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James May urges nation to 'save Hornby' as shares plunge 62%
Hornby boss quits after third profit warning in five months
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The former Top Gear presenter James May has led the calls to rescue Hornby after the maker of model trains, planes and cars, warned that it faces a battle for survival.
The company’s origins can be traced back to 1901, when Frank Hornby, the founder, applied for a patent for an invention he described as “improvements in toy or educational devices for children and young people”. He then went on to create Meccano and Hornby’s famous collection of model trains. The company now also owns Airfix, Scalextric and Corgi.
However, Hornby has suffered a torrid period in the last few years due to falling sales, problems with suppliers in China, and disruption from upgrading its computer and stock management systems. The Kent-based company warned on Wednesday that its problems had worsened significantly since the start of the year. Sales of Hornby products fell in January in the UK and the company has also discovered that it needs to write £1m from the value of its stock.
These factors mean that Hornby is now expecting to record an underlying pretax loss of between £5.5m and £6m for its financial year, far larger than expected, and there is a risk that the company will breach banking covenants in March. If it does so, there is a risk that Barclays, its bank, could call in the debt, threatening the company with collapse. Hornby has roughly £9m of net debt, all with Barclays.
Richard Ames, chief executive of Hornby, said the company had a “long and supportive relationship” with Barclays and is in talks about the potential breach. “This has been a real year of change at Hornby,” he added. “Undoubtedly this is a disappointing result, but we have a strong portfolio of brands that we are determined to see flourish.”
In response to the statement, May tweeted: “We must save Hornby. Buy a train set today. Every home should have one. #Forthenation.”
Shares in Hornby collapsed nonetheless, closing down 62% at 31.75p. The drop represents the worst day for Hornby’s shares since it floated in 1986. The company is now valued at just £17.4m.
Analysts said that Hornby was struggling to be relevant in the modern toy industry, but that it could still have a future. Robert Haigh at Brand Finance, which monitors the health of leading consumer brands, said: “The toy industry has experienced profound change over the last three decades, with digital media and video games being the most transformative force. Interestingly, we had seen sales of ‘traditional’ and construction toys strengthen recently, and Hornby enjoyed fairly good sales in the runup to Christmas.
“Its long-term prospects are by no means bleak, and there is enduring demand for the types of toys it creates. However, in order to create sustainable brand value growth and increase revenues, it will have to focus attention both on marketing investment and a broadening of its range.”
Hornby has now warned on profits three times in the last five months. It has been beset by problems as Ames has tried to modernise the business by upgrading computer and stock management systems. The overhaul caused UK sales to fall sharply over the summer and affected Hornby’s European business.
Other recent problems for Hornby have included sales of London 2012 Olympic merchandise coming in well below expectations and disruption to a supplier in China preventing its products from reaching shops.
However, Hornby enjoyed a promising end to 2015. Sales in November and December increased by 17% year-on-year in the UK on a like-for-like basis, and the company received a promising response to its 2016 range of products when it launched them last month. These include Corgi Thunderbirds models based on the original TV series, wooden toy Hornby trains, and Scalextric Arc Pro, which lets model car racers drive through different simulated weather conditions and share their results on social media.
The drop in sales in January is thought to have been caused by cautious retailers choosing not to restock their shelves with Hornby products after the Christmas period.
Ames said: “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.”
The Hornby boss said the board will press ahead with plans to modernise the company, but will analyse the “causes and consequences” of the fall in sales this year. Ames said the company would update shareholders on the board’s revised expectations for Hornby’s outlook in due course.
This article first appeared on www.theguardian.com
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