Hornby's Chairman's statement.

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.
Dividend
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.
Property
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 resolved.
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).
Outlook
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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