Hornby Trading Results

[spamcan61]

I cannot recall the last time I paid RRP for a Hornby item?

 

Most general toy shops and a few model shops I've been in (once) charge RRP but in the age of the internet shopper it's a fairly academic number I admit. Of course a high RRP gives more scope for those loadsa% off RRP 'sales'.

[bmg]

Three or so years after joining Hornby, Frank Martin was being credited with putting Hornby back on track. By 2004 net profitability and EPS were looking very good. This weekend the news reports were mixed. That trend started a couple of years ago. In the last 2 years the Model Rail - RMWeb poll saw Bachmann increasing its lead over Hornby in the annual manufacturer of the year awards.

 

Profitability is now at a very low level. Just compare 2004, 2005, 2006 and 2007 when it was consistently over 16%. It is now nearlyhalf that level.

 

Are too many last minute rabbits being pulled out of hats in an attempt to placate analysts and shareholders? Quantum of Solace, Lewis Hamilton/JensonButton and Toy Story 3 are a few examples. Now we have Star Wars. What next? Ireally hope the Olympics come good for them. We’ll soon know.

 

I like to look behind the headlines and think about the consequences for me as a modeller. I detect a company that must increase margins by increasing or maintaining their prices for new items because they cannot cut the manufacturing costs (at least in the short term).

 

In simple words I wonder how anyone can say that the business is “in great shapeâ€. I’d like to learn more.

 

 

[The Stationmaster]

Three or so years after joining Hornby, Frank Martin was being credited with putting Hornby back on track. By 2004 net profitability and EPS were looking very good. This weekend the news reports were mixed. That trend started a couple of years ago. In the last 2 years the Model Rail - RMWeb poll saw Bachmann increasing its lead over Hornby in the annual manufacturer of the year awards.

 

Profitability is now at a very low level. Just compare 2004, 2005, 2006 and 2007 when it was consistently over 16%. It is now nearlyhalf that level.

 

Are too many last minute rabbits being pulled out of hats in an attempt to placate analysts and shareholders? Quantum of Solace, Lewis Hamilton/JensonButton and Toy Story 3 are a few examples. Now we have Star Wars. What next? Ireally hope the Olympics come good for them. We’ll soon know.

 

I like to look behind the headlines and think about the consequences for me as a modeller. I detect a company that must increase margins by increasing or maintaining their prices for new items because they cannot cut the manufacturing costs (at least in the short term).

 

In simple words I wonder how anyone can say that the business is “in great shapeâ€. I’d like to learn more.

 

 

 

The statement is aimed at The City and shareholders (and probably their bankers) - all they have to do is hope they don't look too far beyond official statements from the company. Mind you it's dead easy to be an armchair Managing Director - what would any of us do if we were running the company?

[Legend]

I don't get to viist model shops as often as I would like but whenever I do I see piles of Hornby branded boxes. But then I read that supply chain issues and the cold winter held back performance. Is it that peple stopped buying. No. Turnover dropped by only 1%.

 

The following statement from the Daily Mail made me wonder: "The firm, which was founded as Meccano by Frank Hornby in 1907, saw profits fall to £4.1million from £5.2million for the year to March 31, on sales down 1 per cent to £63.4million. It maintained a total dividend of 5p a share". Read more: http://www.dailymail...l#ixzz1OU4IoR3U

 

Turnover fell by 1% yet profits fell by 20%

 

By any measure a 20% slump against a small drop in turnover is not good. But why did this happen?.

 

It must mean that the newer items (which were held back by snow and delivery problems) are sold at much higher margins. Herein lies a problem for Hornby. Is their future profitability dependent upon pushing prices ever higher? If so, at what point does the bubble burst?

 

I think maybe the bubble has burst already. Thats why they are expanding the Railroad segment ie the new Tornado which is clearly priced to compete. There will continue to be higher spec and priced models but I think there is now a realisation that the market for £140 models does have a ceiling in these cash strapped times!

 

So it looks like more railroad models = which is no bad thing. The trouble is that their marketing is hopelessly muddled with models such as the 156 and 59/66 which should be in the railroad range and could be actively marketed to todays train enthusiast, in the main range and being charged at higher prices . £80 for a 156? Also there's the example of the new chassis ex airfix 4F and compound coming in at £100rrp while brand new Bachmann 3F is substantially less. Need some sort of rational thinking applied to range I think.

[Pennine MC]

I cannot recall the last time I paid RRP for a Hornby item?

 

To add to Spam's reply, to simply suggest that few folk pay RRP misses the point. Comparisons are still relative, and relevant - a Hornby loco at 20% off is still going to be more expensive than its Bachmann equivalent at 20% off.

[Mr.S.corn78]

HI all,

 

i have been waiting for all this to come along after the begining of the year.

 

My take on the matter is a simple one........

 

Hornby put thier prices up too high in January and its now begining to have an effect.

 

I know there will be lots of reasons why the prices are as they are but i feel Hornby have started to price them selves out of the market.

 

cheers

Simon

[NickL2008]

Hornbys recent models have been a mixed bag, but there seems to be quality control issues as much that Ive noticed on thier models over the years.

 

An example of Hornby over charging: £127.99 for a DCC fitted model of 60033 in British Steel Blue ( http://www.Hornby.com/shop/new-releases/r3051-ews-co-co-diesel-electric-tees-steel-express-class-60/ ) I know not everyone here models Diesels, but £127 for a Hornby Class 60?! as much as I like them think ill pass, especially seeing as its not even DCC fitted, correct me if im wrong but surely an obsolete livery should comman such a high price?!

 

NL

[The Stationmaster]

To add to Spam's reply, to simply suggest that few folk pay RRP misses the point. Comparisons are still relative, and relevant - a Hornby loco at 20% off is still going to be more expensive than its Bachmann equivalent at 20% off.

 

Exactly so Ian - the box shifters, and some others, offer discounted retail prices to us and the discount is obviously based on some sort of starting point and what else could that be but RRP because that is what Hornby's 'trade discount' (i.e. wholesale price) to the retailer is based on. The retailer still has to make a profit if he is to stay in business so his level of discounting will be dependent on the efficiency of his operation and the volume of his sales - but whatever impact they might have he still has the same starting place - RRP.

[Trains4U]

I've had an idea to increase Hornby's profitability...

 

Stop supplying wholesalers.

 

Consider this. Dealers who buy direct pay a fixed trade price (this is the same, regardless of the dealer and the discount they offer)

 

The wholesaler must recieve their stock at a much lower price, as they can provide stock to their trade customers at the same trade price as Hornby. therefore Hornby makes much less profit on those items.

 

 

The wholesaler then sells that stock on to anyone who wants to buy (Be it a shop that dabbles in railways to a website run from someones front room with no overheads)

 

This has three potential advantages.

 

(I'm basing this on the fact that Hornby will sell the same number of models as the demand will be the same across the board for their product)

 

Firstly, by denying the wholesaler, the traders with no overhead will have supply cut off - therefore helping to strengthen those businesses that maintain a physical presence, provide support and supply a broader range of items for railway modellers.

 

Secondly; The public will then have to buy their models from businesses that have the direct relationship with Hornby, who already pay the higher trade prices, therefore making greater profits for Hornby.

 

Thirdly; Hornby can then reflect on the price differential and take the opportunity to reduce the RRPs based upon economies of scale. Hornby will not need to charge as high a trade price as they will not have to offset the bulk discount to the wholesaler. The difference may not be huge, but it could be enough to drive additional profitability for Hornby, whilst potentially revitalising sales in the marketplace with reduced RRPs, resulting in further growth.

 

The same applies to all Hornby brands (Airfix, Scalextric and Corgi)

 

On the other hand, cutting off their biggest customer could result in a terminal shock to Hornby whilst the market re-adjusts...

 

 

One other thing Hornby need to do desperately is seriously reconsider the pricing of their accessories. Whilst these are a cash-cow, they could be made even more profitable.

 

These have been subject to the broad-brush price increase approach over several decades and we are now in a position where Hornby suggest selling a passing contact switch (With its origins in the 1950's) for nearly £10. this is grotesque pricing for an item that probably costs pennies to manufacture, and it makes me wonder every time a new price list is issued whether anyone at Hornby has actually realised this.

 

Why not sell them for a more reasonable price (Like £3.50) Still more expensive than a proprietary switch like those from Expo, but they would sell ten times as many, thereby making more profit.

 

We've sold about 15 R044 switches this year. if they were £3.50 each, we'd have sold hundreds...

 

The R044 is also probably one of a number of Hornby items where manufacture could be easily re-patriated, removing the cost of shipping and allowing for more consistent and controllable manufacture and supply.

[bmg]

Hi Gareth,

 

I agree completely. Hornby need to think wider.

 

Hornby are in that classic situation that many companies find themselves. Turnover is going up year on year but profits remain stagnant. This chart illustrates the point very well. The figures for 2011 and 2012 arethe Numis forecasts.

 

 

 

 

How they get out of it depends upon the capabilities of their management (or if they don't react then their new owners).

 

 

For us, as railway modellers, we can now see why their model rail prices are so high. The figures reveal that they expect turnover to increase in both 2011 and 2012. Most of this increase presumably comes from theOlympics effect.

 

However the figures also show us that net profits remain stagnant. I strongly suspect that the contribution to profits from the Olympic merchandising will be under strain. It is a very competitive market. If true, that means that the biggest contribution to profits must come from the UK railway sector. We know that the US is operating at a loss and that Europe is continuing to struggle.

 

Increasing turnover and diminishing profitability means that Hornby are in that unnerving territory where they are more exposed to sensitivities. As we saw last year, supply chain problems and bad weather slashed their profits by 20%.

 

Furthermore, although Hornby are finding additional suppliers, it is highly unlikely that they can reduce costs significantly. Not when viewedagainst the backdrop of generally rising material and transportation costs.They are between a rock and a hard place.

 

They cannot compete with Bachmann on price. Therefore Hornby are forced to exploit the only thing that is left….. Brand loyalty through retailers.

 

Unless they do something radical along the lines suggested by Gareth their sensitivities will only increase and brand loyalty will diminish.

 

[The Stationmaster]

According to a pal of mine whose shop I was in a couple of weeks back Hornby have stated, repeatedly, that they will only supply to customers who have a proper retail premises and he has actually reported several people who don't have such premises but are selling Hornby model railway products. It seems clear from Gareth's post that not only is there perhaps a loss of Hornby income by selling through wholesalers but the latter might be involved in supplying retailers who don't have proper premises. So maybe a first step would be to impose greater discipline on the wholesalers because not only are they in effect reducing Hornby's profitability but they are also, it seems, possibly supporting an area which is undermining bona fide retailers - who in many cases are offering a much wider level of products and support to our hobby?

 

There is of course a counter argument that wholesalers allow Hornby to reach a far wider range of (proper retail) outlets than might be economic with direct sales and that they might also serve to 'break bulk' - which helps to contain Hornby's operating costs.

 

Whichever viewpoint is nearer to the actuality is no doubt subject to considerable debate but I think we are increasingly seeing a situation where people without the overhead of proper retail premises are likely to be posing a threat to the business & viability of 'ordinary' retailers. And what Gareth has described might also account for the situation recently at one show in south east England where certain Hornby coaches were being sold at such a substantially lower price than Hornby's trade price that a retailer was tempted to buy in some stock via that route (by the time his informant got back to the show the cupboard was, not surprisingly, bare).

[Mike Bellamy]

According to a pal of mine whose shop I was in a couple of weeks back Hornby have stated, repeatedly, that they will only supply to customers who have a proper retail premises and he has actually reported several people who don't have such premises but are selling Hornby model railway products.

 

If you look at the bottom of this (very long) page from wholesalers A B Gee, they list a number of Hornby stockists who are 'Internet Only' and so they don't have the costs of maintaining retail premises.

 

http://www.abgee.co.uk/BrandDetail.aspx?BrandID=10

 

Mike

[Ozexpatriate]

There's been a lot of conversation about RRP in this thread and the 2011 new releases thread. This may well be Hornby's attempted answer to the issue highlighed above, where despite generally increasing revenues over several years (excepting FY2010), profitability is relatively flat.

 

In any case, the RRPs announced for 2011, didn't have had any material impact on the results for FY2010 in the announcement that triggered this thread - they reflected 2011 catalog items that weren't available before the financial year ended on March 31.

 

While internet-only wholesellers contribute to smaller margins (as do the 'brick & mortar' shop+internet box shifters many of us conduct business with) decreasing margins will be the result of broadening the sales channel by offering trainsets in non-hobby focused, one-stop shopping businesses. There seem to be a lot of non-catalogue trainsets developed particularly for this price-sensitive niche.

 

Having said that, currency fluctutations have probably hurt Hornby's margins more than any other factor in the past few years.

[darren01]

HI All

I don’t know if anyone else has heard about this about Hornby and the Margate factory, my father lives in Whitstable and told me about this; in the locale “Whitstable time†news paper, they had an article about the Hornby factory in Margate, Kent.

According to this article Hornby are planning to shut their factory and move to a new premises, in the article they said this was due to very poor profits over the last year or so.

I have asked my father to send me the news paper article so I can follow up with more info on this, any one else has any more info on this?

The big one Hornby are relaying on is all the stuff for the Olympics next year , if this fails for them and is a big flop ,where would this leave them?.

Darren

[Guest dilbert]

HI All

I don’t know if anyone else has heard about this about Hornby and the Margate factory, my father lives in Whitstable and told me about this; in the locale “Whitstable time†news paper, they had an article about the Hornby factory in Margate, Kent.

According to this article Hornby are planning to shut their factory and move to a new premises, in the article they said this was due to very poor profits over the last year or so.

I have asked my father to send me the news paper article so I can follow up with more info on this, any one else has any more info on this?

The big one Hornby are relaying on is all the stuff for the Olympics next year , if this fails for them and is a big flop ,where would this leave them?.

 

If Hornby are planning to close Margate, 'poor profits' will not be the unique reason for the decision, but a part of a wider strategy to address corporate profitability.

 

If Hornby's Olympic sales do not meet expectations then this will indicate that issues such as Supply Chain and currency exposure are still problematic. At this point in time, this doesn't really mean anything... dilbert

[spamcan61]

Given the Margate 'factory' is best part of 50 years old now and was designed as a production plant it wouldn't be a surprise if Hornby want to move to smaller, cheaper premises more suited to Hornby UK needs and hence to reduce overheads.

[The Stationmaster]

Given the Margate 'factory' is best part of 50 years old now and was designed as a production plant it wouldn't be a surprise if Hornby want to move to smaller, cheaper premises more suited to Hornby UK needs and hence to reduce overheads.

 

Hmm, a sort of, er, box shifting establishment. No - something in their current business plan doesn't quite match that description

[Ron Ron Ron]

Hmm, a sort of, er, box shifting establishment. No - something in their current business plan doesn't quite match that description

I'm not sure what you meant there Mike?

I've never been there or seen it, but from what I understand, Margate is just the HQ, offices and the UK warehouse for the company. In effect, company HQ plus a "Box shifting" establishment.

 

I've no idea what the conditions are like, but if it's all a bit dated that could be a reason why they'd like to move into more modern accommodation.....that's if the story has any foundation.

They may have outgrown the present office space, with their expanding portfolio and using a former production facility as a distribution centre may not be ideal.

 

 

 

 

[The Stationmaster]

I'm not sure what you meant there Mike?

I've never been there or seen it, but from what I understand, Margate is just the HQ, offices and the UK warehouse for the company. In effect, company HQ plus a "Box shifting" establishment.

 

I've no idea what the conditions are like, but if it's all a bit dated that could be a reason why they'd like to move into more modern accommodation.....that's if the story has any foundation.

They may have outgrown the present office space, with their expanding portfolio and using a former production facility as a distribution centre may not be ideal.

 

Basically I was wondering if it is going to be even more of a warehouse, and less of an HQ or potential production site etc, than the present site Ron. I can understand why they might be considering such a move as I believe the present main building dates from the 1950s and judging by what can be seen on Google Maps has a northlight roof which appears to be partly clothed with an asbestos like material and is also not well suited to loading large modern artic trailers while their newer building next door has the appearance of a much more modern warehouse style unit. It would strike me as sensible to move to a modern warehouse unit instead of a converted factory which might well be showing its age in rising maintenance costs - and as they no longer manufacture it could be a purpose designed 'box -shifting' building perhaps with some admin elsewhere?.

However I can't find anything on the 'net about an impending move so it might just be that the local 'paper has picked up a rumour or got the wrong end of some other story?

[Ozexpatriate]

Given that Hornby has invested in using some of their Margate space for the Hornby Visitor Centre it would seem that their first choice would not be to up and move elsewhere.

 

They have been located in Margate for many years. I imagine that they don't need most of the space in the current facility. Downsizing to smaller premises would make sense only if they were approached by a buyer who wants to use or lease out the existing space but this is idle speculation on my part.

[brushman47544]

Hmmmm...

 

Just received the latest Hornby email newsletter and it seems they have purchased the rights to a new children's cartoon series "Olly The Little White Van".

 

The series starts on ITV1 on 26 June, with a range of toys available from Spring 2012. So if its a complete flop and the series ends before the toys arrive, Hornby will have lots of money tied up in stock nobody wants as Bachmann did with Underground Ernie which was flogged off cheaply.

 

There's clearly money to be made if its a success but as with the Olympics and Toy Story 3, getting products into the shops on time is essential. Let's hope they succeed, for them and the longevity of the Hornby brand for model railways.

 

It does seem to me further indication that Hornby are looking to expand in the toy market and rely less on the traditional model trains, cars (corgi & scalextric) and aeroplanes (airfix).

[Ron Ron Ron]

Just received the latest Hornby email newsletter and it seems they have purchased the rights to a new children's cartoon series "Olly The Little White Van".

This was also mentioned in the Trading results report, along with a mention about the licence to produce themed toys based on "Cars2"

 

We also have high hopes for our products associated with the new Disney/Pixar movie "Cars2" and have also secured the exclusive worldwide Master Toy licence rights to a new children's animated TV series 'Olly the Little White Van' which will soon be launched on ITV.

 

 

We have recently been successful in securing exclusive worldwide Master Toy licence rights to a new children's animated TV series "Olly the Little White Van". "Olly" will commence transmission in June 2011 on Children's ITV. 52 episodes are planned and International sales of the TV series are well in hand. We will launch our first "Olly" ranges at toy fairs in the early part of 2012, for delivery in the Spring of that year. The "Olly" ranges will cover pre-school vehicles and playsets, Corgi die cast vehicles, Micro Scalextric and Hornby sets and radio controlled vehicles. From our own observation and research conducted into the "Olly" proposition we are confident that this development will help to underpin incremental sales growth over the coming years.

 

 

[John M Upton]

My first reaction to the 'Olly the White Van' news was 'ITV? Oh dear...' as they have not had a decent export sucess for years, the only shows they sold worldwide were all ones they have since killed off!! I don't hold up any hopes for anything that has ITV attached to it I am afraid.

 

My second reactiosn was 'Oh no, not another potential delay to core market model railway items' as we all know that production slots are limited and I can't help thinking, no matter if true or not that long awaited (and indeed long delayed) new models are going to be further shoved back in the queue for production as Olly and co takes priority.

 

At the rate things are going the annual limited edition wagon for this year won't be with us until next year I fear!!

[Ozexpatriate]

It does seem to me further indication that Hornby are looking to expand in the toy market and rely less on the traditional model trains, cars (corgi & scalextric) and aeroplanes (airfix).

There's no question about the trend to toys and tie-ins: movies, the 2012 Olympics, etc. (I suspect they just want Airfix to hold it's own.) The real question is, can they compete in the "toy" market at their pricepoint, rather than the "collectible" and "hobby" market.

 

This was also mentioned in the Trading results report, along with a mention about the licence to produce themed toys based on "Cars2"

Cars 2 was released at the movies (at least in the US) this weekend. It will likely be the number one movie for at least the opening weekend. Where are the Scalextric Lightning McQueen models? The best they can do is send you an email when the toys become available.

 

Here in the US, the box market "Target" is advertising itself as something like 'the home for Cars 2 toys' in a TV ad blitz. So, if Hornby is serious about winning toy sales that tie in to movies they absolutely MUST be on the shelves the day the movies open. This is the way the other toy sellers promote movie tie-in toys.

 

Hornby also failed to do this with Toy Story 3. They don't have an adequate supply chain for these massive global roll-outs. They released the Toy Story 3 train before Christmas to tie in with the DVD and I think this strategy backfired for them.

 

Like it or not, we Railways past-loving anachronists live in a world with a short attention span. I'm not sure Hornby "gets" this reality.

[craigwelsh]

Like it or not, we Railways past-loving anachronists live in a world with a short attention span. I'm not sure Hornby "get's" this reality.

I don't think even railway modellers want the shelf full of 'Merry Christmas 2010' Hornby wagons that Modelzone still have on the shelf though .

 

I agree with your point though and those Toy Story 3 sets were still there on the shelf today as well.