Hornby's financial updates to the Stock Market

[dibber25]

I don't think the position got worse after Simon Kohler . In fact he made some really baffling choices. Seemed to have a fixation with large logo 50s yet not 56s . Some bizarre decisions in his day. Wrap round yellow end railcars anyone?

I don't think one should blame Simon for the choices of models. He was the front man for the organisation but he didn't run it single-handed. He told me on more than one occasion that his department's proposals had to go through many committees and meetings before they got taken forward. In my experience, Hornby operated on precedent  - if X sold well then, it will sell now. If Y didn't sell, we won't make that mistake again. Thus after disappointing sales of - for instance - APT and Networker, it was a long time before the company would try another EMU. If you're going in front of your finance committee to put forward a proposal and they've got figures that show a large logo 56 sold well last year, you're much more likely to get a 'yes' to another large logo model, than to say well, we think people might like an original condition Rail blue model. Finance departments always want more of the same, if it sold well as that's less of a gamble. Of course, if your original run of large logos satisfied the demand, then a new run will be the wrong choice. Catering to public demand is a lottery.....(CJL) 

[phil-b259]

 

 

However, I genuinely think the livery choices are made by chucking darts at a dartboard with the liveries tacked onto it. For example, GWR modellers have never had a 28xx in the 'GWR' livery, and two were promised as 2013 (eventually 2014) releases: 2807 & 2811. This duplication of a livery across two locos in a single year was baffling in itself, and yet when these finally hit the shops, they were both coiffed with 'Great Western', not 'GWR'. Consequently a lost sale from me, and with a little more care with the livery choices, I might have bought one - how often will this have been repeated? I completely realise that you cannot please all customers all of the time, but there never seems to be rhyme nor reason behind the livery choices. 

 

They did the same thing with the Schools class - Charterhouse (No smoke deflectors and E prefix) was followed up exactly one year later by the identical Dulwich.

 

Its been the same story recently with the King Arthurs, lots in identical late Maunsell livery - none without smoke deflectors, with E prefixes, with 6 wheel or Watercart tenders, etc

Edited February 14, 2016 by phil-b259

[micklner]

I wonder how many on the committee were interested in railways. From what I have read above, it sounds like they were playing on safe ground. If a Class 56 in original Rail Blue was floated, a railway-minded committee just might have looked further into it.....Could a demand be measured? What would be the cost of tooling up for that livery?  What was the minimum number the factory would produce?  Determine what profit they would expect, divide the previous numbers into this figure and arrive at a unit retail price. If viable, advertise it as a limited first come first served once in a lifetime offer.

 

People didn't know they wanted locos in pre-grouping liveries until they were given them....

      Railway minded I doubt that very much , they are there for making ££££££££ if they thought purple elephants on wheels would sell they would go for it.

      I can see the Hornby group being sold off to specialist companies, one perhaps only selling  British based rtr and nothing else, that particular company will have to look very hard to see if they go high end only or bother with toys aimed at children.

      Is there still any demand from youngsters to make it viable to bother with that part of the market anymore. With recent price hikes and probably more to come , how many parents will pay out for children to have a train set ??  £££££££ again will rule.

[Legend]

I would have thought if a large logo 56 sold well in one year that would be wise to rest it for one year, bring out an alternate version eg triple grey or Railrefight Red Stripe and bring out another large logo the year following. The other way of producing a second run almost immediately has been shown to leave models on shelves and lead to discounting. I can think of Hawksworth and Maunsell coaches here. I hate this idea that "bean counting" is an isolated profession. Financial people are not daft. As well as accountancy I think you'll find they have a basic idea of portfolio management, manufacturing, marketing and even sales. To be successful in their role they need an understanding of their business.

 

Catering to public demand is somewhat of a lottery , agreed, but you can make some insights . I'd give an example of a Single chimney Collett tender , late crest Castle as an example that people are crying out for .i'm sure others can figure out A3s, Duchesses,and Merchant Navies that would maximise revenue. Phil and County of Yorkshire above are giving examples. A committee of enthusiasts as suggested could easily come up with popular variants taking into account what has been made in the recent past. Otherwise we may end up with yet another large logo black roof 50 or original NSE, both of which have been done to death.

 

Good point made above though, perhaps the lack of January sales compared to prediction is because of late deliveries from China. With little chance of recovery before year end (31/3) because of Chinese New Year maybe that's why now predicting drop in sales. And as others have said this is much larger than Hornby trains it's Scalextric, Airfix ,Rivarossi etc

Edited February 14, 2016 by Legend

[bennyboy]

Also Hornby tends to ignore DMUs. Why? Ok there has been the Class 153, but that was the first new tooling since the Class 142 railbus of 1987!

Even the 153 was just a retool of the Dapol 156 that they inherited.

[robmcg]

After talking to a independent third party Who has probably more knowledge than most people.  The main problem is not with Hornby's pricing or current catalogue but China's constant failure to deliver on time.  Remember, Hornby have to pay in advance or put up a huge deposit before a run can be done and if China fails to deliver on time, it's just money that's effectively dead.  This is why Hornby as a manufacturer and distributer are seeking other options and why Airfix production has since been moved away from China to India.

 

With China, it's labour issues (disappearing after Chinese New Year for up to 3 months) and wage increases etc, it's pricing itself out the market and Hornby are not the only one's experiencing this.  Ask Jason from Rapido Trains and he will give you the same answer.  I think Indian workers are just as adept at doing the fiddly stuff in building ready to run model railway stuff just as well as Chinese.

 

I think retailers belly aching about pricing and they claiming they could sell more are missing the point.  You could claim to sell DCC and sound loco's at £10's, yes you could sell them but if you can't get them, what's the point?  To paraphrase Kevin Costner in the film Field of Dreams "if you build it, they will buy" but only if the manufacturer delivers on time.

 

I honestly think the the profit warning is serious but not a disaster.

 

Julian Sprott

 

An excellent post.

 

With the Chinese New Year coinciding with Hornby's projected overdraft peak and possible breach of covenant, the profit warning alas carried with it the dark cloud of Barclays pulling the plug, thus the shareprice drop ..given that it's hard to trade out of trouble if your production costs have been paid, but product is delayed. This of course ought to have been predicted.

 

I hope the board at Hornby will be able to show to bankers and investors that they have a cogent plan to manufacture and sell at a profit, as well as financing the current restructure/sale of land.  I get the impression that there are many at Hornby who are very good at their job albeit some are overworked and beset with frustrations. So I hope that any buy-out or re-structure keeps them in work, and production and sales continuing.

Edited February 14, 2016 by robmcg

[Coryton]

So just what are these details, which are still being manufactured, but the non fitting of which is going to save £30:00?

 

And this is a whole new marketing method, the retailers finish the assembly for those not wishing to do it themselves.

 

Interesting idea. So the stock arrives in the shop complete with a bag of bits, and at quiet times the staff sit there behind the counter glueing on brake pipes and the like...

[Coryton]

      Is there still any demand from youngsters to make it viable to bother with that part of the market anymore. With recent price hikes and probably more to come , how many parents will pay out for children to have a train set ??  £££££££ again will rule.

 

If there was no demand at the train set end of the market, I suspect by now Hornby would have noticed and stopped selling train sets/cheap Railroad locomotives and rolling stock.

 

It seems that margins on highly detailed models are slim. I'm sure that's not the case for easy-to-assemble self-coloured plastic trucks made from tooling that must have paid off its costs decades ago. 

 

It has already been mentioned here that the £15 4 wheel coaches and 0-4-0 Railroad engines are good sellers.

[antrobuscp]

 I hate this idea that "bean counting" is an isolated profession. Financial people are not daft. As well as accountancy I think you'll find they have a basic idea of portfolio management, manufacturing, marketing and even sales. To be successful in their role they need an understanding of their business.

"Bean counters" though are, as often as not, NOT the ultimate decision makers. They provide information, offer recommendations, alternatives, etc., but others make any decisions based on that information together with advice and information from many other sources.

[Kickstart]

One of Hornbys problems for far too long has been releasing a new model in many different liveries straight away with the consequence that the least popular ones get flogged off cheap. Restricting a livery on a loco to no more than two a year would drip feed the market better.

 

I wonder if one reason that they have done this is the risk (or even just perceived risk) of loosing the means to produce those models in future (ie, loss of tooling). Or could just be a desperate need to make a big and fast return on investment (design, tooling, etc).

 

I agreed with everything you said until you got to the bit about making DCC standard. Sorry, but - despite Steve Flint's assertions to the contrary in the current RM - I'd say about 50% of layouts I see at exhibitions are still analogue. Fitting chips as standard adds £15-£20 to the price for those who don't use DCC (or for those who do want DCC but want a different chip). What I would suggest though is putting the socket somewhere like under a removable coal load where possible so the loco doesn't need to be dismantled to fit a chip. (Even adding the socket probably adds at least £5 to the price for anyone who has no intention of going DCC!)

I would suspect the cost of fitting a dcc socket as standard are minimal on a new model. Far less than £5. Similarly a DCC chip (Hattons retail price for a Hornby decoder is £14).

 

But prices have more to do with marketing than with cost.

 

All the best

 

Katy

[Coryton]

I would suspect the cost of fitting a dcc socket as standard are minimal on a new model. Far less than £5. Similarly a DCC chip (Hattons retail price for a Hornby decoder is £14).

 

 

It can increase the wiring complexity - for a bogie engine with one motor and one trailing bogie you have to take wires from pick-ups on both bogies to the socket, then back to the motor bogie. 

[Ian J.]

I don't think one should blame Simon for the choices of models. He was the front man for the organisation but he didn't run it single-handed. He told me on more than one occasion that his department's proposals had to go through many committees and meetings before they got taken forward. In my experience, Hornby operated on precedent  - if X sold well then, it will sell now. If Y didn't sell, we won't make that mistake again. Thus after disappointing sales of - for instance - APT and Networker, it was a long time before the company would try another EMU. If you're going in front of your finance committee to put forward a proposal and they've got figures that show a large logo 56 sold well last year, you're much more likely to get a 'yes' to another large logo model, than to say well, we think people might like an original condition Rail blue model. Finance departments always want more of the same, if it sold well as that's less of a gamble. Of course, if your original run of large logos satisfied the demand, then a new run will be the wrong choice. Catering to public demand is a lottery.....(CJL) 

 

It follows on, of course, that the kind of sales patterns that appear in one industry or area, don't necessarily work in another industry or area. In the 'model railways' area (i.e., not the 'toy trains' area) I would think that keeping comprehensive records on what has sold well, how much, and how often repeats of model/livery sell well, should provide enough information to the decision makers that it is simply not possible to project sales from one model or livery to a different model or livery. There would probably be patterns in the periods/eras and the demographics of the buyers as well that would need to be understood. This amount of complexity is why for the management of any business, some actual real industry/customer knowledge is essential and can't be ignored in favour of 'generic management'.

[Stevelewis]

It can increase the wiring complexity - for a bogie engine with one motor and one trailing bogie you have to take wires from pick-ups on both bogies to the socket, then back to the motor bogie. 

The  cost   is  minimal,  it  matters  not  whether  the  loco the loco is to have  a  digital  socket  or  just  a  PCB  the  wiring   would be  the  same, unless of  course it  is  suggested  that  wiring should  revert  to  the  good  old  days    when  the  pick up wirng  went  straight  to  the  motor terminals, to  save  a  few   pence?  and  make  the  wiring less complex?

[davknigh]

Interesting idea. So the stock arrives in the shop complete with a bag of bits, and at quiet times the staff sit there behind the counter glueing on brake pipes and the like...

This scenario plays out with every diesel or steam engine with a bogie/pony wheels that comes in and it's down to the penchant for mounting couplers on bogies so engines can go around corners. Said couplers would wipe out the contents of the buffer beam the first time out so we are given a choice;  to mount or not to mount, but at least we have the choice. Oh, and each time this happens there is always a group who will moan about it so the manufacturers can't win. And then there's the "too much fragile detail" group. We're a hard bunch to please.

 

Just one final point; please, appropriate powers that be, don't let a hedge fund take over Hornby,  'cos then we are doomed.

 

Cheers,

 

David

[richierich]

I think this is very true. Hornby effectively abandoned the BR blue era to Bachmann who have brought out numerous diesel models 24/25/37/40/45/47 in the period. They've also shown a great reluctance to update their 156. The point about liveries is well made and also extends to their steam range. They don't actually seem to have much of a clue what the most popular variants would be . Bachmann are actually little better.

 

It might be a good idea to maximise their revenue if they got a consumer group of say 10 -20 modellers together ( signed up with non disclosure agreements etc) to advise what liveries would be very popular on their existing range. That could maximise their cash flow in the next two years giving us models we all want. Of course they should not bring them out all together, but maybe a published program of when available would be useful. I'm sure many people would sign up free of charge with only their reasonable expenses defrayed.

 

You've only got to look at the crowd sourcing projects such as with Revolution Models for the N gauge TTAs and Pendelino, it can all be done over the web. But again Hornby and Bachmann just use this as a sales medium, and its very one sided, transmitting, but unable to receive feedback! Communication is a two way process, and that is something Hornby really need to learn, and Bachmann to an extent, especially when it comes to their N gauge Farish range.

[30801]

Interesting idea. So the stock arrives in the shop complete with a bag of bits, and at quiet times the staff sit there behind the counter glueing on brake pipes and the like...

It's a horrible idea!

 

Quite apart from the most efficient place for this work to happen being the factory in China it rather assumes retailers currently spend their time doing nothing at all.

And it assumes they have the tricksy fingers necessary.

And what about liability? If the model doesn't run it's Hornby's fault, but now if the retailer spills glue on the model, as well as losing his former infinitely long tea break he now has to fork out to replace a model he never wanted to mess with in the first place.

[Kickstart]

It can increase the wiring complexity - for a bogie engine with one motor and one trailing bogie you have to take wires from pick-ups on both bogies to the socket, then back to the motor bogie. 

 

True, but that is a minimal cost. Given just the extra cost of a few wires to a connector and a blanking plate.

 

They would probably save more by not needing 3 logos on the boxes depending on whether the models were DCC fitted, DCC read or just DC.

 

All the best

 

Katy

[MGR Hooper!]

I don't think the position got worse after Simon Kohler . In fact he made some really baffling choices. Seemed to have a fixation with large logo 50s yet not 56s . Some bizarre decisions in his day. Wrap round yellow end railcars anyone?

 

 

True. Whilst Simon has done, and continues to, a lot of great things for the hobby, I remember talking to him at a show several years ago, when I asked whether Hornby would increase its range of D&E, and BR blue generally. He simply stated there wasn't enough demand for it. The 4 VEP was announced about a year later, but completely bizarrely not in blue/grey (although that did appear eventually).

On a similar note and also relating to one infamous one (do AC electrics sell well?)... I do email Simon when I can, same goes with Hornby. I always suggest at least one AC electric re-tool (yes we can have Bachmann do it or Dapol or Heljan - but Bachmann takes too long, not many like Dapol and Heljan may make mistakes). Anyway so Hornby customer care or Simon have always said electrics don't sell well.

 

However every time when I talk to Hornby's researcher and designer all I'm told is that the Class 86, Class 90, Class 91 and Class 92 are well fitting into the main range and what was even more surprising is that they said these very models sell extremely well.

 

Beside Hornby's range the electric fleet is obviously not much, But clearly they're on the wrong point of view here. All is see is negative comments about it. Yet they feel different. Just look at the amount of Class 90's and Class 92's we're getting in the last year or two.

[Oakydoke]

There have been several examples where manufacturers have firmly believed that certain subjects, or liveries, would not sell; then another manufacturer releases the model or livery in question and disproves that view, with the model selling out, or being very popular.

 

A example is the Blue Pullman, which in original livery, sold out quickly despite its high price being thought unviable for sufficient sales. Only the mid-judged yellow end livery, remained on the shelves.

Other examples include the many Modernisation Plan diesels, which have largely been very successful.

 

However, I don't think Hornby's problems have much to do with what models or liveries they are producing, but rather it's how the company positions itself and how it views its various markets.

The reports that their management view their adult customers with disdain, appears to demonstrate that they view their products mostly as toys that some adults buy. As others have said, do they really understand their markets and customers?

 

If the market for their toys continues to gradually shrink, as it has done for many years, maybe they need to think seriously about repositioning the company and refocusing on markets that are more sustainable in the longer run.

[HowardGWR]

I understood from the press that Hornby's problems were not with railway models but with other ranges,such as Airfix kits?

[Mel_H]

For all those calling for 'heads to roll' and blaming 'the management' for Hornby's position, you might be interested in this very brief statement that Hornby made to the Stock Exchange this morning.

 

"The Board of Hornby Plc ("Hornby"), the international hobby products group, today announces that Richard Ames is stepping down as Chief Executive and is leaving the business with immediate effect.  

 

Roger Canham the current Chairman will move to take over as Executive Chairman and will lead the Group for the foreseeable future."

[Ron Ron Ron]

So appointing the ex-Ladbrokes man was a gamble that didn't pay off?

 

 

 

.

[Ron Ron Ron]

The warning was there....

 

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9436936/Ladbrokes-fires-digital-director-Richard-Ames-over-botched-strategy.html

 

 

The stock marker reacts immediately to the news.....

 

http://www.cityam.com/234583/Hornby-chief-executive-richard-ames-is-out-following-profit-warnings-and-concerns-over-its-banking-covenants

 

 

 

.

[chris p bacon]

So do I sell now and use some of the profit to buy a Heljan 02.....

[Ian Hargrave]

Currently at 28.61