Hornby warns over larger-than-expected full-year loss

There was more bad news for Hornby on Thursday as the AIM-listed model train set maker warned that full-year losses are likely to be bigger than it had expected.

The company, which makes the iconic Scalextric toys, said that the reduction in discounting and a continuation of late product deliveries in the international segment, and a disappointing sales performance over the key Christmas “had an equal impact upon the underperformance of the business”.

“We now have some visibility into the outcome for the full year and because of the revenue shortfall, the underlying loss after tax is likely to be larger than the board's expectations,” it said.

Hornby had announced last October that it would no longer offer for sale large quantities of stock at a discount as it looked to maximise the value of its brands over the long term. It said on Thursday that while there has been “overwhelming support” for the move, rebuilding the trust in the pricing architecture takes time and some of its retail partners are taking longer than others to accept the new approach.

It said the new management team have made a significant impact on the ongoing cost base reducing fixed overheads by £1.7m since joining, with further procurement efficiencies to come as the group reorganises its supply chain towards mutually beneficial partnerships.

Interim chairman and chief executive officer Lyndon Davies said: "We remain committed to the strategy that was outlined in the half year results. We are already starting to see evidence of positive momentum in the pre-orders for our new product ranges that were announced at the beginning of the year as well as old retail partners re-engaging following the end of the discount-era.

“The design and production cycles are long in this business and whilst we are excited about the products we have in the pipeline, it will take time for the new products to come through and for the trust with our customers to be fully rebuilt.

“The change in strategy has meant that the Christmas trading period was tough and there is likely to be some more volatility as we find out how off-peak trading performs for the first time in years without discounting. Despite this, we are determined to weather the storm and come out the other side with stronger brands, loyal customers, a leaner cost base and a better foundation from which to build a profitable and growing business."

At 0940 GMT, the shares were down 7.3% to 21.96p.