Hornby on track for Olympic glory

Model railway maker Hornby yesterday insisted the supply chain problems that caused its full-year profits to slump by one-fifth have been resolved in time to meet an expected boom in demand for London Olympics merchandise.

Profits fell 21 per cent to 4.1 million in the year to 31 March, partly due to a lack of products because of the supply problems and also the severe weather at the end of last year, which affected crucial Christmas trade.

The hobby firm - which also owns Airfix, Corgi and Scalextric - admitted there have been shortcomings in its supply chain for a number of years, but said it took on additional staff in Hong Kong and China to sort out the production issues and, with additional suppliers now on stream, it does not expect supply problems in the current year.

Sales for the year dipped 1 per cent to 63.4m, but this included very little from the Olympics range, which includes taxis at 4.99 each andbigger items such as a model Scalextric Velodrome at 69.99 and a 200 limited-edition train set.

Chairman Neil Johnson said the Olympics would have long-term benefits in respect of both distribution and product diversification. He added that the current rate of sales was encouraging with a significant portion of business from outside London.

The group has a new range of model racing cars due for launch based on the forthcoming animated film Cars 2, while it has also won the slot racing rights to the Star Wars franchise, which is currently being converted into a 3D format.

Chief executive Frank Martin added that new licence wins have given the group an "outstanding opportunity to appeal to a new generation of "hobbyists" and represents a major opportunity to grow our business".

The company held its total dividend at 5p.

House broker Numis upgraded its recommendation on Hornby shares from "add" to "buy" following the full-year results.

Analyst Andrew Wade said: "Hornby's full-year results were broadly in line with our expectations at the end of a challenging year.

"However - with supply issues apparently resolved, a strong European order book, Olympic product sales accelerating and a significant new licence win - the outlook is encouraging."

Wade added: "We cautiously edge down our 2012 pre-tax profit forecast from 7.8m to 7.4m but expect the business to make further progress in 2013 and forecast profits of 8.2m.

"The maintained dividend leaves the stock yielding 4 per cent and on just a multiple of nine times earnings and we move from 'add' to 'buy'."

Shares closed up 14p at 133p.