Hornby 2023 annual results

[The Stationmaster]

7 minutes ago, woodenhead said:

Outsourced costs will be reflected within operating costs, they don't come for free, if they didn't specify enough resource then it means more heads and more cost which will be charged back to Hornby unless Hornby had a watertight contract that the outsourcer could not wriggle out of in cost terms.

The head count won'r go back to Hornby but the costs will.  The number of staff used by the contractor is only relevant to the extent that it makes a difference to the contract cost.   Hornby probably still show departmental head counts but in the past they have always been directly employed staff only.

[woodenhead]

It was noted within the report a new head of sales has been appointed, perhaps they are moving away from being marketing driven (Simon K) and into being sales driven, the latter approach being more profit driven than the former which focuses on quality and return custom.

[woodenhead]

1 minute ago, The Stationmaster said:

The head count won'r go back to Hornby but the costs will.  The number of staff used by the contractor is only relevant to the extent that it makes a difference to the contract cost.   Hornby probably still show departmental head counts but in the past they have always been directly employed staff only.

This was where I picked it up from

 

Distribution costs higher due to increased head count and cost of B2C shipments - to me that is the outsource arrangement not being capable of moving product quickly enough from warehouse to consumer.

[The Stationmaster]

Just now, woodenhead said:

It was noted within the report a new head of sales has been appointed, perhaps they are moving away from being marketing driven (Simon K) and into being sales driven, the latter approach being more profit driven than the former which focuses on quality and return custom.

Long overdue in some respects and definitely a reaction to the way the numbers have been going where UK sales don;t appear to have even kept ace with inflation  (including Hornby's own price inflation).  and probaly just teh start of a raft of changes n because if the mphasis shifts to sales vlumer and profotability of sales there are going to be some big changes ahead within the company and its approach.

[woodenhead]

1 minute ago, The Stationmaster said:

Long overdue in some respects and definitely a reaction to the way the numbers have been going where UK sales don;t appear to have even kept ace with inflation  (including Hornby's own price inflation).  and probaly just teh start of a raft of changes n because if the mphasis shifts to sales vlumer and profotability of sales there are going to be some big changes ahead within the company and its approach.

There's also mention of entry level models in each range to attract new custom - so for model trains that feels like a refresh of the RailRoad brand or something even lower and more generic perhaps but clearly recognising a need to have something for everyone and not price themselves out of customers.

[The Stationmaster]

3 minutes ago, woodenhead said:

There's also mention of entry level models in each range to attract new custom - so for model trains that feels like a refresh of the RailRoad brand or something even lower and more generic perhaps but clearly recognising a need to have something for everyone and not price themselves out of customers.

That at last makes real sense.  The mish-mash of Hornby branding hasn't really served them well due to the confused way in which Tailroad has been used.  So a clearly defined entry branding pitched above the various toy train levels (which are in themselves sensible in my view but serve a different market) is a good idea.  But f does the market exist and is it in competition internally with TT120?

 

But yet again Hornby appear to be adding ranges to ranges so will Railroad change as well and become a genuine intermediate step towards the hi-fi level?

[The Stationmaster]

Whatever else ift has done the annual Report does not appear to have impressed the stock marjket witha new record low for the shares (presumably a bid price?) of 18.18p. The shares opened today at 21.50p according to RNS and so far today's high according to that source is 21p.

 

So far today 76,00o shares have been traded (which is a pretty small percentage of the near 170,000,000 currently in issue (but over 70% of those belong to Phoenix).

[woodenhead]

2 minutes ago, The Stationmaster said:

That at last makes real sense.  The mish-mash of Hornby branding hasn't really served them well due to the confused way in which Tailroad has been used.  So a clearly defined entry branding pitched above the various toy train levels (which are in themselves sensible in my view but serve a different market) is a good idea.  But f does the market exist and is it in competition internally with TT120?

 

But yet again Hornby appear to be adding ranges to ranges so will Railroad change as well and become a genuine intermediate step towards the hi-fi level?

Under Simon Hornby was doing everything - Introducing TT120 and doing everything which was one hell of an undertaking whilst also endeavouring to keep doing OO and add to it anything it introduced in TT120 (and vice versa).

 

To me that is a suicide approach and something has to give.  TT120 has no competition, if the appetite remains then for a couple of years it has time to add models and embed the scale before the likes of Rapido/Accurascale/Heljan and Bachmann (under the guise of Efe no doubt) might see it fruitful to do their own 'better' models.  In OO Hornby is losing ground all the time to competitors it might have the Pacific market sewn up but apart from the class 67 it's diesels all have hi-fi equivalents coming.  It is seeing duplication with models in steam from Dapol and Accurascale and Rapido haven't fully got going in the steam era but they too will further erode Hornby's market.

 

If the focus is only profit, then perhaps they need to decide realistically what their target is, what models they can produce and where possible share development costs between TT120 and OO to save some money rather than race to create models that are not in the OO range purely to try and stymie competition in TT120 that will surely come.

[JohnR]

Gaugemaster have just announced they will be stocking Hornby TT:120

[woodenhead]

3 minutes ago, JohnR said:

Gaugemaster have just announced they will be stocking Hornby TT:120

Interesting, don't they also wholesale, so might that then drip to other retailers?

https://www.gaugemasterretail.com/news/article/view/id/1259/

Edited June 22, 2023 by woodenhead

[Legend]

Away at moment with limited Wi-Fi access so can’t look up report but what was the £3.9m exceptional item ?

[JohnR]

3 minutes ago, woodenhead said:

Interesting, don't they also wholesale, so might that then drip to other retailers?

 

Their prices are at a slight discount to the Hornby website, so I would imagine they're not wholesaling it to others - Hornby will want to do that themselves, surely?

[woodenhead]

9 minutes ago, Legend said:

Away at moment with limited Wi-Fi access so can’t look up report but what was the £3.9m exceptional item ?

[JohnR]

9 minutes ago, Legend said:

Away at moment with limited Wi-Fi access so can’t look up report but what was the £3.9m exceptional item ?

 

Most of it is a write down of Goodwill associated with Corgi. 

[scouse889]

2 hours ago, JohnR said:

 

That would be expensive in this country. 

 

But awesome!!! :)

[Widnes Model Centre]

2 minutes ago, woodenhead said:

Interesting, don't they also wholesale, so might that then drip to other retailers?

They don’t wholesale Hornby, Scalextric or Corgi. They wholesale Airfix and Humbrol. 
 

[The Stationmaster]

Some of the report reads in a rather frightening manner and uncovers some fascinating contradictions.  There is a clear statement that they ordered in extra stock, and this incurred extra debt against borrowing,in anticipation of 3rd quarter sales.     This hadsleft them with a 30% jump in the value of inventory.

 

But at the same time they say they were unable to meet initial demand for TT120. sets.  So with various 00 locos forever slipping back in production schedules what on earth was the huge pile of stock they purchased in anticipation of 3rd quarter sales growth?  And does it mean that they didn't buy in stuff for which they had advance orders or would have got revenue in at the time  of the TT120 announcement?   The numbers are all too real but what went wrong?  And what is all this recently ordered stuff  that is sitting in this inventory pile?

 

There is a clear note to Raeburn's report about developing brand related 'foundationals' which gives, I think, some hint about the way things might develop towards a brand led structure for the major brands.   That could be interesting because I would be surprised if it doesn't also look carefully at investment returns within brands and between them.

 

There is also what amounts to a pretty clear statement that there will a 'dash for cash' positively targetted growth in sales revenue in the coming year.   But not too much clarity about how this will be structured (a hint perhaps of using pricing - i.e. price reductions; but where and how and how does it affect retailers?).   But a big emphasis on sales when it comes to appointments with an Export Sales post created and a search underway for a Sales Director (which presumably replaces part of SK's post).

 

Retailers are mentioned as a source of market information and brand information but that's about it and it looks as if they might go back to wholesaler selling but no indication of what that actually means.  The direct selling operation  through 'shops' seems to get a lot of prominence but little or nothing is said about supporting or helping a retailer network.   Am I being unduly worried in that respect I wonder?

 

Overall I'm not surprised that the shares have dipped (although they will probably recover a bit over the next few trading days) as some future plans don't seem to be as clear as they ought to be.. However Raeburn has only been there a short while and apart from the obvious need to improve revenue some of the ways of achieving that are no doubt still being developed.

Edited June 22, 2023 by The Stationmaster
correct typos

[Neal Ball]

1 hour ago, The Stationmaster said:

Some of the report reads in a rather frightening manner and uncovers some fascinating vcontradictions.  There is a clear statement that they ordered in extra stock, and this incurred extra debt against borrowing in anticipation of 3rd quarter sales.     This had left them with a 30% jump in the value of inventory.

 

But at the same time they say they were unable to meet initial demand for TT120. sets.  So with various 00 locos fr ever slipping back in production schedules what on earth was the huge pile of stock they purchased in anticipation of 3rd quarter sales growth and does it mean that they didn't buy in stuff for which they had advance orders or would have got revenue in at the time   of the TT120 announcement?   The numbers are all too real but what went wrong and what is all this recently ordered stuff sitting in this pile?

 

There is a clear note to Raeburn's report about developing brand related 'foundationals' which gives, I think, some hint about the way things might develop towards a brand led structure for the major brands.   That could be interesting because I would be surprised if it doesn't also look carefully at investment returns within brands and between them.

 

There is also what amounts to a pretty clear statement that there will a 'dash for cash' positively targetted growth in sales revenue in the coming year.   But not too much clarity about ow this will be structured (a hint perhaps of using pricing - i.e. price reductions; but where and how and how does it affect retailers?).   But a bog emphasis on sales when it comes to appointments with an Export Sales post created and a search underway for a Sales Director (which presumably replaces at part of SK's post).

 

Retailers are mentioned as a source of market information and brand information but that's about it and it looks as if they might go back to wholesaler selling but no inc dication of what that actually means.  The direct selling operation  through 'shops' seems to get alot f prominance but little or nothing is said about supporting or helping a retailer network.   Am I being unduly worried in that respect I wonder?

 

Overall I'm not surprised that teh shares have dipped (although they will probably recover a bitover the next few trading days as some future plans don't seem to be as clear as they ought to be.. However Raeburn has only been there a short while andapart from the obvious need to improve revenuesome of the ways of achieving that are no doubt still being developed.

 

Having read the report in full for the first time (OK I skimmed a few bits), it seems to be light on the detail.... Which at this stage is logical as Olly needs to understand the business first.

 

However!

There are various comments on here about the railway side of things - what we don't know is where the issues are, other than a Corgi write-down.... Could that be a clue about unsold inventory.

 

Or could it be that on the Hornby side, too much emphasis and stock held in pacific locos - which didnt sell and that was the first part of Olly's "new broom".

 

It would be interesting to go to the shareholders meeting 😎

 

One thing I got loud and clear was - Customer engagement - listening to customers... 

[The Stationmaster]

2 minutes ago, Neal Ball said:

 

Having read the report in full for the first time (OK I skimmed a few bits), it seems to be light on the detail.... Which at this stage is logical as Olly needs to understand the business first.

 

However!

There are various comments on here about the railway side of things - what we don't know is where the issues are, other than a Corgi write-down.... Could that be a clue about unsold inventory.

 

Or could it be that on the Hornby side, too much emphasis and stock held in pacific locos - which didnt sell and that was the first part of Olly's "new broom".

 

It would be interesting to go to the shareholders meeting 😎

 

One thing I got loud and clear was - Customer engagement - listening to customers... 

Yes - the ordered but unsold' question is a big one - lots of money and a big WHY?  I think a clue might come if/when we see stuff being knocked out at reduced prices.  But it might not be model railway, or wholly model railway, items in any case.

 

'Listening to customers' sounds great but I thought they'd been doing that for some years past.  And - critically for many of us - do 'customers'  include the retail trade?

 

BTW currently a trip to the shareholders meeting os looking like something ofa  bargain - in terms of buying the shares part of the getting access.   Today ended at over 90,000 shares traded

[Neal Ball]

5 minutes ago, The Stationmaster said:

Yes......... ......'Listening to customers' sounds great but I thought they'd been doing that for some years past.  And - critically for many of us - do 'customers'  include the retail trade? ......

 

The essence of any successful business is listening to the customer - its in the report as if its something new!

If they don't, I know several competitors who do 🤣

 

I wouldn't mind betting there will be a fuller report ahead of the shareholders meeting.... It was suggested profitability might not return 2023/4, but probably would 2024/5.... that seems a long way off.

[The Stationmaster]

54 minutes ago, Neal Ball said:

 

The essence of any successful business is listening to the customer - its in the report as if its something new!

If they don't, I know several competitors who do 🤣

 

I wouldn't mind betting there will be a fuller report ahead of the shareholders meeting.... It was suggested profitability might not return 2023/4, but probably would 2024/5.... that seems a long way off.

Don't forget that this is only the Annual Financial Report although it is obviously very important.  The full company/group  Annual Report is not usually published until September and the AGM normally takes place in that month.

[Ravenser]

20 minutes ago, The Stationmaster said:

Yes - the ordered but unsold' question is a big one - lots of money and a big WHY?  I think a clue might come if/when we see stuff being knocked out at reduced prices.  But it might not be model railway, or wholly model railway, items in any case.

 

'Listening to customers' sounds great but I thought they'd been doing that for some years past.  And - critically for many of us - do 'customers'  include the retail trade?

 

BTW currently a trip to the shareholders meeting os looking like something ofa  bargain - in terms of buying the shares part of the getting access.   Today ended at over 90,000 shares traded

 

 

We tend to treat Hornby as "British outline OO, with some knobs on". Airfix is clearly a substantial operation and gets a strong second billing in "Hornby a Model World" while Scalextric and Corgi seem to be something of also rans. 

 

The turnover numbers show the Continent as profitable overall , but the USA seems to have the worst loss margins - not sure what they are offering in the US market but I doubt British OO is the core product,

 

It could well be that the stock buildup involves a lot of Airfix, although starting up TT:120 must have involved an expansion of stock holding as must HM7000. And maybe what they do in the US calls for a bit more scrutiny .Hornby International on the Continent looks to be a relatively successful part of the group. The USA isn't.

 

The classic reaction for a model railway msnufacturer under pressure is to stop releasing new tooling and focus on reruns from existing tooling. Companies like Wrenn, Dave Boyle-era Dapol and the last decade of Lima did little else. Cutting new model development, especially at the high end, and running existing tooling from their 25 year bank  of modern spec models on a regular basis may well be their approach in OO. I get a sense that new product development may now be focussed towards affordable/entry level stuff. TT:120 , whatever you think about it, is aimed in that direction.

 

Another issue is the extent to which OO is getting mined out in terms of prototypes. Msny subjects are now pretty esoteric . Is the game worth the candle for Hornby any more chasing these? Put another way - which is the better bet for tooling investment - Tubomotive in OO ( 1built) or Class 66 in TT - hundreds built , and many running in eastern Europe too. Which offers the better sales and return - a third "very high spec" 37 in OO, or a design clever 37 in TT:120? Who did better  commercially out of 4mm 66s - Hattons with their flawed high spec model or Hornby knocking out cheap Limby 66s ? We may not like the answer , but Hornby can follow the money

 

While it has been widely derided inside the hobby as an act of senseless delusional folly that may well finally torpedo Hornby, TT:120 seems from the report to have run ahead of expectations, and that does seem to mesh with anecodatal evidence on the ground of the stuff shifting as fast as it is made, however much it may all be dressed up to keep the shareholders happy.  Despite the renewed drumbeat  after SK's departure that the writing might be on the wall for the whole project there is no reason for Hornby to drop it while it is still selling straight through, and every reason for them to milk the tooling they are already committed to for every penny of sales they can get. 

 

The Gaugemaster announcement is interesting in several ways. It suggests Hornby are looking towards a limited number of big players holding the range in great depth . To me that makes sense - I've never thought it would work as a few boxes scattered in every retailer across the land. But a big mail order retailer selling TT:120 won't mollify one bit all those who see TT:120 mainly as a deadly threat to their local model shop. 

 

The Gaugemaster listing also confirms that Phase 2 is very much on - a lot of Phase 2 items are in it, and we know a 66 and two 0-6-0s are in tooling beyond that. How far and how fast development into Phases 3 and 4 will happen is still up for grabs, but this has already gone far too far to vanish without trace. Most discussion of TT:120 in the hobby seems to focus on "How soon before Hornby drop the whole thing?"  but commercial British outline TT:120 must have at least a medium term future now, and I can see it ending up as Hornby's equivalent of Maerklin Z gauge -  nobody expects that to disappear even if it hasn't set the Elbe on fire

 

At the same time the Report does provide some context and perspective . TT:120 is less than 3% of current Group sales. It's not part of the problem, but it's not a big part of any solution. TT:120 isn't some kind of bid for global hegemony - it's an interesting little niche scale and will remain that way for some years. Perhsps we should spend more time discussing Scalextric and Airfix - they will always be much bigger than TT:120 at Margate

 

Not especially bright news from Margate, but they don't seem to be near the edge.However the signals are they are looking to their Triang roots and the Oxford approach of affordable models not aiming at the high end and "museum quality models". That won't suit some 

[Mike Bellamy]

 

7 hours ago, BachelorBoy said:

My speculation: Hornby is thinking about copying Tamiya's shops in East Asia.

 

Much closer to home - are they following the idea of Bachmann's   "Model, Collect, Create"  shop at Hinckley ??

 

https://mccstore.co.uk/

.

[Guest]

I don’t think £1.5m in TT120 sales is so bad when presumably this is only the year until March 31st and sets only started shipping just before Christmas. They have struggled to get entry level sets into customers’ hands since and the 08s appeared only recently. HM 7000 only properly started in March too (arguably last week) and digital TT120 sets are due soon to give another boost. Given slippage of models, if they can achieve £4-5m in 12 months, that’s 7%+ of Group revenue from a standing start.

[Ravenser]

17 minutes ago, Gatesheadgeek said:

I don’t think £1.5m in TT120 sales is so bad when presumably this is only the year until March 31st and sets only started shipping just before Christmas. They have struggled to get entry level sets into customers’ hands since and the 08s appeared only recently. HM 7000 only properly started in March too (arguably last week) and digital TT120 sets are due soon to give another boost. Given slippage of models, if they can achieve £4-5m in 12 months, that’s 7%+ of Group revenue from a standing start.

 

7% of Group revenue would equate to somewhere of the order of 3%-5% of the British model railway market. Very respectable, especially since most of those buying TT:120 seem to be new to the hobby,  but much less than half the size of the N gauge market - itself a small fraction of the 4mm market.

 

I have seen people on here suggesting Hornby "need" TT:120 to take 20-30% of the market to succeed or be worth while . I think that's wildly exaggerated. We are not talking about some kind of earthquake or landslide in the hobby. If they get to nearly as big as 7mm , or half the share of N in 5 years and sustain it , that will be major success. So TT:120 can survive commercially on a much smaller market share than many people have assumed. Equally what we've seen today means that it is most unlikely to bring down Hornby . Not only does it seem to be doing well enough to be a positive not a negative, it's just not big enough to do real damage if it turns sour . They haven't bet the shop on this - it doesn't seem to be a wild unsustainable gamble. It's a play at the margin.

 

What is the feeling about Airfix in its market? Is that seen as a strong leading kit-maker ? Are they showing signs of easing off on big high-end new tooling? 

 

The Airfix Club seems to bulk quite large in that market