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One-third of Haynes’ (LSE:HYNS) revenue comes from a nicely profitable online information service for professional mechanics. Turnover in this business, HaynesPro, has doubled in eight years to about £8m, after rising by a very impressive 29% last year.
Furthermore, in the Report and Accounts just published the directors say that the 2016/17 year has started very well for the professional side of its business, with “strong first quarter trading”, so further profit gains can be expected.
It is the market leader in many European countries, with a duopoly in the UK and close to monopoly in other countries (e.g. 90% of the German market), with 40,000 customers, consisting of both independent auto repair shops and manufacturers of diagnostic equipment. Of the five major vehicle diagnostic equipment groups, three select HaynesPro as the preferred supplier.
Its customers are subscribers rather than outright buyers, thus there is an ongoing source of income and some degree of customer captivity, i.e. mechanics’ familiarity with the HaynesPro system, combined with natural human inertia, mitigate against switching to competitors’ offerings.
It offers data on 19,000 vehicles in 25 languages with over 1,000,000 data requests per day, helping with:
•maintenance and repair methods;
•tracing and fixing electronic faults;
•links to component codes;
•ordering the right parts;
•job cost estimates;
•comfort wiring diagrams.
There are 90,000 drawings on the system to help mechanics deal with a bewildering array of vehicles.
HaynesPro makes an operating profit of at least £1.5m, occupying more than half of the Group’s 236 employees. It is set to take on more staff, while the older paper-based manuals business sheds people.
To put HaynesPro profit in perspective: the Group’s market capitalisation is £19m, at a share price of £1.25.
(Previous Newsletters for Haynes: 11th – 19th Feb 2015, 8th – 12th Oct 2015, 29th Oct 2015, 4th – 9th Feb 2016, 18th May 2016)
(I bought at £1.159 in February 2015 and have received 15p in dividends, if you count next month’s 4p)
Some data
While the professional division has enjoyed impressive revenue growth, UK printed manuals (paper plus online resources) have fallen over five years – see table.
Whereas in 2012 UK mechanical enthusiasts bought over £7m of manuals, in the year to May 2016 less than £5m were sold. In fact, UK manual sales have halved in a decade.
The fall of manual sales in America over the decade is also worrying, from £15.2m to £11m. But, the decline is most dramatic for Australia with sales volumes only 44% of what they were five years ago.
With volume falls of this magnitude you can understand why investors have abandoned Haynes, pushing the share from over £4 to only £1.25. The sellers do not see a future for a business that expensively strips down a car, writes a manual and then tries to interest DIYers in buying it, when they could access information from the web for free, or get the local garage to work on the ever more complex repairs and maintenance jobs.
Revenue and operating profits
| Revenue £000s | 2016 | 2015 | 2014 | 2013 | 2012 |
| United Kingdom (mostly printed consumer manuals) | 4,918 | 4,741 | 5,950 | 6,808 | 7,415 |
| Rest of Europe (mostly Professional, “HaynesPro”) | 7,971 | 6,700 | 6,591 | 6,106 | 5,918 |
| USA (manuals) | 11,021 | 11,963 | 12,685 | 11,164 | 12,888 |
| Australasia (manuals) | 1,093 |
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