Hornby makes Interim Management Statement 30/1/13

[Mel_H]

For those who are interested, Hornby issued its Interim Management Statement (IMS) to the London Stock Exchange this morning, when the market opened at 0700hrs. The full text is below, but in short it's saying that things are on course (finance-wise) and that the 'troublesome' Chinese supplier is now tamed and now supplies a much smaller proportion of Hornby's range.

 

The City reacted positively to the news, and shares jumped by 5% after the announcement and were trading at 79p each, compared with their 58.25p low in September 2012.

 

This announcement (IMS) is routine for listed companies, and part of the regular reporting process to the city that listed companies make, in accordance with a set timetable.

 

Mel

 

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Interim Management Statement and Board Changes

 

Hornby Plc, the international models and collectibles group, is today updating shareholders on trading for the period from 1 October 2012 to date, which includes the important Christmas and January period.

 

Business Performance 

 

Whilst the issues highlighted in the Interim Report have continued to impact the business, the actions taken to mitigate their effects have also continued to yield success. The supplier causing disruption to our model railway supplies is now expected to contribute less than 15% of total production in 2013. This is from a historical peak of 75% and 35% earlier in 2012. Equally, the remaining London 2012 merchandise has been discounted and the majority has now been sold. Despite general weakness in demand, sales of the Corgi and Airfix brands have held up well and shown positive year on year growth.

Although Group sales for the financial year to date remain below the same period last year, they are consistent with our expectations at the time of the Interim Report. The Company therefore continues to expect that underlying pre-tax profits in respect of the year to 31 March 2013 will be in line with current market expectations.

Net debt as at 31 December 2012 was £3.0 million, an improvement of £5.5 million from last year (30 September 2012 £6.5 million, 31 December 2011 £8.5 million). The Group continues to operate within its banking covenants, which were revised to provide more operational flexibility in December 2012. 

Outlook

The Board remains confident in the Group's strategy. We recognise that trading conditions in the UK and the rest of Europe continue to be challenging for the foreseeable future. This may constrain sales of our higher ticket Hornby and Scalextric items. However particularly in continental Europe, demand for our model railway products continues to be strong and improvements in the supply chain should result in improved sales performance. Progress in the last year in the Corgi and Airfix brands has been encouraging. We have also continued to take steps to broaden our portfolio of products, resulting in lower average price points.

At the London Toy Fair last week, we showcased our major product introductions for 2013. Our new category initiatives for 2013 include:

·    The launch of the Quickbuild concept across both Airfix and Scalextric brands. This new development leverages our recognized skills in authentic model making and slot racing and also encourages creative play. We were delighted that the Scalextric Quickbuild Demolition Derby set was awarded the Editor's Choice Award as the best new Toy at the London Toy Fair. This was decided by more than 300 broadcast, national, consumer and trade journalists who highlighted their favourite toys from the show.

 

·    Hornby E- Link - a revolutionary way to link a model railway layout with a home computer.

·    The launch of a Railmaster app, allowing the user to control a complex model railway layout via iPad and Android tablets and mobile phones.

·    Further extension of our Corgi Toys range, including a recent extension of our successful Eddie Stobart license to cover pocket money collectibles.

·    The launch of a new range of collectible Corgi cars based on Formula 1 teams. The first products to launch will feature the Lotus and McLaren teams.

 

Board Changes

It has been previously announced that the current Chairman, Neil Johnson is to retire from the Board on 1 February 2013. On that date Roger Canham who was appointed to the Board on 6 November 2012 will succeed Neil as Chairman. In addition, Nick Stone will be appointed to the Board on that date as Group Finance Director in succession to Andrew Morris who will leave the Group for his new role during February.

Hornby will announce its preliminary results for the year ended 31 March 2013 in early June.

 

Incoming Chairman, Roger Canham commented:

'I would like to thank Neil for his contribution to the business and look forward to consolidating the transformation that the business has undergone during his tenure.  I am confident that as I take over the chair, we are on the way to dealing with the headwinds highlighted in previous trading statements, not least the supply chain challenges. I visited our suppliers in China early in January and believe that the strategy being pursued by the business will result in a much more robust product pipeline as 2013 progresses. Despite weak consumer spending in our traditional markets, the continuing innovation amongst the core brands, such as the Quickbuild launch and Railmaster app, will place Hornby in a strong position compared to its peers in maintaining its relevance to the changing market dynamics.'

 

- ends -

 

 

[Oldddudders]

Good news. A strong Hornby means a strong UK hobby.

[Adams442T]

"We recognise that trading conditions in the UK and the rest of Europe continue to be challenging for the foreseeable future. This may constrain sales of our higher ticket Hornby and Scalextric items."

 

This, I guess, is the thinking behind 'design clever'.  I do hope this share rally isn't just the usual profit taking by money men and keeps up to enable Hornby to find a more stable future.

 

Though much of it is market rhetoric [i.e. 'flannel'] the reduction in reliance on their 'disruptive supplier' to 15% must be good news, along with the London Toy Fair award.  Which, from my past life in the 'Toy Game', I know usually brings substantual trade orders. 

 

At least we're not seeing the prospect of another British icon disappearing.  As Dudders says, "Good News"

[Ozexpatriate]

This:

The supplier causing disruption to our model railway supplies is now expected to contribute less than 15% of total production in 2013. This is from a historical peak of 75% and 35% earlier in 2012.

Is a very interesting statement. I wonder what measurement is used to compute this number?

 

I think we can triangulate that Kader/Sanda Kan is projected to represent 15% of supplies to Hornby PLC (which includes railways, Scalextric, Airfix, Corgi, Humbrol etc). It begs the question of what percentage this represents of model railway production.

 

Even if the 35% number is used as an approximate (perhaps slightly low) benchmark for model railway content, we could conclude that Sanda Kan will supply no more than 42% of Hornby's model railway products in 2013 and is evidence that their efforts to use a second source are now making a material difference.

[Ozexpatriate]

"We recognise that trading conditions in the UK and the rest of Europe continue to be challenging for the foreseeable future. This may constrain sales of our higher ticket Hornby and Scalextric items."

 

This, I guess, is the thinking behind 'design clever'.

Yes, but I suspect that the ability of the second source to build models at the right price point for Hornby's volumes is a big influence on the 'need' for 'design clever'.

 

I am making a wild guess, but perhaps the new items identified as being 'design clever' are being manufactured by what was the second source (and presumably the primary source moving forward).

[Xerces Fobe2]

Good to see Hornby's performance improving. I think the 2BIL will be a good seller and with the possibility of more livery variations in the future which I hope will help provide a stable base for Hornby to build on.

 

XF

 

 

[The Stationmaster]

This:Is a very interesting statement. I wonder what measurement is used to compute this number?

 

I think we can triangulate that Kader/Sanda Kan is projected to represent 15% of supplies to Hornby PLC (which includes railways, Scalextric, Airfix, Corgi, Humbrol etc). It begs the question of what percentage this represents of model railway production.

 

Even if the 35% number is used as an approximate (perhaps slightly low) benchmark for model railway content, we could conclude that Sanda Kan will supply no more than 42% of Hornby's model railway products in 2013 and is evidence that their efforts to use a second source are now making a material difference.

Yes - this very same question has passed through my mind.  What percentage of what, and is it based on items or value?  In sheer percentage terms it is fairly meaningless apart from indicating that the past major supplier will no longer hold that position.

 

Of course what we don't know (but hopefully Hornby do) is what quality of workmanship etc we can expect from their new/greatly increased supplier(s)?  It s clear that their are other very capable model railway manufacturers in China - I have seen it reported that Dapol for example use three different factories and they seem to get some very good product (and sometimes some not so good product - which might suggest a need to closely superintend some factories?).

 

Anyway whatever it is going to be we will no doubt have the results to hand to form our own opinions over the coming year.

[Ozexpatriate]

Of course what we don't know (but hopefully Hornby do) is what quality of workmanship etc we can expect from their new/greatly increased supplier(s)?

The 28xx and 2884 models came from the second source supplier and these are pretty nice. My guess is that the GWR 8-coupled tanks will too - once the current packaging/logistics issues are sorted. The pre-production photographs looked good.

 

I found it interesting that in his Rapido trains blog, Jason Shron specifically noted issues with packaging, so the notion that packaging can be a big issue for a supplier that is coming on stream is not far fetched.

[Ozexpatriate]

Yes - this very same question has passed through my mind.  What percentage of what, and is it based on items or value?  In sheer percentage terms it is fairly meaningless apart from indicating that the past major supplier will no longer hold that position.

In the context of a financial announcement the logical interpretation would be that the percentages are based on total cost to Hornby to fund production.

 

Of course we don't really know.

[Salopian]

Of course we don't really know.

 

As is so often the case.

[jwd]

However particularly in continental Europe, demand for our model railway products continues to be strong and improvements in the supply chain should result in improved sales performance.

 

"Demand on the continent is strong"  more so than here in Blighty?

 

could that mean in future the focus is away from British modelling......... ?

[DJM Dave]

Hi guys, it was my understanding that Sanda Kan closed September of last year.

Also that Hornby are sourced completely away from Kader now. (Note model railway products)

 

However a rumour coming out of Nuremburg ( not substantiated yet) is that Hornby have become masters of their own destiny and have their own factory now, although no one knows if its in China, but I suspect it is. If this proves to be the case it not only makes sense production wise, but also gives them stability which can only be good for everyone.

 

Cheers

Dave

[Ron Ron Ron]

"Demand on the continent is strong"  more so than here in Blighty?

 

could that mean in future the focus is away from British modelling......... ?

 

The original aim of the overseas and home based acquisitions was to diversify and spread the product portfolio over different markets and market sectors.

That would have provided both growth and resilience for the company.

As such, the "domestic" Hornby toy train business would naturally and intentionally become a smaller proportion of Hornby's overall activity.

That's not to say there'd be less focus on the UK train business, compared with other business areas.

 

Hornby's "continental" toy train business hasn't had the best of starts though and has struggled with the supply problems, probably more so than the UK based Hornby line, if the company reports have been interpreted correctly.

 

 

.

[Ravenser]

Hornby International is to a degree a "budget" brand on the Continent, and it would make sense if they were gaining against higher price competitors like Marklin/Trix, Fleischmann and Roco 

[Ron Ron Ron]

Hornby International is to a degree a "budget" brand on the Continent, and it would make sense if they were gaining against higher price competitors like Marklin/Trix, Fleischmann and Roco 

 

Don't forget there are a dozen or more other competitors that you haven't mentioned there, some of who have well established budget ranges in their respective markets.

[Bilbo]

If what Dapol Dave says is substantiated then it is very good news in my opinion.

[Ozexpatriate]

Hi guys, it was my understanding that Sanda Kan closed September of last year.

Also that Hornby are sourced completely away from Kader now. (Note model railway products)

That's interesting news Dave. The manufacturing services arm of Kader Holdings still have a web presence. (Not that that means anything of course.)

 

[Ron Ron Ron]

...... The manufacturing services arm of Kader Holdings still have a web presence. (Not that that means anything of course.)

 

 

Why wouldn't they?

They're a huge manufacturing concern supplying toys and models to dozens of brands, both in house and for other companies.

[Mel_H]

The 28xx and 2884 models came from the second source supplier and these are pretty nice. My guess is that the GWR 8-coupled tanks will too - once the current packaging/logistics issues are sorted. The pre-production photographs looked good.

 

I found it interesting that in his Rapido trains blog, Jason Shron specifically noted issues with packaging, so the notion that packaging can be a big issue for a supplier that is coming on stream is not far fetched.

 

This Rapido trains blog is fascinating for anyone who wants to know more about model production. Also, make sure you scroll down to the bottom where Jason puts some numbers in about the manufacturing costs - should anyone seriously believe that Hornby could ever return manufacturing to the UK (of models). Some US manufacturers tend to be much more candid about their production and 'lift the veil' on what goes on - which, as a customer, I also respect!

[The Stationmaster]

If there is anything of wider import (across the Hornby range) in what I was told today there might well be more to this item in the statement than immediately catches the eye -'We recognise that trading conditions in the UK and the rest of Europe continue to be challenging for the foreseeable future. This may constrain sales of our higher ticket Hornby and Scalextric items. However particularly in continental Europe, demand for our model railway products continues to be strong and improvements in the supply chain should result in improved sales performance.'  because what Hornby appear to be doing is restricting production to what amounts to not much more than 'special editions' or commissioned models.

 

I some respects this is economically sensible move as it means they stand a good chance - particularly with 'attractive' items such as the 2 BIL - of clearing their entire stock in pre-sales and having nothing left on their hands.  However the opposite side of the coin seems potentially to mean that retailers, even on pre-orders alone, will have outsold the production run of a particular, attractive, item.  Whether or not Hornby will do the same with Railroad versions of things such as, say, the P2 remains to be seen but more than ever not only does it say you can't even rely on a pre-order for a Hornby item but potentially those retailers who have put in good solid orders in good time might have their allocation reduced in order to supply someone else who is much larger in the retail trade and ordered late - after all the models had been sold.

 

I think the time is coming - or has arrived where - some clear statements from the trade are needed.  I can understand the idea of 'producing to order' but I personally consider it rather sharp practice - as far as end purchasers are concerned - to carry in your catalogue items which are not going to be produced in sufficient quantity to meet demand even when that demand is pre-ordered.  This is perhaps a symptom of an accountant led businessplan which is not sufficiently attuned to customer demand and aspirations as to be able to accurately gauge the market and is not prepared to take the risks which go with a more active approach to marketing.  These words no doubt  seem judgemental and harsh but it almost looks as if Hornby could well be seeing the more serious end of the model railway market as a low risk cash cow to make up for the results of appalling mismanagement and misunderstanding of the market elsewhere in the group over the past year or so.

 

Edited to add new final paragraph - Incidentally another thing which seems to be happening, certainly with the 2 BIL, is to offer items for direct sale through their own website a week or so before stocks are released to retailers.  In view of past statements by the company about selling directly or through their concessions it will be interesting to see how that latter fare compared with ordinary retailers?

[Ozexpatriate]

Some US manufacturers tend to be much more candid about their production and 'lift the veil' on what goes on - which, as a customer, I also respect!

To be fair, most US manufacturers aren't too public either, though their representatives may be happy to say things in person at train shows.

 

Also Jason Shron is happy to remind people that he and his company are Canadian.

 

You might also enjoy Rapido trains news 37 from last summer where Jason examines the production process in great detail. I found it very informative.

[Ozexpatriate]

I think the time is coming - or has arrived where - some clear statements from the trade are needed.  I can understand the idea of 'producing to order' but I personally consider it rather sharp practice - as far as end purchasers are concerned - to carry in your catalogue items which are not going to be produced in sufficient quantity to meet demand even when that demand is pre-ordered.

Mike,

 

I think we are there. The pendulum is swinging to 'producing to order'. I see it all the time in US practice and living where I do, pre-ordering is virtually a requirement for British outline too. (I forgot to pre-order the second round of GWR horseboxes (with "GW") and missed out. The 2BIL is being reported as 'sold out by Hornby'.)

 

This can be frustrating. Often, there is no way to tell what the final model will look like when the purchase decision is made. Purchasing becomes something of a 'trust us' situation and catalogue images become much more important.

 

Lead-times become wildly unpredictable when an accumulation of preorders becomes required before a manufacturer to commit to the project.

 

At one time Broadway Limited displayed a meter on their website for each item in their 'projected' catalogue that indicated whether a sufficent number of pre-orders were obtained for the project to start.

 

That same company is finally starting to supply product to an order I placed four years ago. Much of the delay to that order was a result of BLI having to find an alternative manufacturer than Sanda Kan.

[Ceptic]

Reading between the lines, here, and previously, it appears, to me, that Hornby have been caught by a broadside from, both, Sanda Kan and Kader, which, by all intents and purposes, were/are arms of Bachmann ..

 Hornby, it seems, sailed too close to the wind,   resulting in what they've / we've experienced.

 

 I'm glad to see they're cutting loose and organising their, own, independent factory.

 

I wish them well,...(The saga continues....)

[Mel_H]

To be fair, most US manufacturers aren't too public either, though their representatives may be happy to say things in person at train shows.

 

Also Jason Shron is happy to remind people that he and his company are Canadian.

 

You might also enjoy Rapido trains news 37 from last summer where Jason examines the production process in great detail. I found it very informative.

 

Canadian. Of course. That explains everything!

[Mel_H]

To be fair, most US manufacturers aren't too public either, though their representatives may be happy to say things in person at train shows.

 

Also Jason Shron is happy to remind people that he and his company are Canadian.

 

You might also enjoy Rapido trains news 37 from last summer where Jason examines the production process in great detail. I found it very informative.

I've just looked at issue no 36 too - http://www.rapidotrains.com/rapidonews36.html - which has a scary picture of the container ship its models were on, and more detail about the Kader effect at Sanda Kan, which I've not seen anywhere else.