Toymaker Hornby is on track to solving its supply chain problems following a deal to exit trading with a long-standing major supply of model railway product.
In a management statement for the period from 1st October to date, Hornby said that as a result of these supply chain issues, group sales for the financial year are 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 problem arose more than a year ago whenmodel railway supplies from the group’s largest supplier in China, “reduced considerably after their decision to close down the main factory supplying Hornby and transfer activity to another that didn’t have the experience of producing our products.”
Since then Hornby has been working to diversify its supplier base. It said that the agreement with the supplier “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.”
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.
“While 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.“
The supply chain disruption means that Hornby now expects the annual total of model rail purchases for the year to be approximately 61 per cent of budget in the UK and 68 per cent in Europe.
“This compares to expectations of 88 per cent and 80 per cent respectively when we issued our half year results.”
Executive chairman, Roger Canham said: “While 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.”