Hornby's financial updates to the Stock Market

[Martin_R]

I remember the demise of Hornby Dublo and the years of Hattons adverts selling of the remaining stock, we must hope history doesn't repeat itself........

[Clearwater]

In terms of DJM's point and Ozexpatriot's comments, whilst I'm no aim expert and don't know the details of the rules some common sense observations apply. Given the fall, I am surprised trading in the shares has not been suspended.

 

1) you've now told the market you are sailing up a creek and have mislaid the paddle

2) however less than 3m ago, you said all was good. Less than 12m ago you told investors you had a great plan to resurrect this great brand

 

It feels the least you should be doing is to set out a timetable as to when you will be updating investors on your plans and then stick to that date and say what you will be doing. See what rolls Royce said a few months ago about their strategic mishaps

 

In your next announcement you need to directly address how your early December statement was so badly wrong before turning to your plans for turnaround. I reckon they have one shot left at convincing their bank and investors so they have to get it right otherwise the mgmt team will have to go.

 

I suspect as we speculate the chairman, the ceo and cfo are sat in a room with their broker trying to figure out what to do...

 

David

[Ozexpatriate]

That said, it is vital for the hobby that Hornby recovers from this setback and, as ever, the model railway media is there to help in any way it can.

...but is it really that vital Chris?

Sad it might be, if Hornby is lost, or disappears in its current form to re-emerge in a new incarnation at some point, why would the hobby not carry on?

There's always the possibility that those filling the vacuum left, could reinvigorate the market.

Yes, I think it is pretty vital. The hobby will carry on in the short term, no doubt, but without Hornby's volume of new product the hobby would be the poorer and accordingly less attractive as a hobby.

I agree with both of you to some extent. The question is in what form should Hornby carry on? The present Hornby plc is not dead yet and with the right restructuring I don't see how they shouldn't be able pull through, having addressed their biggest fundamental problem - being the ability to produce models that people really wanted to buy.

 

Having said that if the present company were to fail, the assets - the brand, their current tooling and tooling plans should be able to continue in some new form through a privatized buy-out or acquisition. 

 

I completely agree with Chris from the perspective that having multiple (healthy) competitors is essential part of what the hobby is today. While we do have new and exciting entrants like DJModels and Oxford Rail, the body of work represented by the Hornby Railways unit of Hornby plc is irreplaceable at least in the short term and that is essential to the hobby.

Edited February 11, 2016 by Ozexpatriate

[papagolfjuliet]

I remember the demise of Hornby Dublo and the years of Hattons adverts selling of the remaining stock, we must hope history doesn't repeat itself........

 

Astonishingly, there's one item of the original Binns Road factory clearance stock which they still haven't sold out of: http://www.ehattons.com/stocklist/1000440/1000588/1000638/0/Hornby_Dublo_OO_Gauge_1_76_Scale_Track_Points/prodlist.aspx

[coachmann]

With s/h locos already on sale with loose chimneys and missing buffers for £60-plus, a Hornby-famine would create gridlock in Widnes as shelves filled up with mint-boxed Railroad locos for loads of poke and second mortgages available over the counter...... 

[andyman7]

Astonishingly, there's one item of the original Binns Road factory clearance stock which they still haven't sold out of: http://www.ehattons.com/stocklist/1000440/1000588/1000638/0/Hornby_Dublo_OO_Gauge_1_76_Scale_Track_Points/prodlist.aspx

You forgot these:

http://www.ehattons.com/34048/Hornby_Dublo_2910_Securing_Plates_for_2_Rail_Track/StockDetail.aspx

 

I wonder what items in the Hornby 2016 range would still be hanging around in 2065?

[Bernard Lamb]

I find it very hard to reconcile the Hornby who designed and produced the J15 and D16 models last year with the Hornby who have created such a shambles with their marketing and distribution. 

How can the potential cash cows in the first part of my post become the losses in the second. There does seem to be a massive gulf between two parts of the company. We had an expression at work to describe such outfits. The polite version was busy fools.

Bernard

[RJS1977]

You can afford two at £120, but not one at £80? I simply don't understand that arithmetic. Either you can or you cannot afford one at £80. "Value" is a different judgement altogether.

 

I didn't say I'd buy them both at the same time...

[Talltim]

I still don't see any logic in someone being content to do without one of something because of the price but willing to spend 50% more to obtain two of them.

 

John

Perhaps they bought 2 of something else. I don't know, I'm not them. I do understand what they mean though, but obviously I don't have right words to explain it.

[robmcg]

In terms of DJM's point and Ozexpatriot's comments, whilst I'm no aim expert and don't know the details of the rules some common sense observations apply. Given the fall, I am surprised trading in the shares has not been suspended.

 

1) you've now told the market you are sailing up a creek and have mislaid the paddle

2) however less than 3m ago, you said all was good. Less than 12m ago you told investors you had a great plan to resurrect this great brand

 

It feels the least you should be doing is to set out a timetable as to when you will be updating investors on your plans and then stick to that date and say what you will be doing. See what rolls Royce said a few months ago about their strategic mishaps

 

In your next announcement you need to directly address how your early December statement was so badly wrong before turning to your plans for turnaround. I reckon they have one shot left at convincing their bank and investors so they have to get it right otherwise the mgmt team will have to go.

 

I suspect as we speculate the chairman, the ceo and cfo are sat in a room with their broker trying to figure out what to do...

 

David

 

As I read it, the Chairman CEO and CFO have been part of the profit warning 'thing' and will be considering the likelihood of a buy-out and the end of their. um, employment status, while at all times mindful of the inclement market conditions and the continuation of management synergies promoting a stable platform for revenue enhancement going forward...   where are you Nat?   

Edited February 11, 2016 by robmcg

[robmcg]

There  may be  a  problem on the  horizon with China,  some  may  have  seen  the  recent  TV News reports  of  massive  crowds  at  the  Railway  stations ... workers  returning home  for  the  holiday,   the  comment  was  that  many  of  them  will not  be  returning  to their  places  of  employment  as   they  were  closing  down  as   increasing  wages  were  making  them  uneconmical,  pics  were  also  shown  of buildings    housing the   factories  being  demolished.

 

One  of  my  sons  who travels  frequently to China commented   that  he  had been  aware of  this some  time  back.

 

I note  also  that Hornby share  price  continues to decline  this  morning,  now  less than  30p

 

Small factories are indeed being closed in some places in China for air pollution reasons but I don't think Hornby is in that category, and as you say labour costs are indeed rising, but Hornby have known this and planned for it..

 

With shares at under 30p it could mean a trading halt or perhaps a buy-out ...  does anyone know the nature of conditions where trading is commonly halted?

[ruggedpeak]

With shares at under 30p it could mean a trading halt or perhaps a buy-out ...  does anyone know the nature of conditions where trading is commonly halted?

EDIT: Share trading being halted. Basically only where there is something dodgy going on. Being crap at running a company is not grounds to suspend trading. A typical example is wild fluctuations in share price over a day, which suggests the price is being manipulated, or where some major fraud is exposed and the market for the share collapses entirely (no liquidity) so it is not possible for meaningful trades to take place. Collapsing share price due to incompetence is not grounds for suspension.

 

As below, if a company becomes insolvent (has run out of cash to pay the bills) the directors have to stop trading (i.e. doing business) as soon as they are aware of this. This is not the same as halting share trading.

Edited February 11, 2016 by ruggedpeak

[DJM Dave]

You know..... It's a company with an easy fix set of solutions........however....

You have to consider that the shareholders won't want a stagnant profit year on year, they want, as will the directors, profit. Year on year profit raising each year.

This is probably paramount in those that have bonuses based on profitability, not on running a model railway company.

If you can get the shareholders to take a set profit each year, and not raised profit year on and year out, then fixing it is so damn easy.

However, if China cuts Hornby off now, or Hornby haven't paid their bills to China ( and for legal reasons I'm not for one moment suggesting that they haven't) they may as well pack up now, as China hates being owed and promised money that never arrives.

You then get the problem of the companies that are willing to have a little faith insist on payment before product leaves the factory, or if they dont they insist on payment when it arrives at the UK dock or they won't send the release paperwork.

Like I said, it's all an easy easy fix, but you need to know the factories, the clients and your direction and make compromises first.

Edited February 11, 2016 by Andy Y

[dibber25]

I find it very hard to reconcile the Hornby who designed and produced the J15 and D16 models last year with the Hornby who have created such a shambles with their marketing and distribution. 

How can the potential cash cows in the first part of my post become the losses in the second. There does seem to be a massive gulf between two parts of the company. We had an expression at work to describe such outfits. The polite version was busy fools.

Bernard

As with many organisations, there are at least two facets to Hornby - those who do, and those who wear dark suits. At the last press conference down at Margate a couple of years ago, the design people and the folk in charge of the various ranges were each wheeled out to do their own presentation to the media. They are a dedicated bunch of people and the trip to the design studio was a real eye-opener. It's a mixed team of men and women who design the railway models, each person having his or her own project(s). They aren't press officers, however, and they were ill at ease making presentations to the media, especially when 'put on the spot' in public by their own senior manager, who had ducked out of making a presentation himself (because he "didn't know as much as they did" about the subjects). (CJL)

[highpeakman]

Interesting comments appear when you trawl through the last years financial affairs on the Hornby PLc site.

 

I noticed this for one thing: Issued in November 2015

 

European Business Reorganisation

 Given that the impact of the UK turnaround plan on most recent trading has been so positive, the Board decided to accelerate the strategic plan to reorganise its European businesses. This involves a restructuring of the supply chain with logistics and distribution activities being transferred to the platform being managed by DS Logistics.  The roll out of new ERP system was implemented in Spain in October and will be rolled out across Italy, Germany and France during November.

 The acceleration of the plan involves transfer of the management of logistics and product supply chains to a new group structure and it has resulted in senior management changes in Italy, France and Spain as well as the UK. The amount of short-term disruption to our sales revenue caused by the changes will now be significantly greater than previously anticipated, in addition to the product supply issues previously announced. 

 As a result, the Board now expects that the impact of the European restructuring on the group's financial performance will mean that the revenue and profit for the current financial year will be lower than market expectations but will recover next year. 

 

​Changes (losses?) in senior management throughout Europe at the same time as you introduce totally new systems? Does that suggest quite a wide range of problems with several of the brands.

[Ian J.]

I kind of hope that one outcome of this situation is that Hornby becomes a private company again, without the baying of shareholders for money and blood. It seems that being a PLC has only ever been a bind to them.

[mow]

Small factories are indeed being closed in some places in China for air pollution reasons but I don't think Hornby is in that category, and as you say labour costs are indeed rising, but Hornby have known this and planned for it..

 

With shares at under 30p it could mean a trading halt or perhaps a buy-out ...  does anyone know the nature of conditions where trading is commonly halted?

Running out of cash.

 

A profitable company can still go out of business, if it runs out of working capital or cash. 

[Black 5 Bear]

Hopefully Hornby will survive this downturn in their fortunes.Recent releases have been extremely well finished, though sometimes in need of better quality control.As commented on before, it's their customer service/warehousing that really needs sorting out.I don't blame the staff, they are usually helpful and pleasant to deal with but, I think they are small in number and somewhat pushed. The model railway scene would be an awful lot poorer if they ceased trading and went out of business.

[jjb1970]

The Hornby management team seems to be a tale of two halves.

 

In terms of getting their supply chain working again and diversifying that base they seem to have done an excellent job over the last couple of years. In terms of product quality they're now right back up there with the best and they have an excellent new release program planned. Their communications are now very good I think. So in terms of the management who have responsibility for developing new product and managing production I think some people in Hornby are doing an excellent job. In fact, over the last year or so I'd rate Hornby as the best of the OO manufacturers in terms of delivering new models of good quality. Interestingly, although normally seen as the expensive option some of their newer models have looked very competitively priced, the J50 is a bargain.

 

Then there is distribution, process management and marketing. Where something seems to have gone very badly wrong. What this indicates is that the parts of the business that really need people with a passion for the product have got the right people in post but it is the people responsible for managing distribution, managing client accounts, their software platform etc that have dropped the ball, who are the people who don't need to know about the product as it is a business process.

 

If I was rich (which I'm not) that indicates to me that there could be a good opportunity there.

 

I do think there is a bigger picture. I've been scratching my head at the explosion of new releases and new entrants into the market for quite a while. We can see that local model shops, toy shops with good model departments and department stores with good model departments (yes, at one time department stores had model sections that'd be considered decent model shops in today's market) have died a death in most parts of the country. Production runs for many models seem to have shrunk significantly. There is evidence that the age profile of model rail enthusiasts is high. These things all point to a market which is in decline and will decline further for demographic reasons. Which makes the proliferation of suppliers and explosion of new items seem odd. Some of it is probably suppliers making hay whilst the sun shines but it still seems an odd market. My fear is we'll see our market follow the US model which is based on manufacturing to pre-order. Rapido are already doing it here, that de-risks their production significantly but I really do not like that model.

[Coryton]

I remember the demise of Hornby Dublo and the years of Hattons adverts selling of the remaining stock, we must hope history doesn't repeat itself........

 

I somehow think they don't carry that much stock these days.

[sidmouth]

A few further thoughts for you 

 

Model loco's have come on in leaps and bounds in the last decade but have become more works of art than models to be enjoyed and played with . It also feels as if it has come at a cost . As I write this the advert above flashes £150 for an A4 . Off topic but Bachmann's auto trailers are an eye watering almost £60 for a coach 

 

Now I get the logic that everything is relative but model railways feel an expensive pasttime especially when you consider that railway enthusiasts are a limited demographic . there will be certain price points at which people make a decision not to buy 

 

I run a photocharter organisation , its a niche interest and all I ask is it washes it hands in a year. My regulars though are maturing now , the joints are creaking more and sadly some spend as much time in the NHS as they do out with the camera. It is also a group that has sustained the past time with often final salary pension schemes . That is a group that will soon start to diminish and with it that spending profile 

I suspect that this is a similar demographic to model railway enthusiasts . Who will sustain this going forward ? I like my model railways but most of my recent purchases are second hand or bought the winter sale or last chance to buy . Hands up but I am not a great contributor to Hornby's profits but with a young family my true disposable income for me is small . The winter sale was great , but when people expect it they hold off buying to see if what they want is in the sale . An aquaintance of mine also did a sale for a service they offer , basically 50% . Those who paid full price previously were not happy and those who got half price were over the moon and plan now not too book in the Autumn pending the same next christmas. The costs though are still the same and now needs twice as many sales to cover the still fixed cost

 

We should not write off Hornby just yet . A profit warning and breach of a covenant are not the end of the world . The downside is that the interest on the borrowing may go up in the short term but with a robust business plan it may be possible to continue, restructure and not only survive but hopefully thrive

[shunny]

Here is an example of that show how Hornby have lost the pride of place in my local shop

 

For years Hornby made up 70-80% of the stock and that is what customers wanted but today that's nearer 50% and probably falling still.

It started with the delivery and production issues a few years ago when in order to fill the gaps they increased the amount of Bachmann stock they sold and opened a Dapol account, this meant many of the regular customers got to buy other brands and found them to be as good as Hornby (many of these are Hornby train set generation getting back into the hobby) so were not often aware of the brands.

 

Bachmann train sets were brought as Hornby struggled to supply these and Bachmann had a rep who would promote the product and now the shop has gone from only stocking Hornby sets to 50/50 split.

 

Hornby reduce the Margins on products to shops in order to stop price increase to consumer as a business you stock more of the things you make money on, after all shops have bills to pay. So for example my local shop now stocks Bachmann track where the range matches Hornby and only buys Hornby where Bachmann don't make the product ie 4th radius curve.

 

Hornby introduce a policy of minimum quantity order for locomotives of 2 previously 1 this has lead to a smaller range of Locomotives in the shop as they are a small shop and where they may have ordered 1 of a model deemed not of local interest or what the regulars will buy and risk it taking time to sell they cannot risk ordering 2 and being left with twice the money on the shelf so the model does not get ordered. this Also applies to models ordered in for the shop if they order 2 and both get pre ordered in the past they would reorder 1 more for the shelf now they have to consider if they can sell another 2.

 

And Finally Direct selling on the website offering 10% discount if you join the club means that Hornby are selling products cheaper than even the box shifters never mind the small local shops, products appear first online and can take days or weeks to get to the shop, my J50 arrived in the shop last week delayed by stock take yet they have been in for weeks. The owner had to call Hornby and ask why it had not come through but the website has then in stock the whole time.

 

There is no love loss with Hornby at the moment just frustration at the decisions being made they now Hornby is a big brand for customers and want to promote it but its supposed to be a 2 way relationship. This is just one shop but I bet they are not alone.

[bazjones1711]

There's probably more profit in class 60's than doing a class 71!

 

Must be some logic to my post as one of the 'likes' comes from DJM ! the same DJM doing a class 71 ?

Edited February 11, 2016 by bazjones1711

[robmcg]

Yes, I think it is pretty vital. The hobby will carry on in the short term, no doubt, but without Hornby's volume of new product the hobby would be the poorer and accordingly less attractive as a hobby. I don't believe, in the longer term, there will be a market to re-invigorate. We, the baby-boomers, are keeping the hobby viable for manufacturers at present. There's a lot of us and many are in a position to spend spare cash on our hobby but we're coming to the end of our time. We're already seeing vast amounts of secondhand executor sale models with fewer and fewer buyers because today's younger modellers are fewer in number and want modern models not our 30+ years old stuff. Secondhand railway books are, according to what I hear, nothing more than paper for recycling, these days. If Hornby were to go - and remember there are other big-names within the Hornby brand (Rivarossi, Jouef equally revered in their own countries) we'll all be the poorer and I can't really see it re-emerging. I certainly can't see any of today's 'new' manufacturers wanting to fill any vacuum that might be left. New products in this hobby are becoming incredibly expensive to develop, returns on that huge investment are (to quote one manufacturer I spoke to recently) 'wafer thin', and unless (like Bachmann) you have your own Chinese manufacturing facility, you're at the mercy of an industrial system which in every sense is unlike anything we're used to. If you think of the problems Hornby had, how much more difficult is it going to be for smaller outfits to get product to fill that vacuum? (CJL)

 

Thank you Chris I think that post is extremely intelligent and pretty much says it all.

 

We do indeed live in interesting times!  I still want to see such as the original Merchant Navy available with Hornby's recent high standard of RTR modelling for sale this year. Also would like to see the Bachmann LBSC H2 Atlantic, ...   but have to be patient.  I fully agree that buyers like myself at 65yrs old are becoming marginally thinner on the ground, as well as the over-supplied s/h market and general levels of spending affecting new model viability. If I were to attempt to produce models now I would have to have a very good sense of production costs in Asia, probably via a 3rd-party like Heljan or Bachmann, I have no idea about Hornby's current relationship with its various Asian factories, and I think that might be part of calculations about the value of the brand.

 

I am also rather surprised that Hornby as I understand it pays for its manufacturing in US dollars, but that is all beyond the purview of we onlookers.

[plarailfan]

A classic example is the Thomas range.  10 years ago when my son was into it, we saw it everywhere, small retailers, large chains, ebay, online - there was a full range easily buy-able.  I bought loads.  Last year, I came to sell it as son had grown out of it, and made a profit on every single item, right down to trucks and buildings.  That was because it's now rare and you can't buy most of the range anymore.  Eg the Thomas Flying Scotsman which I bought from our local retailer for £75, I sold it a year ago for £150 used, and when I looked a couple of months ago, others had recently sold for over £200 used.   Thomas is always going to be in fashion, so firstly, why did they stop producing it, and secondly why did they sell off all their stock in a fire-sale?  I noticed there's no shortage of items from other manufacturers who make Thomas themed stuff.

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That's a very good point and one that I can relate to, as some of the "Thomas" themed, Gullane and Plarail, battery powered toys, that I run on my layout at exhibitions, have become discontinued and re-branded, because Mattel recently paid a huge amount of money (running into £millions, I believe) for the rights to produce them and so I expect Hornby might well be in the same boat ? and have to pay for the licensing to bring back the OO gauge "Thomas" theme products that they used to make, only around ten, or so, years ago.

Heading rapidly off topic, but clearly demonstrates what can happen in these situations, I found the Mattel toys are mechanically inferior to all the previous "Thomas" items and there are many other niggling issues as well, such as new track sections not being very compatible with the older ones and explaining all this to harassed, frustrated parents doesn't always go down with them very well    

Edited February 11, 2016 by plarailfan