Hornby Plc today announced its preliminary results for the year ended 31 March 2006:-
*Pre-tax profits up 8% to £8.2 million (2005: £7.6 million)
*Turnover reduced by 2% to £44.1 million (2005: £45.0 million)
*Earnings per share up 4% to 15.64p (2005: 15.06p)
*Profits generated in newly acquired overseas subsidiaries
Frank Martin, Chief Executive of Hornby, said:
"We are delighted with the performance that the Group has delivered. This is the seventh consecutive year of profits growth. Despite the challenging backdrop of our core UK market, we have demonstrated once again the robust nature of the hobbyist market. Our international operations are now profitable and we are confident that they will continue to deliver encouraging progress in the future."
"The launch of the Scalextric Sport Digital System has been extremely successful. This major advance in technology has been further developed to offer digital control racing across a wider range of price points, thus bringing significantly enhanced play-value into the mass market for slot racing."
"One of the most significant developments in recent years has been the launch in 2004 of the Scalextric Sport Digital System (SSD). Customer reaction has been excellent. SSD is now gaining recognition worldwide as the system of choice for digital slot car racing, combining easy compatibility with existing systems and an excellent record of reliability."
"This year we have introduced a number of new products within SSD, aimed at securing wider distribution around the world, at mass-market price points. We believe that, over time, the market will move decisively towards digital control. The patented SSD technology places Hornby in pole position to take advantage of this shift in the market."
"Looking to the future, we remain confident that our overseas operations will continue to drive our growth. We are now focused on building the scale of our marketing and sales distribution, in both Model Railways and Scalextric slot car racing so that we can take advantage of the opportunities in important markets in Germany, Italy, France and Spain. I look forward to reporting further progress. The Hornby Group is in excellent health."
Decrease in Sales, Increase in Profits
While overall sales decreased by 2% to £44.1 million, pre-tax profit at £8.2 million is 8% above last year's result (£7.6 million). Basic earnings per share rose by 4% to 15.64p.
Difficult UK Trading Conditions
On a number of occasions during the year, Hornby had highlighted the difficult trading conditions in the UK market. However, as a result of early action to bring costs in line with sales expectations they were able to mitigate the worst effects of the sales downturn in the UK.
Steps were taken to broaden and diversify the Group's revenue streams which included the acquisition of a number of overseas businesses to take advantage of opportunities in new markets. These businesses have been fully integrated and are performing very well. Significantly, both the recently established Hornby Italia and Hornby France subsidiaries were able to contribute positively to Group profit in the year. The European subsidiaries in total contributed operating profits of £453,000 to the Group result.
According to Chairman Neil Johnson, Hornby expects trading in the UK market to be challenging again in the new financial year. However, the overseas subsidiaries are all now extremely well placed to become the main drivers of growth in the business during the coming years.
Neil Johnson said:
"At the London Toy Fair in January 2006 we launched the Hornby Digital Control System for model railways. This system uses similar technology to SSD and both systems will benefit from the economies of scale thus derived. In this way the Group is also able to leverage investment in Research and Development."
"The price points of the Hornby system are very competitive and the system has been designed with ease of operation in mind. We expect an increasing proportion of our model railway products to be sold as digital-enabled over the coming years. We plan to roll out the launch of the Hornby system, suitably branded, through our overseas subsidiaries at the Toy Fairs in 2007."
"The UK market for model railways represents only c.10% of the total European market. The major manufacturers in Europe have experienced difficulties in recent years as a result of their continued focus on manufacturing in Europe. Hornby embarked upon a strategy some 3 years ago to acquire a series of strong European brands that would lend themselves to relocation of manufacturing to China and the subsequent revitalisation of their European distribution."
"The first of these acquisitions, our Spanish operation Electrotren, made good progress in expanding the distribution of the Superslot brand in Spain during the year, supported by the exclusive rights in Spain during 2005 to use on slot-car racing products the image and name of Formula 1 World Champion Fernando Alonso. Consequently overall sales revenues increased significantly. However, a reduction in the number of new Electrotren model railway introductions occurred during the year, as a result of longer lead times associated with the latest high specification designs now being developed. Consequently Electrotren made a reduced contribution to Group profit during the year. New model introductions are now on track and we are looking forward to a year of significant progress from Electrotren."
"Shareholders will recall that we acquired certain assets of Lima SpA in December 2004, and subsequently commenced trading as Hornby Italia. We have made excellent progress in re-establishing this business. During the year, we have relocated the operations to new premises in Brescia, Northern Italy and commenced production in China of the first ranges. We have also improved the sales and distribution network in Europe and this has shown through in the financial results. This has been very much a year of transition for Hornby Italia, and therefore the achievement of an operating profit is particularly encouraging."
"Similarly, the achievement of a positive operating profit in Hornby France is also encouraging. We acquired the goodwill and certain assets of our French distributor MKD in December 2005, and began trading as Hornby France from 1 January 2006. The rationale for this acquisition was based on our ownership of the French brand leader in model railways - Jouef - acquired as part of the Lima assets. It was clear that the opportunity to relaunch the Jouef brand in France via a wholly owned Hornby company would deliver the best return to our shareholders. That Hornby France has been able to make a contribution to profit in its first 3 months of trading bodes well for the future performance of this subsidiary. We expect both Hornby Italia and Hornby France to produce a significantly improved performance in the new financial year."
Neil Johnson concluded:
"We expect trading in the UK market to be challenging again in the new financial year. However, the overseas subsidiaries are all now extremely well placed to become the main drivers of growth in the business during the coming years. The outlook for the Group is bright and we look forward to the future with confidence."