Hornby Annual Results year ended 31 March 2018

[BWsTrains]

You are slightly off the point here about who buys what.

 

It is collectors who probably make up 75% of all sales of model locomotives. Not modellers who buy the occasional "out of period/location" anomalies because they are shiny and pretty; These are people who's hobby is collecting!

Probably true, it would help to explain why so many poor running RTR models get sold and tolerated. My and others' woes with the re-engineered Dean Goods is just one of many recent examples.

 

If the majority of sales were going to those who actually run not "collect" that situation would not be tolerated for long. Perhaps they should just leave the operational bits out for collectors and have a "RTC" category release? Think of the savings!

If so, I admit to being amazed that Collectors are such a big component of all Loco sales.

 

Colin

Edited June 21, 2018 by BWsTrains

[The Black Hat]

While some of the collectors / modellers discussion is interesting, it’s a slight tangent away from the issues that Hornby are facing. Yes, both kinds will purchase models, it’s the end purpose for how they wish to use them that makes them different. Some might want some of a particular area or type, but both can buy them in whatever quantity they would like.

The main issues behind the sales performance of Hornby is the emergence of new entrants into the sector, such as DJ Models, Oxford, Rapido, Hattons. Here they are getting a market share, and together they are taking a sizable amount of market share that would have previously been shared by Hornby and Bachmann. With less market share customers get choice but still have the same amount of cash that they had at their disposal. If some of these entrants get sales on new models and engines, that means less for Hornby that have engines in ranges that have been available for some time. Engines like the West Country could have been bought for a while and most people like a nice new model to buy and join the collection/locomotive pool they have on their layout. New entrants also means that they are likely to get the sales as they have the new or novel factor to add to a range that you own, where as you probably already have some of the engines in the larger ranges that Hornby and Bachmann produce. While they too will bring out new models they also still do more runs of others that have been done before.

 

This then leads us to the next issue. Market saturation. While the ranges that Hornby do offer a lot of scope, there are some regional areas that have been given more across the range than others. (Please note that this is not a case of me lobbying for more NE Region stuff, its just pointing out a trend that’s noticed). Coupled with the popularity and accuracy of the main poll done via RMWeb and others, its pointing to the Southern region being really popular. You look at the new entrants coming into the sector and many of them are picking off the smaller Southern region tank designs that bring a new design and tooling that can be popular and profitable yet avoid the risk by doing a bigger engine. A lot of these look great and are welcome, but it again diversifies the customers wanting designs from that area and simply put, very few will buy all of them. It is another risk to the likes of Hornby and Bachmann who have larger engines that have been successful over time, but commissioned again due to the popularity of that region overall bringing in better return sales. This will not happen if there are new entrants with new models all pushing releases around the same region. There has been the Dock Tank, Radial, E1, P-class, 02, plus others I will have missed but all done recently. While some modellers might be more regional specific due to these heading towards pre-grouping territory, I can still see these as being popular and good sellers due to their size and cost is more akin to what some people expect to pay for an engine, or the price of what they are accustomed too for a model (even if it was bigger previously) before. I also think a factor is that the Southern region is more compact, so people collect or model it more generically than some areas of larger regions, like the Midland, where some will model an area that is particularly more LNWR, for example.

 

All this means that engines that Hornby have put out knowing that previous sales have been good and demand for the area is strong, are actually not selling as well as they could or have been before as there are too many for people to buy. This compares with an area like the Midland who have not had a new model for their region upgraded to the standard the Duchess model did for sometime. As a result there was a pent up demand there and Hornby tapped into it. The result was well priced models flying off the shelves and giving Hornby cashflow. Instead of Southern being really popular but crowded, others need to look elsewhere or rebalance the range. Bachmann have a stronger and more varied range overall, which again leaves Hornby exposed. Some of the formers are more generic workhorses which can churn out sales after sales, such as Bachmanns diesels range, like 20, 37, 47. That will mean selections from other regions but also models from other periods. There are some areas of the current scene that could welcome new models, such as Northerns new units. Hornby still have plenty of other steam engines and stock they could go for, but the J36 is the way to go to diversify their range and tap areas where demand exists but is less well catered for, such as Northern Eastern, North Western and Scottish steam and BR blue / sectorisation period. Even the odd first gen DMU might be a project that Hornby could do. Hornby were the company that were great at the Southern region, but others have moved into that area too. To find areas of sales and get models that sell and get that cashflow going, Hornby need to look elsewhere and diversify while still producing a model for the Southern region to continue statisfying the popular demand there too. Its not an easy task, but that’s where Hornby need to go.

[Seanem44]

Bachmann seem to be doing quite nicely think you without a direct channel (although I allow that they have also announced some 'retrenchment', in particular delaying/postponing some new releases).  If Bachmann can survive OK relying on retail channels, I'm not sure that I see the overriding imperative for Hornby to go down the direct sales route.  And, much as I dislike the argument, you yourself pointed out that they tried it before and it didn't work - arguably it led to some of the problems they are now experiencing, if only the (hopefully) one-off hit to profits from ceasing the unpopular discounting strategy.

In fairness, Bachmann has a fairly robust presence here in the states, and numerous other lines like Spectrum.  The market here in the USA is helping them out.  Hornby doesn't quite have that luxury.  Bachmann is more of a global company, whereas Hornby is much smaller in a global sense. 

 

As I see it, Hornby has two options.  Either try to branch out and capture market elsewhere.  That requires risk and capital, both of which they can't afford.  The other is tighten up, reduce staff, cut lines, make smaller quantities, etc...

[Phil Parker]

Probably true, it would help to explain why so many poor running RTR models get sold and tolerated. My and others' woes with the re-engineered Dean Goods is just one of many recent examples.

 

If the majority of sales were going to those who actually run not "collect" that situation would not be tolerated for long. Perhaps they should just leave the operational bits out for collectors and have a "RTC" category release? Think of the savings!

If so, I admit to being amazed that Collectors are such a big component of all Loco sales.

 

Savings? Less than a fiver. Now if you left off all the fiddly bits the collectors want and have to be attached labouriously, THEN there would be savings. 

 

I am fascinated by this 75% are collectors figure. Does anyone have a source for this other than "finger in the air"? If there is, I'd be very interested to know more.

[jjb1970]

I don’t think being listed or not makes much difference given Phoenix has 70odd%. Whether listed or not, the key is whether their lender is satisfied that they are progressing back to profitability. Looking at the figures, I too am amazed that they got finance. I think it will be very heavily Covenanted and if there is a hiccup, the lender may well look to enforce and sell stock/tools/Brands to recoup their cash.

 

David

 

I wonder if the dire results explain the slightly unusual choice of lender for their latest credit line?

[The Stationmaster]

I don’t think being listed or not makes much difference given Phoenix has 70odd%. Whether listed or not, the key is whether their lender is satisfied that they are progressing back to profitability. Looking at the figures, I too am amazed that they got finance. I think it will be very heavily Covenanted and if there is a hiccup, the lender may well look to enforce and sell stock/tools/Brands to recoup their cash.

 

David

 

And of possibly even greater interest/puzzlement are a couple of things on the Hornby RNS.  On the day of statement, 19/06/18, Kirstie Gould, the CFO of Hornby PLC purchase 41,276 ordinary shares in the company at 24.107p per share having not held any shares prior to that purchase.   Similarly Tim Mulhall, listed as 'Senior Manager PDMR' purchased on the following day 19,604 shares at 27.8p per share giving him a total holding of 19,604 shares.  So two senior people in the company purchased almost half of one per cent of its shares within two days immediately following the statement.

 

What do they know that nobody else knows?  She lashed out c.£10,000 and he spent c.£5,500 which in both cases is probably a fair amount of money to lay out and I doubt it came from any sort of bonuses(?).  Seems a strange time, and a considerable leap of faith, to buy into a company which has bet its future against heavily secured debt unless they were simply looking to see the share price rise (which it has, she has a paper profit - gross - of c.£160 as at close of trading today)

[The Stationmaster]

Savings? Less than a fiver. Now if you left off all the fiddly bits the collectors want and have to be attached labouriously, THEN there would be savings. 

 

I am fascinated by this 75% are collectors figure. Does anyone have a source for this other than "finger in the air"? If there is, I'd be very interested to know more.

 

I think one first needs to define 'collector'.  In reality I'm sure that it is a coat of many colours that comes in numerous sizes.  Theoretically if you buy more locos or whatever than your layout needs to be operated realistically or prototypically you could be defined as a collector and not as an operator; if you are 'putting models by' for your next project are you a realist, a planner, an astute purchaser, or a hoarder, or a collector? Does the fact that I model the WR and like pannier tanks - among other things - make me a collector of pannier tanks because I have more of them than are ever likely to appear over a single operating session let alone simultaneously?

 

All of these things, and no doubt others, are as much a sort of collecting as setting out to buy all the Hornby R numbers or every loco issued under the NCIM label and never running any of them.  The fact that things not bought just to sit safely stored out of the light or in a display case doesn't mean they aren't collected or being collected.  Pure, if such a term can be ascribed to anyone, collectors are those whose collection must have one of everything whoever issues or of one particular theme and I would think their numbers are very limited indeed nowadays.  But a small item of fact - some years back when a pal of mine was running a model shop his standing order with Hornby was for 25 of all new locos plus whatever else customers happened to place a pre-order for; of the 25 almost 20 of them went to the same group of people every time because they all had a standing order with him for every new loco which Horn by issued be it new tooling, new running number, new livery or even the same running number with a new  R number.  The bulk of his regular Hornby loco order was therefore for collectors not that every business would have been like his I am sure.

 

So what you might define as a 'collector' could be very different from what somebody else, or Hornby, defines as a collector.   And while Hornby frequently use the term it's really like many other things about the detail of their business - we don't actually know what they understand the term to mean.

[Phil Parker]

 

So what you might define as a 'collector' could be very different from what somebody else, or Hornby, defines as a collector.   And while Hornby frequently use the term it's really like many other things about the detail of their business - we don't actually know what they understand the term to mean.

 

That's part of the problem. However, the post said "It is collectors who probably make up 75% of all sales of model locomotives. Not modellers who buy the occasional "out of period/location" anomalies because they are shiny and pretty; These are people who's hobby is collecting!", so I'm assuming (hoping?) that the 75% figure has a basis which includes a definition of the term "collector".

[jjb1970]

I suspect one of the problems with trying to make sense of collectors is that it is such a diverse hobby (as is railway modelling in general) and many collectors have very specific interests and/or a very narrow focus. And as with a lot of hobbies it can defy rational analysis. I'm a collector myself, as a collector I like North American and Japanese HO brass diesel and electric models, I'm very free ranging within those two interests but have pretty much zero interest in collecting other stuff (I do not count my OO and Italian HO as collecting as those models are working models I play with). You could put all sorts of weird and wonderful stuff in front of me that I'd drool over but unless it was useful for my trainset to go with my OO area of interest or Italian HO I wouldn't buy it.

[LBRJ]

The "approximately three quarters" of the market been taken by collectors seems to be a generally accepted figure and has been for quite a long time.

Conversations I have had with diverse model shop owners/staff over the last 30 years pretty solidly back that figure up, to me.

 

Two quotes from two chaps who have had shops go together quite well as one

"They never really run em you know" and "when they do run them they lubricate with 3in1 and then bring them to me to mend"

 

I suppose "Collector" is hard to define though Mike Stationmaster has done a good job a couple of posts up thread.

 

My own pet definition is using an acquaintance of mine who had £15 grand's worth of N gauge in a huge walk in store room, but he modelled in OO - I really don't think he could refuse himself more!

[adb968008]

.

Edited November 6, 2018 by adb968008

[jjb1970]

This is where it gets interesting in terms of factories, do you stay in China and manage cost inflation, or swallow the investment needed to build up a capability somewhere else (India? Burma? North Korea?  ) and make the transition. Initially such a transition will be difficult and need some effort, but you may actually own your factory and take back control of manufacturing, reduce costs and after a short term dip come out well ahead. Unfortunately I don't think Hornby have anything like the ££££££££'s or time to do that, but others might do it.

[adb968008]

.

Edited November 6, 2018 by adb968008

[BWsTrains]

I wonder if the dire results explain the slightly unusual choice of lender for their latest credit line?

Slightly unusual perhaps but all should perhaps be grateful they didn't have to go thru Mr V.M. Varga for their extra funds!

[robmcg]

...

 

The financial report indicated that Hornby are at mercy of gaps in production to get stuff made.

 

...

 

Certainly productions slots are more expensive than was the case a few years ago.

 

That is to me the big question about Hornby's survival... will it find a way to trade profitably with such constraints as expensive and/or unreliable production facilities?

[robmcg]

They could just be matured stock options ?

 

I think the sudden flurry of trades will decline in the next few days, as will the share price again.

 

I honestly don’t think the worst is over yet, indeed I think this time next year we will be looking at figures (YE2018) being worse than this years, though if the strategy is right, that could well be the bottom.

 

Why ?

1. Where is everything, most new toolings are pushed to end of year, but not necessarily guaranteed.

2. This years range is smaller than last years, last years was smaller than 2016’s.. which we saw a £12m decline in sales and maintaining a £10mn loss. As it stands i’d Expect the loss to grow as the sales continue to decline, even if the margin improves.

3. If they offload resources to reduce costs, it comes at a higher short term cost.

4. If they are planning to tool up and produce their way back to higher sales numbers, they are going to need to spend considerably upfront.

 

However the plan seems to suggest FY2020 as being the pivotal year and FY2019 should be a turning year.

 

If I was an uninterested rational observer I would say that Hornby should de-list and put together the existing highly skilled designers and marketers under the same name but wholly different structure using whatever capital can be brought together to invest in specific smaller operations and markets, such as each of the various Hornby brands. I think this is sometimes called decentralisation, re-structuring, re-focusing.

 

I think the expected lowish numbers by this time next year may well enforce such a change, the company having rather expensive management operating a significantly lower turnover, on top of increased debt. Otherwise a wealthy investor might? buy the whole thing out under a full re-organisation. IOW buy the brand and keep it in business, but not as the existing PLC, probably making other products as well (shudder).

 

The optimist in me would be more like LD's report, 'we will do it!'  AKA 'reduce costs, increase margins, concentrate on core business'., he mercifully left out the 'going forward'. ...  the subscript of LD's report was that it was going to get worse before it gets better.

 

But this is too much like crystal-ball gazing.  If Hornby would hire me as a consultant systems analyst/soothsayer my fees are very reasonable, and would be well justified as part of an ongoing review with modest one-off amortisation fees..    (sorry, my history of brinksmanship with life itself leaves me with an excess of inappropriate humour at times)

[robmcg]

They could just be matured stock options ?

 

I think the sudden flurry of trades will decline in the next few days, as will the share price again.

 

I honestly don’t think the worst is over yet, indeed I think this time next year we will be looking at figures (YE2018) being worse than this years, though if the strategy is right, that could well be the bottom.

 

Why ?

1. Where is everything, most new toolings are pushed to end of year, but not necessarily guaranteed.

2. This years range is smaller than last years, last years was smaller than 2016’s.. which we saw a £12m decline in sales and maintaining a £10mn loss. As it stands i’d Expect the loss to grow as the sales continue to decline, even if the margin improves.

3. If they offload resources to reduce costs, it comes at a higher short term cost.

4. If they are planning to tool up and produce their way back to higher sales numbers, they are going to need to spend considerably upfront.

 

However the plan seems to suggest FY2020 as being the pivotal year and FY2019 should be a turning year.

 

If I could pin point a turnaround... i’d link it to the return of the Clan, aside of a retooled Princess all express steam has been retooled in recent years and this is one with pent up demand.

 

If Hornby were sweating toolings with minimal investments, a Manor body on that Grange chassis, an Original Scot body on the rebuilt, a Saint on the Hall chassis and many others that make use of chassis/tenders that they have in store, or new tenders for variants without, on stuff that’s ***at least*** 3 decades old. Stuff tooled up from the 90’s I’d steer clear... i’d Like a County, but suspect demand won’t be there until the real one steams.

For new toolings i’d Go with coaches, as mentioned earlier. I still think there’s space of an 0-6-0 industrial tank, the Hudswell Clarke is still fair game in my book, but sweat the Peckett first.. and with other variants of the W6 too.

If it’s black and an 0-6-0, make sure there’s lots of livery variants and well known preserved examples.

 

Of course if there is no new money and the funds in place are for business as usual... then I predict business won’t be usual for that much longer.

 

Amen to the above.

[nathan70000]

Wasn't they an American manufacturer who had a profitable side-line in making dog food bowls? (Athearn I think)

 

Just a thought!

[Clearwater]

I wonder if the dire results explain the slightly unusual choice of lender for their latest credit line?

Yup - I think so...

[Clearwater]

And of possibly even greater interest/puzzlement are a couple of things on the Hornby RNS. On the day of statement, 19/06/18, Kirstie Gould, the CFO of Hornby PLC purchase 41,276 ordinary shares in the company at 24.107p per share having not held any shares prior to that purchase. Similarly Tim Mulhall, listed as 'Senior Manager PDMR' purchased on the following day 19,604 shares at 27.8p per share giving him a total holding of 19,604 shares. So two senior people in the company purchased almost half of one per cent of its shares within two days immediately following the statement.

 

What do they know that nobody else knows? She lashed out c.£10,000 and he spent c.£5,500 which in both cases is probably a fair amount of money to lay out and I doubt it came from any sort of bonuses(?). Seems a strange time, and a considerable leap of faith, to buy into a company which has bet its future against heavily secured debt unless they were simply looking to see the share price rise (which it has, she has a paper profit - gross - of c.£160 as at close of trading today)

Typically in listed companies, your legal/compliance team will ban you from trading in the period between year end and announcement of results if you have a job where you are likely privy to what the results will be. You almost certainly have “insider knowledge.” However, if you take a senior role in a listed company, it’s not uncommon for you to be required to use your own money to buy shares. Why should you expect anyone else to do so when you don’t? Why, if you don’t have confidence in the value increasing, wouldn’t you buy shares? As such, I don’t read anything o to those people buying shares at this point.

 

David

[dogbox321]

As my Economics Professor used to say "The Highest monopoly profit, leads to the quietest life!"

 

Unfortunately, whether due to "genuine" actual cost rises, pure greed, or a combination of both - the fact is that Bachmann and Hornby are loosing market share and sales, to the newbies in the market.  The prices now being charged have allowed others to enter the market and offer new products.  Whether price rises have been voluntary or because the suppliers are demanding a bigger cut, they have both been complacent, in believing that they could charge what they like.  This has opened the flood gates to a considerable amount of competition and ultimately regards choice, the modeller, collector, or whateverr they want to call themselves, has never had it so good.  However for anyone wishing to model a train, then costs have jumped astronomically! - A considerable barrier to entry and to new blood entering the hobby - and in all honest to anyone starting out now, unless they were loaded, I'd recommend choosing another hobby!  The other issue that no one seems to have picked up on is the internet and E-bay - I think this has had a very significant part to play too - those manufacturing model trains have been able to see "EXACTLY" what people have been prepared to pay for model railways, and ultimately, I feel the Chinese manufacturers have wanted to cash in on this scenario, by increasing prices..

 

People have been predicting that the "bubble" will burst for many a year, but as time as progressed, more new entrants have entered the market.  I think its going to become more "Survival of the fittest", with technological innovation key to delivering products at the highest quality and price, whilst most products  will have shorter and shorter lifecycles, as choice becomes greater and greater.

 

On a positive note for Hornby, and perhaps its greatest strength is, that when it wants to, it can produce models with the highest levels of finesse.  When Hornby are on the ball, I don't believe any other manufacturer can quite get to the standard that Hornby can attain.  There is just a certain quality.

 

Regards,

 

C.

[LBRJ]

It seems to me, when I think about it, that Hornby are (or rather were, at the last round of musical chairs) running a large but very much diminishing company with *cough* grade executive officers who had found their level.

The "opposition " are hyper skinny start-up type organisations who recognise and then apply modern practices to maximise profits from a much smaller turnover.

 

Its a bit harsh, but I see a lumbering cart horse trying to get away from hungry wolves, while the carter just sits there and smiles as he looks at the friendly puppies following him.

Edited June 22, 2018 by LBRJ

[jjb1970]

In terms of hobbies and costs, is railway modelling really that expensive?

 

Very few hobbies are cost free, even something like walking needs shoes which will wear out a lot quicker if you go out all day walking. If I look at other hobbies and interests I don't see model railways as being that expensive, and in a way it is almost as cheap and certainly as expensive as you want it to be. I hate to use the word "need" in relation to models as nobody needs a model. You need food and water, you want models. However, if we accept it for a moment, you need remarkably little to build and operate a small layout and even for a larger layout you don't need a fleet of hundreds of locomotives and coaches. There are plenty of good models which can be picked up at good prices S/H and if people don't like buying S/H then some shops still have good bargain sections and the Railroad range offers basic models which can be made very presentable with a little effort. If you want to buy every locomotive released or have a fleet of 100's of locomotives (and if you can afford it, why not? I'm nt criticising that) then yes it is an expensive hobby but in such cases it is expensive because people want it to be expensive.

 

My boy plays ice hockey, I spend more on that than I spend on model trains, and quite a bit of that expensive kit needs to be renewed periodically if for no other reason than he is still growing. Paying into the fund to run the team, match fees, going around the country for games, often meaning weekends away etc, it all adds up. My wife is into cake making and needle craft, you might think they were cheap hobbies but I'd dispute that based on how much she seems to spend. I work with people who play golf, and what they spend on golfing makes model trains look very low rent (especially when I look at what some Japanese people spend on golf). Yes, you can play golf cheaply by going to a municipal course and hiring some clubs for a round, that's not what keen golf players do. I guess people on this board are fully aware of how expensive photography can become if you get serious about it. I enjoy cycling and I'd rate that as more expensive than modelling. In most of these hobbies there is a similar dynamic as for modelling in that to some extent they're as expensive as you want them to be.

 

None of this is to say I haven't been bemused by some of the reasons we've seen offered for model prices over the years and I am probably a bit of a cynic on that score, however as a hobby I wouldn't see cost as a factor to dissuade people from entering the hobby.

[Ozexpatriate]

While some of the collectors / modellers discussion is interesting, it’s a slight tangent away from the issues that Hornby are facing. Yes, both kinds will purchase models, it’s the end purpose for how they wish to use them that makes them different.

Yes, I find it a bit ironic just how much of the last couple of pages was spent on defining "collector". It's on topic - given the reference in the executive statement, but it's well trodden ground with little consensus.

 

The main issues behind the sales performance of Hornby is the emergence of new entrants into the sector, such as DJ Models, Oxford, Rapido, Hattons. Here they are getting a market share, and together they are taking a sizable amount of market share that would have previously been shared by Hornby and Bachmann.

(My emphasis.) I agree and disagree with you here. Increased competition is a real marketplace change and there is no question in my mind that it is a contributor.

 

The turning point in Hornby's fortunes was the shuttering of the Sanda Kan factory. This, in my opinion, was the proximate cause of all their troubles.

 

They had all their manufacturing eggs in one basket. When JP Morgan dumped all their acquisition debt on Sanda Kan, leading to the sale to Kader after the 2008 credit crunch, Hornby continued to do well. Even after Kader/Sanda Kan dumped most of Sanda Kan's customers, Hornby continued to do well. During this period they produced fine models with high quality.

 

The bottom fell out when Kader closed the Sanda Kan factory in the wake of industrial disputes and rising wages. Hornby had to scramble to find alternative suppliers and they have not yet recovered financially.  (The Olympics souvenir diversification decision didn't help either.)  Initially there was very uneven quality control compounded by worse "design clever" decisions.

 

The emergence of more widespread commissioning approaches by companies with far lower overheads than Hornby had it's greatest impact as Hornby scrambled to bring multiple suppliers online. Happily quality has returned, but Hornby has no real operational advantages (other than their expert design team) over their more nimble competitors.

Edited June 22, 2018 by Ozexpatriate

[Ozexpatriate]

My boy plays ice hockey, I spend more on that than I spend on model trains, and quite a bit of that expensive kit needs to be renewed periodically if for no other reason than he is still growing. 

I suspect that ice hockey and ice skating are far and away the most expensive pursuits for children. The combination of costs for kit and ice time is staggering.  (I have a couple of colleagues whose children pursued these sports over the years and have heard their stories.)