The Investment Column: Hornby's profits still off track

Hornby's profits were derailed in the 12 months to December, a reflection of one of the company's most turbulent periods since it first started delighting children (and their fathers) in 1920. Dutifully bowing to the latest stock market fashion for focused businesses, Hornby has pulled out of power boats - a wise decision given the total lack of synergy with the main business, but it came at a cost.

The disposal of Fletcher Boats to Kevin Leach, the Jersey-based entrepreneur, crystallised a pounds 4.1m loss which blew a hole in otherwise pretty respectable profits. After the one-off charge, last year's pounds 950,000 profit reversed into a pounds 3.8m loss. There was no dividend because a change in year end means the payout will be announced along with 15-month figures to the end of March.

Behind all the red ink, sales of Hornby's core products, which as well as the model trains, include Scalextric slot racing cars and Nikko Radio Control, increased by 16 per cent. Profits from the continuing operations moved ahead smartly from pounds 1.06m to pounds 1.33m.

That was offset by a pounds 379,000 loss from Fletcher and the imported toy business which is also being discontinued. Completing the clear out was a pounds 694,000 charge to cover a write-off on a 10 per cent investment in San Francisco Toymakers and a pounds 280,000 redundancy charge.

Having cleared the decks operationally and in the boardroom (the company is still in dispute over the resignation of former chief executive Keith Ness), the stage has been set for a recovery in Hornby's fortunes and could arguably open the way for a bid.

In an increasingly consolidated toy market it is not completely apparent that Hornby has the commercial clout to compete with the Mattels and Hasbros of this world. Having doubled in value over the past year, the shares, unchanged at 192p, are high enough.