Hornby Annual Report 2023/4

[AY Mod]

"Revenue in the year of £56.2 million (2023: £55.1 million) was 2% above the previous year. Underlying loss before tax was £7.3 million (2023: £1.1million loss). Reported loss after tax was £12.1 million (2023: £5.9 million loss).

 

Sales were slightly depressed in March compared to expectations by Red Sea delivery delays and the resultant movement of some high value containers into April.

 

Hornby group (pre-acquisition) stocks were £21.0 million (2023: £21.3 million) however total stock increased very slightly due to the acquisition of Corgi Model Club in March 2024 bringing total stock at year end to £21.5 million. Nevertheless net debt at year end increased to £14.3 million (2023: £5.5 million) due to increased overheads and capital expenditure on tooling and Wonderworks in Margate."

 

Full report attached.

HRN News.pdf

[spamcan61]

Difficult to find anything remotely positive in those numbers :-(

[Gallows-Bait]

46 minutes ago, spamcan61 said:

Difficult to find anything remotely positive in those numbers :-(

I will need to look in a bit more detail, but compared to their last published interim position from September 2023 and their trading statement of April, whilst their profitability has not changed from that initial expectation, there are some improvements.

 

 The financial statements now confirm a year end stock position of £21m, which although it remains high, is back in line with the prior year position and down from the September peak of over £24m. So they’ve reduced stock by close to 15% and freed up £3m of much needed cash during the final half of the year, which is no mean feat.
 

There’s also detail confirming TT120 represented £2.8m in sales and their best selling sets in 18 months in any scale. Sales having increased from £1.5m in the prior year, Whilst still a very small proportion of total sales, this is around 85% growth.  This is a strong footing for the scale and helps overcome fears of TT120 being a flash in the pan.  However based on the top line revenue figures, it’s pretty much all the growth Hornby have seen. 
 

Apologies, misread the TT120 in my skimming through, total sales since launch have grown to £2.8m,  of which £1.3m was in the reported year, which is still strong growth on the previous £1.5m achieved from launch to March 2023, but not as high I first indicated.

Edited July 11 by Gallows-Bait

[moawkwrd]

Are we to read into that that it's a slowdown in TT sales despite the new products launched?

 

Nov 22 - March 23 = £1.5m

 

Apr 23 - March 24 = £1.3m

 

So less on a full year basis? £300k per month down to £108k on average? I'm sure it's more nuanced and peaky than that but seems the gist of it is that those initial sets got a lot of money in but not as much follow through sales.

[froobyone]

4 minutes ago, moawkwrd said:

Are we to read into that that it's a slowdown in TT sales despite the new products launched?

 

Nov 22 - March 23 = £1.5m

 

Apr 23 - March 24 = £1.3m

 

So less on a full year basis? £300k per month down to £108k on average? I'm sure it's more nuanced and peaky than that but seems the gist of it is that those initial sets got a lot of money in but not as much follow through sales.

"By the end of March 2024, over 4,000 TT:120 sets had been sold, with an additional 8,000 locomotives and a staggering 30,000 coaches and wagons, reflecting the appetite for a new scale in the hobby.

 

TT:120 sets sales have surpassed our forecasts resulting in 3 re-orders on key product lines and the TT:120 Scotsman set has become the best-selling trainset, in value terms, from the entire Hornby catalogue over the last 18 months."

[Gallows-Bait]

3 hours ago, moawkwrd said:

Are we to read into that that it's a slowdown in TT sales despite the new products launched?

 

Nov 22 - March 23 = £1.5m

 

Apr 23 - March 24 = £1.3m

 

So less on a full year basis? £300k per month down to £108k on average? I'm sure it's more nuanced and peaky than that but seems the gist of it is that those initial sets got a lot of money in but not as much follow through sales.

I wasn’t around in the hobby when they launched so I can’t confirm but I suspect though that whilst in absolute terms this may be the case, £1.3m at a time when both of the most popular sets in the range were out of stock for significant periods, that might be considered a growing demand even if they couldn’t fulfil growing sales as a result. I’d also be very curious for the likes of the big range manufacturer like Hornby and Bachman how much of their sales volume is weighted towards traditional sets and gifts rather than longer term collectors expanding their ranges as the TT numbers really do suggest that the Christmas train set market is a pretty big factor.

 

4000 sets to 8000 other locos, one could assume that say every customer entering the hobby ends up with 3 locos, but based on seeing the videos online, it might be equally be possible to say that for every 10 people who get a train set for Christmas there’s one dedicated collector who buys every loco and livery, and those Christmas gift customers aren’t converting to the hobby.  The truth no doubt lies somewhere in the middle but no doubt Hornby will be trying to figure that out.

Edited July 11 by Gallows-Bait

[Fireline]

12 hours ago, moawkwrd said:

....not as much follow through sales.

 

I didn't know you could sell a follow through? Possibly a new income stream!

[adb968008]

15 hours ago, moawkwrd said:

Are we to read into that that it's a slowdown in TT sales despite the new products launched?

 

Nov 22 - March 23 = £1.5m

 

Apr 23 - March 24 = £1.3m

 

So less on a full year basis? £300k per month down to £108k on average? I'm sure it's more nuanced and peaky than that but seems the gist of it is that those initial sets got a lot of money in but not as much follow through sales.

 

I read it differently…

looking at Hornbys headline numbers.. 

 £56.2 million (2023: £55.1 million)

subtract..

£2mn annualised revenue from Corgi club

£1.3 mn from TT

 

Then the rest of the business has gone backwards, at the same time inflation has gone 10% forwards.

 

If Hornby was keeping pace with inflation it would be a >£60mn turnover and closer to a figure that absorbs the loss of £7mn.

 

I wonder how 00 trainset sales are doing Year on Year compared to TT ?

if one has cannabalised the other, then TT is questionable, as I would guess no tooling capex was required to make 00 trainsets.

 

TT…

8000 locos sold / 30000 coaches and wagons.. average 3.75 coaches or wagons per loco. (For coaches to me this feels right, for wagons feels low, combined feels very low.. remember this is new business not a mature market… no ones got much rolling stock in TT yet, so ramping up a rolling collection should be high imo).

 

4000 sets sold… combined above means an average of 3 locos and 6.75 pieces of rolling stock… one passenger train, one freight and a spare loco perhaps ?

 

but anyways, 3x orders on 4000 sets sold of two differing sets (pullman and mk1’s) suggest the production run sizes are in the hundreds, not thousands… but still keeping a consistent product catalog item has been a traditional Hornby challenge in the past and here it seems they have a hold on it.

 

A few lines stood out to me…

Quote

The current inventory position is still too high and in large part a reflection of an over-commitment to evergreen stock in prior years. 

Evergreen ? - track, scenics, trainsets ?

Either way evergreen is what it says so holding it is low risk, and dumping wouldnt change anything (as side of robbing future sales for a low price now), and given evergreen keeps with inflation longer term means a better margin.

Having too much was the issue but its not a bad long term problem.

 

Quote

In recent years we have allowed capex to grow disproportionately versus the returns it delivers, and this has been a key contributor to our high debt and inventory positions, as well as impacting our operating profit / loss position through amortisation charges.
Redressing this situation is a key focus for the year ahead.

 

I read this as less investment in tooling.

 

Taking the two statements above does read a strategy to reduce costs, bring in revenue and sweating a tooling with re-runs to bring them to profit.

 

In principle this sounds a good strategy, if your products are all Evergreen… however locos, rolling stock are fashion accessories.. you dont buy a new W1 every year. 
So if the tooling war is over, and Hornby sticks to trainsets and Evergreens it could be a safe horizon on the toy market, but not very exciting for us modellers… however from a business perspective this to me feels like a good path to take… of course it means competitors can take note and break more branches off the tree in relative safety for the detailed model market.

 

Direct sales..

 

increasing, margin increasing, but as noted above the headline number (minus corgi and TT) is a flatline. That doesnt sound to me like true growth, more like a shift from retail to direct. Further trade has a lower price to retail, so actually feels to me that maybe less actual product is moving, even if it is at a higher margin… Since covid though it feels like this is a trend across real life.. everything feels a little smaller for a higher price… Are the retailers feeling a pinch, or are they getting the difference from other model companies ?

 

Above all interest doesn't look punitive and they haven't used all their lines, so whilst last year wasn't a good one, I feel somewhat positive in what I read about forward plans.

 

Finally I think someone's been reading these threads..

 

After 5 years  table 25 on page 56 has been amended in the annual report to reflect employee count as not being in £’s. 😀

 

 

 

 

 

 

 

 

 

Edited July 12 by adb968008

[woodenhead]

When did the TT MK2 coaches, HSTs and 50s land to be included in Revenue because they look like big sellers and I wonder if they might be 2024/25 revenue.

[Fireline]

7 minutes ago, woodenhead said:

When did the TT MK2 coaches, HSTs and 50s land to be included in Revenue because they look like big sellers and I wonder if they might be 2024/25 revenue.

 

After financial year end. They got held up by all the pirate problems.

[moawkwrd]

30 minutes ago, woodenhead said:

When did the TT MK2 coaches, HSTs and 50s land to be included in Revenue because they look like big sellers and I wonder if they might be 2024/25 revenue.

Yeah we’ll have to wait until next year or the interim results (although they probably won’t give as much detail) for the impact of the new releases. There wasn’t much new released for TT  between Apr 23 and March 24 so the £1.3m is just sales of existing releases.

 

With the stats they’ve provided seems to make sense that there was a glut of sets sold which have continued to sell steadily and then sales of wagons and coaches and extra locos continued through the year. 
 

Obviously that’ll mask the fact that there are some people with multiple sets and one/multiple of everything and others with just one of the sets and nothing else.

Edited July 12 by moawkwrd

[E100]

I like to think we might see more emphasis on fully utilising the existing tooling e.g. Maroon/gold and / BR Coronation Scot coaches, some more Dublo A3's /Merchant Navy's etc. I think there has been a lot of tooling created that isn't being fully used in ways that others seem much more adept at doing but can still provide a fair return.

 

Note the following is pure speculation: I also do wonder how Hornby's QA and indeed factory contracts are organised and how this may feed into these numbers. The impression I get is that they are much more forgiving of substandard models being approved to leave the factory, leading to heavy discounting or models that are so close yet still quite far (Black 5 and it's lack of weight, glue marks leading to returns across a number of models, wrong details on 91's for the era despite being tooled etc etc). They are not alone in this but I compare this to at least a couple of other manufacturers who have quite publicly scrapped a batch or two at decoration stage (seemingly at the manufacturer's expense as it wasn't what was ordered) and had the batch completely remade.

Edited July 12 by E100

[The Stationmaster]

1 hour ago, adb968008 said:

 

I read it differently…

looking at Hornbys headline numbers.. 

 £56.2 million (2023: £55.1 million)

subtract..

£2mn annualised revenue from Corgi club

£1.3 mn from TT

 

Then the rest of the business has gone backwards, at the same time inflation has gone 10% forwards.

 

If Hornby was keeping pace with inflation it would be a >£60mn turnover and closer to a figure that absorbs the loss of £7mn.

 

I wonder how 00 trainset sales are doing Year on Year compared to TT ?

if one has cannabalised the other, then TT is questionable, as no tooling capex was required to make 00 trainsets.

 

TT…

8000 locos sold / 30000 coaches and wagons.. average 3.75 coaches or wagons per loco. (For coaches to me this feels right, for wagons feels low, combined feels very low.. remember this is new business not a mature market… no ones got much rolling stock in TT yet, so ramping up a rolling collection should be high imo).

 

4000 sets sold… combined above means an average of 3 locos and 6.75 pieces of rolling stock… one passenger train, one freight and a spare loco perhaps ?

 

but anyways, 3x orders on 4000 sets sold of two differing sets (pullman and mk1’s) suggest the production run sizes are in the hundreds, not thousands… but still keeping a consistent product catalog item has been a traditional Hornby challenge in the past and here it seems they have a hold on it.

 

A few lines stood out to me…

Evergreen ? - track, scenics, trainsets ?

Either way evergreen is what it says so holding it is low risk, and dumping wouldnt change anything (as side of robbing future sales for a low price now), and given evergreen keeps with inflation longer term means a better margin.

Having too much was the issue but its not a bad long term problem.

 

 

I read this as less investment in tooling.

 

Taking the two statements above does read a strategy to reduce costs, bring in revenue and sweating a tooling with re-runs to bring them to profit.

 

In principle this sounds a good strategy, if your products are all Evergreen… however locos, rolling stock are fashion accessories.. you dont buy a new W1 every year. 
So if the tooling war is over, and Hornby sticks to trainsets and Evergreens it could be a safe horizon on the toy market, but not very exciting for us modellers… however from a business perspective this to me feels like a good path to take… of course it means competitors can take note and break more branches off the tree in relative safety for the detailed model market.

 

Direct sales..

 

increasing, margin increasing, but as noted above the headline number (minus corgi and TT) is a flatline. That doesnt sound to me like true growth, more like a shift from retail to direct. Further trade has a lower price to retail, so actually feels to me that maybe less actual product is moving, even if it is at a higher margin… Since covid though it feels like this is a trend across real life.. everything feels a little smaller for a higher price… Are the retailers feeling a pinch, or are they getting the difference from other model companies ?

 

Above all interest doesn't look punitive and they haven't used all their lines, so whilst last year wasn't a good one, I feel somewhat positive in what I read about forward plans.

 

Finally I think someone's been reading these threads..

 

After 5 years  table 25 on page 56 has been amended in the annual report to reflect employee count as not being in £’s. 😀

 

 

 

 

 

 

 

 

 

Yesterday I received the statement for my index linked NSI certificate - CPI rate of inflation May 2023 - May 2024 = 1.98%.  I realise that is not exactly in line with Hornby's FY and a couple of months difference in the dates could make a big difference in the inflation rates.  But at the same time that 2% might possibly not be too wide of the mark for inflation?  However their sales growth in the UK market was only 1.5% (to £40.2 million) and that was purely as a result of direct sales from their website - so a clear decline in real terms. 

 

However that said the result is still next to no growth and  clearly shrinkage in some of their sectors.  Alas - or perhaps very carefully on their part(?) - they don't report sales by brand and that might be a lot more telling.  Another interesting feature is a move away from comments related to quarter years and instead referring to half years - I wonder why that change has occurred and does it obscure what might otherwise be a less than cheery story?

 

Clearly Wonderworks has not delivered what they hoped for in terms of sales but they do acknowledge that it's in the wrong place to do that (then adding that they wanted it close at hand to see how it is working before spreading the idea elsewhere).

 

There is a useful item in the CEO'S (Olly Raeburn's) report about inventory levels.   Most critical is that they are not being tempted into fire sales (in the UK market) ) to reduce the size of the stock mountain - for well explained reasons which sound eminently sensible and realistic.

 

Of considerable interest - once you start delving below the numbers are some of the features mentioned in the Chief Finance Officer's (Kirstie Gould's) report.  

Maybe of interest to many on RMweb land are the comments about competition in, particularly, the model railway field where she mentions as part of their mitigation to deal with competition -

'... We will strive to further improve the strength of our brands. Production of high-quality products which customers want is a key mitigating factor.'

 

Even more interesting is this mitigation in respect of overall decline in the hobby market  (the bold is mine) -

'In many of our markets the Group enjoys a strong market position due to the continued development of our brands. Brands are extremely important in the model sector with market entry costs being prohibitive. In the short-term there is an opportunity to regain market share lost through previous underperformance. We have also implemented tiering and only allowing certain percentage of our goods to go wholesale with balance only being available on our website.'

 

I'm not at all sure what 'tiering' means in this context but presumably it is the way they divide goods between direct sales and retailers - where the latter has clearly continued to involve 'rationing' against quantities actually ordered.

 

Overall my greatest concern takes me back to a past situation where Hornby was not tailoring its costs and overheads to meet its decline in turnover.  This time round the money is being spent in order to increase revenue but thus far, even allowing that it is early days, that does not seem to be matched by UK market revenue increases although some sales have been boosted by price reductions.

 

Oh, and their best selling trainset, in value terms, in the past year gets a mention  - the TT120 Scotsman set.

[The Stationmaster]

9 minutes ago, E100 said:

I like to think we might see more emphasis on fully utilising the existing tooling e.g. Maroon/gold and / BR Coronation Scot coaches, some more Dublo A3's /Merchant Navy's etc. I think there has been a lot of tooling created that isn't being fully used in ways that others seem much more adept at doing but can still provide a fair return.

 

Note the following is pure speculation: I also do wonder how Hornby's QA and indeed factory contracts are organised and how this may feed into these numbers. The impression I get is that they are much more forgiving of substandard models being approved to leave the factory, leading to heavy discounting or models that are so close yet still quite far (Black 5 and it's lack of weight, glue marks leading to returns across a number of models, wrong details on 91's for the era despite being tooled etc etc). They are not alone in this but I compare this to at least a couple of other manufacturers who have quite publicly scrapped a batch or two at decoration stage (seemingly at the manufacturer's expense as it wasn't what was ordered) and had the batch completely remade.

One point made in the report is that they are looking for better value from the factories they use.  

Presumably that means a squeeze on price and with Chinese factories I get the impression that you get what you pay for (and don't get what you haven't paid for).

[jjb1970]

11 minutes ago, The Stationmaster said:

One point made in the report is that they are looking for better value from the factories they use.  

Presumably that means a squeeze on price and with Chinese factories I get the impression that you get what you pay for (and don't get what you haven't paid for).

 

QA/QC is one of the hidden costs of manufacturing which is an easy one to economise on if you are willing to take the risk of having bad batches and facing the ire of customers who receive defective product.  The degree of QA/QC will be agreed in the contract, but as it costs money the factories won't do it for free. Which may be one reason why some model suppliers have a more consistent product than others.

[Legend]

Disappointing . I had hoped that they would have started turning the corner now , but seems that’s now next year . Undoubtably affected by late shipments which would normally have gone into 2023/24 but now in 2024/25.

 

I think the two things that stand out for me are the drop in gross margin. This has been attributed to amortisation costs of tooling , but really they should also be getting the benefits of that tooling in sales . Costs are supposed to follow revenues . The other thing again is the high cost of overheads, most of it sales and marketing .  I do still think that Hornby carry the baggage of being a big company , or think they are , whereas the reality is in company terms they are quite small 

[woodenhead]

Hornby have to spend on sales and marketing, they sell much wider than traditional model shops so need to attract the attention of people who don't visit model shops or purchase modelling magazines.  Hornby also wants to continue to sell direct and that too means marketing to draw people in.

 

Heljan, Accurascale, Dapol, Bachmann etc are selling mainly to railway modellers, they don't need to advertise far and wide as they know where we are - forums, facebook and youtube.  Also we are more likely to peruse model shops where we will find their models and those model shops themselves market their products to attract our attention.

[woodenhead]

1 hour ago, The Stationmaster said:

Oh, and their best selling trainset, in value terms, in the past year gets a mention  - the TT120 Scotsman set.

The Scotsman being the gift that keeps on giving.

 

It seems to be a bit of a talisman for Hornby, it's a thing that appears most non modelling people associate together Model Trains, Hornby and a Flying Scotsman.  Not even Mallard gets this level of association I'd bet.

[The Stationmaster]

3 hours ago, adb968008 said:

 

I read it differently…

looking at Hornbys headline numbers.. 

 £56.2 million (2023: £55.1 million)

 

Then the rest of the business has gone backwards, at the same time inflation has gone 10% forwards.

 

If Hornby was keeping pace with inflation it would be a >£60mn turnover and closer to a figure that absorbs the loss of £7mn.

 

 

 

 

 

 

 

 

 

 

I've done a bit of backward comparison with some past results.  This year's UK sales are £40.2 million, slightly up on last year's £39.617 million (but that is put down to increase in direct sales revenue).  So overall they haven't really moved forward.

 

I have now done a comparison with some past UK sales revenue.  although they were loss making back in 2016, and had a 'turnaround plan' it was the year before their UK sales took something of a dive.  In 2016 their UK segment revenue was £42.56million - so a bigger number than they've managed 8 years later.  

 

But applying the Bank of England inflation calculator to the 2016 figure that means that the 2024 figure, for UK revenue alone, should be just over £56 million so in fact their UK revenue alone is £16 million short of where it needs to be to stand still compared with 2016 (which was a fairly good year). Even compared with the bad revenue year in 2017 their UK revenue in 2024 should be £48.5 million.

 

So by any measure they have fallen back in their UK sales revenue which suggests that either the total market has shrunk or they have lost substantial ground to competitors up against various of their brands.  Maybe they need to look much more closely at some of their various mitigations?

[Harlequin]

9 minutes ago, The Stationmaster said:

Maybe they need to look much more closely at some of their various mitigations?

 

What is a "mitigation" in this context, Mike? The word seems to have a very specific meaning here.

 

Edited July 12 by Harlequin

[1andrew1]

I wonder if the demise of Hattons has impacted Hornby 's results negatively? 

[woodenhead]

6 minutes ago, 1andrew1 said:

I wonder if the demise of Hattons has impacted Hornby 's results negatively? 

Not really, Hornby had them in a lower tier to begin with so you couldn't pre-order though later they relented, Hattons was a good outlet for stuff that hadn't sold i.e. excess inventory.  But in the overall scheme of things probably not that big an impact and Hornby have indicated they don't want to be doing fire sales on excess inventory.

 

Most people who used Hattons would be aware of other box shifters especially because you couldn't purchase Bachmann goods from them unless secondhand.  It was probably losing Bachmann that drove Hattons down as people who would have been very loyal to Hattons suddenly had to look elsewhere for Bachmann and that would likely have shifted loyalties too meaning less sales of other products too.

[jonnyuk]

3 hours ago, woodenhead said:

Hornby have to spend on sales and marketing, they sell much wider than traditional model shops so need to attract the attention of people who don't visit model shops or purchase modelling magazines.  Hornby also wants to continue to sell direct and that too means marketing to draw people in.

 

Heljan, Accurascale, Dapol, Bachmann etc are selling mainly to railway modellers, they don't need to advertise far and wide as they know where we are - forums, facebook and youtube.  Also we are more likely to peruse model shops where we will find their models and those model shops themselves market their products to attract our attention.

i'd argue one of those companies prioritise direct selling, make no mistake about that. Said company are in every model mag, close ties with those mags, sponsor nearly every large modelling event, that costs money.

Outside of that though its allot cheaper to push an email and ensure your presence on forums is constant.

 

I wonder what Hornby does marketing wise that said company does not do, Hornby don't do major press, don't do radio/tv, don't sponsor many events now. 

[woodenhead]

6 minutes ago, jonnyuk said:

i'd argue one of those companies prioritise direct selling, make no mistake about that. Said company are in every model mag, close ties with those mags, sponsor nearly every large modelling event, that costs money.

Outside of that though its allot cheaper to push an email and ensure your presence on forums is constant.

 

I wonder what Hornby does marketing wise that said company does not do, Hornby don't do major press, don't do radio/tv, don't sponsor many events now. 

But that company only has to market within a small defined market place through simple channels - UK or Irish model trains to train modellers.  Whilst it does indeed spend money sponsoring shows it gets a lot of publicity back from magazine youtube announcements.

 

Hornby is not just trains, it is lots of products under a banner of Hornby, so their marketing covers many markets, many countries, many routes and not just to enthusiasts, it sells to the non enthusiast market too.

[jonnyuk]

very true, not really thought about the marketing effort required per product, across all their different brands, where as like you say the other company in particular has a small product portfolio focussed on the modeller.