Shares in toy maker Hornby sharply down after profit warning

Toy maker Hornby plc (LSE:HRN) saw its shares fall more than 40% today after announcing that the company will not make a profit this year.

Hornby has blamed disappointing sales of London 2012 merchandise, as well as a disruption to supplies from China, for its weaker performance.

The company had produced a range of commemorative products, such as model taxis and buses, to mark the London 2012 Olympic Games and at the start of the summer it had high expectations for their performance. However, in the end sales were lower than forecast. This was attributed to a large quantity of Olympics merchandise from other licensees and deep price discounting by retailers.

The supply problems relate to a Chinese supplier that is in the process of rationalising its manufacturing facilities. Although this supplier accounts for up to 35% of Hornby’s purchases, this has been reduced from around 75% four years ago. Hornby noted that it is continuing to diversify its supply base in China and in India.

Macro-economic factors are also impacting on Hornby’s performance, with consumer spending still depressed and retailers continuing to buy cautiously, the manufacturer said.

Last year the company made a profit of GBP4.5m.

Hornby’s directors now believe that its results will be approximately break-even for the financial year ending 31 March 2013. The company noted that it continues to benefit from a strong balance sheet. Net debt at 31 August 2012 was GBP7.8m, down from GBP14.3m a year earlier.

Looking ahead, Hornby said that its performance would be “constrained significantly” in the current financial year but the company would be focusing on cost control and has also stepped up its efforts in innovation and product development.