Hornby forced to seek lender reprieve as profits and sales slide

Hornby has stopped offering discounts on large orders

Hornby, the struggling model railway maker, has been forced to appeal to its main lender, Barclays, for relief on its financial covenants after its profits plunged and the company scrambled to raise more debt. 

Barclays agreed to waive a financial covenant test on Hornby's debt, which the hobby products group would have failed after its profits were hit by delivery problems and a decision to stop discounting products.

The company said its sales began to improve in recent weeks as European customers began to receive their late deliveries but it still expects full-year profits and revenue to be down as a result of the problems.

That has forced it to ask Barclays to overlook its earnings before interest, tax, depreciation and amortisation for the three months to March, which will come in below the required target for it to meet the covenants on its debt.

The news sent its shares down 6pc to 23p in thin trading this morning.

Hornby makes Scalextric and Airfix

Kent-based Hornby, which also makes Airfix model aircraft and the Scalextric range,  has struggled to keep pace with changing tastes in toys. It issued a profit warning in January and last year it replaced management following a slew of profit warnings, a share placement and a takeover battle with majority shareholder Phoenix.

Hornby said on Tuesday it was also in talks with new lenders to raise more debt, which it expected to be in place by the time it reveals its annual results in June. At the end of its financial year, Hornby about £4m net cash.

The decision to stop discounting on large purchases was controversial, with some retailers resisting the change, and others, particularly independents, welcoming it.

Lyndon Davies, who took the helm at Hornby in October, said: "As the dust settles on the changes to the strategy and we start to put together the line plans for 2019 and beyond, morale is starting to build in our hardworking staff and some trust is coming back with our retailers and customers; both in the UK and abroad.”

All the major high street brands that have collapsed since the recession

The sector has come under pressure as many children opt for online gaming over toys. Retailer Toys R Us UK was one casualty. It collapsed into administration in February.