Hornby's financial updates to the Stock Market

[Clearwater]

Hornby are under an obligation to their bank to reduce stock holding, so they will not sit on this, but look to find a home for it.

.

I would be amazed if that statement if true. In my experience,banks are extremely reluctant to be as specific as to how a company achieves its financial targets. Banks do not want to become "shadow" directors. That is not their role - it is up to the CEO and his team to work out how they deliver within an overall financial covenant package.

 

Bank workout teams, which is where Hornby will sit, have had plenty of experience of understanding how setting the wrong target can drive the wrong behaviour. In this case, you can cut stock levels in the way you suggest but that would drive the behaviour we saw last year that you rightly point out as being damaging to your business

 

David

[Mike at C&M]

Hornby are under an obligation to their bank to reduce stock holding, so they will not sit on this, but look to find a home for it.

David,

   Obligation is possibly the wrong word.

 

  However, we do know that Barclays had a review of the company done by a well known form of accountants, and I believe that it is as a result of that review, the decision has been taken to close down most of the concession stores. This will free up a huge amount of stock which is effectively money tied up, so the stock has to be disposed of somehow.

[Robin Brasher]

Really? I can see how 3 Bachmann locos might work on the passenger services of the M&GN in 1952, but Hornby produces pretty much everything I absolutely need: from different ranges of coaching stock to J15, D16, B12 and B17. Plus a few others I can press into service at a pinch.

 

Any model railway shop owner who has decided to boycott Hornby is likely to be cutting off a very significant - I could almost write "huge" - section of their potential market. But, of course, every shopkeeper is entitled to stock what they please. Reminds me of the old joke: the shopkeeper complaining in frustration to the customer that "look, you're the tenth person I've told this morning that I don't stock those because they never bloody sell".

 

Paul

If Hornby does not supply the goods to the shop the shop cannot supply them to the customer.

[Clearwater]

David,

Obligation is possibly the wrong word.

 

However, we do know that Barclays had a review of the company done by a well known form of accountants, and I believe that it is as a result of that review, the decision has been taken to close down most of the concession stores. This will free up a huge amount of stock which is effectively money tied up, so the stock has to be disposed of somehow.

Thanks - I agree they have an amount of capital tied up in stock. When I've had chance to read the accounts, I'll post again.

 

having read a number of such accounting reports, I'm highly sceptical of them. The accounting firms typically produce glossy looking reports that focus on metrics and sometimes comparability exercises to other companies. Most of these heavy tomes will be compiled by relatively junior employees and will likely fight shy of an actual advice on what to do. Given the audit firm will have a liability cap massively higher than the fees they earn from the report, the report is unlikely to contain many definitive statements. Why would it? The firm will not want to be sued by the bank if the bank/company follows the advice and it turns out to be wrong - that's major Reputation risk. As such the report will be carefully edited to avoid such risks and hence unlikely to contain much if any of a blueprint of what to do

 

Edit: clearly having such a report has an element of CYA. I'd also say it's then easy for a rep to say "well I'd love to do that but the report the banks have won't let me" etc

 

David

Edited November 27, 2016 by Clearwater

[The Stationmaster]

David,

   Obligation is possibly the wrong word.

 

  However, we do know that Barclays had a review of the company done by a well known form of accountants, and I believe that it is as a result of that review, the decision has been taken to close down most of the concession stores. This will free up a huge amount of stock which is effectively money tied up, so the stock has to be disposed of somehow.

 

Reduction of stock levels has been a long stated aim of Hornby's.  What they at last seem to have woken up to is that the stock they have on the books in concessions (and no doubt in the vast majority of cases moving very slowly - if at all) is part of that stock holding and is on the books and has got to be dealt with.  Perhaps it took getting a money man into the chair to recognise that position but someone has and it will be dealt with.

 

They have already said they will not engage in what they have rather neatly called 'cannibalisation' (of their own well being) so I doubt we'll see the stock dumped and no doubt in the new spirit (one hopes) it will be offered to retailers.  It might be offered at an extra discount or it might not - that really depends on how quickly they wish to get it off their books and what financial situation they are prepared to stand from whatever discount they give.  Equally in some cases an extra discount might be the only way of getting shot of some of it?  But I doubt we'll see anything quite like this year's 'fire sale' where for financial reasons they clearly needed to shift stuff very quickly and were prepared to offer retailers a good discount to get shot of it (although reputedly it would seem not to have been offered to all their retailers).

[jjb1970]

What seems pretty positive is their new CEO appears to have a solid understanding of business and the fundamentals of management. My own view (not shared by some I know) was that Hornby never needed enthusiasts and modellers in the top seats (although I agree that'd be nice), they needed people capable of running a small business and who could manage the company effectively so as to return a profit. And the new team so far and giving me some confidence that they meet those requirements. Which is very positive I think.

[Fenman]

If Hornby does not supply the goods to the shop the shop cannot supply them to the customer.

Yes, that's pretty unarguable. I can't imagine anyone disagreeing with that.

 

Paul

[Mike Storey]

Thanks - I agree they have an amount of capital tied up in stock. When I've had chance to read the accounts, I'll post again.

 

having read a number of such accounting reports, I'm highly sceptical of them. The accounting firms typically produce glossy looking reports that focus on metrics and sometimes comparability exercises to other companies. Most of these heavy tomes will be compiled by relatively junior employees and will likely fight shy of an actual advice on what to do. Given the audit firm will have a liability cap massively higher than the fees they earn from the report, the report is unlikely to contain many definitive statements. Why would it? The firm will not want to be sued by the bank if the bank/company follows the advice and it turns out to be wrong - that's major Reputation risk. As such the report will be carefully edited to avoid such risks and hence unlikely to contain much if any of a blueprint of what to do

 

Edit: clearly having such a report has an element of CYA. I'd also say it's then easy for a rep to say "well I'd love to do that but the report the banks have won't let me" etc

 

David

 

From my reading, which was yesterday, so not reliable......they have reduced inventory by £0.5 million already, compared to things as at April, without, I am assuming, offending any retailers so far. I can't remember though how much this left (maybe £15m??), without going through it all again. Someone else's turn.

[Mike at C&M]

From my reading, which was yesterday, so not reliable......they have reduced inventory by £0.5 million already, compared to things as at April, without, I am assuming, offending any retailers so far. I can't remember though how much this left (maybe £15m??), without going through it all again. Someone else's turn.

Unfortunately. Mike, one thing that did happen was that many retailers were offended by the way that Hornby went dumping huge volumes of stock at greatly reduced prices into a couple of larger retailers, and never gave us a look-in.

 

This has clearly been made known to the new management team at Hornby by many of we retailers, and we hope that they will abide by the promise made to us with the recently issued T&Cs that that exercise will not be repeated.

[Mike Storey]

Unfortunately. Mike, one thing that did happen was that many retailers were offended by the way that Hornby went dumping huge volumes of stock at greatly reduced prices into a couple of larger retailers, and never gave us a look-in.

 

This has clearly been made known to the new management team at Hornby by many of we retailers, and we hope that they will abide by the promise made to us with the recently issued T&Cs that that exercise will not be repeated.

 

We are all aware that they did that over the past few years, and caused great anger, but has that continued since May this year? Sorry if this has already been highlighted earlier.

 

If it has, then the statement by the CEO that they have been trying to de-stock in a more managed way over the last six months, without causing difficulties to their independents may be a bit hollow?

[Legend]

I think what is clear is that Hornby have stopped deep discounting using their direct sales method. I can remember picking up the red Olton Hall for something like £47 two years ago. Then just before Christmas last year the green Rood Ashton Hall (?) was sold quite cheaply , again direct. This has now stopped. I think what 87029 refers to was the sale of large amounts of stock through big dealers , all those B17s at Hattons and Rails. But what could Hornby do? Clearly financially they needed the working capital , so disposing stock through a few large transactions was probably the best way to go. Suspect there would have been few independents who would have had the resources to buy more than a fraction of the goods, so it had to be the big box shifters.

 

But that is in the past. I note that 87029 raises the point about what will happen with concessionaires stock and I suspect it might be something similar. Hopefully they can offer at least some to Independents, but will theses shops have the cash to take advantage. The danger is the stock may sit on their shelves tieing up cash for a long time.

 

If I was one of the independents who severed relationships I think I would be tempted back, but only selling new items where we are not awash with stock, and some staple items like Mk1s . Assuming , of course T&Cs are agreeable

[Mike at C&M]

We are all aware that they did that over the past few years, and caused great anger, but has that continued since May this year? Sorry if this has already been highlighted earlier.

 

If it has, then the statement by the CEO that they have been trying to de-stock in a more managed way over the last six months, without causing difficulties to their independents may be a bit hollow?

The Hattons/Rails clearout was in May, and there have been a few issues since.

 

The new T&Cs were issued at the beginning of October, and there are a few teething problems. We shall see in the weeks ahead if things finally settle down.

[PCW]

Hopefully the surplus stock from the concessions can be absorbed back into 'central' stock for sale at normal margins either direct by Hornby or through the retailers. This is the only way it can be done without damaging the very strained relationship with retailers.  I believe the stock level at Hornby might be sufficiently low to allow this, so rather than paying for lots of new stuff to be manufactured in 2017 you might see more of a concentration on selling what has already been made, and selling it at a 'proper' price, with just a  few new bits manufactured to keep the interest going.

 

If this is the stance taken by Hornby I would offer them my wholehearted support.

Edited November 27, 2016 by PCW

[adb968008]

One problem with clearing out to the trade, is that the retailers will cherry pick and leave the dross, which Hornby will never shift.

The problem with this approach would be that Hornby in this scenario would be giving away saleable stuff away, but retaining the problem stuff themselves.

 

Looking at some of the stuff discounted on Rails/Hattons, it looks like there was an element of taking the rough with the smooth when looking at Hattons bargain lines, as the summers worn on, the list of nice stuff is shrinking, but Hattons has never been one to shy from a bargain and will happily sit with the dross, until inflation makes it go away. (Thinking here of those still new in stock new Dublo power rails they still have, 50years after they bailed Dublo out of a crisis.)

 

Let's face it, if Hornby hit this crisis in 2017, the retailers will gladly take new Merchant Navy's at pennies on the pound, but wouldn't be so quick to scoop up 0-4-0 saddle tank trainsets.

 

 

Without "empying the warehouse", the only way they reasonably could clear stock to retailers would be "lucky dip" boxes, which I'm speculating was the case to H and R earlier this year.

Edited November 28, 2016 by adb968008

[Crantock]

Looking at the Hornby half year accounts, there isn't actually that much debt £3m of bank debt though no doubt peaking later.  What is surprising is the level of customer receivables at £12m for a point in the year where the Christmas ramp up may not yet have started. 

 

Overall its an important Christmas for Hornby as they appear to have spent the entire of the share issue in repaying bank debt ad making losses.  A business that has is losing money at this rate must have a limited life. A good Christmas and a consistent strategy is what is needed.   

 

I'm not that optimistic. 

[The Stationmaster]

One problem with clearing out to the trade, is that the retailers will cherry pick and leave the dross, which Hornby will never shift.

The problem with this approach would be that Hornby in this scenario would be giving away saleable stuff away, but retaining the problem stuff themselves.

 

Looking at some of the stuff discounted on Rails/Hattons, it looks like there was an element of taking the rough with the smooth when looking at Hattons bargain lines, as the summers worn on, the list of nice stuff is shrinking, but Hattons has never been one to shy from a bargain and will happily sit with the dross, until inflation makes it go away. (Thinking here of those still new in stock new Dublo power rails they still have, 50years after they bailed Dublo out of a crisis.)

 

Let's face it, if Hornby hit this crisis in 2017, the retailers will gladly take new Merchant Navy's at pennies on the pound, but wouldn't be so quick to scoop up 0-4-0 saddle tank trainsets.

 

 

Without "empying the warehouse", the only way they reasonably could clear stock to retailers would be "lucky dip" boxes, which I'm speculating was the case to H and R earlier this year.

 

I understand that reps approached various retailers and asked what they would like (but possibly in large quantities?) at a good level of trade discount.  The stuff didn't all go to Hattons and Rails but I believe anyone who did take some only did so in quantity so there might have been some sort of minimum order?  And in any case i've no doubt the reps made their own task easier by going to those who they knew would be likely to place big orders which of course would also simplify distribution and accounting - don't forget the situation being portrayed was that Hornby needed money quickly, they were over-stocked, and their trade orders in January had (not surprisingly) been abysmal and were way down.

 

With the stuff returning from concession sites things will probably be a bit different as, within certain limits, it will be more varied that single pallet loads of whatever sitting on a warehouse floor, some might be damaged if it has been unboxed and then badly put back into a box, and so on.  It will be a considerable task to sort and account for it all and it is quite possible that they might simply save money by offering the trade job lots of X number of locos, Y number of coaches, and N number of wagons simply in order to save work.  But it will still boil down to them having to try to recover the book value of all that stock so that will inevitably influence the trade price.

[Coryton]

Agreed. Smacks of cutting off your nose to spite your face.

 

Agree they were badly treated in the past , but if you are selling model railways you really need to stock Hornby.. Full range from cheepo 0-4-0, starter sets right up to a top of the range a Duchess. If you don't stock them you are really turning a substantial , possibly majority, of your market away. What they going to sell......Bachmann? Not a lot of entry models there, and still pretty expensive.

 

I'm sure people running model shops are aware of this.

 

The fact that some still won't touch Hornby probably gives you a good idea of just how much they have had their fingers burnt.

 

No matter how much you want to stock a full range, it doesn't work if once you have it it doesn't sell because the manufacturer is undercutting you massively on-line.

[Coryton]

lines, as the summers worn on, the list of nice stuff is shrinking, but Hattons has never been one to shy from a bargain and will happily sit with the dross, until inflation makes it go away. (Thinking here of those still new in stock new Dublo power rails they still have, 50years after they bailed Dublo out of a crisis.)

H and R earlier this year.

 

I agree they are happy to sit on stuff until it sells....but if I recall correctly the Dublo track surfaced a few years ago in a clear-out.

[Legend]

I understand that reps approached various retailers and asked what they would like (but possibly in large quantities?) at a good level of trade discount. The stuff didn't all go to Hattons and Rails but I believe anyone who did take some only did so in quantity so there might have been some sort of minimum order? And in any case i've no doubt the reps made their own task easier by going to those who they knew would be likely to place big orders which of course would also simplify distribution and accounting - don't forget the situation being portrayed was that Hornby needed money quickly, they were over-stocked, and their trade orders in January had (not surprisingly) been abysmal and were way down.

 

With the stuff returning from concession sites things will probably be a bit different as, within certain limits, it will be more varied that single pallet loads of whatever sitting on a warehouse floor, some might be damaged if it has been unboxed and then badly put back into a box, and so on. It will be a considerable task to sort and account for it all and it is quite possible that they might simply save money by offering the trade job lots of X number of locos, Y number of coaches, and N number of wagons simply in order to save work. But it will still boil down to them having to try to recover the book value of all that stock so that will inevitably influence the trade price.

Just wonder if the book value was substantially reduced in last accounts. Remember the large stock write down? That could be because there was a recognition stock was worth less than book. In accountancy stock must be valued at the lower of cost or net realisable value(ie what you can sell it for). Just wondering if it's already written off to an extent

 

Personal observation is that there seems to be very little stock turnover in Modelzone Glasgow , to the extent that I can spot If any locos are sold week on week , I'm so familiar with the display. So the inventory there is definitely slow moving. Having said that it would be a shame if that concession disappeared as, other than Hamleys, I cant think of a single shop in Glasgow that stocks Hornby

Edited November 28, 2016 by Legend

[GordonC]

Just wonder if the book value was substantially reduced in last accounts. Remember the large stock write down? That could be because there was a recognition stock was worth less than book. In accountancy stock must be valued at the lower of cost or net realisable value(ie what you can sell it for). Just wondering if it's already written off to an extent

 

Personal observation is that there seems to be very little stock turnover in Modelzone Glasgow , to the extent that I can spot If any locos are sold week on week , I'm so familiar with the display. So the inventory there is definitely slow moving. Having said that it would be a shame if that concession disappeared as, other than Hamleys, I cant think of a single shop in Glasgow that stocks Hornby

 

Waddell's Models on Bell Street?

[Legend]

Waddell's Models on Bell Street?

Don't stock Hornby. Seemed mainly Dapol and second hand , last time I was there, about a month ago. Pastimes is mainly second hand, I don't think he gets all the latest releases, although a great shop to potter around in.

[The Stationmaster]

Just wonder if the book value was substantially reduced in last accounts. Remember the large stock write down? That could be because there was a recognition stock was worth less than book. In accountancy stock must be valued at the lower of cost or net realisable value(ie what you can sell it for). Just wondering if it's already written off to an extent

 

Personal observation is that there seems to be very little stock turnover in Modelzone Glasgow , to the extent that I can spot If any locos are sold week on week , I'm so familiar with the display. So the inventory there is definitely slow moving. Having said that it would be a shame if that concession disappeared as, other than Hamleys, I cant think of a single shop in Glasgow that stocks Hornby

 

WHS in Reading has a Modelzone section and stuff in the Hornby section of the showcase sits there for months on end - i have seriously wondered if they've ever sold any of the more expensive Hornby items such as coaches (let alone locos)? 

 

as for book value you mightw ell be right - if stuff was as slow moving as we have noticed at most concessions then it would be logical to write down the value.

[Coryton]

WHS in Reading has a Modelzone section and stuff in the Hornby section of the showcase sits there for months on end - i have seriously wondered if they've ever sold any of the more expensive Hornby items such as coaches (let alone locos)? 

 

as for book value you mightw ell be right - if stuff was as slow moving as we have noticed at most concessions then it would be logical to write down the value.

 

Lots of the coaches in the Cardiff Modelzone certainly moved. But it may have just been from the shelves to the cabinets.

 

Having said that, I've seen them restocking the shelves and cabinets a few times and they don't seem to be getting fuller so presumably stock is also moving out. Probably largely when they have a 20% off or £5 off purchases over £20 offer running.

[caradoc]

Last Friday the Reading Modelzone also had 25% of Bachmann, however there was not a great range in stock and sadly nothing that I wanted.

[Coryton]

As a retailer, I cannot see a long period of no stock dumping happening.

 

Hornby are now committed to withdrawing from most (if not all) of their concession stores in the near future. I have a concession store close to me (not a model shop, but a garden centre belonging to a large chain) and I am amazed at the stock levels in there, as well as the age of some of the 'new' stock.This will all have to find a home.

 

 

I have always assumed the Hamleys sell Hornby as a concession.

 

But if so, does anybody know why some of their prices differ so much from regular Hornby ones?