Hornby's financial updates to the Stock Market

[rembrow]

I decided to order the Q1 in BR late livery before the price increase and my retailer confirmed that he got the order through successfully. The increase for the BR Q1 is eye watering, going up from £109.95 before discount to £149.95 before discount - ouch!! Strangely the Southern version Q1 on the Hornby site is still showing at the old price. In fairness, the Q1 is a complex model with lots of pipework and added detail, including sliding tender/cabside baffles and cab roof shutter, so was probably originally priced too low for a complex tender loco. Hadn't intended to get another so helps to increase Hornby sales this month.

[Mel_H]

A stock market announcement made at 0702 this morning, 17 October 2017. Bear in mind that, as ever, announcements refer to the entire group, not just model railways.

 

 

Update on Strategic Review

 

Following an initial review of the business by Lyndon Davies, the new CEO, the Board has determined that to maximise the value of its brands over the long term, the Group will no longer offer for sale large quantities of stock at a discount.*

 

In the trading update issued at the AGM on 6 September 2017, the Board highlighted that the performance in the year to date had been below expectations. This, coupled with the new approach to discounting stock, means it is now clear that the shortfall is unlikely to be recouped in the current year. It is expected that revenue will be lower and, consequently, there will be a material impact on profitability in the current financial year.

 

Lyndon Davies is continuing his review of the business' strategy and will provide a more complete update with the Group's half-year results.

 

Directorate Change 

 

Separately, David Adams, Interim Chairman, has indicated to the Board of his intention to step down from the Board of Hornby plc, to take up another appointment. A search for an independent Non-Executive Chairman is progressing and a further announcement will be made in due course. David will continue to Chair the Board in the meantime and will step down after a short handover to a new Chairman.

 

David was appointed to the Board as Senior Independent Non-Executive Director on 9 January 2014 and was appointed Interim Chairman on 22 June 2017. 

 

Martin George, Senior Independent Director, commented.

 

"On behalf of the Board I would like to thank David for his skill and expertise in guiding the business through a period of significant change and for his invaluable contribution to Hornby over the last four years."

 

*(Agreements made before this announcement will be honoured)

[mikeharvey22]

I wonder if this is an indication of more realistic initial pricing on new items and production numbers close to or just below the market needs, so that items sell through quickly without residual stocks.

Edited October 17, 2017 by mikeharvey22

[Black 5 Bear]

All very well provided the UK doesn't go into recession and consumer spending suffers as a result.

[pheaton]

so no more hattons and rails massive Hornby sales then.....

[Steamysandy]

Either they price realistically to begin with or they and their dealers are going to be left with a load of unsold stock on their hands - what then?

[adb968008]

So the market prepares for another year of losses.

 

It seems obvious that Hornby has over produced some models for many years, seemingly setting sales targets on selling X, missing target and Dumping at year end to get cash back.

(This is however a more natural retail sales model, so without understanding this niche market it’s easy to see the trap).

 

But... this is Hornby...

Either they price realistically to begin with or they and their dealers are going to be left with a load of unsold stock on their hands - what then?

Dealers now only have 2 years to sell before the warranty expires.

 

If there is a large inventory of stock at the Hornby warehouse, without a sell by date, but a sell by date in the shop, once sold from the warehouse.. unless there is a registration system, any shop with repeat orders, this may be difficult to enforce.. is a shop working on LIFO or FIFO and proving it.

 

I suspect quiet times ahead in R&D, more retail sales at RRP, shifting the discounting onto retailers shoulders once the product is out of date.

A much smaller Hornby could ensue, and a return to the days were a loco is in the catalog for years.

 

But with less staff, less R&D, less production, and a higher price achieved on inventory... that could be profitable.

But what about that mass of expensive metal moulds, all slowly resting in the humidity of China ?

 

I think this years Warley could be interesting, models this year have come thick and fast, from all vendors, and pipelines of 5 year plus waits are going down.. the 87 / Duchess last year were 3D prints, and in 12 months to the day there’s an outside chance they could be on the shelves.

 

No new OO announcement from Heljan in a year+, Oxfords pipeline is nearly fulfilled, Dapol, Kernows’ has reduced somewhat too, Hornby’s going from Scan to shelf in a year whilst Bachmann has slowed considerably

 

I suspect we won’t have many new toolings announced this year at Warley either by all vendors.

 

This means one thing.. spare factory capacity in China... How and Will those factories try to fill the gap, especially if the Hornby orders were to move to the Oxford factory ?

Edited October 17, 2017 by adb968008

[Mike Storey]

Thanks to Mel for that post.

 

This begins to explain the unexpected departure of the previous CEO, notwithstanding the strategic advantages of the new CEO. A link with Oxford did not necessarily require the jettisoning of a CEO.

 

The decision to no longer discount stock in hand suggests a new approach to the valuation of stock held. That also suggests a new approach to the outsourced distribution contract. Stock held currently equals not only current assets, if valued at RRP (opportunity value) as opposed to cost of production (actual cost) but also cost of storage in a third party's warehouse now. I hope Mr Davies has done his sums right.

 

It was clear that there were some late deliveries of stock, but nothing like on the scale of yesteryear. Is there something nasty in the back of the woodshed to which we have not been privy?

 

I do not know what else to make of this right now. It is a profit warning, and therefore dividends payment warning, in theory, but no profits were predicted. It is a suggestion of retrenchment of capital investment, when that has already occurred. It is also a suggestion of cash flow problems, which should not be an issue with £1.5 million cash in hand as at April 1. The Burning Bird people hold the majority of shares and clearly control the company so such news will not be a revelation to them. Just to whom is this release targeted? Why do it before the half year results release - is this just a technical requirement for AIM listing? Is it significant?

[adb968008]

Just to whom is this release targeted? Why do it before the half year results release - is this just a technical requirement for AIM listing? Is it significant?

If a company is knowing to miss earnings it is required to notify the stock market.

 

Stock market initially dropped 1.5p, to 32p, but finished the day up .5p at 34p, so the market has confidence.

 

Trading volume is minimal since July, some days nil.

Edited October 17, 2017 by adb968008

[Andy Hayter]

Thanks to Mel for that post.

 

. It is also a suggestion of cash flow problems, which should not be an issue with £1.5 million cash in hand as at April 1. 

 

 

I actually read it in exactly the opposite way Mike. 

 

There is no longer a need for a year end dash for cash and stock dumping on the market, which suggests that cash flow is not an issue.

 

This would perhaps fit with those releases expected and recently received where sales levels seem to be high or indeed sold out - even on pre-orders - and throughout the market, not just at Hornby.  

Hornby should therefore be getting some quite good cash injections before their year end and that means they can afford to sit on stock of slower movers.

[Mike Storey]

I actually read it in exactly the opposite way Mike. 

 

There is no longer a need for a year end dash for cash and stock dumping on the market, which suggests that cash flow is not an issue.

 

This would perhaps fit with those releases expected and recently received where sales levels seem to be high or indeed sold out - even on pre-orders - and throughout the market, not just at Hornby.  

Hornby should therefore be getting some quite good cash injections before their year end and that means they can afford to sit on stock of slower movers.

 

Quite so Andy, but yet they are stating that they are not where they expected to be. So whilst model railway products are anecdotally doing reasonably well, perhaps there is a problem elsewhere, that may require cash support. If they can indeed afford to sit on stock for longer than they have been, why the warning?

[Ozexpatriate]

Trading volume is minimal since July, some days nil.

There are relatively few shares available for sale.

[Andy Hayter]

Quite so Andy, but yet they are stating that they are not where they expected to be. So whilst model railway products are anecdotally doing reasonably well, perhaps there is a problem elsewhere, that may require cash support. If they can indeed afford to sit on stock for longer than they have been, why the warning?

 

 

Is it a warning Mike, or is it a message to those 99% of the commercial market who do not get the stock dumping deals, that they can buy in confidence and not then find the big boys are selling the same models for about the same as they bought them for.  It could simply be a message to support what they have already said about the need to rebuild relations with the trade.

[Mike Storey]

Is it a warning Mike, or is it a message to those 99% of the commercial market who do not get the stock dumping deals, that they can buy in confidence and not then find the big boys are selling the same models for about the same as they bought them for.  It could simply be a message to support what they have already said about the need to rebuild relations with the trade.

 

Good point. Let's hope that is the reason!

[APOLLO]

 

Update on Strategic Review

 

Following an initial review of the business by Lyndon Davies, the new CEO, the Board has determined that to maximise the value of its brands over the long term, the Group will no longer offer for sale large quantities of stock at a discount.*

 

Apollos Strategic Review

 

Following an initial review of purchases by Apollo, the loyal customer has determined that to maximise the value of its purchases over the long term, Apollo will no longer purchase large quantities of stock at RRP.

 

Works both ways.

 

Brit15

Edited October 17, 2017 by APOLLO

[Ozexpatriate]

It is a profit warning, and therefore dividends payment warning, in theory, but no profits were predicted. It is a suggestion of retrenchment of capital investment, when that has already occurred. It s also a suggestion of cash flow problems, which should not be an issue with £1.5 million cash in hand as at April 1.

This is clearly a mandatory profit warning but perhaps we should not speculate on the cause in a public setting as this, besides what was clearly stated in the release - that there will be a profit short fall, in part, because there won't be a 'fire-sale' to pump up revenue at the last minute.

 

(And we don't know their present current cash in hand, not knowing when payments on their loans are due.)

 

The PLC will report their financial condition at the appropriate time.

 

We do normally see a half-yearly interim summary (for books closed on the half on September 30) sometime in November. The 'statutorily required' disclosures will happen at that time. I anticipate that we will also hear some indication of the new CEO's plan on how to return this company to profitability at that time.

[Legend]

He's in with a new brush. Deliver bad news now and you will get away with it. Then build the business. I see it as no more than that. He has lowered initial expectations and given him time to deliver.

 

As to lower R&D . I don't see it that way. The way out of this is to deliver a steady stream of new models. It is quite clear the market has changed . Initial releases sell , 2nd and third ones don't . Release new models, maximise sales, rest models that are two or three years old. These are the ones that are hanging around on the shelf.

[PanzerJohn]

I've only ever bought stuff when on sale, luckily I've got virtually everything I need/want, although a £100 unrebuilt Merchant Navy one would have been nice, just have to look for a mint s/h one as I'm not paying Hornby's rrp.

[Crantock]

David Adams was actually the longest serving Hornby Director on the board.  The others are:

DK Mulligan Dec 2016 (Group FD)

MP George Dec 2016  (non-exec)

JEH Wilson Aug 2017  (Phoenix)

Lyndon Davies Oct 2017 (Oxford)

 

Not quite the continuity you might expect.

 

Personally I think it would be better if Phoenix took it private and the turnaround could be conducted in private. 

[PrestburyJack]

The reality is very different...  I still have Bachmann 4-CEPs .........

 

Two less now 

[Mel_H]

An announcement to the Stock Market today at 1237hrs.  It's very long, so I've only posted 'highlights' here that may be of interest. Most of the announcement could be classified as 'legalese'. Those interested in such detail will find the full text on the LSE's website.

 

In short, Hornby is selling extra shares to raise £12m. This will be used to buy 49% of Oxford Diecast, put some capital in to 'reinvigorate' its brands, provide working capital, reduce debts and pay for the financial restructuring.

 

Crucially, Phoenix which holds 71% of the shares says, in the statement, that it is backing the plan (If the plan doesn't go ahead, then Hornby will be in breach of its banking covenants).

 

Abridged version below:

 

 

Hornby PLC

("Hornby", the "Company")

 

Placing and Open Offer of 40,677,968 New Ordinary Shares to raise £12.0 million 

 and

Acquisition of 49 per cent. of LCD Enterprises Limited

and 

Notice of General Meeting 

 

Hornby PLC, the international models and collectibles group, is pleased to announce that it proposes to raise, in aggregate, approximately £12.0 million (before expenses) through the issue of up to 40,677,968 New Ordinary Shares at an issue price of 29.5 pence per New Ordinary Share, pursuant to a Placing and Open Offer. 

 

The Placing is being conducted through an accelerated book building process (the "Accelerated Book Build") which will be launched immediately following the release of this announcement (the "Announcement") and which is expected to close no later than 4.00 pm (GMT) today. Liberum Capital Limited ("Liberum Capital") is acting as sole bookrunner in relation to the Placing and Open Offer.

 

The Company also announces that it has entered into an agreement to acquire a 49 per cent. stake in LCD Enterprises, the holding company for the Oxford Diecast Group, for a cash consideration of £1.6 million.

 

Highlights 

 

The Placing and Open Offer

·     Approximately £12.0 million to be raised via a proposed Placing and Open Offer at an issue price of 29.5 pence per New Ordinary Share

 

·     Placing comprising:

o  Firm Placing element of up to 33,898,306 New Ordinary Shares to raise approximately £10.0 million

o  Conditional Placing element of up to a further 6,779,662 New Ordinary Shares to raise up to approximately £2.0 million, subject to clawback by Shareholders, dependent upon the take-up of the Open Offer by Qualifying Shareholders

 

·     Open Offer of up to 6,779,662 New Ordinary Shares to raise up to approximately £2.0 million which is expected to be made on the basis that:

o  Qualifying Shareholders may subscribe for 1 Open Offer Share for every 12.476020780977 Existing Ordinary Shares held

o  Qualifying Shareholders may also make applications in excess of their pro rata initial entitlement under an Excess Application Facility

 

·     The Issue Price of 29.5 pence per New Ordinary Share is equal to the Closing Price per Existing Ordinary Share on 16 November 2017 (being the latest practicable date prior to publication of this Announcement)

 

·     Gross proceeds of the Placing and Open Offer expected to be utilised as follows:

£1.6 million

to fund the Acquisition consideration;

£1.1 million

to reinvigorate the Group's key brands through additional capital expenditure;

£2.4 million

to fund expected restructuring costs (including £0.5 million of expected costs of the Placing and Open Offer, the Acquisition and the Amendment and Restatement);

£3.2 million

to reduce the Group's net debt under the Existing Bank Facility; and

£3.7 million

to provide working capital to support appropriate product pricing.

·     Funds raised will be used to implement a new Group strategy, fund the consideration for the Acquisition, strengthen the Company's balance sheet and reduce its net debt under the Existing Bank Facility

 

·     Following Admission, the Board intends to put in place appropriate incentive arrangements for the executive team of the Group, in order to align their interests with those of Shareholders'

 

The Acquisition 

 

·     Hornby to acquire a 49 per cent. interest in LCD Enterprises, the holding company of the Oxford Diecast Group, for a cash consideration of £1.6 million. The Acquisition is conditional on Shareholder approval

 

·     Oxford Diecast Group owns a portfolio of brands that the Board believes will be complimentary to Hornby's existing brand portfolio and the opportunities exist for the two businesses to work collaboratively together to add scale to the Oxford Diecast Group's business

 

·     Given Lyndon Davies' appointment as Chief Executive Officer of the Company, the Board is keen to ensure that the interests of both the Company and LCD Enterprises are aligned and the Acquisition provides an opportunity to achieve this

 

Bank Facility

 

·     The Company has entered into an amendment and restatement to the Existing Banking Facility with Barclays, conditional on Admission, in order to align the financial covenants with the revised strategy for the Group

 

·     Facility to reduce to £6.0 million following Admission with a further reduction to £5.0 million on 1 July 2018

 

David Adams, Interim Chairman said,

"With new management in place and an exciting new strategy to execute, the board of Hornby is seeking new funds to support the next stage of its development. Lyndon Davies and his team has identified the need for further investment in the Company's brands. This will come in the form of direct capital expenditure and the acquisition of the stake in LCD Enterprises. I am confident that both will have a positive impact on the Company's offer to customers. The new funds will also strengthen the balance sheet, allowing Hornby to fully exploit the benefits of its investment."

The Accelerated Book Build 

 

 

The Company expects to publish a circular (the "Circular") later today in connection with the Placing and Open Offer and the Acquisition, which will contain a notice convening the General Meeting in order to approve certain matters necessary to implement the Placing and Open Offer and the Acquisition. The Circular will be posted to Shareholders later today and a copy will be made available on the Company's website www.Hornby.plc.uk.

 

The General Meeting is expected to be convened for 9.00 a.m. on 5 December 2017 and will take place at the offices of the Company's solicitors, Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW. The actions that Shareholders should take to vote on the Resolutions and/or apply for Open Offer Shares will be set out in the Circular, along with the recommendations of the Independent Directors and the Acquisition Independent Directors.

 

Admission

 

Application will be made for the New Ordinary Shares to be admitted to trading on AIM and it is expected that Admission will become effective and trading will commence in the New Ordinary Shares at 8.00 a.m. on 7 December 2017. Following Admission the Company's issued ordinary share capital will comprise 125,261,172 Ordinary Shares. From Admission, the figure of 125,261,172 may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure and Transparency Rules.

 

Further details of the Placing and Open Offer and the Acquisition can be found below.

 

 

Defined terms used in this Announcement will have the meaning (unless the context otherwise requires) as set out in this Announcement and in the Circular to be posted to Shareholders today, which will be available on the Company's website www.Hornby.plc.uk.

 

The information contained within this Announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

 

- ends -

 

 

 

 

 FURTHER DETAILS OF THE PLACING AND OPEN OFFER, ACQUISITION AND NOTICE OF GENERAL MEETING 

1             INTRODUCTION 1.1          The Company is pleased to announce that it has entered into the Acquisition Agreement, pursuant to which terms the Company has agreed to acquire a 49 per cent. stake in LCD Enterprises, for £1.6 million in cash. LCD Enterprises is a private limited company wholly owned by the Company's Chief Executive Officer, Lyndon Davies, and his wife, Catherine Davies. LCD Enterprises holds majority interests in the Oxford Diecast Group, which supplies diecast model vehicles and railway products to the collector, gift and hobby markets in the UK, Hong Kong and North America. The terms of the Acquisition also entitle the Company, in certain circumstances, to acquire the outstanding 51 per cent. of LCD Enterprises or to sell its 49 per cent. stake back to the Seller. Further information in relation to the Oxford Diecast Group and the terms of the Acquisition Agreement are set out below at paragraphs 2.11 and 7 respectively.  1.2          To finance the Acquisition, provide sufficient funds to reduce the net debt drawn down under the Existing Bank Facility and provide working capital to the Group, the Board also announces, that it intends to raise, in aggregate, approximately £12.0 million (before expenses) through the issue of 40,677,968 New Ordinary Shares pursuant to a Placing and Open Offer. The Placing and the Open Offer have been arranged by Liberum Capital.  1.3          The Placing comprises a Firm Placing and a Conditional Placing. Under the Firm Placing, up to 33,898,306 Placing Shares are expected to be placed firm with the Firm Placees (being certain existing institutional investors) at the Issue Price of 29.5 pence per Placing Share, thereby raising £10.0 million. Up to a further 6,779,662 Placing Shares are also expected to be placed with the Conditional Placees (also being certain existing institutional investors) at the Issue Price, thereby raising a further £2.0 million (before expenses). Such Placing Shares will be placed with the Conditional Placees, subject to clawback by Qualifying Shareholders in order to satisfy valid applications made by them under the Open Offer.  1.4          The Company considers it important that all Shareholders have an opportunity to participate in the proposed fundraising. The Company will therefore also provide Qualifying Shareholders with the opportunity to subscribe for up to 6,779,662 New Ordinary Shares at the Issue Price pursuant to the Open Offer. Any Open Offer Shares not applied for under the Open Offer are expected to be taken up by Conditional Placees pursuant to the Conditional Placing. 1.5          The Issue Price of 29.5 pence per New Ordinary Share is equal to the Closing Price per Existing Ordinary Share on 16 November 2017 (being the latest practicable date prior to publication of this announcement).

1.6          The Directors currently have existing authorities to allot shares and disapply pre-emption rights under section 551 and section 570 of the Act which were obtained at the Company's Annual General Meeting held on 6 September 2017. However, these are insufficient to enable the Company to allot and issue the full amount of New Ordinary Shares pursuant to the Placing and Open Offer. Accordingly, the Placing and Open Offer are both conditional upon, amongst other things, the Directors obtaining appropriate Shareholder authorities at the General Meeting to allot the Placing Shares and the Open Offer Shares and to disapply statutory pre-emption rights which would otherwise apply to such allotment.  

1.7          The Placing and Open Offer and the Acquisition are each conditional, inter alia, on the passing of the Resolutions by the Shareholders at the General Meeting, which is expected to be convened for 9.00 a.m. on 5 December 2017, notice of which will be set out in the circular. If the Resolutions are not approved by Shareholders at the General Meeting, the Placing and Open Offer and Acquisition will not proceed. Subject to the Resolutions being passed at the General Meeting and any other relevant conditions being satisfied (or, if applicable, waived), it is expected that the New Ordinary Shares will be admitted to trading on AIM at 8.00 a.m. on 7 December 2017. Further details regarding the Placing and Open Offer and the Acquisition are set out at paragraph 2 below. 

  2             BACKGROUND TO AND REASONS FOR THE PLACING AND OPEN OFFER AND ACQUISITION 

 

Results of the strategy review

 

2.1          Since the announcement of his appointment as Chief Executive Officer of the Company on 3 October 2017, Lyndon Davies has led the Board in undertaking a review of the Company's strategy. Mr Davies, together with Tim Mulhall and Simon Kohler, have drawn upon their combined industry experience totalling nearly 100 years in conducting an initial review of the Group's business, operations and its strategy. As a result of that review, the following opportunities have been identified by the Board with the potential both to drive growth and operational efficiency, with a view to returning the Group to long term sustainable profitability and positive cash generation. 

 

Reinvigorate and grow key brands and products 

 

2.2          The focus on tight cost control has caused the Group to reduce its expenditure on product development across its key brands. The Group intends to utilise approximately £1.0 million of the proceeds from the Placing and Open Offer to invest in additional capital expenditure over and above the existing level to improve the product offering for its key brands and support new product development.

 

2.3          In addition, the Group's population of enthusiasts for many of its key brands is ageing. As a result, the Company plans to develop products which are targeted at younger aged groups to attract a new generation of consumers.

 

Grow our European brands

 

2.4          The Group owns a number of well established brands in the European model trains market. However, these brands have suffered from underinvestment as management's time was focused on cost control to improve cash generation. As a result, the Board believes that there is a significant opportunity to drive revenue growth across the Group's European markets by improving the product offering in line with each brand's core values, and through improving engagement with consumers in these markets. 

 

Maintain appropriate product pricing

 

2.5          As part of the previous turnaround plan, the Group focussed on discounting and promotions in order to drive revenue growth and cash generation. The Board considers that the Group's use of discounting and promotions has led to an expectation by retailers that they do not need to acquire new products upon their release as they would shortly be discounted, thereby undermining the value of those product lines and ultimately the brand. This has also had an impact on the Company's relationship with retailers who have acquired stock from the Company at full price, only to have to write down the value of that stock once discounts are made available. 

 

2.6          As announced on 17 October 2017, in order to maximise the value of its brands over the longer term, the Group will no longer offer large quantities of stock at a discount. However, in the short term, this is likely to lead to a reduction in revenue whilst the market adjusts to the Group's new pricing strategy. This reduction in revenue will reduce the Group's cashflows and create a short term working capital requirement, resulting in the need to strengthen the balance sheet of the Company.  

 

Streamline the Group's systems and processes

 

2.7          Utilising the industry experience of the new operational management team, several opportunities have been identified to restructure the Group's systems and processes, which should lead to management and cost efficiencies and ultimately further reduce the fixed cost base of the Group. 

 

Background to and reasons for the Placing and Open Offer

 

2.8          The Company intends to undertake the proposed Placing and Open Offer to provide the funding required to implement the new Group strategy outlined above, fund the consideration for the Acquisition and to further strengthen the Company's balance sheet. In addition to implementing the new strategy the Company also intends to use the fundraising proceeds to reduce its net debt under the Existing Bank Facility.

 

Background to and reasons for the Acquisition 

 

Reasons for the Acquisition 

 

2.9          The Company believes that the Oxford Diecast Group's portfolio of brands will be complimentary to its existing brand portfolio and that opportunities exist for the two businesses to work collaboratively together to add scale to the Oxford Diecast Group's business. 

 

2.10        Further, given Mr Davies' appointment as Chief Executive Officer of the Company, the Board is keen to ensure that the interests of both the Company and LCD Enterprises, the holding company of the Oxford Diecast Group, are aligned and the Acquisition provides an opportunity to achieve this.

 

Information on the Oxford Diecast Group

 

2.11        LCD Enterprises is the holding company for Oxford Diecast Group of businesses. The Oxford Diecast Group supplies various scales of diecast and railway products to the collector, gift, hobby and promotional markets. The group was founded in 1993 and led by Lyndon Davies since 2002 and has operations in UK, Hong Kong and North America. It sells its products worldwide and in 2017 launched over 400 new products.

 

2.12        In October 2017, Lyndon Davies became Chairman of the Oxford Diecast Group and Eloise Davies (Mr Davies' daughter) was appointed as Managing Director of the Oxford Diecast Group, which has enabled Mr Davies to focus on his role as Chief Executive Officer of the Company.

 

Incentive arrangements

 

2.13        Following completion of the proposals, the Board intends to put in place appropriate incentive arrangements for the executive team of the Group, in order to align their interests with those of Shareholders.

 

3             USE OF PROCEEDS

 

It is currently expected that the gross proceeds of the Placing and Open Offer, expected to be £12.0 million, will be utilised as follows:

 

£1.6 million

to fund the Acquisition consideration;

£1.0 million

to reinvigorate the Group's key brands through additional capital expenditure;

£2.4 million

to fund expected restructuring costs (including £0.5 million of expected costs of the Placing and Open Offer, the Acquisition and the Amendment and Restatement);

£3.2 million

to reduce the Group's net debt under the Existing Bank Facility; and

£3.8 million

to provide working capital to support appropriate product pricing.

  4             CURRENT TRADING AND PROSPECTS

4.1          The current financial year represents a period of change for the Group, but as the management team looks to reshape the business in line with the new strategy, this will result in full year revenue reducing significantly year on year. At the half year, Group revenue was 22 per cent. lower than the previous year and while this performance reflects the timing of new product releases being more weighted to the second half of the year, it also reflects softer market demand over the summer months and increased competition in the important UK Independent channel. 

4.2          Revenue for the six weeks to 12 November 2017 was 10 per cent. lower than the previous year. The previous year's figures included the effect of significant discounting and promotional activity. Overall, the Board remain confident that the changes now being implemented are the correct course of action to protect the value of the Group's brands and build a stronger platform for the future growth of the Company for the benefit of all stakeholders.

 

6             TERMS OF THE ACQUISITION 

 

6.1          On 17 November 2017, the Company entered into the Acquisition Agreement with the Seller (Lyndon Davies) and his wife, Catherine Davies, to conditionally acquire 49 per cent. of the issued share capital of LCD Enterprises. The consideration payable for the Acquisition is £1.6 million in cash, to be satisfied in cash following receipt by the Company of the proceeds of the Placing and the Open Offer. 

6.2          Under the Acquisition Agreement the Seller and Mrs Davies have undertaken not, for the duration of the Lock-In Period, to dispose of, or agree to dispose of, directly or indirectly, any of the remaining 51 per cent. of the share capital of LCD Enterprises which will be held by the Seller and Mrs Davies following completion of the Acquisition. 

6.3          As the Group's business and the Oxford Diecast Group business (including LCD Enterprises) will be run independently following completion of the Acquisition, to protect the Company's interests in LCD Enterprises, the Seller and Mrs Davies have undertaken, for the duration of the Lock-In Period, to provide the Company with all information it may reasonably require in relation to LCD Enterprises and the Oxford Diecast Group, including financial information and business plans. In addition, the Acquisition Agreement contains customary consent rights in favour of the Company (whilst it continues to holds shares in LCD Enterprises) in respect of the ongoing operations of LCD Enterprises and the Oxford Diecast Group.

6.4          The Acquisition Agreement also contains rights in favour of the parties to buy or sell LCD shares in certain specified circumstances as follows: (a)     if the Seller ceases to hold the position of Chief Executive Officer of the Company for any reason other than his death or incapacity, at the expiry of the Lock-In Period, the Seller will become entitled to acquire the 49 ordinary shares of £1.00 each in the capital of LCD Enterprises acquired by the Company pursuant to the Acquisition Agreement, for a purchase price of £1,600,000; and (b)     if, at the expiry of the Lock-In Period, the Seller continues to hold the position of Chief Executive Officer of the Company, the Company will become entitled to acquire the outstanding 51 ordinary shares of £1.00 each in the capital of LCD Enterprises for an aggregate purchase price of £1,600,000 or at a price to be negotiated (capped at £7.0 million) in the event that the underlying after tax earnings of LCD Enterprises and the Oxford Diecast Group (as derived from the most recently completed financial year of LCD Enterprises for which audited accounts have been published), are materially different to those of the Oxford Diecast Group for the financial year ending on 31 December 2016. The Acquisition Agreement also provides that in the event of the death or incapacity of the Seller during the Lock-In Period, the Company will be obliged to purchase the remaining 51% stake in LCD Enterprises at a price of four times the underlying after tax earnings of LCD Enterprises and the Oxford Diecast Group (capped at £7.0 million) as derived from the most recently completed financial year of LCD Enterprises for which audited accounts have been published. 

 

6.5          Completion of the Acquisition Agreement is conditional on, inter alia:

(a)     the passing of the Resolutions; (b)     the Placing and Open Offer Agreement (i) having become unconditional save for the conditions relating to the Acquisition Agreement, and (ii) not having been terminated in accordance with its terms; and ©     Admission becoming effective by no later than 8.00 a.m. on 7 December 2017 (or such later time and/or date, being no later than 5.00 p.m. on 15 December 2017 as the Company and Liberum Capital may agree in writing). 

6.6          In addition, the Company is entitled to terminate the Acquisition Agreement in certain circumstances, including inter alia if at any time before completion of the Acquisition Agreement there is any breach of any of the warranties which is material in the context of the purchase by the Company or if anything occurs which has, or might reasonably be expected to have, a material adverse effect on the financial position or prospects of LCD Enterprises or the Oxford Diecast Group. 

6.7          The Seller has provided warranties as to title and capacity with respect to himself and Mrs Davies and their shares in LCD Enterprises and customary business, trading and tax warranties with regard to LCD Enterprises and the Oxford Diecast Group. 

6.8          The maximum liability of the Seller with respect to any claim under the Acquisition Agreement, including in relation to a breach of any of the warranties is limited to £1.6 million. The time limit for notification of warranty claims is two years in respect of non-tax warranties and seven years in respect of the tax warranties. 

  7             RELATED PARTY TRANSACTIONS

 

7.1          The participation of Lyndon Davies and his wife in the Acquisition is, for the purposes of AIM Rule 13, considered as a "Related Party Transaction". The Acquisition Independent Directors (in respect of the Acquisition) consider, having consulted with the Company's nominated adviser, Liberum Capital, that the terms of the Acquisition are fair and reasonable insofar as Shareholders are concerned.  

 

8             SUBSTANTIAL PROPERTY TRANSACTION

 

As Lyndon Davies is a majority shareholder of LCD Enterprises and the sole director of the Company, and due to the fact that the consideration payable for the Acquisition is for an amount in excess of £100,000, and the consideration which will become payable in the event that either (i) the Company purchases the remaining 51% stake in LCD Enterprises or (ii) the Seller re-acquires the 49% stake in LCD Enterprises, will be in excess of £100,000, the Acquisition and the possible subsequent share transfers constitute, collectively and individually, substantial property transactions under sections 190 and 191 of the Act. Sections 190 and 191 of the Act require that any substantial property transaction with a director of a company must be approved in advance by shareholders at a general meeting of the company. Consequently, completion of the Acquisition is conditional upon obtaining the approval of Shareholders. Resolution 1 is an ordinary resolution that seeks Shareholder approval of the Acquisition.

  9          

 

 

  11           IRREVOCABLE UNDERTAKINGS 

11.1        David Adams, a Director who holds 22,500 Existing Ordinary Shares, representing 0.03 per cent. of the issued Existing Ordinary Shares, has given an irrevocable undertaking to vote or, where applicable, to procure the casting of votes by his connected persons (as defined in section 252 of the Act), in favour of the Resolutions in respect of his own (or, as applicable, his connected persons') beneficial holding of Existing Ordinary Shares.

11.2        Phoenix (in its capacity as manager of certain discretionary funds which hold, in aggregate 71.4 per cent. of the issued ordinary share capital of the Company) has given an irrevocable undertaking to:

(i)         vote or, where applicable, to procure the casting of votes by its connected persons (as defined in section 252 of the Act), in favour of the Resolutions; and (ii)         not to take up any of its Open Offer Entitlement under the Open Offer,

in respect of its own (or, as applicable, its connected persons')    beneficial holdings of Existing Ordinary Shares together totalling 60,406,594 Existing Ordinary Shares, representing in aggregate 71.4 per cent. of the Existing Ordinary Shares.

 

12           RECOMMENDATIONS

12.1        Shareholders should note that if the Resolutions are not passed by Shareholders at the General Meeting, the Placing and Open Offer and Acquisition will not proceed and the Company will not receive the full amount of the anticipated proceeds of the fundraising. Without the full anticipated proceeds of the Placing and Open Offer, the Company is expected by 31 December 2017 to be unable to comply with one or more financial covenants under the terms of its Existing Bank Facility, may find itself unable to prepare accounts on a going concern basis and the Board may need to consider further external bank finance and/or other alternative sources of financing which may or may not be forthcoming.

12.2        The Independent Directors (in the case of the Placing and the Open Offer) and the Acquisition Independent Directors (in the case of the Acquisition), having consulted with the Company's nominated adviser, Liberum Capital, consider the terms of the Placing and Open Offer and Acquisition to be fair and reasonable and in the best interests of Shareholders and of the Company as a whole. 

12.3        The Independent Directors consider the Placing and Open Offer and the Acquisition Independent Directors consider the Acquisition to be in the best interests of the Company and Shareholders as a whole. Accordingly:

(a)     the Acquisition Independent Directors recommend that Shareholders vote in favour of the Acquisition Resolution (Resolution 1) at the General Meeting as David Adams, an Independent Director, intends to do in respect of his entire holding which amount to interests in 22,500 Ordinary Shares, representing approximately 0.03 per cent. of the existing issued ordinary share capital of the Company; and  (b)     the Independent Directors recommend that Shareholders vote in favour of the share authority resolutions (Resolutions 2 and 3) at the General Meeting as David Adams intends to do in respect of his entire holding which amount to interests in 22,500 Ordinary Shares, representing approximately 0.03 per cent. of the existing issued ordinary share capital of the Company.

 

 

Edited November 17, 2017 by Mel_H

[Mel_H]

And, at the same time, it posted its interim results and new strategy, for you to digest...

Full announcement below:

 

Hornby PLC

 

Hornby ANNOUNCES INTERIM RESULTS AND NEW STRATEGY

 

Hornby PLC ("Hornby" or the "Group"), the international models and collectibles group, today announces its interim results for the six months ended 30 September 2017, together with a new strategy and an equity fundraising to support the new strategy and to finance an acquisition.  

 

Interim Results Highlights

 

·     Group revenue of £17.0 million (2016: £21.9 million)

·     Statutory loss before taxation for the period of £5.7 million (2016: loss of £4.7 million)

·     Group loss before tax and exceptional items of £4.6 million (2016: loss of £3.3 million)

·     Net debt of £4.7 million (2016: £2.1 million) 

 

New strategy, equity fundraising and acquisition announced today

 

·     Reinvigorate and grow key brands through an additional £1.0 million investment in capital expenditure to support new product development

·     Grow our European brands through improved product offering and engagement with consumers

·     As announced on 17 October 2017, to maximise the value of its brands over the longer term, the Group will no longer offer large quantities of stock at a discount 

·     Further streamline the Group's systems and processes by utilising the industry experience of the new operational management team

·     £12.0 million equity placing and open offer to support delivery of the Group's strategic objectives, strengthen the Group's balance sheet and to fund the acquisition 

·     £1.6 million acquisition of a 49 per cent. non-controlling interest in LCD Enterprises Limited (majority owned by Lyndon Davies), the holding company of Oxford Diecast Limited, subject to shareholder approval

·     Renegotiation of existing banking covenants to align them to the new strategy through to 31 December 2019

 

Lyndon Davies, Hornby Chief Executive, commented:

 

"The review of the business, operations and its strategy has revealed opportunities to improve performance. The strategy we are announcing today to invest in Hornby's key brands, to instigate a clear pricing policy and to seek additional funds to further strengthen its balance sheet, I believe, will provide the platform for long term sustainable profitability and cash generation. By simplifying and improving basic business process, together with better selection and delivery of the highest quality products, we will re-establish the value of our brands in the eyes of consumers and collectors alike."

 

-ends-

 

 

 

 

INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017

 

Strategic Review

 

Since the announcement of his appointment as CEO of Hornby on 3 October 2017, Lyndon Davies has led the Board in undertaking a review of Hornby's strategy. Mr Davies, together with operational consultants Tim Mulhall and Simon Kohler, have used their combined industry experience totalling nearly 100 years to conduct an initial review of the Group's business, operations and its strategy. As a result of that review, the new strategy (as summarised below) has been identified by the Board and has the potential to drive growth and operational efficiency with a view to returning Hornby to sustainable profitability and positive cash generation. 

 

The key elements of the new strategy are as follows.

 

·     Reinvigorate key brands and products 

·     Grow our European brands

·     Maintain appropriate product pricing

·     Streamline the Group's systems and processes

 

Acquisition

 

Hornby have also today entered into an agreement to acquire a 49 per cent., non-controlling interest, in LCD Enterprises Limited ("LCD") (which is majority owned by Lyndon Davies), the holding company of Oxford Diecast Limited, for a cash consideration of £1.6 million. Given Mr Davies' appointment as CEO of the Company, the acquisition provides an opportunity to align the interests of the Hornby and the Oxford Diecast businesses. The proposed acquisition is subject to approval by the Company's shareholders and completion of the equity fundraising. Further details in relation to the proposed acquisition will be announced this morning.

 

Equity Fundraise

 

We have approached investors in relation to the proposed equity fundraising of £12.0 million (before expenses), to be undertaken by way of a placing and open offer, in order to provide the necessary funding to support the new strategy, fund the acquisition consideration and to further strengthen the Company's balance sheet. We have also entered into an agreement with Barclays Bank PLC ("Barclays"), the Group's bankers, to amend the existing revolving credit facility (subject to the completion of the proposed equity fundraising) and to bring the financial covenants in line with management's expected financial performance.

 

Further details in relation to the proposed equity fundraising and the amendments to the credit facility will be announced this morning. The equity fundraising is being supported by funds managed by Phoenix Asset Management Partners Limited. The proposed equity fundraising is subject to approval by the Company's shareholders.

 

Performance

 

Revenue for the six months was £17.0 million (2016: £21.9 million), a decrease of 22 per cent. compared with the previous year. The loss before taxation and exceptional items was £4.6 million (2016: £3.3 million).

 

Net debt for the Group as at 30 September 2017 was £4.7 million (2016: £2.1 million). The drawdown amount on the £7.75 million UK revolving credit facility as at 30 September 2017 amounted to £7.4 million (2016: £5.5 million). 

 

At this stage in the Group's development the Board believes it is not appropriate to recommence paying dividends. No dividend was paid for the same period last year.

 

Detail of the New Strategy 

 

Reinvigorate and grow key brands and products 

 

The focus on tight cost control has caused the Group to reduce its expenditure on product development across its key brands. The Group intends to utilise approximately £1.0 million of the proceeds from the proposed equity fundraising to invest in additional capital expenditure over and above the existing level to improve the product offering for its key brands.

 

In addition, the Group's population of enthusiasts for many of its key brands is ageing. As a result, the Company plans to develop products which are targeted at younger-aged groups to attract a new generation of consumers.

 

Grow our European brands

 

The Group owns a number of market leading brands in the European model trains market. However, these brands have suffered from underinvestment as management's time was focused on cost control to improve cash generation. As a result, the Board believes that there is a significant opportunity to drive revenue growth across the Group's European markets by improving the product offering in line with each brand's core values, and through improving the engagement with consumers in these markets.  

 

Maintain appropriate product pricing

 

As part of the previous turnaround plan, the Group focussed on discounting and promotions in order to drive revenue growth and cash generation. The use of discounting has led to an expectation by retailers that they do not need to acquire new products upon their release as they would shortly be discounted, thereby undermining the value of those product lines and ultimately the brand. This has also had an impact on the Company's relationship with retailers who have acquired stock from Hornby at full price, only to have to write the value of that stock down once discounts are made available.  

 

As announced on 17 October 2017, in order to maximise the value of its brands over the longer term, the Group will no longer offer large quantities of stock at a discount. However, in the short term, this is likely to lead to a reduction in revenue whilst the market adjusts to the Group's new pricing strategy. This reduction in revenue will reduce the Group's cashflows and create a short term working capital requirement, resulting in the need to further strengthen the balance sheet as outlined above.   

 

Streamline the Group's systems and processes

 

Utilising the industry experience of the new operational management team, several opportunities have been identified to restructure the Group's systems and processes, which should lead to management and cost efficiencies and ultimately further reduce the fixed cost base of the Group.

 

Outlook and current trading

 

The current financial year represents a period of change for the Group as the management team looks to reshape the business in line with the new strategy; this will result in full year revenue reducing significantly year on year. At the half year, Group revenue was 22 per cent. lower than the previous year and while this performance reflects the timing of new product releases being more weighted to the second half of this year, it also reflects softer market demand over the summer months and increased competition in the important UK Independent channel. 

 

Revenue for the six weeks to 12 November 2017 was 10 per cent. lower than the previous year. The previous year's figures included the effect of significant discounting and promotional activity. Overall, we remain confident that the changes now being implemented are the correct course of action to protect the value of our brands and build a stronger platform for the future growth of the Company for the benefit of all stakeholders.

 

Financial review

 

Performance

 

Group revenue for the six months to September 2017 of £17.0 million was 22 per cent. lower than the previous year (2016: £21.9 million), for the factors outlined above. The gross margin for the period was 36 per cent. (2016: 36 per cent.), which was consistent with the previous year but is below that expected for the full year as it reflected the product mix being weighted more towards revenue from National retailers, which carry a lower margin than new product sales to our Independent customers.

 

Underlying overheads (excluding other operating expenses) of £10.1 million reduced year-on-year by 16 per cent. showing the benefit of the structural changes undertaken over the course of the last financial year. Other operating expenses were £0.5m (2016: £0.9m income), which includes foreign exchange losses on trading transactions in the period totalling £0.5 million compared with gains of £0.6 million in the previous year. 

 

The operating loss before exceptional costs for the six months to September 2016 was £4.5 million, compared with a loss of £3.2 million for the same period last year. This was largely due to the year on year decrease in revenue and consequent gross margin noted above and the impact of foreign exchange losses, offset by overhead savings. 

 

Exceptional costs during the first half year were £1.1 million (2016: £1.4 million) and these included the costs relating to the unsuccessful attempt to change the Board composition through a requisitioned General Meeting and the mandatory offer to buy the Company both of which required professional advice including a circular to shareholders and a shareholder meeting. The exceptional costs also include the costs of senior management changes and the further costs of restructuring the business.

 

Group loss before tax was £5.7 million (2016: loss of £4.7 million) and was caused by all of the factors identified above. The basic loss per share was 6.76p (2016: loss per share of 6.89p).

 

Segmental analysis

 

Third party revenue for the UK business reduced by 18 per cent. in the period to £13.7 million and generated an underlying loss before taxation of £3.9 million compared to a loss of £2.8 million last year. Revenue for the first half of 2017 has reduced significantly compared with the same period last year due to the timing of new product releases during the period. The International businesses' revenue fell by a third in the period to £3.3 million and generated an underlying loss of £0.7 million (2015: £0.8m loss). Trading was constrained by some challenges with the supply of international model rail during the first half, which have been delayed until later in this financial year.

 

Balance sheet

 

Group inventories reduced year on year by 20 per cent. to £12.0 million (2016: £9.7 million) due to its careful management and by addressing historic stock issues. Trade and other receivables were £9.3 million (2016: £11.9 million), the fall was in line with the overall reduction in revenue. Trade and other payables were £7.6 million (2016: £8.4 million) reflecting the lower level of activity in the business in the first half of this financial year. The net effect of these factors was a year on year reduction in working capital requirements of £4.8 million to £13.7 million. Investment in new tooling, new computer software and other capital expenditure was £0.8 million (2016: £1.0 million) reflecting the streamlining of the product range resulting in lower levels of capital expenditure this year.

 

Capital structure and banking facilities

 

The funds raised in 2016 have been utilised by the cost of reorganising and streamlining the business and by the disappointing level of losses sustained during the first half of this financial year.

 

There was an increase in net debt at 30 September 2017 to £4.7 million, from £1.5 million net cash at 31 March 2017.

 

As at 30 September 2017 the Group had in place a revolving credit facility of £7.75 million with Barclays, expiring December 2019. 

 

The Company's existing banking facility will still mature on 31 December 2019, but following agreement with Barclays, will be reduced to £6.0 million on completion of the proposed equity fundraising, with a further step-down of the facility on 1 July 2018 to £5.0 million. This is expected to allow sufficient headroom for the Group's trading working capital and capital expenditure needs through to the end of 2019. The facility will have a margin of 3.75 per cent. over LIBOR and is subject to commitment and utilisation fees dependent on the level of drawings under the facility. 

 

The amended financial covenants, which the Group must comply with, are to be tested quarterly. For the duration of the transition period of the Group's new strategy through to March 2019, such financial covenants shall comprise a minimum EBITDA test.  Thereafter, the financial covenants shall revert to customary leverage and interest cover financial covenants.

 

Going concern

 

The Group today announced that it is proposing to undertake an equity fundraising of £12.0 million (before expenses) to enable management to pursue the Group's new strategy, to fund the acquisition and to further strengthen the balance sheet. 

 

The Directors have already approached both existing and potential new investors to raise the equity funding of £12.0 million and, following discussions with the Company's largest shareholder, the directors have a high degree of confidence that the fundraising will be approved by shareholders and therefore provide new working capital. 

 

The Group has prepared cash flow forecasts on the basis of the additional equity fundraising and after detailed review of these forecasts and cash flow models, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 

 

Although the proposed placing and open offer has not yet been formally approved by shareholders, it is being supported by funds managed by Phoenix Asset Management Partners Limited. The Board therefore has a high degree of confidence over the Group's ability to continue as a going concern.
 

STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 September 2017

 

 

 

 

 

 

 

All of the activities of the Group are continuing. The notes on pages 11 to 19 form an integral part of this condensed consolidated half-yearly financial information.

BALANCE SHEET

As at 30 September 2017 

 

 

 

 

 

The notes on pages 11 to 19 form an integral part of this condensed consolidated half-yearly financial information.

 

 

 

STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 September 2017 

 

 

 

 

 

 

 

The notes on pages 11 to 19 form an integral part of this condensed consolidated half-yearly financial information. 

 

 

 

 

 

 

 

 

 

STATEMENT OF CASH FLOWS

for the six months ended 30 September 2017

 

 

 

 

The notes on pages 11 to 19 form an integral part of this condensed consolidated half-yearly financial information.

 

NOTE TO THE CASH FLOW STATEMENT

for the six months ended 30 September 2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

NOTES TO CONDENSED CONSOLIDATED HALF-YEARLY FINANCIAL REPORT

 

1.  GENERAL INFORMATION

 

The Company is a public limited liability company incorporated and domiciled in the UK.  The address of the registered office is 3rd Floor, The Gateway, Innovation Way, Discovery Park, Sandwich, Kent, CT13 9FF.  The Group is principally engaged in the development, design, sourcing and distribution of hobby and interactive home entertainment products.

 

The Company has its primary listing on the Alternative Investment Market and is registered in England No. 01547390.

 

This condensed consolidated half-yearly financial information was approved for issue on 17 November 2017.

 

This condensed consolidated half-yearly financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended 31 March 2017 were approved by the Board of Directors on 21 June 2017 and delivered to the Registrar of Companies. The Report of the Auditors on those accounts was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.

 

Forward Looking Statements

Certain statements in this half-yearly report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct.  Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

 

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

 

2.   BASIS OF PREPARATION

 

This condensed consolidated half-yearly financial information for the half-year ended 30 September 2017 has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.  The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 31 March 2017 which have been prepared in accordance with IFRSs as adopted by the European Union.

 

3.   ACCOUNTING POLICIES

 

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 March 2017, as described in those annual financial statements with the exception of tax which is accrued using the tax rate that would be applicable to expected total annual earnings.

 

Adoption of new and revised standards

 

There are no standards, amendments to standards or interpretations that are both mandatory for the first time for the financial year ending 31 March 2017 and that have a material impact on the Group's results, except for IFRS 16 outlined below. 

 

IFRS 16 will replace the current guidance under IAS 17 and will have a significant impact on the accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 will require lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts. The adoption of IFRS 16 will have a material effect on the Hornby PLC financial statements by grossing up assets and liabilities by approximately £1.0 million.

 

Estimates

 

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. 

 

In preparing this condensed consolidated half-yearly financial report, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 March 2017.   

 

Financial instruments

 

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

 

The condensed consolidated half-yearly financial report does not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 March 2017. 

 

There have been no changes in the risk management policies since year end. 

 

The Group's financial instruments, measured at fair value, are all classed as level 2 in the fair value hierarchy, which is unchanged from 31 March 2017. Further details of the Group's financial instruments are set out within note 8 of this half-yearly report as required by IFRS 13.

 

4.   SEGMENT INFORMATION AND EXCEPTIONAL ITEMS

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of the Company that makes strategic decisions.

 

Operating profit of each reporting segment includes revenue and expenses directly attributable to or able to be allocated on a reasonable basis. Segment assets and liabilities are those operating assets and liabilities directly attributable to or that can be allocated on a reasonable basis.

 

Management has determined the operating segments based on the reports reviewed by the Board (chief operating decision-maker) that are used to make strategic decisions.

 

The Board considers the business from a geographic perspective.  Geographically, management considers the performance in the UK, USA, Spain, Italy and rest of Europe. Although the US segment does not meet the quantitative thresholds required by IFRS 8, management has concluded that this segment should be reported, as it is closely monitored by the chief operating decision-maker.

 

 

 

 

 

 

 

 

 

 

5.         TANGIBLE AND INTANGIBLE ASSETS AND GOODWILL 

 

 

The additions comprise new product tooling (£705,000), property, plant and equipment (£20,000) and intangible assets - computer software (£99,000).

 

The Group has again performed impairment reviews as at 30 September 2017 and consider the carrying value of the assets held to be recoverable. The discount rates and key assumptions used within the updated models at 30 September 2017 have remained constant with the impairment reviews conducted in March 2017.

 

 

 

 

Tangible and intangible assets and goodwill (unaudited)

 

  Six months ended 30 September 2017

 

  Six months ended 30 September 2016

 

 

 

 

 

 

 

£'000

 

£'000

Opening net book amount 1 April 2017 and 1 April 2016

 

14,451 

 

16,485 

Exchange adjustment

 

10 

 

279 

Additions

 

825 

 

985 

Disposals

 

- 

 

(51)

Depreciation, amortisation and impairment

 

(1,767)

 

(2,053)

 

 

 

 

 

Closing net book amount 30 September 2017 and 30 September 2016

 

13,519 

 

15,645 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

    2016

 

CAPITAL COMMITMENTS

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

£'000

 

£'000

 

At 30 September commitments were:

 

 

 

 

 

Contracted for but not provided for

 

420

 

549

 

 

 

 

 

 

 

 

 

 

 

 

 

                 

The commitments relate to the acquisition of tooling as part of property, plant and equipment.

 

 

6.         SHARE CAPITAL

 

At 31 March 2017 and 30 September 2017, the Group had 84,583,204 ordinary 1p shares in issue with nominal value £845,832 (2016 - £549,535).

 

The following employee share options were exercised during the first half to 30 September 2017 (2016 - £nil).

 

Number of Employees

 

Number of shares in relation to which the LTIP award vested

 

Cash settlement amount determined by reference to 32.375 pence per share (plus National Insurance)

 

 

 

 

 

4

 

352,508

 

£136,430

 

 

7.       BORROWINGS

 

 

                                                                                                      

At 30 September 2017 the UK had a £7,750,000 revolving credit facility expiring December 2019 (2016 - £10,000,000) that attracts interest at 3.5 per cent above Libor. (2016 - 3.5 per cent above LIBOR).

 

In the period to 30 September 2017 loan repayments were £nil (2016 - £167,000).

 

The drawdown amount on the revolving credit facility amounted to £7,400,000 (2016 - £5,500,000) and is included within net bank overdrafts above. 

 

 

8.       FINANCIAL INSTRUMENTS 

 

The following tables present the Group's assets and liabilities that are measured at fair value at 30 September 2017 and 31 March 2017. The table analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

 

-     Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

-     Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

-     Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

 

There were no transfers or reclassifications between levels within the period. Level 2 hedging derivatives comprise forward foreign exchange contracts and an interest rate swap and have been fair valued using forward exchange rates that are quoted in an active market. The fair value of the following financial assets and liabilities approximate their carrying amount: Trade and other receivables, other current financial assets, cash and cash equivalents, trade and other payables and bank overdrafts and borrowings.     

 

Fair values are determined by a process involving discussions between the Group finance team and the Audit Committee which occur at least once every 6 months in line with the Group's reporting dates.

 

 

 

 

 

9.         TAXATION

 

The tax expense is recognised based on management's latest estimate of the estimated full year forecast effective tax rate determined for each territory. Due to the expected incidence of profits in the second half of the year in each entity, the rate for the full year is expected to be in line with the interim rate.

 

 

10.     (LOSS)/EARNINGS PER SHARE

 

(Loss)/earnings per share attributable to equity holders of the Company arises from continuing operations as follows:

 

 

30 September 2017 (unaudited)

30 September 2016 (unaudited)

31 March 

2017

 (audited)

 

(Loss)/earnings per share from continuing operations attributable to the equity of the Company

 

 

 

- basic

(6.76)p

(6.89)p

(12.65)p

- diluted

 

(6.76)p

 

=======

(6.89)p

 

=======

(12.65)p

 

=======

 

 

11.        DIVIDENDS

 

No interim dividend has been declared for the interim period ended 30 September 2017 (2016 - £nil).

 

 

 

12.     CONTINGENT LIABILITIES

 

          The Company and its subsidiary undertakings are, from time to time, parties to legal proceedings and claims, which arise in the ordinary course of business.  The directors do not anticipate that the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect upon the Group's financial position.

 

13.       RELATED-PARTY TRANSACTIONS

 

          Key management compensation amounted to £1,296,000 for the six months to 30 September 2017 (2016 - £1,266,000). Key management include directors and senior management. For the period to 30 September 2017 there was an underlying decrease compared to the same period last year because of the changes and restructuring of the UK business.

 

 

 

 

Before appointment as Managing Director of Asia and a director of Hornby Hobbies Limited, a subsidiary of Hornby PLC, Bharat Ahir provided consultancy services to the Group. 28One Limited, not to be confused with companies of a similar name, which is owned by Bharat continues to support the business in relation to providing ongoing support to manage product delivery and Hornby Hobbies has paid £89,330 (2016 - £99,798) in relation to these services to 28One Limited since 1 April 2017. No outstanding payments remained payable to 28One Limited as at 30 September 2017 (2016 - nil). Hornby Hobbies Limited continues to use these services on an ongoing basis. 

 

There are no other related-party transactions during the period.

 

Subsequent to the period end a significant related party transaction is announced today as detailed in Note 16 below.  

 

 

14.       RISKS AND UNCERTAINTIES

 

The Board has reviewed the principal risks and uncertainties and have concluded that the key risks continue to be UK market dependence, market conditions, exchange rates, supply chain, product compliance and liquidity. The disclosures on pages 17 and 18 of the Group's Annual report for the year ended 31 March 2017 provide a description of each risk along with the associated impact and mitigating actions. The issues surrounding supply chain, liquidity, and market conditions are covered in more detail within the interim management report itself. The Board will continue to focus on risk mitigation plans to address these areas.

 

 

 

15.       SEASONALITY

 

Sales are subject to seasonal fluctuations, with peak demand in the October - December quarter.  For the six months ended 30 September 2017 sales represented 36 per cent of the annual sales for the year ended 31 March 2017 (2016 - 39 per cent of the annual sales for the year ended 31 March 2016). 

 

 

16.       SUBSEQUENT EVENTS

 

Lyndon Davies was appointed as CEO on 3 October 2017 replacing Steve Cooke. 

 

In addition to the appointment of Mr Davies, the Group plans to acquire 49 per cent. of the share capital of LCD, the holding company of Oxford Diecast Limited, which is owned by Mr Davies. The acquisition is subject to shareholder approval.

 

The Group is proposing to undertake an equity fundraising of £12.0 million, by way of a placing and open offer, to support delivery of the Group's strategic objectives, to fund the acquisition of shares in LCD and to provide additional working capital. The placing and open offer is subject to shareholder approval.

 

By order of the Board

 

 

 

Lyndon Davies                                                                      David Mulligan

Chief Executive                                                                       Group Finance Director

17 November 2017

Edited November 17, 2017 by Mel_H

[Mel_H]

Well, the shares sold out quicker than an SECR H, or Huntley & Palmers Peckett!  According to this, all the shares have been 'sold' - i.e 'placed', and £12m is in. Announcement timed at 1530hrs today:

 

Result of Placing

 

Hornby PLC, the international models and collectibles group, is pleased to announce that following the announcement earlier today regarding the launch of a proposed Placing and Open Offer (the "Placing"), it has successfully placed 40,677,968 new ordinary shares (the "Placing Shares") at a price of 29.5 pence per share (the "Issue Price") raising gross proceeds of £12.0 million. 33,898,306 Placing Shares have been placed firm with the Firm Placees (being certain existing institutional investors) at the Issue Price, thereby raising £10.0 million. A further 6,779,662 Placing Shares have also been placed with the Conditional Placees (also being certain existing institutional investors) at the Issue Price, thereby raising a further £2.0 million (before expenses). Such Placing Shares have been placed conditionally with the Conditional Placees, subject to clawback by Qualifying Shareholders in order to satisfy valid applications made by them under the Open Offer.   

 

The Placing and Open Offer and the Acquisition are all conditional upon the passing of certain Shareholder resolutions. Accordingly, a circular (the "Circular") is expected to be posted later today notifying shareholders of a general meeting which is being convened for the purpose of considering the relevant Resolutions, at the offices of the Company's solicitors, Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW at 9.00 a.m. on 5 December 2017.

 

The Placing was conducted by way of an Accelerated Book Build process. Liberum Capital Limited ("Liberum") acted as sole bookrunner on the Placing.

 

In addition, in order to provide Qualifying Shareholders with an opportunity to participate at the Issue Price, the Company is making the Open Offer to all Qualifying Shareholders to give them the opportunity to subscribe for up to 6,779,662 new Ordinary Shares (the "Open Offer Shares") at the Issue Price to raise gross proceeds of up to approximately £2.0 million. The terms and conditions of the Open Offer will be set out in the Circular.

 

The Issue Price is equal to the Closing Price per Ordinary Share on 16 November 2017, being the last business day prior to the announcement of the Placing and Open Offer.

 

Application will be made to the London Stock Exchange for the New Shares to be admitted to trading on AIM and it is anticipated that trading in the New Shares will commence on AIM at 8.00 a.m. on 7 December 2017. 

Related Party Transaction

Phoenix Asset Management Partners Limited, ("Phoenix") has agreed to subscribe for up to 33,377,968 Placing Shares in the Placing comprising 27,814,973 Placing Shares pursuant to the Firm Placing and up to 5,562,995 pursuant to the Conditional Placing. Due to the size of Phoenix's existing holding of 60,406,594 Ordinary Shares in the capital of the Company representing 71.4% of the current issued share capital, this transaction is considered to be a related party transaction pursuant to AIM Rule 13 of the AIM Rules. 

The Independent Directors consider, having consulted with the Company's Nominated Adviser, that the terms of Phoenix's participation in the Placing are fair and reasonable in so far as its Shareholders are concerned. Immediately following Admission, it is envisaged that Phoenix will hold up to 93,784,562 Ordinary Shares representing a maximum shareholding of 74.87% of the enlarged share capital (before the issue of any shares under the Open Offer).

[adb968008]

Wow, fast revolving day,

 

So if I understand..

£1mn for R&D (7-10 new toolings depending who you talk to on which day of the week?)

£3.8mn to off set an expected decline in sales (t/o £17mn, so expecting a c20%drop or two years of 10% or maybe just accepting an increase in stock sitting on shelves)

£1.4mn for a 49% stake in Oxford, thus taking a stake in a duplicate Dean Goods, Mk3’s, Radial and some wagons, whole bunch of cars and presumably access to a production line.

£2.4mn for yet more restructuring (this I translate as a foreboding sign for the workforce)

The rest is to pay off debts (which can’t be a bad thing).

 

Investment is said to aim at European modellers, and younger enthusiasts, which to me makes sense, Europe’s economy is better than ours and more agreeable to price

younger modellers presumably means investment in railroad or slightly less detailed cheaper models,.. again is something the UK market needs... make what your market can afford to buy.

 

Some here may not like what is to come, but if if it saves the company then it’s what it needs.

 

I Think that next year is going to be a very tough year of change, and it looks like PAMP is placing a lot of trust into the new team, and are betting the market will climatise and accept high priced, lower volume or lower priced less detailed Hornby sales and is prepared to wait it out. Confidence is obviously there from a management perspective, and retailers are supportive too, let’s hope the end user paying public agrees and they can afford it in the preBrexit, higher tax, higher interest rate, falling pound, unstable economic ride that’s to come..that is what I see as the biggest risk, though they’ve obviously committed funds to mitigate it and ride it out... that’s not a bad thing.

 

Proportionally £12mn is a big investment in a company with £17mn turnover, losing £5mn that they are expecting to fall further, I hope it’s not an “all in” or nothing gamble, but it does feel like it, at least the management have the money now to implement the plan..

 

the bets are down, time to spin the wheel..2 years let’s see where the ball lands.

Edited November 17, 2017 by adb968008

[phil gollin]

Wow, fast revolving day,

 

So if I understand..

£1mn for R&D (7-10 new toolings depending who you talk to on which day of the week?)

£3.8mn to off set an expected decline in sales (t/o £17mn, so expecting a c20%drop or two years of 10% or maybe just accepting an increase in stock sitting on shelves)

£1.4mn for a 49% stake in Oxford, thus taking a stake in a duplicate Dean Goods, Mk3’s, Radial and some wagons, whole bunch of cars and presumably access to a production line.

£2.4mn for yet more restructuring (this I translate as a foreboding sign for the workforce)

The rest is to pay off debts (which can’t be a bad thing).  ...............

 

.

 

A couple of things ;

 

You're assuming all the effort is on model railways, what about Airfix, Scalextric, etc .....

 

What incentive is there for anyone to buy the £12 million of new shares ?

 

Edit :-  Also, any details of Oxford Diecast's trading figures ?

 

.

Edited November 17, 2017 by phil gollin