Model railways to Scalextric slot car racing firm Hornby Plc (LON:HRN) has said its full-year revenue performance was slightly ahead of its plan, with the fourth quarter “showing an improving trend” and the group moving into a net cash position.
In a trading update for the period from 6 February to the end of its financial year on 31 March, Hornby said it is focused strongly on improving cash flow and at the year-end it had net cash on the balance sheet of £1.1mln, against net debt of £7.2mln a year earlier, which was ahead of management's expectations.
The group pointed out that 2017 has been a year of transition and, as previously stated, the firm was loss-making during this period, in line with its expectations.
WATCH: Hornby "back on track", says ETX Capital analyst ...
READ: Hornby steams higher as restructuring completes …
Steve Cooke, CEO of Hornby, said: "I am pleased to report that the first stage of our turnaround plan has been successful and this provides a strong base from which Hornby can build.”
He added: “Coupled with the considerable improvement in our financial position, I am confident that we have set the Group on the right course to generate value for all our stakeholders.”
On track …
Hornby said it has “restructured its UK and European operations, resulting in structural improvements to the cost base, and has re-engaged with its core independent retailer base as part of a re-positioned sales channel strategy.
“The product range has been rationalised and re-focused which has allowed Hornby to reduce capital expenditure and improve working capital.”
The group added that it is “confident in the business' underlying trading momentum as it embarks on the next phase of its turnaround plan.”
It concluded: “Having placed the Group on a solid financial footing, Hornby's focus is now on realising the full potential of its iconic brands.”
In a previous trading update, released on February 7, Hornby had said that its full-year revenue is expected to decline by 20% to 25% year-on-year.
It had added that group revenue was down 25% over the Christmas period, with UK revenue falling 21% due to its move to slim down its product range and exit concession arrangements in the UK.
Shares spark higher ...
In early morning trading, Hornby shares initially soared nearly 14% higher, before settling back with a 6.5%, or 2.0p gain at 35.0p.
Numis Securities reiterated a ‘buy; rating and 38p price target on Hornby shares.
In a note to clients, its analysts said: “Hornby has reported an encouraging FY trading update, detailing the progress with structural changes in the business (continuing to progress as planned) and revenue growth slightly ahead of plan.
“We leave our FY17 pre-tax loss estimate unchanged and continue to expect a return to profitability in FY18.”
Meanwhile, Neil Wilson, senior market analyst at ETX Capital, pointed out: “Last February the stock plunged 53% in a single day after a third profits warning in 5 months. It claimed the scalp of chief executive Richard Ames and left it close to breaching covenants with lenders.”
He added: “It’s now in the middle of a painful turnaround strategy, building on an £8m placing last July that, in tandem with some help from lenders, has offered it some room for manoeuvre. The scale model maker has to be smaller to survive.
“So today’s news that it’s made solid progress on the turnaround is encouraging. It’s completed structural improvements to the cost base, scaling back inventories and cutting investment.”
The analyst added: “Its ‘iconic’ brand has value for oldies but does an Airfix model Spitfire quite set the pulses racing like they used to?
“Under Ames the group began swapping Spitfires for Lamborghini Aventadors but growing out beyond the core, older hobbyist base is going to be tough. Chugging along managing a slow and steady decline may be all that Hornby can hope for.”
-- Updates share price, adds further broker comment --