HORNBY REPORTS STRONG SALES AND PROFITS GROWTH
FOCUS NOW SHIFTS TO INTERNATIONAL
Hornby Plc, ("Hornby") the models and collectables Group, has today announced its preliminary results for the year ended 31 March 2005. Hornby's two main products are Hornby model railways and Scalextric slot car racing systems.
- Pre-tax profits before goodwill amortisation up 16% to £7.5 million (2004: £6.5 million) * Earnings per share before goodwill amortisation up 21% to 14.78p (2004: 12.20p) * Statutory profits up 11% to £7.2 million (2004: £6.5 million) * Statutory earnings per share up 14% to 13.88p (2004: 12.20p) * Turnover up 15% to £45.0 million (2004: £39.0 million) * Successful implementation of a 5 for 1 share split * Acquisition of certain assets of Lima S.p.A completed * Final dividend of 5.0p declared - Total dividend up 17% to 7.0p (2004: 6.0p)
Frank Martin, Chief Executive of Hornby, said,
" The Group has made excellent progress in its strategy to create a broader base to its hobby activities. The recent acquisitions of Electrotren in Spain and certain assets of the Lima Group in Italy offer significant additional potential to enable us to grow market share worldwide.
" The product pipeline is also looking strong. Our Digital technology is helping us to make real strides in positioning both our slot car racing systems and model railways at the cutting edge of technology. We are honoured that the Scalextric Sport Digital system was recently recognised by the British Toy and Hobby Association as the recipient of the prestigious "Best new product design award" for 2004. We have secured a number of key licences and we are delighted that in Spain, the largest per capita slot car racing market in the world, we have the exclusive rights to use images of Fernando Alonso the Spanish Formula 1 star and Sete Gibernau, the MotoGP motorbike rider on our slot racing packaging.
" Looking forward, we are confident that despite a slowdown in consumer spending, our core hobbyist market place will remain robust. We are developing the right product and we are nurturing the mix of distribution channels. We have reached an important stage in the Group's development and I am convinced that we will be able to repeat the process of re-invigorating the performance of the international markets as we have done in the UK."
Chairman's Statement
I am delighted once again to report a most encouraging performance for the year. Sales increased by 15% to £45.0 million, and pre-tax profit before goodwill amortisation at £7.5 million is 16% above last year's result (£6.5 million). Basic earnings per share before goodwill amortisation rose by 21% to
14.78p. Statutory pre-tax profit was £7.2 million and basic statutory earnings per share were 13.88p.The Group has made excellent progress in its strategy to create a broader base to its hobby activities. The recent acquisitions of Electrotren in Spain and the assets of the Lima Group in Italy offer significant additional potential to enable us to grow market share worldwide.
Dividend
Reflecting the Group's continued progress, the Board is recommending a final dividend of 5.0p per ordinary share. This will be paid on 19 August
2005 to those shareholders on the register at 29 July 2005.Taken together with the interim dividend, this gives a total dividend for the year of 7.0p, an increase of 17% over the dividend of 6.0p declared in the previous financial year (adjusted for the share split which took place last year). The Company policy continues to be to reward our shareholders with a dividend of approximately 50% of earnings per share in the absence of unforeseen circumstances. Statutory profit and earnings per share were reduced in the year by £332,000 and 0.90p respectively, in accordance with UK accounting standards, relating to the amortisation of goodwill in respect of the acquisition of Electrotren and the Lima assets.
Business Review
We were encouraged that once again we have achieved solid growth in the UK and in international markets, before taking into account the additional sales of the acquired overseas subsidiaries. For the future, we are targeting significantly increased activity and revenues from our international subsidiaries.
Trading in our core UK market has remained robust during the year. Despite nervousness in the retail sector, our products have retained their popularity and sales have remained good. We are conscious that some retailers are reporting the impact of wider economic pressures but the hobby-based characteristics of our products lend resilience in such times and market feedback remains encouraging. During the year, we have made good progress in developing our network of concessions and have extended our portfolio to 121 outlets. Sales in our concessions grew by 34% in the year and represented 15% of our total UK sales.
In Hornby model railways, the newly tooled "A4" class locomotives and the Gresley coaches - in both teak and British Rail liveries, set new standards of performance, detail and authenticity.
The launch of Scalextric Sport Digital (SSD) has opened a new chapter in slot racing. We believe that the appeal of racing up to six cars on a single track, the challenge of overtaking manoeuvres and team tactics will generate significant new interest in the hobby. We are honoured that the importance of this development was recently recognised in the choice of Scalextric Sport Digital for the prestigious "Best new product design award" by the British Toy and Hobby Association. In designing SSD we were also conscious of the need for compatibility with our existing track and cars. An additional benefit of this compatibility is that we have been able to enter technology sharing agreements with other international manufacturers of slot cars. Under these agreements, the third party manufacturers will be able to market their cars as compatible with SSD. In this way we believe the worldwide slot car market will come to acknowledge SSD as the industry standard for digital slot car racing.
Exploiting the potential from new licences remains a very important part of our business. This year we have secured licences to produce products related to the new Harry Potter film - Harry Potter and the Goblet of Fire and the new Batman Begins movie. In addition we have retained the worldwide exclusive licence to produce Scalextric cars based on the highly successful Renault F1 cars and we have also secured a licence to produce models based on both classic and current Ferrari F1 and street cars.
Overseas Subsidiaries
During the year, we completed the acquisition of certain assets of Lima S.p.A from the Liquidators. This brings into Hornby ownership the iconic model railway brands of Lima, Rivarossi, Jouef and Arnold, and Pocher, the well-known automobile kit brand. With these assets we have acquired a mould tool bank of approximately 10,000 tools. Already around 1,000 of these tools have been shipped to China to commence production of the first ranges, which will be available prior to Christmas this year. We are already making further shipments of tools to China to facilitate further product introductions in 2006. The Lima operation in Italy has been completely restructured to match the needs of the ongoing distribution business. The old premises have been vacated and a new warehouse and administration facility is now occupied. Staff numbers have been aligned with the ongoing needs of the business. We have every confidence that over the coming years the combination of the acquired brands, Hornby's existing design and marketing expertise, and the enthusiastic cooperation of our principal suppliers in China, will enable us to grow significantly our internati nal model railway business. The Lima subsidiary is also now marketing and distributing our Scalextric range in Italy. As we have demonstrated in the UK, the combination of a market leading model railway brand and a strong slot racing presence provides an exceptionally powerful trading platform from which to build sales across all major channels of distribution.
Our Spanish operation Electrotren has made excellent progress since its acquisition in March 2004. We have accelerated our plans for improving both the marketing and sales distribution network. We are delighted to announce that we have acquired the exclusive rights to use images of Spanish Renault F1 driver Fernando Alonso on our slot car racing packaging in Spain. This, and our presence on the ground through Electrotren has given us an excellent platform to grow our market share of the largest per capita slot racing market in the world. The MotoGP bikes have proved to be a very popular addition to the product range and we have also negotiated the image rights for MotoGP rider Sete Gibernau for use on our MotoGP packaging in Spain. We believe that these personal endorsements, together with a renewed marketing and promotional campaign in Spain, will ensure that we achieve significant growth in this important slot racing market this year.
As is well known, trading in the USA has been under pressure during the past 12 months and results in Scalextric USA were therefore less encouraging. Sales were down by 13% at $4.7 million. Profit before tax of $128,000 in the previous year has deteriorated and the operation reported a loss of $(141,000). Whereas all other parts of the Hornby Group have benefited from the sustained weakness of the US dollar, Scalextric USA has seen its sales and margins eroded. Scalextric USA acts as distributor for a number of European slot car manufacturers in addition to Hornby. The relative strength of the Euro and of Sterling has forced up prices and depressed sales. However it should be borne in mind that as a result of margins generated in Hornby Hobbies Limited on sales made to Scalextric USA, the US subsidiary remains an overall net contributor to Group profit. Entering the new financial year, action has been taken to reduce overheads and increase sales efforts.
Product Development
The lifeblood of our business remains the product pipeline. During the year under review, we have made great strides in developing our digital technology. Scalextric Sport Digital looks set to become the system of choice for the industry going forward. The Hornby Digital control system for model railways is at an advanced stage of development and will be launched early in 2006.
Following the successful launch of the Live Steam range in 2003, we will shortly commence deliveries of the Live Steam "Flying Scotsman" set, which will provide a further boost to this unique new product category.
Our development programme for Hornby and Scalextric models is as comprehensive and exciting as ever. Electrotren continues to innovate in European model railways and we are currently finalising plans for new tooling projects to underpin the reinvigoration of the acquired Lima brands.
Outlook
We believe the Group is at a pivotal point in its development. Having revitalised our UK market, we now have the opportunity to repeat this exercise in other major world markets. We have been able to attract first class management for our international subsidiaries. This will ensure that, whilst the UK Company continues to provide support where necessary, there will be no loss of focus on the core UK market.
Trading in the new financial year has started well, despite a widely reported slowdown in discretionary consumer spending. We recognise that we may face a wider economic slowdown, but we expect to be less affected than other sectors as interest amongst our core customer base of hobbyists remains strong. In the UK our mix of distribution channels means that we are not reliant on a few dominant retailers and we are able to retain our pricing power. However it should be borne in mind that during the first half of the new financial year the Lima business will be incurring overheads, prior to sales revenues starting to flow in the autumn. Therefore as anticipated it is likely that Group PBT will be depressed in the half-year to September 30th 2005, although not for the year as a whole.
Finally I would like to take this opportunity to thank the entire Hornby team for their efforts in delivering another successful performance during the year. It is testament to their efforts that we have made considerable progress on positioning Hornby for the next important phase of its growth.
Neil Johnson Chairman
3 June 2005