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Model toy maker Hornby cuts its profits forecast

If spending on Hornby's iconic train sets and Airfix models are a bellwether for UK consumer confidence, then the prognosis is not good.

The company, which also makes the Scalextric car racing toy, cut its profits forecast yesterday, blaming flagging UK demand and delays from manufacturers in the Far East.

Annual pre-tax profits, to be published in June, are expected to be between £8.75m and £9m, higher than the £7.7m taken the previous year but missing estimates of £9.2m. And sales will be £56m, 19 per cent higher than the year before but still short of targets.

Dresdner Kleinwort described the news as "disappointing" – downgrading the group's stock from "buy" to "add", and predicting full-year 2008 sales down by £2m because of the supply-chain issues, rather than the £1m estimated earlier. Hornby's strategy is right but a 13.5 per cent estimate cut is unlikely to be taken lightly by the market, says the investment bank.

The shares fell by 7.8 per cent to 189.5p by the end of the day.

But Hornby says it sees continued strong demand in Europe, and has high hopes for the autumn launch of products related to the new James Bond film, Quantum of Solace.

"We are pleased with the overall health of our business in this increasingly difficult economic environment," said Neil Johnson, the chairman of Hornby. "While we expect the economic environment to remain challenging, we are confident we enter the new financial year with the right platform to continue growing."

Andrew Wade, a retail analyst at Seymour Pierce, said: "While the Hornby story is a good one, this is clearly disappointing and is yet another bottom-up indicator that UK consumer spending is on the wane."