Hornby loses steam as model train maker de-couples from main supplier

The model railway engine maker Hornby has reported another distinctly unimpressive set of results, warning that "supply chain issues" mean it expects sales for its financial year to be below current market expectations and down on last year’s total.

Speaking at Davos this morning, Prime Minister David Cameron said that Hornby will be moving some of its manufacturing from India back to the UK.

Chairman Roger Canham has said that, while the year looks "disappointing" for the group, it’s been a time to make "important decisions" that will enable it to return to growth.

In an update on trading since 1 October, Hornby, which also makes Scalextric and Airfix kits, said that issues with suppliers - it agreed last week to end trading with its major supplier - has continued to impact expected results for the current year.

It’s also seen it having to make a £600,000 payment to the supplier for materials and work-in-progress, much of which will be written off.

Hornby has managed to slightly reduce its net debt to £6.5m at the end of December, compared to £8m at the end of September 2013 and £3m at December 2012. It's also managed to cut some spend:

We now expect the annual total of model rail purchases for the year to be approximately 61 per cent of our budget in the UK and 68 per cent in Europe. This compares to expectations of 88 per cent and 80 per cent respectively when we issued our half year results.

The severing of ties with historic supplier does at least leave the group freer to built other relationships and improve its supply chain, said bank Numis in a note this morning.

And the upheaval it's seen hasn't been too detrimental on sales. Despite "weakness in demand in the economy generally", and "challenging" trading conditions in the UK and Europe, sales remained strong.

Canham added that the toy maker has some an "exciting pipeline of product launched" which will "enable us to restore Hornby's financial performance in the years to come."