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Hornby Make a Profit


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People are criticizing the new comers for doing like for like but when you look at Accrascales new Merry go round wagons they are offering a much improved product ar a very competitive price, they are definitely raising the bar rather than producing deliveries of models goodness knows how many years old.

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1 hour ago, The Stationmaster said:

If you are looking at the financial performance of a company that is what you are doing and in some respects that irrespective of who that company is but it's natural to comare companies ina broadly similar line of business. So

 

Bachmann Europe Most recent accounts published are to year end 31 December 2019.  Turnover £ 13.9 million, gross profit £4,423 million, profit before taxation £206,000,  cash in hand £2.5 million

Hattons. Most recent accounts published up to year end  30 June 2020.  Turnover £12.6 million, gross profit £3.9 million, profit before taxation £492, 901.  Cash in hand £1.6 million.  Note H

Rails.  Most recent accounts published up to year end 31 March 2020.  Rails are exempted from full accounts so do not show so much information however they had £129,331 cash in hand and were showing £162,515 as 'retained earnings'. (which does not mean profit)

Hornby Group.  Most recent trading statement for year ended 31 march 2021 (i.e not complete accounts)   Revenue £48.5 million, (gross profit £21.7 million), operating profit £0.6 million, profit before taxation £300,000, net cash £4.7 million.  NoteHb  

 

So, in summary in terms of profit before taxation on sales/turnover in their most recently submitted accounts-

Bachmann made £206,000 on sales of £13.9 million

Hattons made £492,901 on turnover of £12.6 million

Hornby Group made £306,000 on sales of £48.5 million

 

The picture on gross profit is rather different and much more in Hornby's favour in percentage terms (and in many respects the fact that Hornby is starting from a worse past financial positions as well as its level of costs etc hasa greater impact on profit before taxation)

Bachman made £4.42 million on turnover of £13.9 million

Hattons made £3.9 million on turnover of £12.6 million

Hornby Group made £21.7 million on sales of £48.5 million

 

Note H. Hattons recorded a declines in sales but an improvement in profit compared with the previous year.

 

Note Hy . In the trading statement Hornby record an Undrawn Loan facility of £14,4 million.  Their current loan facilities are £12 million with PNC and what was originally (in 2018) a £6 million facility with Phoenix which was increased to £9 million in late 2019/early 2020  giving a total loan facility of £21 million

 

You could also look at Investment in new tooling. Hornby have lifted this from under £1m in 2016 to close on £5m this year.

That will have eaten into profit but has not yet delivered it's income and hence profits.

 

Hence they are investing their Gross profit in future profits - that's not the same has making no net profit full stop.

 

 

 

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6 hours ago, The Stationmaster said:

Not a real comparison alas.   Kader suffered a massive sales decline in model trains in the USA which overall accounted for  a very large part of their model trains sales decline.  But that is purely in respect of model trains.  Hornby's overall results are not split by brand and while it is almost certain that their model trains sales figure increased we don't know how much of the profit has come from that.  And anyone in the trade will tell you there was a massive increase in the sales of plastic kits as a consequence of the pandemic and lockdowns

 

And surely the fact that Hornby are now apparently diverting more model railway sales to their direct channel instead of via certain big retailers would seem to indicate that internally they have a concern to increase revenue and profit from the model railway part of the business. - why would they be doing that for any other reason?

I agree it's an imperfect comparison but no other stock-exchange quoted companies in the sector come to mind. It's interesting that Kader are blaming Covid for a drop in sales whilst Hornby say it's responsible for an increase in sales. 

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14 minutes ago, GWRtrainman said:

 

You could also look at Investment in new tooling. Hornby have lifted this from under £1m in 2016 to close on £5m this year.

That will have eaten into profit but has not yet delivered it's income and hence profits.

 

Hence they are investing their Gross profit in future profits - that's not the same has making no net profit full stop.

 

 

 

It shouldn't impact the profit and loss account too much. In accounting terms, you're just exchanging one asset (cash in the bank) for another asset (tooling), The costs occur when you depreciate that tooling each year. (Obviously, there is a cost in paying a company and people to create that tooling but it won't be millions.)

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2 hours ago, t-b-g said:

So Hattons, Rails etc. trying to cut Hornby and others out by going direct to the factories and becoming manufacturers is fine but Hornby trying to cut Hattons and Rails out by selling direct to the public is greedy and aggressive etc.

 

 

Rails do not go direct to any factories but use existing manufacturers to provide an exclusive product for them. All their products are clearly branded with the name of the manufacturer. They have been careful not to go down the direct route.

 

They would have been doing that with Hornby too probably (as others would have done) but therein lies a different story.

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1 hour ago, AY Mod said:

 

Rails do not go direct to any factories but use existing manufacturers to provide an exclusive product for them. All their products are clearly branded with the name of the manufacturer. They have been careful not to go down the direct route.

 

They would have been doing that with Hornby too probably (as others would have done) but therein lies a different story.

Rails seems to do very well with that model. Most of the special commissions seem to sell very well, even though as commissions, there is no juicy discount and probably the price is eased up a bit. Not that I blame Rails for that; they’ve taken risks in picking unusual models and deserve a good profit. The only question is: what on earth are they going to do with my eye teeth?

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although Hornby's profit is small, its profit. It buys them time and shows investors that the ship is possibly changing course, albeit slowly. You can't go from massive losses to big profits quickly, especially  when your new models are 2 years down the line and take time to feed into the new direction.

 

I could comment more on the Hornby bashing and any excuse to raise issues with the tier system again, all i would say is my local model shop is more than happy with the tier system and thinks its a good thing, for all concerned, there are winners and losers, such  is business.

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38 minutes ago, jonnyuk said:

although Hornby's profit is small, its profit. It buys them time and shows investors that the ship is possibly changing course, albeit slowly. You can't go from massive losses to big profits quickly, especially  when your new models are 2 years down the line and take time to feed into the new direction.

 

I could comment more on the Hornby bashing and any excuse to raise issues with the tier system again, all i would say is my local model shop is more than happy with the tier system and thinks its a good thing, for all concerned, there are winners and losers, such  is business.

 

Quite true - also many commentators on this discussion assume the point of this year was to make a big profit - maybe it's been about proving the company is profitable and doing all they can to invest and build the company up. They've done enough - the company has run profitably, none of us seem to be crying out for price rises or less new items which would have made them more profitable.

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4 hours ago, AY Mod said:

 

Rails do not go direct to any factories but use existing manufacturers to provide an exclusive product for them. All their products are clearly branded with the name of the manufacturer. They have been careful not to go down the direct route.

 

They would have been doing that with Hornby too probably (as others would have done) but therein lies a different story.

 

Fair enough Andy but my point was really that other businesses in the industry diversify and change the way that they earn money and don't get the grief that Hornby do when they change theirs.

 

I am not saying that Hornby are wonderful and every they do is the right way forward. Just that they get far more stick than other firms.

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One thought to add into the 'bashing' part of this discussion:

 

Hornby is an important entry point to our hobby. People know the name, and Hornby provide pretty much everything a newbie, or a long out of the hobby returner, needs in order to build a first layout, which I'm not sure is true of any other single supplier (maybe Bachman, but their name isn't in the minds of people at large in the same way).

 

Most RMWebbers will delight in sourcing bits and pieces from multiple suppliers, from the biggies to the obscure cottage industry bods, some of whom don't even have a web presence, and will get terribly exercised about whether the clack valves on a loco are in the right place for the date of the livery its painted in. But, to a newcomer that is an incoherent, and hence baffling, world. Just look how many newbie layout threads on here start with some rough ideas based around Hornby set-track, and get refined from there.

 

The hobby actually needs this "whole system" supplier-model to be profitable, it provides the reassuring coherence that gets people "across the threshold", and without that the Young Turk hi-fi commissioners, who cater to already refined tastes, and even an established brand like Peco, will find that the market they are trying to serve will be a good bit smaller.

 

Which isn't to say that nobody else could ever fulfil the role, or even that they currently fulfill it in the best possible way for their own good, but it might be to say that the Hornby name is the company's biggest asset in the railway part of its business and is vital to the hobby at large.

 

 

 

 

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32 minutes ago, t-b-g said:

change the way that they earn money

 

Some of the origins of this exploration of direct or alternative routes trace back to a time of previous supply issues and/or stock-dumping as a way of having greater determination of margins at future points if those circumstances/policies continued or accelerated.

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14 hours ago, GWRtrainman said:

 

Quite true - also many commentators on this discussion assume the point of this year was to make a big profit - maybe it's been about proving the company is profitable and doing all they can to invest and build the company up. They've done enough - the company has run profitably, none of us seem to be crying out for price rises or less new items which would have made them more profitable.

 

Its not the profit, its the costs to make that profit.

 

If the models are making a good margin, then “something” is eating it... if that “something” took a huge sales increase to turn the number positive, then what happens if sales decline again ?

 

Cynic in me says all management changes start with a 5 year plan..

 

Years 1 & 2 blame the problems on the predecessor and promise to sort it out..

Year 3 is when things break even.

Year 4 & 5 is supposed to show results of years 1-3 with good growth and profits, that in-turn allow current investors to make their own plans.

 

I would say they are exactly on track at year 3... what puzzles me, is Year 3 was no ordinary year, so I was expecting something a little more exciting, absence of which is a bit unexplained... 

 

it does seem management and staff are incentivised to make year 4 a great year.. so lets see.., year 4 numbers might surprise us all even more than this years.

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Having skimmed most of this thread (and chuckled at a couple of posts) I do think there's one element missing here from the discussion.


Yes, the past year has seen much higher demand in the hobby, driving up sales and is probably a large part of them turning a profit this year.

 

However, when you consider the headwinds they face, their product cycle, and what's happened in the world, it's not as though they could make unlimited profits this year.

1. The product production planning for this year happened, most likely, the year or even two in advance. They had their volumes figured out on expected sales. When COVID hit they were probably trying to figure out what would happen to sales (in a recession they'd go down, and this was a massive recession) and may have been willing to postpone production slots. Instead, once lockdown eased, demand skyrocketed.

2. They would likely have had supply issues, if anyone remembers anything of getting product from China from Feb-April/May last year. Horrendously difficult, production slowdowns, massive cost of freight.

3. They had to contend with marine freight rates increasing significantly as a result of both COVID and Brexit - and air freight went up even more.

4. They gave up production slots to run the NHS 66 - I think in the long run this will work out well for them commercially, and morally I know it gave me warm fuzzy feelings about them. My view of Hornby as a brand improved as a result of that 3500 product run, but you can bet they had an "opportunity cost" of giving up production slots on higher margin products to meet that demand.

5. I come back to timelines - their product rollout, their production volumes etc - all would have been planned pre-covid. Now they have to adjust everything, and try and crystal ball whether demand will stay strong (people stay in the hobby) or collapse (demand goes away).

 

Supply chains are still totally fubared. Semi conductors, precious metals, natural rubber/latex - you name it, there are massive shifts in demand layered on top of other industry disruptions (move to EVs etc) that are causing pain points everywhere. Your supplier doesn't have to be in lockdown/furlough for them to struggle to deliver, there are a million other things that might be going on in their supply chains. Setting up factories for social distancing while maintaining productivity and output was a challenge in the middle of last year.

 

My own, totally uninformed opinions are:

- They're testing new revenue streams (steampunk, the new kids' line etc), they're doing it with little capital invested (it appears), and if they find a winner they can make hay. This is smart. Work with your partners, nibble around the edges of your product because if you can hook someone and bring them into your main (high margin) product lines you'll have them for years.

- They're working hard on their brand image, including their recent statements around inclusivity. If they're going to be around the next 30 years they need my generation and younger to find them relevant. Younger consumers are demanding brands have values that they can connect with. It's my opinion, but I see this as positive, I see what they're trying to do, and it's the right thing to do.

- Some of their brands are doing good work, like Airfix. Others are struggling (all their european brands). Fixing their HO and N gauge strategies are going to be really important going forward.

- The work they do now will pay off in two years time. I expect the APT to be a roaring success, they'll have put a lot of money into that last year, and it'll pay off this year and into the future. So we need to look at their "signal box" etc and read the tea leaves - their upcoming products look strong individually, they're doing a good job keeping customers updated and interested, their investments in diecast parts is probably going to pay off.

- There is significant customer resentment at their "abandonment" of modern image. They have left too much room for competitors to eat their lunch on important diesel/electric product lines. This was probably a conscious decision; there's only so much cash on hand for design, for tooling, and only so many production slots available. But it's left them weak.

 

If I were writing them a memo of strategic advice I'd focus on three things:

1. Raise cash to make an acquisition - focus on an OO upcomer that produces high quality product, and incorporate their brand. Figure out structuring three levels - Railroad, Oxford, "Newco" - or something. It needs to be someone who's active in diesel/electric, someone who has strong design strengths. You need to buy their range, buy their brains, and have happy customers spending 200 GBP on a class 3something because they're getting a top product from Newco by Hornby.

2. In line with the above, get more consistent with your brand strategy. Bassett Lowke was a misstep, your brands have value by only if you use them right. Brits still refer to a "Hornby trainset" - so your main brand resonates with early/young/occasional modellers and nostalgia. The Dublo "relaunch" has been good - a USP, good product, quality, nostaglia + margin. Figure that out more broadly, what are you doing with those European brands?

3. Get invested in one of your suppliers; you need some vertical integration back to have greater production slot flexibility, to get your elbows out on the newcomers. 

 

Personally I want to see Hornby survive and thrive. They're a key part of the hobby, even though as a kid I remember being frustrated at weak ringfields and sub-standard 47s, compared to the Roco/Fleischman etc from the continent. 


I don't want them to be the only game in town, and they won't be. My (dual) national pride has me rooting for Rapido too :)

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6 hours ago, GWRtrainman said:

 

You could also look at Investment in new tooling. Hornby have lifted this from under £1m in 2016 to close on £5m this year.

That will have eaten into profit but has not yet delivered it's income and hence profits.

 

Hence they are investing their Gross profit in future profits - that's not the same has making no net profit full stop.

 

 

 


I’d look at the operating cash flow and how much of that is being invested in new tooling and the movement in net cash from year to year.  As @1andrew1says above, tooling will be charged to the P&L when the stock it has been used to produce is sold.  This creates a cash margin that funds investment.  In previous years, they’ve made an operating loss and a cash loss, hence the need for refinancings through equity raises and specialist debt financiers.

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One thing I don't understand, we are seeing lots about they 'only' made this amount of profit against 'this' amount of turnover=bad, but surely we should ALSO take into account that in previous years they made a loss ? So they not only made a profit, but they wiped out a loss AND have covered costs of a Loan. Surely that is good ?

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6 hours ago, 1andrew1 said:

Margins vary bewteen industries. Supermarkets can be a few per cent, electricity distribution is a staggering 42%, https://www.ibisworld.com/united-kingdom/industry-trends/industries-highest-profit-margin/

 


Sure and that’s why financial analysts look at different metrics for different industries.  Distribution networks have proportionately high capex and hence high margins.  They’re also less volatile given the nature of their business model.  However, their WACC will be lower.

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4 hours ago, jonnyuk said:

..........................................................

 

I could comment more on the Hornby bashing and any excuse to raise issues with the tier system again, all i would say is my local model shop is more than happy with the tier system and thinks its a good thing, for all concerned, there are winners and losers, such  is business.

 

Criticism is NOT "bashing".  Yes,  your local store may be "more than happy with the tier system and thinks its a good thing",  but then how far up the ladder is he.  Being tier 1 guarantees him a place at the table,  tier 2 reserves him a seat if available as in musical chairs and tier 3 is the food scraps on the floor or the leftovers in the kitchen.  The real issue is that Hornby simply cannot meet demand (China's fault not being able to produce sufficient quantity or insufficient capital to meet the demand?) and so rations out their stock,  rewarding those who promote the brand and "punishing" those whom they see as either not good enough to represent the brand or as competitors.  They still though are willing to sell instock items to those deemed unworthy or as competitors.  No use cutting off your nose to spite your face.

 

As the king in the Monty Python sketch, surrounded by a bevy of beauties comments,  "It's good to be king".

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Surely every supplier of everything chooses the outlets through which to supply, and takes special care over that if what they supply is a premium product in limited supply?

 

There are multiple different reasons for doing that in different markets, and one is that it can best to sell through retailers who know the subject, and stock your range comprehensively, so that a customer coming to buy something doesn’t go away either confused by poor advice, or empty handed.

 

If you think this applies only to Hornby toy trains, try buying brake pads to fit a particular brand of bike brakes, or bits to mend a worn-out Dyson hoover, or, or, or ......

 

The odd thing about this discussion is that some people seem to both want Hornby to be a viable business, and not do things that help it to become one.

 

And, remember, being able to buy up-market toy trains is a privilege that possibly <10% of the world’s population has, not a subject covered in the charters of human rights. Count your blessings for being in the <10%.

 

 

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50 minutes ago, Nearholmer said:

Surely every supplier of everything chooses the outlets through which to supply, and takes special care over that if what they supply is a premium product in limited supply?

 

There are multiple different reasons for doing that in different markets, and one is that it can best to sell through retailers who know the subject, and stock your range comprehensively, so that a customer coming to buy something doesn’t go away either confused by poor advice, or empty handed.

 

If you think this applies only to Hornby toy trains, try buying brake pads to fit a particular brand of bike brakes, or bits to mend a worn-out Dyson hoover, or, or, or ......

 

The odd thing about this discussion is that some people seem to both want Hornby to be a viable business, and not do things that help it to become one.

 

And, remember, being able to buy up-market toy trains is a privilege that possibly <10% of the world’s population has, not a subject covered in the charters of human rights. Count your blessings for being in the <10%.

 

 

I,m not sure it is about not wanting them to but the perception of how they are implementing it. Maybe a bit more openness and less perceived aggression towards those they see as attacking their pet projects would give them better public relations. Maybe there is a supply issue at present which can make people a bit more take it or leave it, but equally you need to plan for a more bountiful supply.

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25 minutes ago, CUCKOO LINE said:

less perceived aggression towards those they see as attacking their pet projects would give them better public relations


Wouldn't argue with that. I’ve thought a few times in recent years that a certain senior leader has come across as childishly petty and aggressive, whereas he could have done exactly the same things in an attempt to cut the legs from under his competitors while maintaining a bit of composure. He could have done it and said precisely nothing beyond announcing the products. Personal style thing, I suppose.

 

Does it matter? I think that perhaps subtly it does because, as this thread shows, it stokes ill-feeling among some potential customers, and it possibly goads new players into entering.

 

 

Edited by Nearholmer
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16 hours ago, NINJA said:

People are criticizing the new comers for doing like for like but when you look at Accrascales new Merry go round wagons they are offering a much improved product ar a very competitive price, they are definitely raising the bar rather than producing deliveries of models goodness knows how many years old.

Except we now have 3 separate manufacturers of MGR wagons and derivatives. And a long list of things still not produced by anyone, whilst Hornby still struggle financially :rolleyes:

 

The big question for Hornby is what happens if/when we come out the pandemic and start going on holdiay etc again?

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7 minutes ago, Nearholmer said:

Does it matter? I think that perhaps subtly it does because, as this thread shows, it stokes ill-feeling among some potential customers, and it possibly goads new players into entering.

Spend too much time watching the competition and apeing them and you take your eye off your own performance. I don't see the strategic benefit from some of what has gone on, margins will prresumably be lower on me too products? May hit the competition but also means you have a number of product lines with reduced margin potential.

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7 minutes ago, ruggedpeak said:

Except we now have 3 separate manufacturers of MGR wagons and derivatives. And a long list of things still not produced by anyone, whilst Hornby still struggle financially :rolleyes:

 

The big question for Hornby is what happens if/when we come out the pandemic and start going on holdiay etc again?

Whilst the heady days of market growth may be over, Hornby must hope to gain market share here through the increased investment in new tooling. Initiatives like its autumn TV show may grow the model railway market slightly in the UK too.

 

Hornby does need to increase sales in the US and EU to be profitable in these markets so I would expect to see more of an effort being made in these regions.

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