Hornby Hobbies

[martin goodall]

For those who have not caught up with the news, Hornby Hobbies have issued another dire profits warning, which wiped a substantial amount off their share value yesterday.

The company is trying to put a favourable 'spin' on the situation, but financial journalists were writing yesterday about potential bankruptcy, and were predicting a possible default on loan repayments due next month. It seems that the survival of the company will depend on their bankers (Barclays) agreeing a further extension of their credit.

Reading between the lines, receivership or administration cannot be ruled out, and maybe a sale or split-up of the company.

This inevitably raises questions over the release of promised new models later this year.

Only time will tell what may happen, but the outlook for Hornby at the moment is unpromising.

[jim s-w]

ISTR they issue something like this every year. What's different this time?

[martin goodall]

Unfortunately, the stock market doesn't share this view, and the share price has continued to fall this morning.

There is a real possibility this time that Hornby will breach their banking covenants, and that would be a very serious development. Hornby will then be entirely at the mercy of Barclays, who will be free to break up the business, and sell off brands, intellectual property, tooling and other assets, either as a package or separately as their asset recovery team sees fit.

Barclays could agree, instead, to reschedule the company's debts, but would only do so if that seems to offer a greater chance of recovering more of the loan debt. This is a bank that has a reputation for 'pulling the plug' on ailing businesses, rather than waiting to see if they can be turned round.

This is not the first time there have been ructions in the toy industry. Hornby's various owners have been through the hoops several times over the years. The product range will probably re-emerge under a new owner, whether branded as 'Hornby' or some other name.

In the meantime, however, there is some considerable uncertainty about the company's corporate future, and there may be some disruption in supplies if the plug does get pulled on the current corporate set-up.

[dal-t]

While Martin's comments about Barclays are entirely apt, a closer look at the causes - and the extent - of Hornby's problems gives a slightly brighter picture. The main cause of downgrading their forecast is a one-off write-off, and disruption to the UK business by the installation of a new ERP (Enterprise Resource Planning) system. But work on this is supposedly now paying dividends (no pun intended!) for their European business. Sales in January were indeed down, but any number of factors could have driven that over such a short period (including possible re-alignment of buying patterns following the successful 'last chance to buy' initiatives, and changes in their supply chain introduced by the ERP itself). The markets are, of course, particulary nervous at the moment, in the run-up to a possible Gbrexit referendum, but hopefully Barclays (with whom Hornby say they have enjoyed a 'long and supportive relationship') will see the underlying strength of the business (hint: if you want to help, start buying stock!).

[mickeym]

I dont know what the price per share is as I type this, but I reckon if you want to help Hornby ( the train section) buying at under 28p would help....Especially if and when they are spun off from the main group....

It is a sad state of affairs, but hardly to be unexpected, despite the sayings of "Internet Soothsayers" who thought the new broom would have a clean sweep" - Be interesting to see how many of them now back track...

[Knuckles]

I'm speaking from nothing more than personal experience and collective opinion based on other forums I frequent but I can say I think it has a lot to due with their inflation.

Only 5 or so years ago I could get a then named 'Super Detail' Gresley A1 for between £70-90, sometimes cheaper if I dug hard enough. Then after a few years something happened and the same type and quality of models shot up to roughly £150 - £175. If you are really lucky you may be able to nab a new one for about £125.

Now I brought a few Pacifics to cut them up and do conversions (can show if you want) and I was happy to pay £70-90 a shot but at £150-175 - especially to cut up for a bash you can stoke your pipe and smoke it.

The Pug that for years and years was stable at £20 jumped to over £60.

Personal experience verdict?

I'm not buying them anymore as they are nearly all 2-3 times the cost they used to be. Might buy the odd one if you are lucky but whimsical "Ah go on then" impulse purchases are out the window. For low earners (me) they aren't cheap.

Now if you compare the modern prices to average costs of buying the bits and building a kit I have to concede it is still good value for money but kit prices have never to my mind been a datum to establish RTR prices as they are a different set of goods.


The other issue of course is computor games. Expensive console then only £20-50 a shot per game. Much easier, affordable, less stressfull, less effort and has a more modern image to most people. If I was a parent I'd guess this would be a better investment than model railways.

Disclaimer umbrella: All my opinion so feel free to disagree. Other than other people who agree with me who I conversed with I believe this is why Hornby may be having sale issues.

Oh yeah, Hornby Railroad Flying Scotsman A1 used to be £50 but it is up to around £90 now. Granted the tooling is way better but I thought the idea was to make them mega cheap.

Whatever happens it will be a shame if they get disbanded.

[DougN]

This is all interesting from the other side of the earth! I have watched the profit warnings year on year... expecting the next one about the same time next year too!

I think Knuckles has a point, I would say early last year the price jumped the 50% from what it once was. Strangely the actual amount that I have been paying over the last few years is staying relatively close. OK advantages are the Aussie dollar is high against the UKP. when I first started modelling in about 1990 a B1 was 40quid from replica. which was about 100AUD Now it is 49P to the AUD so I now buy the average loco for about $220AUD landed here. So taking account of inflation it is relatively similar if not actually cheaper. Generally economists use a doubling of price every 8 years. and from the above it has certainly dropped! (double and a bit in 26 years!) (Oh that makes me feel old...I was at school in 1990! )

The best time for me to buy things from the UK was about 4 years ago when it was 66p to the AUD

This might seem irrelevant to the issues that are befalling Hornby in the current financial situations and due to the current fluctuations in the currency markets the variability of pricing that all non manufacturing economies (UK, generally services, and Australia, digging holes for mining!) suffer from. We as the consumer are at the mercy of what the currencies do.

I just hope Barclays use common sense (OK it is not common) and allow the refinancing of the debt. Hornby has become a good player in the hobbies market and look to operate in a responsible way. Though this is from about 20,000Km's in Australia.

[Philip Hall]

From my point of view, a good Hornby (or Bachmann, or xxx) model is worth having and the current prices,although having risen a fair bit, are still quite reasonable in view of what you are getting. I can see that if you merely want the body of an engine, the value is not there, but for those who want to undertake a P4 conversion and save the time, the option is not too expensive. Indeed, I would go so far as to say that there is an argument that very detailed models are actually too cheap.

I think the problem is (as in so much of life these days) that the lowest price is always sought by the consumer, but that is not necessarily the best option for the profitability or long term survival of the business. I had a customer once who said he would be quite happy to pay twice the current price for a Hornby locomotive if the detail and refinement level was maintained. I'm not sure that quite that level of pricing would be needed, but it's an interesting point.

As far as supply is concerned, I took delivery of four Hornby BR Mk1 carriages the other day, they came in to the dealer promptly and one (which I was expecting to wait for) came in early!

Philip

[John Duffy]

Knuckles makes a fair point and for those of us with bad habits, the price increases have been a mixed blessing. The upward trajectory of prices has dramatically reduced my 00 buying - mostly of LNER Pacifics - and meant that I have done a bit more actual modelling, rather than just renumber, detail and weather. It doesn't though fully explain why this is only (seemingly) affecting one of the major manufacturers.

One thing that I have noticed about Hornby is that the build quality is not what it might be. The level of detail and finish is superb, yes, but I am referring to bits falling off, mis-manufactured chassis [I worked on a 9F for a friend that had a chassis the shape of a banana] and a general lack of quality assurance.

Much of this may be of little or no interest to S4 modellers who look down from their lofty towers and consider such discussion on this forum as heresy. However given that the cost of an RTR product is now easily in three figures, for a product that will, for the most part, be substantially re-built with the additional cost of wheels etc. perhaps we will see an upturn in the interest of well designed 4mm kits.

John

[dal-t]

I don't follow RTR prices closely, but I hadn't noticed Hornby's increases being quite that sharp recently - of course, for anyone with a memory like mine, '5 years or so ago' often turns out to actually be 15 years, and when you then run the price indexes through, an apparent hike turns out to be a real terms decrease! However, it is interesting that people noticed increases last year at about the time the ERP system was being implemented for the UK. That suggests improved cost information may have led to price revisions to avoid (inadvertently) selling at a loss - if you're selling below cost you really only want to do it deliberately! Incidentally, it is hardly likely to be Hornby Railways that is 'spun off' from the main group (Hornby Hobbies). The railway business remains, apparently, the powerhouse of the Group, so it is other parts that may or may not be 'spun off' - Airfix seem to be trading quite reasonably, (but the client base is still a bit battered from previous failures/sell-offs, from which Hornby was supposed to be the 'safe haven'). Don't know about Scalextric, Corgi or Pocher, perhaps others do? As for the 'European' railway brands (Rivarossi, Arnold, Jouef), they don't seem to have shown much of a resurgence since being acquired by Hornby, so I presume their fate would be tied to the UK railway business.

[jim s-w]

Much of this may be of little or no interest to S4 modellers who look down from their lofty towers and consider such discussion on this forum as heresy.

John

I don't see any evidence of this John. Best not to perpetuate misguided urban mythology ourselves, don't you think?

Cheers

Jim

[James Wells]

Much of this may be of little or no interest to S4 modellers who look down from their lofty towers and consider such discussion on this forum as heresy. However given that the cost of an RTR product is now easily in three figures, for a product that will, for the most part, be substantially re-built with the additional cost of wheels etc. perhaps we will see an upturn in the interest of well designed 4mm kits.

Might be worth remembering that for anyone modelling from the late fifties onwards, the modelling of diesel and electric locomotives relies mainly on RTR products. We may drastically rebuild bodies, rewheel, replace chassis, add sprung bogies, make them unrecognisable from their origin, but at their heart remains a mass produced model.

[martin goodall]

I don’t have anything to say about Hornby’s recommended retail pricing or about the choice of models offered. I don’t think the underlying problem lies in that direction.

My impression is that the problem lies in the central management of the company at board level, and some rather inept business practices. Hornby seem to have overcome actual manufacturing problems (in China) only to make a mess of their stock control at home. They have recently had to write down the stock in their books by £1 million. That isn’t just an unfortunate accident – it is a major management failure. A new, but less than reliable, IT system has only added to their woes.

Actual delivery of goods to retailers, invoicing and accounting all seem to have become chaotic. The company’s treatment of their stockists has caused widespread dissatisfaction and has undoubtedly contributed to Hornby’s poor sales record recently. Policies on discounting and direct sales have only served to exacerbate the situation. These factors have all contributed to the dire position the company finds itself in.

Based on information from a wide variety of sources, it appears to me that the present management is going to have been removed. Since I don’t suppose the directors will go voluntarily, I suspect their removal will be forced on the company by their bankers, most probably taking the form of a restructuring, involving the break-up of the group and selling off various parts of it, and/or certain brands and other assets.

My guess is that the current model railway range will continue to be manufactured and sold in one form or another (whether under the ‘Hornby’ brand or some other name), but not necessarily by the existing corporate entity. March is going to be crunch time for the company, when Barclays will have to decide what action they will take in order to reduce their financial exposure as the company’s major creditor.

[Will L]

Historical note, at one point in the 70s Barclays acquired the Standard Railway Wagon Co. The fleet wagons for hire run by this company were even painted Barclays blue as a result.

[John Fitton]

Whilst I hope Hornby survives whatever current financial problems it has, I think we will be in more serious trouble if our wheel and etched brass chassis manufacturers had difficulties.

John

[Horsetan]

Whilst I hope Hornby survives whatever current financial problems it has, I think we will be in more serious trouble if our wheel and etched brass chassis manufacturers had difficulties.

Well, Sharman Wheels basically died almost ten years ago, and a few kit ranges have also passed into history, so we have had time to get used to the idea.

[mickeym]

Whilst I hope Hornby survives whatever current financial problems it has, I think we will be in more serious trouble if our wheel and etched brass chassis manufacturers had difficulties.

John

Really?
For those of us that have a railway interest in the last 50 years I would suggest that making wheels is a lot easier than making the angles and curves that form the body of a diesel or electric locomotive...
But, aside from your negativity, the likes of Hornby are pretty important to this hobby - I bet not many kids ever ask for a P4 model of Craptown on their birthday ... They are the ones who return later in life, to do things better than the train set they once had.

[Terry Bendall]

One thing that I have noticed about Hornby is that the build quality is not what it might be. The level of detail and finish is superb, yes, but I am referring to bits falling off, mis-manufactured chassis

Problems with the quality are common to all the major RTR manufacturers. Yes the quality of detail and finish is very good but certainly on models representing the D&E era, it is common to find small parts broken, fallen off in the box or missing. Even 7mm scale models are not immune - a recent purchase of a 7mm scale Heljan class 60 had three out of the four fixing lugs for the buffer beams broken. And if we start on the accuracy of the details ....

Much of this may be of little or no interest to S4 modellers who look down from their lofty towers and consider such discussion on this forum as heresy.

Not in my view. The availability of good quality RTR has transformed our particular aspect of the hobby and whilst some models may not be 100% correct in every detail, they act as a very good starting point especially for those for whom the time or limited skills may mean that kit or scratch building may not be an option. Skills can of course be learnt and refined but it does take time an patience to do so.

My impression is that the problem lies in the central management of the company at board level

This certainly seems to be the case, and recent senior managers appear to have had no previous experienced of this type of manufacturing and selling.

Terry Bendall

[FCA]

Mickeym wrote:
[quote][/I dont know what the price per share is as I type this, but I reckon if you want to help Hornby ( the train section) buying at under 28p would help....Especially if and when they are spun off from the main group....
quote]
Stock markets are aftermarkets; buying shares, unless as public offerings or rights issues, is of no help to the company itself.

[dal-t]

is of no help to the company itself.

Not entirely true; if it were, no-one would worry about share price, and we wouldn't be having this conversation. Activity in the 'aftermarket' governs that invisible but indispensible commodity 'confidence', which strongly affects the activities of lenders, suppliers and consumers. Too many companies have gone down the pan (or been snapped up by vulture funds) because their share price had fallen to junk, even though they were an inherently viable enterprise. Let us all hope Hornby Hobbies don't go this way (although I'll freely admit my own interest is more in the future of Airfix than Hornby Railways).

[mickeym]

Share price as I type this is 32.75 pps so someone has made a few £££ in this mornings trade - I wish I had followed my own advice and bought some at the bottom!

[dal-t]

The slight rise followed departure of the CEO, Richard Ames - the Chairman, Roger Canham, is now running the company (again), never a very healthy sign. Unless they can find someone else to consolidate the reforms Ames introduced and get the firm to view the world with commercial eyes rather than those of (undoubted) enthusiasts, I fear the slide may become terminal.

[martin goodall]

Share price as I type this is 32.75 pps so someone has made a few £££ in this mornings trade - I wish I had followed my own advice and bought some at the bottom!

Share dealing is an absorbing hobby for some, but getting the timing right can be tricky.

It is really a form of gambling. It's a game I have never been tempted to play.

Think I'll stick to playing with toy trains.

[Horsetan]

Share price as I type this is 32.75 pps so someone has made a few £££ in this mornings trade - I wish I had followed my own advice and bought some at the bottom!

Share dealing is an absorbing hobby for some, but getting the timing right can be tricky.

It is really a form of gambling. ....

It only works if you have the information in front of you in real time.

By the time most of us get to hear about it, the opportunity has long since passed, and it's fourth-hand news.

[martin goodall]

Today's Evening Standard does not mince its words. Its headline (in the business pages) states baldly that Ames was "sacked" as CEO, after less than 2 years in the job.

The rally in the share price followed fairly soon following this announcement this morning, but this in itself does not get Hornby out of the mire. They will need the active support of the bank if they are to stay in business. The hope is presumably that with Ames gone, the bank's confidence in the company's management to turn things round will be restored. But it will need rather more than that to convince Barclay's that they should extend the company's credit. It could still all end in tears.

Watch this space next month, when a loan repayment default is still expected, and Barclays will then have to decide whether to stay with it, or pull the plug.

[Aarrrgh! I put an intrusive apostrophe in "its" in the first line when I orignally posted this. Unforgivable! I shall be drummed out of "Pedants-R-Us".]