Hornby's financial updates to the Stock Market

[melmerby]

Looking at other threads I think we can lay any dreams of N gauge or a return of TT to bed for the foreseeable future.

 

It's sad that Hornby is lurching from one disaster to another, perhaps a break up and a reestablishment of a railway company, it can still include the Euro brands but get out of kits, paint and novelties.

But where is the money to be made?

I thought trains were less profitable than other things.

 

Keith

[TrevorP1]

I wonder if it's too much to hope that the model railway side of Hornby now passes into the hands of people who know what they are doing?

 

Hornby obviously have some talented and dedicated staff. Equally there must be people who are... shall I say, 'less than competent'. 

 

The company has several products in the pipeline which I hope still appear and which I intend to purchase. However, I feel I would be a fool to buy them as soon as they appear since on recent form they are likely to be heavily discounted in the not too distant future. The obvious result of this is that I don't get my toys, the retailers I use have unsold stock and Hornby have a warehouse full of goodies that nobody will buy... 

[Mel_H]

Surely this has been coming. The leaving of Simon Kohler. The refusal to supply models to the magazines for review. The treatment of the retailers. The emphasis put on The Club and internet trading. Quite a lot of railway modellers are in later life but they have disposable income to purchase expensive models. However they are often great traditionalists and the internet may not be for them. I hope something can be done as Hornby is a great brand and have produced some great models. 

It is possible for the company to survive with more drastic action (they've already suspended the dividend). Others have done so. Although it was a different set of circumstances, First Group was seen as a basket case a few years ago and was facing a rights issue (selling new shares to raise cash - this devalues existing shareholders' holdings), with much talk of a business break up. Whatever happens, Hornby PLC's brands are strong. Clearly it needs to improve its business relationships and a few other things, but the firm is not a dead-beat. Let some optimism remain...

[Adams442T]

An addendum to my post #23:

 

Something I'd forgotten until I saw Andy and Dave's posts later:  We also had the same situation with Britains in that that they tried to 'pump' stockists with goods, then as part of their selling direct, massively discounted stock after Christmas. 

 

Result: seriously pee'd off stockists, and customers, who weren't daft, waited for 'the sales', then were complaining when they didn't get the bargains the next year.  Plus several retailers just stopped stocking them.

 

Deja vu strikes again!

[andyman7]

Let us not forget that the original Meccano company, owner of the Hornby brand was bought out in 1964 by Lines Brothers; in 1971 when Lines Brothers collapsed it was bought out by Dunbee-Combex-Marx; in 1981 when the latter collapsed it was the subject of a management buy out. As regards Airfix, the original Airfix group collapsed in 1981, it was sold to US conglomerate General Mills, who pulled out of the business in 1985 when Humbrol took over; after several changes of ownership, that group collapsed and was bought by Hornby in 2006. Corgi was a product of the Mettoy Group which collapsed in 1984, and was the subject of a management buyout, ownership for a period by Mattel and then by venture capitalists before being sold to Hornby a few years ago.

 

What I am saying is that the brands and the products have proved remarkably resilient through numerous recessions and parent company failures. Hopefully Hornby plc will make it through their current woes but I am optimistic that the brand and the models will survive come what may.

[ruggedpeak]

Anyone believing Hornby's £9m debt is insignificant as far as Barclays is concerned should think again. 

That is the problem, it is not significant enough for Barclays to worry about if they are in trouble. £9m is arounding error, Barclays will shortly being paying $70m in fines for their deep pool activities, they were fined £290m over LIBOR in 2012, and put aside £1bn on PPI payouts. Barclays will barely notice £9m.

 

I'm afraid that not only is £9m diddly squat, but sufficiently diddly squat that a computer may decide that the assets are only a bit less than this to recommend it be shut down and sold off, so they just take say a £2m loss rather than dragging it out. Or it may decide on other more positive options. It pulls the funding and the company can be insolvent overnight. They did it to the company my other half worked for despite it being profitable and close to paying off its debts. Pulled the finance without explanation or reason - made no business sense but they did it anyway. 

 

We have no idea how serious this funding issue is, and hopefully it is quickly resolved, but the only thing worrying Barclays about Hornby is the PR fallout if they closed the business.

[bazjones1711]

Just think of all the class 60 liveries there have been, Hornby could have cashed in on this opportunity , a boxed set of BS blue 60006/60033 or in Corus silver, then make a HTV coal hopper in bauxite , they've done a tope wagon which is just a cut down version , would have a best seller in my opinion, not churn out this same old grey ones! What about the new coke wagons, two versions only ?, why not do the third version ? All steel sides/ ends again surely would sell well. There's opportunitys to make money here by making what the modeller wants not what you think they want ! There is a vast difference and that shows today with the possibility of the company failing

[Tim Hall]

Just think of all the class 60 liveries there have been, Hornby could have cashed in on this opportunity , a boxed set of BS blue 60006/60033 or in Corus silver, then make a HTV coal hopper in bauxite , they've done a tope wagon which is just a cut down version , would have a best seller in my opinion, not churn out this same old grey ones! What about the new coke wagons, two versions only ?, why not do the third version ? All steel sides/ ends again surely would sell well. There's opportunitys to make money here by making what the modeller wants not what you think they want ! There is a vast difference and that shows today with the possibility of the company failing

Don't think there's £9 million of business in that lot though...unless you know some VERY keen Class 60 fans......there's something very wrong elsewhere.

[bazjones1711]

There's probably more profit in class 60's than doing a class 71!

[Tim Hall]

There's probably more profit in class 60's than doing a class 71!

Still a drop in the ocean.....major restructuring would seem to be the only way forward.

[highpeakman]

Let us not forget that the original Meccano company, owner of the Hornby brand was bought out in 1964 by Lines Brothers; in 1971 when Lines Brothers collapsed it was bought out by Dunbee-Combex-Marx; in 1981 when the latter collapsed it was the subject of a management buy out. As regards Airfix, the original Airfix group collapsed in 1981, it was sold to US conglomerate General Mills, who pulled out of the business in 1985 when Humbrol took over; after several changes of ownership, that group collapsed and was bought by Hornby in 2006. Corgi was a product of the Mettoy Group which collapsed in 1984, and was the subject of a management buyout, ownership for a period by Mattel and then by venture capitalists before being sold to Hornby a few years ago.

 

What I am saying is that the brands and the products have proved remarkably resilient through numerous recessions and parent company failures. Hopefully Hornby plc will make it through their current woes but I am optimistic that the brand and the models will survive come what may.

 

I think that there is a great deal of truth in the above and that Hornby will certainly continue in similar form although whether under the same management is to be decided yet.

 

However, as an ex company director who helped to build a successful and profitable business I cannot understand how a business can be developed and prosper without looking after and talking very closely to it's customers - in this case trade retailers and their customers. As others have mentioned, you absolutely need that relationship to maximise your sales and produce the right products. Disconnect at that point and you may as well give and go home. Maximise sales and it brings profits.

 

The most successful companies I worked for were Sales led. i.e. The sales departments were close to customers and provided the feedback on products that were needed. They also had such good relationships that any problems with product or supply could be overcome by working together.

 

However it is also certainly true that good accountants are also vital as firm cash control and forward cash planning is needed to curb the "enthusiasm" of the sales guys and make sure that the product is sold profitably.

 

Anyone can sell anything for a low price, the trick is to sell for a profit. This means a good management combination of various skills working together.

 

My company was sold to a larger group who just did not understand the first principals of cash control or their customers and have seriously damaged an excellent business with a consequent loss of staff. Sad.

 

Cash is King!

[Mike at C&M]

Hornby have done very little to encourage we retailers to want to do business with them, whilst there are plenty of reasons which discourage us from wanting to put business their way.

 

Their January sales figures will surely reflect this.

[Ron Ron Ron]

I do wonder how much of that 17% increase in sales, in the "run up to Christmas", was a result of a string of several on-line sales (of which Black Friday was only one), the dumping of stock into some sectors of the retail trade (e.g. Amazon) and the big warehouse clearance?

 

At the time, some on here speculated that it was an exercise in both acquiring desperately needed cashflow and off fluffing up the balance sheet, to make it look healthier than would otherwise have been the case.

 

 

 

.

[Ian J.]

This appears to be pretty poor news. I certainly hope a way for Hornby to continue is found, whether it is with the current owners/management or a change of ownership. If the latter then I hope that Kader don't acquire them as it would reduce the players in the marketplace and I don't think a virtual monopoly of main stream manufacture by Kader would be good for the hobby.

 

My thoughts go out to the employees of Hornby, whether directly or indirectly employed, as they will be feeling less than stable in life right now (and I know only too well what instability can do to someone).

[87004]

Oh my what a pickle Hornby are in.  I had thought with the new directors appointed a year or so back that things would be sorted by now.

 

I've had a theory for a while that the larger investors (some of them venture capitalists) were planning on taking the company private.  The move to the Alternative Investment Market (AIM) being the first step.  With the likely breach of banking covenants, I'm sure they could make an offer for the assets of the company to the bank?

 

The number of companies I have seen that have had serious disasters with botched Enterprise Resource Planning (ERP) systems, mainly SAP.  MFI, remember them?; British Gas, Npower to name a few. How can something that is a glorified stock control and ordering system go so badly wrong?

 

But I think the main place they went wrong was allowing their major manufacturer be taken over by a competitor.  That caused them five years of pain that I feel they never really recovered from.  They effectively had to buy the tooling back from Kader, some of it never reappeared, look at the Mk3 restaurant car roof fiasco.

 

(Removed mean spirited comment about shrinkage)

Edited February 11, 2016 by 87004

[robmcg]

Well I for one am surprised. Hornby railways seemed to be firing on all cylinders this last year, with the K1, J15, D16/3, J50, King, Drummond 700, S15 and Crosti all coming to market. That is an unprecedented number of new locomotive models from one manufacturer in a year.

 

I would have fervently hoped this translated into a decent level of profit, for ploughing into this and next year's new models.

 

John

 

Will 2015 go down as the best year for UK railway models?   I like many other have an attachment to Hornby stemming from a childhood with great model trains, good feelings generally, and the brand name must have enduring value, or has it?   Maybe the expansion into other names like Corgi and so on 'seemed like a good idea at the time', Hornby directors certainly have some hard decisions to make.

 

I still expect to see an original Merchant Navy this year, 21C1 preferably!  

 

typo edit.

Edited February 10, 2016 by robmcg

[darren01]

Hi

"Maybe then I may buy a product without it sticking in my throat to do so".

That is spot on Andy, as the last two years i been feeling the same, and not just with Hornby.

[gismorail]

Coming from a tax audit background in my previous career, I was concerned to hear from my local Hornby retailer a couple of weeks ago, that he had received a large amount of stock from Hornby, that he hadn't ordered and which he had been invoiced for, so clearly not a delivery error. His attempts with Hornby accounts to find out why this had happened were met with 'reps error' as the main excuse. Due to the then warehouse closure, he could not arrange for the excess goods to be returned until the warehouse re-opened.

I wondered at the time if this was a way of reducing stock and increasing sales at the end of an accounting period, as I'd seen this happen in other businesses in my audit career. The goods then come back into stock after the stocktake as returns and credit notes are issued for the accounting. This is only info from one retailer, so it would be unwise to treat this as a widespread issue, but other retailer members could indicate if similar issues occurred before the stocktake.

You are spot on with this observation and assessment which does not make for pleasant reading. There is a large retailer quite near to here that would appear to have experienced the same 'stock clear out' I visited the shop a couple of weeks ago and the shop was full to busting with Hornby trains sets which had not sold over the Christmas period and to be honest it was like a supermarket / wholesaler rather than a shop.

I was talking to another retailer which I use for mail order, only at the weekend as I was enquiring about the possible pre-order of the forth coming Q6 locomotive and was told that they had made stopped dealing with Hornby as they could not make any profit out of the product due to Hornby's Direct Sales , so how many more shops feel the same.

As has been said I think the 's--t is about to hit the fan' which will be very sad indeed.  

[robmcg]

Hornby as a brand will never disappear - it is far too valuable. (and that includes the other brands as well)

 

In the unfortunate event that Hornby's management is unable to rescue the company from it's current position - I wouldn't be surprised if another manufacturer, possibly US or Chinese, buys a majority shareholding and takes it out of public ownership.

 

More likely an offshore asset-management company might buy the name 'Hornby'.

 

I am interested in how this affects the actual process of design, manufacture and sale of current style models, and don't want to see the outstanding development work on models going to waste.

 

My feeling is that high quality models like the new King, S15, and so on are not exactly in huge demand. A range of reasons, customer base, disposable income, very large numbers of s/h models in circulation among them.

[jjb1970]

Hornby have got on top of their supply chain issues with manufacturers and the quality of their product has rebounded. Over the last year they've been releasing excellent models on a regular basis and now seem to be the leader in terms of UK producers getting new items developed and onto the market. Which indicates their problem with trains at least is not about being unable to respond to the market, they are ahead of the others in terms of getting their product out nowadays. Their communications with customers seem to be OK, the engine shed has been well received and Simon Kohler's blog is ever reliable. Their problems seem to be much more about managing distribution and marketing than any problems with product or customer communication. Their heavy discounting has created an expectation of discounting which must be affecting sales at SRP (but then again, not that long ago people took discounts of 20-30% from box shifters for granted anyway. I fundamentally disagree with the idea that they cannot thrive unless their management are rail enthusiasts. They have rail enthusiasts in the roles that need such people and their product is now excellent, their problem is now about managing a business efficiently and managing distribution and marketing. Marketing people need an empathy with customers but financial and logistic management needs people with particular skills which are not related to liking model trains.

[Trains4U]

Looking at other threads I think we can lay any dreams of N gauge or a return of TT to bed for the foreseeable future.

 

It's sad that Hornby is lurching from one disaster to another, perhaps a break up and a reestablishment of a railway company, it can still include the Euro brands but get out of kits, paint and novelties.

 

Why?

Airfix kits and Humbrol paint are the only Hornby brands selling well right now...

Edited February 10, 2016 by Trains4U

[Coryton]

More likely an offshore asset-management company might buy the name 'Hornby'.

 

 

Let's suppose that Hornby is broken up (and of course it's by no means clear that this will happen). 

 

There are two things of interest to most of us here - the tooling and the brand itself.

 

The history of model railways in the UK is a complicated one of brands and tooling changing hands, and there's no reason in principle that the two have to go together.

 

Clearly there are various possible scenarios.

 

Probably the most disturbing for most of us here would be for the name to be split from the tooling, and the name used to sell something cheap and nasty (yes worse than the current train-set 0-4-0 - think of the battery powered cheap plastic train and a loop of track type things that make an appearance at Christmas each year). This could probably generate significant sales from people who don't know any better while the name gradually becomes (irretrievably?) tarnished.

[Zero Gravitas]

The number of companies I have seen that have had serious disasters with botched Enterprise Resource Planning (ERP) systems, mainly SAP.  MFI, remember them?; British Gas, Npower to name a few. How can something that is a glorified stock control and ordering system go so badly wrong?

Having spent most of the last 20 years involved in the implementation of large ERP systems, likening SAP to a glorified stock control and ordering system is a bit like saying a Saturn V rocket is a glorified firework...

 

The SAP tag-line used to be "the best-run businesses run SAP". This is true in the sense that you have to be a very well run business to have any hope of implementing any ERP system successfully - otherwise you're just going to get yourself in trouble much faster.

[jetmorgan]

It would be interesting to hear what the sales are like for the company that own the Bachmann, Farish etc etc range . If they are similar then the hobby is in a worrying state. My own fear is that the whole hobby is now in the hands of the collector, who are expecting more & more accurate detail and is pricing only those with a large disposable income out of the market so the market is getting smaller & smaller, especially as this group does seem to be the much older generation. Going through the Bachmann & Hornby websites there are fewer locomotives...even tank engines that are under the £100 level. Very few coaches under £25 and few wagons under £10.

 

Granted Hornby do have their Railroad range but this I believe is only a limited range and Hornby don't produce a Railroad & a full cream version of each of their models and looking at some of the Railroad stuff that too is nearing the £100 level. So it seems to be pricing those that are happy to just play trains...no matter how old they are...away from the hobby.

 

When I was going from playing trains to more modelling railwways we had the likes of Hornby who were making more toy like models than todays range and the likes of Airfix & Mainline and while Airfix & Mainline were more detailed they were still reasonably affordable and then you had the kit manufacturers like Wills, Southeastern Finecast, DJH, Nucast & K's & Ian Kirk that were more expensive and more detailed for the more experienced modeller. Added to that you had companies like Crownline that di a whole range of conversion and detailing kits for the likes of Hornby, Lima, Airfix/Mainline to build something different or a more detailed model. So everyone was catered for from those who were just happy to play to those who wanted to model...and everyone in between.

 

My own situation now is that I'm modelling on an extremely tight budget...if I have a budget at all!!! so everything I buy has to come through either Ebay or through the bargain bucket boxes on trade stands at shows tends to be old 1980's/90's models and even that is starting to get a bit pricey, I witnessed an old Replica Railways )) gauge pannier tank being sold for £59 and sitting right next to it there was a Farish N gauge pannier tank going for exactly the same amount.

[Mike Storey]

Am I right in thinking that a large percentage of Hornby stock due for the Christmas market in 2014, didn't actually arrive on to retailers' shelves until January 2015? This would have inflated January figures and deflated the pre-Christmas sales. If the analyst, who supplied the 2015/16 income projections, had not taken this into account, then the distortion would exaggerate the figures now being reported.

 

Their difficulty over pricing and consequent income projections, must have arisen from the fact that, prior to 2015, supplies of ,most items were artificially limited by production problems and many of us pre-ordered on the basis that the item would be sold out if we waited. Then the glut came. Any decent economist or accountant could have predicted the outcome. Either they had poor advice or they arrogantly ignored the runes and predicted that RRP would continue to rule as though the market was not yet saturated. They have been disabused of that notion. 

 

Bachmann have increased their prices but appear to have managed this issue in a superior way (as far as we know). So it is not about RRP, but about the panicked reaction when their assumptions did not pan out. Lost relationships and lost customer loyalty did not match their business school model of direct marketing.

 

Dysfunctional board room strategy is ruining the very great strides they have made in product development - in Hornby International penetration as well as domestic supply - even to the extent of trying to correct quality control problems with the Humbrol brand, by bringing production back to the UK. This is almost an Alice - Looking Glass situation, compared to around 18 months ago, and we were all guilty of saying that if they got their supply chain right, all would be well. Apparently, they thought so too.