Hornby's financial updates to the Stock Market

[Andy Hayter]

Very hard to know the total answer to your question, but there does seem to be a bit of upsurge here in France, given the increasing number of exhibitions and availability of rail and rail modelling mags (you almost never saw them in a local newsagent or supermarket, but suddenly our local newsagent and a few others I have been into recently, have started stocking them, That can't just be because of me.) over the past five years. The other big difference is that, purely from seeing them at a few MRS's and seeing pictures of modellers in mags, that there is a far greater spread of ages involved - i.e. as many youngsters and people of working age as there are oldun's, which contrasts with the usual perception in the UK. That means there must be less concern about the future of the hobby here, than is often the impression in the UK (true or not), which bodes well for the longevity of Hornby International's products at least here, but maybe not necessarily the volume. 

 

As for people modelling UK railways out here, I keep meeting, in person (word soon gets around about the local train nutters) or on-line, a surprising number of Brits who have moved here so that they can afford the size of house, or usually barn or outhouse, to build the layout of their dreams, which would have been otherwise unaffordable for most of us in the UK. That was one of the reasons I came here, although Mrs S believes it was for her health..... Of course, actually building any railway here becomes a Round Tuit when you realise just how much house, barn and garden repairs, maintenance, improvements and weed warfare you have taken on. If, like me, purchases for same are more often done when visiting the UK, rather than on-line or locally (with the big exception of Peco track, which is readily available here), it must be hard for firms like Hornby to gauge the actual number involved, at least in Western Europe, but then, perhaps they don't need to know. For those farther afield, of course, such distortion is unlikely so numbers can be more readily estimated.

 

 

As one of those who was helped to decide to live in France for the reasons you give, I agree and sympathise with the unexpected hindrances.

 

Whether you go to the UK to buy your model, or like me order via the internet, as far as Hornby are concerned the sale is a UK sale.  They sell to a UK shop and the shop sells to you, but for Hornby the sale is a UK sale to a UK shop.  That of course changes for anyone who buys direct from Hornby via the internet, where they know the country of final destination.

 

In over 20 years on the continent I have failed to find a single shop which sells UK prototype models (PECO excepted but arguably their track is not UK prototype, but let's not go there) in Germany, France, Belgium, Luxembourg, Italy or Spain.  They may exist, but I failed to find them.  So Hornby's sales of UK models will look skewed to them.  How big a part of the market people like you and I make is open to question.  Probably quite small - indeed probably small enough to be insignificant to Hornby themselves. 

 

I could however be wrong.  Hornby for years considered (or at least gave that impression) that sales of European models to the UK was of little or no consequence - available only through a very limited number of UK suppliers and then none at all.  They have now changed that stance.

[Mike Storey]

As one of those who was helped to decide to live in France for the reasons you give, I agree and sympathise with the unexpected hindrances.

 

Whether you go to the UK to buy your model, or like me order via the internet, as far as Hornby are concerned the sale is a UK sale.  They sell to a UK shop and the shop sells to you, but for Hornby the sale is a UK sale to a UK shop.  That of course changes for anyone who buys direct from Hornby via the internet, where they know the country of final destination.

 

In over 20 years on the continent I have failed to find a single shop which sells UK prototype models (PECO excepted but arguably their track is not UK prototype, but let's not go there) in Germany, France, Belgium, Luxembourg, Italy or Spain.  They may exist, but I failed to find them.  So Hornby's sales of UK models will look skewed to them.  How big a part of the market people like you and I make is open to question.  Probably quite small - indeed probably small enough to be insignificant to Hornby themselves. 

 

I could however be wrong.  Hornby for years considered (or at least gave that impression) that sales of European models to the UK was of little or no consequence - available only through a very limited number of UK suppliers and then none at all.  They have now changed that stance.

 

Me too - I have also never found a shop in France that sells UK outline, except for one - Atelier Vapouriste - who is, bizarrely, 99% internet sales, but does stock Roundhouse (Doncaster) and Accucraft UK products, as well as UK outline accessories occasionally, but it is all for large scale garden railways (which I also model - correction, intend to get around to modelling). I have bought a few items from him, in a sense of feeling I should try to buy "locally" but you do pay a premium. Strange that the only stockist here is for this relatively niche market. In Italy however, it was once possible to buy Lima UK outline stock, in my favourite Italian model shop in Genova for sure. But I did not see any on the shelves, on my last visit there about a year ago. But yet again, you can buy British garden railway large scale models in Switzerland for goodness sake (in Locarno, where one of my brothers-in-law lives). Funny old world. 

[Bernard Lamb]

Re Hornby UK outline on the mainland.

When they introduced live steam it was promoted in Germany and was widely available.

The project was not a success and the models were available at very low prices some months later.

Bernard

[jjb1970]

I think Hornby have done what they had to do (indeed they had no alternative to survive) and evaluated where their revenue comes from, where they were spending, headcount etc etc and taken some hard decisions that I'm guessing even their senior management won't have liked in some cases in order to return their financial position to some sort of sustainable position. These things are never easy and seldom nice, but it does look like the management team are on top of things and turning the company around.

Remember that from the point of view of Hornby, whether a model is a superb piece of model making, lighting forums up etc is of less importance than the return they make from it, although clearly their long term position does need them to offer products of an appropriate quality which are well recieved by the target market. As an HO enthusiast it saddens me that they've really cut back on their international ranges, it especially saddens me that they appear to have pulled the plug on Rivarossi USA models (their recent GE U25C/U28C is a superbly done model) but I can't criticise them as they were in a hole and getting out of that hole was always going to need some pretty unpopular actions.

I tend to look at it like this - if Hornby survive and return to financial health then they can always revisit the international ranges, if they go under then we lose a formerly great company (which is on the way to returning to greatness) and the tooling will just be auctioned off or lost. If it was auctioned off then it may work out OK but I fear some of it'd just be lost, we'd have lost a major player and whether some like it or not I believe the hobby needs the corner stone "big" companies like Hornby and Kader (in Europe companies like Fleischmann/Roco and Marklin/Trix) to maintain some sort of critical mass without which the boutique suppliers and commissioners would have a harder time.

At a personal and entirely selfish level, I'll admit that most of my Hornby spend over the last couple of years has been with their Rivarossi and Lima Expert brands, for anybody doubting what Hornby are capable of achieving technically it's well worth checking out just how good they can be in these ranges. I know Arnold, Jouef and Electrotren also make some great models but since I'm an enthusiast of Italian trains it is mainly their Rivarossi and Electrotren ranges I indulge in.

[adb968008]

China is a big country, but model railways is a small town.

 

It's highly unlikely any tooling will end up scrapped, there's too many people who know a tools worth and able to sniff a bargain when times get rough.

 

Should anything happen to Hornby, the tooling might unexplainably disappear in a whoosh of smoke, but once the accountancy is complete, the tooling will no doubt resurface from some factory dark corner.

 

There's not much (that was worth keeping) that truly disappeared never to reemerge over the last 50 years.

Edited April 9, 2017 by adb968008

[Chris Higgs]

 

In over 20 years on the continent I have failed to find a single shop which sells UK prototype models (PECO excepted but arguably their track is not UK prototype, but let's not go there) in Germany, France, Belgium, Luxembourg, Italy or Spain.  They may exist, but I failed to find them.  So Hornby's sales of UK models will look skewed to them.  How big a part of the market people like you and I make is open to question.  Probably quite small - indeed probably small enough to be insignificant to Hornby themselves. 

 

 

 

Menzels Lokschuppen in Duesseldorf have a fair range of Farish and Bachmann in their cases. Not sure about Hornby though. And normally at prices that make it better value to roder from the UK.

 

Chris

[adb968008]

Menzels Lokschuppen in Duesseldorf have a fair range of Farish and Bachmann in their cases. Not sure about Hornby though. And normally at prices that make it better value to roder from the UK.

 

Chris

Quite, I peruse the German ebay site, and occasionally find some OO gauge offering, posed at a HO scale price, quite often it's something that would only be found in the bargain bin here too.

[MatthewCarty]

China is a big country, but model railways is a small town.

 

It's highly unlikely any tooling will end up scrapped, there's too many people who know a tools worth and able to sniff a bargain when times get rough.

 

Should anything happen to Hornby, the tooling might unexplainably disappear in a whoosh of smoke, but once the accountancy is complete, the tooling will no doubt resurface from some factory dark corner.

 

There's not much (that was worth keeping) that truly disappeared never to reemerge over the last 50 years.

Not quite the same, but we seem to have lost the Clan's tooling...

[34theletterbetweenB&D]

 Hornby's vulnerability is plainly on view. They have made moves to focus on the most profitable product groups, and that's delivering. But the world situation means they are faced with considerable unpredictability: both in the cost to obtain product, and the willingness / ability of the customer base to go on buying it in the necessary volume at whatever is the required retail price.

 

... Ebay is thriving with s/h models too. Can there be a point where supply exceeds demand for quality 00/H0 to such an extent that quality scale models cannot be made in profitable volume?

 I feel we are already there. Hornby grabbed for what market there was for a better King, and it's a matter of judgement for an external observer whether they secured  the best economic outcome by effectively squeezing out a potential competitor.

 

It will be interesting to see what emerges in their new introductions as the year progresses. I reckon it has to be almost exclusively new subjects from now on to obtain the necessary sales volume. All the subjects for which there are adequate models already available are not going to generate enough return to be worthwhile a retool; and with the B12/3 delivered I think that is the last 'terrible old clunker' upgrade that was justifiable / necessary? What I expect to see from here on are all-new subjects dominating their release list.

[Widnes Model Centre]

Not wishing to seem downbeat, there are people on here who I feel confident will correct me if I am wrong.

 

Hornby raised I think £8 million pound from a share issue. They have according to their reported figures turned a £7 million deficit into a small profit. Is that the change from the £8 million?

 

I recently made a substantial purchase from Hornby.  Two loco's, one carriage, 6 wagons, rail joiners, track rubbers and Skaledale buildings were missing from the delivery. It took two weeks for them to declare that they couldn't be found and would credit our account. In my opinion that is a lot of stock to go missing. That is a loss to Hornby and ourselves. How can so much stock from one delivery go missing?

 

As for track rubbers, has anybody bought one that is actually rubber in texture? Its about 18 months since I reported to Hornby that they were breaking up as the rubber was no longer rubber.

[Clearwater]

@widnes mode centre

 

The issue of the fund raising and profit are separate matters. The funding raising impacts net debt. The proceeds of equity raises are not credited to the p&l - that's just sales. The issue they had last year was they were overproducing models and the only way they could shift them was by selling at a discount to production cost. That creates both a p&l loss and an actual cash loss as shown by increasing net debt

 

David

[Widnes Model Centre]

@widnes mode centre

 

The issue of the fund raising and profit are separate matters. The funding raising impacts net debt. The proceeds of equity raises are not credited to the p&l - that's just sales. The issue they had last year was they were overproducing models and the only way they could shift them was by selling at a discount to production cost. That creates both a p&l loss and an actual cash loss as shown by increasing net debt

 

David

 

Thanks Clearwater as I said someone would know better. But what happens to the £8 million?

[Mike at C&M]

Thanks Clearwater as I said someone would know better. But what happens to the £8 million?

Whilst many are seeing the recent financial announcement from Hornby as being proof that all is now a bed of roses, the full truth will only be shown once their full financial figures are released in several weeks time.

 

The headline figure quoted in their press release is their bank balance, which co-incidentally, has improved by around £8 million pounds [£7.2M debt at the end of March 2016 has been improve up to £1.1M Cash in Hand).

 

As someone who deals with Hornby as a regular customer of theirs, there is still a great deal that concerns me about the way that they are operating.

[Theakerr]

I suggest there is another factor in the equation that affects all the major suppliers but Hornby is probably more vulnerable.  I call it demographic saturation.  Basically there are an increasing number of modellers, especially the boomers who have had monies to spare, have got to the point that they have everything they need and most of what they want.   The result is a scaling back of purchases and  perhaps focusing on other aspects of the hobby, e.g scenery and buildings.  

[robmcg]

 Hornby's vulnerability is plainly on view. They have made moves to focus on the most profitable product groups, and that's delivering. But the world situation means they are faced with considerable unpredictability: both in the cost to obtain product, and the willingness / ability of the customer base to go on buying it in the necessary volume at whatever is the required retail price.

 

...

 

Well said that man.

 

Reading the opinions of the serious modellers like Tony Wright, that the future of 'real' modelling is an open question, we can only have similar doubts about the future of commercially-viable 00 RTR models, both UK and non-UK .

 

If I was an investor I would be more inclined to favour specialist high quality RTR or boutique model production over mass produced train set production, and given that Hornby has a foot in each camp, so to speak, it has the opportunity to make the best of both styles of business.  Alternatively it can have each set of production skills, toy trains and state-of-the-art RTR modelling weighing each other down.

 

Might I suggest that Hornby move to two distinct brands within itself; toy train sets and high-end (read expensive) models?  This might mean fewer models in the latter class. I have been hugely impressed by the quality of recent Hornby models given the difficult trading conditions, but I cannot see how Hornby management can continue increased production costs and a stable or diminishing market inside a single system.  Train sets used to be genuinely mass-produced, but such as S15s, B12s or Adams tank engines, I do not think so.   Perhaps I am wrong, since Hornby have proven adept at doing both types of production, production runs of many tens of thousands, and production runs of perhaps 2,000.

 

I write purely as an uninformed spectator. I do like quality RTR though, and thank Hornby for what they have done..

[andyram]

Whilst many are seeing the recent financial announcement from Hornby as being proof that all is now a bed of roses, the full truth will only be shown once their full financial figures are released in several weeks time.

 

The headline figure quoted in their press release is their bank balance, which co-incidentally, has improved by around £8 million pounds [£7.2M debt at the end of March 2016 has been improve up to £1.1M Cash in Hand).

 

As someone who deals with Hornby as a regular customer of theirs, there is still a great deal that concerns me about the way that they are operating.

I think we would all be interested to read your concerns.

[Mike at C&M]

I think we would all be interested to read your concerns.

I have posted on many occasions within this forum over the past few years, my thoughts on Hornby's performance, often with words of caution to try and give balance to some of the 'rose tinted spectacles' viewpoints of many forum members.

 

I am not going to list everything here, or repeat previous concerns that are still unresolved. I tend to be seen as 'holding up a red rag to a bull' as many members have then told me I am scaremongering.

 

I am sure that many retailers who are on this forum will agree that Hornby are the most difficult of our suppliers to deal with at the current time, and they still have a long way to go to prove to us that the retailer/Hornby relationship is the special one that they claim it already is.

 

We know that the rebuilding of Hornby is work-in-progress, and there is still an awful long way to go yet before they get back to being the Hornby that we all enjoyed dealing with just a few years ago.

[Robin Brasher]

I think that we are in a buyer's market at the moment. The number of customers is declining and most are between 45 and 75 years old. Many have got far too many items which are proving very difficult to sell on the second hand market. With the exception of a few items like the 'Merchant Navy' Pacific I think the same is beginning to apply to new items from manufacturers like Hornby.

[34theletterbetweenB&D]

...If I was an investor I would be more inclined to favour specialist high quality RTR or boutique model production over mass produced train set production, and given that Hornby has a foot in each camp, so to speak, it has the opportunity to make the best of both styles of business.  Alternatively it can have each set of production skills, toy trains and state-of-the-art RTR modelling weighing each other down.

 

Might I suggest that Hornby move to two distinct brands within itself; toy train sets and high-end (read expensive) models? ...

 I believe such a move is long overdue. Previous managment made a faltering start with Railroad, and then totally blurred the lines between the product groups. Is there a retailer able to describe the split between traditional train set market and the modeller oriented premium product?

 

If I were Hornby, and there is a viable two ranges option, then I'd make the train set end 'Hornby' -  that's 'The Name' everyone knows - and make the premium items under a new brand, because most modellers won't care about the name, but rather the quality of what they are getting. 'Premier Line by Hornby' might be a good title.

 

 

Thanks Clearwater as I said someone would know better. But what happens to the £8 million?

 It's invested in the business, and those who have put up this equity are looking for a return by growth in share value, and dividend payments.

[Caledonian]

Well said that man.

 

Reading the opinions of the serious modellers like Tony Wright, that the future of 'real' modelling is an open question, we can only have similar doubts about the future of commercially-viable 00 RTR models, both UK and non-UK .

 

If I was an investor I would be more inclined to favour specialist high quality RTR or boutique model production over mass produced train set production, and given that Hornby has a foot in each camp, so to speak, it has the opportunity to make the best of both styles of business.  Alternatively it can have each set of production skills, toy trains and state-of-the-art RTR modelling weighing each other down.

 

Might I suggest that Hornby move to two distinct brands within itself; toy train sets and high-end (read expensive) models?  This might mean fewer models in the latter class. I have been hugely impressed by the quality of recent Hornby models given the difficult trading conditions, but I cannot see how Hornby management can continue increased production costs and a stable or diminishing market inside a single system.  Train sets used to be genuinely mass-produced, but such as S15s, B12s or Adams tank engines, I do not think so.   Perhaps I am wrong, since Hornby have proven adept at doing both types of production, production runs of many tens of thousands, and production runs of perhaps 2,000.

 

I write purely as an uninformed spectator. I do like quality RTR though, and thank Hornby for what they have done..

 

I agree entirely and think that the current Hornby catalogue illustrates this all too clearly. Hornby have produced some splendid wagons in recent years, often with good scope for expansion such as retrofitting the excellent Tope as an HTV, but where are they? This year's offerings are remarkably thin with the newly released SR cattle truck and LMS coke hoppers, and a return of the LNER hopper, otherwise its rather mouldy stuff with too many pretty coloured wagons with huge moulded on couplers that came out of the ark. 

 

Even if I buy a cattle truck and a coke hopper, because they are nice models, not because I need them, that's it. Roll on whatever 2018 might bring.

Edited April 10, 2017 by Caledonian

[Widnes Model Centre]

I have posted on many occasions within this forum over the past few years, my thoughts on Hornby's performance, often with words of caution to try and give balance to some of the 'rose tinted spectacles' viewpoints of many forum members.

 

I am not going to list everything here, or repeat previous concerns that are still unresolved. I tend to be seen as 'holding up a red rag to a bull' as many members have then told me I am scaremongering.

 

I am sure that many retailers who are on this forum will agree that Hornby are the most difficult of our suppliers to deal with at the current time, and they still have a long way to go to prove to us that the retailer/Hornby relationship is the special one that they claim it already is.

 

We know that the rebuilding of Hornby is work-in-progress, and there is still an awful long way to go yet before they get back to being the Hornby that we all enjoyed dealing with just a few years ago.

 

Totally agree, we have seen no improvement in the way we are dealt with by Hornby. All retailers want Hornby to survive and return to profit. We made a loss in our last year and a big chunk was our enforced move to larger premises when the building we rented was repossessed. But on the sales side the losses were from Hornby products that we had bought at a higher price and we had to sell at a loss to compete. Hornby clearance prices in my opinion, devalued the product.

 

I would think, actually I know as does 87029 that there are a lot of retailers who are in this same position.

 

I may still be taking a too simplistic view. But if my shop was £7million in debt and we had a cash injection of £8million from investors then our balance sheets would show us in profit. But if we had to repay that £8million would we still be showing any profit?

 

The modelling industry is going through very tough times at the moment. The decline in the pound has been very significant. Every supplier we buy from has increased their prices. One major supplier has moved it's entire operation away from the UK and there are now no UK Staff. This is a company much bigger then Hornby. The price increases have been necessary in my view but it doesn't make it easier. Every month we hear of shops closing down.

 

The very recent change in business rates should have helped but in fact ours have increased. We were led to believe that we would pay zero business rates, not so. Our current business rates are £6440.50p, our location is outside the town centre. The Valuation Office have re-located us into the town centre. The difference between ourselves and other shops in the same road, a gap of 8 feet which leads to a private car park at the rear.

[Clearwater]

"I may still be taking a too simplistic view. But if my shop was £7million in debt and we had a cash injection of £8million from investors then our balance sheets would show us in profit. But if we had to repay that £8million would we still be showing any profit?"

 

Your balance sheet would show you having net assets of £1m - profit is the measure of year to year trading surpluses.

 

If there cash injection was a loan, i.e. You have to repay it, your balance sheet woild show no net impact at the point of transaction. You'd have a new cash balance (asset) of £8m and a new liability (the loan) of £8m. These net out. If the new cash was in the form of equity, share capital, then these investors are perpetual and do not require the repayment of that capital directly. Instead they get any dividend, subject to profit, but still own a share in the business that can be sold for cash.

 

It's analogous to the mortgage (loan) and equity on a house deal. As with the equity in your house, the shareholders benefit from all the growth in value of the company. On the downside, on insolvency, their claim ranks behind those of any lenders

 

David

[Widnes Model Centre]

"I may still be taking a too simplistic view. But if my shop was £7million in debt and we had a cash injection of £8million from investors then our balance sheets would show us in profit. But if we had to repay that £8million would we still be showing any profit?"

 

Your balance sheet would show you having net assets of £1m - profit is the measure of year to year trading surpluses.

 

If there cash injection was a loan, i.e. You have to repay it, your balance sheet woild show no net impact at the point of transaction. You'd have a new cash balance (asset) of £8m and a new liability (the loan) of £8m. These net out. If the new cash was in the form of equity, share capital, then these investors are perpetual and do not require the repayment of that capital directly. Instead they get any dividend, subject to profit, but still own a share in the business that can be sold for cash.

 

It's analogous to the mortgage (loan) and equity on a house deal. As with the equity in your house, the shareholders benefit from all the growth in value of the company. On the downside, on insolvency, their claim ranks behind those of any lenders

 

David

 

Hi David,

I get that part of it. But I was under the impression that Hornby had to raise the cash through a share issue. Was that not part of the conditions imposed by Barclays to extend the loan of £8million? Barclays still hold the loan surely? If Barclays decided they wanted the loan repaid?

[Clearwater]

Hi David,

I get that part of it. But I was under the impression that Hornby had to raise the cash through a share issue. Was that not part of the conditions imposed by Barclays to extend the loan of £8million? Barclays still hold the loan surely? If Barclays decided they wanted the loan repaid?

Yes- Barclays as lenders were saying "if you do not raise new equity, we will enforce on our loan to get our money.l back". In this context, "extend" means extend the maturity from say 31/12/16 to 31/12/18. The loan is a revolving facility, like a big overdraft. It will have a limit of say £10m but may only be £1 to £2m drawn. As it's working capital and not term debt (mortgage is term debt), the bank will expect to see a zero balance on the loan for a period of time each year. As an aside, they will look at net debt (gross loan drawn less cash on balance sheet).

 

So Hornby will still have a facility of up to £x m but the balance sheet is showing no net debt at 31/3/17. The notes to the accounts will show the difference between available liquidity and how much they actually owe.

 

David

[phil gollin]

 .....  I recently made a substantial purchase from Hornby.  Two loco's, one carriage, 6 wagons, rail joiners, track rubbers and Skaledale buildings were missing from the delivery. It took two weeks for them to declare that they couldn't be found and would credit our account. In my opinion that is a lot of stock to go missing. That is a loss to Hornby and ourselves. How can so much stock from one delivery go missing? ......

.

 

From what I understand (and I may well be very wrong) Hornby now employ a third party to do all their stock control (receiving, warehousing and despatch) so the problem, and costs, are down to them.

 

Obviously, Hornby should be controlling their contractor.

 

.