Hornby's financial updates to the Stock Market

[Ozexpatriate]

Even more interesting is that this morning Phoenix Asset Management have bid for New Pistoia's entire holding in Hornby (17, 641,161 shares at 32.375p per share) and would now have overall control with 55% of the shares. Phoenix are bidding for all shares at that price.

Following that:

 

See here:

 

Chairman Resignation

Hornby Plc, the international hobby products group, announces that Roger Canham, Executive Chairman, has resigned from the Board with immediate effect.

 

This follows the announcement today by Phoenix UK Fund Limited that it has acquired 17,641,161 Hornby shares and consequently the Phoenix Concert Party owns 55.217% of Hornby's issued equity. As a result, under Rule 9 of The Takeover Code, Phoenix UK Fund is required to make a mandatory cash offer for the Group. Roger Canham is a director of Phoenix Asset Management Partners which forms part of the Phoenix Concert Party.

 

Essentially a takeover.

 

Hornby is still a public company, but it is now majority owned by Phoenix Asset Management Partners.

 

Many conclusions might be drawn in regards New Pistoia and their earlier threatened proxy battle for the board of Hornby PLC. These would be speculative on my part and so, inappropriate. I will keep them to myself. I will say with Hornby PLC under the defacto ownership of Phoenix Asset Management the wolf at the door might be encouraged to go elsewhere.

Edited June 21, 2017 by Ozexpatriate

[Ozexpatriate]

Have the detailed accounts been released? if so, can someone provide a link, please.

Here.

 

My quick assessment, without having read anything but the headlines in the final results are that I think it's fair to agree with the comments that the turn-around plan is well underway.

 

While still not profitable, losses were reduced dramatically and debt is eliminated. Revenues declined sharply, but this is consistent with the stated goals of the turnaround plan. A reduced loss despite declining revenue indicates better management of expenses.

 

Revenue and profitability have actually tracked pretty well since 2011, with the exception of the nightmare 2016 reporting.

Edited June 21, 2017 by Ozexpatriate

[Ozexpatriate]

However elsewhere they have identified Hornby and Airfix as core brands for the progress towards profitability.

Evidently Scalextric is not doing well.

 

The company now has a net cash position of £1.5M. This is a notable change after some years of debt load.

 

EDIT:

 

Focus for next stage of Turnaround plan

• Build on the strong profitability of the Hornby, Airfix and Humbrol brands
• Improve Scalextric performance
• Grow our European and US businesses
• Further improve our customer service
• ... (for others see results)

(my emphasis)

 

There were a number of 'planning' statements made in the Chief Executive's Report that I think are worth reading by RMwebbers - more so than the usual annual report verbiage.  I have highlighted a couple of them below:

 

Central to the strength of our brands was an increased focus on improving customer service to Hornby's core hobby customers through the Independent sales channel. We spent considerable time visiting and listening to our customers. We believe that we have gone some way to addressing their concerns and we have committed to improving the relationships we have with them. As part of this commitment Hornby reduced the level of promotional activity direct to consumers via the internet and its own retail operations, with the aim of helping our independent retailers improve their businesses.

 

...

 

Improving Scalextric's performance

 

The Scalextric brand primarily delivers slot car sets to consumers through multiple retailers and as such is a relatively low margin business. There are significant opportunities to improve Scalextric margins and to carefully grow volumes through improved innovation and marketing support.

 

...

 

Further improving our customer service

 

During stage 1 of the turnaround we re-engaged with our Independent retailers, improved relationships with National multiple retailers and increased our level of contact with hobby consumers through consumer shows. Continuing to prioritise improved customer service is a core part of our strategy.

 

We have also stopped using our brand websites to compete with our important retail customers and will increasingly use the brand websites to provide information, support and advice to both retail customers and consumers.

(my emphasis)

Edited June 21, 2017 by Ozexpatriate

[Mike at C&M]

Evidently Scalextric is not doing well.

 

The company now has a net cash position of £1.2M. This is a notable change after some years of debt load.

Much of this change is due to £8.0M of issueance of ordinary shares.

 

There are many other items within these accounts which are not normal year-on-year transactions, so these accounts will not be easy to interpret against previous years.

[Ozexpatriate]

Much of this change is due to £8.0M of issueance of ordinary shares.

At least this time raising shares had a demonstrable impact on the health of the company. (Clearly the lenders got what they needed.) The earlier round of share offering (when listed on the AIM) seemed to disappear in the mist.

[APOLLO]

 

Green line looks like the performance of a Zamac alloy Zinc pest infected class 31 !!

 

Brit15

[Andrew1974]

Whilst others may have a different opinion, my review of the results suggests the year has not been as good as the report is trying to make out. The reasons for my thinking is as follows:

 

Revenue: has reduced year on year by 15%, however if you use the interim accounts to split the revenue into two six month periods the revenue in the last 6 months to Mar 17 has reduced by a massive 26% (sales in H1 were down just 2%). This suggests to me that sales will be lower again next year when there will be a decrease in sales in the first 6 months as the plan to reduce sales in less profitable areas has a full year impact.

 

Gross Profit: has reduced from 47% in 2015 to 39% in 2016 to 38% in 2017, this despite the stated intention of focussing on more profitable lines.

 

Distribution costs: distribution costs in 2017 are pretty much the same as in 2016 (both £8.4m) despite moving to a new distribution model and presumably, given the reduced turnover having actually had to distribute less product. Distribution costs, as a percentage of sales have increased from 10% in 2015 to 15% in 2016 to 18% in 2017. These shows a lack of control over costs.

 

Selling costs have decreased year on year, but have remained as a constant 22% of revenue, so the minimum you would expect.

 

Admin costs have also decreased year on year, but again have remained at constant % of sales, in this case 12%.

 

The result of all of this is the loss, before exceptional (one off) costs has actually gone up from £5.3m to £5.9m, not exactly a resounding turnaround.

 

Cash. Cash generation at first glance looks quite good, with last years net debt of £7.0m changing to net cash of £1.5m, an Improvement of £8.5m. However, of this improvement, £7.5m was from issuing shares, £3.3m was from selling off property and £3.0m from improvements in working capital all of which would be difficult (if not impossible) to replicate next year, meaning that underlying cash flow is also very negative.

 

As the company only has a £10m banking facility, if results do not improve significantly going forward then the company will be out of cash again within 2 years, when you consider it has raised £7.5m from shareholders this year after raising £14.2m last year you can see why shareholders might be underwealmed by the companies performance, they has invested £21.7m in the last two years on a company that is currently only worth £27.0m and is loosing money year after year.

 

What a takeover will mean for the future is obviously uncertain, but it's getting to the stage where, from a business perspective, they can't really do much worse than the current management.

 

Obviously these are just my thoughts, but would be happy to hear alternative opinions.

 

Andrew

Edited June 21, 2017 by Andrew1974

[JSpencer]

 

What a takeover will mean for the future is obviously uncertain, but it's getting to the stage where, from a business perspective, they can't really do much worse than the current management.

 

 

 

That might be famous last words. The current management made mistakes but probably learned from them allowing a turn around. No idea what the new management will do though Anton's plan (if this is still the one being offered) is an even bigger disaster in the pipe and would see a retain to Triang days.

 

The bottom line with these types is that they keeping looking at things from a high level, vague, cloud cuckoo perspective. But in this market, the devil is in the details (and often quite literally).

[Legend]

Interesting . I do still think their overheads are out of sync for a company their size and need attention. As Andrew points out I'm not sure outsourcing distribution is realising value as it appears to be costing more in % terms as revenue shrinks. We don't know the agreement, though , and it maybe there's a fixed fee and they can leverage growth without an increase in distribution costs going forward.

 

It does look like they have been successful in cutting low margin items from range. Revenue down but profitability up , without huge increases in sales price despite Brexit. They need now to grow revenue with some reasonable margin items. To do this really do need a bit more control over their supply chain. The Peckett was a case in point where presumably if they could have made more at short notice the revenue and profitability would have improved. The Colletts are another example.

 

So I think the action plan should be:

 

Grow the Hornby and Airfix ,more profitable ranges to increase revenue and profitability going forward.

 

Get more flexibility into the supply chain to be more able to react to favourable opportunities.

 

Do more for your independent retailers. Despite the recent work there still appears to be unrest . Although increasing the range and giving them more profitable items to sell should help.

 

Review your overhead costs, I think you really need to strip back to the essentials . These are still too high for the size of business.

 

While the figures appear positive,I think it is getting to the last chance saloon stage. You have to stop the decline in revenue while increasing the profitability or you will run out of cash . Add to that some headwinds that everyone in the UK faces i.e. Foreign Exchange turmoil as we go through the Brexit negotiations , declining disposable income in the UK and a shrinking Market for model railways. Quite tricky environment for anyone to operate in , let alone a company trying to turn things around.

 

I wish them well.

Edited June 22, 2017 by Legend

[RJS1977]

would see a retain to Triang days.

 

 

 

Best thing that could happen in my opinion :-)

[Legend]

Best thing that could happen in my opinion :-)

I've just got a new book "Triang Collectables" and it really is a bask in nostalgia. The opening of the red box at Christmas as most boys got a trainset somewhere between their 4th and 10th birthdays . The perusing of the catalogues looking at the large layouts wondering where all the track went. Great days. Unfortunately they are in the past . Reverting to a Triang Trainset plan isn't going to do it. I suspect you said that tongue in cheek

[JSpencer]

When we see manufacturers aiming to sell just 1000 units these days for a new loco/coach whatever, that really shows how the market has either shrunk or - at best - becoming very choosy due to the range of new items and price.

 

To put this into perspective, Lima would never do less than 500 of a given livery/run the early 1990s and 1000 was a norm. If we take the class 59, there were at least 5 different members in the first year or - say - 5000 locos. Some models today barely get past 1000 units despite being available in several liveries.

 

Add to the headwind of declining living space too. The new generation are somewhat more minimalist than us, combining more and more into virtual space rather than real and spending much of their free time living online. There are no easy solutions and if trains was made "fashionable" again (which is not impossible), it would be short lived like all fashions. Maybe we need Wonder Woman putting a train down the back of her dress in her next film to get the fashion started! (it just worked wonders for swords).

[Legend]

When we see manufacturers aiming to sell just 1000 units these days for a new loco/coach whatever, that really shows how the market has either shrunk or - at best - becoming very choosy due to the range of new items and price.

 

To put this into perspective, Lima would never do less than 500 of a given livery/run the early 1990s and 1000 was a norm. If we take the class 59, there were at least 5 different members in the first year or - say - 5000 locos. Some models today barely get past 1000 units despite being available in several liveries.

 

Add to the headwind of declining living space too. The new generation are somewhat more minimalist than us, combining more and more into virtual space rather than real and spending much of their free time living online. There are no easy solutions and if trains was made "fashionable" again (which is not impossible), it would be short lived like all fashions. Maybe we need Wonder Woman putting a train down the back of her dress in her next film to get the fashion started! (it just worked wonders for swords).

I wondered what that bulge was!

 

Think you are correct on quantities. I'm getting the impression looking at a few threads on here where models are failing to achieve crowd funding targets and new dmu models are still available 8 months after launch , that money is indeed drying up.

Edited June 22, 2017 by Legend

[Jamiel]

Posted on Sky news website yesterday. Very probably the same facts as other news reports.

http://news.sky.com/story/Hornby-to-change-hands-as-rebel-investor-sells-stake-after-failed-plot-10922061

[The Stationmaster]

That might be famous last words. The current management made mistakes but probably learned from them allowing a turn around. No idea what the new management will do though Anton's plan (if this is still the one being offered) is an even bigger disaster in the pipe and would see a retain to Triang days.

 

The bottom line with these types is that they keeping looking at things from a high level, vague, cloud cuckoo perspective. But in this market, the devil is in the details (and often quite literally).

 

Hang on a minute.  The current management was basically appointed by the principal shareholder who has just secured overall control of the company.   Canham has no choice but to resign from the Hornby board as he is Charirman of the company which is new required by law to bid for the remainder of Hornby's shares (which it has in any case they had already made an offer for).  Thus Canham is in no position  - as Chairman of the bidding company - to provide advice to the shareholders of the company being bid for (and in which he also own shares) so he has to resign from one position or the other and its obvious - to me at any rate - which one he'd resign from.

 

Once the dust of share acquisition settles why should Phoenix pursue a different course from the one it has already effectively spelt out for the company where it has moved from holding the reins of management to one of directly controlling the management?

[Widnes Model Centre]

Whilst others may have a different opinion, my review of the results suggests the year has not been as good as the report is trying to make out.

 

 

I think this an excellent well thought out synopsis.

 

If a retail colleague of mine is correct, Hornby have also had a reduction in stock of £4 million.

 

Humbrol paints are still in some variants not in stock and have been for some time. The result for us is that we have had to obtain paints from different manufacturers. The replacements have become very popular and it is difficult to see Humbrol getting back our market share. If we haven't got it, no one else has either. Paint is essential for everything from touching up a broken vase to actually completing that Airfix model. Hornby track has been missing from stock for a considerable time and has only arrived this week. If we haven't got it you cannot buy it... step up sales of Peco.

 

The market still is awash with Hornby sell-offs. Many shops still have lots of aged stock that was bought at higher prices and that is no good to anyone. So you reduce it to less than what you paid Hornby for and it still might be overpriced after comparing to Hornby stock dumps. When new stock arrives at higher prices it just makes the new price look outrageous. Certainly for the occasional buyer who wants something to start with and or to get their grandchildren an interest.

 

 No idea what will be in it. My experience is that with regard to Hornby many retailers are waiting to see what happens, before going back to our previous order patterns. A quick snapshot of 5 shops a few weeks ago showed we were between five of us (combined) ordering in the £100's, when in previous years it was in the £10,000's.

 

It is better for us retailers in terms of Direct Sales with "Out of Stock... Contact your local retailer" Chances are we haven't got it either. Personally we acknowledge that Hornby are trying but there is still a long way to go.

 

As I am writing this I have just received a text to say that we have a Hornby delivery via DPD tomorrow. No idea what will be in it. Cannot advertise when we don't know what to advertise. Fingers crossed, it might be  paint. Cross more fingers and hope we can sell it!

 

Whilst we benefit from Hornby Distribution sending out random small deliveries below Carriage Paid costs, it certainly cannot help Hornby Finances.

[The Stationmaster]

I wondered what that bulge was!

 

Think you are correct on quantities. I'm getting the impression looking at a few threads on here where models are failing to achieve crowd funding targets and new dmu models are still available 8 months after launch , that money is indeed drying up.

Several reasons I think.

 

Firstly yes - money is no doubt tight for some but it goes far wider than that I think.  The seam of 'popular' prototypes has been mined very deep leaving a lot of oddities and potentially limited sales items lying on the floor which will never appeal to the 'toy train' market and frequently might only have limited appeal in the 'dedicated modeller'.  Next the collector market - in terms of hard core collectors - is, and always has been, relatively small and is becoming increasingly balkanised as more companies and commissioners pump out models while it too generally still works to a budget in many cases.

 

Then of course look at how proliferation has impacted.  Even if you have the same amount of inflation proofed money available the choice has become massively wider and many people simply won't buy anything and everything as they once did when the choice was so much smaller.  There are increasing numbers of things appearing which I simply ignore because they don't fit my areas of interest - even one Western engine expected to maybe, perhaps, possibly, appear this year is not on my shopping list (and never will be), however good it might possibly be when it does arrive.  With so much tumbling out of the various factories gone are the days, I think, when many more folk bought everything 'because it was there'.

 

So not just money but also a changing market place which is being saturated with numerous releases.   Hornby will (and no doubt already has) being adjusting to that changed market condition and we might see further examples, I expect - for example they could probably boost their profitability on high quality coaching stock which in some cases are delivering good value for money compared against the alternative means of getting what Hornby offer and they can probably do well with the 'tight' tank engines (witness the Peckett sell out).

 

The times they are a changing and it's not just about money but as much about what is chasing the money.

[JSpencer]

Hang on a minute.  The current management was basically appointed by the principal shareholder who has just secured overall control of the company.   Canham has no choice but to resign from the Hornby board as he is Charirman of the company which is new required by law to bid for the remainder of Hornby's shares (which it has in any case they had already made an offer for).  Thus Canham is in no position  - as Chairman of the bidding company - to provide advice to the shareholders of the company being bid for (and in which he also own shares) so he has to resign from one position or the other and its obvious - to me at any rate - which one he'd resign from.

 

Once the dust of share acquisition settles why should Phoenix pursue a different course from the one it has already effectively spelt out for the company where it has moved from holding the reins of management to one of directly controlling the management?

 

I believe Phoenix was the supporter of Mr Anton's plan. We don't know what they intend to do with this take over, but rarely will it be "keep the ship ticking over as is". They may still feel that performance is not as good as they expect and possibly believe in certain restructuring to get more performance out. If I remember correctly, Anton's plan was a leap of faith back into the big toy market, making us modelers/collectors a secondary concern. How deep Phoenix feels on such convictions (if they do), we do not know but they must have had some leanings to have wanted to back Mr Anton's plan that the toy market is the place to go. This could mean fewer models for us (which is not necessarily a bad thing as most of admit feeling a little saturated right now) and possibly an awful lot of resources wasted trying to resurrect the toy market. The latter would mean instant death for Hornby if it failed rather than slow death as the market retreats.

 

Anyway we'll find out sooner or later what this means for sure.

[Legend]

There is also technical inflation. I appreciate I'm a bit of a Luddite but it does appear technical advances are driving costs up too e.g. DCC in mk 2f coaches . I just want an accurately proportioned liveried coach, not one I can switch lights on and off in, through wired dmus. Dmus where door lights come on etc etc

[Legend]

I believe Phoenix was the supporter of Mr Anton's plan. We don't know what they intend to do with this take over, but rarely will it be "keep the ship ticking over as is". They may still feel that performance is not as good as they expect and possibly believe in certain restructuring to get more performance out. If I remember correctly, Anton's plan was a leap of faith back into the big toy market, making us modelers/collectors a secondary concern. How deep Phoenix feels on such convictions (if they do), we do not know but they must have had some leanings to have wanted to back Mr Anton's plan that the toy market is the place to go. This could mean fewer models for us (which is not necessarily a bad thing as most of admit feeling a little saturated right now) and possibly an awful lot of resources wasted trying to resurrect the toy market. The latter would mean instant death for Hornby if it failed rather than slow death as the market retreats.

 

Anyway we'll find out sooner or later what this means for sure.

Isn't Phoenix Mr Canham ,not Mr Anton. So in effect the largest group of shareholders (Phoenix) bought out the second group (Anton) meaning the turnaround plan Phoenix has in place continues as normal? No leap back to Trainset that Mr Anton wanted Edited June 22, 2017 by Legend

[Mike Bellamy]

Isn't Phoenix Mr Canham ,not Mr Anton. So in effect the largest group of shareholders (Phoenix) bought out the second group (Anton) meaning the turnaround plan Phoenix has in place continues as normal? No leap back to Trainset that Mr Anton wanted

 

 

Correct

 

Copied below from the press release highlighted a couple of pages back

 

 

 

On 7 April 2017, a requisition for a general meeting was received by Hornby from representatives of NPIL. The requisition stated that the purpose was to propose changes to the board of Hornby and, consequently, make changes to the business strategy of Hornby.

On 25 April 2017, PAMP (for itself and on behalf of the other members of the Phoenix Concert Party) entered into an irrevocable agreement, together with Ruffer LLP and Downing LLP in respect of 53.96 per cent. of the outstanding voting share capital of Hornby, to vote against the resolution proposed by NPIL in the requisition.

On 8 May 2017, Hornby received a letter from the representatives of NPIL withdrawing NPIL's request to proceed with convening the requisitioned general meeting of Hornby. On 16 May 2017 the requisitioned general meeting of Hornby was adjourned indefinitely.

After engaging with representatives of NPIL, Phoenix UK Fund has agreed to enter into the Acquisition to acquire all of the Hornby shares owned by NPIL.

Prior to the Acquisition, the Phoenix Concert Party were interested in Hornby Shares which, in aggregate, carried not less than 30 per cent. of the voting rights of Hornby, but not more than 50 per cent. of such voting rights. As a result of the Acquisition, the percentage of Hornby Shares carrying voting rights in which the Phoenix Concert Party is interested has increased to more than 50 per cent. of the voting rights of Hornby.

[Widnes Model Centre]

Detracting slightly from this thread:

 

Marketing Strategy, Wonder Woman, look what she has done for swords????

 

This is a model railway forum!

 

Having just promised 87029 (Mike at C and M Models) to bring his marketing strategy to the forum. We need to sell more trains and we need it to be made loud and clear. Bring it on Mike!

[Mike at C&M]

Detracting slightly from this thread:

 

Marketing Strategy, Wonder Woman, look what she has done for swords????

 

This is a model railway forum!

 

Having just promised 87029 (Mike at C and M Models) to bring his marketing strategy to the forum. We need to sell more trains and we need it to be made loud and clear. Bring it on Mike!

At the risk of disappointing many, including Barry from Widnes, the picture in question is censored (by me). I cannot afford to have him spill his hot coffee in his lap (again).

 

You will just have to make do with Fay appearing in my avatar, instead.

 

[Thread can return to it's proper subject, now]

[Coryton]

At the risk of disappointing many, including Barry from Widnes, the picture in question is censored (by me). I cannot afford to have him spill his hot coffee in his lap (again).

 

You will just have to make do with Fay appearing in my avatar, instead.

 

[Thread can return to it's proper subject, now]

 

I hope you two know what you're talking about!

[Mike at C&M]

I hope you two know what you're talking about!

We do, and we shall leave it there.