Hornby's financial updates to the Stock Market

[Coryton]

On what basis are you making that assertion? It seems to be the general understanding that it's impractical for anyone outside the business itself to be sure about this, since the published financial information doesn't specify it down to this level of brand segmentation; and although Hornby themselves will (should!!) certainly know, the information remains within Management Accounts that are produced 'for internal use only'.

Presumably if you run a model shop you know what you're selling....but I suppose rolling stock is more likely to be sold directly from Hornby...

[melmerby]

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.

I know of one model shop that can't even buy from Hornby any more. They presumably decided they weren't worth bothering with.

They get their stock through a third party and now don't have any margin to discount!

 

Keith

[Legend]

On what basis are you making that assertion? It seems to be the general understanding that it's impractical for anyone outside the business itself to be sure about this, since the published financial information doesn't specify it down to this level of brand segmentation; and although Hornby themselves will (should!!) certainly know, the information remains within Management Accounts that are produced 'for internal use only'.

I suspect he's basing it on what is moving off his shelves. Seems reasonable to me.

 

I also now wonder who actually buys trainsets. The reality is that a train that runs round a very small oval of track has very limited functionality and really do kids want trainsets anymore or a Scalextric compared to some of the cheaper tablets or a new phone? We were much easier to please in the 60s compared to today's more discerning children who do seem to grow up faster. That's why Smyths don't stock them, because people won't pay£100+ for them . They do stock "cheapo trainsets" because people are prepared to buy them , I would suggest still in limited quantities, at lower prices. I wonder if the bottom has now really fallen out of the trainset and scalextric market, which would affect Hornby proportionately more.

Edited February 10, 2016 by Legend

[RJS1977]

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.

 

Exactly. You can't keep pricing people out of the hobby and expect sales to rise at the same time.

[No Decorum]

http://www.rmweb.co.uk/community/index.php?/topic/82314-Hornby-appoint-new-ceo/

 

*Sigh*

[Gwiwer]

The management.

 

That is a very telling, open and honest post from The Management here.

[Dunsignalling]

It's difficult to know what to advise. Certainly dumping some stock at low prices has damaged the brand even though I have to say I've taken advantage of this. On the other hand had they maintained high prices I wouldn't have gone near them anyway, so they at least got some income from me.

 

 

 

Increasing prices is not the answer. There is a limit to what the general enthusiast will pay. I do wonder if there is a mass movement away from high cost hobbies to more moderate ones. That could explain why Airfix is doing relatively OK( per Trains4u). It certainly mirrors what I've been doing cutting my expenditure on model railways (mainly that's been Bachmann items, actually spent more with Hornby last year)

But, if they made a loss on the items you bought, they'd have been better off not making them in the first place.

 

Without profits, no company can survive and, just as in any other industry, products and prices need to be geared to customers who are able and willing to pay "enough" (whatever that might be). That means ending overproduction before everybody starts sitting on their hands for three months after every new model is released, waiting for the "desperation discounting" you benefited from.

 

Maintaining cash flow dictates that new models should be quite hard to find six weeks after release and almost impossible to get after ten.   

 

There will, inevitably be those who either can't or won't, pay the necessary prices at all and others who will buy fewer models but, so long as sufficient customers continue to spend, the company will endeavour to satisfy their requirements and thrive. If not, they'll go under, manufacture to pre-order only or switch to making something else entirely.  

 

John

Edited February 11, 2016 by Dunsignalling

[Dunsignalling]

With today's latest newspaper article 'Hornby on the Rocks' Evening Standard it has crossed my mind as to whether I would now risk putting in an order into the Hornby Website now just in case it goes bust before my order is fulfilled.      what do others feel ????

Just pay by credit card - not debit card - then you are protected.

[Kickstart]

Hi

 

Suspect one point with model railways (and Airfix kits, Corgi models, etc) is that the investment has a very long time to return money. Hornby are selling a large number of models designed and tooled decades ago (whether originally by Hornby, Airfix, Mainline, etc). OK, in some cases with updates over the years. Tweaks with colour schemes, minor mods, etc, supply extra sales with minimal costs. Compare that to many other products these days where the life cycle in quite short. Any initial profits from a new release are probably not covering the development costs. Suspect the costs of gathering info, planning, design and tooling a major new product (say the King) are upwards of several hundred thousand pounds, and if they make (say) 2500 units in the initial batch those costs would probably barely be covered by turnover of sales (Hattons want ~£150, £25 of which is VAT so say £100 actual cash to Hornby, £250k turnover for the 2500 batch covering development costs if production was free)

 

But partly stock has a long time on the shelf before selling. Part of the reason to have retailers is that they can pay early on (with a suitable discount and payment terms) and take the costs of stocking the items for months / years. Selling direct might mean that you get a bigger bite of the final sale price, but you loose the almost free long term stock holding. There is also the loss of the ability to quickly react to market conditions with long supply chains. In times passed if Hornby had an unforeseen extra demand for item X then they could adjust their on site production schedule to satisfy this demand. Now they are playing with production windows planned and bought a substantial time in advance with an external supplier. Combine the reduced flexibility with having to cover more of the stock costs themselves and getting planning slightly wrong can cost a disastrous amount of money.

 

All the best

 

Katy

Edited February 11, 2016 by Kickstart

[steve45]

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.

A full audit will review returns and credit notes issued during the period following a year end up until the time the audit is conducted, I think the point here is that Hornby had a 'warehouse closure' which precluded the return of the over supplied order, was this to defer the returns?

Also I doubt if the stock take suddenly revealed a shock £1 million stock write down, with today's manufacturing and stock control systems together coupled  with perpetual inventory, there should not have been any large stock losses, and good financial analysis and regularly reviewed stock provisioning should have ensured slow and obsolete stock was adequately provisioned within the financial year.

To me there seems to be some possibility of creativeness together with a lack of financial control.

It will be interesting to see if the CFO survives the crisis, quite a few walk for less.

 

And yes I am a bean counter by profession

[RJS1977]

 

 

Without profits, no company can survive and, just as in any other industry, products and prices need to be geared to customers who are able and willing to pay "enough" (whatever that might be). That means ending overproduction before everybody starts sitting on their hands for three months after every new model is released, waiting for the "desperation discounting" you benefited from.

 

Maintaining cash flow dictates that new models should be quite hard to find six weeks after release and almost impossible to get after ten.   

 

 

 

John

 

People aren't necessarily sitting on their hands waiting for 'desparation discounting' - though it does help! Sometimes we can't always afford/justify buying a model at a particular time, either because a number of new releases have come out together,or because of an unexpected bill or just because we have to save up for our purchases. twenty or thirty years ago, a loco may have cost 6 months' or more pocket money, but at least we knew there would still be some available in 6 months' time.

 

Whilst limited editions for the collectors' market can command high prices (and need to, because the fixed costs are spread over a shorter run), is it really healthier for the business than selling more at a lower price, with the fixed costs spread over a longer run? Take the Peckett as an example. At £80 I find myself questioning whether or not I can justify one - had they been £60, I may well have bought two!

[The Stationmaster]

A very unfortunate situation for Hornby and regrettably - as others have said (and as I have said in the past) I feel they have probably brought some of this on themselves with serious underselling of their product at very low/non-existent profit margins.  

 

However - again as others have said - we don't know in which areas of their business the serious downturn has occurred and I doubt they will say which it was.  And while I obviously wish them well I'm rather puzzled how they managed to be £1 million out on their stock holding value (down to under-selling and very poor management of retail ordering perhaps?) and wonder just how many of their senior management team might be departing shortly as they trim their costs at the no doubt expensive top end of the business and get rid of ineffective managers.  It would be a great shame to see their railway brand lost just at a time when it is turning a big corner in starting to again offer quality models to the market.

[Ozexpatriate]

Take the Peckett as an example. At £80 I find myself questioning whether or not I can justify one - had they been £60, I may well have bought two!

You can afford two at £120, but not one at £80? I simply don't understand that arithmetic. Either you can or you cannot afford one at £80. "Value" is a different judgement altogether.

[The Stationmaster]

A very unfortunate situation for Hornby and regrettably - as others have said (and as I have said in the past) I feel they have probably brought some of this on themselves with serious underselling of their product at very low/non-existent profit margins.  

 

However - again as others have said - we don't know in which areas of their business the serious downturn has occurred and I doubt they will say which it was.  And while I obviously wish them well I'm rather puzzled how they managed to be £1 million out on their stock holding value (down to under-selling and very poor management of retail ordering perhaps?) and wonder just how many of their senior management team might be departing shortly as they trim their costs at the no doubt expensive top end of the business and get rid of ineffective managers.  It would be a great shame to see their railway brand lost just at a time when it is turning a big corner in starting to again offer quality models to the market.

[County of Yorkshire]

I'll echo most others: this is very sad news. Just 5 days ago I took delivery of the two brand new GWR Collett brakes, and what stonking models they are! At a time when, as The Stationmaster puts it they are 'turning a big corner' in their offering of quality product, this is a real setback, and one I truly hope isn't terminal. Clearly, a lot will depend on what the bank decide to do with the loan arrangement, but even a positive outcome there would only be a short-term panacea, and in my humble view, many things need to change in the medium term. 

 

Others have floated the myriad issues and possible solutions elsewhere, but one aspect that takes my interest is with the pricing, batch size, configuration (livery choices mainly) and distribution of models. I just think it's a case of poor market research that, if done well, could do much to help the cashflow. Dunsignalling makes the sharp observation that "Maintaining cash flow dictates that new models should be quite hard to find six weeks after release and almost impossible to get after ten" which I am in total agreement with. I'll stick with what I know and use the GWR heavy tanks as an example. The initial batch of these locos disappeared from shelves within 6-10 weeks of sale in winter 2012/2013, and you couldn't get a GWR liveried 72xx for love nor money within a fortnight of release; they were selling on ebay for more than retail within a month. This to me infers excellent judgement on the pricing, batch size, configurations offered, and distribution to the various sales channels - perhaps even an optimum arrangement. It is a nice problem to have in business when you sell out of a product. And yet the answer is not to knock out reruns of these tanks, in virtually the same livery variations and at a slightly higher RRP, within 12 months of the first batch. This is saturation and something not mindful of good, in-depth market research. The result? Much of this second batch seemingly now finds itself in Hornby's Last Chance to Buy section on their website at 30/40% off RRP, having now been there and not shifting for probably what is now nearly 6 months. 

 

Telling that the mooted deterioration in relations with some high street model shops, and the seeming turn-away from nuanced market research and knowing what the customer wants occurred almost at the same time.

 

CoY

Edited February 11, 2016 by County of Yorkshire

[Robert]

One thing I am not clear on - How on earth do you come to the position of having to write off £1m worth of stock?

 

This is a genuine question.  Many years ago, I worked for a Garden Centre and we had to write off a certain amount of plant stock because, quite simply, it died!  Models don't die!

[Legend]

One thing I am not clear on - How on earth do you come to the position of having to write off £1m worth of stock?

 

This is a genuine question. Many years ago, I worked for a Garden Centre and we had to write off a certain amount of plant stock because, quite simply, it died! Models don't die!

We don't know the details. Simply put they maybe thought it was there, that's what the computer said, but when they did the count it wasn't, Could they have sent it out without invoice, doubled up quantities by mistake. It can happen . Another possibility was the stock was there but over valued . Maybe they valued at full retail and not lower of cost or net realisable value.

 

I think the point is that even very basic companies have stock taking routines, either regular full physical counts or perpetual counting eg you count a sample every month and cover your entire stock over the year. Sounds like there has been a fundamental failure here. That's one issue of bad management. Clearly it's also been a surprise. In finance no one likes surprises and it shows a management not in control.

 

Thinking about it overnight, it might be that certain elements of management really need to go in order to restore some faith. Sounds like a root and branch review of financial systems also required

Edited February 11, 2016 by Legend

[irishmail]

Will we see in the future 'Hornby by Bachmann'   like  the Graham Farish range? 

[phil-b259]

Will we see in the future 'Hornby by Bachmann'   like  the Graham Farish range? 

 

I doubt it. You are forgetting that while Bachmann themselves are OK financially (they most certainly are not making large profits), their parent company Kadder has its own big financial issues to contend with and made a rather large loss itself last year IIRC. The big difference of course is Kadder are an overseas company not listed on the UK stock exchange and neither do they have their finances provided by a UK based bank that is also subject to the pressures of the City of London.

 

Also I would suggest that if both Bachmann and Hornby were owned by the same parent, the volume of new models each year would fall as the overall numbers of design staff / manufacturing capacity would shrink (comparing one big company to two medium sized ones). While it is true that exact duplication is a bad thing in a market so small as model railways (and hence it tends to be avoided where possible), having two manufactures competing for customers money by offering highly detailed albut different models actually works to the customers advantage - if there is no competition what the point in continuing to spend more than is absolutely necessary?

[Dunsignalling]

People aren't necessarily sitting on their hands waiting for 'desparation discounting' - though it does help! Sometimes we can't always afford/justify buying a model at a particular time, either because a number of new releases have come out together,or because of an unexpected bill or just because we have to save up for our purchases. twenty or thirty years ago, a loco may have cost 6 months' or more pocket money, but at least we knew there would still be some available in 6 months' time.

 

Whilst limited editions for the collectors' market can command high prices (and need to, because the fixed costs are spread over a shorter run), is it really healthier for the business than selling more at a lower price, with the fixed costs spread over a longer run? Take the Peckett as an example. At £80 I find myself questioning whether or not I can justify one - had they been £60, I may well have bought two!

But, had they anticipated a selling price of £60, would they have decided to make it at all? 

 

The problem for Hornby is that they need to get the return on new models finance the next ones. That isn't necessarily the way they would like to operate but they don't have a choice. Selling more at a lower unit profit would only help them if it led to a greater overall profit being generated within the same timescale.

 

If they make things in such quantities that they are still on their shelves six months after release, they have to dump them just to get the cash flow going again.  

 

There is a mismatch between the way Hornby need to get their money back fairly quickly and the way many of us have traditionally made our purchasing decisions (mulling it over and waiting to see how much cash we have left after our summer holiday, changing the car or whatever). Unfortunately, the industry just doesn't (and can't) do it our way nowadays. 

 

I now decide what I am likely to want and start to save up for models when they are announced, not upon release. If several arrive together before I have the funds in place, I prioritise the ones I want most and hope the others will hang around for a while. I don't consciously include pricing in my initial decisions but my purchasing has definitely become more focussed in recent years!

 

If I judge something won't be available for long, I can bung one or two on the plastic and pay it off over two or three months (I've only felt the need to do this once). The few models I have missed out on are, in hindsight, items I don't want that badly anyway.

 

John

Edited February 11, 2016 by Dunsignalling

[DJM Dave]

Will we see in the future 'Hornby by Bachmann' like the Graham Farish range?

 

Good question, and without seeming to be a doom and gloom merchant, your question reminded me of 2 conversations I had about 5 years ago with 2 companies....... 1 in China and 1 in Japan.

 

These won't be named for obvious reasons, but the conversations did take place and started when I asked what each thought of Hornby's then position financially.

 

The separate conversations had the same answers and they were ( paraphrasing here now) that "we find the situation very interesting, and would be interested if the company came up for sale at the correct price ( meaning liquidated)"

 

They both thought that the brand was something that if they owned it would be perfect for their prestige and portfolio.

 

Cheers

Dave

[Bernard Lamb]

 

They both thought that the brand was something that if they owned it would be perfect for their prestige and portfolio.

 

Cheers

Dave

So.

How long before we see "Hornby by DJM" ?

Bernard

[Coryton]

If they make things in such quantities that they are still on their shelves six months after release, they have to dump them just to get the cash flow going again.  

 

There is a mismatch between the way Hornby need to get their money back fairly quickly and the way many of us have traditionally made our purchasing decisions (mulling it over and waiting to see how much cash we have left after our summer holiday, changing the car or whatever). Unfortunately, the industry just doesn't (and can't) do it our way nowadays. 

 

 

Well, as has been pointed out above, there is another way. There could be a collection of companies who buy the stock from Hornby as it's realeased, giving Hornby the cash-flow it needs. 

 

They could then store the stock themselves, perhaps in some convenient location where people could come and have a look at it before deciding whether to buy or not, and sell them over time either in person or over the internet. They could also provide the sort of customer service that Hornby appear to be unwilling or unable to.

 

However, Hornby appears to have decided that they don't really want to sell through model shops any more, which is a shame as I don't think a "buy it while you can" system is very healthy for the hobby. Seeing MK 1 coaches in the "last chance to buy" section on the Hornby web site seemed all wrong. Surely they are something you'd want people to be able to buy at any time?

 

So a child gets a train set for Christmas. They'd like to add to it as a birthday present, but - no - their birthday doesn't coincide with the 4 weeks that whatever they want is allowed to be on sale.

[Stevelewis]

THis  comment  may  have  nothing  to  do  with  the  current  situation, on the other  hand  it  might  I am  not  a  financial  expert so this  is  posted  just  as  a comment  to  consider.

 

Many complain  that todays UK Models  are too expensive.  and  unaffordable...............take a look  sometime  at  the  price   of a  comparative  European Locomotive,  usually much more  expensive  than a .UK equivalent..................Take  a  look  at  average  monthly  salaries  in  Europe  , in the  main  they  are not much higher  than  the UK ( except for a few small countries eg Luxembourg)............

 

Could  it  be  that   the  expectations  of  the  UK  Modeller as  regards to  prices  are  unrealistic these  days.

 

When I  earned  around £4K PA many years  ago  a Hornby A4 was  £22.00    Today income  around  9 times a s much an A4 can be  had  for around £90 ish or less or more depending on which model,

 

All this   could  have  nothing  to  do   with  the  current situation, but  it  seems  to  me  that the pricing  structure coupled  with  the consumers expections of what they are willing to pay, may be the problem  ( or  part  of the  problem)

[melmerby]

So.

How long before we see "Hornby by DJM" ?

Bernard

No sooner than DJM by DJM

 

Keith