For five years, Hornby (HRN) has been battling supply problems in China. In 2007, a single supplier there produced three-quarters of Hornby's products - it was bought by a private equity firm, loaded with debt, and subsequently went into receivership in 2008. Hornby tried to buy it but was out-gunned. The new owner has since decided to rationalise the business, while efforts to switch production to other Chinese manufacturers is taking plenty of time to achieve.
The upshot is that Hornby found itself £3m-worth short of model railway sets for its key European market in the period - which helps explain the slide into losses at the half-year stage. Indeed, European sales slumped 30 per cent. Moreover, London 2012 merchandise didn't sell well - performance there was described as "disappointing" by management. Although London 2012 business did help UK sales to rise 3 per cent in the period - strip them out and UK sales would have actually fallen 15 per cent. Still, working capital reductions helped the net debt pile fall from £12.8m last year to £6.5m.