Hornby's financial updates to the Stock Market

[Miss Prism]

Share price is tumbling.

[Chris Higgs]

 it says on the box that you can run them on "Dad's" model railway (surprisingly sexist for this day and age even if largely true).

 

Sadly, it is as Mrs May would have it, that as a group we are largely "pale, male, and stale". I wish it were otherwise.

 

Chris

Edited January 17, 2018 by Chris Higgs

[Oakydoke]

Share price is tumbling.

Oh dear!

Has word got out that the Christmas sales period was poor for Hornby?

[dibber25]

Perhaps someone can clarify something here. The Design Clever business appears to have come about at or just after the shake up of the Chinese factories. Was it actually a policy-led move or did Hornby suddenly find themselves relying on factories which couldn't [initially at least] deliver on the level of detail?

 

An oddity in Hornby's non-passenger stock is the fact that in recent years they have come up with some splendid new stock, eg: tipplers, a whole range of engineers' vehicles, the 21T hopper and most recently the SR cattle wagon and the LMS coke hopper, but they are all in desperately short supply and some totally unobtainable. Instead for the most part wagons are out of the ark, which rather suggests that their capacity for high-detail wagon stock is limited

 

It was one way of cutting production costs, presumably in the hope of 1) improving the margin, 2) improving the trade discount 3) keeping the price down for the purchaser. How well it achieved those things is never likely to be known because Hornby was forced to abandon it very quickly in response to widespread unhappiness among modellers. Interesting that just over 12 months ago, Rapido Trains made a similar move in its North American market by launching 'Prime Movers' which were described as 'entry level'. Rapido made no secret that they wanted to be able to provide a margin which would assist the retail trade in stocking more of their products. The first of the 'Prime Movers' has recently reached modellers and in my view it is on a par with some of the best UK-outline models, but a step down from Rapido's 'full-fat' locos. 

I think 'Design Clever' did also acknowledge the early days of the skills and staff shortage which exists in the area where model trains are manufactured. This is a fluid and worsening situation as the costs of manufacturing in the Dongguan region have risen sharply in recent months at the same time as manufacturing has become more fragmented with increasing numbers of small 'exclusive' manufacturers seeking direct arrangements with Chinese factories. The whole business of manufacturing model trains in the Far East is far more complex than most of us, who haven't been involved in the front line, can ever really appreciate. I find I'm learning new stuff every week. Rapido's newsletters are worth signing up for as they are often an interesting insight into what's going on on the other side of the World. 

Since the 1960s and the days of hand-assembled 'Japanese brass' for the US market, model railway manufacturing has chased low labour costs across the Far East, but the journey likely ends in China and if it can't be sustained there, then there's really nowhere else to go. (CJL)

Edited January 17, 2018 by dibber25

[dcroz]

Share price is tumbling.

Not too much of a tumble in historical terms - one year ago the share price was 28.95p, today it's 24.00 (a 17% decline on a year ago). The big decline happened a long time ago - from peaks of 282.58 on the 26th January 2007, or a more recent peak of 100.52p on 21st August 2015. From 2007 peak to now, the decline is 85%. 

[Chris Higgs]

Not too much of a tumble in historical terms - one year ago the share price was 28.95p, today it's 24.00 (a 17% decline on a year ago). The big decline happened a long time ago - from peaks of 282.58 on the 26th January 2007, or a more recent peak of 100.52p on 21st August 2015. From 2007 peak to now, the decline is 85%. 

 

Anyone have the time to look at the year on year figures? From 282 to 100 in 8 years is a 65% decline, or in rough numbers ~8% each year. So 17% is not so insignificant compared to that. 

[truffy]

Hornby was forced to abandon it very quickly in response to widespread unhappiness among modellers.

I gave up on Hornby over 'design clever'. I wonder how many others did also, or whether there were other factors at play.

[Legend]

 

 

I gave up on Hornby over 'design clever'. I wonder how many others did also, or whether there were other factors at play.

I'm not sure Hornby was in listening mode at the time, so really doubt howls of outrage from modellers would have cut much ice . As I said had it been properly executed and not announced they might have got away with it. You could perhaps say that Bachmann have recently been doing something similar with moulded handrails on their 90. But in this case it looks exceptionally fine and I think totally acceptable if it reduces cost. But I'm sure Bachmann know what is and isn't acceptable , while some issues got through at Hornby.

 

As CJL says they may have been forced into Design Clever as the only means of distributing production over a wider manufacturing base. It coincided with the starvation of new products from China as Sanda Kan imploded and Hornby had to find new sources of prodn.

[dibber25]

I'm not sure Hornby was in listening mode at the time, so really doubt howls of outrage from modellers would have cut much ice . As I said had it been properly executed and not announced they might have got away with it. You could perhaps say that Bachmann have recently been doing something similar with moulded handrails on their 90. But in this case it looks exceptionally fine and I think totally acceptable if it reduces cost. But I'm sure Bachmann know what is and isn't acceptable , while some issues got through at Hornby.

 

As CJL says they may have been forced into Design Clever as the only means of distributing production over a wider manufacturing base. It coincided with the starvation of new products from China as Sanda Kan imploded and Hornby had to find new sources of prodn.

 

In terms of production personnel I think Sander Kan was more explosion than implosion. There's seems to be hardly a factory in Dongguan that doesn't have ex-Sander Kan people - some of them at the helm. (CJL)

[adb968008]

It might surprise some people to know there is still at least one manufacturer, with warehouses and an assembly line in Hong Kong, and they recently produced for the UK OO market too.

It’s not all gone to Dongguan.

 

When the big boy in town pays more than the rest, the other factories in town have to increase salaries too to keep staff.

 

 

 

Regarding today’s share price... 65k shares sold, with an overall value of £14k...8 trades in total, smallest was £69, largest £7k.

 

That’s not breaking anyone’s bank account, not does it mean signs of secret knowledge about impending doom.

 

It just means there’s no market interest to buy the shares... no one has any advance order to buy at a set price, so when offered it dropped until it found one.. I suspect someone got an unexpected bargain today.

 

Overall I think Hornbys SharePrice is now largely an irrelevant factor, it’s largely a privately held company with a minority set of public shareholders still out there, with certificates stuffed in train boxes in the loft. With no chance of takeover, buy out and no shareholder voice, influence or chance of a dividend from the share.. it’s basically a zombie share.

If you put down £30k on HRN tomorrow tomorrow you’d probably trigger a reasonable price rise but once the red glaring eyes and out stretched hands lose focus it’ll drift back down again.

 

Only significant chance of rise is if Hornby suddenly finds an oil well under its head offices, or PAMP & co either sells up its stake or decided to pursue a further share buyout from mom/pop investors and go completely private/delist.

Edited January 17, 2018 by adb968008

[robmcg]

Remaining questions are, can Hornby trade reliably and profitably, and how will it cut management costs if indeed it want to?

 

The silence over Xmas is a little unnerving.

[Mike Storey]

Remaining questions are, can Hornby trade reliably and profitably, and how will it cut management costs if indeed it want to?

 

The silence over Xmas is a little unnerving.

 

The question is valid but isn't it a little bit too early to be speculating? We mostly derided Hornby for playing a short term game, selling at a loss, direct sales and so on. But, they have now announced a long term strategy, which includes cutting overheads, and have secured adequate finance to see them through a short term cash flow situation that the strategy will cause. So it would be unrealistic to judge anything on the lack of immediate announcements. I would presume we will need to await their normal mid-year trading statement (unless they have something positive to say to bolster the share price, but as already stated, that is of less concern to them these days).

[Ozexpatriate]

Only significant chance of rise is if Hornby suddenly finds an oil well under its head offices, ...

They don't own those any more - I believe they're leased, so striking oil in Sandwich won't help them.

 

There might well be oil (spilled) under their old head offices or asbestos or any number of nasty chemicals from their long occupancy there.

 

Whomever develops the Margate site will have a lot of environmental assessments to do. It won't be Hornby PLC's problem though.

Edited January 20, 2018 by Ozexpatriate

[adb968008]

They don't own those any more - I believe they're leased, so striking oil in Sandwich won't help them.

 

There might well be oil (spilled) under their old head offices or asbestos or any number of nasty chemicals from their long occupancy there.

 

Whomever develops the Margate site will have a lot of environmental assessments to do. It won't be Hornby PLC's problem though.

I think it’s new occupant is well versed in railway lubricants, not necessarily model railway ones.

[Mel_H]

Hornby has issued a trading update to the Stock Exchange this morning - the financial media will report this as a profits warning. Trading updates are normally issued when the directors become aware of a change, or impact on the business, that will affect their previous statements. The shares fell by 2.7p (11%) on the news. Please remember that Hornby is not just model railways, and that the statement about retail partners might relate to non-railway retail, but it might not...

 

The announcement is below:

 

Trading Update

 

Hornby Plc, the international hobby products group, provides an update to shareholders on the progress of the new strategy.

 

Current Trading

 

 

As announced on 17 October 2017, the Board has determined that to maximise the value of its brands over the long term, the Group will no longer offer for sale large quantities of stock at a discount. There has been overwhelming support for this change, especially in our largest channel, the independent retailers. However, rebuilding the trust in the pricing architecture takes time and some of our retail partners are taking longer than others to accept the new approach.

 

As a result of the reduction in discounting and a continuation of late product deliveries in the international segment; the sales performance over the key Christmas trading period was below management expectations.  Both of these factors had an equal impact up on the under performance of the business. 

 

We now have some visibility into the outcome for the full year and because of the revenue shortfall, the underlying loss after tax is likely to be larger than the board's expectations.

 

Cost Savings

 

The new management team have made a significant impact on the ongoing cost base. They have reduced the fixed overheads by £1.7m since joining and the Board believes that there are further procurement efficiencies to come as we reorganise our supply chain towards mutually beneficial partnerships.

 

Lyndon Davies, Interim Chairman and CEO, commented:

"We remain committed to the strategy that was outlined in the half year results. We are already starting to see evidence of positive momentum in the pre-orders for our new product ranges that were announced at the beginning of the year as well as old retail partners re-engaging following the end of the discount-era.

The design and production cycles are long in this business and whilst we are excited about the products we have in the pipeline, it will take time for the new products to come through and for the trust with our customers to be fully rebuilt.

The change in strategy has meant that the Christmas trading period was tough and there is likely to be some more volatility as we find out how off-peak trading performs for the first time in years without discounting. Despite this, we are determined to weather the storm and come out the other side with stronger brands, loyal customers, a leaner cost base and a better foundation from which to build a profitable and growing business."

 

The board intends to provide a more comprehensive review of the year in the final results in June.

Edited January 25, 2018 by Mel_H

[Mike Storey]

Reduction of £1.7m in "fixed overheads" in just six months sounds quite impressive (if no buildings, plant or other fixed assets have been sold). I wonder what these were. Does anyone know or do we just have to speculate until June?

[Clearwater]

Mike

I’d suspect some of that is sadly people losing their jobs. I also read it as an annualised figure that will appear as a saving in future years. Possibly also some pruning of trade associations, licences, things that build up in a company but I’d suspect getting rid of some ‘nice to have’ corporate functions.

 

£1.7m is a material number out of a c£40-50m cost base

 

David

[SteveCole]

Mike

I’d suspect some of that is sadly people losing their jobs. I also read it as an annualised figure that will appear as a saving in future years. Possibly also some pruning of trade associations, licences, things that build up in a company but I’d suspect getting rid of some ‘nice to have’ corporate functions.

 

£1.7m is a material number out of a c£40-50m cost base

 

David

 

Hi all,

 

Let's try not to 'suspect' when it comes to whether people are losing their jobs. Hornby has been very open about the new company strategy and it was always going to be a rocky road. I met with some of the guys at Hornby recently and I must say that I am really optimistic with the company's plans going forward. 

 

Thanks all.

 

Steve

[Coryton]

Hi all,

 

Let's try not to 'suspect' when it comes to whether people are losing their jobs. Hornby has been very open about the new company strategy and it was always going to be a rocky road. I met with some of the guys at Hornby recently and I must say that I am really optimistic with the company's plans going forward. 

 

Thanks all.

 

Steve

 

It says the reduction has taken place, so if it is job losses, they've already happened, surely?

[Edwardian]

It seems to me that here is a topic with more potential than most to cause argument (mind you, it's a pretty low bar on RMWeb, to be fair), and I suspect that much of the debate is based upon speculation, for want of enough solid fact.  

 

So, I tend to steer clear!  I also suspect that speculation cannot really have a positive effect, but may contribute to a negative one.

 

Having said that, we cannot ignore that a further profit warning has been issued.  It would be nothing short of a tragedy were Hornby to fold, not least when much of their recent output has been outstanding.  Matters have come full circle in my modelling life.  As a boy, Airfix and Mainline was the only good RTR (or "proprietary") stuff.  Contemporary Hornby stuff was crude and toy-like in comparison.  Now Hornby's best is only equalled by Bachmann's best.  Rapido will probably prove at least an equal in due course.  The others ... well.

 

I cannot say that I was thrilled at the appointment of Lyndon Davies, because what I have seen of Oxford Rail's products has not been very impressive, so one is bound to question the cost to Hornby's standards of his appointment. Moreover, the appointment of a rival CEO might simply smack of desperation.

 

On the other hand, LCD might prove to be a saviour, and I do not think his performance can be judged based upon a profit warning this soon after his appointment.  So, let's keep optimistic and an open mind.

 

As Hornby appears to need a Superman at this point, I thought I'd look into LCD's background.  Oxford Die-Cast was able to acquire Corgi's tooling from the Receivers of a company, of which LCD was the sole remaining director.  As such, it was LCD who had concluded that a rescue package proposed by the Board was not viable, and it was he who, thus, invited the bank to appoint the Administrative Receivers.  Thus, the tooling was saved, but not the company, and the Receivers had no expectations that the unsecured creditors, owed £1,631,936, would receive anything. That is all information contained in the Administrative Receivers' report filed at Companies House, by the way.

 

Sometimes, this is just the way the world works.  There are winners and losers and you save what you can.  I hope that LCD's experience of dealing with a troubled hobby manufacturer assists Hornby.  And I hope to goodness that it leads to a better result than was the case for Microlink Industries Ltd (formerly Corgi Manufacturing Ltd), or, indeed, its unsecured creditors. 

 

Aside from buying Hornby product and wishing them every success in pulling the situation round, I am not sure what any of us can do except keep our fingers crossed.  

[Fireline]

I think we ought to bear in mind that the figures the Stock Market were going on from the start of the year were issued by the old regime. If the new team have come in, and been lumbered with a wholly unrealistic set of targets, then there's not much they can really do, apart from the reduction in overheads mentioned. Give the new team a year in which they set their own targets, and see how they achieve against them.

[Edwardian]

I think we ought to bear in mind that the figures the Stock Market were going on from the start of the year were issued by the old regime. If the new team have come in, and been lumbered with a wholly unrealistic set of targets, then there's not much they can really do, apart from the reduction in overheads mentioned. Give the new team a year in which they set their own targets, and see how they achieve against them.

 

I think that must be right.

[The Stationmaster]

I think we ought to bear in mind that the figures the Stock Market were going on from the start of the year were issued by the old regime. If the new team have come in, and been lumbered with a wholly unrealistic set of targets, then there's not much they can really do, apart from the reduction in overheads mentioned. Give the new team a year in which they set their own targets, and see how they achieve against them.

 

Don't forget the new boss has moved the goal posts and put them in a very different position from the one they were in when the original forecast was made.  Hence the year end 'dash fo cash' with a bulk sale of heavily discounted stock was removed from the equation by a clear 'new management' decision not to trade that way.  Thus there has been a considerable change from the previous, complementary, policies of reducing stock levels and clearing stock in bulk in order to boost sales and cash figures.

 

But overall compared with just about everybody else in the UK model railway 'manufacturing' business Hornby is carrying very high management and marketing costs and a large high level managerial structure which imposes a financial cost on its operations, and is no doubt apportioned over its various ranges.  The company is in the unfortunate situation of being the wrong size in UK terms for its kind of business and that  £1.7 million apart, is where I would be looking to improve financial performance - and not at the levels lower down the tree where products, and therefore business and income, is generated.

[truffy]

is where I would be looking to improve financial performance

 

While I see your logic, #3529

[Legend]

Don't forget the new boss has moved the goal posts and put them in a very different position from the one they were in when the original forecast was made.  Hence the year end 'dash fo cash' with a bulk sale of heavily discounted stock was removed from the equation by a clear 'new management' decision not to trade that way.  Thus there has been a considerable change from the previous, complementary, policies of reducing stock levels and clearing stock in bulk in order to boost sales and cash figures.

 

But overall compared with just about everybody else in the UK model railway 'manufacturing' business Hornby is carrying very high management and marketing costs and a large high level managerial structure which imposes a financial cost on its operations, and is no doubt apportioned over its various ranges.  The company is in the unfortunate situation of being the wrong size in UK terms for its kind of business and that  £1.7 million apart, is where I would be looking to improve financial performance - and not at the levels lower down the tree where products, and therefore business and income, is generated.

 

Spot on Mike . Its cost base is still out of kilter with its overall size. It still thinks its a lot bigger than it really is . I would imagine Lyndon Davies coming from a fairly lean organisation will make an impact on that, and as you say that's where I'd be looking for better performance. It is unfortunate that the change of sales approach (no discounting) has had an immediate effect , but it is all part of the plan.   Wishing them well for the future , but they also need to sort out their QC.

Edited January 26, 2018 by Legend