HORNBY PLC

Business and Financial Review • Nov 10, 2015

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RNS Number : 1148F

Hornby PLC

10 November 2015

Hornby plc ("Hornby" or "the Group")

UPDATE ON TRADING AND TRANSFORMATION PLAN

Hornby Plc, ("Hornby") the international hobby products group, is updating shareholders on progress made so far in its turnaround strategy.  Following the recent fund raising and the extension of group's banking facilities, the next stage of the plan has been to roll out the strategic reorganisation of its European businesses, whilst making further improvements to its supply chain. 

Progress of UK Turnaround

In the UK, Hornby has already improved its distribution capabilities by moving to modern warehousing premises at Hersden near Canterbury.  This large facility is being managed by a specialist logistics operator DS Logistics.  Following the successful transition to the new site, the next step in reorganising the UK operations was to roll out a new Enterprise Resource Planning (ERP) system (Microsoft Dynamics AX) in the UK business.  As we flagged at the time of our AGM in September, this has had a significant adverse impact on trading during July and August, but encouragingly since the beginning of September, the group's UK performance has been recovering.  UK revenue for the ten weeks from early September to 8 November increased by 9% compared to last year. 

The UK business is well positioned for a strong end to the third quarter.  The new ERP system has enabled Hornby to be more flexible and accurate in managing its product shipments from its supply chain.  Ahead of the Christmas period, new product lines including the Scalextric James Bond Spectre slot car racing sets have proved to be very popular. 

European Business Reorganisation

Given that the impact of the UK turnaround plan on most recent trading has been so positive, the Board decided to accelerate the strategic plan to reorganise its European businesses. This involves a restructuring of the supply chain with logistics and distribution activities being transferred to the platform being managed by DS Logistics.  The roll out of new ERP system was implemented in Spain in October and will be rolled out across Italy, Germany and France during November.

The acceleration of the plan involves transfer of the management of logistics and product supply chains to a new group structure and it has resulted in senior management changes in Italy, France and Spain as well as the UK. The amount of short-term disruption to our sales revenue caused by the changes will now be significantly greater than previously anticipated, in addition to the product supply issues previously announced. 

As a result, the Board now expects that the impact of the European restructuring on the group's financial performance will mean that the revenue and profit for the current financial year will be lower than market expectations but will recover next year. 

Outlook

While UK trading was impacted during July and August, the trend in UK revenue growth since early September has been very encouraging and it is expected that the UK business will deliver a result broadly in line with expectations for the full year.

Although it is currently expected that stock levels of European products will recover close to originally planned levels over the next two months, given the significant additional disruption caused by management changes and the expected trading impact of the ERP system roll out, European sales will now be materially lower than the original plan for the full year.

As a result it is expected that there will now be an Underlying Group Loss before Tax for the full financial year of £2.0m.  The loss could be lower than this depending on how long it will take the new teams in the International businesses to recover their performance levels. A further update will be given with the interim results.

Although this is a disappointing short term development we are fully committed to continue with the transformation programme which will provide a platform for significant growth in the medium term, and we are confident in the trading outlook for the business.

Richard Ames, Chief Executive Officer said,

"The performance of our UK business since we modernised our distribution set up has been very encouraging and this demonstrates that the strategy to turn Hornby around is working.  Since the implementation of the new ERP system, we have further improved the platform on which we can build the group's recovery.  Whilst there has been a short-term impact, we are already seeing the tangible benefits of these changes. 

"We set out in detail at the time of our recent fundraising our strategy to improve the structure of the group's operations in Europe.  Buoyed by the recent improvement in UK performance, we have now taken the decision to accelerate the reorganisation of our European businesses.  While this will impact upon this year's performance, we will be unlocking significant year on year cost savings and the Board is confident that the accelerated plan will leave us very well placed by the end of the financial year."

Enquiries:

Hornby plc                                                                          01843 233500

Richard Ames, Chief Executive

Steve Cooke, Group Finance Director

www.hornby.com

Capital Access Group                                                     020 3763 3400

Simon Courtenay

Harry Rippon

Numis Securities Limited                                             020 7260 1000

Oliver Cardigan (Nomad)

Rupert Krefting (Broker)

This information is provided by RNS

The company news service from the London Stock Exchange

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