Hornby's financial updates to the Stock Market

[Coryton]

You haven't noticed what has happened to it (or more pertinently what has not happened on it) since around the time of the Warley show?  Compare that with a year previously; compare what is it doing, and saying, now with the way it was going a year or so back.

 

No. I've never read the Engine Shed.

 

I misunderstood your post. I thought you were saying that Hornby had failed to move with the times, rather than that they had moved with the times and then backslid.

[Chamby]

Curiously in their 2017 annual report Hornby details, (for the first time I can recall), very detailed revenues by their product lines and channels, rather than regional reporting deep in the balance sheet.

 

They also break out their "key channels" with details how much of their UK revenue comes from "UK independent retailers" versus "UK Nationals" and break out significant overseas channels (which vary by product line), "exports" and "other".

 

Model railways ........ (Multiple brands) ... £22m

Slot cars .................. (Scalectrix) ............ £12m

Plastic modelling ..... (Airfix) ..................... £6m

Collectible models .. (Corgi) ..................... £4m

Specialist paints ..... (Humbrol)  ............... £2m

 

Total revenues are £47.4m

 

As you point out, revenues of course do not indicate the level of investment or expenses by product family, brand or region, and while regional information continues to be published in the balance sheets, this is a far greater level of transparency in reporting to their shareholders than we have seen from the PLC in the past.

 

I would recommend that anyone sharing an opinion on Hornby PLC's business predicament would take some time to understand the complexity of their business at least as it is communicated to shareholders in the report summaries (separate from examining the balance sheets in detail).

 

Being primarily British model railway enthusiasts we tend to conflate British model railway products with Hornby PLC, but model railways sold under the Hornby Model Railway brand likely represent not more than 33% of the PLC's overall revenues, which I think people might find a bit surprising.

 

You are right, but we also need to remember that Hornby’s customer base is less well defined. Railway modellers will account for a good chunk of their specialist paints, and a slice of their plastic and collectible models. I have seen a lot of painted Airfix kits on model railway layouts!

[jjb1970]

I think that many enthusiasts are under a fundamental misconception that the cost of a product is established based on cost of production + X%. The cost of production and distribution may establish a minimum cost to make an acceptable return but the actual cost will include consideration of what the market will support amongst other factors and the final price may have no relationship with the cost of production. The other misconception is that there is some sort of fixed cost of production so that if company Y claims their models cost however much because of abc then that must be true for all others and ignores the fact that there are very few genuinely fixed costs in a business. Raw materials costs have been suppressed in recent years and shipping containers around the world costs peanuts. Even oil prices have been a lot lower in recent years. The thing that must have hammered importers over the last couple of years was the devaluation of sterling but that has staged a recovery in recent months.

Models cost what they cost, end of. You either consider the product to be worth the price or you don't. Buy or don't buy.

Edited January 28, 2018 by jjb1970

[darren01]

For sure there are additional labour costs in China . My feeling is that raw materials have stabilised after a decline in price , and are forecasted to increase,but I’m not seeing large increases out of China just yet. Shipping costs of a container remain very low.

 

Now if you look at costing. There’s the actual cost of making the model. There’s the manufacturers mark up (Hornby sub contract manufacturing,so the sub contractor has to make a profit, in Bachmann case Kader makes profit on assembly) then there’s Hornbys mark up (or Bachmann UK) then there’s the retailers markup . By the time it’s been through all that I think you’ll find that labour cost is a very small % of the overall selling price.

 

I concur with Corytons view that the price is set by companies based on what they think they will get for it, or what the market will take.

Funny how a shop at the weekend where selling Hornby T9's for £38.99, just shows the mark up on models, unless he was selling them at a huge loss

[Legend]

Is that the case? I haven't been paying much attention myself, but aren't they trying to engage with customers on the internet via The Engine Shed?

Yes but they are still intent on a yearly product launch per Simon Kohler. Not bad if it coincides with Warley or at least announce something there. I fear in marketing at least they are going backwards.

Edited January 28, 2018 by Legend

[Legend]

Funny how a shop at the weekend where selling Hornby T9's for £38.99, just shows the mark up on models, unless he was selling them at a huge loss

Wow , that certainly sounds like distress prices and not typical. I doubt he was selling it at a loss but perhaps that’s closer to the real cost of manufacture. Perhaps he has an imperative need to turn stock to cash. Note I am not advocating these types of prices. Clearly companies have to make reasonable or good profits to be sustainable.

Edited January 28, 2018 by Legend

[Legend]

You are right, but we also need to remember that Hornby’s customer base is less well defined. Railway modellers will account for a good chunk of their specialist paints, and a slice of their plastic and collectible models. I have seen a lot of painted Airfix kits on model railway layouts!

Seen any big guns?

[Widnes Model Centre]

Funny how a shop at the weekend where selling Hornby T9's for £38.99, just shows the mark up on models, unless he was selling them at a huge loss

I bet the owner of the shop doesn't find that price remotely funny. That is a HUGE loss. Care to name the shop?

[Ouroborus]

You either consider the product to be worth the price or you don't. Buy or don't buy.

 

Absolutely.  And even though I've wanted an APT and a grey blue pullman for years and fortunate enough to have a job which means i can comfortably afford them, i don't consider £1000 to be "worth the price" of a toy train.  I'm out.

[darren01]

http://www.aoakesmodeltrains.co.uk/

  Many Loco Bargains in Hornby and Bachmann, Graham Farish. THIS SATURDAY (27TH JANUARY) ITS 70% DAY!
LOOK FOR THE SPECIAL TICKETS

 
R3401 Hornby Bristolian Train Pack £304.99 This Sat £91.49

R3228 J94 NCB £119.99 This Sat. £35.99

R3106 GWR Class 28XX £143.99 This Sat £43.20

R2845 & R3194 School Class £159.99 This Sat £47.99

R3017 Patriot and R3003/R3004 B17 This Sat £47.99

R3114A B1 £149.99 This Sat £44.99

R3129 M7 £129.99 This Sat £38.99

R3104 J94 £119.99 This Sat £35.99

R3132 Class A3 £174.99 This Sat £52.99

R3131 LNER A4 £179.99 This Sat £52.49

R3107 T9 £129.99 This Sat £38.99

R2963 A1A-A1A £179.99 This Sat £53.99

Bachmann NEW UN-BOXED LIGHTED PULLMAN COACHES £69.95 This Sat  less 70% £20.98

Selected Hornby Skaledale Buildings e.g. R9763 Barbers Shop This Sat 6.89

Here you go.

[Coryton]

I bet the owner of the shop doesn't find that price remotely funny. That is a HUGE loss. Care to name the shop?

 

And indeed you can't learn much about trade prices by what one shop sells one model at. Or even a few.

 

The way to know what trade prices are is to have access to a list. Otherwise it's all (somewhat uninformed) speculation.

[Widnes Model Centre]

 

http://www.aoakesmodeltrains.co.uk/

  Many Loco Bargains in Hornby and Bachmann, Graham Farish. THIS SATURDAY (27TH JANUARY) ITS 70% DAY!

LOOK FOR THE SPECIAL TICKETS

 

R3401 Hornby Bristolian Train Pack £304.99 This Sat £91.49

R3228 J94 NCB £119.99 This Sat. £35.99

R3106 GWR Class 28XX £143.99 This Sat £43.20

R2845 & R3194 School Class £159.99 This Sat £47.99

R3017 Patriot and R3003/R3004 B17 This Sat £47.99

R3114A B1 £149.99 This Sat £44.99

R3129 M7 £129.99 This Sat £38.99

R3104 J94 £119.99 This Sat £35.99

R3132 Class A3 £174.99 This Sat £52.99

R3131 LNER A4 £179.99 This Sat £52.49

R3107 T9 £129.99 This Sat £38.99

R2963 A1A-A1A £179.99 This Sat £53.99

Bachmann NEW UN-BOXED LIGHTED PULLMAN COACHES £69.95 This Sat  less 70% £20.98

Selected Hornby Skaledale Buildings e.g. R9763 Barbers Shop This Sat 6.89

Here you go.

 

 

Looking at this list, there a lot of discontinued items in there. Looking at the website, it doesn't actually make it clear whether these are new or used unless you can point me in that direction Darren? It does say the Bachmann coaches are new but unboxed. Potentially huge losses on all those items. Have you seen the top right corner of that web page? It states  PLEASE NOTE:  ALL PRICES SUBJECT TO VAT AND CARRIAGE.

Edited January 28, 2018 by Widnes Model Centre

[LBRJ]

A Oakes is also not a "model shop" - They are a general shop with a model section. Add VAT onto the prices and its a 50% sale .

[Legend]

And indeed you can't learn much about trade prices by what one shop sells one model at. Or even a few.

 

The way to know what trade prices are is to have access to a list. Otherwise it's all (somewhat uninformed) speculation.

You’ll never see it. In any case I don’t begrudge the Model Railway retailer from making a living. They are disappearing fast so need all the help they can get. What would be truly fascinating , and even more unlikely to see, is a full costing of the actual build of locomotive that is then sold from manufacturer to Hornby or Kader to Bachmann . That would be fascinating

[Legend]

A Oakes is also not a "model shop" - They are a general shop with a model section. Add VAT onto the prices and its a 50% sale .

Still good though.

[Widnes Model Centre]

And indeed you can't learn much about trade prices by what one shop sells one model at. Or even a few.

 

The way to know what trade prices are is to have access to a list. Otherwise it's all (somewhat uninformed) speculation.

As you would suspect, we do have such a list. Had a quick look and cannot see if any of the above have been offered to the trade at discounted prices.

I feel for the shop owners if they have had to resort to selling at such losses.

One can never see what some shops sell at compared to others when you have pricing that leaves much to be desired. Last week Argos had the Santa's Express reduced from £99.99p to £57.99p. That was the 2017 rrp from recollection, £57.99p. Now Argos this week have it in their clearance was £99.99p now £48.99p.

[Legend]

It may we’ll be that the shop is clearing its sticks at less than cost, maybe even scaling back or closing its modelling dept. Hopefully it’s just getting rid of old stock.

[phil-b259]

Funny how a shop at the weekend where selling Hornby T9's for £38.99, just shows the mark up on models, unless he was selling them at a huge loss

 

Sorry, I smell a rat.

 

You know the phrase "it looks too good to be true" - well I suspect that applies here.

 

Firstly the website says all prices exclude 20% VAT - not usual business practice for places that are trying to sell to the public rather than the trade only.

 

Secondly the claim of 'New' but 'unboxed' carriages makes me think they have been separated from train sets / train packs

 

Thirdly when you click on the 'how to find us tab', the header that appears in Firefox changes to "Boy's & Girl's School Uniforms & Sportswear"

 

Not to say there is anything wrong with the retailer as such - but there is no way they can do this without selling things at a loss.

Edited January 28, 2018 by phil-b259

[amwells]

I think it’s been covered in the Bargain Hunters thread - a sale of a few 1s and 2s of old stock that grab headlines, show some loyalty to local customers (all available in store only) and gone within a few minutes, every few weekends.

 

Promotional, yes (and why not!?). Indicative of the rest of the trade? Certainly not!

[Chris M]

Every year the shop in question sells off stock that has been around a few years and has been dropped from the current catalogue. It is just a small number of items to personal visitors only on Saturdays during January. They are genuine bargains. They have been selling model railways for over 50 years to my knowledge and are amazing in that they are still an independent, small department store. The guy who runs it must know what he is doing and is a good supporter of our hobby.

 

I call in there fairly regularly and bought all the track for my last layout from there because they were reasonably competitive on price and its good to support local shops selling model railways. It has nothing to do with the fate of Hornby and is not all that relevant to the state of the market at the moment.

[Chris M]

Going back to tooling costs. For financial accounting purposes tooling cost is amortised against production and so may be paid for according to the books from one run. The problem is real world cash flow. From a cash point of view sales of current models need to raise funds to invest in tooling for future models. So, if tooling costs go up then current model prices will have to go up in order to fund the required investment for new models which are essential to keep the business going. Of course if sales then go down due to the price increase you end up having to borrow in order to invest in new tooling and you are on a downward spiral. Always remember it is cash flow and not lack of profitability which causes businesses to go bust. Profitability and cash flow are only tenuously linked. It is possible for companies to make a loss for years but not go bust while some very profitable companies have gone under because they ran out of cash.

 

Business is hard which is why most of us don't do it.

[jjb1970]

I find it nice to hear about local businesses still selling model trains. There is life beyond the big 3 box shifters.

 

On models and pricing, something that gets lost is that the expertise and capability to produce a product to an exceptional standard has a value of its own. People seldom work for free beyond a bit of supplementary pro bono work and talent and expertise has a value.

 

I think the biggest misnomer is applying the arguments applicable to one company more widely. Bachmann's air con mk. 2 coaches won't be cheap but clearly the price reflects what Bachmann consider to be appropriate. Oxford have just released a very good mk. 3 at a bargain price and announced a rail gun for fifty quid. And Oxford won't be selling at a loss The difference in price will result from all sorts of variables and illustrate quite well that extrapolating prices from one manufacturer to represent others is fundamentally flawed.

[Coryton]

You’ll never see it. In any case I don’t begrudge the Model Railway retailer from making a living. They are disappearing fast so need all the help they can get. What would be truly fascinating , and even more unlikely to see, is a full costing of the actual build of locomotive that is then sold from manufacturer to Hornby or Kader to Bachmann . That would be fascinating

 

No I'm not likely to see a list of trade prices and nor should I. And it's very easy to understimate how much mark-up it takes to keep a shop running.

 

Model shops aren't exactly raking it in so whatever the markups are, they clearly aren't excessive.

[Clearwater]

Going back to tooling costs. For financial accounting purposes tooling cost is amortised against production and so may be paid for according to the books from one run. The problem is real world cash flow. From a cash point of view sales of current models need to raise funds to invest in tooling for future models. So, if tooling costs go up then current model prices will have to go up in order to fund the required investment for new models which are essential to keep the business going. Of course if sales then go down due to the price increase you end up having to borrow in order to invest in new tooling and you are on a downward spiral. Always remember it is cash flow and not lack of profitability which causes businesses to go bust. Profitability and cash flow are only tenuously linked. It is possible for companies to make a loss for years but not go bust while some very profitable companies have gone under because they ran out of cash.

 

Business is hard which is why most of us don't do it.

I agree. Cash was, is and will be king. Turnover is vanity, profit is sanity etc etc

 

I did note that last year’s depreciation charge was broadly similar to the capex figure. Suggests they’re staying flat/despecifying tooling to keep cash out flow level.

 

Ultimately, profit and cash flow have to tie back. Question /difference is working capital and access to liquidity to fund that timing gap.

[stewartingram]

Sorry, I smell a rat.

 

You know the phrase "it looks too good to be true" - well I suspect that applies here.

 

Firstly the website says all prices exclude 20% VAT - not usual business practice for places that are trying to sell to the public rather than the trade only.

 

Secondly the claim of 'New' but 'unboxed' carriages makes me think they have been separated from train sets / train packs

 

Thirdly when you click on the 'how to find us tab', the header that appears in Firefox changes to "Boy's & Girl's School Uniforms & Sportswear"

 

Not to say there is anything wrong with the retailer as such - but there is no way they can do this without selling things at a loss.

 

There is one way of doing it.

 

If they buy in 10 items at £50 each, (£500) and sell 9 at £75 each. (£675) they have overall made £175 profit with 1 still remaining. They could GIVE it to you and still be in profit!

 

Stewart