Toymaker Hornby to seek new finance deal after sales slump

The struggling toymaker Hornby has been given breathing space by its bank to nail down a new finance deal despite a fresh slump in sales.

The loss-making model railway and Scalextric maker said poor sales in the first three months of 2018 meant it had breached the terms of its loan agreement with Barclays, but the bank was not taking any action.

Hornby’s new chief executive, Lyndon Davies, said the 117-year-old company was in the final stages of negotiating a new, larger loan facility with another lender. The agreement is expected to be in place by the time the company updates the City on its annual results in June.

In 2015 Hornby shares were changing hands for over £1 but several torrid years punctuated by profit warnings, cash calls and leadership changes have had a dramatic effect on the company’s value. Things got so bad in 2016 that the former Top Gear presenter James May intervened, urging Britons to “buy a train set today” in an attempt to shore up the troubled company’s finances.

The shares have shed a fifth of their value in the past 12 months and on Tuesday closed at 23p, valuing the company at £30.7m.

Davies, who is the founder of rival model business Oxford Diecast, is the third chief executive to attempt to get Hornby back on the tracks since 2014. He was installed by the company’s majority shareholder, Phoenix Asset Management, which took control last year.

Analysts say Hornby is struggling to stay relevant in a cutthroat industry where it has to compete with toys linked to the latest blockbuster films as well as online games. Last year Toys R Us, the world’s largest toy retailer, filed for bankruptcy and its UK stores are closing after a buyer failed to emerge.

Hornby, which also makes Airfix kits and Corgi cars, made a loss of £9.5m on sales £47.4m in the year ended 31 March 2017. One of Davies’s first actions has been to stop the discounting he said had been damaging its brands. But the tactic meant sales and profits in its fourth quarter were lower than a year ago, he said.

“As the dust settles on the changes to the strategy … morale is starting to build in our hardworking staff and some trust is coming back with our retailers and customers,” he said. “Whilst we have managed to make a lot of progress in the first few months, there is still much more to do in terms of reducing costs, streamlining processes and adding routes to market.”