Hornby Trading Statement Published 22 April

[The Stationmaster]

Hornby's second half/year end Trading Statement has been posted on RNS this morning -

 

https://polaris.brighterir.com/public/Hornby/news/rns/story/rgg323r

 

Alas not much in the way of good reading and, as Hornby have put it  'Our underlying loss before tax has weakened since the half year point. '  Or putting it another way the second half underlying losses are bigger than were the first half losses.  

 

Group sales for the year are only 2% ahead of last year so if you feed in inflation that means that in real terms the value of sales has actually declined.    Margin ahas also dropped for a variety of reasons notwithstanding an 18% increase in direct to consumer sales.  That apart net debt has almost trebled reaching £14.3 million this year compared with £5.5 million a year ago although that is a slight improvement on the first half year position.  The increase in debt is mainly  due to capital expenditure and the trading loss. (although no doubt overheads will have increased (but that is not mentioned).

 

So far this morning the share price has only suffered a relatively small drop - c.8% on the bid price - but it is still relatively early in the trading.

 

There is some optimism to close the Statement but they also mention various perceived hurdles - some of which (oddly?) don't seem to affect some others in the business to the same extent.

[Nova Scotian]

A margin drop despite 18% increase in direct to consumer sales would be worrying.

 

I have no doubt we've seen a softening in demand in the hobby - we're back to some pretty steep discounts on surplus stock from some of the box shifters. With cost of living it's hard for most to open up the wallet regularly when the cheapest non-railroad shunter is 108 GBP, an 0-6-0 is about 165GBP and up, and the cheapest "big steamer" is 205GBP.''

 

I mostly buy on sale - if I miss out I miss out and I'll deal with it. The sentinel 6w I got for 55GBP which is a steal, it's a better model than that. But the fact they had to discount 50%, and retailers still have them in stock at 60-65 GBP suggests all is not healthy. 

Sitting in that boardroom today would be difficult - high margin, small runs of exclusive models where you mostly sell out on pre-order (especially direct to consumer) is tempting. But your demographic data is saying that might not be there forever, and for long-term sustainability you need to keep bringing people into the hobby, which you can't do with a 500GBP gold plated flying scotsman.

 

Someone on a previous thread has suggested that Hornby's root issue is their allocation of production slots. I think there's a bit more to it than that, but it does affect their margin (surplus being discounted), their revenue, and leaves them with stock on hand rather than cash in hand. Moving more in the direction we've seen smaller companies move where pre-orders inform how big a run should be could help them significantly. They'd have to speed up that feedback from consumer and retailer, do most of the development work upfront, but it could be that you see a yearly catalogue and a "pre-order catalogue" for the next year. Actually splitting it in two and using orders to drive production would create a much more efficient use of production slots - currently they're suffering from a lot of opportunity cost.

[Legend]

On immediate reading , doesn't look good . However, they do explain that sales are only 2% up because some high value containers that would have resulted in sales in March (and included in years figures) were delayed until April and therefore in new financial year . 

 

Margin explanation seems to be in increased amortisation of tooling , not sure I quite understand this one . Have they changed their policy ?

 

To me this is a company still in turnaround . I know its always cream tomorrow , but hopefully in this case their policies will start paying off 

[Fireline]

14 minutes ago, Legend said:

On immediate reading , doesn't look good . However, they do explain that sales are only 2% up because some high value containers that would have resulted in sales in March (and included in years figures) were delayed until April and therefore in new financial year . 

 

Margin explanation seems to be in increased amortisation of tooling , not sure I quite understand this one . Have they changed their policy ?

 

To me this is a company still in turnaround . I know its always cream tomorrow , but hopefully in this case their policies will start paying off 

The previous regime authorised a lot of investment in tooling. That results in higher costs, but those costs are spread over 3-4 years. What that means is that your tooling never pays for itself in year 1. A big increase in tooling in year 1 means carrying higher tooling costs through years 2-4, with no "new" models to show for it.

[Legend]

Just now, Fireline said:

The previous regime authorised a lot of investment in tooling. That results in higher costs, but those costs are spread over 3-4 years. What that means is that your tooling never pays for itself in year 1. A big increase in tooling in year 1 means carrying higher tooling costs through years 2-4, with no "new" models to show for it.

 

Yes but revenue should follow costs . If you amortise something over 4 years it's because there is a value to it  ie you are utilising that tooling in years 2/3/4 .  So there should be revenue from using that tooling in these years . If you don't expect to use tooling again then you have to write it off as soon as you realise that . That is built into accounting principles .  So maybe they are writing off tooling they don't expect to use again . Steampunk yes , but I can't imagine the cost of tooling that was huge .

[spamcan61]

Simon Kohler gives his take on the UK market and where it's going in May Railway Modeller, includes the comment:-

 

" Such tactics can make the larger and more mature producers look both short on detail and high on cost. This is certainly a dilemma for them as they can either try and compete where additional detail and features are concerned and sell at a much lower margin, which I doubt they could afford to do, or increase their prices to a level that would not make the model viable. It's a catch-22 situation."

 

where 'the tactics' is referring to the price vs. detail and feature set provided by the new players, and 'them' refers to the old established big players. 

 

Nothing radical but at least it's interesting to see those on the inside (until recently) at least understand what's going on.

Edited April 22 by spamcan61

[The Stationmaster]

8 minutes ago, spamcan61 said:

Simon Kohler gives his take on the UK market and where it's going in May Railway Modeller, includes the comment:-

 

" Such tactics can make the larger and more mature producers look both short on detail and high on cost. This is certainly a dilemma for them as they can either try and compete where additional detail and features are concerned and sell at a much lower margin, which I doubt they could afford to do, or increase their prices to a level that would not make the model viable. It's a catch-22 situation."

 

where 'the tactics' is referring to the price vs. detail and feature set provided by the new players, and 'them' refers to the old established big players. 

 

Nothing radical but at least it's interesting to see those on the inside (until recently) at least understand what's going on.

But do they and does he?  (And also reference a comment made above re newcomers).

 

Accurascale have sold 18,000+ EE Type3/Class 37 models and no doubt they'll be selling even more when other variants are introduced.  Higher volume spreads developing and tooling costs over more models which reduces the unit and thence the price to the consumer.  When did Hornby last sell even 10,000 of any newly introduced loco with a couple of years of it being delivered to market?  Selling even 5,000 puts far greater costs on each unit produced that selling three times as many.  

 

Bachmann have invested in some expensive re-toolings but are they marketing. let alone selling, the volume that helps reduce the unit cost?  Just compare their Class 37 cost with the one from Accurascale.  True lower overheads make a difference and Hornby has heavy, and recently greatly increased. overheads which have to deliver a return in order to achieve profitability.  

 

But Hornby don't just need to come up with a better mousetrap but also the right sort of mousetrap at the right price.  Locomotion No.1 might wot rk very well for them but will they sell enough of them to keep the price down and thus sell even more?  The right version of Black Five could be quite attractive for me but I would hope to see a more attractive price ticket.   k Make the right thing and get teh marketing right so that you k make more and reduce the unit price.  That is where SK misses the track in that RM comment piece - overheads are one thing but getting the marketing right is a very different thing and far more important.

[Flying Pig]

13 minutes ago, The Stationmaster said:

But Hornby don't just need to come up with a better mousetrap but also the right sort of mousetrap at the right price.  Locomotion No.1 might wot rk very well for them but will they sell enough of them to keep the price down and thus sell even more?  The right version of Black Five could be quite attractive for me but I would hope to see a more attractive price ticket.   k Make the right thing and get teh marketing right so that you k make more and reduce the unit price.  That is where SK misses the track in that RM comment piece - overheads are one thing but getting the marketing right is a very different thing and far more important.

 

I'm not sure Hornby understand it either.  This (below) looks ominously like they're looking at new rabbit holes to dart down.  They really should have learned that lesson by now.  From the reactions it has attracted, the Black Five is clearly a mess - if they'd just designed it like the Princess Royal it would have been fine and probably cheaper to develop and produce.  I don't know why they feel they need to chase novelty.

 

Quote

we expect to start improving our revenue and margins positively this financial year through the identification of new customers, opening up of new territories and launch of new product ranges.

 

[Les1952]

1 hour ago, The Stationmaster said:

 

 

  When did Hornby last sell even 10,000 of any newly introduced loco with a couple of years of it being delivered to market?  Selling even 5,000 puts far greater costs on each unit produced that selling three times as many.  

 

 

The TT:120 Pacifics?

 

Les

[JSpencer]

A problem with Hornby on their all-new tooling is that they still look at recovering costs within the later run rather than the initial one.

 

New Players like Accurascale and Rapido give us umpteen choices. We buy the one (or more) that we really want and we have little need to wait for a rerun. IF a rerun does happen, we'll probably add another to our range.

Hornby are, the common liveries in run 1, the pretty liveries in run 2 which only appears 4+ years later by which time their market has moved on.

 

Likewise you cannot build up a rake of wagons with Hornby on run 1, nor even with run 2, 3 or 4... they are drip fed.

 

They have a tonne of stuff well within their tooling waiting to be done which should have been done by now. But helas, it is like the French army in 1940. They are replying to the huge break throughs by new competitors with an army attacking in penny packets along the front line. Some little parts do show brilliance but overall no where near enough to stop the huge breakthroughs.....

[MikeParkin65]

2 hours ago, Flying Pig said:

 

I'm not sure Hornby understand it either.  This (below) looks ominously like they're looking at new rabbit holes to dart down.  They really should have learned that lesson by now.  From the reactions it has attracted, the Black Five is clearly a mess - if they'd just designed it like the Princess Royal it would have been fine and probably cheaper to develop and produce.  I don't know why they feel they need to chase novelty.

 

 

Spot on. Make proper technical improvements to keep pace with the market (so copy Accurascale and Dapol for tender coupling cams), firebox glow again copy Accurascale/Dapol and Rapido. Keep gimmickry to a minimum or if you must fit 'working' headlamps test it on Railroad where there is more need to enhance the product and the market more willing to dabble with 'functions'. As you said literally all that Hornby had to do with the Black 5 was the same as the Coronation and the lovely BR 2MT. Non working lamps with a hole in the base to pop on a lamp iron (first offerred by Bachmann with the A1 circa 2000!) would have been a nice touch, have cost pence and kept everyone happy. 

[spamcan61]

3 minutes ago, MikeParkin65 said:

Spot on. Make proper technical improvements to keep pace with the market (so copy Accurascale and Dapol for tender coupling cams), firebox glow again copy Accurascale/Dapol and Rapido. Keep gimmickry to a minimum or if you must fit 'working' headlamps test it on Railroad where there is more need to enhance the product and the market more willing to dabble with 'functions'. As you said literally all that Hornby had to do with the Black 5 was the same as the Coronation and the lovely BR 2MT. Non working lamps with a hole in the base to pop on a lamp iron (first offerred by Bachmann with the A1 circa 2000!) would have been a nice touch, have cost pence and kept everyone happy. 

Well it wouldn't keep those wanting working lamps happy... this is part of the problem, one potential buyer's gimmick is another's essential feature. Personally I'd put firebox glow firmly in my "pointless gimmick" list but obviously others have a different opinion.

[MikeParkin65]

1 minute ago, spamcan61 said:

Well it wouldn't keep those wanting working lamps happy... this is part of the problem, one potential buyer's gimmick is another's essential feature. Personally I'd put firebox glow firmly in my "pointless gimmick" list but obviously others have a different opinion.

Where is this clamor for working headlamps? Have Hornby sold more  Black Fives on the strength of it and in the unlikely event that they have how many will either cancel preorders or just not buy now until the price drops? Firebox glow on the other hand has (rightly or wrongly) become expected so to keep pace with the market Hornby should offer it but linked to dcc functions rather than as they have at present just on or off like a headlamp. 

[micklner]

I presume this actually relates to the whole of the Hornby Group in general ?. If yes they have simply too may irons in the diminishing fire.

There is no realistic comparison with small companies such as Accurascale etc, they do not  have the overheads of staff wages, far too many ranges,   etc , etc to fund every year like Hornby .

I have no idea how Hornby Group , will ever make a profit, if they ever do?? . All that said all any profit will do,  is pay off a tiny part of the huge losses they have made for many many years. A recipe for ??

Edited April 23 by micklner

[RAF96]

Talk about doom and gloom. 

[ruggedpeak]

The debt thing is worrying but there is a lot going on. New heavyweight Sales Director with serious experience and connections in the world's biggest toy market and hardcore ecommerce experience. Can see that might make our Northern friends interested in a punt.

 

https://www.linkedin.com/in/shaun-dubberley/

 

And Airfix now in a US equivalent of Hobbycraft with over 1,200 stores

 

https://www.linkedin.com/posts/Hornby-hobbies-ltd_hornbyhobbies-airfix-modeling-activity-7188114001937997825-c2Li?

 

Looks like things are moving forward big time.

Edited April 22 by ruggedpeak

[ColinB]

25 minutes ago, MikeParkin65 said:

Where is this clamor for working headlamps? Have Hornby sold more  Black Fives on the strength of it and in the unlikely event that they have how many will either cancel preorders or just not buy now until the price drops? Firebox glow on the other hand has (rightly or wrongly) become expected so to keep pace with the market Hornby should offer it but linked to dcc functions rather than as they have at present just on or off like a headlamp. 

The thing is with fireglow most times you rarely see it if it is done properly, whereas with working headlights it is difficult to miss. Amusingly many of Hornby's diesel/electric locos have minimal lighting, where this is an area where there is a huge requirement. Trouble is with Hornby they are not realistic, take the 8F, its retail price is more than the retooled Black 5, and to add insult to injury for that massive price they messed up the smokebox door. Would you pay £30,000 for a brand new Escort mk1 (not the Mexico)?

[MikeParkin65]

28 minutes ago, ColinB said:

The thing is with fireglow most times you rarely see it if it is done properly, whereas with working headlights it is difficult to miss. Amusingly many of Hornby's diesel/electric locos have minimal lighting, where this is an area where there is a huge requirement. Trouble is with Hornby they are not realistic, take the 8F, its retail price is more than the retooled Black 5, and to add insult to injury for that massive price they messed up the smokebox door. Would you pay £30,000 for a brand new Escort mk1 (not the Mexico)?

Although having spent a large part of the weekend at the Severn Valley Railway (its local to me and it was the Spring steam gala) I was struck at just how many 'glowing fireboxes' on the prototype I saw! Maybe I was looking for them to prove the point to myself:)

[eldomtom2]

5 hours ago, Legend said:

Steampunk yes , but I can't imagine the cost of tooling that was huge .

The Steampunk stuff was all resin, wasn't it?

[adb968008]

My fear is Hornby is becoming more like Lima by the day.

 

out dated, over priced, out competed.

 

Simons comment is a symbolic rock and hard place.

 

Personally I think reinventing the business maybe in order… is it time to stop manufacturing some lines and focus on marketing and retailing using franchise and co-selling with partners, leveraging the brand name and market place ?

 

 

Edited April 22 by adb968008

[melmerby]

2 hours ago, MikeParkin65 said:

Spot on. Make proper technical improvements to keep pace with the market (so copy Accurascale and Dapol for tender coupling cams), firebox glow again copy Accurascale/Dapol and Rapido. Keep gimmickry to a minimum or if you must fit 'working' headlamps test it on Railroad where there is more need to enhance the product and the market more willing to dabble with 'functions'. As you said literally all that Hornby had to do with the Black 5 was the same as the Coronation and the lovely BR 2MT. Non working lamps with a hole in the base to pop on a lamp iron (first offerred by Bachmann with the A1 circa 2000!) would have been a nice touch, have cost pence and kept everyone happy. 

Really?

Firebox glow pathetic*, coupling+cams dodgy. I hope Hornby go more like Accurascale and less like Dapol, who are pretty good at cockups themselves.

*let the decoder do it, not some unadjustble add on circuit, unless it is out of circuit when a decoder is used (include it on the DCC decoder blanking board?)

(i'm basing my comments on the Mogul.)

[adb968008]

7 hours ago, Nova Scotian said:

A margin drop despite 18% increase in direct to consumer sales would be worrying.

The debt pile increase maybe coming at much higher interest rates than they have been paying before.

 

It almost feels like a credit card holder getting into too much debt… 25% of the annual revenue.

That despite being told the debt pile last year was due to too much over stocking last year and would reduce this…

Quote

The significant increase in gross debt from £0.3 million to £6.9 million was in part due to an over-commitment to stock derived from an expectation that the top line revenue growth trajectory would have continued
to follow that of recent years.

(Page 3 2023 annual report)

 

and only finding 

Quote

Stock has reduced by 12%, or £3 million

Every £1 of stock reduction has increased debt by c£3, i’d be expecting stock reductions to be improving the financial health unless theres some very big investments going on… but if it is, its a secret, and brave in this climate.

 

I think we are to be prepared for a bad end of year report, even if its inline with their expectations.

 

And the bright side…

 

Quote

identification of new customers, opening up of new territories and launch of new product ranges.
 

 

someone highlighted Airfix in a new US retailer which is a positive.

 

New territories ? Theyve major Western markets covered (i think too much covered for the business they are doing in some regions), so I watch with interest.

 

new product ranges ?… weve waited a year for the “capsule range” which hasnt yet broken cover, the 2024 announcements havent hit wide acclaim either… there has been suggestions of more spread out…

 

I do wonder how much the debt is going to dictate the decisons moving forwards….

 

the caution I do have is statements like this…

Quote

Red Sea delivery delays and the resultant movement of some high value containers into April instead of March.

 

build up of expectations that bad news in the final quarter will lead to expectations of rebounds next quarter…. 1 month in, end of the traditional modelling season and start of vacation season, two bank holidays in May, half term holidays etc….

So far weve only got a Black 5 to show for the jam expected this quarter…

 

 

Edited April 22 by adb968008

[phil-b259]

1 hour ago, MikeParkin65 said:

Although having spent a large part of the weekend at the Severn Valley Railway (its local to me and it was the Spring steam gala) I was struck at just how many 'glowing fireboxes' on the prototype I saw! Maybe I was looking for them to prove the point to myself:)

 

The point about glowing fireboxes is that if you leave the firebox doors wide open as the loco moves off you will very rapidly find it causes massive problems with the fire and thus the steam raising capability with the loco probably grinding to a halt not long after.

 

When working the doors covering the fire are closed (or nearly closed) thus regulating the airflow and ensuring the fire burns in a way to produce the optimum amount of steam.

 

Yes when stationary at a station (the place most folk will get to see the inside of the cab) then having the doors open is quite common but do NOT assume this is the situation when you are watching the loco move along.

[Mol_PMB]

12 minutes ago, phil-b259 said:

Yes when stationary at a station (the place most folk will get to see the inside of the cab) then having the doors open is quite common but do NOT assume this is the situation when you are watching the loco move along.

Absolutely agree with this. Opening the door can be a useful smoke control measure when stationary, coasting or shunting, but on the run when working hard the door should be opened for the minimum time required to throw in the coal. 

Done well on a DCC model, it would be synchronised with the noise of shovelling and the clang of the firebox door, but I've never seen a model that achieves that!

[adb968008]

Often you see in the 60’s era videos, the driver opens and closes the firebox door in sync with the fireman's rhythm for shovelling coal in, thus keeping the heat from the fire in, and the airflow restricted to a minimum whilst moving. Never saw a film of them getting out of sync and coal landing on the footplate floor but i’m sure it must have happened.