The company said it is at risk of breaking a lending agreement with its bank after receiving its third profit warning in five months.
Following the announcement that Hornby was at risk of breaching one of its loan covenants with its bank, Barclays, the company’s shares plunged by almost half to 42p. It has lost more than 60% of its value since late August before the company began issuing a series of warnings about trading.
Hornby said that revenue fell in January as a result of stockists in the UK not responding to product promotions. Trading outside the UK was also disappointing in December and January.
As the result of poor trading and a £1m write-off of stock at its warehouse, Hornby expects to lose £5.5m to £6m in the year ending in March. In November, the company predicted a £2m loss as it warned on profit for the second time in two months.
Hornby has been beset by problems as it has tried to revamp its business by upgrading computer and stock management systems. The overhaul caused UK sales to fall sharply over the summer and affected Hornby’s European business, which was also hit by problems getting products made in China onto shop shelves.
In a trading update, Hornby said: “The group now expects to report a substantially wider trading loss than previously forecast in this current financial year. As a result the directors consider there to be a risk that the group will breach a covenant of their banking facility in March 2016. The group has enjoyed a long and supportive relationship with its lender, with whom it is currently in discussions.”
The company had reported that business in the UK had recovered from the summer disruption and underlying sales rose 17% in December. Hornby said its directors were investigating the reasons for the poor start to this year.
Richard Ames, Hornby’s chief executive, said: “This has been a real year of change at Hornby. Undoubtedly this is a disappointing result, but we have a strong portfolio of brands that we are determined to see flourish.”
Former Top Gear host James May is leading calls to save toy manufacturer Hornby. Following the announcement that the company was facing an uncertain future, May tweeted that “We must save Hornby. Buy a train set today. Every home should have one.”