Hornby Regulatory News (HRN)

Hornby Plc ("Hornby" or "the Group")

Interim Management Statement

Hornby Plc, the international models and collectibles Group, is today updating shareholders on trading for the period from 1 October 2013 to date, which includes the important Christmas and January period.

Business Performance 

As a result of the supply chain issues detailed below, the Group sales for the financial year are now expected to be below current market expectations and below the total for last year. However, on a like for like basis excluding sales of Olympic product we expect them to be in line with last year. The Group now expects a breakeven performance at the underlying pre-tax level in respect of the year to 31 March 2014. Due to supply delays, we also continue to suffer losses on the sterling value of currency held to purchase our products which is now a total close to £1 million in the year to date and will therefore lead to a £1 million loss overall.

The issues highlighted in recent statements have continued to impact the business, particularly around the supply chain. Arrangements have finally been agreed in the last week with the long standing major supplier of model railway product for a managed exit from trading with them. This will lead to all of our remaining tools and moulds being made available to our other manufacturer partners. As a result we expect the final production from that supplier to be completed in July 2014. The agreement will also result in Hornby making a payment of around £0.6 million for materials, work in progress and components that will be released to us. It is expected that a significant amount of this payment will be written off in our accounts this year.

Whilst this is a positive step towards achieving a number of balanced strategic partnerships with our suppliers and will reduce the supply side risk in the business, the continued slippage in product supply has impacted further the expected results for the current year. We now expect the annual total of model rail purchases for the year to be approximately 61% of our budget in the UK and 68% in Europe. This compares to expectations of 88% and 80% respectively when we issued our half year results. Despite the supply side difficulties and some continuing weakness in demand in the economy generally, sales in December were reasonably strong, particularly for Airfix, QUICK BUILD and Pocher and the new model rail product we have had delivered has sold through well.

The Group traded in the last quarter within its current banking covenants. Net debt at the end of December 2013 was £6.5 million compared to £8.0 million at the end of September 2013 and £3.0 million at December 2012.

Outlook

The Board remains focused on the Group's strategy set out in the Group's Annual Report, especially now that the legacy supply chain issues with our historic supplier have been agreed. We recognise that retail trading conditions in the UK and the rest of Europe continue to be challenging but we are working to provide appropriate support to all of our distribution channels.

Product innovation is also continuing and at the London Toy Fair this week, we showcased our major product introductions for 2014. Our new category initiatives include:

· The launch of Scalextric RCS™ - the ultimate slot car Race Control System that allows users to wirelessly create and manage races through the use of a handheld smart device. We were delighted that Scalextric RCS™ was awarded the London Toy Fair's 'Best New Toys 2014' under the hobby category.

· Further extension of the Airfix QUICK BUILD range. Since the award-winning range was launched at last year's Toy Fair (Best New Toys 2013 hobby category), a further four sets have been launched for 2014 including the QUICK BUILD Lamborghini Aventador which won the Toy Fair's 'Best New Toys 2014' construction category.

· A brand new series of model kits and gift sets have been launched by Airfix to commemorate the WWI centenary, WWII and D-Day 70th anniversary and the 50th anniversary of The Red Arrows. Corgi has also launched a WWI Centenary Set to mark 100 years since WWI.

· For the first time since its official re-launch in September 2013, Pocher model kits were showcased at this year's Toy Fair. The new Pocher 1:8 Model Kit Lamborghini Aventador LP 700-4 (available in orange HK100 and white) comprised of over 600 parts is available now.

Hornby will announce its preliminary results for the year ended 31 March 2014 in early June.

Executive Chairman, Roger Canham commented:

" Whilst the outlook for the year is disappointing, we have used this year of management change to make some important decisions that we are optimistic will enable us to return to growth. Importantly, we have now reached a conclusion with our previous major supplier. I am confident that this draws a line under this painful period of the Group's recent trading. The Board is encouraged that from here, we will have a more solid supply base from which we can grow our market share in the UK and European markets. Whilst the retail sector remains challenging, we have the strength of brands and an exciting pipeline of product launches to enable us to restore Hornby's financial performance in the years to come."

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Date: 24 January 2014

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