Hornby's financial updates to the Stock Market

[Ian Hargrave]

They certainly don't jump on you in the Apple stores and there is no hard sell when they do start to answer questions etc (I understand they are not on a direct commission in any case). They can also be remarkably tolerant when you ask dumbo questions (like when I asked where you could attach a mouse to an iPad - no mouse, no sale, no tears on their part).[/quote

 

And totally off topic....for the ultimate Apple experience,try the Apple Store on 5th in NYC.....an amazing sight,especially when viewed from street level.Sadly F A O Schwarz Toys above it now closed...Sorry for the digression...but posted from my Apple I pad.

Edited May 15, 2016 by Ian Hargrave

[RJS1977]

Surprised you weren't approached. I always am when I walk in. The prices and specifications are actually on the iPads or iPhones but there's usually someone there to talk you through it.

 

I was approached, but at that stage all I wanted was to browse and see what was available and *then* ask if something took my fancy at a price I could afford.

 

By contrast the laptops in Staples were all laid out with all the information and prices clear to see in front of them so I was able to do a comparison and then ask the salesperson any questions I had.

[Fenman]

I was approached, but at that stage all I wanted was to browse and see what was available and *then* ask if something took my fancy at a price I could afford.

 

By contrast the laptops in Staples were all laid out with all the information and prices clear to see in front of them so I was able to do a comparison and then ask the salesperson any questions I had.

Given their relative sizes, I think Apple can afford to be fairly sanguine about the competitive threat offered by, er... Staples.

 

The problem is that there are as many perfect sales strategies as there are different customers. What you might love, I might hate. Personally, I never believe a single word a salesperson tells me, but others may find them incredibly useful.

 

Paul

[jjb1970]

I'm not really an Apple fan however my daughter has an IPad and my son has an IPod and whatever my own preferences are I will say I've found Apple store service to be excellent. When my daughter smashed the screen on the boys IPod they offered a new replacement at a very low price which and transferred all his files and set it up etc all as part of the service. When I got the daughter her IPad the assistant was very patient and helpful and there was no hard sell. Whilst I use an Android smartphone and MS Windows PCs and don't see myself jumping over to Apple I really can't fault the service I've had for the kiddies devices.

[robmcg]

Getting back to the subject of Hornby profits, I personally do not believe Hornby can acheive sales volumes at the prices indicated by both Bachmann and Hornby as viable and necessary for the foreseeable future.

 

Why?

 

Because the market is awash with models of current-day quality at one third to a half that price, like these below.

 

A Bachmann Standard 5MT BR green 73014 model from 2002 sold as shown by Hattons for UKP50 last week to me, described by them as weathered but actually mostly just layout dust. Full detailing already on. Well applied too.  A type of model you can hardly give away these days, green 5MTs.. black ones fetch a fraction more especially Southern Region ones.. maybe UKP60-70

 

 

A Hornby Royal Scot 7P BR green 46102 'Black Watch' bought by me new about 7 years ago for probably about UKP80  now worth about UKP50, was displayed on a shelf for the last five years, rather embarrassing house dust, detailing added by me. 

 

 

Both model are just the same, apart from dust, as new models at prices near cUKP150 new, the market is awash with quailty s/h models, admittedly many are damaged, but many are not, just try and sell a mint Hornby N15 or Royal Scot on Ebay you'd be lucky to make fifty pounds. 

 

For what it's worth I touched up the lamps on the 5MT and altered colour saturation and balance on both pics but they are otherwise cropped straight from the camera.

 

While we watch UKP75-99 mint new Hornby models sit on the shelves at big box-movers, B1s, S15s, K1s, A4s, A3s, what hope new production? The market is in my opinion over-supplied right now. I will still buy a B12 and two MNs at least,  but volume sales? I don't know.

 

I saw a TTS sound Duke full detail version for under UKP55 just now, with VAT off,  sound not working, but mint,     I DO like a bargain!  

Edit; but no, for around that price and a few quid more, how about a new K1 or B17?

 

Apologies if you think I'm too negative but these are my honest thoughts.

Edited May 16, 2016 by robmcg

[Fenman]

...

While we watch UKP75-99 mint new Hornby models sit on the shelves at big box-movers, B1s, S15s, K1s, A4s, A3s, what hope new production? The market is in my opinion over-supplied right now. I will still buy a B12 and two MNs at least, but volume sales? I don't know.

...

Apologies if you think I'm too negative but these are my honest thoughts.

Are you not over-extrapolating from your own experience? You seem to like buying big engines, irrespective of time and region, and doing heavy photoshops to them. Which is fine. But surely a lot of people will be buying specific types which add to their own models? You may be saturated with cheap 4-6-0s, but if I'm modelling ex-GE lines then almost nothing available 2nd-hand will be as good to me as a new B12. It doesn't matter how cheaply I can buy a 2nd-hand 5MT, I actually need that B12.

 

Equally, it seems pretty clear that price rises usually lead to falls in volume. Have those changes made the market unviable? Maybe, maybe not.

 

But it also seems clear that the big surge in spending comes when a brand new model is first released, and it's 2nd or 3rd runs which struggle. That points to a market where manufacturers will put even more emphasis on launching new models rather than continuing to rehash old ones - seeking novelty and pent-up demand for which a portion of the market will pay premium prices.

 

Paul

[Dunsignalling]

Are you not over-extrapolating from your own experience? You seem to like buying big engines, irrespective of time and region, and doing heavy photoshops to them. Which is fine. But surely a lot of people will be buying specific types which add to their own models? You may be saturated with cheap 4-6-0s, but if I'm modelling ex-GE lines then almost nothing available 2nd-hand will be as good to me as a new B12. It doesn't matter how cheaply I can buy a 2nd-hand 5MT, I actually need that B12.

 

Equally, it seems pretty clear that price rises usually lead to falls in volume. Have those changes made the market unviable? Maybe, maybe not.

 

But it also seems clear that the big surge in spending comes when a brand new model is first released, and it's 2nd or 3rd runs which struggle. That points to a market where manufacturers will put even more emphasis on launching new models rather than continuing to rehash old ones - seeking novelty and pent-up demand for which a portion of the market will pay premium prices.

 

Paul

The thing that has really changed of late is that Hornby are launching new locos with quite surprising frequency but continue to release second/third wave batches of earlier models at least as rapidly as they did when there were no more than two all-new locos in the same catalogue.  

 

Follow-up releases really need to emerge into clear air (a bit like an F1 driver exiting the pit lane) to avoid them being hampered, not only by the all-new stuff, but by earlier incarnations of themselves still being readily available and often reduced in price to clear. That's just too soon. Admittedly, there is probably no fool-proof way to co-ordinate all such launches because of where and how Hornby models are produced nowadays, but it should be possible to mitigate the effect to some extent.  

 

If release of all-new models are to continue at recent levels, the second-waves need to be delayed until the original versions have unavailable (or at least hard-to-find) for several months, and timed not to coincide with (often multiple) new introductions. Unless the stream of novelty abates considerably, a third wave may not be appropriate at all in some cases and should not appear for some considerable time after the second releases for the rest. 

 

As a general rule-of-thumb, second waves should not appear in the same catalogue year as the initial versions unless they are substantially different. For straight repeats with new numbers/names, the next year is quick enough with any third wave no sooner than the year after that.

 

Rising second-hand prices will indicate if the market is ready any earlier.

 

John

Edited May 16, 2016 by Dunsignalling

[Oakydoke]

John, I think you missed the point about 2nd and subsequent releases becoming less common or simply not occurring any more.

[Dunsignalling]

John, I think you missed the point about 2nd and subsequent releases becoming less common or simply not occurring any more.

I don't think they will (or should) become extinct but Hornby certainly need to leave a lot more breathing space before putting them out.

 

I remember reading an interview with a loco-kit manufacturer who reckoned that, of the total lifetime sales of any new one, 80% would be made in the first six to nine months.

 

R-t-r is perhaps a bit different in that people with reasonable-sized layouts are likely to want more examples of common "signature" classes than they would be willing to build (e.g. I have over 30 Bulleid Pacifics). A lot of kit-builders, having tackled one, or possibly two of a particular loco, prefer to move on to a different challenge.

 

The other factor is that, if the frequency of all-new releases drops off from its recent high level, which some have trouble keeping up with financially, people may well be more inclined to purchase follow-up models than they are at present. Somebody earlier in this thread (or the Hornby Sale one) reckoned Hornby had issued something like nine all-new models in twelve months. Even without their well-publicised problems, that is unlikely to be sustainable long-term and almost guarantees poor sales of 2nd/3rd wave models. 

 

If all-new releases were to decline to three or four per annum (still high in historical terms), the situation would probably change dramatically.

 

In some cases, perhaps, 3rd-wave models should come late enough to be regarded as re-introductions.

 

John

Edited May 16, 2016 by Dunsignalling

[The Stationmaster]

The thing that has really changed of late is that Hornby are launching new locos with quite surprising frequency but continue to release second/third wave batches of earlier models at least as rapidly as they did when there were no more than two all-new locos in the same catalogue.  

 

Follow-up releases really need to emerge into clear air (a bit like an F1 driver exiting the pit lane) to avoid them being hampered, not only by the all-new stuff, but by earlier incarnations of themselves still being readily available and often reduced in price to clear. That's just too soon. Admittedly, there is probably no fool-proof way to co-ordinate all such launches because of where and how Hornby models are produced nowadays, but it should be possible to mitigate the effect to some extent.  

 

If release of all-new models are to continue at recent levels, the second-waves need to be delayed until the original versions have unavailable (or at least hard-to-find) for several months, and timed not to coincide with (often multiple) new introductions. Unless the stream of novelty abates considerably, a third wave may not be appropriate at all in some cases and should not appear for some considerable time after the second releases for the rest. 

 

As a general rule-of-thumb, second waves should not appear in the same catalogue year as the initial versions unless they are substantially different. For straight repeats with new numbers/names, the next year is quick enough with any third wave no sooner than the year after that.

 

Rising second-hand prices will indicate if the market is ready any earlier.

 

John

 

Agree absolutely John - comes back to the use of the words sated and saturated in that 2nd & 3rd wave models are often going into a sated market where initial demand is being taken as indicative of a steady demand at that level while at the same time doing those sort of releases among new models where the saturated word tends to have effect.

 

There is in my view not much wrong with a 2nd run but it has to be sized, and be sufficiently different to take account of new demand levels rather than going on previous sales.  Thus - using Hornby Collett coaches as an example a 2017 second run in BR maroon will inevitably sell better than a re-run in blood & custard with different running numbers which would still probably sell better than re-running the same running numbers in either livery.  Similarly with locos the 2nd run needs to pick up on differences rather than similarities and number plus or minus one digit (to avoid the sated market) and not to be released in the same year as another new model for the same company/area in order to avoid the saturated market.

 

Being parochial I could have forecast at least one Hornby cancellation of a 2016 item the moment it was announced - the 'Grange' in BR late emblem livery.  Excellent loco but the previous release allegedly concessions only escaped onto the wider market and those who wanted/needed one got one - so demand this year would be low. 2nd runs in theory might work better for more common (in prototype) use and less expensive locos such as, say pannier tanks or J50s.

 

In the end it all comes back to the marketing people and the need for them to get it right.  If they do so they will sell almost inevitably at top price on first issue - as Paul (Fenman) has already indicated. 

[Fenman]

...

There is in my view not much wrong with a 2nd run but it has to be sized, and be sufficiently different to take account of new demand levels rather than going on previous sales. Thus - using Hornby Collett coaches as an example a 2017 second run in BR maroon will inevitably sell better than a re-run in blood & custard with different running numbers which would still probably sell better than re-running the same running numbers in either livery. Similarly with locos the 2nd run needs to pick up on differences rather than similarities and number plus or minus one digit (to avoid the sated market) and not to be released in the same year as another new model for the same company/area in order to avoid the saturated market.

...

Completely agree with this.

 

The 2nd run of Hornby's delightful D16/Clauds is later this year, and will be the first time they have released one in a livery other than black (this one will be LNER apple green).

 

(The situation is a little more complicated than that because they released a model in a 1-and-1/2th run with a weathered black model which, interestingly, is now heavily discounted.)

 

Paul

[Ozexpatriate]

Getting back to the subject of Hornby profits, I personally do not believe Hornby can acheive sales volumes at the prices indicated by both Bachmann and Hornby as viable and necessary for the foreseeable future.

 

Why?

 

Because the market is awash with models of current-day quality at one third to a half that price, like these below.

Rob, I think they will sell lots of Pecketts, Merchant Navies and SR/ex-LSWR coaches - at whatever price point they set.

 

Locomotives like 5MTs not so much.

[robmcg]

Rob, I think they will sell lots of Pecketts, Merchant Navies and SR/ex-LSWR coaches - at whatever price point they set.

 

Locomotives like 5MTs not so much.

 

Indeed.  Perhaps I was having a negative day...    I think that seeing so many outright brilliant RTR models like the B17 and S15 models still on the shelf at £70-100 made me wonder how the £150 sales would go (e.g the Merchant Navy).  I see J50s for what for me would be under £50 and the same applies, but as Fenman points out I do rather see things from the point of view of a collector buyer and seller of RTR large steam, so no J50 or Peckett thanks, rather have a Urie N15..  

[Robin Brasher]

If someone wants a ready to run 00 gauge Merchant Navy that person has no alternative but to pay over £150 for a Hornby one and I think most Southern modellers would like to have one. I will buy a blue one if Hornby makes one although it is unlikely that one ever ran on the Swanage Railway that I am modelling.

 

I have not read all the posts on this thread but I am wondering if it is the British Hornby Railways brand which may be in financial trouble. Hornby is a huge group producing Humbrol paints, Scalextric, Airfix and has taken over several European model railway firms. Perhaps some of these are not doing well and are dragging down Hornby Railways with them.

[JSpencer]

If someone wants a ready to run 00 gauge Merchant Navy that person has no alternative but to pay over £150 for a Hornby one and I think most Southern modellers would like to have one. I will buy a blue one if Hornby makes one although it is unlikely that one ever ran on the Swanage Railway that I am modelling.

 

I have not read all the posts on this thread but I am wondering if it is the British Hornby Railways brand which may be in financial trouble. Hornby is a huge group producing Humbrol paints, Scalextric, Airfix and has taken over several European model railway firms. Perhaps some of these are not doing well and are dragging down Hornby Railways with them.

 

They are having sales on Airfix as well. The problem is, once stock goes - at that, a fair amount very cheaply - there is nothing much left to prop the company up.

 

Damage control looks to be a big knee jerk reaction rather than a fully studied solution.

 

On a damaged ship, if you were to just close the water tight doors and blindly pump the water out, the ship will probably capsize. It's actually an art to keep a damaged ship afloat. The first thing after getting information on what the damage is,  is to get the ship on an even keel. That often means letting more water in, only in opposite compartments in order to right the ship.

Companies are no different...

[robmcg]

They are having sales on Airfix as well. The problem is, once stock goes - at that, a fair amount very cheaply - there is nothing much left to prop the company up.

 

Damage control looks to be a big knee jerk reaction rather than a fully studied solution.

 

On a damaged ship, if you were to just close the water tight doors and blindly pump the water out, the ship will probably capsize. It's actually an art to keep a damaged ship afloat. The first thing after getting information on what the damage is,  is to get the ship on an even keel. That often means letting more water in, only in opposite compartments in order to right the ship.

Companies are no different...

 

One presumes that Hornby is simply making maximum cash sales now so the half year report looks good. I mean, it hasn't got much time left with the overdraft.

[Ozexpatriate]

I have not read all the posts on this thread but I am wondering if it is the British Hornby Railways brand which may be in financial trouble. Hornby is a huge group producing Humbrol paints, Scalextric, Airfix and has taken over several European model railway firms. Perhaps some of these are not doing well and are dragging down Hornby Railways with them.

The short answer of course is that we don't know. Hornby don't routinely publish 'sector' performance except as it pertains to regional business. I believe that, based on some old data, British outline model railways is still their biggest revenue component.

 

A year ago it looked like the company was turning around. They had reached underlying profitability and relisted themselves on the AIM exchange, raising a substantial amount of working capital in the process. Early this year they announced that they were about to violate their banking covenants while around the same time they announced several new product lines at the Nuremberg toy show.

[Ozexpatriate]

One presumes that Hornby is simply making maximum cash sales now so the half year report looks good. I mean, it hasn't got much time left with the overdraft.

They still haven't reported final audited results for 2015/2016. I expect these in June.

 

Right now I expect that they are executing in accordance with a business plan shared with and approved by their bankers.  The first half ends on September 30.

 

If anyone is interested, Kader Holdings have published their annual report for 2015. With increased revenues of 8% over 2014 they were profitable, but profits were down 14% from 2014.

Edited May 17, 2016 by Ozexpatriate

[MarkSG]

A year ago it looked like the company was turning around. They had reached underlying profitability and relisted themselves on the AIM exchange, raising a substantial amount of working capital in the process.

 

Which is why I think that the current problems are temporary, why their bankers have agreed not to pull the plug and why the market seems cautiously optimistic.

 

Hornby's underlying business model appears to be sound. They have a reasonably diverse set of revenue-earning sectors which are, fundamentally, profitable. They are, of course, still exposed to the effects of the external economic climate as well as changes in the purchasing habits of their customers. But the overall picture is still broadly positive.

 

There are, broadly speaking, two things which kill companies. The first is when you're simply not selling enough things that people want to buy, or at least not at the prices they're willing to pay, and you find yourself in a vicious circle of falling revenue that can only be compensated for by slashing costs, which reduces your ability to earn revenue, which means more cost-cutting.... until you finally land in the basement marked "administration".

 

The other is when a serious mistake, or series of mistakes, wipes out the profit from otherwise acceptable revenue. Things like an ill-fated investment in buying a competitor that turns out to be a poison chalice, to mix a metaphor or two, or a big IT project that goes horribly wrong. 

 

Reading between the lines a bit of the media reports, Hornby's problems seem to fall into the second category. Which, in their current situation, is a good thing. The "death by a thousand cuts" scenario can play out over a very long period of time, particularly if the company is only just a bit below viability, but unless some kind of magic bullet can be found it will, sooner or later, be terminal. The "train crash" scenario, on the other hand (a metaphor which I'm mildly surprised hasn't been used in the media, but there you go), happens very quickly, has an immediate effect and can mean instant bankruptcy (or, more often, takeover). If survived, though, then the long-term prospect is recovery, provided no other bad mistakes are made while the company's health is still fragile.

 

That's where Hornby are now. They've survived the crash, and they're rebuilding. They're not out of the woods yet, by any means, and it could still all go horribly wrong. But if they can avoid any further mishaps, they'll be OK.

[Ozexpatriate]

That's where Hornby are now. They've survived the crash, and they're rebuilding. They're not out of the woods yet, by any means, and it could still all go horribly wrong. But if they can avoid any further mishaps, they'll be OK.

I'm not sure which 'crash' you are referring to. The existential threat to their business a couple of years ago was an inability to deliver product. This appeared to be addressed more than a year ago when they were evidently rebuilding and operating within covenants.

 

What happened in January looked different. Where all the money went in the 12 months since they relisted the company feels like a separate story and has not been explained.

[adb968008]

Yes, that's a common mistake, and can be financially disastrous if not managed properly.

 

Nothing to do with model railways, but back in the late 90s I worked for a large Internet company. One of our biggest problems was sales staff selling systems that were really difficult to provide, technically, and thus cost more to fulfil than they earned. One particular deal was with a then big name "dotcom" startup that was going to revolutionise online retail. Unfortunately, they didn't really know what they were doing, and went bust - owing us a lot of money for systems we had put in place to provide services to them. That contributed to our parent company going down the pan as well. Meanwhile, the salesman who'd closed the deal walked away with a six figure bonus.

 

 

Its a fundamental misconception that a salesman sets the price. salesman sell what they are told to sell and have a margin of tolerance to work with. Beyond that they have to return to management for approval.

So if the management gave a salesman carte blanche to negotiate a sale... more fool the management, not the salesman.

 

The other aspect is software (like hardware) has a follow up sale.. it's not the initial selling of the product, it's the maintenance and support that follows. typically in IT the company buys the software twice.. Once the initial purchase cost, and again over the course of 3-5 years to pay for Support, R&D, Bug Fixes etc... commonly known as Maintenance, which can often be either part of or separate to a Support agreement.

 

Again, to get market penetration in Software, the initial sale (lets be honest in software it's just a download form a server and costs nowt), can be massively reduced to keep the maintenance on the books.. as do a good job.. that customer will keep renewing year on year.. thats where everyone makes money.. the customer because they don't need to migrate and pay for someone else to do it, the company because it's revenue for little effort.

 

Which brings to the final point... delivery.. if the software needs to be configured (as per your example), then it requires services... translated into Bodies / per day... this is usually a net zero or a negative  cost... Services never really earns money as it's seen as an enabler to ensure the success of the sale. If it's under estimated, the product doesn't work or the team aren't coordinated... this costs far more in £ and time than estimated and can take a company down, especially if the delivery is beyond the capabilities of the software. (in this case services is not consulting.. which is an altogether different animal).

 

Unlike model railways.. you buy it take it home and there on after your on your own.

Imagine how the hobby would be if you had to 'pay to play' or had to return your locomotives to the manufacturer for servicing and needed an engineer to build your layout for you before use, but on the flip side, when it was returned, you find it's had an upgrade to the chassis and fitted with a double chimney in the works !

 

Now imagine another scenario... imagine the salesman turns up, offers you a fleet of locos, the service agreement and deliveries of new releases. The engineer comes up offers a design for the layout and a price. The sales guy puts together a package and the engineer turns up and builds it. He lays the track, unboxes it, tests it and then invites you around to test it before sign off. On arriving you look at it and say.. but it's N gauge and I wanted 00. :-)

 

 

The life of a salesman.

https://s-media-cache-ak0.pinimg.com/originals/64/a7/35/64a73559da638f9059fa85118ecde3f5.jpg

Edited May 17, 2016 by adb968008

[34theletterbetweenB&D]

...What happened in January looked different. Where all the money went in the 12 months since they relisted the company feels like a separate story and has not been explained.

 I would guess 'the money' largely went on the ERP s/w package and implementation (which is a classic 'first spend a large heap of cash, then wait until pay back begins' job); and investment in development and tooling of new product (anyone know if there was a similar surge of all-new tooled introductions in their other brands such as Scalextric, Arnold, Joueff?) which again is money spent, and not recovered until the customer - retailers mainly -  buy it.

 

The latter of these fits in with two pieces of information that are before us: retailers reportedly not taking up the product in sufficient volume, largely due to lack of confidence in Hornby's trading practises, and Hornby's very recent 'cash convertors' action of selling a large volume of recently released product to two major box-shifters; which I read as recovering liquidity.

[Mike at C&M]

The latter of these fits in with two pieces of information that are before us: retailers reportedly not taking up the product in sufficient volume, largely due to lack of confidence in Hornby's trading practises, and Hornby's very recent 'cash convertors' action of selling a large volume of recently released product to two major box-shifters; which I read as recovering liquidity.

Your second point has now exacerbated the first point even more, and many retailers are extremely annoyed about the 'cash convertors' action which comes only a couple of months after Hornby themselves quoted that they were now going to commit their support to retailers.

 

There is talk of the scale of this 'cash convertor' programme being far larger than many of us can believe. And as a result, the market for Hornby model railway products through most retailers has already becoming greatly destabilised.

[Legend]

They still haven't reported final audited results for 2015/2016. I expect these in June.

 

Right now I expect that they are executing in accordance with a business plan shared with and approved by their bankers. The first half ends on September 30.

 

If anyone is interested, Kader Holdings have published their annual report for 2015. With increased revenues of 8% over 2014 they were profitable, but profits were down 14% from 2014.

Not quite Oz. Revenue at Kader was up 8.2% . Profit from Operations were up from 4284 $HK'000 in 2014 to 115443 $HK'000 in 2015. Staff Costs were down although they appear to have lost 396 employees. Looking at costs per employee, although admittedly this can be skewed by mgt costs ,labour costs per person appear to be up 9.6%.

 

Interestingly from these accounts labour appears to be 33% of Kader Revenue. Of course Kader then sell to to Bachmann at a profit, and while there are employee costs in Bachmann , presumably they are not increasing at 9% pa, so I think it's safe to say that a 10% increase in labour costs at Kader should translate to a relatively small increase in Bachmanns retail price and an even smaller one retailer to final customer

 

The other interesting thing is that Kader sell to one customer which represents 50% turnover. Would that be Bachmann US?

Edited May 17, 2016 by Legend

[Andy Y]

No.