Hornby Trading Statement Published 22 April

[Gallows-Bait]

25 minutes ago, Widnes Model Centre said:

@Gallows-Bait

 

What is not obvious is that when we settle our invoices, the money is paid direct to Secure Trust Bank, not Hornby.

 

Within the company I work for we've had similar arrangements in the past.  Effectively all the incoming monies go to the lender to top back up the amount of cash that the borrower can then draw down out of the loan and then the borrower can draw it back out up to the limit of the loan.  It provides security to the lender that the borrower isn't hiving off cash anywhere else as effectively they're then controlling the bank account on behalf of the borrower, meaning they're always first in line to get back the cash because it's paid in directly by the borrower's customers.

 

Pain in the neck from an administrative point of view on all sides though.

[moawkwrd]

12 hours ago, nightstar.train said:

 

 

It's been discussed on here before that Hornby have entirely outsourced their warehousing and direct sales. Under this arrangement every thing they have at the warehouse is a monthly cost. And for direct sales they will have to pay a fee for the items to be picked and packed. I've not bought anything direct from Hornby, and obviously I'm not a retailer so I can't say how good the service is. 

 

They're certainly not the only company to do that. Judging by the emails I get at dispatch time Accurascale use a similar arrangement with an outfit in Birmingham. The place seems very efficient and certainly gets through the stock when a shipment arrives. Undoubtedly Accurascale will be paying for that service though. On the other hand Rapido do seem to have their own warehouse and when a new shipment arrives it all hands to the pumps packing parcels. 

 

From my own experience and others on the Hornby forum, their current setup is pretty awful and could be dramatically improved. It's not unheard of for people to receive an individual parcel per item of preordered stock, with all of the admin and notifications that entails (and the poor DPD person having to carry them all for delivery) rather than just bulking preorders into a single package like most others would do. Then the rigmarole of contacting Hornby to get a refund on the individual postage charges entails... all of which takes up resources and costs money.

 

Recently I wanted to return a preordered item within the timelimit of the distance selling regs... it took almost 3 weeks to get an RMA number from Hornby customer services (as required for returns) and the refund took another week to arrive. When almost everyone else makes the above process so easy, it's a shock that they're still set up like it's the early 2000s.

 

It would be an easy win to solve since nobody else seems to have this problem and Hornby are hardly unique in their requirements.

 

Whoever they've outsourced it to is doing an awful job and costing time, money and effort all around. Binning them could only be an improvement.

Edited April 27 by moawkwrd

[GrumpyPenguin]

Clearly, the world of finance is something I don't really understand.

 

What does puzzle me however is the fact that a "company" (whoever their legal entity is this week) has occupied (except for a brief period in Sandwich) occupied a facility in Westwood. Said company has been in the business of making toy, then model trains for decades. Latterly, they have other products & they are probably the only company that sells everything to produce a passible model railway using only one brand.

 

So I just don't understand why they seem to always be stuggling - by now they should have a the sort of bank ballence where they could lend the banks/financial institutions money, a warehouse full of stock to sell as the retailers order it & a loyal customer base that buys quality products that have a very low failure rate.

 

I do understand how business works, have run a sucessful company in the service sector & now have a smaller one with a mail order side. The principles are the same but the amount of zero's vary. Any (simple) idea's ?

[Gallows-Bait]

15 minutes ago, GrumpyPenguin said:

Clearly, the world of finance is something I don't really understand.

 

What does puzzle me however is the fact that a "company" (whoever their legal entity is this week) has occupied (except for a brief period in Sandwich) occupied a facility in Westwood. Said company has been in the business of making toy, then model trains for decades. Latterly, they have other products & they are probably the only company that sells everything to produce a passible model railway using only one brand.

 

So I just don't understand why they seem to always be stuggling - by now they should have a the sort of bank ballence where they could lend the banks/financial institutions money, a warehouse full of stock to sell as the retailers order it & a loyal customer base that buys quality products that have a very low failure rate.

 

I do understand how business works, have run a sucessful company in the service sector & now have a smaller one with a mail order side. The principles are the same but the amount of zero's vary. Any (simple) idea's ?

 

The biggest issue for companies is the expectations of shareholders once you become publicly listed.

 

A smaller owner operated business may be content to take home a modest earning and keep reinvesting some of the profit for the future, gradually building up reserves to cover the bad times and keep them on a course for longer term success, after all their motivation is usually a business for the long term.

 

The problem is once you introduce publicly tradeable shares, the pressure is on for the company to deliver profit and issue dividends, not only does this then potentially deplete those reserves that might have weathered the occasional rainy day, but there is a pressure to continue to grow those earnings simply because investors expect a consistent return on their shares or else they sell those shares and invest in some other company with a bigger return.

 

The risk of those shares going down in value then becomes an existential threat.  If you don't keep the price up and keep paying dividends, someone might start buying up the shares and once they do, they might decide to do something different with the company, or push the management out the door.

 

Add in that the same management team are motivated by the fact part of their earnings from the business is given in either shares or the option to buy shares, and there's a huge incentive to wring every penny out of the company right now and not look too far into the future.  After all, the future is the next CEO's problem.

[woodenhead]

2 hours ago, Gallows-Bait said:

 

The biggest issue for companies is the expectations of shareholders once you become publicly listed.

 

Private companies can also have similar expectations from their owners - 20% margin on everything, "I know you've been doing this years but now I want you to do this instead and stop doing the other thing".

[melmoth]

6 hours ago, Gallows-Bait said:

 

The biggest issue for companies is the expectations of shareholders once you become publicly listed.

 

A smaller owner operated business may be content to take home a modest earning and keep reinvesting some of the profit for the future, gradually building up reserves to cover the bad times and keep them on a course for longer term success, after all their motivation is usually a business for the long term.

 

The problem is once you introduce publicly tradeable shares, the pressure is on for the company to deliver profit and issue dividends, not only does this then potentially deplete those reserves that might have weathered the occasional rainy day, but there is a pressure to continue to grow those earnings simply because investors expect a consistent return on their shares or else they sell those shares and invest in some other company with a bigger return.

 

The risk of those shares going down in value then becomes an existential threat.  If you don't keep the price up and keep paying dividends, someone might start buying up the shares and once they do, they might decide to do something different with the company, or push the management out the door.

 

Add in that the same management team are motivated by the fact part of their earnings from the business is given in either shares or the option to buy shares, and there's a huge incentive to wring every penny out of the company right now and not look too far into the future.  After all, the future is the next CEO's problem.

 

It might not have been the point, but this excellently lucid answer is also a fine illustration of why short term interests are perhaps the biggest Achilles Heel of Capitalism.

[No Decorum]

18 hours ago, GrumpyPenguin said:

Clearly, the world of finance is something I don't really understand.

 

What does puzzle me however is the fact that a "company" (whoever their legal entity is this week) has occupied (except for a brief period in Sandwich) occupied a facility in Westwood. Said company has been in the business of making toy, then model trains for decades. Latterly, they have other products & they are probably the only company that sells everything to produce a passible model railway using only one brand.

 

So I just don't understand why they seem to always be stuggling - by now they should have a the sort of bank ballence where they could lend the banks/financial institutions money, a warehouse full of stock to sell as the retailers order it & a loyal customer base that buys quality products that have a very low failure rate.

 

I do understand how business works, have run a sucessful company in the service sector & now have a smaller one with a mail order side. The principles are the same but the amount of zero's vary. Any (simple) idea's ?

One of the many things I leant in my career is that good people can make a bad system work but a good system can’t make bad people work. Hornby needs people to check their products and have the courage to say, “That won’t do.” Is it too late? Possibly for me. I don’t pre-order Hornby products any more and frequently not at all because of faults and shortcomings which could and should have been corrected before products were released to the market. I’m sure I’m not alone and the company’s reputation is suffering in what has become an extremely competitive market.

[The Stationmaster]

On 26/04/2024 at 17:12, Gallows-Bait said:

(snipped), but it does make the jump back up in 2023 even more noticeable as they clearly banked on a huge seasonal boost that never came, which is really a matter of failing to read all the economic signs.

 

I think the 2023 problem was down to a lot more than 'economic signs' but was also a major misreading of the mail order/chain store market by offering grossly overpriced 'starter' models at way over the emerging market price range.   If someone gets a choice in a catalogue between 'a trainset' costing 3£30 and another - quite likely not even as 'attractive - costing c.£100 it's obvious what the 'average' consumed will buy, even before they look at their shrinking purse or wallet..

 

There were other problems as well such as in one case ordering  something which would take around  5 years to sell at normal rate of sale - that might work if the bulk buy saving was good enough to justify the outlay but it still goes in the wrong half of the balance sheet.  Another example was a ridiculous imbalance in buying in certain SR coaches most likely aimed more at the railway modeller market but being taken into stock in such a way that inevitably the entire stock would not be sold into an informed market.    Mistakes like that are clearly down to bad marketing.

 

AsI said previously a lot oif the ability to sell what's in the mountain very much on depends on what it is and whether or not stuff was over-ordered for sale into what had become a sated market (a long standing problem at Hornby reflected in various ways over the years).   If they can't get the marketing right stuff simply isn't going to sell - whatever the price point.  

[The Stationmaster]

21 hours ago, GrumpyPenguin said:

Clearly, the world of finance is something I don't really understand.

 

What does puzzle me however is the fact that a "company" (whoever their legal entity is this week) has occupied (except for a brief period in Sandwich) occupied a facility in Westwood. Said company has been in the business of making toy, then model trains for decades. Latterly, they have other products & they are probably the only company that sells everything to produce a passible model railway using only one brand.

 

So I just don't understand why they seem to always be stuggling - by now they should have a the sort of bank ballence where they could lend the banks/financial institutions money, a warehouse full of stock to sell as the retailers order it & a loyal customer base that buys quality products that have a very low failure rate.

 

I do understand how business works, have run a sucessful company in the service sector & now have a smaller one with a mail order side. The principles are the same but the amount of zero's vary. Any (simple) idea's ?

Some of the simplistic answers -

1. The newcomers are smaller and much closer to their markets so go for what the market wants.  Put that decision making in the wrong place in a larger company and ignore retailer and sales rep feedback you could very easily be in trouble.

2. Outsourcing sounds great until you have to keep on paying for it - such as giving distribution to a warehousing and logistics company then ending up being over-stocked in expensive warehousing or selling your former (factory/)office site and then renting it back.

3. Having a managerial and admin team which is far too big, and consequently expensive, for the sort of markets you are trying to serve compared with your competitors doesn't help keep your costs down or enable you to quickly respond to market needs.

4. Poor marketing decisions mean you don't make the right things or sell them at competitive prices which means you lose sales income.

5. Poor marketing decisions mean you end up with unsold stock - which costs you money in several different ways.

6. Slide out of profitability due to poor decision making and you are on a rocky road to borrowing money to keep your business afloat - which further increases your costs.

7. If your total sales don't even keep pace with inflation but all your costs do increase with inflation your losses will carry on.

 

Now apply all of these fairly simple rules to Hornby PLC.  

 

But single elements don't necessarily make the overall result poor.   Interestingly not so long back Bachmann Europe's employment costs per head per £1 of revenue were higher than Hornby's.  But the company was profitable so Bachmann were clearly getting some other things right which kept them in profit.

[GrumpyPenguin]

28 minutes ago, The Stationmaster said:

Some of the simplistic answers -

1. The newcomers are smaller and much closer to their markets so go for what the market wants.  Put that decision making in the wrong place in a larger company and ignore retailer and sales rep feedback you could very easily be in trouble.

2. Outsourcing sounds great until you have to keep on paying for it - such as giving distribution to a warehousing and logistics company then ending up being over-stocked in expensive warehousing or selling your former (factory/)office site and then renting it back.

3. Having a managerial and admin team which is far too big, and consequently expensive, for the sort of markets you are trying to serve compared with your competitors doesn't help keep your costs down or enable you to quickly respond to market needs.

4. Poor marketing decisions mean you don't make the right things or sell them at competitive prices which means you lose sales income.

5. Poor marketing decisions mean you end up with unsold stock - which costs you money in several different ways.

6. Slide out of profitability due to poor decision making and you are on a rocky road to borrowing money to keep your business afloat - which further increases your costs.

7. If your total sales don't even keep pace with inflation but all your costs do increase with inflation your losses will carry on.

 

Now apply all of these fairly simple rules to Hornby PLC.  

 

But single elements don't necessarily make the overall result poor.   Interestingly not so long back Bachmann Europe's employment costs per head per £1 of revenue were higher than Hornby's.  But the company was profitable so Bachmann were clearly getting some other things right which kept them in profit.

Good points Mike.

 

I'm begining to wonder if part of the problems are servicing the shareholders.

Over the years I have dealt with a number of plc's (probably up to or near the size of Hornby plc) who have "gone public" to raise funds for expansion & when they move into profit start to buy back the shares (& they were astute enoungh to retain controlling interest).

 

At the end of the day it seems to me that the "tennants" of a certain building at Westwood (whoever they actually are this week) go from finacial crisis to crisis like a wheel that never stops (unless the crackpin fall off).

[MidlandRed]

4 hours ago, The Stationmaster said:

AsI said previously a lot oif the ability to sell what's in the mountain ……..

You seem to be continuing and restating an assumption that the £20 million of ‘stock in hand’ is sitting in a Hornby warehouse somewhere unsold. 

 

As discussed a page or so back, in reality it could, for instance, be made up partially of varying levels of stock paid for but still in final transit (and judging by various flyers received from TMS etc in the last couple of days there is a lot of stock in transit, presumably delayed by the Red Sea issues).

 

Hornby is, of course, in somewhat different market areas than the likes of Rapido and Accurascale, although they do compete in the hi fidelity (in terms of accuracy) locomotive and rolling stock market - that ‘hi fidelity’ market seems to suffer less from the cost of living crisis in terms of the demographic having disposable income (probably because it’s skewed sharply towards the ‘retired gentleman’ demographic (with apologies to any retired or other ladies 😀). 

 

Edited April 28 by MidlandRed

[woodenhead]

6 minutes ago, MidlandRed said:

You seem to be continuing and restating an assumption that the £20 million of ‘stock in hand’ is sitting in a Hornby warehouse somewhere unsold.

 

It's still a significant wadge of stock - even if it is a moving beast of ins and outs it still represents a large amount of assets sat in a warehouse.  Really Hornby want to produce something, have it delivered and pretty quickly disseminated from the warehouse to customers and retailers not have it gathering dust in someone else's warehouse because they are paying for that space.  The longer an asset is sitting in a rented/outsourced warehouse the more of it's value is being eaten up in storage costs and thus the potential margin of selling the item being lost to overheads.

[MidlandRed]

2 minutes ago, woodenhead said:

It's still a significant wadge of stock - even if it is a moving beast of ins and outs it still represents a large amount of assets sat in a warehouse.  Really Hornby want to produce something, have it delivered and pretty quickly disseminated from the warehouse to customers and retailers not have it gathering dust in someone else's warehouse because they are paying for that space.  The longer an asset is sitting in a rented/outsourced warehouse the more of it's value is being eaten up in storage costs and thus the potential margin of selling the item being lost to overheads.

It certainly could do dependent on what the stock in hand is and how skewed the cycle of transit, sale and delivery is. However I suspect the Red Sea issue, which is affecting many other industries and also competitors (unless their orders have been pre paid) has not been something anyone could predict. 

[woodenhead]

8 minutes ago, MidlandRed said:

It certainly could do dependent on what the stock in hand is and how skewed the cycle of transit, sale and delivery is. However I suspect the Red Sea issue, which is affecting many other industries and also competitors (unless their orders have been pre paid) has not been something anyone could predict. 

The red sea issue might delay stock in transit, but once in the warehouse it's Hornby's responsibility to get it out as quickly as possible.  Without knowing what it is they have that they have not sold it's difficult to understand if this is SteamPunk, Beatles or some other tat they ordered but cannot shift, and maybe not all related to model trains.

[Gallows-Bait]

2 hours ago, MidlandRed said:

You seem to be continuing and restating an assumption that the £20 million of ‘stock in hand’ is sitting in a Hornby warehouse somewhere unsold. 

 

This is because the evidence indicates that for the most part, it is.

 

In March 2023 they had £21m in stock.

In September 2023 they had £23m in stock.

In March 2024 they had £20m in stock.

 

 Up until 2018 they averaged 20-22% off turnover as a stock level, a consistent business metric for nearly two decades. The last 2 years is been nearly double that. This isn’t a one off blip.

 

 It’s also consistent with the fact that Hornby have taken out a bank loan specifically for the purposes of buying stock and also consistent with the admission that they massively overcalled their sales targets for 2023 (also not coincidentally roughly by the amount of money they borrowed for stock).

 

 It’s also consistent with their declared intention to bring stock levels back down.

 

 We’re not making guesses here, there are clear patterns in the financial statements that are consistent with Hornby’s own comments and actions that confirm stock is a problem right now.

[Gridiron]

Just to reiterate, the Suez/Cape delays would usually only add about 14 days to the transit time so I suspect this "excuse" is not a major part of the overstocking. It could be that they have stock held in warehouses in several locations in China which has been purchased on exworks terms and is awaiting shipment which has been paid for. Much depends on the number of factories and the location that Hornby have contracted the manufacturing process too.  This is because a supplier in one Chinese province may only have customs approval to ship from a nearby local port rather than transporting the shipments to a single hub, so they could be waiting for the supplier or other suppliers in the same customs zone providing sufficient volume to fill a container load. They could still of course ship the goods as less than a container shipment but this does come with dangers for high value stock.

 

Hornby are not the only one's who over estimated their stock requirements in 2022 for delivery in 2023 as many other industries followed a similar pattern which link back to the Covid pandemic in March 2020. When the lockdowns occurred the logistics industry globally was struggling to cope with delivering urgently required stocks of PPE etc. Ships from China became full overnight, with no passenger traffic, airfreight was restricted to freighter aircraft  only, hence why some passenger aircraft had their seating ripped out rather than have them standing idle. Sea and airfreight costs rose sharply so much so that some low value consumer commodities like plastic garden furniture etc became uneconomic to ship so the orders were put on hold, but consumer demand boomed as a result of governments in the west pumping in huge amounts of money into their economies to sustain industries and jobs. This madness continued throughout 2020 and 2021 but China continued with the lock downs as part of the Chinese Government zero tolerance of cases of the infection which resulted in delays to production of orders and huge backlogs of orders placed by buyers around the world.

 

What I suspect may explain part of Hornby's overstocking problem, like many other companies globally  is that following the sales "boom" of 2020/2021 Hornby planned more new products and commissioned more stock based for 2022 and 2023 on the perceived demand and  shareholders anticipation that sales and profits would automatically increase. Unfortunately, like most of rest of the world they never took into consideration that the Chinese lockdowns would continue until January 2023 and that Russia would invade Ukraine in February 2022 causing a global energy and cost of living crisis which signalled a huge decrease in consumer demand during the second half of 2022 and into 2023.  The problem for Hornby would have been that their entire product range is branded for them, so production runs are at their bequest and probably would require an element of pre-financing by the manufacturers extending lead times even further than the usual norms and the consequential additional costs to the balance sheet.  This Times newspaper article provides further evidence of the time line.    The end of Chinese lockdowns and the reopening of trade

[moawkwrd]

I imagine the large stock balance includes a sizeable chunk of staple items that sell modest volumes reliably, otherwise if it was old Steampunk and other unsellable stuff it would’ve been written down, possibly to less than cost, if their accountants are doing their jobs properly.

 

Does anyone know if items of track and scenic materials go out of stock regularly? I imagine they don’t (TT:120 stuff excepted). That would run across the Airfix and Scalextric ranges too.

[Michael Hodgson]

We just don't know what this stock is, or even which of the group's brands.

For all we know it might be a million diecast Sinclair C5's !

[adb968008]

3 minutes ago, Michael Hodgson said:

We just don't know what this stock is, or even which of the group's brands.

For all we know it might be a million diecast Sinclair C5's !

i blame it on the mugs…

 

Far too many

[JohnR]

9 minutes ago, adb968008 said:

i blame it on the mugs…

 

Far too many

 

I prefer those mugs to the current design #justsaying

[adb968008]

17 minutes ago, JohnR said:

 

I prefer those mugs to the current design #justsaying

There is a range of mugs..

 

Corgi, Scalextrix, Airfix and a Tin one for TT120.

we digress.

 

 

Edited April 29 by adb968008

[Michael Hodgson]

43 minutes ago, adb968008 said:

i blame it on the mugs…

 

Far too many

 

Yes, the mugs who had been buying Hornby are now buying from the new entrants to the market!

[The Stationmaster]

19 hours ago, MidlandRed said:

You seem to be continuing and restating an assumption that the £20 million of ‘stock in hand’ is sitting in a Hornby warehouse somewhere unsold. 

 

As discussed a page or so back, in reality it could, for instance, be made up partially of varying levels of stock paid for but still in final transit (and judging by various flyers received from TMS etc in the last couple of days there is a lot of stock in transit, presumably delayed by the Red Sea issues).

 

Hornby is, of course, in somewhat different market areas than the likes of Rapido and Accurascale, although they do compete in the hi fidelity (in terms of accuracy) locomotive and rolling stock market - that ‘hi fidelity’ market seems to suffer less from the cost of living crisis in terms of the demographic having disposable income (probably because it’s skewed sharply towards the ‘retired gentleman’ demographic (with apologies to any retired or other ladies 😀). 

 

I simply quote what Hornby themselves have said.  In last year's accounts the amount, in excess of £20 million was noted as being a result of over-ordering/not selling product into the Christmas market.  But the figure had been high  before then although it had increased massively.

 

We know that some of it is much older stock as that is easy to see from what has been banged out at reduced prices to retailers and can be seen from their adverts and stock levels.  We also know to some extent what is currently in the model railway pipelinge from China and it might be possible from ads to do the same for the other major brands.  And we know the cost of the mountain has been reduced by £3 million since last year.

 

By looking at retailers' web sites it's easy to work out what has been bought in at vastly reduced price and is being sold at substantial discount (more than 50% off rrp in some cases) and a lot of it is stuff which was first put into the market 3 or more years ago although some of it is more recent.   I would lay good money that c. 75%, or more, of the current mountain is stuff actually unsold products sitting in their logistic company''s warehouse although that means they have more than £5million's worth of it paid for ex-factory but not yet in UK warehouse stock.   You also need to take into account what they are continually trying to get retailers to buy when they place their orders which indicates that it too has been sitting on the shelves for a long while.

 

Hornby could, if they care to readily identify stuff not yet arrived in the UK from stuff already sitting here unsold (which might sense from a cashflow viewpoint but would also sound some alatm bells.

[The Stationmaster]

23 hours ago, GrumpyPenguin said:

Good points Mike.

 

I'm begining to wonder if part of the problems are servicing the shareholders.

Over the years I have dealt with a number of plc's (probably up to or near the size of Hornby plc) who have "gone public" to raise funds for expansion & when they move into profit start to buy back the shares (& they were astute enoungh to retain controlling interest).

 

At the end of the day it seems to me that the "tennants" of a certain building at Westwood (whoever they actually are this week) go from finacial crisis to crisis like a wheel that never stops (unless the crackpin fall off).

One interesting thing in their AGM resolutions is that they again passed at the most recent AGM resolutions allowing them to buy back their own shares.   However they didn't take the plunge when it would have made most sense to do so with the price down at c.15-16p instead of its current (to me inflated) level of twice that.  

 

But of course in reality control of the shareholdings, and hence the company, is in concentrated in a limited number of hands with Phoenix still holding a tad over 70%.  So it really boils down to what Phoenix/their Jersey based offshoot decide to do, or not do.   Thus the small shareholders in reality having no voting power at all (and another resolution at the last AGM also effectively made that clear by giving the Directors the power to shed what amount to brands without reference to shareholders).

 

And yes - since they dropped out of profit they have gone from one financial crisis to a continuing re-run of the same crisis.   Sales have not kept pace with inflation but costs have generally kept pace with inflation, albeit up & down due to various management actions, so whatever else they do the face a continuing hole in that respect and that means borrowing (or the alternatives).

 

And of course the big advantage if them remaining fully public is that they have to produce detailed accounts.

[Legend]

2 hours ago, adb968008 said:

i blame it on the mugs…

 

Far too many

it’s a wonder the handle hasn’t fallen off