24th Jan 2014 08:01
LONDON (Alliance News) - Toy maker Hornby PLC Friday warned that its full-year revenues will be below expectations and it will book a loss due to ongoing supply chain issues, even though it said demand was reasonably strong over its key Christmas trading period.
The maker of model railway sets, Scalextric model car racing sets, and Airfix modelling sets, said it expects to post a GBP1 million loss for the financial year to end-March as it books losses on the money it is having to hold to buy its products. The loss on the sterling value of that money is currently about GBP1 million, it warned.
It said revenues will be below market expectations and below the GBP57.4 million figure it posted for its last financial year.
It had warned in previous statements that it was suffering supply chain problems and was trying to improve the reliability of its manufacturers. Its long-standing major supplier closed the factory which made the Hornby model railway goods, forcing the British company to look for new suppliers.
Hornby said Friday that it has finally agreed arrangements to cease trading with the long-standing supplier that had closed the plant, meaning that its tools and mould will be available to its other manufacturing partners. It expects final production by the supplier to be in July.
As a result of the end of supply agreement, Hornby will make a GBP0.6 million payment for materials, work in progress and components that will be released to it. It said a significant amount of this will be written off in the current financial year.
"Whilst this is a positive step towards achieving a number of balanced strategic partnerships with our suppliers and will reduce the supply side risk in the business, the continued slippage in product supply has impacted further the expected results for the current year," it warned.
It said it now expects annual model rail purchases to be about 61% of its budget in the UK and 68% in Europe. That's well below the 88% and 80% figures, respectively, it had set out in its half-year results.
"Despite the supply side difficulties and some continuing weakness in demand in the economy generally, sales in December were reasonably strong, particularly for Airfix, QUICK BUILD and Pocher, and the new model rail product we have had delivered has sold through well," it said.
Despite the problems, Hornby managed to cut net debt to GBP6.5 million by the end of December, from GBP8.0 million at the end of September and GBP3.0 million at the end of December 2012.
"Whilst the outlook for the year is disappointing, we have used this year of management change to make some important decisions that we are optimistic will enable us to return to growth," Chairman Roger Canham said.
"Importantly, we have now reached a conclusion with our previous major supplier. I am confident that this draws a line under this painful period of the group's recent trading," he said.
By Steve McGrath; [email protected]; @SteveMcGrath1
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