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Can Hornby get back on track now its boss has got the boot?

Richard Ames leaves after a stock market train wreck costs the toymaker 77% of its value in one week.

by Rebecca Smith
Last Updated: 15 Feb 2016

It’s been far from full steam ahead for Hornby of late, but it got a boost today. Shares soared 33% to 32.7p by lunchtime after deflated CEO Richard Ames announced he was stepping down. Investors won't be cracking open the Scalextric to celebrate just yet though - there's still a long way to go to recover from the 77% plunge the shares took last week.

The firm, which owns the Airfix and Corgi car brands, has had a torrid time recently. Profit warnings came thick and fast (three in five months) and the company admitted it risked breaching a lending agreement with its bank. Hornby has around £9m of net debt, with all the outstanding loans at Barclays. Breaking a banking covenant is serious business with serious consequences so the picture's undeniably bleak.

If anything it’s a surprise Ames held on so long – in November Hornby said it expected to make a pre-tax loss of £2m in the year to March 2016, compared to a £1.14m loss in 2015. A week ago, a more dire announcement warned of an underlying pretax loss of between £5.5m and £6m.

The sorry state of affairs isn’t for want of trying. It raised £15m this year by delisting and placed 16 million shares on Aim instead. The money was used to install a new stock control, sales and distribution system and a new warehouse in Canterbury. Much of this felt like a response to the stick rather than the carrot though – Hornby accelerated the implementation of its new stock control system after facing difficulties with Chinese supplies to its European outlets, hoping it would improve distribution.

The ongoing problems with Chinese suppliers and the disruption faced during the process of upgrading its computer and stock management systems dealt a hefty blow to the firm’s fortunes - alongside falling sales.

Its ‘transformation programme’, aiming to provide a platform for ‘significant growth in the medium term’, doesn't quite seem as if it's going to plan - the firm’s third profit warning came less than a week ago. Chairman Roger Canham will run the company for the foreseeable future, as Ames leaves with immediate effect after less than two years in the post.

A plea from former Top Gear presenter James May on Twitter might’ve flagged up some awareness to the model railway maker’s plight, but that's not exactly going to get the company back on track. 

Looking ahead, Hornby's troubles with its new IT platform are now resolved, and it will hope the disruption has run its course so the company can refocus its efforts on overseas growth. Recent stats from the British Toy and Hobby Association suggested that retro toys including a new-look Scalextric should boost sales to the industry, which were up 5.9% to £3.2bn last year. . So, there are glimmers of hope for the toymaker amid the gloom. Hornby will need more of that type of news to keep its future prospects from being derailed.

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