Hornby slumps to a loss

The Margate-based maker of Airfix, Scalextric and Corgi models posted pre-tax losses of £3.4 million in the year to the end of March from £4 million profits a year earlier after “disappointing” sales of London 2012 merchandise and problems with Chinese suppliers.

But the company insisted it was in a “strong position to face the future” as it bolsters its supply chain and cuts costs by axing its dividend.

Hornby, which traces its roots back to the start of the 20th century with the launch of Meccano building toys, plans to make a new range of Airfix Quickbuild model kits in Sussex, and also recently returned some of its Humbrol paint production back to the UK.

Executive chairman Roger Canham said: “We are looking very carefully at costs, and also it’s about quality of product and speed to market. It’s the total picture we look at and not just the bottom line.”

The bulk of the company’s products are made by external suppliers in India and China, but Mr Canham said it plans to lift domestic production to around 10%. Hornby is also shifting more work to India.

Hornby’s supplies were squeezed during the year when its biggest manufacturer in China shut a factory supplying its model railways. Mr Canham said it was also hurt by a 15% increase in China’s minimum wage.

“The economics of sourcing our products from China continue to be affected by reducing availability of labour and increasing costs,” he said.

Turnover slumped to £57.4 million from £64.4 million as the supply squeeze added to tough markets.

Hornby’s ill-fated London 2012 Olympics range lost £1.3 million on sales of £5 million.

It said sales of Hornby model railways slumped by 26% during the year and Scalextric sales fell 8%. Airfix sales edged up, but a 40% surge for Corgi products was largely down to sales of the loss-making Olympics merchandise.

Dividend payouts of 3.7p per share last year have been axed and it cut costs by £700,000 during the year.

Hornby added its search for a new chief executive continues and former boss Frank Martin will stay on until June 2014 to help the transition.

Hornby employs around 250 people, with 150 of these in the UK.

Analysts at house broker Numis Securities said the company is taking a “back to basics” approach.

They said: “With substantial progress having been made on the supply chain and a reshaped senior management team, we look for Hornby to begin rebuilding profitability as it fully leverages the quality of its brands.”