Hornby's financial updates to the Stock Market

[Talltim]

Well yes people have been ordering over the internet for some time, but until recently this has mostly been from model shops, hasn't it? The difference is that recently Hornby seem to have been doing just about everything they can (short of actually refusing to supply shops) to get everybody to either buy directly from them on-line or through their concessions.

There were specific mail order only companies in the eighties, when there was deep discounting. Railmail is a name that springs to mind

[Kickstart]

I suppose therefore that Arfix and Humbrol are as cheap to produce and package here as China but it's the assembly of Hornby that pushes them to China.

I wonder how long it takes to assemble a model in a production environment. Suspect the costs of that time are not that high even at UK rates compared to the retail prices. To me it seems entirely possible that these higher costs could be offset against improved production flexibility.

 

All the best

 

Katy

[Ozexpatriate]

I haven't followed this thread right through, but has anyone thought of the fact that cashflow might be the problem? There's many ways of managing cash flow.

Fundamentally cash flow is always the issue with a struggling company. In this case I suspect it is only a proximate cause. Based on my understanding of their financial reports, Hornby has been living on credit for some years now.

 

The cash flow of the organization should be predictable. The problem comes from a deterioration of their projected financial position by as much as £4M in three months. This is not a normal 'cash flow' issue. When well-managed companies provide guidance for a forthcoming loss it is usually a reliable estimate and does not change by much in a quarter.

Edited February 25, 2016 by Ozexpatriate

[Bernard Lamb]

There were specific mail order only companies in the eighties, when there was deep discounting. Railmail is a name that springs to mind

Railmail actually had a retail shop.

It was a very good model shop to boot selling a comprehensive range of smaller items with friendly knowledgeable service.

Bernard

[Clearwater]

Fundamentally cash flow is always the issue with a struggling company. In this case I suspect it is only a proximate cause. Based on my understanding of their financial reports, Hornby has been living on credit for some years now.

 

The cash flow of the organization should be predictable. The problem comes from a deterioration of their projected financial position by as much as £4M in three months. This is not a normal 'cash flow' issue. When well-managed companies provide guidance for a forthcoming loss it is usually a reliable estimate and does not change by much in a quarter.

Cash is king as they say. Given its an absolute, profit can be subjective depending on non-cash adjustments, any underlying problems will show up. Roy's sales strategy above is not a million miles from what they've been doing. The Black Friday, flash sales etc are all dashes for cash

 

David

[Legend]

Just seen some impressive coverage of Flying Scotsman coming out of Kings Cross. Lots of people around, mainstream media coverage , so there is still interest in the hobby. So are Hornby capitalising on this? I can imagine there may be a fair few people of a certain age, and maybe a few children, enthralled by the site, might head over to Hornby to see what's available. Maybe they should start that trainset they had off again. What do they see , yes Flying Scotsman in Apple Green, but the BR one is only available as NRM limited edition at £174. A bit of a daunting price for someone returning. It's not that they can't afford it , it's just getting over spending £174 on yourself! In any case it's not available, you can only pre order it

 

Now a savvy Hornby might have had a trainset with BR Green Scotsman and some of their Crimson and Cream mk1s available now . Maybe a Railroad version in shiny green.

 

Yes certainly they need to get there banking sorted out , that's a matter of survival I think, and yes that ERM system needs to start working properly, but I'd suggest after that they really need to look at their marketing operation. As well as the issue above, there is the catalogue situation which really is farcical. They really don't seem to know what they are doing. The Yearbook was a good experiment, but poorly executed. Had it gone to print with actual pictures of the range rather than incomplete lists , it might have worked. Simultaneously release catalogue to retailers with an order form , and then later release catalogue to public would have been a much more sensible idea. Instead some retailers have catalogues that they are giving away free, others have yet to see one themselves. It really is a bit of a mess.

 

The development team seem to be firing on all cylinders , I think it's marketing that's seriously letting Hornby down

[Coryton]

I wonder how long it takes to assemble a model in a production environment. Suspect the costs of that time are not that high even at UK rates compared to the retail prices. To me it seems entirely possible that these higher costs could be offset against improved production flexibility.

 

All the best

 

Katy

 

I'm not sure that's true, and I think painting is also quite labour intensive.

 

I recall reading that one company had looked at having trucks manufactured and assembled in China but painted in the UK, and even that would have something like doubled the price...

 

Perhaps Railroad self-coloured plastic trucks with very few assembly and printing stages could be made reasonably in the UK though? The difference in cost between a Dapol coach and self-assembly kit is not that large...

[Dunsignalling]

I'm not sure that's true, and I think painting is also quite labour intensive.

 

I recall reading that one company had looked at having trucks manufactured and assembled in China but painted in the UK, and even that would have something like doubled the price...

 

Perhaps Railroad self-coloured plastic trucks with very few assembly and printing stages could be made reasonably in the UK though? The difference in cost between a Dapol coach and self-assembly kit is not that large...

But Hornby have neither the gear or the premises in the UK to do it any more, so they'd still have to contract it out.

[Clearwater]

@legend - Hornby has just tweeted....

[Legend]

@legend - Hornby has just tweeted....

Cheers Clearwater. What does that mean though. I'm not into twitter. Is there a link to something they have available?

[Dunsignalling]

Cash is king as they say. Given its an absolute, profit can be subjective depending on non-cash adjustments, any underlying problems will show up. Roy's sales strategy above is not a million miles from what they've been doing. The Black Friday, flash sales etc are all dashes for cash

 

David

Flogging off stock near, at, or below cost gets the money in to ensure short term survival but the underlying causes of poor cash flow have to be corrected quickly, it's not something they can get away with doing too often. Profit has to be earned  too.

 

Hornby's changes to their relationship with the retail trade appear to have backfired big time.

 

The slim margins on offer means that dealers can no longer afford to carry stock they don't expect to shift within a month or so of delivery.

 

That leads to them ordering less (and as late as possible), leaving Hornby to carry it instead. Evidently they can't afford to either, hence the panic sales. 

 

John

[Andy Hayter]

Kickstart/Katy

 

I think the time taken to assemble and paint a model is significantly more than you think.

 

Try buying yourself a cheap plastic loco kit and see how long it takes you to put this together and paint it.

 

Now divide that time by 2 to allow for automation of some of the assembly processes.  There has to be debate about the level of automation possible with short production runs, but I suspect there will be things like assembly jigs that a 5000 run allows and that a one off does not. 

Now divide by two again for  "familiarity effect".  The more you do the quicker you can do them.  Still rather a long time I think.

 

In a recent-ish BRM  Mr Tony Wright of this parish timed the construction of a small tank loco (SECR P class??)  and IIRC it took him around 40 hours.  Now admittedly this was white metal and not plastic, but soldering and glueing take very little difference in time.  The chassis construction will have been a bit more complex than an rtr model but probably not that much more.  If we now use that as a base and divide by 2 for the automation effects (and I know that Tony does use some jigs for assembly himself, so the complications of the chassis are ironed out here), and divide again by 2 for the familiarity effect (and again Tony has built so many locos that I am sure he can do it much quicker than me), we come down to a construction time of around 10 hours (plus/minus).  At UK minimum wage that is around GBP70 labour, plus materials, plus packaging plus distribution.  So say a delivered cost of GBP85.  Hornby make 45% margin on their overall operations, so this would be a sales price (to the trade) of GBP123.  Traders margin 10% - gives a retail price of GBP135 - for a tank engine.

 

Also consider that Hornby in their design clever phase chose to simplify assembly by moulding in ventilators and hand rails etc.  This was to help keep costs down, so clearly such processes suck up production time.  Otherwise why would the risk the wrath, that actually befell them.

 

I can understand why people are keen that production should be brought closer to home and to a measured level I agree (as I suspect do Hornby), but at current labour cost levels I see no imminent likelihood. 

 

EDIT:  after half an hour's reflection I can see there are some major problems with my calculation.  Namely I have only included the minimum wage element in the cost of labour. In fact as employer, Hornby would have to make additional payments - pension contributions, employers NI etc.  So my GBP135 must be regarded as too conservative!

Edited February 25, 2016 by Andy Hayter

[Ian J.]

Something else that isn't in Hornby's, Bachmann's, etc (or any entertainment / leisure industry organisation) favour is the tendency these days towards momentary interest in things. Take today's Flying Scotsman outing. How many of the children and their parents will go out and look at it, enjoy the experience, then go home and get on with seeking out the next new experience? Most of them, I would bet.

 

Many people are 'afraid' of having a keen interest in something because society doesn't really encourage it today. The media, and companies selling stuff, all focus on trying to continually distract our attention from whatever it is we're currently doing to focus on whatever it is they want us to look at. Because they're all doing it, those distractions are now continuous. We're never allowed to settle on an interest and 'indulge' in it. All creative interests need to have focus and time to be done well. The modern continuous distractions hinder people from that.

[Crichel Down]

This thread is about the commmercial future of Hornby in light of their recent 'shock' profits warning, but there has understandably been some speculation about the broader future of the model railway market, and (by extension) the future of the hobby generally. 

 

I may well find that I am in a minority of one, but I have absolutely no concern about the future of the hobby. Those who agonise over ways in which a younger generation might somehow be persuaded to take an interest in model railways are just chasing moonbeams.  It ain't gonna happen, and any effort expended on trying to make it happen will just be a waste of time.  In the words of Private Fraser, "We're all doomed! Doomed, d'ye hear?"  But that doesn't bother me at all.

 

If/when the hobby shrinks, companies like Hormby may well go out of business, and a good few other manufacturers may follow them into oblivion sooner or later.  However, those of us who have been model-making for 50 years or more can well remember a time when there was far less available, and certainly very little in the way of RTR models of an acceptable standard.  It didn't deter us from pursuing our hobby.

 

If the whole of the model railway trade (and the model railway press) shut up shop tomorrow, I would just carry on making models regardless (and I expect the same goes for most serious enthusiasts).  As Chris Leigh has pointed out, there is already a healthy second-hand trade in all sorts of models, kits and bits, and most of us have more than enough of these things to keep us going for the rest of our lives already (!).  If in future a particular model is not available RTR, we will simply have to do what we have always done - (1) substitute something similar, (2) adapt a different model, (3) build a kit, (4) scratch-build it or (5) just make do without it.

 

I shall go on model-making for as long as I am physically and mentally capable of doing so, irrespective of the state of the model railway trade.  If an RTR model is available which meets my requirements, I may buy it (although it will get re-wheeled, and generally messed about with), but if such models are no longer available in future then - "Frankly my dear, I don't give a damn."

Edited February 25, 2016 by Crichel Down

[Ian Hargrave]

Cheers Clearwater. What does that mean though. I'm not into twitter. Is there a link to something they have available?

I have just received the inevitable 'cashing in' e mail from Hornby on the big event....'see our Flying Scotsman Train Set in action'...etc.

[Clearwater]

Cheers Clearwater. What does that mean though. I'm not into twitter. Is there a link to something they have available?

They've not put a link in unfortunately. If you clicked on the #flyingscotsman it would take you to a list of other users' comments on the same event

[Legend]

I have just received the inevitable 'cashing in' e mail from Hornby on the big event....'see our Flying Scotsman Train Set in action'...etc.

Cheers Ian , it's in my in box too. But of course it's a link to the Flying Scotsman in Apple Green not the BR one everyone has just seen. It's been known for sometime that that's the livery it would appear in. Quite fancied one myself this morning !

[DavidH]

Something else that isn't in Hornby's, Bachmann's, etc (or any entertainment / leisure industry organisation) favour is the tendency these days towards momentary interest in things. Take today's Flying Scotsman outing. How many of the children and their parents will go out and look at it, enjoy the experience, then go home and get on with seeking out the next new experience? Most of them, I would bet.

 

Many people are 'afraid' of having a keen interest in something because society doesn't really encourage it today. The media, and companies selling stuff, all focus on trying to continually distract our attention from whatever it is we're currently doing to focus on whatever it is they want us to look at. Because they're all doing it, those distractions are now continuous. We're never allowed to settle on an interest and 'indulge' in it. All creative interests need to have focus and time to be done well. The modern continuous distractions hinder people from that.

 

I understand your worries, but I think they're misplaced and quite probably not a new phenomenom. I think the modern world encourages people to have many interests, far more than people were ever expected to have e.g. 50 years ago. And whatever society does or doesn't encourage today is no worse than (say) living in a mining community in the 1930s and not wanting to follow your dad down the mine. Or all those musicians (e.g.) in the 1960s told to "Cut your hair and get a proper job".

 

And of course the media and advertising are trying to distract us - that's what they do, they're businesses, but that's what they've always done. Your point ("modern continuous distractions hinder people from that") I agree with, but I think that says more about people themselves and their inability to focus than any new malign influence from "society".

 

Why should parents seek out the new experience after seeing Flying Scotsman - any more than if they saw any other exciting event? The kids will look if they're fired up about it, in the same way that during the 2005 Ashes lots of people suddenly rediscovered cricket, but no one should force a hobby on them if they're not interested (or can't afford it).

[Ian Hargrave]

Cheers Ian , it's in my in box too. But of course it's a link to the Flying Scotsman in Apple Green not the BR one everyone has just seen. It's been known for sometime that that's the livery it would appear in. Quite fancied one myself this morning !

You mean BR green? Well,they did a factory weathered job about 18 months ago which isn't bad for its kind,I suppose.Looks as if Locomotion have bagged a pristine one for themselves...in gloss ! Expensive but I am pleasantly surprised with my glossy KGV,so I might ring Sandra to put my name on a set.We shall see.....but of course the footage of 60103 at present will have their cash tills in action,I would imagine.

[dibber25]

I wonder how long it takes to assemble a model in a production environment. Suspect the costs of that time are not that high even at UK rates compared to the retail prices. To me it seems entirely possible that these higher costs could be offset against improved production flexibility.

 

All the best

 

Katy

All been covered by Jason Shron in past issues of Model Rail. From memory, a Rapido passenger car with around 300 parts takes 8 hours to assemble. 

[toboldlygo]

Just seen some impressive coverage of Flying Scotsman coming out of Kings Cross. Lots of people around, mainstream media coverage , so there is still interest in the hobby. So are Hornby capitalising on this? I can imagine there may be a fair few people of a certain age, and maybe a few children, enthralled by the site, might head over to Hornby to see what's available. Maybe they should start that trainset they had off again. What do they see , yes Flying Scotsman in Apple Green, but the BR one is only available as NRM limited edition at £174. A bit of a daunting price for someone returning. It's not that they can't afford it , it's just getting over spending £174 on yourself! In any case it's not available, you can only pre order it

 

Now a savvy Hornby might have had a trainset with BR Green Scotsman and some of their Crimson and Cream mk1s available now . Maybe a Railroad version in shiny green.

 

Yes certainly they need to get there banking sorted out , that's a matter of survival I think, and yes that ERM system needs to start working properly, but I'd suggest after that they really need to look at their marketing operation. As well as the issue above, there is the catalogue situation which really is farcical. They really don't seem to know what they are doing. The Yearbook was a good experiment, but poorly executed. Had it gone to print with actual pictures of the range rather than incomplete lists , it might have worked. Simultaneously release catalogue to retailers with an order form , and then later release catalogue to public would have been a much more sensible idea. Instead some retailers have catalogues that they are giving away free, others have yet to see one themselves. It really is a bit of a mess.

 

The development team seem to be firing on all cylinders , I think it's marketing that's seriously letting Hornby down

 

Funny you should mention this, Hornby must have read your mind   

 

http://www.Hornby.com/uk-en/shop/locomotives/steam-locomotives/flying-scotsman.html

Edited February 25, 2016 by toboldlygo

[Coryton]

I may well find that I am in a minority of one, but I have absolutely no concern about the future of the hobby. Those who agonise over ways in which a younger generation might somehow be persuaded to take an interest in model railways are just chasing moonbeams.  It ain't gonna happen, and any effort expended on trying to make it happen will just be a waste of time.  In the words of Private Fraser, "We're all doomed! Doomed, d'ye hear?"  But that doesn't bother me at all.

 

If/when the hobby shrinks, companies like Hormby may well go out of business, and a good few other manufacturers may follow them into oblivion sooner or later.  However, those of us who have been model-making for 50 years or more can well remember a time when there was far less available, and certainly very little in the way of RTR models of an acceptable standard.  It didn't deter us from pursuing our hobby.

 

Well there certainly are young people interested in railway modelling. Maybe not many, but they exist.

 

But I agree - the hobby will exist in some form so long as there are people who wish to pursue it. And even in the worst likely scenario it won't be like it was 50 years ago because, as you point out, there is now an enormous pool of existing stock which - if almost nobody wanted it any more - would turn up on ebay/car boot sales/charity shops for next to nothing.

[KalKat]

But once again - a pre-order....................................

 

It should have been on the shelves surely?

 

 

Emma

[Coryton]

All been covered by Jason Shron in past issues of Model Rail. From memory, a Rapido passenger car with around 300 parts takes 8 hours to assemble. 

 

This is presumably the extreme end of the scale, with an old tooling Railroad truck at the other...

 

Kickstart/Katy

 

I think the time taken to assemble and paint a model is significantly more than you think.

 

Try buying yourself a cheap plastic loco kit and see how long it takes you to put this together and paint it.

 

 

While I agree that putting together a model may take more manual effort than many people think, I don't think a kit-built engine is the correct comparison.

 

As you can see when taking an RTR model apart, they are made in a very different way and are designed to be straightforward (even if time consuming) to assemble, e.g. bodies clip onto a chassis. Likewise, painting and otherwise decorating RTR stock is done very differently to the way a modeller would with an airbrush (or paint brushes) and transfers.

 

I would argue that RTR models are assembled, while "proper" kit-build ones are built. 

[Trains4U]

 

 

In a recent-ish BRM  Mr Tony Wright of this parish timed the construction of a small tank loco (SECR P class??)  and IIRC it took him around 40 hours.  Now admittedly this was white metal and not plastic, but soldering and glueing take very little difference in time.  The chassis construction will have been a bit more complex than an rtr model but probably not that much more.  If we now use that as a base and divide by 2 for the automation effects (and I know that Tony does use some jigs for assembly himself, so the complications of the chassis are ironed out here), and divide again by 2 for the familiarity effect (and again Tony has built so many locos that I am sure he can do it much quicker than me), we come down to a construction time of around 10 hours (plus/minus).  At UK minimum wage that is around GBP70 labour, plus materials, plus packaging plus distribution.  So say a delivered cost of GBP85.  Hornby make 45% margin on their overall operations, so this would be a sales price (to the trade) of GBP123.  Traders margin 10% - gives a retail price of GBP135 - for a tank engine.

 

I'm not sure where you got that trader's margin from...

 

But if that loco was £123 at cost, you'd have to add VAT to it - and based on current (reduced) margins the MSRP would be closer to £185 - not £135

 

Hornby also offer a trade rebate, which would eat into that original £123

 

And none of this factors in overheads (support staff/marketing/management/R&D/tooling/shipping)

 

 

I suspect your calculations are far too simplified, and are based on individuals assembling whole locos.   In reality, there will be dozens of people, all doing different things.

one person might be able to assemble 50 wheelsets in an hour, three might assemble 50 chassis in an hour - one person might tampo print a bodyshell in two minutes - how do we know for sure?

 

The likely outcome is that through use of production lines, the overall effort for producing a loco is no more than two or three hours overall.

 

The peckett, for example - if Hornby have to make 45%, would have to come in from china at about £25 a unit. - but I suspect that they would be significantly more than that - with other models that are simpler to produce and have amortised tooling  producing vastly higher margins, and subsidising the production and tooling costs of the new items.

Edited February 25, 2016 by Trains4U