Hornby's Chairman's statement.

I am pleased to be able to report continued encouraging progress in the
past 12 months. In global markets which remained challenging, sales
increased by 14% to £39.0 million. Profit before tax at £6.5 million is
20% above last year's result (£5.4 million), and basic earnings per share
are up by 14% to 61.0p.
Proposed share split
It is proposed to subdivide the Company's existing ordinary shares of 5p
each (issued and unissued) ("Existing Ordinary Shares") into five new
ordinary shares of 1p each ("New Ordinary Shares"). The share split is
proposed because of the Board's belief that the share price of the
Existing Ordinary Shares, which has risen by over 600% since the
beginning of the calendar year 2001, is now at a level that might impair
their marketability and liquidity. The Directors believe that by lowering
the price at which the Company's securities are traded, shareholders will
benefit from their increased marketability and liquidity. Accordingly the
Company will be seeking shareholder approval at the Annual General
Meeting to be held on 22 July 2004 to implement the subdivision. Each
shareholder's percentage holding will not be affected and, except for the
change to the nominal value, the New Ordinary Shares will have the same
rights as the Existing Ordinary Shares.
If approved by shareholders, the share split will become effective at
close of business on 30 July 2004. Further details will be contained in
Hornby's annual report and accounts.
Reflecting the continued strength of the Company's performance your Board
is recommending a final dividend of 22p per Existing Ordinary Share. This
will bring the total dividend for the year to 30p per Existing Ordinary
Share, an increase of 20% over the 25p declared in the previous financial
year. This dividend is payable to all shareholders on the register as at
30 July 2004 and will be paid on 20 August 2004.
Business Review
All of the Company's distribution channels, both in the UK and
internationally, again showed good year-on-year sales growth across both
Hornby and Scalextric ranges, underlining the well-balanced nature of our
business. Growth in our in-store concessions, which now total 111, has
exceeded expectations. This high-visibility presence throughout the year
in major retail outlets has helped to underpin our retail growth.
As predicted in last year's report, the introduction of exciting new
products across both Hornby and Scalextric ranges has continued to
attract both positive comment and, more importantly, new business. First
of the new products introduced in the summer of last year, was Hornby
Live Steam. This exciting innovation, in both engineering and conceptual
terms, has proved highly successful. In January this year the Company was
awarded the British Association of Toy Retailers Award for "Innovative
Toy of 2003"; a distinction for a model railway locomotive! Live Steam
was available in the market place for the Christmas season 2003 and
contributed to sales and profitability in the financial year recently
ended. Other major innovations for the Scalextric ranges included MotoGP,
Scalextric Sport Digital and Scalextric Sport World. Sales of these
products will contribute to the current year's earnings.
In the United States it was again pleasing to see sales grow by 9% to
$5.4 million. Pre-tax profit was also up over 25% on the previous year.
This progress was achieved against the background of a generally weak US
economy. Our commitent to developing the US market continues and with the
advent of Live Steam a limited range of Hornby products will also be
marketed through our US distribution channels.
European Acquisitions
The Company's growth in recent years, across both Hornby and Scalextric
ranges, has been organic. The Board believes that there exist substantial
opportunities for further broadening of both product ranges and to
continue to grow profitability within our core hobby business.
Having consolidated Hornby's position in the UK over the past 3 years,
the Board believed it appropriate to explore suitable acquisition
opportunities. In the collectibles/models sector, European markets tend
to be fragmented with highly specialised operators. The opportunity to
consolidate certain parts of the market and to apply the lessons learned
by Hornby in the UK led to the announcements earlier this year of
Hornby's intention to expand into both the Spanish and Italian markets.
Electrotren S.A., based in Madrid, and acquired on 31 March 2004, is a
leading company servicing the European railway modelling sector with
particular emphasis on the Spanish and trans-European railway markets.
Since acquiring Electrotren we continue to be impressed by the incumbent
management and by the opportunities for future growth in the business.
Similarly, in Italy, your Board believes that the potential acquisition
of certain assets of Lima S.p.A (in liquidation) will provide Hornby with
the opportunity to re-invigorate the Lima, Jouef and Rivarossi brands and
the quality of their products. Lima has a tradition of producing
desirable European product in the railway modelling sector. Clearly, as
both opportunities develop, your Board will consider the marketing
opportunities for our other products in these markets.
In December last year the Secretary of State refused permission for the
development of our current Margate site as a D.I.Y. superstore. However I
am happy to be able to report that the business is not constrained by
continuing to operate from the present facilities.
Global Context
At the time of the last Annual Report it appeared that the two major
issues affecting global confidence were in the process of becoming
With our manufacturing base in China we were naturally concerned about
the potential impact of the SARS virus. This matter happily appears now
to be under control and we do not anticipate any significant related
issues. Despite the speedy conclusion of the war in Iraq in 2003 the
world continues to suffer the after-effects. In particular the impact on
oil prices is a concern to all trading operations. Your Board continues
to monitor these issues closely.
Product Development
The past year has seen some significant developments in both product
ranges, as referred to earlier in this report. Both brands continue to
focus significant resources on new product development and enhancement of
current product ranges. These initiatives will continue to bear fruit
during the coming year. We will also, of course, focus on product
improvement and development in Electrotren and Lima (once acquired).
Sales growth momentum is now well established in both the UK and our
international target markets. Trading in the new financial year has again
started well and we have a strong pipeline of new product developments to
ensure continued growth during the current financial year and beyond. Our
European acquisitions will broaden the Company's base of operations and
provide a platform from which to sell more strongly in Continental
European markets.
I should like once again to thank Frank Martin our chief executive, our
directors and all our staff for their dedicated support and hard work.
They can be satisfied that their efforts have produced excellent results.
Neil Johnson
4 June 2004
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