Hornby's financial updates to the Stock Market

[Coryton]

They're a bit different to some of the products sold by competitors which are more toy than model and exist somewhere between the Tomix toy train system and what we understand by model railways. Even the Piko Hobby models are good scale models, probably equivalent to the new generation Hornby Railroad tooling, with Expert 

 

The Marklin "My World" remote control battery trains are certainly much more toy than model railways.

 

However, unlike some other similar offerings and despite very reasonable prices, they are robust and reliable, extra track is easily obtainable (again at a reasonable price) and while serious compromises have been made you can tell they were made by people who know what a real train looks like. They are in modern liveries that children will see (if they live in the right country, anyway) and you can tell what stock they are based on even if compromises have been made (like 4 wheel ICE carriages and single cabbed diesel engines).

 

I think the latest generation, with built-in lithium batteries rather than a permanently-attached coach or truck containing AA batteries, are somewhat more prototypical.

 

And, as they run on H0 track, if someone moves up to a 'proper' train set they can still run them on it - and there's an adaptor truck available with a normal coupling on one end and a magnetic coupling on the other so you can mix and match to some extent. And perhaps the move to a train set is made more likely by both types of set appearing in the same catalogue (and sharing the "My World" brand).

 

Given that the range is evolving and expanding, I would imagine it's doing well enough.

 

They also have some interesting ideas, including plain trucks with pens for children to colour themselves, 'click-and-mix' rolling stock which can be re-built into different configurations and wagons with a Lego compatible base so you can build different things on top. (This is - surprisingly, in the 'real' H0 range, not the plastic battery powered one).

 

If done properly, I could imagine a toy like this with the Hornby name making a big contribution to turnover (small fraction of a much bigger market), and possibly helping sales of more conventional train sets into the bargain.

[Mike at C&M]

Outsourcing and delivering to wrong addresses is down to Hornby to sort out. We shouldn't have to make phone calls to get to the right address. The distributors can only go on the information they are provided with by Hornby.

And our latest small delivery. of items known to be in stock, came in two separate deliveries on two separate, consecutive days, and on two invoices. 

 

This will cost Hornby money over and above what an efficient system should be capable of.

 

There are definitely issues with their distribution system.

[Pint of Adnams]

Yes exactly.

 

And while the hobby has gained much by the move to much more realistic but fragile models and track, it's also lost something.

 

Marklin appears to have shown that two different (but compatible) systems with different goals can coexist.

 

If Hornby do something as good (or better) than the Marklin offering and at the right price, then coupled with the Hornby name it ought to do very well.

It's serendipitously curious that the Peco ad in the May RM for its new Set Track 0 gauge points is all about the joy of laying track anywhere flat, playing trains, then picking it up later an relaying it in a different configuration somewhere else. Given the move into R-T-R in O gauge by various relatively mainstream manufacturers (e.g. Dapol), perhaps we can soon expect a retro step to the 1930s - where's the key for the clockwork 0-4-0 anyone ;?)

[Coryton]

And our latest small delivery. of items known to be in stock, came in two separate deliveries on two separate, consecutive days, and on two invoices. 

 

This will cost Hornby money over and above what an efficient system should be capable of.

 

I believe distribution is outsourced, in which case whether this inefficiency costs Hornby money or not presumably depends on how their contract is set up with the distributor...

[Ozexpatriate]

And our latest small delivery. of items known to be in stock, came in two separate deliveries on two separate, consecutive days, and on two invoices. 

 

This will cost Hornby money over and above what an efficient system should be capable of.

I believe distribution is outsourced, in which case whether this inefficiency costs Hornby money or not presumably depends on how their contract is set up with the distributor...

Yes. It all depends on the system. If the find/ship/invoice system is tightly automated, it might be cheaper than having to find multiple items and combine them in a single shipment. It's all a function of how the warehousing/logistics operation works.

 

Amazon frequently breaks orders into multiple shipments. I would say their operations are probably as good as it gets in this regard.

[Ozexpatriate]

The Marklin "My World" remote control battery trains are certainly much more toy than model railways.

I thought Hornby tried to announce something very like that at the 2016 London and Nuremberg toy shows.

 

Hornby Junior appeared on one of these threads at some point (EDIT) in London, and Nuremberg,

 

I don't believe this materialized and even if it had, it's hard to imagine they would

1. 'fly off the shelves'
2. offer better margins than high-fidelity models for adult enthusiasts

The toy market is brutal. Hornby's flirtations with toys (other than trains, slot cars, paint and kits) all had pretty legendarily bad results.

 

The nicest thing I recall Simon Kohler writing about the "Fairy Flowers" line of toys that Hornby once experimented with was that the grotto he established at the London Toy Show was a respite from the trade floor after a big night out.

 

The idea of Simon (or others) hiding amongst the fairy flowers to escape the model railway punters is an amusing one (even if I am taking liberties with the truth there).

Edited April 27, 2017 by Ozexpatriate

[RJS1977]

Hopefully who ever is in charge can explain why our Hornby delivery was sent to our home address. Is this Hornby's idea of getting retailers to feel more at home with them? Basics, can we get back to them please?

 

It's not just Hornby.

 

In 2015 I ordered a limited edition run of wagons to be sold  by the C&WR, and asked that they be delivered to our shop manager's home. They were.

 

Last year, he ordered a different run of wagons, which for some reason Dapol sent to me!

[Mike Storey]

And our latest small delivery. of items known to be in stock, came in two separate deliveries on two separate, consecutive days, and on two invoices. 

 

This will cost Hornby money over and above what an efficient system should be capable of.

 

There are definitely issues with their distribution system.

 

Several have made much of this practice. It is not confined to Hornby, by any means at all. The current Mrs S orders much from, most certainly, non-model railway type suppliers, much to my chagrin and that of our bank manager (which appears to be a computer these days). Almost all arrive in separate consignments/parcels, despite being ordered on the same day from the same company. Often, the contents do not in any way justify the size of the packaging, or often box, used. It would appear to be the new nature of things economic in the outsourced inventory business. As OxPat has said, the firms involved are at the cutting edge of mass internet ordering and are highly price sensitive, postage being often free, even across national borders. They are extremely unlikely to be either exposed to the questionable costs/methods of their distributors, nor will they have chosen a third party that offers a higher priced solution. One can only conclude that such methodology offers some cost advantage to which us mere mortals are not privy. Thus to label Hornby as utter blaggards for allowing such practices, is almost certainly both unfair and smacking a little bit of seeking anything with which to plague their houses.

 

They still have many faults, we will reasonably accept from you and those others whose living partly, even mainly, depends on them, but perhaps we can be better informed of the ones that really matter?

Edited April 27, 2017 by Mike Storey

[Ozexpatriate]

What I fear is the t-shirts and playing cards and spin off nonsense, flogging the "brand" to within an inch of its life.

We've seen that from Hornby already.

 

I was there when Lego decided back in the early 2000's to become the biggest toy company on the planet by doing everything from software to clothing. Anton needs to clarify what he means, as Lego nearly went bust not so long ago, and only came back when it stuck to what it was good at....

 

http://knowledge.wharton.upenn.edu/article/innovation-almost-bankrupted-lego-until-it-rebuilt-with-a-better-blueprint/

The article does not reference LEGO Group's biggest fumble - the massive theme park expansion. (There were other operational issues of course like having too many custom components.) It does note the sale of the majority interest in the theme parks as a way to generate cash to refocus.

 

The LEGO turnaround is the shining star in good toy company business management - and they did exceed Mattel's turnover, at least for one year though they were behind Mattel in 2016 - but not by much!

 

They are still innovating, like with the three cinema release movies, and all their, so far, disastrous attempts to blend tactile and virtual toys (Fusion, Dimensions, etc) but they are doing so in a controlled way without over extending themselves like they did before.

 

There are some interesting parallels. Adult LEGO enthusiasts continue to clamour for discontinued franchised items like Harry Potter and the Lord of the Rings. Without movies in cinemas to sustain interest from children, LEGO won't bite, but even LEGO knows that despite designing toys for children they now have a huge adult customer base. They do however collect good market data on this in their surveys.

 

EDIT:

 

On the topic of toy companies it occurs to me to compare Hornby 2016 turnover with the two three big toy companies:

 

1. Mattel ............. $5.46B

2. LEGO ............. $5.36B

3. Hasbro ........... $5.02B

4. Hornby PLC ... $72M (£55.8M)

 

I think it's worth noting that Hornby is about one seventy-fifth the size of these companies. To compete in the pure toy space, they'd be annihilated, or acquired ... and one of those options can increase shareholder value.

Edited April 28, 2017 by Ozexpatriate

[Ozexpatriate]

New Pistoia if I remember correctly significantly increased their holding of Hornby shares to 20% when the price crashed about a year ago, and they (and Mr Ruffer 3^rd largest holding around 11% and I believe a 4th person [Downing?] with around 6%) have now put Mr Anton in as consultant to review the situation with a view to improving the value of their holdings i.e. boost the share price and the overall shareholder return (which currently is zero.). Given the timescale of their investment it looks like, unlike Phoenix, that they are not long-haul investors.

It is now a game of sums.

 

Phoenix will deliver 34% of the vote. Mr. Canham's opponents, by your maths have at least 37%. The battle is on for the votes of the remaining 29% of the outstanding shares.

 

As they say here, there will be 'a full-court press' for the remaining 29% by both sides, to be decided on May 16 at Adelaide House.

 

It is not clear why they selected Mr Anton (his history IMHO is not what I would have looked for (just google Victoria carpets and Anton ...  His ground breaking (!!) finding that Hornby should place more emphasis on the toy market to attract in younger customers and then retain them as a pipeline for the future (costs are such that younger enthusiasts must find it difficult)  is motherhood and apple-pie, and it is not clear what he really means to do.

Of course you are right in saying that we don't know what Mr. Anton really means to do.

 

Personally I don't think it's too hard to guess. He means to increase shareholder value. The quickest way to do that is to find suitor(s) to acquire the company whole or piecemeal.

 

Given that Hornby picked up the struggling Airfix, Corgi and Humbrol, I'd be surprised to see them split up because I can't imagine who would purchase them. In my opinion the choice narrows to offering the whole company and its portfolio of household name brands.

 

Offering 'toys' repositions the PLC more strongly in the toy sector than the adult enthusiast/collectible sector and a more natural acquisition target by a larger toy company.

 

My crystal ball says that if you like having the opportunity to purchase detailed model trains in red boxes you will hope that at least 17% vote against this hostile boardroom maneuver.

Edited April 27, 2017 by Ozexpatriate

[JSpencer]

Yes. It all depends on the system. If the find/ship/invoice system is tightly automated, it might be cheaper than having to find multiple items and combine them in a single shipment. It's all a function of how the warehousing/logistics operation works.

 

Amazon frequently breaks orders into multiple shipments. I would say their operations are probably as good as it gets in this regard.

Hattons seem to work the same way. My two merchant navies arrived at their place a day apart (they knew they were coming as they e-mailed me). But they posted the two items individually, one a day after the other.

[Fireline]

It is now a game of sums.

 

Phoenix will deliver 34% of the vote. Mr. Canham's opponents, by your maths have at least 37%. The battle is on for the votes of the remaining 29% of the outstanding shares.

 

As they say here, there will be 'a full-court press' for the remaining 29% by both sides, to be decided on May 16 at Adelaide House.

 

Of course you are right in saying that we don't know what Mr. Anton really means to do.

 

Personally I don't think it's too hard to guess. He means to increase shareholder value. The quickest way to do that is to find suitor(s) to acquire the company whole or piecemeal.

 

Given that Hornby picked up the struggling Airfix, Corgi and Humbrol, I'd be surprised to see them split up because I can't imagine who would purchase them. In my opinion the choice narrows to offering the whole company and its portfolio of household name brands.

 

Offering 'toys' repositions the PLC more strongly in the toy sector than the adult enthusiast/collectible sector and a more natural acquisition target by a larger toy company.

 

My crystal ball says that if you like having the opportunity to purchase detailed model trains in red boxes you will hope that at least 17% vote against this hostile boardroom maneuver.

 

There was an announcement a couple of days ago that the 3rd and 4th shareholders had already given commitments to back Phoenix, and they had 53% of shares. Mr Anton has been defeated before we get to the meeting. 

[MarkSG]

Often, the contents do not in any way justify the size of the packaging, or often box, used. It would appear to be the new nature of things economic in the outsourced inventory business. As OxPat has said, the firms involved are at the cutting edge of mass internet ordering and are highly price sensitive, postage being often free, even across national borders. They are extremely unlikely to be either exposed to the questionable costs/methods of their distributors, nor will they have chosen a third party that offers a higher priced solution. One can only conclude that such methodology offers some cost advantage to which us mere mortals are not privy. 

 

Having worked for the online retail division of a major UK brand, I can confirm that this is the case. Delivery and packaging are essentially commodities, with the cost being reckoned at the bulk level rather than being drilled down to individual boxes and shipments. The work involved in getting precisely the most cost-effective packing and delivery for every order isn't justified, not least because the more fine detail you put into it the higher the risk of errors - which are themselves costly.

 

Ultimately, it's a trade-off between the costs of administration, which increase with more complex packaging and delivery rules, and the costs of the packaging and delivery themselves, which decrease with more finely-tuned rules. If there are certain products which are routinely costing more to package and deliver than they ought to, then putting in place a specific rule to handle them can be worth it. But if it's only the occasional item which ends up costing more to fulfil than normal, it isn't worth it.

 

Split deliveries are one thing that customers often pick up on as being a waste of money. But bear in mind that if the delivery van is going past the end of your street every day, it isn't a huge marginal increase in cost to make two drop-offs at your house or shop rather than just one. It certainly doesn't cost anything like twice as much to deliver two items separately than together in one package, for example. It will be more, but not necessarily so much more that it's a problem.

 

The same applies to boxes. Having the right size of box for every contents is ideal, but often impractical. And if you don't have a box that's precisely the right size, then putting it in a larger one is, again, only a marginal increase in cost. Most commercial carriers charge by weight, not size, so it isn't costing the sender any more to send you a box that's mostly full of air than a box which tightly fits the contents.

[JSpencer]

Split deliveries are one thing that customers often pick up on as being a waste of money. But bear in mind that if the delivery van is going past the end of your street every day, it isn't a huge marginal increase in cost to make two drop-offs at your house or shop rather than just one. It certainly doesn't cost anything like twice as much to deliver two items separately than together in one package, for example. It will be more, but not necessarily so much more that it's a problem.

 

 

However it does cost me twice as much, if the shop in question then does 2 shipments to me instead one because the two locos were delivered a day apart at the shop! The only thing I can do is ask the shop to deliver all when available for a given order, here though, most shops, are not going to hold stock several months or more if one items from your 2016 pre-order finally appears in 2019! Likewise, a shop could introduce a system whereby they make one shipment per month which will doubtless be costly and complex and have several pain points.

It then comes down to me, placing orders in such a way that I guess what items will appear in the same short time span and arrange for these to be on an order where these are all delivered at once! I could have technically placed my 2 SR green Merchant navies in just one order, ask for them to be delivered once both were out. Of course I have also placed an order for BR TTS one (at the same time as the SR green ones), how I am supposed to anticipate 2 years before that this one will arrive 3 months after the other pair? If I'd asked to ship once all were in, it is safe bet that 1 or both SR green ones would have sold out in the meanwhile....

 

Strangly when I worked for the signal box, we did put things aside for abroad customers with big orders. But kept it just for them.

[Coryton]

Split deliveries are one thing that customers often pick up on as being a waste of money. But bear in mind that if the delivery van is going past the end of your street every day, it isn't a huge marginal increase in cost to make two drop-offs at your house or shop rather than just one. It certainly doesn't cost anything like twice as much to deliver two items separately than together in one package, for example. It will be more, but not necessarily so much more that it's a problem.

 

If I send two packages to the same address at the same time by Royal Mail, Parcelforce, or a courier company, it will cost me twice as much. The delivery company gets the cost saving from making both drop-offs at the same time, not me.

 

Do companies with bulk contracts with delivery companies get charged in a different way?

[45568]

I have had the same thing with both Hornby and Bachmann delivered from a Liverpol retailer. 2 x Thompsons, 2x Colletts = 4 packages, Not their fault, perhaps better warehousing and distribution by the goods providers would help? It can't be that hard to consolidate a shipment?

From Oz,

Peter C.

[MarkSG]

If I send two packages to the same address at the same time by Royal Mail, Parcelforce, or a courier company, it will cost me twice as much. The delivery company gets the cost saving from making both drop-offs at the same time, not me.

 

Do companies with bulk contracts with delivery companies get charged in a different way?

 

Yes, they do. The scale of charges by large-scale contract parcel carriers are a world away from the per-item fee of Royal Mail.

 

Bear in mind that we're not talking about the difference between one item or two, it's between two items in one package and two items in individual packets. Two things in two boxes doesn't weigh significantly more than two things in one box. So if you're being charged primarily by weight, then it makes no difference how you package the order if they are delivered at the same time, and not much difference even if they are delivered separately.

 

To give a bit more detail, it's more complicated than just weight. The total charges will usually be based on total weight to a particular delivery zone, plus a fee per collection and a fee per delivery point. If your volumes are fairly low, then splitting an order can result in a significant extra cost if it requires either a collection or a delivery zone that would otherwise not have been needed. But if you are sending out lots of stuff every day, all over the country, then one extra box is neither here nor there in the overall scale of things.

[Mike Storey]

If I send two packages to the same address at the same time by Royal Mail, Parcelforce, or a courier company, it will cost me twice as much. The delivery company gets the cost saving from making both drop-offs at the same time, not me.

 

Do companies with bulk contracts with delivery companies get charged in a different way?

 

MarkSG has usefully explained how such things work for large companies. I thought I would also add that in the opposite direction, as an individual, when sending items from France (to the same address) to the UK, which I have been doing very often for the past several years, La Poste (French Royal Mail) clerk will weigh each item and then tell me whether it would cheaper to combine them or send them separately. Separate items often arrive far faster than combined items in one box. Not sure if Royal Mail work the same way in reverse but I would guess it is worth checking.

[Hilux5972]

In New Zealand postage is worked out more on volume and size rather than weight.

[Pint of Adnams]

In New Zealand postage is worked out more on volume and size rather than weight.

The Royal Mail is constrained by complying with EU 'harmonised' postal regulations in respect of weights, dimensions, contents and levels of service; it remains to be seen if that changes in a couple of years or so...

 

For international bulk shipments pack dimensions are based around maximising packing within a standard ISO container; that in turn has a substantial influence on the sizes of packages when broken down for shipment as individual consignments.

[Mel_H]

It's all over, bar the shouting, and for the time being there won't be much of that. A financial news report from Alliance is below, but in brief the shareholders that were demanding change have now accepted that there's no point going ahead with next week's General Meeting, as they will be out voted, so they've told Hornby they have withdrawn their demands for 'agitator shareholder' Mr Anton to replace Chairman Roger Canham. The pressure will now be on Hornby to deliver on its promises to the city...

 

NEWS ITEM FROM ALLIANCE NEWS

 

Hornby PLC on Wednesday (10 May 2017) said it will indefinitely adjourn the general meeting requisitioned by two shareholders, after the shareholders withdrew their requisition on Monday.

 

Last month, Hornby received a letter from Ian Alexander Anton requisitioning a general meeting to propose to shareholders that Anton replace Hornby's Chairman Roger Canham.

 

Canham joined Hornby in 2012 and was made chairman in 2013.

 

The letter had been signed on behalf of ROY Nominees Ltd and HSBC Global Custody Nominees (UK) Ltd, which together hold 20% of Hornby's shares. Anton also said his proposal had been backed by New Pistoia Income Ltd, which is Hornby's second largest shareholder with a 20% stake.

 

Following the requisition, Hornby announced it would hold the general meeting on May 16, but recommended to shareholders that they vote against Anton's resolutions.

 

Hornby said at the time it had received irrevocable undertakings to vote against the resolutions from Phoenix Asset Management Partners - which Canham is also chairman of - Ruffer LLP and Downing LLP in respect of their overall 54% holding. Phoenix alone holds a 34% stake.

 

On Tuesday, Hornby released a statement saying that ROY Nominees and HSBC Global - which had both signed Anton's initial letter - have sent another letter "withdrawing with immediate effect the requirement for the company to proceed with convening the requisitioned general meeting".

 

On Wednesday, Hornby said it will open the general meeting as planned on May 16 and will proceed to seek shareholder approval for the meeting to be indefinitely adjourned without proceeding to any of the formal business.

 

Shares in Hornby were trading up 2.7% at 32.74 pence on Wednesday.

[Ozexpatriate]

... there's no point going ahead with next week's General Meeting, as they will be out voted, so they've told Hornby they have withdrawn their demands for 'agitator shareholder' Mr Anton to replace Chairman Roger Canham.

Good news I think.

 

The pressure will now be on Hornby to deliver on its promises to the city...

As ever.

 

Hopefully their more cautious plan for the current year will help slow down losses sufficiently and increase shareholder confidence that the company is being managed well.

 

Perhaps we will see preliminary results from the 20152/2016 financial year posted next month. If I recall correctly there is customarily a preliminary report in June.

[G-BOAF]

I note that Bachmann doesn't have this problem. They have a shareholder (Kader) who appoint a management team and let them get on with producing high quality products that the modeller wants, and a sufficiently broad product line to cater for a range of budgets.

Dare I say while Bachmann is obviously a business, it is not run on the basis of short-term returns. Hornby take note...

[Mel_H]

Good news I think.

 

As ever.

 

Hopefully their more cautious plan for the current year will help slow down losses sufficiently and increase shareholder confidence that the company is being managed well.

 

Perhaps we will see preliminary results from the 20152/2016 financial year posted next month. If I recall correctly there is customarily a preliminary report in June.

 

Yes, prelims in June would be expected

[Ozexpatriate]

Dare I say while Bachmann is obviously a business, it is not run on the basis of short-term returns. 

There is of course one very important distinction.

 

Bachmann Europe PLC is an entity that is wholly owned by Kader Holdings - a privately held Hong Kong Company. Hornby PLC is a publicly owned company listed on the AIM. The demands of the different shareholders greatly impact executive decision making in each company.

 

In their requirement to serve different masters, we see different behaviours:

1. Pricing - Bachmann prices increased dramatically (with great apoplexy here) to maintain their profitability. This was done with great deliberation by Bachmann Europe and, I thought, was excellently communicated. Hornby tried to maintain pricing that was attractive to their core market in the UK. For this they were highly praised here, but the results were insufficient.
2. New product introduction - Bachmann introduced a (defacto, if not deliberate) dramatic slow-down in their production of new items. We've never really known exactly why this happened. Perhaps it was connected to shuttering factories and industrial action in China. Perhaps it was related to not having enough experienced staff to develop and build tooling, or perhaps it was due to fewer design slots with competing Kader brands, but it resulted in a slow-down all the same (with great apoplexy here). In the same period, Hornby ramped up aggressively with new product introduction, but the results were not there to sustain that effort and they have now essentially matched Bachmann with a slow-down in new product introduction.

I can't fault Hornby PLC for attempting to deliver value to their shareholders as quickly as possible. They are legally obliged to do so. (We here can, and have, discussed ad nauseum whether their approaches were prudent.)  In the last year or so they have attempted to reduce losses by not attempting to do too much at once, which is essentially what Bachmann has been doing for a while now.

 

Frankly I think they (and ultimately we) would be far better off with them as a privately held company, but that's just my opinion.

 

Sadly most of the employee buy-outs that I have seen are funded by equity companies (hedge-funds) who saddle the private company with debt that was used to fund the buy-out. That's not going to help Hornby.

Edited May 11, 2017 by Ozexpatriate