questions and participate in debate about our performance and products.

Customers

Understanding our customers and what matters to them is key to the future success of Hornby. We listen and talk to them using all of the tools at our disposal. Our customers operate in a global, but niche market, we interact with them either directly, or via our retailers, wholesalers and distributors.

Suppliers

We have long-standing close relationships with our suppliers overseas, who we would normally visit on a regular basis. During the pandemic we have communicated via video conferencing, working together with a common goal, giving them visibility, sharing our plans allowing them to plan their factories capacity well into the future. We are have made several visits this year now that COVID restrictions in China have been lifted.

Employees

A key to the Group's future success is an engaged workforce. The Group's Directors, alongside our executive management teams, work hard to provide a positive working environment. As a well-respected local employer within each of the communities we operate, it is important for us to provide opportunities for all of our staff to allow them to grow and achieve their potential.

Community and environment

We are proud to employ people in the communities that we operate. The strength of our brands allows us to promote both local and national charitable causes. We have product standards, policies and guidance covering the products we make to help ensure that they are manufactured safely, legally and to the required quality standards and is an environmentally friendly way as possible.

Operating and Financial Review of the Year

Financial Review

* Stated before amortisation of intangibles (brands and customer lists), net unrealised foreign exchange movements on intercompany loans, goodwill impairments and exceptional items.

Performance on a statutory basis

Consolidated revenue for the year ended 31 March 2024 was £56.2 million, an increase of 2% compared to the previous year's £55.1 million. The revenue in the second half of the year of £32.4 million was inline with previous year which was £32.7 million. Gross profit margin was lower, at 44.4% (2023: 48.8%) primarily due to higher tooling amortisation costs and an increase in supply chain costs not passed on to the consumer.

Overheads increased year-on-year by 13.2% from £28.0 million to £31.7 million. UK distribution costs were higher than prior year due to an increase in revenue and minimum wage increases. Sales and marketing costs increased by £2.1 million year-on-year due to ongoing investment in direct relationships with our customers, restructuring of the sales teams, and investment in customer loyalty, insight and PR. Administration costs were £1.3 million higher due to increased Board costs, share-based payment accruals and rising insurance, maintenance and utility costs. Other operating expenses in the year of £0.2 million (2023: £0.7 million) includes foreign exchange losses and amortization of brand names.

Exceptional costs totalling £0.5 million (2023: £4.0 million) are predominantly intangible impairment on some international brands and restructuring costs as senior heads in sales and marketing were replaced.

Performance on an underlying basis

The underlying loss before taxation is shown to present a clearer view of the trading performance of the business. Management identified the following items, whose inclusion in performance distorts underlying trading performance: shared-based payments and the amortisation of intangibles which result from historical acquisitions. Additionally, exceptional items including refinance, relocation and restructuring costs are one off items and therefore have also been added back in calculating the underlying profit before taxation.

Segmental analysis

Third party sales by the UK business of £40.2 million increased by 1.5% in the year as a result of an increase in direct sales via the website. The loss before taxation of £8.6 million compared to £5.9 million loss last year reflects the increased overheads as a result of investment in direct sales, restructuring of sales and marketing teams and a significant increase in the cost of finance (as a result of base rate increases and increases in borrowing).

Sales by the European businesses of £11.9 million increased by 12.3% in the year as a result of supply chain issues being resolved and goods arriving in a timely matter. We have also managed to streamline the delivery of pallets into Europe following the Brexit changes. The profit before tax was £0.6 million compared to £0.7 million profit last year.

Sales in the US business of £4.1 million decreased by 16%. The trading loss of £0.7 million compares to £0.6 million loss in last year. We expect sales to increase in this key market in the longer term and overheads to reduce following the recruitment of a new Head of Export and the listings of certain products into new stores as mentioned previously.

Statement of Financial Position

Property, plant and equipment increased year-on-year by £2.5 million to £14.5 million as a result of increased expenditure in tooling for new products and the opening of WonderWorks 1.0 in Margate. Group inventories increased from £21.3 million to £ 21.7 million due to a short Q4 due to Easter and the acquisition of £0.5 million of Corgi Model Club stock. Without this acquisition the group stock would have been slightly lower than previous year. Trade and other receivables was the same as the previous year. Trade and other payables are £3.3 million higher than previous year due to timing of supplier payments falling due over Easter while the offices were closed. Overall investment in new tooling, new intangible computer software, WonderWorks and other capital expenditure was £6.4 million (2023: £5.1 million).

Dividend

The Group is still in the turnaround phase and there will not be a dividend payment this year (2023: £nil). The Board continues to keep the dividend policy under review.

Financing

At 31 March 2024 the UK had a £12 million Asset Based Lending facility with Secure Trust Bank Limited ("STB") and a £11.25 million loan facility with Phoenix Asset Management Partners.

The facility with STB is a floating facility based on the current asset position capped at £12 million and has been extended post year end to expire December 2025 and carries a margin of 2.5‐3% over base rate. The STB Facility has a fixed and floating charge on the assets of the Group. The Company provides customary operational covenants to STB on a monthly basis such as inventory turn, credit note dilutions and management accounts.

The Phoenix Facility was an £11.25 million facility which attracts interest at a margin of 5% over SONIA on funds drawn. Undrawn funds attract a non‐utilisation fee of the higher of 1% or SONIA. This facility has been extended post year end to expire December 2025 with a facility limit of £12.55 million and interest margin is 5% over SONIA on £11.25 million and 15% on any drawings over £11.25 million up to £12.55 million. In addition Phoenix have provided a shareholder support letter for an additional £7 million expiring December 2025.

Borrowings in the year ended 31 March 2024 were £15,408,000 (2023: £6,867,000). This consists of a CBIL loan with £117,000 outstanding (acquired with LCD), amounts owing to STB of £5,742,000 and £9,549,000 shareholder loan drawdown.

Net debt at 31 March 2024 was £14.3 million compared with net debt of £5.5 million at 31 March 2023.

Our Key Performance Indicators ('KPIs')

The Directors are of the opinion that the financial KPIs are revenues, gross margins, underlying operating profit, capex productivity, inventory, digital change, variable and fixed costs the information for which is available in these financial statements and summarised on the financial highlights section earlier in this report.  We provide current and historical analysis in the CEO's Report on pages 3 to 8 and will continue to report in future Annual Reports. The Board monitors progress against plan on a regular basis adjusting future objectives annually in line with current circumstances.

Identification of principal risks and uncertainties

The Board has the primary responsibility for identifying the major risks facing the Group and developing appropriate policies to manage those risks. The Board completes an annual risk assessment programme to identify the major risks and has reviewed and determined any mitigating actions required as set out below. The risk assessment has been completed in the context of the overall strategic objectives and the Business Plan of the Group.

Principal risks and uncertainties

Main control procedures

Management establishes control policies and procedures in response to each of the key risks identified. Control procedures operate to ensure the integrity of the Group's financial statements and are designed to meet the Group's requirements and both financial and operational risks identified in each area of the business. Control procedures are documented where appropriate and reviewed by management and the Board on an ongoing basis to ensure control weaknesses are mitigated.

The Group operates a comprehensive annual planning and budgeting system. The annual plans and budgets are approved by the Board. The Board reviews the management accounts at its monthly meetings and financial forecasts are updated monthly. Performance against budget is monitored and where any significant deviations are identified appropriate action is taken.

The Strategic Report incorporates the statements on pages 3 to 11 and has been signed on behalf of the Board.

Kirstie Gould

Chief Finance Officer

10 July 2024

Corporate Governance Report

Corporate Governance

For the year ended 31 March 2024, and up to the date of this report, the Company has applied the main principles of the QCA Corporate Governance Code ("the Code") and complied throughout the period under review. Full details of our approach to governance are set out below and, as a Board, we continue to be committed to good standards in governance practices and will continue to review the governance structures in place, to ensure that the current practices are appropriate for our current shareholder base and that, where necessary, changes are made.

The key governance principles and practices are described in the statement below, together with the Audit and Nomination and Remuneration Committees' reports on pages 19 to 23 and the Directors report on pages 25 to 30.

Board of Directors

Our Board and Committees Membership

The Board met twelve times during the year

Composition and independence of the Board

The Board is comprised of two executive directors and four non-executive directors. During the year, the Board is of the opinion that the composition of the Board, continues to represent an appropriate balance between executive and non-executive directors, given our size and our operations. John Stansfield is considered independent due to the time elapsed since his employment with the Group originally. Daniel Carter is considered independent as he has no control over the voting shares of Phoenix Asset Management. Nick Batram is considered independent. Lyndon is not considered independent due to the time elapsed since his employment and his shareholding.

The Board members collectively have skills and expertise embracing a range of areas including finance, auditing, e-commerce, engineering, manufacturing, design, general management, sales and innovation. The Non-executive Chairman and Lyndon Davies in particular, have extensive, directly applicable experience of working within the toy and hobby products industry while Nick Batram has extensive corporate finance and M&A experience.. We do however intend to carry out periodic reviews of the composition of the Board to ensure that its skillset and experience are appropriate for the effective leadership and long-term success of the business as it develops. These reviews will give due consideration to having more diversity on the Board, as well as to other priorities.

Details of each Directors' background and experience are set out in the table above.

Appointments to the Board and re-election

The Board takes decisions regarding the appointment of new directors as a whole following the recommendations of its Remuneration and Nomination Committee. The task of searching for appropriate candidates and assessing potential candidates' skills and suitability for the role has been delegated to the Remuneration and Nomination Committee. Further information on the roles of the Remuneration and Nomination Committee and also the Audit Committee of the Board can be found on pages 19 to 23.

The Company's Articles of Association require that one-third of directors (excluding any directors who have been appointed since the last Annual General Meeting (AGM)), retire by rotation at each AGM. In accordance with best practice in corporate governance, all the Directors will offer themselves for re-election.

Division of responsibilities

There is a formal schedule of matters reserved for the Board which is set out in detail on the Hornby Plc corporate website at http://www.hornby.plc.uk/ and summarised further on in this report.

The Board is responsible for the formulating of the overall business strategy and the Executive team is responsible for the managing of the business to realise this strategy. The Non-executive Chairman is responsible for overseeing the Board and the implementation of the Company's strategy and its operational performance.

Executive Directors

The Executive Directors, as with the Non-Executive Directors, are encouraged to use their independent judgement in the discharging of their duties. They are responsible for the day-to-day management of the business, including its trading, financial and operational performance. Issues and progress made are reported to the Board by the CEO.

Executive Directors are full-time employees of the Company and have entered into service agreements with the Company. Directors' contracts are available for inspection at the Company's registered office and at the Annual General Meeting.

Non-Executive Directors

The Board considers the Non-Executive Directors to be sufficiently competent. They provide objectivity and substantial input to the activities of the Board, from their various areas of expertise.

Non-Executive Directors are contracted to work no less than 15 days per year.

Succession Planning

During the year, the Remuneration and Nomination Committee has been tasked with strengthening the expertise and diversity on the Board. As a result Nick Batram joined the Board in February and the search continues for a new Chairman who will replace John Stansfield who is the current interim Chairman.

The Board also recognises that diversity is a key element in strengthening the contribution made to Board deliberations and in the course of our search for suitable candidates, due regard is given to this in addition to the skills and experience a potential candidate brings.

How the Board operates

The Board retains control of certain key decisions through the Schedule of Matters reserved for the Board. Other matters, responsibilities and authorities have been delegated to its Audit and Remuneration and Nomination Committees and these are documented in the terms of reference of each of those committees, which can be found on the Company's corporate website at http://www.hornby.plc.uk/.

The Board is responsible for:

·      overall management of the business;

·      developing the Company's strategy, business planning, budgeting and risk management;

·      monitoring performance against agreed objectives;

·      setting the business' values, standards and culture;

·      internal control and risk management;

·      remuneration;

·      membership and chairmanship of Board and Board Committees;

·      relationships with shareholders and other stakeholders;

·      determining the financial and corporate structure of the business;

·      major investment and divestment decisions;

·      the Company's compliance with relevant legislations and regulations; and

·      other ad hoc matters such as the approval of the Company's principal advisors.

The main activities of the Board during the year

Key Board activities this year included:

·     recruitment of a new NED

·     discussing strategic priorities

·     reviewing feedback from our institutional shareholders following our full and half year results; and

·     input into implementing the next phase of the Turnaround Plan.

·     approving revised borrowing and credit facilities.

The Board Committees

The Board delegates authority to two committees: the Audit and the Remuneration and Nomination Committees, to assist in meeting its business objectives. The Committees meet independently of Board meetings.

Each committee has terms of reference setting out their responsibilities, which were reviewed and approved by the Board during the year. These are available on the Company's corporate website http://www.hornby.plc.uk/

We have made some improvements in our governance arrangements including introducing reporting by the Remuneration and Nomination Committee as well as the Audit Committee in our Annual Report and Accounts. These reports can be found on pages 19 to 23.

The Audit Committee comprises the independent non-executive directors of the Company and met three times during the year. The Chief Executive Officer, Chief Finance Officer and other managers attend by invitation. The external auditors attend meetings and have direct access to the Committee.

The Remuneration and Nomination Committee meet at least once a year with all members being present. The members are all non-executive directors. The Committee is responsible for establishing and reporting to the Board, procedures for determining policy on executive remuneration and also the performance-related elements of remuneration, which align the interest of the directors with those of the shareholders.

Its remit also includes matters of nomination and succession planning for Directors and senior key executives, with the final approval for appointments resting with the Board. Directors excuse themselves from meetings where the matter under discussion is their own succession when appropriate.

External Advisors

The Board makes use of the expertise of external advisors where necessary, to enhance knowledge or gain access to particular skills or capabilities. Areas where external advisors are used include and are not limited to: diligence work on major contracts; recruitment; and Company secretarial and corporate governance. The list of external advisors is set out on page 24.  

Directors' Induction, Development, Information and Support

The Board considers all Directors to be effective and committed to their roles.

All Directors receive regular and timely information on the business's operational and financial performance. Ahead of the Board and Committee meetings, papers are circulated to all Directors to ensure that they are fully informed and can participate fully in discussions.

Directors keep their skillset up to date through a combination of attendance at industry events, individual professional development and experience gained from other Board roles. The Company Secretary ensures that the Board is aware of any applicable regulatory changes and updates as and when relevant. The Board is also given an annual refresher in AIM Rules and this was last provided in February 2024 by its Nominated Advisors, Liberum Capital Limited. This refresher is designed to enable Directors to keep abreast of corporate governance developments.

Directors are also able to take independent professional advice in the furtherance of their duties, if necessary, at the Company's expense. Directors also have direct access to the advice and services of the Company Secretary. The Company Secretary supports the Non-Executive Chairman in ensuring that the Board receives the information and support it needs to carry out its roles.

Conflicts of Interest

Outside interests and commitments of Directors, and changes to these commitments are reported to and agreed by the Board.  In addition, no one member of the Board has unfettered powers to make decisions.

Performance Evaluation

The Non-Executive Chairman considers the operation of the Board and performance of the Directors on an ongoing basis as part of his duties and will bring any areas of improvement he considers are needed to the attention of the Board. However, the Board recognises the need to put in place an annual formal evaluation process for the Board, its Committees and individual directors.

The effectiveness of the Board, its Committees and Directors will be reviewed on an annual basis.

Accountability

Although the Board delegates authority to its committees and also the day-to-day management of the business to the Executive Directors, it is accountable for the overall leadership, strategy and control of the business in order to achieve its strategic aims in accordance with good corporate governance principles.

Risk Management and Internal Control

Mitigating the risks that a Company faces as it seeks to create long-term value for its shareholders, is the positive by-product of applying good corporate governance. At Hornby, all employees are responsible for identifying and monitoring risks across their areas. However, the Board sets the overall risk strategy for the business. The business maintains a Risk Register and a Fraud Register, which are presented and considered at the Audit Committee meetings.

Financial and Business Reporting

In our half-year, final and any other ad hoc reports and other information provided by the Company, the Board seeks to present a fair, balanced and understandable assessment of the business' position and prospects. The Board receives a number of reports, including those from the Audit Committee, to enable it to monitor and clearly understand the business' financial position.

The Board considers that this Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Business Ethics

Our commitment to our customers and having a people-oriented ethos is central to the success of achieving our strategy. We value the skills of our employees and it is through the efforts of these dedicated people that we are able to grow our customer base.

We endeavour to conduct our business affairs in a way that reflects our values. Our suppliers are audited to ensure that their policies and procedures comply with the Modern Slavery and Human Trafficking Act, which ensures that workplace and conditions of employment for their employees are of an acceptable standard. We reinforce our expectations to achieve and maintain these standards. Our Statement on Modern Slavery and Human Trafficking can be found on our corporate website http://www.hornby.plc.uk/.

Whistleblowing

The business has procedures in place for detecting fraud and for whistleblowing to ensure that arrangements are in place for all employees to raise concerns in confidence, about possible irregularities and non-compliance in matters of financial reporting or other matters. These procedures and policies are reviewed by the Audit Committee.

Audit Committee Report

As Chair of the Audit Committee ("the Committee"), I am pleased to present our Audit Committee Report for the year ended 31 March 2024.

Membership

The Audit Committee comprises four members, Daniel Carter, Nick Batram, Lyndon Davies and myself, John Stansfield. All of us are independent Non-Executive Directors of the Company. I am the member of the Committee, who with the background as a chartered management accountant has significant, recent and relevant financial experience. Our biographies are set out on page 15.

Meetings and attendance

The Committee met three times during the year ended 31 March 2024. All members of the Committee at the time of each meeting were present at the meetings. At least one of these meetings was with the external auditor, without the executive Board members present. Olly Raeburn and Kirstie Gould also attended meetings by invitation.

Duties:

The full list of the Committee's responsibilities is set out in its Terms of Reference, which is available on the Company's website at http://www.hornby.plc.uk/ and is summarised below as follows:

- External Audit;

- Financial Reporting;

- Internal Control and Risk Management;

- Internal Audit; and

- Reporting on activities of the Committee.

The terms of reference for the Committee are reviewed annually and approved by the Board.

The main items of business considered by the Committee during the year included:

- a review of the year-end external audit plan, consideration of the scope of the audit and the external auditor's fees;

- consideration and approval of the external audit report and management representation letter;

- a review of the Annual Report and financial statements, including consideration of the significant accounting issues relating to the    financial statements, the consistency in the application of accounting policies and the going concern review;

- a review and approval of the internal financial statement;

External Auditor

The Committee has the primary responsibility for recommending the appointment of the external auditor and reviewing the findings of the auditor's work. The Company's external auditor is Crowe U.K. LLP. There will be ongoing dialogue between the Committee and the auditor on actions to improve the effectiveness of the external audit process.

Having reviewed the auditor's independence and performance to date, the Committee has recommended to the Board that they be reappointed for the 2024 audit. A resolution to reappoint Crowe U.K LLP as the Company's auditor is to be proposed at the forthcoming Annual General Meeting (AGM) in September 2024. 

Non-audit services

In addition to the audit services they provide, Crowe U.K. LLP also provide tax compliance services.  These fees are within the 1:1 ratio of audit services.

Audit process

The external auditor prepares an audit plan setting out how the auditor will review the interim and audit the full-year financial statements. The audit plan is reviewed, agreed in advance and overseen by the Committee. The plan includes the proposed scope of the work, the approach to be taken with the audit and also describes the auditor's assessment of the principal risks facing the business.

Prior to approval of the financial statements, the external auditor presents its findings to the Committee, highlighting areas of significant financial judgement for discussion.

Internal Audit                                                                                        

The Audit Committee has considered the need for an internal audit function during the year and is of the view that, given the size and nature of the Company's operations and finance team, there is no current requirement to establish a separate internal audit function.

Risk Management and Internal Controls

Through the work of the Committee, the Board carries out an annual risk assessment programme to identify the principal risks to the business and these include:

- UK market dependence and conditions;

- the New Business Plan;

- the status of the model/hobby market;

- exchange rates;

- the supply chain function;

- capital allocation;

- product compliance;

- liquidity;

- systems and cyber risks; and

- talent and skills;

The Committee also reviews the effectiveness of control policies and procedures in place to deal with the risks mentioned. Further details on the business risks identified and the actions being taken are set out on pages 12 to 13 of the Operating and Financial Review Report.

The process of risk management in the business is continually reviewed.

John Stansfield

Chairman of the Audit Committee                       

10 July 2024

Remuneration and Nomination Committee Report 

As Chairman of the Remuneration and Nomination Committee ("the Committee"), I am pleased to present our report for the year ended 31 March 2024 which sets out details of the composition, structure and activities of the Committee and remuneration paid to Directors during the year.

The Board has taken the decision to expand the schedule of matters it has delegated to its Remuneration Committee, to include matters which are typically within the remit of a nomination committee. Its terms of reference were revised accordingly and the Committee was renamed the Remuneration and Nomination Committee.

Membership

The Committee currently comprises four Non-Executive Directors, John Stansfield, Lyndon Davies, Nick Batram and myself, Daniel Carter, whose biographies are set out on page 15.

Meetings and attendance

The Committee meets at least once a year and at such other times during the year as is necessary to discharge its duties. During the year, the Committee met twice. Only members of the Committee have the right to attend meetings, although other individuals, such as the CEO and external advisers, may be invited to attend for all or part of any meeting.

Duties

The Committee works closely with the Board to formulate remuneration policy and consider succession plans and possible internal candidates for future Board roles, having regard to the views of shareholders. The main duties of the Committee are set out in its Terms of Reference, which are available on the Company's website (http://www.hornby.plc.uk/) and include the following key responsibilities:

Remuneration

·      set remuneration policy for all Executive Directors (including pension rights and any compensation payments), and in the process, review and give due consideration to pay and employment conditions throughout the Company, especially when determining annual salary increases;

·      approve the design of, and determine targets for any performance-related pay schemes operated by the Company;

·      recommend and monitor the level and structure of remuneration for senior management; and

·      review the design of all share incentive plans for approval by the Board and shareholders.

Nomination

·      regularly review the structure, size and composition, (including the skills, experience, knowledge and diversity) of the Board and make recommendations to the Board as to any changes necessary;

·      give full consideration to succession planning for directors and other senior executives in the course of its work, taking into account the challenges and opportunities facing the Company and the skills and expertise needed on the Board in the future;

·      lead the process for all potential appointments to the Board and making recommendations to the Board in relation to them;

·      evaluate the balance of skills, experience, independence and knowledge on the Board; and following any evaluation, identify and nominate for approval by the Board, potential candidates to fill Board vacancies as and when they arise.

Principal activities during the year

The Committee considered:

·      Executive Directors' bonuses and salaries;

·      Succession planning and the search for a new Chairman;

·      succession planning and the search for an additional Non-Executive director;

·      election and re-election of directors at the AGM;

·      a review of the Committee's terms of reference.

The Committee considers business' strategy when recommending the appointment of directors and setting and reviewing remuneration.

Diversity

It is the Board's view and commitment that recruitment, promotion and any other selection exercises are conducted on the basis of merit against objective criteria that avoid discrimination. No individual should be discriminated against on the ground of race, colour, ethnicity, religious belief, political affiliation, gender, age or disability, and this extends to Board appointments.

The Board recognises the benefits of diversity, including gender diversity, on the Board, although it believes that all appointments should be made on merit, while ensuring there is an appropriate balance of skills and experience within the Board. The Board currently consists of 17% (one) female and 83% (five) male Board members. The Board's age demographic ranges from 29 to 69. The business consists of 65% male employees and 35% female employees.

Remuneration policy

The objective of the remuneration policy is to promote the long-term success of the Company, giving due regard to the views of shareholders and stakeholders. In formulating remuneration policy for the Executive Directors, the Committee:

-considers Directors' experience and the nature and complexity of their work in order to pay a competitive salary, (in line with comparable companies), that attracts and retains directors of the highest quality;

-considers pay and employment conditions within the Company and salary levels within listed companies of a similar size;

-considers Directors' personal performance; and

-links individual remuneration packages to the business' long-term performance and continued success of the business through the award of annual bonuses and share-based incentive schemes.

Executive Directors

Base salary

Executive Directors' base salaries are reviewed annually by the Committee, taking into account the responsibilities, skills and experience of each individual, pay and employment conditions within the Company and the salary levels within listed companies of a similar size.

Annual bonus

The CEO is subject to a bonus scheme related to the market capitalisation increase over the three-year period ending January 2026 and adjusted for certain factors.

For the first two years of this scheme, the CEO may receive a discretionary bonus up to 38.9% of their base salary. Payments made during these years will be subtracted from the ultimate award amount due under this scheme.

The CEO bonus scheme, previously accounted for under IAS 19, is now being accounted for under IFRS 2 using Black-Scholes valuation. The bonus scheme pays a bonus for any uplift in the enterprise value of the business less any capital invested as at the 26 January 2026.

At 31 March 2024 the valuation model, using 50% share volatility, 4% risk-free rate of return and an option value of 0.165 leads to a provision being made in the year of £668,975. This is included in the Statement of Comprehensive Income within Administrative expenses.

The bonuses for other executives are reviewed annually by the committee following recommendations by the CEO.

Long-term Incentive Plan

There are currently no long-term incentive plans in place. The Remuneration committee will review and consider a suitable scheme for the future.

Other benefits

Policies concerning benefits are reviewed periodically. Currently taxable benefits comprise Company car allowance or a travel allowance and private health cover. The Committee also retains the discretion to offer additional benefits as appropriate.

The Executive Directors and senior managers are members of defined contribution pension schemes and annual contributions are calculated by reference to base salaries, with neither annual bonuses nor awards under the share incentive schemes taken into account in calculating the amounts due.

Service agreements and termination payments

Details of the Executive Directors' service agreements are set out below.

Compensation for loss of office is based on the base salary of the Director.

Employees' pay

Employees' pay and conditions throughout the business are considered when reviewing remuneration policy for Executive Directors.

A profit share scheme exists for all employees (excluding Executive Directors), and 15% of operating profit is shared among employees proportionately. This is a mechanism aimed at addressing issues of motivation of employees below Board level. It is also to ensure that the Company attracts and retains the best talent and that their interests align with that of shareholders.

Non-Executive Directors

The remuneration payable to Non-Executive Directors is decided by the Non-executive Chairman and Non-Executive Directors (but excluded from discussing their personal fees). The remuneration payable to the Non-exec Chairman is decided by the other Board members.

Fees are designed to ensure the Company attracts and retains high calibre individuals. They are reviewed on an annual basis and account is taken of the level of fees paid by other companies of a similar size and complexity. Non-Executive Directors do not participate in any annual bonus, share options or pension arrangements. The Company repays the reasonable expenses that Non-Executive Directors incur in carrying out their duties as Directors.

Terms of appointment

Each of the Non-Executive Directors signed a letter of appointment for an initial period of two years which can be terminated by either party giving to the other prior written notice of three months.  John Stansfield signed a letter on 2 January 2018, Daniel Carter signed his on 16 July 2020, Lyndon Davies signed his on 22 February 2023 and Nick Batram signed his on 12 February 2024. The contract continues as long as the Non-Executive Directors are re-elected at the AGM. All non-executive directors will stand for re-election at the next AGM in September 2024.

Daniel Carter

Chairman of the Remuneration and Nomination Committee

10 July 2024

Directors and Corporate Information

Directors' Report

The Directors present their Annual Report together with the audited consolidated and Company financial statements for the year ended 31 March 2024.

STATUTORY INFORMATION CONTAINED ELSEWHERE IN THE ANNUAL REPORT

Information required to be part of the Directors' Report can be found elsewhere in this document, as indicated, and is incorporated into this report by reference:

The Group's business review is set out in the Strategic Report on pages 10 to 11.

The Corporate Governance statement on page 16 to 23.

Details of the Directors who served during the year including their salaries, bonuses, benefits and share interests are on pages 29 to 30.

Directors' responsibility statements on page 27.

Likely future events are disclosed within the CEO report on page 8.

Post balance sheet events are set out in note 30.

Principal activities

The Company is a holding Company, limited by shares, registered (and domiciled) in England Reg. No. 01547390 with a Spanish branch and has seven operating subsidiaries: Hornby Hobbies Limited and Hornby World Limited in the United Kingdom with a branch in Hong Kong, Hornby America Inc. in the US, Hornby España S.A. in Spain, Hornby Italia s.r.l. in Italy, Hornby France S.A.S. in France, Hornby Deutschland GmbH in Germany, Hornby Hobbies India Private Limited in India and LCD Enterprises Limited in the United Kingdom. Hornby PLC is a public limited Company which is a member of AIM and incorporated and operating in the United Kingdom.

The Group is principally engaged in the development, design, sourcing and distribution of hobby and interactive products.

Results and dividends

The results for the year ended 31 March 2024 are set out in the Group Statement of Comprehensive Income. Revenue for the year was £56.2 million compared to £55.1 million last year. The loss for the year attributable to equity holders amounted to £11.4 million (2023: £5.9 million loss). The position of the Group and Company is set out in the Group and Company Statements of Financial Position. Future developments are set out within the CEO Statement.

No interim dividend was declared in the year (2023: £nil) and the Directors do not recommend a final dividend (2023: £nil).

GOING CONCERN

The Group has in place a £12.0 million Asset Based Lending (ABL) facility with Secure Trust Bank PLC ("STB") through to December 2025. The Company provides customary operational covenants to STB on a monthly basis such as inventory turn, credit note dilutions and management accounts. In addition, the Group has a committed £12.55 million loan facility with Phoenix Asset Management Partners Limited (the Group's largest shareholder) if it should be required currently expires December 2025.

The Group has prepared trading and cash flow forecasts for a period of three years, which have been reviewed and approved by the Board. On the basis of these forecasts, assuming the facilities with STB and Phoenix are renewed and after a detailed review of trading, financial position and cash flow models, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. The Company has received a letter of support from Phoenix Asset Management confirming their intention to provide funds up to an additional £7 million to support the Company's business plan until at least 31 December 2025. The current budgets do not show the Group requiring support beyond the already committed facilities. For these reasons, the Directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Research and development

The Board considers that research and development into products continues to play an important role in the Group's success. R&D costs of £1.8 million (see Note 4) incurred in the year have been charged to the Statement of Comprehensive Income as these costs all relate to research activities.

Directors' indemnities

The Company maintained liability insurance for its Directors and officers during the financial year and up to the date of approval of the Annual Report and Accounts. The Company has also provided an indemnity for its Directors and the secretary, which is a qualifying third party indemnity provision for the purposes of the Companies Act 2006.

STREAMLINED ENERGY AND CARBON REPORTING (SECR)

Streamlined Energy and Carbon Reporting (SECR) is the UK Government's name for energy and carbon reporting and taxation.

As a largely office-based business, the Group has a relatively low carbon presence. Under the SECR requirements we are reporting energy use and business mileage for all our UK operations.

During the reporting year the gas has increased due to the increased use of gas heating in the new Wonderworks building in Margate.

Substantial shareholdings

The Company has been notified that at close of business on 9 July 2024 the following parties were interested in 3% or more of the Company's ordinary share capital.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Company financial statements in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006. Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      state whether applicable UK-adopted international accounting standards in conformity with the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements;

·      make judgements and accounting estimates that are reasonable and prudent; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.

In the case of each director in office at the date the Directors' Report is approved:

·      so far as the director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and

·      they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.

Financial instruments

The Group's financial instruments, other than derivatives, comprise borrowings, cash and liquid resources, and various items, such as trade receivables, trade payables, etc. that arise directly from its operations. The Group's financial liabilities comprise borrowings, trade payables, other payables and finance leases. The main purpose of the Group's borrowings is to provide finance for the Group's operations. The Group has financial assets comprising cash and trade and other receivables.

The Group also enters into derivatives transactions (principally forward foreign currency contracts). The purpose of such transactions is to manage the currency risks arising from the Group's operations. It is, and has been throughout the period under review, the Group's policy that no speculative trading in financial instruments shall be undertaken.

FINANCIAL RISK MANAGEMENT

The financial risk is managed by the Group and more information on this can be found within the Notes to the financial statements.

Personnel policies

Hornby is committed to eliminating discrimination and encouraging diversity amongst our workforce. Our aim is that our workforce will be truly representative of all sections of society and each employee feels respected and able to give of their best.

To that end the purpose of personnel policies are to provide equality and fairness for all in our employment and not to discriminate on grounds of gender, marital status, race, ethnic origin, colour, nationality, national origin, disability, sexual orientation, religion or age. We oppose all forms of unlawful and unfair discrimination.

All employees, whether part time, full time or temporary, are treated fairly and with respect. Selection for employment, promotion, training or any other benefit is on the basis of aptitude and ability. All employees are helped and encouraged to develop their full potential and the talents and resources of the workforce are fully utilised to maximise the efficiency of the organisation.

Our commitments are:

·      To create an environment in which individual differences and the contributions of all our staff are recognised and valued;

·      Every employee is entitled to a working environment that promotes dignity and respect to all. No form of intimidation, bullying or harassment is tolerated;

·      Training, development and progression opportunities are available to all staff;

·      Equality in the workplace is good management practice and makes sound business sense;

·      To regularly review all our employment practices and procedures to ensure fairness;

·      Breaches of our equality policy are regarded as misconduct and may lead to disciplinary proceedings; and

·      These policies will be monitored and reviewed on a regular basis.

The Group places importance on the contributions made by all employees to the progress of the Group and aims to keep them informed via formal and informal meetings.

ARTICLES OF ASSOCIATION

The rules governing the appointment and replacement of Directors are set out in the Company's Articles of Association. The Articles of Association may be amended by a special resolution of the Company's shareholders.

Share capital

The share capital of the Company comprises ordinary shares of 1p each. Each share carries the right to one vote at general meetings of the Company. The issued share capital of the Company, together with movements in the Company's issued share capital is shown in Note 21. Ordinary shareholders are entitled to receive notice and to attend and speak at general meetings.

Each shareholder present in person or by proxy (or by duly authorised corporate representatives) has, on a show of hands, one vote. On a poll, each shareholder present in person or by proxy has one vote for each share held.

Other than the general provisions of the Articles (and prevailing legislation) there are no specific restrictions of the size of a holding or on the transfer of the ordinary shares.

The Directors are not aware of any agreements between holders of the Company's shares that may result in the restriction of the transfer of securities or on voting rights. No shareholder holds securities carrying any special rights or control over the Company's share capital.

Authority to purchase own shares

The Company was authorised by shareholder resolution at the 2023 Annual General Meeting to purchase up to 10% of its issued share capital. A resolution will be proposed at the forthcoming Annual General Meeting and authority sought to purchase up to 10% of its issued share capital. Under this authority, any shares purchased must be held as treasury shares or, otherwise, cancelled resulting in a reduction of the Company's issued share capital.

No shares were purchased by the Company during the year.

Change of control - significant agreements

There are a number of agreements that may take effect, alter or terminate on a change of control of the Company. None of these are considered to be significant in their likely impact on the business as a whole.

POLITICAL DONATIONS

The Company has made no political donations during the year.

Independent auditor

A resolution to reappoint the auditor Crowe U.K. LLP, will be proposed at the forthcoming Annual General Meeting.

Annual General Meeting

The Annual General Meeting is to be scheduled for 11 September 2024. A notice of the Annual General Meeting will be sent out to shareholders separately to this Annual Report and Accounts.

DIRECTORS' REMUNERATION

Executive Directors' base salaries are reviewed annually by the Remuneration and Nomination Committee taking into account the responsibilities, skills and experience of each individual, pay and employment conditions within the Company and salary levels within listed companies of a similar size.

The following table summarises the total salary and pension contributions received by Directors for 2023/24 and 2022/23 in line with the Companies Act 2006 requirement:

Performance Share Plan awards outstanding (Audited)

At 31 March 2024, there are no outstanding awards to Directors under any PSP scheme.

Benefits and Pension (Unaudited)

Policies concerning benefits, including the Group's Company car policy, are reviewed periodically. Currently, benefits in kind comprise motor cars or a travel allowance and private health cover, both of which are non-performance related. The Executive Directors and senior managers are members of defined contribution pension schemes and annual contributions are calculated by reference to base salaries, with neither annual bonuses nor awards under the share incentive schemes taken into account in calculating the amounts due.

Executive Directors' service contracts (Unaudited)

Executive Directors do not have fixed period contracts.

Payments to Past Directors, policy on payment of loss of office and termination payments (Audited)

There were no payments to past directors made during the year. Notice periods are set under individual service contracts but the Company has a policy for Executive directors of a notice period of nine months to be given by the Company and of six months to be given by the individual. The compensation for loss of office is based upon the respective service contracts and the components are based on the base salary of the director.

DIRECTORS' INTERESTS

Interests in shares

Interests of the Directors in the shares of the Company at 31 March 2024 and 31 March 2023 were:

Apart from the interests disclosed above no Directors were interested at any time in the year in the share capital of any other Group Company. Daniel Carter is also an employee at Phoenix Asset Management Partners Limited who hold a substantial shareholding in Hornby PLC.

On behalf of the Board

Kirstie Gould

Chief Finance Officer

Westwood

Margate

CT9 4JX

10 July 2024

Independent auditor's report to the members of Hornby PLC

Opinion

We have audited the financial statements of Hornby Plc (the "Parent Company") and its subsidiaries (the "Group") for the year ended 31 March 2024, which comprise:

·      the Group statement of comprehensive income for the year ended 31 March 2024;

·      the Group and Parent Company statements of financial position as at 31 March 2024;

·      the Group and Parent Company statements of cash flows for the year then ended;

·      the Group and Parent Company statements of changes in equity for the year then ended; and

·      the notes to the financial statements, including significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and UK-adopted international accounting standards.

In our opinion the financial statements:

·      give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 March 2024 and of the Group's loss for the period then ended;

·      have been properly prepared in accordance with UK-adopted international accounting standards;

·      have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the Group's and Parent Company's ability to continue to adopt the going concern basis of accounting included:

·      testing the cash flow model provided by management and challenging the assumptions made;

·      assessing the accuracy of past budgeting, as well as a review of the April management accounts compared to forecast;

·      considering the cash position of the business along with current facilities available for drawdown including obtaining evidence of the signed facility agreements;

·      considering the appropriateness of the going concern period;

·      reviewing sensitised forecasts and considering whether the sensitivities applied were appropriate and reflected a reasonable 'severe but plausible downside' scenario;

·      evaluating the support provided by Phoenix UK Fund Limited.  In reviewing this support we considered the ability of Phoenix UK Fund Limited to provide the support, whether the support was legally enforceable and whether the support offered was appropriate in light of the sensitised forecasts;

·      discussing the support directly with representatives from Phoenix UK Fund; and

·      considering the appropriateness of the related disclosures against the requirements of the accounting standards.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Overview of our audit approach

Materiality

In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified.

Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be £250,000 (2023 £250,000), based on turnover and the underlying profitability of the business. We consider these to be the key performance metric reported by management to shareholders to assess the performance of the business. Materiality represents approximately less than 0.5% of turnover and 3% of loss before tax (2023: 0.5% of turnover and 9% of loss before tax).

Overall Parent Company materiality was set at £200,000 (2023: £200,000) based on net assets, restricted so as not to exceed Group materiality.

We use a different level of materiality ('performance materiality') to determine the extent of our testing for the audit of the financial statements.  Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment. Performance materiality was set at £175,000 (2023: £175,000) for the Group and £140,000 (2023 : £140,000) for the Parent Company.

Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors' remuneration.

We agreed with the Audit Committee to report to it all identified errors in excess of £10,000 (2023: £10,000). Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds.

Overview of the scope of our audit

We performed an audit of the financial information of two full scope components, Hornby Plc and Hornby Hobbies Limited.  The European sales offices, the US trading subsidiary, Hornby World, Hornby India, LCD Enterprises Limited and Oxford Diecast Limited were audited using a component materiality level of £200,000 for the purposes of the consolidation only. 

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We considered going concern to be a key audit matter.  Our observations on this area are set out in the Conclusions relation to Going Concern section of the auditors' report.

This is not a complete list of all risks identified by our audit.

Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion.

Other information

The directors are responsible for the other information contained within the annual report. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion based on the work undertaken in the course of our audit

·      the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

·      the directors' report and strategic report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

·      adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

·      the parent company financial statements are not in agreement with the accounting records and returns; or

·      certain disclosures of directors' remuneration specified by law are not made; or

·      we have not received all the information and explanations we require for our audit.

Responsibilities of the directors for the financial statements

As explained more fully in the directors' responsibilities statement set out on page 25, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group's and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities is available on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Extent to which the audit is capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We identified and assessed the risks of material misstatement of the financial statements from irregularities, whether due to fraud or error, and discussed these between our audit team members. We then designed and performed audit procedures responsive to those risks, including obtaining audit evidence sufficient and appropriate to provide a basis for our opinion.

We obtained an understanding of the legal and regulatory frameworks within which the company operates, focusing on those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. The laws and regulations we considered in this context were the Companies Act 2006 and Taxation legislation.

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence, if any.

We identified the greatest risk of material impact on the financial statements from irregularities, including fraud, to be the override of controls by management and the recognition of revenue. Our audit procedures to respond to these risks included:

• enquiry of management about the Group's policies, procedures and related controls regarding compliance with laws and regulations and if there are any known instances of non-compliance;

• examining supporting documents for all material balances, transactions and disclosures;

• review of the board meeting minutes;

• enquiry of management and review and inspection of relevant correspondence with any legal firms;

• detailed testing of a sample of sales made during the year and around the year and agreeing these through to invoices and despatch records;

• testing the appropriateness of a sample of significant journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements; and

• review of accounting estimates for biases.

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Mark Sisson (Senior Statutory Auditor)

for and on behalf of

Crowe U.K. LLP

Statutory Auditor

40-46 High Street

Maidstone

Kent ME14 1JH

11 July 2024

Group Statement of Comprehensive Income

for the Year Ended 31 March 2024

All results relate to continuing operations.

The notes on pages 40 to 70 form part of these accounts.

Group and Company Statements of Financial Position as at 31 March 2024

The Company made a loss after tax of £672,000 (2023: £36,704,000). The loss made in the previous year was due to impairment of investments.

The notes on page 40 to 70 form part of these accounts. The financial statements on pages 34 to 70 were approved by the Board of Directors on 10 July 2024 and were signed on its behalf by:

K Gould, Director, Registered Company Number: 01547390

Group and Company Statements of Changes in Equity

For the Year Ended 31 March 2024

The notes on page 40 to 70 form part of these accounts.

Group and Company Cash Flow Statements

for the Year Ended 31 March 2024