Hornby losses weaken as margins take a hit

(Sharecast News) - Models and collectibles group Hornby said in an update on Monday that its underlying losses before tax had weakened in the second half of its financial year, as sales remained broadly stable and its margins took a hit. The AIM-traded firm said group sales were down 8% year-on-year in its fourth quarter, due to the earlier timing of Easter, delivery delays in the Red Sea, and the consequent postponement of high-value container movements from March to April.

As a result, group sales for the financial year ended 31 March reached £56.2m, up 2% over the prior year.

However, margins were slightly impacted due to higher tooling amortisation compared to previous years, although a modest improvement was seen in the second half.

The group said its direct-to-consumer sales showed robust growth, rising 18% compared to the prior year.

Despite challenges, the company's overall performance remained on a positive growth trajectory, consistent with recent years.

Although the underlying loss before tax weakened since the half-year mark, there was a slight improvement in profitability in the second half compared to the prior year.

That improvement occurred despite facing higher interest rate charges on borrowings and increased tooling amortisation from prior year purchases now in production.

Overall, the company said its result for the year aligned with expectations.

In terms of its financial position, net debt as of 31 March totalled £14.3m, widening from the £5.5m it recorded at the end of March 2023.

That was put down to trading losses and capital expenditure, although there was a slight improvement from the £14.6 million reported at the half-year mark.

Additionally, stock reduced by 12%, or £3m, since the half year, and remained slightly lower than March 2023 levels.

"Whilst we close the year in a loss-making position and both net debt and inventory are still too high, we have seen a marked change in trajectory since the half year and aim to continue this positive improvement throughout the current financial year," the board said of the company's outlook.

"We have invested in new sales and marketing teams, along with adding research, data and loyalty capabilities, which we expect to start improving our revenue and margins positively this financial year through the identification of new customers, opening up of new territories and launch of new product ranges.

"We do, however, remain cautious in our outlook due to the natural challenges facing a business in turnaround, and the uncertainty of the wider economic and socio-political factors affecting all businesses at this time."

Hornby said it would announce its preliminary results for the year ended 31 March in June.

Reporting by Josh White for Sharecast.com.