Hornby aims to accelerate in Spain as market in UK stalls

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Hornby, the model train and Scalextric slot car maker, expects the bulk of its sales growth this year to come from Continental Europe.

Hornby, the model train and Scalextric slot car maker, expects the bulk of its sales growth this year to come from Continental Europe.

Frank Martin, the chief executive, is hoping to replicate the success the company has had in the UK from moving production to China in countries such as Spain, Italy and France.

After another year of double-digit underlying sales growth in the UK, Mr Martin warned: "We are not expecting huge growth out of the UK." He is budgeting on sales growth of 10 to 12 per cent across the group, of which just 2 or 3 percentage points will come from the UK. Within five years, the group hopes to generate half of its sales from outside the UK, up from 25 per cent last year.

Mr Martin was speaking as the group reported an 11 per cent rise in pre-tax profit to £7.2m on sales up 15 per cent to £45m.

Hornby is seeking to exploit two recent acquisitions in Italy and Spain, which per capita is the world's biggest slot car racing market. It has secured exclusive rights to use images of the Spanish Renault Formula One driver Fernando Alonso on its slot car racing packaging in Spain.

Mr Martin said: "Spain has a strong indigenous core of slot car manufacturers. We intend to go back and aggressively market our brands there after moving production from Europe to China." Hornby gained a 10 per cent share of the Spanish slot car racing market last year after buying Electrotren.

The one weak spot across the group was its US arm, which fell into the red. Hit by the weak US dollar, which priced some of Hornby's imports out of the reach of its customers, it made losses of $141,000 (£77,800) compared with profits of $128,000 the previous year.

But Mr Martin sees the US market, which is new to the attractions of slot car racing, as a big opportunity. The group recently opened its first store there, on the West Coast in Washington State.

Although the UK is in the throes of a consumer slowdown, Mr Martin said he had faith in the group's core target market of model train and slot car enthusiasts. He pointed to an underlying 14 per cent rise in sales across its 121 in-store concessions in the first five months of this year as proof that demand for the group's products was not suffering. "We have reasonable confidence that our core hobbyist marketplace will remain robust," he said. Hornby said licensing would remain a very important part of its business. It has secured the licences to make products related to the next Harry Potter and Batman films.

The group warned that its first-half profits would be hit by the cost of reviving Lima, the Italian business it has acquired. It expects to recoup the rise in overhead costs during the second half.