Hornby turns the corner

[Mel_H]

This announcement was made to the Stock Exchange this morning. The timing and type of announcement is routine for a listed PLC. The good news is that Hornby's financial position has recovered and it's going to post its first profit for thee years (albeit a modest one), which is positive. Please remember that this announcement covers all of Hornby's activities, not just model railways. I only post it for readers' interests, not with the intention of re-starting the 'Bachmann-is-better-than-Hornby' and 'I know how Hornby should make itself better' debates! (please don't flame me either).

 

 Trading Update and Board Change 

 

Hornby Plc, the international models and collectibles Group, is today updating shareholders on trading for the period from 1 January 2015 to the end of our financial year, 31 March 2015.

 

Business Performance 

 

The Group has traded in line with the Board's expectations in the last quarter and has delivered significantly improved sales growth during the period, against a particularly weak quarter this time last year. As a result, the year as a whole is now expected to show sales growth of 13% both for the Group and the UK business. We are pleased that this has allowed the investment in the business turnaround to continue at the same time as returning to an underlying profit in the region of £1.5m, which is in line with market expectations. This will be the first year for three years that Hornby has delivered a pre-tax profit.

 

Net debt at the end of March 2015 is now expected to be around £7.5m compared to £7.9m at the end of December 2014 and £7.3m at 31 March 2014. 

 

Board Change

 

Nick Stone has informed the Board of his intention to leave the Group to pursue other opportunities and will leave his role of Group Finance Director later in the year. A search process for a replacement has commenced and an update will provided in due course.

 

Outlook

 

The move from the Group's UK old headquarters in Margate to the Discovery Park in Sandwich has now started and is expected to be complete by the end of May 2015. The work on the Group's reorganization is continuing and plans are now developed for the next phase that incorporates the rationalization of the European warehouses and management structures for implementation later this year. Discussions are also underway with the group's main bankers for the renewal of facilities as part of the consideration of funding options for this investment. This work is expected to be completed in time for the release of the results for the year ended 31 March 2015 in the middle of June this year. 

 

Richard Ames, Hornby Chief Executive Officer said,

 

" I would like to thank Nick for his contribution during this phase of the group's recovery.  A search has started for his successor and Nick will be involved in the process to ensure a smooth handover. Meanwhile, the business is in good shape as we continue to make encouraging progress with our strategy to drive Hornby's recovery."

 

Nick Stone, said,

 

" Much has been achieved since I joined Hornby.  The company has made great strides in its strategy to re-position the business for growth and I am pleased to have been part of the process as I now move on to other things."

[woodenhead]

Is that sales growth a result of it's aggressive move into direct sales over the internet and discounting or because it has brought new product to market.

 

Whilst it is good to see Hornby back in the black, it needs to sustain this growth without damaging it's other routes to the market.

[micklner]

It would indicate (on a earlier post) re share buying has been a good decision for that buyer, a take over before long perhaps ? A even bigger shake up at that point ?

[woodenhead]

Would depend what the investor wants out of it.

 

At the moment Hornby needs stability to get itself into a good shape, it's just turned the corner last thing it needs is a shake up.

[Legend]

Isn't it as simple as they had something to sell this year, having suffered a famine in manufacturing resources over the last 5 or 6 years.

Sort out the supply chain and they will make money.Simples!

[jjb1970]

Hornby have been making solid progress on most fronts. Product quality has rebounded and although there are still concerns with silly errors the momentum is very positive. Product is flowing and the supply chain is seemingly working well again. They have a very positive new release program and whilst their efforts to develop a direct sales model are somewhat controversial here I suspect it will be seen as a smart move in future times. After a torrid few years it really is nice to see Hornby topics being positive and upbeat again, long may it continue. The funniest part is that after all that time being pilloried for dreadful comms it would appear that now Hornby are actually setting a standard for open communication and letting customers see now models being progressed.

[The Lurker]

How funny - I grew up in the same village as Nick Stone (departing FD) and went to the same secondary school (a few years behind him). Our parents were/are friends.

 

I even trained with the same accountancy firm - which is when I last bumped into him, some time in the late 80s.

 

I never knew he was at Hornby!

 

EDIT - just to add I won't be following him as FD in a few years' time

[tamperman36]

Actually having some product to sell must go a long way but they cant afford to ease of now, keep working at getting the supplies over here and getting them out to retailers. The more product on the market the better choice for customers and more possible sales. The idea of design clether could also cut production costs so well done

 

Now can we see some rtr track plant please?

[dibber25]

Hornby have been making solid progress on most fronts. Product quality has rebounded and although there are still concerns with silly errors the momentum is very positive. Product is flowing and the supply chain is seemingly working well again. They have a very positive new release program and whilst their efforts to develop a direct sales model are somewhat controversial here I suspect it will be seen as a smart move in future times. After a torrid few years it really is nice to see Hornby topics being positive and upbeat again, long may it continue. The funniest part is that after all that time being pilloried for dreadful comms it would appear that now Hornby are actually setting a standard for open communication and letting customers see now models being progressed.

Most of the 'silly errors' will not bother most of Hornby's core market.

CHRIS LEIGH

[jjb1970]

An error only matters if you notice it, that is true in anything really. I have lots of things that I suspect contain errors but I enjoy them in happy ignorance.

[34theletterbetweenB&D]

It would indicate (on a earlier post) re share buying has been a good decision for that buyer, a take over before long perhaps?...

Doubt it. Unwise to attempt to take control of a business unless you have the relevant expertise, and generally I don't think anyone in the same field has enough of a war chest to try it. The investor is looking for proven competence in management, and the current team appear to be on track.

 

... after all that time being pilloried for dreadful comms it would appear that now Hornby are actually setting a standard for open communication and letting customers see now models being progressed.

There's some sort of 4-6-0 steamroller featured today. I expect it will ring bells for some. This communication flow is looking pretty decent.

 

Despite all the concerns about the retail chain, I can only speak about the bricks and mortar based retailer I see regularly; and he is very positive about Hornby. Not least that there is a supply of desireable product available to sell, and more coming.

[Igor]

Only 5 short years then, at that rate, to clear the debt! Lol.

[lapford34102]

Only 5 short years then, at that rate, to clear the debt!

Been hearing that line a lot recently.....!

 

OK,OK, I'm going off to the naughty corner

 

Stu

[Ronny]

Excellent news!!!

[Mike at C&M]

There was a huge amount of aggressive marketing on many different fronts in the run up to their financial year end, which will have resulted in the upturn in the quarterly figures. A huge amount of stock was cleared out at much reduced prices, and I am surprised that their net debt is not substantially reduced as a result of this. One figure that will prove interesting when the detailed accounts emerge will be their stock in hand figure, will this have dropped by as large an amount as their debts? There is certainly a big reduction in the number of different items available.

 

The full version of the final accounts will make interesting reading in their detail.

[Ozexpatriate]

Most of the 'silly errors' will not bother most of Hornby's core market.

Chris, that depends on who the 'core market' really is. (While I agree that it's probably not vocal RMwebbers, I don't think it's train sets anymore.) Poor quality will be an issue with the whole market.

 

I am still waiting for a detailed GWR 4-6-0 that has all its bits attached correctly with no visibly obvious issues*. The last three had visible issues with chimneys, hand rails and bits that fell off in the box.

 

* I'm not talking about the number of spokes or moulded shelves simulating hand-rails.

[The Stationmaster]

There was a huge amount of aggressive marketing on many different fronts in the run up to their financial year end, which will have resulted in the upturn in the quarterly figures. A huge amount of stock was cleared out at much reduced prices, and I am surprised that their net debt is not substantially reduced as a result of this. One figure that will prove interesting when the detailed accounts emerge will be their stock in hand figure, will this have dropped by as large an amount a their debts? There is certainly a big reduction in the number of different items available.

 

The full version of the final accounts will make interesting reading in their detail.

Agree, and note that on a year-on-year basis there has been a small increase in their nett debt.  That would seem to make sense in view of the amount of product they have been getting out of China over the past few months as they have obviously had to pay for it, which means they pay out before they get a return from selling the stuff (certainly as far as model railways are concerned, probably similar for other things made in China as well I presume).

 

What would have been worrying after all their aggressive selling between end November and end March would have been a failure to show an increase in sales but it looks like that policy worked.  the interesting question then arises of the margin they have been achieving - that too normally comes out in the full report.  So, as you say, there is definitely going to be some interesting reading in the full report but it is good they have some positive news to report in their trading statement.

[Ozexpatriate]

Excellent news!!!

Yes, but ...

 

The full version of the final accounts will make interesting reading in their detail.

It will make interesting reading.

 

One figure that will prove interesting when the detailed accounts emerge will be their stock in hand figure, will this have dropped by as large an amount as their debts? There is certainly a big reduction in the number of different items available.

Having a low inventory is positive from a balance sheet standpoint. It does them no good to have inventory and is far better counted as revenue, but I understand where you are coming from.

 

I see Hornby as turning the corner, which is positive for them and for us.

 

Returning to pre-tax profitability is excellent news. It does not mean that once all their one-time write-downs for the move, ERP systems etc, have been fully accounted that they will be profitable post-tax. We need to see the final report for that. Nor are they yet making significant progress on their debt.

 

Nonetheless, this is an important milestone for them.

[Ozexpatriate]

Agree, and note that on a year-on-year basis there has been a small increase in their nett debt.

Yes, and very notable that they took pains to list their quarterly debt levels. This directly relates (as you indicate) to how they are financing their business on credit, rather than money in the bank.

[Multiple identity account]

Good to see this....

[jjb1970]

I agree that this is turning rather than turned but nevertheless coming in the context of a lot of positive indicators it is welcome and shows the momentum is in the right direction.

[Clearwater]

Quite. You need to see the full figures to understand the fuller picture.

 

Whilst Hornby have improved their customer communications, their shareholder / investor communications appear poor. Other companies I look at, professionally I'm in corporate finance, put detailed presentations on their websites explaining the company's business model, trading and so forth. I appreciate they are a relatively small company but I think they're missing an opportunity here

 

They are a well known brand - I suspect that many of those who are prepared to buy full great gathering sets also invest in shares. However, the investor comms doesn't give you enough to work on to consider investing in Hornby's shares

[Oldddudders]

Quite. You need to see the full figures to understand the fuller picture.

 

Whilst Hornby have improved their customer communications, their shareholder / investor communications appear poor. Other companies I look at, professionally I'm in corporate finance, put detailed presentations on their websites explaining the company's business model, trading and so forth. I appreciate they are a relatively small company but I think they're missing an opportunity here

 

They are a well known brand - I suspect that many of those who are prepared to buy full great gathering sets also invest in shares. However, the investor comms doesn't give you enough to work on to consider investing in Hornby's shares

Perhaps this will be one of the objectives of the next FD?

[Clearwater]

It should be!

[Gwiwer]

On the face of it there is light at the end of a particularly long and troublesome tunnel.

 

The full figures are yet to be seen by Joe Public and some of us are yet to be entirely convinced of the New Order being sustained.  

 

Review comments about inconsistent shades and quality of Humbrol paints as one example.  From a personal point of view Humbrol weathering powders are an unmitigated disaster and I don't like their acrylic paint much either.

 

Supply chain problems take a long lead-time to fix and we do have some quality product now arriving on the shelves.  Unless you want something Hornby are only prepared to sell direct.  On the other hand there seems to still be a glut of perfectly good SR 2-car electric units (as one example) meaning we can obtain them at about the cost of two Barwell Mk1 coaches, get a decent motor thrown in and the loss is probably split between retailer and Hornby.

 

Hornby is a "name" and it would have been a significant loss had it gone under.  There is no saying it won't in future of course but it would have shaken the entire industry had it vacated the premises instead of just moving down the road from Margate to Sandwich.  Hornby argued that was necessary but it must have cost them dear.  At what point does one cut ones' losses?  I'm no accountant and the chap who probably made that decision is now leaving.  It's possible, though nothing has been said, that the two are connected.

 

I do hope we can look forward to reliable, consistent and high quality Red Box products supplied in a reasonable time and quantity in the future.  I'm afraid the damage has been done here and I remain sceptical for now.  One swallow doesn't make a summer.  One good report doesn't make an upturn.  Prove me wrong.  Please.