Hornby Annual Results year ended 31 March 2018

[JohnR]

Interesting to look at the Directors remuneration. Lyndon seems to be on £100k a year, with no bonus or pension payments. Whereas his predecessor was pulling in nearly £500k, partly because of bonuses and pension contributions, but even his basic pay was nearly 3 times what LCD is getting. 

[LBRJ]

High End collector focussed products seem ot be the way to go.

That may well cause some wailing an gnashing of teeth among those who can't afford everything they desire, but it is the market that is least price sensitive.

 

Incidently to put the loss in turnover into persective; it is roughly the same figure as the entire turnover of a famous box shifter!

[Clearwater]

Interesting to look at the Directors remuneration. Lyndon seems to be on £100k a year, with no bonus or pension payments. Whereas his predecessor was pulling in nearly £500k, partly because of bonuses and pension contributions, but even his basic pay was nearly 3 times what LCD is getting.

Yes but LCD only employed for 7months of the year so realistically double that for the true cost. Ditto I doubt the CFO is doing the job for 40k. However, there do look overall lower than the previous management.

[mdvle]

Why would Rapido be hit? They're Canadian!

 

But sell their models to the US, as well as making US models.

 

Not to mention that Trump is directly threatening the Canadian economy with additional tariffs on Canada - specifically a 25% tarriff on cars

 

Remember though that the tariffs are only the start, look also at what the brewing trade war is doing to currency values and then the upcoming job losses with the resulting loss in consumer confidence.

[adb968008]

Yes but LCD only employed for 7months of the year so realistically double that for the true cost. Ditto I doubt the CFO is doing the job for 40k. However, there do look overall lower than the previous management.

Indeed, if he’s just sold 49% of his business for £1mn, then going to a £100k salary, without pension, bonus or stock wouldn’t be attractive for turning around a company like Hornby.

[rob D2]

Best of luck to Hornby , sounds like this is a man with a solid plan.

 

Make some more blue 31s and some new 60s that’ll be a start...

[adb968008]

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Edited November 6, 2018 by adb968008

[The Stationmaster]

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.

 

If you look at what was announced for this year there was really something of a dip in newly tooled items and they are really where the good pickings, and instant profitability, lie - provided they are done properly of course and sold at the right price in the right quantities.  Back to marketing as well as investment..  

[JSpencer]

A major bug bear of course is the year on year price increases from suppliers.

 

If doubling the price only halved the number of sales then margin and profit remain the same though some costs (less handling) can be reduced.

 

But it could be more like that double the price equates to 1/4 sales meaning half the money made and you then need to some how cut the costs in two.

 

The market is made more complex by both new entrants and certain psychological barriers (some customers won't spend more than £100, for others its £150 and others £200), as soon as you pass one, the sales drop might more exaggerated.

That said Hornby now have several years of such sales data to look through and get a good feel how these factors impact sales and the company (sort of exercise I do regularly in my day job).

 

Announce too much and people will buy less of any given model but announce not enough and the small players leap in. A rock and very a hard place for sure.

[dogbox321]

What Lyndon appears to be saying, seems pretty true.  The real question is, whether what he is proposing is desirable enough, that enough people will purchase it, at the price Hornby want to sell it at, and leave enough "in the bank" for Hornby to make a profit and ultimately give its investors confidence in the business.

 

The problem of course is, Hornby are stuck between a Rock (Suppliers wanting to maximise their revenue off a product) and Hard Place (Customers [Modellers] wanting models at the best possible price)

 

Regards,

 

C.

[Seanem44]

Ouch.  Just read this.  I imagine in the future there will probably be some layoffs, which is always a sad side effect that comes with tightening the budget and closing certain projects and lines.

 

I really hope Hornby can pull through this.  Their bankruptcy would be a definite blow to the hobby. 

 

Sadly, this is a bad time for something like this to happen, with rising costs in goods and manufacturing across the globe.  Serious and hard decisions are going to be made in the future that will be painful not only for the company, but for us modelers as well.

 

Godspeed Hornby!

[Hogworts]

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.

 

Absolutely agree. I was at the 2018 range preview which was pre Lyndon/ Simon Kohler, personally I can't see a way out of this and Hornby is a money pit but they always find an Angel in the City to pump in more cash.

The only people who spoke out against Hornby Junior were the Italians who were like " we absolutely cannot sell this"... the look on senior managements face was amazing (Steve Cooke) absolutely gobsmacked.

The UK reps just sat back and kept their mouths shut...out of fear. With Simon back that culture of fear has been lifted, but there are still a few left who "know" how to save the Company, and these are same ones that sold off the family jewels.

[jjb1970]

I'll be the odd one out and say that when I read the statement I found it rather disappointing. Much of the stuff he identifies as being necessary were identified by the previous team who didn't have time to implement their ideas before being shunted out and in terms of marketing things have gone spectacularly backwards under the current top team. I think pointing at the centuries of marketing experience in the team is quite telling, as I think that the market and marketing have changed fundamentally in recent years. The removal of most barriers to entry has opened up the market and the preferred means of communications now seems to have shifted to much more direct channels to customers and interactivity. Hornby actually got that very right under the former regime with blogs like the Engine Shed. I just can't help feeling that the current marketing set up is a classic equivalent of the old adage about generals preparing for the last war. We've seen on another thread that they're not showing face at notable events like the opening of the new Rails store, events which competitors obviously see as worth supporting. The innovation of the current team seems to be in ending discount fire sales, and I give them credit for having the balls to do that and take the short term (hopefully) hit on their accounts that will result. Other than that I see nothing that wasn't identified (and with better PR/marketing) than the last team.

[Joseph_Pestell]

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.

 

They would have if they had read RMWeb.

[JSpencer]

I'll be the odd one out and say that when I read the statement I found it rather disappointing. Much of the stuff he identifies as being necessary were identified by the previous team who didn't have time to implement their ideas before being shunted out and in terms of marketing things have gone spectacularly backwards under the current top team. I think pointing at the centuries of marketing experience in the team is quite telling, as I think that the market and marketing have changed fundamentally in recent years. The removal of most barriers to entry has opened up the market and the preferred means of communications now seems to have shifted to much more direct channels to customers and interactivity. Hornby actually got that very right under the former regime with blogs like the Engine Shed. I just can't help feeling that the current marketing set up is a classic equivalent of the old adage about generals preparing for the last war. We've seen on another thread that they're not showing face at notable events like the opening of the new Rails store, events which competitors obviously see as worth supporting. The innovation of the current team seems to be in ending discount fire sales, and I give them credit for having the balls to do that and take the short term (hopefully) hit on their accounts that will result. Other than that I see nothing that wasn't identified (and with better PR/marketing) than the last team.

 

On the other side, the plan is going into action and everyone knows what to expect. There are also additional strategies which he won't say because of the impact it will have on competition.

 

Winning a war requires the right type of education (US 1930s was perfect, turning out people en masse that were highly educated and capable of thinking out of the box) and the industrial resources to follow it. 

Japan was too classical, they could have waged a similar U-boat campaign in the Pacific but did not. The US was the under dog at the start making the best use of the resources it had. Once resources came along, the education allowed for effective use. The Japanease were then  out numbered and out fought in every minor detail (US subs sank most of the Japanease merchant navy while Japanease AS tactics had not evolved since the RN days in WWI... everything was for the final battle but the US cheated and did not play their game).

 

In business though the war is never won, you survive to grow another day or you die.

[jjb1970]

The US was the under dog at the start making the best use of the resources it had. Once resources came along, the education allowed for effective use. .

 

The USA was never the under dog, there is a difference between being caught with your pants down and being the under dog.

[Legend]

Do they really have offices in Italy,France,Spain,Germany,Washington and Hong Kong? No wonder their costs are high. I know they bought brands in each of these companies but surely they can be operated out of Sandwich with representatives in each country .This is a £35m sales company. Does their offering in each country support having these offices? I don’t recall huge ranges in each country. Have they not heard of reps with home offices? These days it really is very possible to operate a business from home.

 

LD states The challenge is to market our products in a way to make them desirable. It is also important to choose the correct communications channels that help us cultivate a loyal following of collectors and fans from all age ranges. The Engine Shed is exactly that tool and was doing very nicely engaging with Hornbys customers, but in the last 7 months the power of this has been squandered. How does this match with his strategy statement?

Edited June 19, 2018 by Legend

[jjb1970]

Their Italian and Spanish ranges are pretty extensive, and they still have quite a French range so I can see why they'd want a bit more than a rep in those countries. Arnold are still quite a player in N so that'd explain a German office. I thought they'd pulled the plug on their US outline? Maybe their US presence is now about marketing their non-US ranges? There is also Airfix and Scalextric, they have a good international presence.

[jjb1970]

Something very odd about Hornby Italy was that at one point their two brands pretty much started competing against each other. Rivarossi was meant to be the premium brand and Lima a low end entry level range. Rivarossi was basically being managed and developed in Spain when Hornby Italy developed the Lima Expert range of high end models which were made to exceptional standards and which were more premium than Rivarossi yet if anything cheaper. Quite why that happened I'm not sure but it was a bit odd.

[Clearwater]

Indeed, if he’s just sold 49% of his business for £1mn, then going to a £100k salary, without pension, bonus or stock wouldn’t be attractive for turning around a company like Hornby.

For it to be worthwhile for him, I'd think his total package if the targets in the 3 year plan are met has to be of the order of £5m. What he's paid on an annual basis is probably less relevant.

 

I agree with your other, longer, comment that this is "last chance saloon" territory. I noted above that the bank is monitoring covenants on a monthly basis. That's incredibly frequent for any borrower. I'm thinking that their strategy will be to pull the plug and enforce whilst there's still some value in unsold stock (they may even covenant to maintain stock levels) and bet that they can make a full recovery on their loan with a top up from sale of tooling etc. For that to work, they will need to act as soon as there is a negative deviation from the financial plan that has been explained to them.

 

On the 2019/2020 range, whilst it may be true, its all a bit Mandy Rice-Davies. If you plot out how many new toolings per year there have been, I think there may be one less this year. Typically its 4 to 5 and there may have been three (King Arthur, 87, 800). What we may not know is that for the 2019 launch catalogue that development was stopped a while in advance and it is shaping up to be a thin catalogue. However, whatever the truth is, you're pretty much bound to say that there will be good times ahead!

 

In terms of the statement, if Hornby is going to look more to the collector market to drive its revenue growth with a 'wow' factor, I wonder if that means more iconic/one-off type locos rather than some of the more humble workaday 0-6-0 goods types. Perhaps the Bugatti P2 will appear, perhaps a W1 (in whatever form). Things that everyone of us will say "its not my period but I want that" which can sell at full and higher price. With Kohler back on board, I foresee more tie-in type packs to exploit relatively current toolings. The Mallard Great GAthering/Goodbye was a success - if you tot up they sold 6,000 A4s in that range but that was a fairly unique event. Maybe a Pendennis Castle and Flying Scotsman "Empire Exhibition" twin pack. A "One with the Bell" triple pack of KGV in GWR livery with 6223 masquerading as 6220 with its bell and 4489 Dominion of Canada. Bundling to create more collectible items to increase sales.

 

I'm sure they look on enviously at the Rapido's imminent success with the Single. Ditto Bachmann and its Blue Pullman. If you look back, some of Hornby's bigger successes have similarly been the slightly unusual. The live steam was a good example though I'm not suggesting they repeat that. However they do need something that has the buzz that created and the hype that the Single's getting. How about an RTR broad gauge starter set? As Edwardian commented on another thread, the trick is making products that people don't yet know they want to buy. Could you get a simple oval plus two coaches and a loco to market for say £350-400 and sell a few thousand? A novelty item? For sure. A collectible - definitely. How many on here would buy one? A fair number I bet. Will the publicity drive broader sales of their brand? Probably. I don't think their fortunes will be turned around by say releasing an ex-LNWR Cauliflower or a GWR Aberdare attractive as I'd personally find both. It has the have some pizzazz and wow factor.

 

David

[Andy Hayter]

Do they really have offices in Italy,France,Spain,Germany,Washington and Hong Kong? No wonder their costs are high. I know they bought brands in each of these companies but surely they can be operated out of Sandwich with representatives in each country 

 

Legal requirement.  If you have people (salesmen) working exclusively in a country they are employed in that country and you need a legal entity (a company) in that country - if only to pay the local income and employment taxes.  If Brexit goes badly these companies may prove a life saver for H's international operations since they represent EU arms of Hornby.  

Edited June 19, 2018 by Andy Hayter

[andyman7]

To me this is an all or nothing gamble now...

2019/2020’s range sounds like it could be very impressive but if there’s no profit by 2021 (aim stated in the report) I’m my opinion that’ll be the end of the ride.

 

It’s all high risk, no wonder the strategy outlined in the report was to strategically say very little.

I don't think there are any low risk strategies left. Look at the bloodbath of high street retailers as an example of the need to take risks to survive.

 

Lyndon's summary is as others have said remarkable in it's plain speaking summary of the situation. Essentially whatever the future size of the business it boils down to being able to serve a range of niche markets (Airfix, Corgi, Scalextric and the railway brands) profitably, which means choosing and making the right models at the right time. Sounds easy - to many of us here it seems obvious that the Huntley & Palmers Peckett, the SE&CR H class or the SWS Duchess would be in high demand - but they need to get it right across all of these brands, pretty much all of the time, to survive.

[Godfrey Glyn]

To quote David, Clearwater, above -

 

I'm sure they look on enviously at the Rapido's imminent success with the Single. Ditto Bachmann and its Blue Pullman. If you look back, some of Hornby's bigger successes have similarly been the slightly unusual. The live steam was a good example though I'm not suggesting they repeat that. However they do need something that has the buzz that created and the hype that the Single's getting. How about an RTR broad gauge starter set? As Edwardian commented on another thread, the trick is making products that people don't yet know they want to buy. Could you get a simple oval plus two coaches and a loco to market for say £350-400 and sell a few thousand? A novelty item? For sure. A collectible - definitely. How many on here would buy one? A fair number I bet. Will the publicity drive broader sales of their brand? Probably. I don't think their fortunes will be turned around by say releasing an ex-LNWR Cauliflower or a GWR Aberdare attractive as I'd personally find both. It has the have some pizzazz and wow factor. 

 

I agree with David that a broad gauge RTR would certainly be a novelty item and indeed it would sell, and at a premium price. A more standard model, in gauge terms at least, and one that might have an even greater sales potential might be a model of the 'Rocket'. Such a model would be attractive to modellers, collectors and the general public and would certainly justify a premium price.

 

all the best

 

Godfrey

[phil gollin]

.

 

Interesting, but I didn't find the statements convincing.

 

Two points ;

 

1:  No mention (?) of Brexit

 

2:  Although Clearwater (above) thinks the 2019 catalogue might be a bit thin, the Chairman's statement does seem to indicate that they want to launch their re-vamp.  IF the 2019 catalogue doesn't deliver on the new "sets of brooms" new strategy then I fear for Hornby at least.

 

As, sort of, implied in my previous words, the Hornby Group consists of many parts.  Airfix seems healthy, but what of Scalextric, Humbrol and Corgi ?  These brands also need attention (whether positive, or negative) - the model trains are just part of the problem

 

Anyway, good luck to them, and the 2019 new releases announcement (Christmas Day ?????)  will be something to think long and hard over.

 

.

[Andy Hayter]

.

 

 

 

1:  No mention (?) of Brexit

 

 

.

 

What's to say Phil?  Everyone knows it is the elephant in the room, but we don't know if it's an Indian elephant, an African elephant, a pink elephant or even a white elephant.

 

Until there is some clarity there is nothing concrete to say, and in fact saying what options you might be looking at would only give he competition an "in" on your future strategy.  Much better to say nothing - which is what was said.