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Toy maker Hornby sees pretax profit fall

British toy maker Hornby reported a 32 percent fall in annual pretax profit as a weak British pound and continuing disruption to supplies of its model railways from China offset robust sales growth.

The company said in a statement yesterday that demand for its toys, including venerable brands such as Airfix, Scalextric and Corgi, continued to grow but that it had decided to scrap its final dividend to bolster its balance sheet.

Hornby posted a pretax profit of 6.1 million pounds (US$9.8 million) for the 12 months to March 31, down from 9 million pounds last year despite a revenue rise to 61.6 million pounds from 55.7 million pounds.

"This has been a challenging year for Hornby," Chief Executive Frank Martin said in a statement. "As a result of the weak pound and continuing supply chain issues, our profits and margins have come under pressure."

The company said its board had recommended no final dividend payment because of sterling's volatility against the Hong Kong dollar, the currency in which most of its purchases are made.

Rising sales showed Hornby's resilience to recession thanks to its focus on hobby-related toys but problems with its main supplier in Chinese mainland remained a source of frustration, Martin said.

The greatest period of difficulty had been between July and November when the supplier faced what Hornby described as serious financial problems due to debt it had been carrying since a heavily leveraged buyout by venture capitalists in 2004.

Hornby said it had looked into buying the supplier, incurring due diligence costs of 221,000 pounds, but that in the end it had been sold in January to a "well-resourced" and "well-established" toy supplier in Hong Kong.

"Without doubt the key focus for management is to ensure that our supply chain issues are resolved on a sustainable basis," Chairman Neil Johnson said.

The firm said demand for its products had strengthened since Christmas and had remained strong despite the global economic downturn.

Hornby said it had recently signed an exclusive licence pact with the Brawn GP Formula One team and agreed a deal with Disney Productions on the animated movie "Cars" and extended a James Bond 007 licence to include its Corgi toy cars.


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