Hornby's financial updates to the Stock Market

[Phil Parker]

Fwiw, if, and it's a big if, Hornby disappears, that would present a bigger opportunity for the commissioners and small independents to produce more of the o2, 14xx, beyer Garretts, Atlantic singles etc that a lot of us here like but aren't necessarily in the train set market.

 

David

 

What's stopping them now? If there is a demand then why not produce them?

 

If a lot of people want them then they will buy them - Hornby or not.

[Clearwater]

But who is going to make the coaches and wagons for them to pull?  Don't forget Hornby do a range of things - many of the commisioners don't.

 

Incidentally reading in a previous post that the CEO was on a basic of £287,000 pa and the Chairman reputedly on £300,000 I am left seriously wondering how Hornby Group - a toy & model manufacturer with limited market impact and size of sales could actually start to be able to meet salaries that big (plus no doubt the fringe benefits and pension contributions).  The figures seem to be somewhat out of kilter with the size and profit generating capabilities of such a company.

That's a good point Mike around coaches in particular, wagons seem better catered for, and one I'd been meaning to edit to add!

 

On previous threads, I've gathered coach economics are harder to square. I think kernow's gatestock is a rare (only?) example of new tooled retailer commission. Oxford rail have signalled their intentions with the Mk3.

 

Salaries is a tricky one - I agree looks toppy and is perhaps part of the 'we're a big plc' culture that seems to exist in Hornby. However in small turnover, owner run companies, there is a wide variation in director remuneration from the high five figures to similar packages as seen here. To my point earlier, it's plausible that Hornby had to pay a certain level to hire Ames and who knows, maybe others were more expensive.

 

From the remuneration report, I recall (I am in hospital with my wife at present who has just given birth to my second son so I'm both a bit distracted and don't have the report to hand (I also have a lot of sitting around hence am able to post to rmweb)) that they have substantial bonus and share options that won't have kicked in. As such, whilst it's galling he's been paid so much, he has earned substantially less than he expected l. Sadly for him, I think he'll find getting another ceo role challenging.

 

David

[The Nth Degree]

What do you think will happen?

Kevin

Only two things can happen in the immediate future; they secure new terms/funding or they don't. The outcomes of both are very different. I'm confident enough to invest in them though.

 

To answer your question, I have no idea!

[Kickstart]

Genuine question: if running on analogue, what is the advantage of bringing pick-up wires to a PCB and then back out to the motor?

 

And it wasn't so much the cost of the wire I was thinking of, but the time taken to solder - potentially 12 joints instead of 4. Also more to fail and have to be re-worked, assuming they test pick-up on all wheels.

 

Clearly it would be ridiculous to design different DCC-ready and non DCC-ready versions of the same model, but presumably analogue modellers are paying a (small) premium for DCC-readiness they (think they?) will never use.

 

For analogue I doubt there are any real benefits. You could possibly argue for simpler rewiring if you want to take power off the connector / blanking plate for lights or the like, and maybe easier to wire in a new motor if you need to replace it, but that is pretty much scraping the barrel.

 

But the extra cost is tiny. A blanking plate (and retail from Hattons they are £7.61 for 10) and realistically maybe 4 extra connections (and some of those might be easier done with crimped connections rather than soldering once there is a central connector, and that might save money). I doubt the total extra ex factory cost is anywhere near £1, even if paying UK wage costs. To go with this there are savings (in packaging for a start - let alone reduced chances of a mistake with boxing things with the wrong labels).

 

The real cost is in design and tooling for this, with a large number of older models brought back in to sale, but on any new product (or even product that is being retooled for DCC) it would essentially be a free change. With Hornby it seemed bizarre that with the basic 0-6-0 chassis (used in the basic 08 and Jinty and the like) they appeared to have tooled up and continued to produce 2 slightly different chassis for DC and DCC.

 

A lot of people seem to be assuming that Hornby is making all their money from top-end models and that the "toy train" end of things are a liability.

 

Is there actually any evidence for this? Profit is not the same as sales price.

 

It seems much more likely to me that the detailed models have slim margins while Railroad rolling stock can be sold at a much higher margin. I would imagine it's much easier to predict the sales of Railroad stock too given that the range is reasonably static.

 

I would suspect it depends when they take their money. Designing and tooling up for a run of Kings probably results in sales that barely covers their costs. But in the future they can continue to produce runs of those models without those overheads and with a high profit. Problem is that they might land up with a large batch that don't sell and suddenly needing to sell them at near cost price.

 

Possibly the solution is to do their production in 2 levels. Large scale batch production for the initial releases (and the constant selling Railroad / Thomas type models), but bring the tooling back to a far more flexible (possibly in house) production environment after that, able to product and deliver small batches quickly and flexibly on demand.

 

As to the salary, for the size of company it does seem very high. Especially when several people at higher levels are being paid that much.

 

Katy

[Clearwater]

Only two things can happen in the immediate future; they secure new terms/funding or they don't. The outcomes of both are very different. I'm confident enough to invest in them though.

To answer your question, I have no idea!

Let's not forget that for the bankers, who will sit at the small corporate / retail end of the spectrum and not in Barclays investment bank), it is also pretty embarrassing to go back to credit committee and say "you know that name who we extended our loan to last year for a further 4 years when they did the rights issue, good, well now they are in breach of covenants"... You can spin it to say "we've caught a potential problem early" but it's not the best place to be

 

David

[coachmann]

Stationmaster has brought up a point that people are overlooking........ Hornby produces components to build a 'complete' railway from locos to coaches to wagons to track to signals to buildings to control equipment and so on. The commissioners and small independents offer nothing apart from the item they are commissioning, so you buy their loco and fall back on Hornby, or to a lesser extent Bachmann, for the rest. It seems to me the people who profess to having no time or no interest in building things for themselves would suffer the most if Hornby went under.

Edited February 15, 2016 by coachmann

[Clearwater]

The Guardian

 

http://www.theguardian.com/lifeandstyle/shortcuts/2016/feb/15/lego-up-and-Hornby-down-whats-what-in-the-world-of-toys

[PanzerJohn]

Some more detailed share info here..

http://www.lse.co.uk/SharePrice.asp?shareprice=HRN

[Grovenor]

That train set in the Guardian pic looks very old.

re the share info, how does one manage to buy shares that have not been sold?

Regards

[Clearwater]

That train set in the Guardian pic looks very old.

re the share info, how does one manage to buy shares that have not been sold?

Regards

Various ways eg https://en.m.wikipedia.org/wiki/Short_(finance)

 

David

[Mike at C&M]

Andy Y asked: An open question for any of the retailers around here if I may.

 

When did you last see anyone above sales rep level?

 

The answer - never, in nearly 13 years.

 

The northern half of Britain was without a dedicated sales rep. for nearly 18 months up until autumn 2015, although some of us received occasional visits for a southern based rep.

 

The previous two reps. were a complete waste of time, and we need to go back some 3 1/2 years since we had a Hornby rep. who had the knowledge and attitude to prove helpful to we retailers. With him, you felt that Hornby and you were working together in a relationship that was beneficial to both of us.

 

Thankfully, a new Hornby rep. for northern Britain was appointed in autumn 2015, and I am glad to say that I find him willing to help, and he provides a good stream of information. Just a shame that he has to battle against the lack of trust we now have for them.

[Mike at C&M]

With regards to the order book taken in January not being up to expectations. As we did not travel the length of the country to visit the toy fair in London, our order for the 2016 range was not placed until the 1st week in February, and at no point was there any urgency from Hornby to get our order in before that time.

[Hroth]

That train set in the Guardian pic looks very old.

re the share info, how does one manage to buy shares that have not been sold?

Regards

Hornby isn't the only one having problems.  Like the Independent (who illustrated their article with a loco from 1999), the Guardian is having circulation problems and may well follow the Indy into "digital only" diistribution.

 

These damn computers are more trouble than they're worth!!!

[Wicor Models]

An open question for any of the retailers around here if I may.

 

When did you last see anyone above sales rep level?

[Wicor Models]

Red Mackay visited us a couple of years ago. He is the Supply Chain Director. Spent a lot of time with us, listened to us, acted on some of our suggestions and wrote to thank us for our time and input.

Dave

[jjb1970]

I think it is easy to see brands like Airfix and Scalextrix as a distraction for Hornby yet whilst I have no idea what percentage of Hornby turnover and profit (or loss...) they account for I can say you see both brands in a lot more shops than Hornby trains. And not just a few token entry level gift packs, you do still see a few shops with decent stocks of both ranges in a way which is now very rare for model trains of any brand. I don't know about Scalextrix but despite some scepticism and fears that Hornby would dumb Airfix down the brand has had something of a renaissance since being bought by Hornby and has produced some very impressive new models which are highly regarded by modellers. So to sort of dismiss Airfix is probably ill found I think.

I have two young children, and they like visiting Toys R Us and Smyths, in Toys R Us there is a small selection of Airfix kits, a token selection of Hornby train sets and a slightly better selection of Scalextrix sets. Not impressive but they're pretty much the only models the shops sells. Their big rivals Smyths doesn't even bother with that and is devoid of models. Which sort of tells you something that two of the countries biggest toy shop chains don't consider the model sector worth much. When I was younger most toy shops had a very good model section with a range of plastic kits, toy soldiers, trains etc.

I do think it is easy to underestimate the importance of Hornby and Bachmann to the hobby as full range producers, they provide a lot of the critical mass that makes the hobby viable for many and supports the smaller niche producers. Without the full range suppliers I think the market would shrink and it'd be a lot harder for niche producers. Note I am not saying that Hornby are indispensable to the hobby as ultimately no company is indispensable but I think some who decry the brand would probably realise what they'd lost pretty quickly if the brand were to go under.

[Nearholmer]

Phil,

 

"My local Airfix retailer has no problem selling kits at a profit too."

 

I wasn't thinking from a retailer perspective when I asked about making money out of plastic kits, but from a manufacturer's perspective.

 

Nth Degree,

 

"I'm confident enough to invest in them though."

 

Buy shares, or make/extend a substantial loan to them? My gut feel is that, right now, it might be worth a punt on the former, but to do the latter would amount to a substantial triumph of hope over experience.

 

Edit:

 

RJB1977 (I might have misremembered your name, sorry)

 

"Ultimately the question is - what's best for the hobby?"

 

Tragically, I don't think that is true. It would be nice if it was. The ultimate questions seem more like: have their lenders got inexhaustible patience; and, if they haven't, is there another lender around who might take them on?

 

Kevin

Edited February 15, 2016 by Nearholmer

[Ben Alder]

Ah! ....the secret is out !!!

 

RMweb Models inc.

 

 

 

 

.

 An RMWeb Cooperative? There certainly appears to be enough expertise around here to run such a thing successfully

[Legend]

That train set in the Guardian pic looks very old.

re the share info, how does one manage to buy shares that have not been sold?

Regards

1975. It's a Britannia without smoke deflectors. Supposed to be a cheap loco for trainsets to take over from the Black Princess Victoria , whose tooling had worn out

[Arthur]

An RMWeb Cooperative? There certainly appears to be enough expertise around here to run such a thing successfully

Yup, and we'll start with a new improved 00 track. Should be easy enough to agree the standards.....

 

 

 

 

 

Hat, coat, gone.

[Coryton]

I have two young children, and they like visiting Toys R Us and Smyths, in Toys R Us there is a small selection of Airfix kits, a token selection of Hornby train sets and a slightly better selection of Scalextrix sets. Not impressive but they're pretty much the only models the shops sells. Their big rivals Smyths doesn't even bother with that and is devoid of models. Which sort of tells you something that two of the countries biggest toy shop chains don't consider the model sector worth much. When I was younger most toy shops had a very good model section with a range of plastic kits, toy soldiers, trains etc.

 

You are probably right - I have no idea - but it's also true that the way shops sell things has changed. For example it's getting hard to buy clothes in the less common sizes in high street shops - but they'll happily order them in for you. This all seems to be about how shops are changing what they keep in stock and nothing to do with a change in demand. It may be that the large toy shops are now much less forgiving of slower moving stock than they once were. And of course that they have much much better statistics on what sells and how quickly than they ever did.

 

W H Smiths have persisted with their Modelzone 'franchises'. Now it may be that Hornby have made it very much worth their while in order to keep a high street presence, but presumably they can't be doing too badly or they wouldn't still be there. And they sell - or at least stock - Bachmann models and even some Gaugemaster scenics. No Peco though! The rule seems to not sell things that directly compete with a Hornby product.

 

Ultimately of course for most of us here it's just a hobby and even if somehow model railways were to vanish from the face of the earth we'd find other things to do. Not quite the same for Hornby employees, or indeed owners of model shops who are still selling Hornby.

[Coryton]

Yup, and we'll start with a new improved 00 track. Should be easy enough to agree the standards.....

 

 

Of course that's where Hornby has gone wrong.

 

If only they'd gone ahead with a range of sectional code 100 bullhead track they'd be fine...

[JSpencer]

I wonder what their definition of sales are?

 

If it is based on orders, then the 2016 range was annouced earlier this year before Warley, yeah sure this will have a big impact on December (being more) and January (being less) with others waiting for the toy fair (no doubt so that they can leap on the battery powered virgin sets and Downtown abbey!).

 

However - in Hornby's case - orders mean little when it comes to paying bank loans, after all most will take the best part of a year to fulfil , so it's cash flow that counts. You can have a dull January taking orders but still have plenty of money coming in.

 

In Hornby's case, money is leaking away despite large margins. Either too much makes it into the bargain bin, or money is leaking big time elsewhere through poor cost control. It is possible £1million of stock just simply disappeared! I have seen companies go bust because they simply over promoted. I have seen contracts signed with high expectations that the customer will spend fortunes but in the end they don,t. Amazon is good case with certain publishers, they literally pay amazon to sell their books at a loss!

[pete_mcfarlane]

Richard Ames is not the only director who appears to have little or no experience in the hobbies market.

It is difficult to make out what experience or qualifications any of the directors bring to the company, see http://www.Hornby.plc.uk/director-information/

 

Peterfgf

 

Where would these people with experience of running PLC sized hobby companies come from? There are few (if any) other similar companies in the UK so the pool of suitable recruits with exactly the right experience will be tiny. 

[locoholic]

Stationmaster has brought up a point that people are overlooking........ Hornby produces components to build a 'complete' railway from locos to coaches to wagons to track to signals to buildings to control equipment and so on. The commissioners and small independents offer nothing apart from the item they are commissioning, so you buy their loco and fall back on Hornby, or to a lesser extent Bachmann, for the rest. It seems to me the people who profess to having no time or no interest in building things for themselves would suffer the most if Hornby went under.

I'm not so sure about this. In theory it's true, but people moan that retailers can't obtain stock of Hornby track, etc. I bet hardly anyone one here has an exclusively Hornby layout - Peco track, anyone?