Hornby Financial Update.

[Widnes Model Centre]

Not sure if the latest figures have been published here... which would be unusual.

 

 

Hornby2019.pdf

[Mike Storey]

These are the latest figures, published yesterday, which show a good improvement in revenue, but also rises in costs. Net loss is down £0.5m compared to the equivalent six months last year.

 

http://otp.investis.com/clients/uk/Hornby/rns/regulatory-story.aspx?cid=1477&newsid=1348000

 

[Pandora]

The report does not show important barometers of a company such as Development spend or cash reserves.

Edited November 29, 2019 by Pandora

[The Stationmaster]

I think I can give part of an answer to some questions LCD has posed in his report - here -

 

 

Bring back 'The Engine Shed' in the way it used to be.  It was excellent for creating interest and excitement (aka 'froth') whereas now it has become bland and subservient to the 1970s 'god' of the big annual announcement.  Even Hornby's belated and half hearted attempt to get on the announcement band wagon at the Warley show was something of a damp squib.  The company needs to recognise that for many of its current customers the big 'customer facing' (yuck marketing term that it is) events are the major shows and not going secondhand through cosy theatricals in seaside hotel once a year.

 

If you really want to make your current customers aware and excited about your products and whip up their interest in what is coming just look at what your competitors for their money are doing in the UK market.  The continental market is differeent still as far as I know but the UK market has moved on in leaps and bounds and teh newcomers and commissioners have taken teh vibrancy and made it their own.  And at show we, the end customers, can in many cases talk to their 'backroom boys (and girls)' but we can no longer do that with Hornby where the developers and researchers now seem to be kept in a cupboard back in Margate.

 

And another thing - the GMRC has introduced a whole new audience to model railways but whose presence. was in evidence on the day of fiiming the judging of the final - Bachmann.  whose products were clearlu y in evidence during the tv showing of the construction phase - Peco.  yes Hornby trains were there but very much as incidentals.

[Mike Storey]

1 hour ago, Pandora said:

The report does not show important barometers of a company such as Development spend or cash reserves.

 

It does show R&D, which has risen, but only slightly, and capital spend - ditto.

 

I don't think there would be any significant cash reserves, as they are working on a credit line, the drawdown for which has risen markedly in this six months. Ostensibly, it would appear to be sh1t or bust this Christmas......

 

Importantly, virtually all their new products have arrived and are ready for sale, unlike the Blue Boxes.

Edited November 29, 2019 by Mike Storey

[maico]

2 hours ago, Pandora said:

The report does not show important barometers of a company such as Development spend or cash reserves.

 

See page 9 and page 18

[Legend]

I dont think the accounts show anything new .  Hopefully itis a company that is turned round and heading back up . I still think Distribution and Selling and Marketing Costs are too high for a company that size , £32M is not that big in Turnover .

 

Completely agree The Stationmaster.  The Engine Shed is a squandered opportunity while they step back to 80s/90s marketing . I'm hoping the "100" year anniversary will produce something special but I am not holding my breath .

 

One thing that I still think is key is that Hornby have to deliver the goods . By that I mean they have to get more manufacturing resources on line . While they are showing improvement  there are indications some timings are sliding back eg Mk3 new door versions , now due summer 2020.  This years program was good but they havent been able to deliver it all . Had they done so their revenue would have been up .   So manufacturing capacity is still key .  QC is implicit.

 

 

[mdvle]

2 hours ago, The Stationmaster said:

Bring back 'The Engine Shed' in the way it used to be.  It was excellent for creating interest and excitement (aka 'froth') whereas now it has become bland and subservient to the 1970s 'god' of the big annual announcement.

 

Fully agree with this.

 

My issue is with this quote:

 

Quote

We have been thinking a lot about how we reach customers. It has changed significantly over the last 20 years and I am not sure we have taken advantage of all the opportunities on offer.

 

and this:

 

Quote

Whilst the internet has caused our physical retailers some problems, we think it will become an important way for us to reach our customers and get them excited about our product pipeline.

 

So there is a great deal of irony that the previous management had already partially/largely solved this issue, and that one of the first major policies undertaken by current management was to return to the "good old days" that the CEO is now saying is unacceptable.

 

 

[mdvle]

I haven't been following the Hornby story closely, but is this the first time the relationship between Hornby and Oxford has been spelled out clearly?

 

Quote

Hornby Hobbies Limited purchased £8,316 of inventory from Oxford Diecast Limited, a company which is wholly owned by LCD Enterprises Limited, a Company in which L Davies owns a controlling 51% share. Hornby PLC purchased a 49% stake in LCD Enterprises Limited on 7 December 2017. L Davies remains a director of Oxford Diecast Limited.

 

[truffy]

3 minutes ago, mdvle said:

there is a great deal of irony that the previous management had already partially/largely solved this issue, and that one of the first major policies undertaken by current management was to return to the "good old days" that the CEO is now saying is unacceptable.

Nothing related to the return of old marketing talent?

[JohnR]

3 hours ago, The Stationmaster said:

And another thing - the GMRC has introduced a whole new audience to model railways but whose presence. was in evidence on the day of fiiming the judging of the final - Bachmann.  whose products were clearlu y in evidence during the tv showing of the construction phase - Peco.  yes Hornby trains were there but very much as incidentals.

 

I agree - and I wonder if Hornby's response should be to develop more "animations" for people to add to their models? I believe it was the James Bond themed layout which made use of the operating mail coach - perhaps there are other scenarios that could be developed?

[truffy]

12 minutes ago, JohnR said:

I agree - and I wonder if Hornby's response should be to develop more "animations" for people to add to their models? I believe it was the James Bond themed layout which made use of the operating mail coach - perhaps there are other scenarios that could be developed?

A travelling circus, with a special giraffe car!

[Legend]

R9999  Operating Volcanoe and Lava (not recommended for children under 14 years)

Edited November 29, 2019 by Legend
My spellings getting worse!

[The Stationmaster]

1 hour ago, mdvle said:

I haven't been following the Hornby story closely, but is this the first time the relationship between Hornby and Oxford has been spelled out clearly?

 

 

The purchase of a percentage share in Oxford Diecast (and I think the amount paid for it) has been in the public domain for quite a long while.   I'm not sure if any purchase of inventory has been mentioned previously.

[melmerby]

36 minutes ago, The Stationmaster said:

The purchase of a percentage share in Oxford Diecast (and I think the amount paid for it) has been in the public domain for quite a long while.   I'm not sure if any purchase of inventory has been mentioned previously.

Hence Oxford items sitting on Hornby's stand at Warley.

[JSpencer]

They still have some fundimental issues with costs. It is not just a quetion of winning customers, but getting back to profit. Maybe the margins need to be increased and the 10% limit breifly dropped. I know the 10% limit levels the playing field a bit betweeb box shifters and smaller shops, but no Hornby at all is going to have an even bigger impact on model shops. 

Tough choices ahead if they are going to start refloating the ship.

 

[Mike Storey]

6 hours ago, Legend said:

I dont think the accounts show anything new .  Hopefully itis a company that is turned round and heading back up . I still think Distribution and Selling and Marketing Costs are too high for a company that size , £32M is not that big in Turnover .

 

Completely agree The Stationmaster.  The Engine Shed is a squandered opportunity while they step back to 80s/90s marketing . I'm hoping the "100" year anniversary will produce something special but I am not holding my breath .

 

One thing that I still think is key is that Hornby have to deliver the goods . By that I mean they have to get more manufacturing resources on line . While they are showing improvement  there are indications some timings are sliding back eg Mk3 new door versions , now due summer 2020.  This years program was good but they havent been able to deliver it all . Had they done so their revenue would have been up .   So manufacturing capacity is still key .  QC is implicit.

 

 

 

Which figures are you looking at?

 

The 2019 interim results show revenue is 15% up, and climbing if the International division (63% increase) is to be believed. Gross Profit and margin are up. All down to improved supply. But cost of sale is up, marginally, although distribution and staff costs are (well) down.

 

Given that Hornby admit that the 2nd half results are the bigger picture, one could conclude they are aiming for above £37m revenue again, by next March.

 

 

[Mike Storey]

2 hours ago, JSpencer said:

They still have some fundimental issues with costs. It is not just a quetion of winning customers, but getting back to profit. Maybe the margins need to be increased and the 10% limit breifly dropped. I know the 10% limit levels the playing field a bit betweeb box shifters and smaller shops, but no Hornby at all is going to have an even bigger impact on model shops. 

Tough choices ahead if they are going to start refloating the ship.

 

 

Gross Margin has increased, to around 41%. That is pretty impressive, unless you were running a casino.

 

Availability of stock is now vastly superior to the competition.

 

Their biggest problem is becoming the servicing of debt.

[Legend]

17 minutes ago, Mike Storey said:

 

Which figures are you looking at?

 

The 2019 interim results show revenue is 15% up, and climbing if the International division (63% increase) is to be believed. Gross Profit and margin are up. All down to improved supply. But cost of sale is up, marginally, although distribution and staff costs are (well) down.

 

Given that Hornby admit that the 2nd half results are the bigger picture, one could conclude they are aiming for above £37m revenue again, by next March.

 

 

 I was looking at year end 31/3/19 . Good they are doing better but my point on manufacturing capacity stands . I doubt it was the intention to have the Princess  delivering after Christmas

[royaloak]

2 hours ago, JSpencer said:

They still have some fundamental issues with costs. It is not just a question of winning customers, but getting back to profit. Maybe the margins need to be increased and the 10% limit briefly dropped. I know the 10% limit levels the playing field a bit between box shifters and smaller shops, but no Hornby at all is going to have an even bigger impact on model shops. 

Tough choices ahead if they are going to start refloating the ship.

 

A very short term plan which is how Hornby got in this situation in the first place, Hornby need ALL  their retailers, big or small, to take decent amounts of their items not just a few box shifters.

 

Hornby are only just recovering the goodwill from a lot of retailers who lost it when Hornby dumped unsold stock at loss leader prices meaning the box shifters were quids in but everyone had unsold stock which they had bought at a higher price than the box shifters were selling the same items for.

[Clearwater]

26 minutes ago, Mike Storey said:

 

Gross Margin has increased, to around 41%. That is pretty impressive, unless you were running a casino.

 

Availability of stock is now vastly superior to the competition.

 

Their biggest problem is becoming the servicing of debt.

 

And growing debts is a function of operating cash flow.  They’re claiming that they’re stocked up ahead of the Christmas trading season and the debt is in line with budget.  I’d hope that the March figure come down from those levels and they show a positive operating cash flow.

[robmcg]

After a quick read my feeling is that there are still large liabilities but the balance is shifting towards better sales and margins. In other words the ship is going forward. Funding seems secure, and Hornby's ability to make profitable product is still good. 

 

As to finding buyers, inspiring them to spend, well, that will always be an item for experts here to debate.

[mdvle]

1 hour ago, Legend said:

 I was looking at year end 31/3/19 . Good they are doing better but my point on manufacturing capacity stands . I doubt it was the intention to have the Princess  delivering after Christmas

 

While we obviously don't know what Hornby's plans were (or are), getting either/both of the Princess and the Large Prairie into shops prior to Christmas was going to need everything to go right given that Christmas last year they were only at a CAD stage.

 

We also don't know how Hornby are planning for their anniversary year, or reacting to some of the other announcements that both have been made or the rumours in China indicate are coming.  It is possible that if those models have been delayed it may be the result of getting some of their 2020 announcements to a closer to release stage than they otherwise might have been.

 

It's easy to look at a single year of announcements and make judgements, but a wise company will also be juggling the following several years of plans and the UK market is in a way getting very competitive and crowded.  Thus Hornby possibly decided a delay in either of those (and there is speculation the Large Prairie got somewhat delayed by the Terrier) might be justified by staking a claim to another model before someone else can grab it.

[JSpencer]

1 hour ago, royaloak said:

A very short term plan which is how Hornby got in this situation in the first place, Hornby need ALL  their retailers, big or small, to take decent amounts of their items not just a few box shifters.

 

Hornby are only just recovering the goodwill from a lot of retailers who lost it when Hornby dumped unsold stock at loss leader prices meaning the box shifters were quids in but everyone had unsold stock which they had bought at a higher price than the box shifters were selling the same items for.

 ok they could relax it to 20%. If they don't start getting into profit and clearing that debt, sooner or later the plug will be pulled or they will be forced to make sharp reductions which will loose confidence with staff and retailers alike far faster and greater. The ship might be stbalised, but it is still taking on water and sooner or later it will capzise sharply. ( The metaphor here is that a ship has a rolling point and a centre of gravity, the ship can be not listing with the centre of gravity just below it but as it takes on water, even if you keep the ship balanced, sooner or later the gravity point goes above the rolling point and boom the ship capsizes).

[mdvle]

2 hours ago, royaloak said:

A very short term plan which is how Hornby got in this situation in the first place, Hornby need ALL  their retailers, big or small, to take decent amounts of their items not just a few box shifters.

 

Hornby are only just recovering the goodwill from a lot of retailers who lost it when Hornby dumped unsold stock at loss leader prices meaning the box shifters were quids in but everyone had unsold stock which they had bought at a higher price than the box shifters were selling the same items for.

 

The problem for Hornby though is that they aren't just trying to keep the retailers in business, but also sell models.  Which means their prices need to reflect the prices of the competition, and the pricing policies of the competition.  And while there are people out there who will buy based on the name of the box, for most of us a budget can't purchase everything in a year we want.  So if Hornby limits the discount because they don't want to offer as good terms to the stores as their competitors, then the competitors might end up getting the larger amount of spending.

 

Like it or not, and whether it is a bargain or not, we like the idea of getting a bargain.  If Bachmann and Hornby both end up with a model out in any given month, psychologically we are far more likely to buy the model that is 20% or 30% off than the model that is only 10% off (on the assumption we either need or want both models).

 

And the retailers now this as well, so they are more likely stock an item that they can entice people to buy with a larger discount.