Hornby autumn profit alert

[The Stationmaster]

 

For me Hornby's troubles stem more from a senior management that doesn't seem to apreciate what Hornby (and Corgi, Aifix, etc) are actually good at - producing quality models. Diversions into TV / movie tie inns, or fury Japanease monsters only waste capital and divert attention away from where its needed. Hornby will never be able to take on the likes of Matell or even Tesco in the toys for kids segment of the market where quantity and geting stock in place at the right time are important and accuracy and detail are not, and the board should have the sense to realise this.

 

I think you're quite right Phil but I do wonder if - in order to survive independently - Hornby Group faced the alternative of expand and widen their product/market or simply give up or perhaps remain reliant on a relatively narrow, maybe fickle even, product range? All companies as the develop go through a series of tipping points where size, capitalisation, market penetration etc come into play and I wonder if Hornby had reached (or more likely had been taken to) one such tipping point and had limited choice about how to go forward.

 

The problem is that having, seemingly, made the choice to go forward and expand into what they presumably saw as the next league up, they appear to have made some very poor marketing and product range decisions which have led directly to their present overall situation.

[Ozexpatriate]

The problem is that having, seemingly, made the choice to go forward and expand into what they presumably saw as the next league up, they appear to have made some very poor marketing and product range decisions which have led directly to their present overall situation.

They had no choice but try to move forward.

 

Being a publically owned company, Hornby face the constant pressure of delivering value to their shareholders - either by increased share price or by dividend.

 

Their preference is to pay a dividend - when they can profitably do so. All public companies face this pressure.

 

Their recent attempts at diversification (taken after their acquisitions) including London 2012 merchandizing, Disney/Pixar merchandizing, Moshi Monsters, etc, are all an attempt to increase revenues (and therefore deliver value to their shareholders) despite the pressure on their core business caused by the on-going saga of supply chain problems.

 

The biggest problem with such diversification is that it is outside the core competence of the company - in this case, railways and slot cars.

 

Now that they have a serious profitablity issue, they need to cut their losses in non-core business areas. They are doing their best to dump inventory - their website is offering steep discounts on a lot of material.

 

A lot of people complained about the pricing for the London 1908 and London 1948 sets. These are now being offered on their website at a discount from RRP of £34 and £55 respectively. (They're still not cheap but pricing is a bit more in line.) I can say that the paint job on the London 1908 set is very nice.

 

I wish them good luck. The next six months will be very rough for them.

[Western Scottish]

There is some really good discussion on here on the way forward . However we don't need to reinvent the wheel. The reason the company has made a loss is down to two management failures.

 

1. Decision to go for Olympic market. Clearly demand was going to be ahead and during the Olympics. You had to get demand correct or you would be left with stock that was worthless after the games. This was a high risk strategy .You could argue that the assessment of demand was going to be so problematical that they shouldnt have entered this market in the first place. Big gamble!

 

2. Continuing lack of manufacturing facilities. This has been going on for too long. Management have just not got to grips with this . I understand now they forecast it won't be finally resolved until April 2014. Incredible! Had they been able to deliver on their range turnover and profit would have been up

 

I'm afraid to me the answer is simple.....change the management.

[phil-b259]

I think you're quite right Phil but I do wonder if - in order to survive independently - Hornby Group faced the alternative of expand and widen their product/market or simply give up or perhaps remain reliant on a relatively narrow, maybe fickle even, product range? All companies as the develop go through a series of tipping points where size, capitalisation, market penetration etc come into play and I wonder if Hornby had reached (or more likely had been taken to) one such tipping point and had limited choice about how to go forward.

 

The problem is that having, seemingly, made the choice to go forward and expand into what they presumably saw as the next league up, they appear to have made some very poor marketing and product range decisions which have led directly to their present overall situation.

 

Very true and It doesn't help that shareholders are getting restless, something which we should not be supprised at I suppose.

 

(British shareholders have never understood the concept of 'long term' investments and demand ever increasing dividends over short timescales - something that drives companies to make unwise decisions in the hunt for immediate increase in profits - rather than settle back and acept a rather more modest reward over a longer timeframe. Many British companies have been bought down because of this demand for instant profits and Hornby could well be a vitctim if they are not carefull.

 

I supose the ideal solution is for Hornby to end up as something bigger, in the way that Bachmann is only a small part of Kadder industries. That way conerns about shareholder value and suchlike are to an extent diluted and it also means Hornby per say doesn't have to worry about going into areas which are not its core competance - the parent company does that through the other interests it holds.

[The Stationmaster]

 

(British shareholders have never understood the concept of 'long term' investments and demand ever increasing dividends over short timescales - something that drives companies to make unwise decisions in the hunt for immediate increase in profits - rather than settle back and acept a rather more modest reward over a longer timeframe. Many British companies have been bought down because of this demand for instant profits and Hornby could well be a vitctim if they are not carefull.

 

I supose the ideal solution is for Hornby to end up as something bigger, in the way that Bachmann is only a small part of Kadder industries. That way conerns about shareholder value and suchlike are to an extent diluted and it also means Hornby per say doesn't have to worry about going into areas which are not its core competance - the parent company does that through the other interests it holds.

 

This is exactly the 'tipping point' situation of course although I'm not sure where it lies in the case of Hornby and you may well be right, I think, that as a company it is not yet big enough (but in some respects it is also too big, but in the wrong places).

 

The interesting thing so far is that the shareholders aren't yet looking for scalps - new Chairman maybe but the retirement of the present one was announced a while back so the only thing there is the 'who' of his replacement. But - strangely in my view - the eternal optimist Frank Martin is still there despite some disastrous strategic decisions over the past 18 months - 2 years; maybe they can't think of anyone who'd do any better?

[robmcg]

The gentleman who runs Dapol would maybe be a replacement for Frank Martin....

 

(sorry, couldn't help myself there)

[RJS1977]

Just thinking .... when I was a lad, one of the "must have" trainsets was the HST, though admittedly it was rather low on play value (you couldn't shunt with it, for example!). However, as the HST is still very much with us I'm surprised there isn't still an "old style" HST trainset in the Hornby range, nor as a Railroad item. I know to some extent it will have been usurped by the Javelin and the Pendolino, but these are limited to a couple of routes, whereas the HST covers a much greater geographical area. (If I was to take a Pendolino or Javelin model to my Boys' Brigade group, I don't think many of the Boys would be able to identify it, but if I took an HST along, most of them probably would).

 

As a Railroad item, it would almost certainly be more relevant to youngsters today than the 9F, County or even the Class 31.

Is this another "trick" Hornby are missing?

[RJS1977]

 

For me Hornby's troubles stem more from a senior management that doesn't seem to apreciate what Hornby (and Corgi, Aifix, etc) are actually good at - producing quality models. Diversions into TV / movie tie inns, or fury Japanease monsters only waste capital and divert attention away from where its needed. Hornby will never be able to take on the likes of Matell or even Tesco in the toys for kids segment of the market where quantity and geting stock in place at the right time are important and accuracy and detail are not, and the board should have the sense to realise this.

 

Depends on your definition of "toys for kids". Agreed, Hornby shouldn't be wasting money on cuddly toy monsters, but it is absolutely vital - not just for Hornby, but for the hobby as a whole - that they continue to have/regain a position in the "toys" market for trainsets or affordable models and likewise for Scalextric, Airfix etc, otherwise in 30-40 years time, the collectors market may well have dried up! Trainsets, as opposed to film/TV tie-ins, don't need to be released "on time" (other than in time for Christmas!) - just look at the Caley Pug and 101 - still the backbone of the "toy" range 30 years after I was given a 101 for my birthday!

 

I'm sure there's more Hornby could do to satisfy both markets at the same time. For example, a basic industrial loco (like a Bagnall or Barclay fireless loco or small diesel shunter) could be a potential new "train set" or "train set expansion" loco, but at the same time would appeal to modellers as it would be the only one of its type available RTR. Likewise, I think Corgi should look at producing more modern cars in 1:76 scale at a similar price to Cararama/Oxford Diecast - there's currently a large gap in the market for "ordinary cars" (i.e. not BMWs or 4 x 4s) built since about 1980, but it's the Mondeos, Galaxies, Yarises etc that modern youngsters are familiar with - and of course they'd be snapped up by modern image modellers too.

[frobisher]

I think one issue is that it is hard to do a cut down to trainset size HST that looks right whereas a short Pendo or Jav do. Hornby's MK3s now being scale length rather than the shorties of the 80's doesn't help either.

 

A larger issue may be that the HST doesn't have a current iconic livery as it once had. The Pendo and Jav currently do.

 

The Railroad range isn't about attracting people to the hobby to my mind but maintaining them when they've arrived through a cheap set of upgrade options which aren't necessarily connected to their first purchase (a train set in all likelyhood).

[DriverBob]

The hobby problems are complex - including lack of UK manufacturing of trains and a general appreciation of engineering. The Class 66, Pendolinos, Javelins and IEP aren't "our" British designs. I'd also suggest the end of loco-hauled passenger trains hasn't helped either - if people complained that diesels didn't have the same personality as steam locos, then how can kids get excited about a class 3XX EMU etc ?