Hornby Regulatory News (HRN)

Hornby Plc ("Hornby" or "the Company")

Trading Update

Business performance

The Group's overall business performance is being adversely affected by a number of factors.

Macro-economic factors continue to depress consumer spending and retailers continue to buy cautiously.

Sales of London 2012 merchandise were lower than forecast. Whilst, prior to the Games, major account listings for our products were strong, and consumer purchases were encouraging, the major retailers had also purchased substantial quantities of London 2012 merchandise from other licensees. Faced with lower than expected sales, the major retailers resorted to deep price discounting. The consequence of this for Hornby was that retailers lost confidence in many categories of London 2012 merchandise, and repeat orders for our products were cancelled.

In our Trading Update dated 26th July 2012, we indicated that one of our significant suppliers in China had informed us of plans to rationalise its manufacturing facilities and that this may result in disruption to shipments. This process is ongoing and it is now clear that the disruption to our supplies for the remainder of the financial year will be substantial. We have made solid progress in recent years to diversify our supply base in China and also in India. At its peak our largest supplier represented c.75% of our purchases. Over the past 4 years we have succeeded in reducing this percentage to below 35% as part of an ongoing policy to diversify our supply base. The current disruption is part of a painful process but we believe that, working with all our suppliers, we will be able to work through this process to arrive at a more balanced supply base for the future.

In view of the above, the Directors now believe that the Group will not achieve its forecasts for the current financial year and, therefore, anticipate that the Group's results will be approximately break-even for the financial year ending 31 March 2013. The group continues to benefit from a strong balance sheet. Net Debt at 31st August 2012 was £7.8m compared to £14.3m a year earlier.

Outlook

Against a backdrop of continued depressed consumer spending, a combination of lower than expected sales of London 2012 merchandise and the supply chain disruption referred to above the performance of the Group will be constrained significantly in the current financial year. Looking forward, whilst working closely with our existing vendors in China we continue to develop additional capacity in alternative sources of supply.

Against this challenging background we have redoubled our efforts in innovation and product development, building on our core brand strengths and also extending our reach based on newly developed technologies. At the same time we are implementing a rigorous cost control regime in order to align overheads more closely with our future business.

In conclusion, whilst we face some significant short term challenges, we are working hard to address these and in doing so, establish a base from which the Group can grow more securely in the future.

-ends-

Date: 25th September 2012

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