As losses are expected to escalate to between £5.5m and £6m this year, bosses believe it is possible the group will breach the covenants of its banking facilities in March. Discussions are ongoing with lenders, but Hornby is hoping the “long and supportive relationship” it has enjoyed with its banks in the past can continue.
The mechanics behind the profit warning come down to an absolute decimation of sales post-Christmas. Like-for-like sales had been tracking 17 per cent ahead in the run up to the festive period but fell off a cliff – specifically moving into negative territory – in January. Management hopes sales will recover in February and March but even if they do, it won’t be enough to prevent trading losses widening.
The international business isn’t faring much better either. A restructuring there is largely complete, but a like-for-like improvement of 5 per cent still fell short of expectations.
All of this provokes doubt about the longevity of companies like Hornby which have tried to stay loyal to their original customer base. Unfortunately, questions have to be asked about how big that customer base actually is, and whether new generations of customers can be found.
