Update on Trading and Transformation Plan

Hornby plc ("Hornby" or "the Group")

UPDATE ON TRADING AND TRANSFORMATION PLAN

Hornby Plc ("Hornby"), the international hobby products group, is updating shareholders on progress made so far in its turnaround strategy.

The Group has made significant progress in implementing changes to its business model to modernise product sourcing, improve management of the supply chain, upgrade the logistics, warehousing, stock control processes and accelerate the distribution routes to customers. This, together with the rollout of the new ERP system, has required major investment and resulted in disruption which has had a significant impact on the trading performance of the business, as previously disclosed on 8th December last year.

UK Trading

In the UK the Group saw a strong sales performance in the key November and December period as sales opportunities were maximised in the run up to Christmas. Like for like sales in this period were up 17% overall year on year, though this masks some volatility within the period. However, subsequent trading since the start of the New Year has been in stark contrast, with a disappointing response to January product promotions combined with poor underlying sales resulting in negative year on year revenue growth and sales for the month being substantially below expectations. While we are expecting performance in February and March to improve on January, it will not reach previously anticipated levels.

International Trading

As disclosed at our interims, there has been a significant reorganisation of the management and distribution operations of the European subsidiaries. The impact of this has been that trading in the international businesses was disrupted last autumn as the restructuring took place. Hornby is now through the main period of major disruption. Improved sales in the last two months have reflected the changes that have been made to the logistics, stock handling and distribution operations and like-for-like sales across December and January combined were up 5%. Despite this being the first positive like for like sales performance this financial year, this is still significantly behind the Board's previous expectations.

Financial Performance

The Group now expects to report a substantially wider trading loss than previously forecast in this current financial year. The team has also conducted a full stock take at the Group's consolidated warehouse in Hersden and a balance sheet review following the reorganisation of the European subsidiaries which will result in a £1.0m write off. The disappointing sales performance experienced in the New Year is expected to result in a trading profit deterioration of between £2.5m - £3.0m, with approximately half due to UK performance. In total the Group is now expecting to report an underlying loss before tax in the range of £5.5m - £6.0m, which represents a substantial setback in our recovery plan for the business.

As a result the Directors consider there to be a risk that the Group will breach a covenant of their banking facility in March 2016. The Group has enjoyed a long and supportive relationship with its lender, with whom it is currently in discussions. 

The Directors are continuing to execute the Group's turnaround strategy. At the same time, the Board is now analysing the causes and consequences arising from this poor start to the new calendar year. We will update the market on the Board's progress and our revised expectations for the financial outlook for the business in due course. 

Richard Ames, Chief Executive of Hornby commented,

"This has been a real year of change at Hornby. Undoubtedly this is a disappointing result, but we have a strong portfolio of brands that we are determined to see flourish.

"The feedback from customers at the recent International Toy Fairs was encouraging and we are facing the future where, with the right platform, we can build value for our shareholders and drive the Group's recovery."

-ends-

Date: 10th February 2016

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