Hornby's financial updates to the Stock Market

[Gerald Henriksen]

I would imagine that what will happen is that a somewhat slimmed down Hornby, cherry picked for the more profitable products (and these are not necessarily the big sellers, which may be loss leaders) will continue to be one of the big players, policy being in line with whatever PAMP's overall interests are.  One would need to look at what they have done with previous firms that have come under their umbrella to second guess that!

 

I haven't researched Phoenix, and could be entirely wrong.

 

With the above in mind, other than continuing the turnaround of Hornby Group, I don't know there is a lot of other ways for Phoenix to make money.

 

They have already dumped land (2017 report, Spanish / Margate properties sold for £3.3 million) and I doubt they have much remaining in the way of significant assets to sell off.

 

The other frequent choice is load up with debt, but given the current state of Hornby I would hope there wouldn't be anyone willing to loan Hornby substantial amounts of money, though I am sure history is full of such people.

 

As for the idea of slimming down, already done (2017 report, product lines cut to c.1,400 from 2,400 in 2015).  You could perhaps cut more, but at some point cutting will just do more damage than gain.  Given that Scalextric is performing poorly (though what that means exactly is unknown) that might be a place to cut/sell but I don't know that there would be a rush of people wanting to invest significant money in buying slot car lines.(*)

 

 

 

* - from 2017 report, revenues of the divisions are:

1) Model Rail - £22 million

2) Scalextric - £12 million

3) Airfix - £6 million

4) Corgi - £4 million

5) Humbrol - £2 million

 

Also interesting, given the changes of previous management (now reversed, though will take time to heal the damage) is they give percentages for key channels, and for Trains its UK Independents 38% UK Nationals 7% Export 7% Europe 29% Other 19%.

[Gerald Henriksen]

Toys "R" Us in the US has filed for Chapter 11 (bankruptcy protection that allows it to restructure under the protection of the courts - going out of business would be Chapter 7), with the Canadian operation to follow suite.

 

Relevant to our Hornby discussion are a couple of things.

 

First, one of its big problems is the level of debt incurred when 3 private equity companies took it private in 2005.  So far this doesn't apply with Hornby.

 

Second, in addition to the debt they are also facing issues of a changing marketplace (shift to cheaper retailers by consumers) and this interesting quote from an analyst:

 

 

 

And children are increasingly moving more toward mobile devices as playthings. "For many children, electronics have become a replacement or a substitute for traditional toys," Saunders said.

 

I understand the desire to have a full line of "cheap" trains for kids to play with, but as the above shows this is more nostalgia for our childhoods than what most kids today want.

 

Source:

https://beta.theglobeandmail.com/report-on-business/international-business/us-business/toys-r-us-files-for-bankruptcy-protection-in-us-to-follow-suit-in-canada/article36295886/

[Coryton]

 

And children are increasingly moving more toward mobile devices as playthings. "For many children, electronics have become a replacement or a substitute for traditional toys," Saunders said.

 

I understand the desire to have a full line of "cheap" trains for kids to play with, but as the above shows this is more nostalgia for our childhoods than what most kids today want.

 

Source:

https://beta.theglobeandmail.com/report-on-business/international-business/us-business/toys-r-us-files-for-bankruptcy-protection-in-us-to-follow-suit-in-canada/article36295886/

 

Maybe.

 

You can also find plenty of quotes saying that children are turning back to more traditional games.

 

You can barely move in the Lego shop in Cardiff at weekends (mind, it is quite small).

[Coryton]

I haven't researched Phoenix, and could be entirely wrong.

 

With the above in mind, other than continuing the turnaround of Hornby Group, I don't know there is a lot of other ways for Phoenix to make money.

 

They have already dumped land (2017 report, Spanish / Margate properties sold for £3.3 million) and I doubt they have much remaining in the way of significant assets to sell off.

 

The other frequent choice is load up with debt, but given the current state of Hornby I would hope there wouldn't be anyone willing to loan Hornby substantial amounts of money, though I am sure history is full of such people.

 

As for the idea of slimming down, already done (2017 report, product lines cut to c.1,400 from 2,400 in 2015).  You could perhaps cut more, but at some point cutting will just do more damage than gain.  Given that Scalextric is performing poorly (though what that means exactly is unknown) that might be a place to cut/sell but I don't know that there would be a rush of people wanting to invest significant money in buying slot car lines.(*)

 

 

 

* - from 2017 report, revenues of the divisions are:

1) Model Rail - £22 million

2) Scalextric - £12 million

3) Airfix - £6 million

4) Corgi - £4 million

5) Humbrol - £2 million

 

Also interesting, given the changes of previous management (now reversed, though will take time to heal the damage) is they give percentages for key channels, and for Trains its UK Independents 38% UK Nationals 7% Export 7% Europe 29% Other 19%.

 

Interesting that little tins of (not always that high quality) paint provide a third the revenue of Airfix...

 

I wonder how the profit margin on a paint tin compares to an Airfix kit.

[Clearwater]

Interesting that little tins of (not always that high quality) paint provide a third the revenue of Airfix...

 

I wonder how the profit margin on a paint tin compares to an Airfix kit.

I'd wager a lot more... plus I doubt there's much r&d cost against Humbrol either

[JohnR]

* - from 2017 report, revenues of the divisions are:

1) Model Rail - £22 million

2) Scalextric - £12 million

3) Airfix - £6 million

4) Corgi - £4 million

5) Humbrol - £2 million

 

Also interesting, given the changes of previous management (now reversed, though will take time to heal the damage) is they give percentages for key channels, and for Trains its UK Independents 38% UK Nationals 7% Export 7% Europe 29% Other 19%.

 

It would be interesting to see how they define UK Independents and UK Nationals. Are Hattons an Independent? Or do they fall under "Nationals"?

[Fenman]

It would be interesting to see how they define UK Independents and UK Nationals. Are Hattons an Independent? Or do they fall under "Nationals"?

 

My guess is they are classed as independents. The big three or four independent retailers seem to me likely to have a very significant part of the market. They would need it, to enable investment in tooling-up new models.

 

Paul

[adb968008]

 The key sentence in that statement is 'The motivation for PAMP in any discussion will be to optimise long term value (whatever they consider that to mean) for all Hornby shareholders'.  

This should be the goal of any company owned by shareholders.

 

 

* - from 2017 report, revenues of the divisions are:

1) Model Rail - £22 million

2) Scalextric - £12 million

3) Airfix - £6 million

4) Corgi - £4 million

5) Humbrol - £2 million

 

Also interesting, given the changes of previous management (now reversed, though will take time to heal the damage) is they give percentages for key channels, and for Trains its UK Independents 38% UK Nationals 7% Export 7% Europe 29% Other 19%.

Revenue doesn't mean too much, its margin and potential, but those things you won't see in any financial report.

Now PAMP has control they get inner access to this information and make decisions accordingly, and there statement clearly indicates they haven't yet started and all options are open.

I'd imagine the first indications will be by end of year, but it could take a few years.

 

I wouldn't read too much negative in to their statement, PAMP has continued to invest, if they felt there was no potential, they would have cut their losses and bailed out, if that was cheaper and higher return to their shareholders than spending more to take control and realise potential.

[The Johnster]

'This should be the goal of any company owned by shareholders.'

 

Indeed, and a legal obligation.  

[Gerald Henriksen]

'This should be the goal of any company owned by shareholders.'

 

Indeed, and a legal obligation.  

 

 

False, at least in the US.

 

https://www.nytimes.com/roomfordebate/2015/04/16/what-are-corporations-obligations-to-shareholders/corporations-dont-have-to-maximize-profits

[ruggedpeak]

Bear in mind these days optimising value is seen as loading the company up with debt, charging extortionate 'management fees, separating out ownership of IP and assets and charging rent for them before driving the company into the ground to get rid of the problematic bits ie staff, customers etc. I hope this isn't the case here.

[adb968008]

Bear in mind these days optimising value is seen as loading the company up with debt, charging extortionate 'management fees, separating out ownership of IP and assets and charging rent for them before driving the company into the ground to get rid of the problematic bits ie staff, customers etc. I hope this isn't the case here.

Hornby's biggest asset is its name, and some of its other brand names.

 

Splitting that out and starting a new company using that name, would to me seem counterintuitive, as would charging Hornby to use its own name. Neither would clearing out your staff, in what is a very limited skill set industry that are not easily replaced, unless it was ultimately clear they aren't part of a future strategy (or just don't want to be).

 

I could foresee some brands or sub-brands being either sold, or ranges retired if they are not producing margin or have limited potential. Similarly there could be some focussed and targeted marketing and specific tie-ups coming to exploit potential.

 

Additionally we could see a combining of interests, PAMP owns multiple companies, including an interesting possible complimentary technology company in Scotland and you could equally see a new technology product emerge too.

 

Be sure of one thing, investment companies don't just open their wallets on a whim, they have strategies and investment criteria, they have done their maths and have a plan, it won't be about buying and selling trains, it will be about realising growth potential in struggling companies. I for one think Hornby has tons of potential, but managing and effecting change is a hard thing, and we've seen a few execs come and go recently demonstrating how hard it is, especially from within.

 

A strong parent maybe what is needed in this instance, especially if that parent contained not just the ability to execute a strategy, but someone with a little enthusiastic knowledge too, as this would give confidence to both company and investors, that such a plan could be implemented, I suspect they do and soon enough we'll see who it is and the management team to support him and run the business.

 

Far from negative, I think this could be an exciting time at Hornby, with oppourtunity to blow away some dust and come up with some new ideas as investment money has been put in and sustained, so exploiting that to get a return is the obvious next step, exploration by its nature is creative.

Edited September 20, 2017 by adb968008

[Legend]

 

Additionally we could see a combining of interests, PAMP owns multiple companies, including an interesting possible complimentary technology company in Scotland and you could equally see a new technology product emerge too.

 

 

 

Whats that then?

[Trains4U]

Interesting that little tins of (not always that high quality) paint provide a third the revenue of Airfix...

 

I wonder how the profit margin on a paint tin compares to an Airfix kit.

 

It's no surprise to me.   We sell a phenomenal amount of paint (Humbrol, Revell, Railmatch, Games Workshop, Tamiya)   I honestly don't know where it all goes.

[The Stationmaster]

It would be interesting to see how they define UK Independents and UK Nationals. Are Hattons an Independent? Or do they fall under "Nationals"?

 

Virtually all, if not all, what we regard as 'model railway retailers' are independents, i.e. they are not national chain stores or the likes of Argos.  What is interesting about them is the percentage they bring in as part of model railway revenue because effectively Hornby's share of the sales of model railway items through specialised retailers is worth a bit over £7 million per annum.  According to one source the UK market for 'model trains and constructional toys' was worth £13.66 million on 2015 so by any measure Hornby's share of that market is significant but by 2016 the 'general' toy market in the UK was producing sales estimated at £3.5 billion - alongside which Hornby's total revenues, including overseas sales, were miniscule.

 

Simple conclusion is that while model railways might be profitable in Britain for Hornby they are really in a small company league in the general toy market and if they want to expand in that area they are starting from a long way back on the grid.  So the strategic decision they face is an interesting one - do they aim to diversify and innovate, which will require massive investment and an element of luck - or do they concentrate on what they are doing and tailor their overhead costs to suit a constrained cloth?  Hardly surprising that Phoenix have a lot to think about and that the face so big choices.

[The Johnster]

It's no surprise to me.   We sell a phenomenal amount of paint (Humbrol, Revell, Railmatch, Games Workshop, Tamiya)   I honestly don't know where it all goes.

 

 

Well, quite a lot of it ends up on my fingers...

[Coryton]

Virtually all, if not all, what we regard as 'model railway retailers' are independents, i.e. they are not national chain stores or the likes of Argos.  What is interesting about them is the percentage they bring in as part of model railway revenue because effectively Hornby's share of the sales of model railway items through specialised retailers is worth a bit over £7 million per annum.  According to one source the UK market for 'model trains and constructional toys' was worth £13.66 million on 2015 so by any measure Hornby's share of that market is significant but by 2016 the 'general' toy market in the UK was producing sales estimated at £3.5 billion - alongside which Hornby's total revenues, including overseas sales, were miniscule.

 

Which means that a very thin slice of the toy pie could go a long way in Hornby's terms.

 

And as such, the Hornby Junior set makes a lot of sense, though from what I've seen it doesn't compare well to the Marklin equivalent.

[Coryton]

1) if a child/teen is on their Playstation/iPhone etc believe me it is just as expensive as model railways as they spendreal money on virtual must have in game features for FIFA. As a parent it is infuriating since this money is not a tangible object that can be retained or passed on (like my model trains from when I was a kid) but a virtual nothing that will disappear when next year's FIFA comes out.

 

I think I would find that very frustrating too...on the other hand virtual purchases don't clutter up the house and you can't trip over them in the dark.

[The Johnster]

I think I would find that very frustrating too...on the other hand virtual purchases don't clutter up the house and you can't trip over them in the dark.

 

Yes I can, but only virtually...

[JohnR]

It's no surprise to me.   We sell a phenomenal amount of paint (Humbrol, Revell, Railmatch, Games Workshop, Tamiya)   I honestly don't know where it all goes.

 

I know exactly what happens. People buy a tin of paint, use a little bit then re-seal the lid. When they come back to it, its gone dry (maybe because the lid wasnt tight enough, etc), so have to get a new one.

[Brit70053]

 Airfix have been very clever in 'elaborating' the paint colour schemes on some of their kits in recent years. I recall wanting to make a decent job of an aircraft kit and buying about eight new tinlets of Humbrol as suggested on the box, then finding that four of the most unusual of them were to colour very small detail areas, talking 2mm square, then finding I've had no discernible use for these colours again. Of course other kits require different obscure shades for equally minor details which often get obscured during the build anyway.

       I have of course taken to blending such colours to create useful shades - even if only of grime, but you can see how the paint bill must stack up for kit building perfectionists, among others, who must paint every minute detail precisely as per instructions.

 

Regards,

               John

 

Edit typo

Edited September 21, 2017 by Brit70053

[Coryton]

I know exactly what happens. People buy a tin of paint, use a little bit then re-seal the lid. When they come back to it, its gone dry (maybe because the lid wasnt tight enough, etc), so have to get a new one.

 

Maybe I'm lucky...I haven't had that happen to me...yet

 

Mind, I mostly use Vallejo paints which come in 'eyedropper' bottles which means there's much less chance of getting paint preventing a good seal when you put the lid back on.

[The Johnster]

I must have thrown away gallons over the years, and it's not especially environmentally friendly stuff, either.  The problem is stuff you only need in tiny quantities; Humbrol copper or brass, essential for us GW types, probably less than a dozen brush fulls a year.  But, of course, when you're in the shop and know fully well that you've only taken a few dips into the tin, you don't buy a new one.  So, when you come to do the safety valve cover on your latest pannier, you open the tin and everything is in a solid lump; not only a terrible waste but necessitating a journey to your friendly local modelling supplier of comestibles for a new one.  

 

Repeat ad infinitum...

[adb968008]

I must have thrown away gallons over the years, and it's not especially environmentally friendly stuff, either. The problem is stuff you only need in tiny quantities; Humbrol copper or brass, essential for us GW types, probably less than a dozen brush fulls a year. But, of course, when you're in the shop and know fully well that you've only taken a few dips into the tin, you don't buy a new one. So, when you come to do the safety valve cover on your latest pannier, you open the tin and everything is in a solid lump; not only a terrible waste but necessitating a journey to your friendly local modelling supplier of comestibles for a new one.

 

Repeat ad infinitum...

I use paint lining pens off ebay for metallic colours (silver, gold, copper etc) and also some primary colours that I use in small amounts for mixing etc.

Some are 4 years old and still good as new, cost £1 each or so on the slow boat from china.

 

In many cases, with 1mm or less tips, I don't need a brush either.

Edited September 21, 2017 by adb968008

[Coryton]

Moving things to a different part of the shop (to minimise empty shelf space, which looks bad to the customers) is usually the prelude to getting rid of them, if W H Smith earlier this year are anything to go by.  Hamley's Cardiff never had much of a range anyway, and will not be greatly missed I suspect.

 

And in fact they have moved their Hornby stock to a more prominent area of the shop, next to (and nearer to the entrance than) the large Lego display.

 

Maybe just for the run-up to Christmas, but still interesting...

 

Meanwhile Hawkin's Bazaar has Hornby and Scalextric in their list of brands in the entrance to their Cardiff shop. But nothing inside, so far as I could see.