Hornby’s shares went off the rails as debts rose to £19m

Hornby shares fell more than 13 percent on Wednesday as the group revealed progress on its restructuring efforts in its latest half-year results.

The model train manufacturer’s net debt stood at £18.9 million at the end of the period, compared to £14.8 million at the same point a year ago.

Hornby said job cuts and a restructuring in September had shaved £1m from the central cost base on an annual basis, ‘with a further £500,000 in 2025’.

The group reported smaller operating losses for the first half of the financial year as the turnaround continued, advised by Sports Direct founder Mike Ashley.

Hornby said sales rose 10 per cent to £25 million in the six months ended September 30, with underlying losses falling slightly to £3.8 million, compared with £4.1 million a year ago.

The group’s pre-tax statutory losses amounted to £5.1 million, compared to a loss of £4.9 million previously.

Shares in Hornby fell 13.08 per cent or 3.4p to 22.60p on Wednesday, having risen more than 40 per cent in the past year.

CEO Olly Raeburn said: ‘We have enjoyed top sector revenue growth for five years in a row, but our return to profitability has been partly hampered by a central cost base that has grown disproportionately over the years and is fit for a larger business.’

He added: ‘In the first half of 2024 we spent a lot of time looking at structures and costs across the organization and implemented a significant workforce reduction at Margate’s head office in September.

“We continue to assess our central overheads and cost base as a whole, and there are a number of ongoing initiatives in play that will further positively impact this figure going forward.”

Raeburn said strategic and structural changes focused on operational efficiencies and cost savings may not have an impact until the next financial year, adding that “we are firmly focused on tailoring the business for sustainable growth.”

He said: ‘Year-on-year sales performance was solid, and we are ending the half-year with a clear and aggressive plan to maintain that momentum through the critical Black Friday and Christmas trading periods.’

Hornby’s digital revenues were up 12 percent compared to the same period in 2023 and 45 percent higher than the first half of 2022.

Earlier this month, Hornby revealed it had agreed to the sale of a loss-making subsidiary that makes Oxford Diecast models.

The Margate-based company told shareholders it has entered into a conditional agreement to sell its LCD Enterprises business to EKD Enterprises.

EKD, a company owned by former chairman and current non-executive director Lyndon Davies and his family, will pay £1.38 million for the operation.

The sale will see EKD take control of the Oxford Diecast brand, which was founded in 1993 and is one of the world’s largest manufacturers of 1:76 scale models.

Hornby said Oxford Diecast made a pre-tax loss of around £200,000 for the year to March 31.

In March this year, Mike Ashley said he would advise Hornby after building up a stake in the model train specialist.

The toy company said Frasers Group’s founder and majority shareholder had “entered into an advisory agreement” as it sought a financial turnaround.

Russ Mould, investment director at AJ Bell, said: ‘It’s hard to say that toy company Hornby’s turnaround is going smoothly.

‘The company continues to post losses, adding to the pressure ahead of the key trading update.

‘It will be prayed that its model railways will fill the stockings of children both big and small when it comes to the big day. A decent Christmas could give the recovery some momentum ahead of a planned logistics overhaul in 2025, which is expected to help reduce costs.”