Hornby’s Christmas fails to meet high expectations

In its update on trading for the period from October to date, Hornby reported that following more difficult trading conditions in the first half, the company continued to experience cautious demand from its major retailers in the UK during the pre-Christmas period. Consumer demand remained muted during November and early December. However, demand improved in the weeks immediately before Christmas. This continued immediately following Christmas and overall trading in December was significantly above the previous year. European demand was encouraging as our brands and new releases continued to be well received, although the performance continued to be constrained by supply issues. For some time, Hornby has been experiencing and reporting difficulties with its main supplier in China. They came to a head during the Autumn, said Hornby, and eventually resulted in the acquisition of that supplier by a Hong Kong based company. “During the period of uncertainty we remained closely engaged in the developing situation in order to reduce the risk of further disruption to supplies. The eventual outcome represents a stabilisation of our supply base and we have been encouraged by the positive relationship we are building with the new owners,” the company stated. Hornby says it now expects a strong finish to the financial year, although sales lost in the Autumn and pre-Christmas period were unlikely to be recovered. Despite the lower trading expectations, the company said it was in good financial healthand continued to operate within its banking facilities and enjoy an excellent relationship Looking ahead, the Margate-based company which also owns the iconic Airfix, Humbrol and Corgi brands, said it had raised prices in order to mitigate the effects of the weak pound and it appeared that these increased prices would be accepted by the market. However, unless Sterling strengthened, margins in the year to 31 March 2010 would be eroded and further price increases might need to be made later in the year. In conclusion, chairman, Neil Johnson said: "Our strategy of expansion in Europe and across additional hobby-based brands continues to provide a broader revenue and profit base. We are pleased with the performance of the group in what was generally a difficult pre-Christmas period. Strong demand in the early weeks of 2009 gives us further confidence that our hobby-based businesses will continue to demonstrate their defensive characteristics in what is likely to continue to be a challenging economic climate."