Hornby Annual Results year ended 31 March 2018

[Keep the Faith]

http://otp.investis.com/clients/uk/Hornby/rns/regulatory-story.aspx?cid=1477&newsid=1057137

 

Not pretty.

 

 

 

 

 

19 June 2018

 

 

 

Hornby PLC

 

 

 

Hornby ANNOUNCES ANNUAL RESULTS

 

 

 

Hornby Plc ("Hornby"), the international models and collectibles Group, today announces its results for the year ended 31 March 2018.

 

 

 

 Results Highlights

 

·        Revenue of £35.7 million (2017: £47.4 million)

 

·        Reported loss before tax £10.1 million (2017: £9.5 million loss)

 

·        Underlying1 loss before tax of £7.6 million  (2017: £6.3 million loss)

 

·        Reported loss after tax £9.9 million (2017: £9.7 million loss)

 

·        Exceptional items of £2.3 million (2017: £3.3 million) including costs relating to the restructuring of the business and refinancing in 2017

 

·        Net cash at 31 March 2018: £3.9 million (2017: £1.5 million)

 

1 Underlying figures are before amortisation of intangibles (brand names and customer lists), and net unrealised foreign exchange movements on intercompany loans and exceptional items

 

Current Trading

 

 

 

Group Sales for the 10 weeks to 8 June 2018 are lower than we expected. This is due to the ongoing impact of insufficient investment in tooling in the past, coupled with late placing of purchase orders with suppliers. There is also a backlog of stock at our retailers from previous decisions to bring sales forward by discounting, which will take time to work through.

 

 

 

Despite these difficulties, gross margin for the Group for the 10 weeks to 8 June 2018 was 5 percentage points higher compared with the same period last year, reflecting the absence of discounting initiatives since October 2017.

 

 

 

Lyndon Davies, Hornby Chief Executive Officer and Interim Chairman, said:

 

 

 

"In the first seven months that I have been at Hornby, we have assessed our position and confronted the reality of the situation in which we find ourselves. Tough decisions have now been taken and we are currently laying down the foundations for our future success. There is a new energy in the business and I am excited with our plans as we re-engage across both domestic and international markets with these well-loved brands."

 

 

[Clearwater]

Those are pretty dire results. Note the bank is measuring covenants on a monthly basis. The audit report is also pretty long and detailed.

 

David

[Andy Y]

19 June 2018

 

 

Hornby PLC

 

 

Strategic Report

Executive Chairman's Report

 

As I write this message to you I have been a Hornby employee for seven months, but I have both worked for and adjacent to the brands you own for 40 years. I started on the production line at the old Corgi factory in Wales when I was 16 and have been in the industry ever since.

 

I do not wish to dwell on the mistakes of the past, but please do not think I take them lightly. I have drawn on all my experience in assessing Hornby's current position and formulating my views on the future direction. I have a great deal of passion for these iconic brands and it has pained me to see them fall from grace. You, as shareholders, have had to bear the brunt of it, and so I do not feel the need to reopen those wounds you know so well.

 

My team and I are fully committed to developing a sustainable business that builds on our heritage. My job is to look forward and deliver the results for you. This report is an opportunity for me to give you an honest and humble account of our progress. We need to return this Group to profitability and I need to explain how we intend to do it.

 

The first step is understanding. The next step is fixing the basic issues once they are understood. The final step is to get us back to profitability with a logical and measured strategy that does not imperil the balance sheet. In doing these things we will build long term shareholder value in a sustainable way. Some of our brands have lasted for more than 100 years and it is my view that they should thrive for at least 100 more.

 

The Business Model

 

What we do is simple, but not easy. We have an office in Sandwich where most of our hard-working staff come to work every day. We also have a logistics hub approximately ten miles away in Hersden which most of our product will pass through on the way to both retailers and sometimes directly to customers via our own website. Before Sandwich and Hersden, we had all our operations (including manufacturing many years ago) in Margate, but we have now sold this building and retain only the Hornby visitor centre where we showcase the wonderful heritage of our brands.

 

Over the years we have acquired a diverse portfolio of market leading international brands. These brands are supported by similarly hard-working staff at offices in Italy, France, Spain and Germany. Further afield, we have a warehouse and office in Washington, USA.

 

We aspire to design high quality models and accessories for the toy and hobby markets which are not necessarily low-priced but provide great value for money. Most of the research and development for our product occurs in the UK, but the manufacturing is predominantly executed in China and India, in conjunction with the engineers and support staff at our satellite office in Hong Kong.

 

The design and delivery cycles of our products are quite long, sometimes up to two or three years between inception and delivery to the UK. Our customers tend to be quite particular about what they want and so it takes time to make sure that they will be acceptable to them.

 

The challenge is then to make sure we market our products in such a way as to make them desirable. It is also important to choose the correct retail partners and communication channels that help us cultivate a loyal following of collectors and fans from all age ranges.

 

Knowing the right products to produce and how many of each product to order requires an in-depth knowledge of the individual brands, the history, the competitive landscape and the various customer bases. We have to order all the products up front and wait for them to arrive to truly see how they sell through. We must take risks in this process and there is an element of uncertainty. Managing the cash flows through this cycle of investment is an extremely important part of the process of protecting and enhancing shareholder value.

 

If we order too much of an item that nobody wants, we tie cash up in inventory which means we don't have the cash available to deploy into new and exciting models for the following year. If we order too little, then we don't maximise the profitability and therefore shareholder value. It requires great coordination and deep expertise across engineering, development, marketing and sales to make sure this engine ticks over smoothly.

 

This challenge is made even more difficult by the seasonal element to our business. We are lucky enough to have customers that see our products as worthy of a gift to a friend or family member over the Christmas period. The final three months of the calendar year tend to be very busy for us from a sales perspective and so we have to coordinate the investment in inventory so that it can satisfy this peak in demand.

 

This cycle of development, manufacturing, marketing and distribution is our business engine. We have some wonderful talent in the Group but the engine as a whole doesn't perform optimally. Based on my in-depth knowledge of this industry and following an initial review, many trips to trade shows, retailers, suppliers, manufacturers and other important partners all over the world, I have now developed the understanding and have taken the first steps towards fixing the engine.

 

The Strategy

 

Over the last few years our competitors have gained strength in the marketplace.  They are stronger and smarter than ever, and we must give ourselves every opportunity to compete successfully with them. In this situation, it is important that our competitors (who I am more than aware read our reports in detail) are not able to pick out, copy and better the moves we make to delight our customers. As a result, I will look to discuss some of the steps we have already taken to fix the engine here, instead of plotting out the battle plan for our competition to follow.

 

1. Discounting

 

From the description of the business model above, hopefully you can see how a business like ours can run into cash flow problems. If we have debt repayments to make and we order too much stock, then the cash that is tied up in the slow selling stock can create a liquidity problem. This can sometimes force us to hastily liquidate stock at a discount to pay the bills.

 

Discounting is a very difficult thing to do without materially affecting the perception of a brand or product. Many brand owners, not just in the toy and hobby sector, have fallen victim to choosing discounting to pay bills or to chase arbitrary sales targets, instead of thinking more about the longer-term impact on the brand.

 

Let us take the collector segment of our customers as an example to illustrate this. If a collector eagerly awaits the launch of the latest locomotive and snaps it up at full price on release day, the likely reason he or she will do this is because they anticipate it will be a desirable item to have, will sell out and will become a store of value over the long term as collectors fight over the few hundred that remain in circulation. If this collector then sees the item on sale for half price a few months after release, not only do they become disillusioned because the scarcity value and desirability seems to not be there, but also, they probably won't buy other products from that brand at the time of release again and will just wait for the inevitable discounts. If you keep following this discounting strategy, you will become more and more reliant on lower and lower prices after every round. You end up never selling anything at the prices you assumed when you made tooling investment and the economics of the business are impaired because the trust is gone in the brand. If you destroy the trust in the brand and collectors no longer see the products as a store of value, they will switch to a collectible that does satisfy their desire.

 

The discounting has also impacted the trust our retailers have in us too. If you take our independent retailers who generally do a great job of cultivating the hobby on our behalf, these are small businesses who have to choose their stock carefully because they have limited balance sheets to fund it. If we sell them a box of Airfix Sea Harriers at full wholesale price and then sell them at half price on a website, these retailers will not be able to compete on price without taking a loss on the item. The best they can do is sit on the stock until we have sold out. It makes life very difficult for them and it certainly makes them think about wanting to buy items at full price from us. It has pushed some of them to buy from competitors instead.

 

In both anecdotes, the sales figure the Group would report to you would be higher than otherwise, but the value of the brands over the long term would have reduced. Discounting is a strategy that wins sales in the short term, but history would suggest that the extra sales today does not compensate for the long-term loss of trust in the brands.

           

The first thing we have done is remove the discounting, which has had the effect of initially reducing sales. The strategy has been welcomed by our retail partners and customers, but this is just the beginning. We are only at the start of the long process of rebuilding trust.

 

In order to do this, we needed to remove the financial straight jacket. We have worked with our lenders and shareholders over the last six months to restructure the balance sheet and have started the new financial year with a structure that will allow us to hold the line. We will be able to sell our carefully curated and desirable models/accessories at the price that optimises the brand values over the long term and cultivates trust with our customers and retail partners.

 

2. Supply Chain

 

We are working to improve the infrastructure in our overseas supply chain to make it function more efficiently. We must guarantee that we get the right amount of product to the market at the right time and at the right cost. When this works efficiently we will greatly improve our sales performance.

 

We have a lack of new product arriving in the UK and therefore can't meet the demand. This is because of two main reasons:

 

- Order quantities were very low per item because of cash constraints and a lack of understanding about which designs would sell better than others.

 

- Not only were orders placed late, but the vitally important technical specifications were also supplied late to our manufacturers.

 

Manufacturers are like sharks - they survive and thrive by moving at pace. We must keep them busy. If we don't they will look elsewhere for orders, which is what they did, further delaying production of our products.

 

After the delays in submitting orders and specifications last year, the situation was similar to trying to book a table at a restaurant at the last minute. As you might expect, most of the restaurants were unavailable, so we desperately rang around and booked the best available table we could find.

 

We then arrived late with less people in the party than we'd promised, we didn't order all of the meals, forgot to tell the kitchen how we wanted our steaks cooked, changed our mind on the side dishes and then complained when we found the restaurant was closing and there was no time for a dessert.

 

The solution here is to pull forward the planning deadlines by six months and choose the right manufacturing partners for the long run. Considering the complexity of our design and ordering cycles it will take time, but the aim is for the new schedule to be fully operational and firing on all cylinders for the financial year ending 31 March 2020.

           

3. Knowledge & Experience

 

The skills required to produce the correct products in the right quantities needs decades of knowledge and experience of what the business has done before, what competitors have done before, what has worked, what hasn't worked and the understanding of why in all these scenarios.

           

We don't sell toothpaste. Our customers don't return once every couple of weeks for a new tube without thinking about it. It is difficult to generalise because the customer base for each brand is unique, but on the whole we have discerning customers who require only very specific models for their layouts, collections, gifts or playrooms. If a product sells well in a particular year, it doesn't necessarily mean the same one will sell well the next year. We are on a constant treadmill of innovation and this needs highly specialised and in-depth knowledge and experience for each of the brands.

           

Initially, I brought Simon Kohler and Tim Mulhall with me to help manage this turnaround. Simon alone spent 35 years with the Group during Hornby's most profitable years, before parting ways under a previous regime. Tim has a wealth of experience in this industry, bringing in knowledge of the international markets. All three of us together have over 100 years of directly applicable experience. This was a good start, but I realised we needed more. In 2018, we will take on more people who combined will add another 100 years of experience. These roles span all the major functions including sales, marketing, purchasing and operations.

           

This concerted effort to fill the Group with people who have decades of directly applicable experience to our rather esoteric markets is not limited to outside hires (or re-hires). Allowing the right internal talent to rise up and giving them a voice has started to yield great results too. Several existing employees with years of experience have been returned to their positions that they held during our most successful years.

           

We are assembling a team of experts who understand the customers and the markets in which each of the brands operate. We also have many stars moving through the ranks who now feel empowered to get on with rebuilding these brands and learn from the more experienced members. It's still only day one and we are rebuilding the foundations, but the early impact on morale and motivation is encouraging.

 

4. Costs

           

As I mentioned above, we have good visibility into the costs that we will need to incur to operate throughout the year. The challenge is to make enough gross profit to cover our operating costs and have some net profit left over for shareholders and/or future investment. In the simplest terms; there are two levers we can pull. We can sell more, and we can reduce our costs.

           

As it currently stands, we need to sell more product if we are to cover our costs. We have reset the business to a more sustainable level of sales without discounting. This has been painful in the short term from a profitability perspective, however, it is the right thing to do to ensure the business has a future. We aim to rebuild sales as the trust returns to our brands, but we are also working tirelessly to do more while spending less.

           

In the last announcement, we told you of the ongoing operational expenditure we had saved. We have found additional savings since the January update, and these savings are being found while improving service levels and product delivery schedules. We are instilling a culture of frugality which means we are doing more with less. This will be a key part of getting us back to profitability.

 

Outlook

           

As I said above, we don't want to give too much away to our competitors, but I can tell you that the changes to the strategy and the way we deal with our customers, suppliers, retailers and manufacturing partners has already yielded many opportunities to save cost, sell more and increase gross margins.

           

Dominant national retailers who were only a distant memory to the business have proactively re-engaged now the discounting has stopped. Licensors of important trademarks are engaging with us again and wanting to broaden ranges and partnerships. Previously lost talent is coming back to the Group and morale is starting to improve in our staff who will be the real champions of this turnaround.

           

Whilst there are green shoots starting to appear for the future, at the time of writing this, we have only been in place for seven months. The long design cycles mean that we have a largely inherited line plan for products being delivered this year. Nonetheless, we are at work doing the best with what we have as we seek to return the Group to profitability.

 

 

On behalf of the Board

Lyndon Davies

18 June 2018 

[34theletterbetweenB&D]

Drains swamp, killing any crocodiles that are encountered, reinstate road. I believe what I am reading there is that they are betting the farm on the adult modeller / collector market. Good models, and they will not be cheap. (Don't think there really is any alternative.) Just execution of the plan to bring off now.

[ianp]

 

19 June 2018

 

 

Hornby PLC

 

 

Strategic Report

Executive Chairman's Report

 

 

 

 

The overview from Lyndon Davies is one of the most readable and understandable reports I have ever seen from a company, especially one in trouble. There is a splendid lack of managerial guff and opaque euphemisms. Let's hope his strategy actually works.

[Phil Parker]

The overview from Lyndon Davies is one of the most readable and understandable reports I have ever seen from a company, especially one in trouble. There is a splendid lack of managerial guff and opaque euphemisms. Let's hope his strategy actually works.

 

I'd agree. OK, I want the all the parts of the group to survive so perhaps I'm biased, but he's saying a lot of good things and saying them very clearly. The point about discounting hurting the brand and affecting future sales is particularly well made and something that previous incarnations of management wouldn't have understood.

[Godfrey Glyn]

Found this introduction to the Annual Report rather interesting, almost as though Lyndon Davies has written this with us, the model railway enthusiast, as its target audience rather than the usual management speak that dominates such annual reports. Lets hope the strategy work. I agree with 34theletterbetweenB&D that the strategy to go for good but expensive models is right.

 

However, if that is the strategy then communicating with the appropriate audience is a key part of the operating plan. Now it may be that the excellent Engine Shed was read by relatively few people and that it demanded a huge commitment from those who should be busy researching and designing products. However it seemed to me at least to be hitting the group of people who are most likely to crave high quality models and be prepared to pay for that quality. 

 

It looks like we, the shareholders and the bankers will have to wait sometime yet to see if the strategy works, lets hope we see some new and exciting models in 2019 that will demonstrate that they are turning the ship around.

 

all the best

 

Godfrey

[MGR Hooper!]

Take a bow Mr. Lyndon Davies...

 

It seems as if there is finally someone in the top ranks of Hornby who has finally understood the issue fully and also has what seems to be like the most sensible solution. I look forward to watching Hornby's future blossom in the months to come under the guidance of Mr. Davies. At long last some has truly understood Hornby's problems and has the right solutions.

[The Stationmaster]

I think Godfrey has eloquently summed up what is being said to us.  It is also interesting to read in the report that there is still a need to get marketing right and strengthen the expertise there,  does that mean, amongst other things, that LCD has been reading some of our comments I wonder?  Clearly from what he has written he recognises the need to get their marketing right among various other important changes and it appears from his words that LCD has a pretty good handle on various changes that are needed including one important one which has already been made.

 

However the worrying aspect of the report is that it is very much a promise of jam tomorrow and while it would be more than unreasonable to expect instant turnround it looks like a potentially risky strategy unless they can get quickly their marketing, including market connectivity, and sales onto a really positive course as well as the timely bringing forward of product to achieve that.  I'm not really sure if in all of that LCD has fully recognised the essential need in today's market to create the continuing interest and excitement among end customers which is needed to help build brand prominence or the equally essential need to take into stock short term repeats of models which have sold - if they can get those two things right I would have greater confidence in the company's ability to succeed.

[ejstubbs]

Found this introduction to the Annual Report rather interesting, almost as though Lyndon Davies has written this with us, the model railway enthusiast, as its target audience

 

Bear in mind that Hornby isn't just model railways.  There is probably as much residual goodwill towards Airfix, both as a brand per se and for its products, as there is for the model railway side of the business - arguably with Humbrol and Scalextric not far behind.  I wouldn't be at all surprised if there are threads similar to this one up and running on forums relating to those parts of the group's business as well.  In that sense it's a pity that (as far as I could see) there's no breakdown of the figures across the brands.

 

It's interesting that Mr Davies has specifically called out the change in approach to discounting as a cause of the poorer profit performance in these results, and basically asks investors to trust him and the rest of the board that this will be a one-off hit that will be corrected over time as the longer-term strategy delivers the planned benefits (assuming that it does, of course).

Edited June 19, 2018 by ejstubbs

[JSpencer]

The overview from Lyndon Davies is one of the most readable and understandable reports I have ever seen from a company, especially one in trouble. There is a splendid lack of managerial guff and opaque euphemisms. Let's hope his strategy actually works.

 

Agree, totally down to earth and understandable. No wonder staff moral is on the rise. This is Hornby's last best hope for damage control to save the ship.

[Porcy Mane]

amongst other things, that LCD has been reading some of our comments I wonder?  

I had precisely the same thought. I read the report at being aimed just as much at existing & prospective customers as well as the shareholders.

 

It was almost as if I was re-reading a certain RMweb thread.

 

P

[adb968008]

I think it’s quite clear the man at the top understands the problem and has very eloquently explained it.

Of the last few CEOs he seems to be the most honest and understanding of what the issues are.

 

He has also stated what several of us have been thinking (few Hornby orders, but competitor stuff has been coming thick and fast), which confirms the finite supply in China.

Additionally recognising the over supply of old stock bearing down on their cash flow.

 

Found the actual strategy a little light, which I understand the competitive element, but the few clues I saw are:

1. Under investment in new tooling

2. “Correct retail partners and communications channels”

3. Discounting and the damage it does to retailers and the end collectors who buy them

4. Selecting manufacturers (By March 2020).. sounds like 2019 might be tough too.

5. Need to sell more product to cover costs (suggests the business isn’t set to shrink).

6. Hiring in domain knowledge and internal growth.

 

It’s easy to speculate but i’d Guess they are going towards more targeted tooling / limited releases in conjunction with selective retailers, something many of us have been suggesting would be desirable for a long time.

It could be we are going to get closer to the US model of a dozen liveries / numbers, followed by hiatus whilst it goes to the next tooling. That’s more efficient and cost effective, more suitable to manufacturers, gives oppourtunities to select retailers whilst putting more generic versions of the product on regular retail shelves.. and the hiatus that follows means less discounting...it’s Feast or Famine.

All this needs domain knowledge to ensure the correct products are brought to market.

 

If that was the approach it’s a sea change at Hornby (we have an annual black 5, Bulleid, A4, high speed 0-4-0 nearly every year for 20 years), to one more akin to Heljan, Dapol and the smaller commissioners, which given Hornbys buying power could arm wrestle them more space back into this market.

 

I hope the annual wish list thread restarts in 2018, it might get more attention than previous years.

Edited June 19, 2018 by adb968008

[rovex]

"Our customers tend to be quite particular about what they want" 

 

​He got that one right   

[adb968008]

unless Hornby decide to 'up the ante' and get a factory of their own, i can see other retailers / manufacturers 'block booking' production space to ensure their production prevails against the Hornby one and gets to market at the right times. Cash will be King here i'm afraid.

as i have said before, unless you have a dynamic go getter who reads the markets regarding wants, wishes , desires, etc when it comes to new models, and can assure / prove to Hornby that they can do that, and in double quick time, then it doesnt matter what plans you have, you will always be second to your masters of production.

you need to move quickly, and i'm afraid, being guilty of the producing models from the Hornby range myself, you need to stamp on the newbies trying to take your core business........ in that i put J94, 14xx, Terrier, 66, 90 and 59 (to a lesser extent), and 156 as they truly are your 'bread and butter' sell them all year round, loads of liveries locomotives.

if your rivals are making them, you know damn well you should, and revise them quickly no matter what.

1 or 2 new loco's a year are fine, but dont lose the models that keep you going, to competitors. to do so is folly, and remew / upgrade the rest of your range, by doing this you also go a ways to stopping the independants being dependant.

Bottom line is a factory to bring all tools in house! it allows you to react faster to changing markets, and be 'your own boss'

i'm afraid i do not see any other way for Hornby to truly improve their production, as there are too many others using their factories now already.

However, through all my doom and gloom above, i truly wish Hornby well. lord knows where we would be without them, and i guarantee the market for all of us, both producers and purchasers, will be much poorer if they didnt surive. Viva Hornby!

Reading the strategy they might be hiring oppourtunities there Dave !

[RAF96]

Beware falling into the trap of too many Chiefs at the expense of the Indians. The Indians know the ground the war is fought upon, the Chiefs know the other Chiefs and the capability of their own Indians. Use that to your advantage, but remember if you only have a few Indians you won’t win the war, no matter how many Chiefs you have.

Upcoming talent within the tribe can be a good thing from the fresh approach, new methodology, latest business accumen viewpoints but again beware the career climber with little interest in the product after the next rung on the ladder is stepped over. Find them and fire them.

Take heed of the old Indian who has seen all these scenarios before that mostly failed, but don’t rely upon him in toto as he won’t have the big picture available to the Chiefs and his view may be blurred by firewater or unions or just nostalgia. In the RAF we had regular periodic strategic reviews that invariably reinvented the wheel before last but in a different colour.

Much of the basic politic in the previous link is good basic business sense but the crux is understanding your market and model railways is not a simple toothpaste pick as it was nicely put. Brand loyalty has an awful lot going for it and once lost is very hard to regain.

Best of luck to Hornby in their fight for existance in a competitive market.

Rob

[DJM Dave]

Reading the strategy they might be hiring oppourtunities there Dave !

oh i could tell a story there, but i'll leave it for my memoirs ;-)

[adb968008]

One thing no ones pointed out here... 2017 Hornby is £12m smaller than 2016’s Hornby...

 

That’s despite the release of:

 

Coronations,

Merchant Navy,

class 800,

H class,

BSO/FO,

2nd run B12

Return of 4MT

Return of 8f

2nd liveries of Collect bow end /

2nd liveries of LSWR rebuild

Several existing tooling based Bulleids (Trevone, Appledore, Nederland line, Archibald Sinclair)

Release of TTS chips

Sell out Railroad 31/37

14xx for Warley

 

 

If that’s resulted in a £12mn reduction in size, then I fear the worst is yet to come for the financials in 2018 as this years range is a lot smaller,and personally I don’t think a 5th version of a Bath tub Duchess, re-released LN and a class 87 are going to carry bigger sales than all of the above.. even if they will sell a lot of Pecketts, J36’s.

 

Reading the financials i’m not sure that at just $2.5mn revenues that Hornby US will survive...especially if Trump imposes a tariff on the sector.

 

Similarly inventory is only up £400k, from £9.6m to £10m.. that hardly accounts for a £12mn reduction solely based on not discounting, as even with last years 38% margin that would only leave Hornby with £4m of inventory.. As all other related costs are down, they haven’t just sold less.. they’ve made less... but the total amount of the losses hasn’t changed.

Edited June 19, 2018 by adb968008

[34theletterbetweenB&D]

One thing no ones pointed out here... 2017 Hornby is £12m smaller than 2016’s Hornby...

 

That’s despite the release of:

 

list... 

If  that’s resulted in a £12mn reduction in size, then I fear the worst is yet to come for the financials in 2018 as this years range is a lot smaller,and personally I don’t think a 5th version of a Bath tub Duchess, re-released LN and a class 87 are going to carry bigger sales than all of the above.. even if they will sell a lot of Pecketts.

Entirely germane. I see that addressed as the 'lost opportunity' caused by having insufficient volume of the products for which there was the strongest demand. There's a clear message about ensuring that the items that sell strongly are produced in sufficient volume to harvest their full potential. Possibly one or more of the experienced recruits is coming in to manage that?

[Clearwater]

They have previously said they would be reducing the number of lines sold. That may also account for some of the fall in sales albeit those items don’t appear to have being sold at a loss.

[Legend]

One thing no ones pointed out here... 2017 Hornby is £12m smaller than 2016’s Hornby...

 

That’s despite the release of:

 

Coronations,

Merchant Navy,

class 800,

H class,

BSO/FO,

2nd run B12

Return of 4MT

Return of 8f

2nd liveries of Collect bow end /

2nd liveries of LSWR rebuild

Several existing tooling based Bulleids (Trevone, Appledore, Nederland line, Archibald Sinclair)

Release of TTS chips

Sell out Railroad 31/37

14xx for Warley

 

 

If that’s resulted in a £12mn reduction in size, then I fear the worst is yet to come for the financials in 2018 as this years range is a lot smaller,and personally I don’t think a 5th version of a Bath tub Duchess, re-released LN and a class 87 are going to carry bigger sales than all of the above.. even if they will sell a lot of Pecketts.

 

It is interesting that despite stopping deep discounts and I think removing some items that were not seen to be adding value from the range that gross margins only increased 1%. That seems low.     Turnover down 24.6% but overheads only down by 11.25% . While some overheads are fixed and cant be reduced I think overheads are still to high at £21.3m for what is now a relatively small company at £35m turnover.  I can't help feeling that they still have big company mentality for a business that is really quite small now .  Looking at Directors remuneration just underlines this . Certainly Messrs Cook and Mulligan have now left, but they took a fair amount of salary .

 

I think the comments made about manufacturing capacity and suppliers is interesting , and goes back to the frank Martin days. They really need to secure their supply chain. It looks like some suppliers are serving other companies instead and the whole thing is just too short term at the moment . That could explain why items like the Class 87 have been put back as Hornbys suppliers push them back in importance. Ideally I think they need their own factory in China , but if that is too capital intensive they certainly need to forge closer relationships with a few suppliers and tie them down on capacity and dates.  Not sure this can wait until 2020 to be honest.  Part of the reason Turnover has dropped to £35m may just be that they cant get the goods from the manufacturers.

 

I've never seen a Chairmans report written in such plain straight forward fashion. While interesting, and obviously guarded, because as he points out the competition can read it, I think it is essentially restating things we knew or suspected. I really do wonder if the business selling through retailers is sustainable  and that there need to be more fundamental actions than the ones he states.

 

I'll read it more thoroughly tonight!

[JSpencer]

 

Reading the financials i’m not sure that at just $2.5mn revenues that Hornby US will survive...especially if Trump imposes a tariff on the sector.

 

 

 

That would probably be good news for Hornby as such tarifs would reduce the US demand for China made goods meaning the sharks (factories) will find dealing with Hornby more sustainable than say US brands (but Rapido will be hit).

[34theletterbetweenB&D]

Rapido Canadian. Perhaps they were thinking very presciently when the decision was made to enter the UK market.

[JohnR]

That would probably be good news for Hornby as such tarifs would reduce the US demand for China made goods meaning the sharks (factories) will find dealing with Hornby more sustainable than say US brands (but Rapido will be hit).

 

Why would Rapido be hit? They're Canadian!

[QuoitsPlayer]

LCD saying they have a 'largely inherited line plan for products delivered this year' and that they 'are at work doing the best with what we have' suggests, to me, that the 2019/20 new products could look very different from this year's.