Hornby sees 2010 revenue up 10-11 pct

LONDON Fri Jun 5, 2009 4:23pm BST

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LONDON (Reuters) - Toy maker Hornby (HRN.L) expects its 2010 full-year revenue to rise 10 to 11 percent and said it has reduced its dependence on a troubled Chinese supplier after disruptions hit profits last year.

Hornby reported on Friday a pretax profit of 6.1 million pounds for the 12 months to March 31 2009, down from 9 million in the same period last year, and scrapped its final dividend, despite revenue rising to 61.6 million pounds from 55.7 million.

Chief executive Frank Martin told Reuters he expected sales to continue to increase significantly as the company focuses on growing its stable of venerable toy brands including Airfix, Scalextric and Corgi.

"The guidance that we will be giving in terms of full-year to March 2010 will be something in the region of sales of about 68 million pounds," Martin said in an interview.

Hornby said it had proved resilient to recession thanks to its focus on hobby-related toys.

The greatest period of difficulty had been between July and November when the Chinese supplier of model railways, Sanda Kan, faced what Hornby described as serious financial problems.

"When Sanda Kan began to have problems we started to look around to diversify our production requirements and as a result of that we now have an additional three potential manufacturers of model railway products," he said.

Martin said Hornby would continue to use Sanda Kan as the supplier was now under "the ownership of a well-financed Hong Kong trading company."

Hornby had looked into buying the supplier but lost out having incurred due diligence costs of 221,000 pounds.

The 32 percent fall in the 2009 full-year pretax profit was also due to the volatility of the British pound against the Hong Kong dollar, the currency in which most of its purchases are made. The company scrapped its final dividend in order to "strengthen an already healthy balance sheet."

Numis analysts said: "Current trading is strong with NPD (market research) data suggesting that group sales were double-digit ahead through first quarter," adding that the business was benefiting from the demise of Woolworths, a High Street retailer popular with parents looking for cheaper toys.

Numis said it expected gross margins for the next year to be down around 250 basis points as sterling weakness comes through, but saw opportunities going forward.

Shares in Hornby, which have plunged more than 40 percent over the last 12 months and lost two thirds of their value since early 2007, were up by 1 percent at 98 pence by 3:34 p.m..

(Editing David Cowell and Rupert Winchester)

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