Hornby toy firm in battle to stay on right track

Oil enthusiasm bubbles to the surface again as ‘Gatwick Gusher’ starts producing

The stock market was brutal in its response to the departure of Hornby chief executive Richard Ames this week: as his exit was announced, shares in the famous toy train company surged by almost 40 per cent.

That’s despite the fact that no successor has been appointed; in the eyes of investors, it seems, having no chief executive is more attractive than Ames continuing in the role.

Chairman Roger Canham would take over running the company “for the foreseeable future”, Hornby said. Quite how long a future the company has is hard to say.

Hornby can trace its roots back to 1901, when founder Frank Hornby first applied for a patent for his "educational devices for young people" and went on to make his first toy train set in 1920.

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Glitches

However, in recent years it has struggled against a number of problems, ranging from unreliable suppliers in China, to computer system and stock management glitches.

These have led to a number of profit warnings, the most alarming of which came last week when Ames warned that losses for the year could reach £6 million (€7.7 million).

This is larger than had been feared but even more alarming was the disclosure that Hornby was in talks with Barclays over a potential breach of its banking covenants. It owes Barclays about £9 million and the crunch could come as early as next month.

Last week Ames spoke of the “long and supportive relationship” Hornby has with Barclays but, if the bank decides to pull the plug, it is hard to see how the business could survive.

Hornby’s shares hit a new low of just 19p after the news and, even after the bounce sparked by the chief executive’s departure, they are still trading at little more than 35p, valuing the household name business at just £20 million.

Along with its train sets business, Hornby owns some of the best-known brands in the toy business: Airfix model plane kits, Scalextric car racing sets and Corgi model cars.

The crisis at the company sparked a lively debate on social media, as grown-up fans of its brands debated the excellence, or otherwise, of its latest models, such as the Scalextric James Bond Spectre set and a new Flying Scotsman train.

There were also encouraging words for the business from former Top Gear presenter James May, a firm fan of Corgi car models since his childhood.

After the shares crashed, May took to Twitter to rally support for the company among his 2.55 million followers: “We must save Hornby. Buy a train set today. Every home should have one. #ForTheNation.”

Selling more train sets won’t hurt, but at this crucial stage in the company’s struggle to survive, the only support that really counts will come from its bankers. Let’s hope they’re as enthusiastic about the business as May and his fans.

Gatwick oil rush

Thirty miles south of London and best known for its international airport, Gatwick is an unlikely location for an oil rush. But excitement around the so-called Gatwick Gusher has bubbled up again in the City as an onshore well close to the airport at Horse Hill produced its first oil on Monday.

Announcing the test results, exploration group UK Oil and Gas (UKoG) could barely contain its excitement. The oil had flowed from 900m (3,000ft) below ground level to the surface without any extra help from the operators and at a better than expected rate of 463 million barrels a day, 10 times more than had been expected.

UKoG said it expected large quantities of oil can be brought to the surface, sending shares in the exploration group up almost 80 per cent at one stage as the market calculated how the find could transform the company’s fortunes. They later closed 40 per cent higher, at 1.93p a share.

It’s not the first time the Gatwick Gusher has hit the headlines: last year, the shares surged even higher but crashed to Earth as doubts set in.

UKoG's then-chairman, Australian entrepreneur David Lenigas, stepped down after claims that Horse Hill could be a "multibillion barrel" find were deemed premature.

However, he now looks to have been vindicated and demonstrated his delight yesterday with a triumphant tweet declaring "a new energy era of prosperity for the UK". It was illustrated with a picture of a grinning, Stetson-wearing Larry Hagman, aka Dallas oil baron JR Ewing.

Fiona Walsh is business editor of theguardian.com