Hornby Trading Statement

[Littlethorpe]

RNS Number : 0052G

Hornby PLC

25 January 2010

 

Hornby Plc ("Hornby" or "the Company")

 

Interim Management Statement and Trading Update

 

Hornby is an international hobby products group, whose brand portfolio includes Hornby, Scalextric, Electrotren, Lima, Jouef, Rivarossi. Airfix, Humbrol and Corgi. The Company is today issuing its regular update on trading and Interim Management Statement for the period from 1st October 2009 to date, which includes the important Christmas and January period.

 

Business performance

 

In the interim report on the first half of the financial year to 30 September 2009, we indicated that some of our UK retail customers had been cautious in taking in inventory. We are pleased to report that, driven by high consumer demand for our products, this situation improved significantly in the pre-Christmas period, resulting in a high level of shipments. In addition, following good consumer sell-through, our retailers have ended the year with stocks at historically low levels. We are delighted that the appeal of our products remains strong. Demand has continued to be good in the early weeks of January and we are experiencing a correspondingly high level of order intake.

 

In mainland Europe, demand continued to be strong prior to Christmas and with a good pipeline of new introductions, we expect to finish the financial year with sales and profits significantly ahead of the previous year. This positive performance demonstrates once again the benefits of our geographic and product diversification.

 

The positive contribution and growth potential of our European businesses have provided welcome support to the Group during the recent economic downturn. The underlying resilience of all sectors of our Hobby business has been proven once again. Increased overall exposure to Euro denominated markets has helped to mitigate the effects of the weakness of Sterling against the US Dollar, the currency in which most of our purchases are made. Looking forward, as our purchases are now being made at more favourable Dollar exchange rates, we expect to see a steady recovery in our margin performance in the UK.

 

Trading continues to be in line with market expectations and cash generation during the period has been strong. Net debt as at 31st December was ??10.5 million (30th September 2009 ??14.7 million, 31st December 2008 ??14.3 million).

 

Supply chain

 

We are pleased to report continuing improvements in the reliability of our supply chain. We have continued to maintain a close focus on the relationship with our principal supplier in China, which is now benefitting from significant capacity and volume increases. At the same time, as reported previously, we have diversified our supply base to reduce our overall exposure to an individual major supplier. We therefore look forward with renewed confidence in respect of our ability to service the growing demand for our products, particularly in Continental Europe.

 

Outlook

 

As we enter the annual round of global toy and hobby trade fairs, we are well positioned to increase our sales in all the markets in which we operate.

 

We have developed more competitive products to provide increased value for money to our customers and the Airfix, Humbrol and Corgi brands added in recent years continue to show encouraging growth. We expect to continue to build on this in the future.

 

We have continued to seek appropriate licences to develop new product ranges and these have performed well. Scalextric product associated with BBC Worldwide's Top Gear, Disney/Pixar's Cars and the Formula 1 Grand Prix teams have been among our best sellers. For 2010 we have secured licences with Disney/Pixar for our Hornby and Micro Scalextric brands inspired by the forthcoming Summer 2010 release of Toy Story 3.

 

We have also launched the first products in the range associated with the London 2012 Olympic Games. Market feedback has been positive. We have a programme in place to release the complete range of Olympic merchandise in the run up to the Games.

 

With the major supply chain issues now under control, we look forward to the future with confidence.

 

Chairman, Neil Johnson commented:

 

" We have entered 2010 in a strong position. Sales were encouraging in the important pre Christmas period and indeed in the early weeks of 2010. This should ensure a positive final quarter to the financial year as retailers replenish their stocks. Our ranges for 2010 are focussed on value for money and impressive licenses which will continue to drive consumer interest in our products.

 

" The progress that has been made in resolving the previous supply chain issues, coupled with a more favourable Dollar/Sterling exchange rate will stand the Company in good stead during the next financial year. We are excited about the future prospects for the company and I look forward to updating investors on future progress. "

 

-ends -

 

Date: 25th January 2010

[spamcan61]

"We are pleased to report that, driven by high consumer demand for our products, this situation improved significantly in the pre-Christmas period, resulting in a high level of shipments."

 

Presumably because that's when all the new releases turned up....

[34theletterbetweenB&D]

Look at the sentence immediately ahead of that: "In the interim report on the first half of the financial year to 30 September 2009, we indicated that some of our UK retail customers had been cautious in taking in inventory. We are pleased to report that, driven by high consumer demand for our products, this situation improved significantly in the pre-Christmas period, resulting in a high level of shipments."

 

What is being described there is Just In Time (JIT) 'pull' supply: in other words they don't manufacture until sufficient retailer orders are received to take the majority of whaever constitutes the minimum economical production batch. Very different from the old way, of a factory churning away all year producing inventory which went unsold for months or years, resulting in capital tied up in unsold stock. The aim now is to receive the retailer payments as close as possible to the due date for the manufacturing contractor's bill.

[The Stationmaster]

Interesting too to see the comments on the 'improving supply chain' etc - which I think means that it still isn't quite right but is getting there. Overall tho' it is very encouraging especially the amount of debt reduction that has taken place (= more money/cash flow to invest in meeting customer demand and product development ).

[John M Upton]

In all this I am still mystified as to what the Toy Story 3 range could be with regards to model railways. Lego have done some Toy Story 3 models though but I really cannot see what Hornby could do, certainly not with existing moulds as they have nothing American except the really ancient Triang rubbish like the Budd RDC railcar.

 

Also I would rather they concentrated the usage of valuable production slots on catching up with the backlog of their mainstream ranges rather than diversifing into such franchise tie in's. The logic I can easily see with F1 and Scalextric of course but not the railway side.

[Pinkmouse]

lso I would rather they concentrated the usage of valuable production slots on catching up with the backlog of their mainstream ranges rather than diversifing into such franchise tie in's.

 

So, you don't want Hornby to a: Encourage young children into the hobby, b: Make money from the sales of franchise material to support production and research into your "accurate" models?

 

[John M Upton]

So, you don't want Hornby to a: Encourage young children into the hobby, b: Make money from the sales of franchise material to support production and research into your "accurate" models?

 

Heh, heh!! Knew that would be the response almost word for word!! If they have plenty of spare production capacity now available then fair enough but I just start to worry when established companies start to take on franchise marketing deals and diversifying away from their core bread and butter.

 

I can already predict that the truly awful Olympic graffiti dealer stock white Javelin sets will be hitting the bargain bins sooner rather than later.

 

It happened to Corgi who apart from beginning to pump out more die cast buses than the market could handle (as a result the bus die cast market dramatically collapsed, still amazed EFE managed to survive that disaster) also ventured off into other ranges that were far from their core market, most of which still remains unsold to this day years later and saw Corgi go down like a sack of spuds with a concrete parachute. I just hope lessons have been learned...

[spamcan61]

Look at the sentence immediately ahead of that: "In the interim report on the first half of the financial year to 30 September 2009, we indicated that some of our UK retail customers had been cautious in taking in inventory. We are pleased to report that, driven by high consumer demand for our products, this situation improved significantly in the pre-Christmas period, resulting in a high level of shipments."

 

What is being described there is Just In Time (JIT) 'pull' supply: in other words they don't manufacture until sufficient retailer orders are received to take the majority of whaever constitutes the minimum economical production batch. Very different from the old way, of a factory churning away all year producing inventory which went unsold for months or years, resulting in capital tied up in unsold stock. The aim now is to receive the retailer payments as close as possible to the due date for the manufacturing contractor's bill.

 

It would be interesting to see how close Hornby can operate to a 'pull' system with single batch manufacture by a subbie in China, I can't see how it could be considered a JIT sytem, the whole point of which is to have small, frequent batches of product,the opposite of Hornby's 'one batch and that's yer lot' operational mode these days. when I worked for a leading mobile phone manufacturer the aim was always to receive revenue from the sale of the finished phone before the piece parts had been paid for.

[craigwelsh]

Heh, heh!! Knew that would be the response almost word for word!! If they have plenty of spare production capacity now available then fair enough but I just start to worry when established companies start to take on franchise marketing deals and diversifying away from their core bread and butter.

 

I can already predict that the truly awful Olympic graffiti dealer stock white Javelin sets will be hitting the bargain bins sooner rather than later.

Its worth pointing out that a franchise involving a little blue tank engine really helped Hornby survive the 80s...

 

The ability to buy lots of other companies was probably helped by Harry Potter quite a bit recently too!

 

I can't think of a period since Thomas that Hornby hasn't had a franchise tie-in of some type.

 

As for production capacity that is hardly in Hornby's hands unless they are paying Kader more than others for priority service.

[Ron Ron Ron]

....I would rather they concentrated the usage of valuable production slots on catching up with the backlog of their mainstream ranges rather than diversifing into such franchise tie in's.....

....but I just start to worry when established companies start to take on franchise marketing deals and diversifying away from their core bread and butter.....

Its worth pointing out that a franchise involving a little blue tank engine really helped Hornby survive the 80s...

The ability to buy lots of other companies was probably helped by Harry Potter quite a bit recently too!...

As Craig says, those franchises provided a much needed boost to Hornby's income, particularly the Harry Potter series in the early/mid noughties.

 

 

So, you don't want Hornby to a: Encourage young children into the hobby, ....

With all due respect. Sales of toy trains to children has very little to do with the model railway hobby.

Most of those train sets will be discarded within weeks, months or a year or so. That's the nature of toys in the modern disposable world.

Hardly any of the children who get them will take up the hobby later on.

 

The second point that it all helps fund Hornby's efforts elsewhere (at least where it counts for us) is a more reasonable point which I totally agree with. :icon_thumbsup2:

 

.

[Ozexpatriate]

In all this I am still mystified as to what the Toy Story 3 range could be with regards to model railways.

 

Also I would rather they concentrated the usage of valuable production slots on catching up with the backlog of their mainstream ranges rather than diversifing into such franchise tie in's. The logic I can easily see with F1 and Scalextric of course but not the railway side.

 

I would presume that any prospective Toy Story 3 product is Scalextric or Corgi related (like the RC car). Unless of course there's a toy train character in the new movie. Based on a little web scouring, Mr. Pricklepants (Timothy Dalton) is not a toy train.

 

The value of the franchise tie-ins is clearly to pick up a quick profit. I would rather see a profitable Hornby that can balance a toy/model portfolio than an unprofitable model-only supplier. Clearly good management decisions are important not to get carried away on the toy side. Margins there are very slim.

[Ozexpatriate]

As Craig says, those franchises provided a much needed boost to Hornby's income, particularly the Harry Potter series in the early/mid noughties.

 

With all due respect. Sales of toy trains to children has very little to do with the model railway hobby.

Most of those train sets will be discarded within weeks, months or a year or so. That's the nature of toys in the modern disposable world.

Hardly any of the children who get them will take up the hobby later on.

 

The second point that it all helps fund Hornby's efforts elsewhere (at least where it counts for us) is a more reasonable point which I totally agree with. :icon_thumbsup2:

Sales of toy trains to children can have a material effect on the model railway hobby, if the volumes are sufficient, which is I think, what you are saying in your last sentence. Lower cost of goods sold using fully amortized tooling can result in higher profitablity which when combined with higher cost, lower volume specialist/enthusiast items still results in a profitable company.