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25 September 2012 09:56
Toy company Hornby said today that sales of its London 2012 branded goods failed to live up to expectations, leading it to warn on profits.
The group, which makes model railways, Scalextric racing cars and also owns the Airfix and Corgi brands, has been hit by weak consumer spending amid the recession and saw profits fall from £4.5 million to £3.4 million in the year to March 31st.
The company admitted that demand for London 2012 items such as model taxis and buses had been lower than expected and with major disruption at one of its largest suppliers in China, Hornby expects to break even this financial year.
Hornby said that, despite early demand for Games-related products, the presence of substantial quantities of other London 2012 goods meant sales failed to deliver and retailers were forced to slash prices to shift stock.
"Retailers lost confidence in many categories of London 2012 merchandise and repeat orders for our products were cancelled," it added.
The group said it would be "constrained significantly" in the current financial year, but would keep a tight lid on costs and had "redoubled efforts" in product development and innovation in order to turn sales around.
Hornby is also looking for other suppliers in China and India after one of its main manufacturers announced it was rationalising its facilities.
The Chinese supplier accounts for more than a third of Hornby's purchases, although the firm said it had already reduced this from around 75% four years ago.
Hornby said: "The current disruption is part of a painful process but we believe that, working with all our suppliers, we will be able to work through this process to arrive at a more balanced supply base for the future."
The firm had put its hopes in Olympics fever to help revive flagging UK sales, which fell 4% in the last financial year.
Trading was stronger in Continental Europe and North America, which helped wider group profits rise slightly from £4.4 million to £4.5 million.
Sales of Scalextric racing cars were the worst hit during the year, but the group plans to reignite interest with the recent launch of its Star Wars-based range and introduction of a number of products celebrating the 50th anniversary of the James Bond franchise.
It also has high expectations for its range of Corgi toys, including a product based on ITV children's series Olly The Little White Van.
