Hornby share price dips as it warns on full year profits, revenues despite turnaround plan building steam
Shares in Thomas & Friends manufacturer Hornby fell almost six per cent to 91.25p in early trading, after it admitted full year profits and revenues will be lower than expected as it attempts to build up steam on its turnaround plan.
The group is expecting to make a "disappointing" pre-tax loss of £2m this year, although it could be less "depending on how long it will take the new teams in the international businesses to recover their performance levels".
This lower-than-expected performance is down to efforts made by Hornby, which raised £15m during the summer by delisting and placing 16m shares on Aim, to get the company back on track as quickly as possible.
In the UK, it has moved to a modern warehouse near Canterbury, which is managed by DS Logistics, and rolled out a new ERP system. This did have a "significant adverse impact on trading during July and August", but since the start of September performance has improved.
Revenues for the 10 weeks to 8 November were up nine per cent on last year, and the UK business is now "well positioned for a strong end to the third quarter," Hornby said, buoyed by key lines such as a James Bond Spectre-themed Scalextric.
Hornby has also decided to fire up its European turnaround plan quicker than expected, with the supply chain restructure already taking place and the ERP system being rolled out across Italy, Germany and France this month.
"The amount of short-term disruption to our sales revenue caused by the changes will now be significantly greater than previously anticipated, in addition to the product supply issues previously announced," the company admitted.
"As a result, the board now expects that the impact of the European restructuring on the group's financial performance will mean that the revenue and profit for the current financial year will be lower than market expectations but will recover next year."
Chief executive Richard Ames said: "The performance of our UK business since we modernised our distribution set up has been very encouraging and this demonstrates that the strategy to turn Hornby around is working. Since the implementation of the new ERP system, we have further improved the platform on which we can build the group's recovery. Whilst there has been a short-term impact, we are already seeing the tangible benefits of these changes.
"Buoyed by the recent improvement in UK performance, we have now taken the decision to accelerate the reorganisation of our European businesses. While this will impact upon this year's performance, we will be unlocking significant year on year cost savings and the board is confident that the accelerated plan will leave us very well placed by the end of the financial year."