Saw a mention of this on RMweb yesterday and it's now been reported on BBC breakfast business news.

http://www.bbc.co.uk/news/business-35538800

Could this mean cheaper Hornby stuff while they try and recuperate some cash from excess stock.?? I think not.

Well, I'm just going to throw this out here:
Nobody.
Smegging.
Panic.

Panicking is not going to help a situation like this and is in fact liable to make it worse.

A professional financial adjudicator who's also a prolific railway modeller has offered to mediate the situation between Hornby and the retailers, so that's some good news.

[user=1916]ZeldaTheSwordsman[/user] wrote:

A professional financial adjudicator who's also a prolific railway modeller has offered to mediate the situation between Hornby and the retailers, so that's some good news.

I had not heard of that development.

I am afraid the damage that Hornby has caused to its retail supply chain will require something more fundamental than a mediator.

Right now I suspect they need a mediator with their bankers.

Hornby PLC is a wide-ranging umbrella company now owing little apart from a name and some product to Frank Hornby's original.  Let's not forget that the Group now includes the likes of Joueff, Rivarossi, Airfix, Humbrol and Scalextric.  And it's about a lot more than model trains.

The numerous iterations of the Hornby business have hit trouble before.  Currently listed on the Alternative Investment Market they seem to have been taken aback by a sudden downturn in January trading.  Almost anyone with a sense of business acumen would know that happens after the usual bumper pre-Christmas period.  

Much has been said about the Terms of Trade imposed upon retailers by the present regime, about various strategic business decisions the wisdom of which has been called into question by modellers and retailers alike, and of course there is speculation as to the root cause of the problems.

The share price tumbled from around 42p to 21p but has crept back up to 24p since.  That was on the back of a stark profit warning which flagged around £1m loss identified at stocktake and a possible £5m trading loss on top of that.  The specific warning was to the effect that Hornby PLC's loan covenant may be breached.  That would amount to a loss of financial standing and might - might - result in a withdrawal of loan facilities by their bank.

That would sink them.  So would an inability to pay their Chinese factories for goods.  We don't know where the losses arise specifically.  It may or may not be across the board or confined to or exclude the railway operations.

Hornby has been pulled from the mire before.  They are deep in it again through a combination of factors.  For the sake of the hobby and those who rely on Hornby PLC for employment I hope they are rescued again.  But not at any cost.  I hope, too, that their senior executives come to understand that they have upset and driven away customers and retailers who are their only lifeblood.  We'll see.

Hornby's financial problems are at least 5 years old and have been getting steadily worse. Anybody remember their "Olympic" toy range fiasco? Model trains are a shrinking market re the number of participants and buyers, anybody in this game needs to have guaranteed sales orders, not produce models based on market projections (numbers invariably generated through those rose bespectacled experts who take no notice of exchange rates). Just look at the "bargains" that Hattons has had to market over the past 5 years to shift stock that was not selling. Plus "you are over a barrel" when it comes to the cost of manufacturing in China. And that has been steadily increasing.

Over here many manufacturers will not produce a model unless a minimum, profitable order is in place. Advance notice of new models has often fallen through because the demand was too small. No good producing models in 2-3 years time based on today's buying power. Tooling a new model is a costly exercise, and production runs need to have lots of customers. This approach has been take by larger retail outfits that have contracted established manufacturers to produce the model. Expect to see more of this (and even more restrictions on what will be produced).

Methinks a vicious circle -  not enough sales/margin, decrease the quality/detail/cost and try to enforce RSP, not enough sales/margin……

Unlike Brendan (Zelda) I think a bit of panic is on the cards. I model with many items that were in production 10-30 years ago. And there is a very good reason. Cost. That old brass model of a 4-6-2 is on the market for $250-$350, and may need another $50-$100 spent on it to get it working to DCC standards. And it looks good. Current new brass models cost upwards of $1200. No contest.

I read an article recently that demonstrated that the real cost of purchasing an engine or freight car had actually decreased over the past 30 years (the same item). Now if the real purchase cost has been decreasing so was the profit margin or more likely the quality. Increasing overseas manufacturing costs mean something more has to give or we have to pay a lot more.

Nigel  

Some, although not all, of Hornby's problems must be down to quality issues.

I'm just 1 modeller, and I buy RTR stuff rather than kits - lack of expertise here on my part.  I kicked Hornby into touch on many of their lines because, in my case, Bachmann seemed to leave them standing on both quality and price factors.  Bachmann have increased their prices recently so I buy less - far less.

I have a friend in the "toy trade" and he's just returned from the Nuremburg Toy Fair - one of the largest in the world.  He said the "train hall" was pitifullt small this year - only around half a hall whereas a few years ago, it filled a hall to bursting point.

It's a fact that railway modelling is essentially a hobby for "retired men", most of whom are on a limited income.  We can't, in the main,  continue to spend ever increasing amounts on models so maybe we're on the road to the past where kit manufacturers catered  for the "modeller" whilst the train manufacturers concentrated on the bulkier "toy" market.

Hornby have made some terrible marketing decissions over the last few years and, as some feared at the time, seem to have over-stretched themselves during their "aquisition years" when they bought up many of the top brands.  Top brands they may have been but most of them have also fallen slightly by the wayside as hobby interests have changed.  If one looks at the "Hornby" potfolio, most of their "names" are supplying a diminishing market.

You only need to talk to the youth of today to realise that our "old man's hobbies" are of little interest to the next generation.  Sad as it may be to us, railway modelling is rapidly becoming a niche market and the manufacturers have got to realise that.  They simply won't survive as volume producers because, by today's standards, the volume just isn't there.  Nor will they survive by trying to cheapen their product to increase margins.  They have to learn to sell what the market wants at a price it's prepared to pay and that's a long way away from what they produced 20 or 30 years ago.

I sincerely hope we're not witnessing the downfall of those great names but I'm not going to use my hard earned pension to support  just a name.  I'll buy the product but it has to be "right" in all respects. 

One head has rolled.

The following statement was made by Hornby PLC to the Stock Exchange this morning:

"The Board of Hornby Plc ("Hornby"), the international hobby products group, today announces that Richard Ames is stepping down as Chief Executive and is leaving the business with immediate effect.  
 
Roger Canham the current Chairman will move to take over as Executive Chairman and will lead the Group for the foreseeable future."

The share price is rising slowly but steadily in response to this announcement and is approaching 30p after dipping to just above 20p at one stage.

I am a member of a number of Facebook model railway groups which do have a considerable membership amongst the younger generation. However, what does come over strongly is that, as expected, lack of money is an issue. Many rely on secondhand bargains especially older Lima and Hornby models. So there is a demand amongst the next generation of modellers, but not at "New" prices now being commanded. So neither the up and coming generation and now many of the older outgoing (in the nicest possible sense - I am one!) can afford the prices being asked for any of the RTR manufacturers. This will inevitably lead to both reductions in new lines being produced and, sadly also the number of manufacturers in the business.

I can't see any way this can be stemmed because as has been stated elsewhere, the start up costs for new items is high whether it is for a highly detailed premier model or a more basic marque (eg Hornby's Railroad line). So I fear that we are seeing the gradual demise of railway modelling as a hobby with the only long term hobbyists being either the scratch builders or those with deep pockets.

Would love to hear someone shoot this view down, but don't hold my breath :-(

Share price now around 34p and rising.

I have heard Chris's opinion espoused elsewhere.  It merits some consideration.  Fifty or so years ago there were comparatively few railway modellers and there was a far smaller range of ready-to-run rolling stock.  I had some Tri-ang Hornby stuff at that time and some of it exists to this day within the family.  It was built sturdy but fairly basic but lacked refined detail.

Whether the number of modellers grew as production was moved offshore and models became cheaper, or whether that number grew in response to the fairly sudden flood of new models becoming available, or whether the growth was in any way linked to a change in disposable income levels or the availability of credit - or indeed whether the growth in the number of models on offer arose because of the significantly greater interest I know not.

Which ever way things panned out there has been something of a golden age of late.  We have never had so many models in so many variations and in many cases being so relatively affordable.  Just think how many locos Lima churned out.  Not the most refined of items but you could buy a fleet of diesels with some ease.

The pendulum has swung - or has been pushed - the other way now.  Ever-Increasing demands for improved quality, accuracy and detail have translated themselves into far more costly models alongside the Chinese manufacturers discovering just how much their workers feel they are worth in a new age over there.  Costs are rising sharply and incomes are straitened in many cases.  

We may indeed be about to see a bubble burst.  Or perhaps a balloon deflated in a more controlled manner.  I hope the latter.  But perhaps not for a few years yet as there still seems to be significant, if tangibly weakening, demand in many areas.

As regards the hobby it remains my opinion that "Rumours of my death have been greatly exaggerated".  As each generation, many of whose youth have enjoyed some form of toy train set, matures so a proportion takes up the hobby.  What they can afford to spend on it is another matter.

I'm with Martin and Chris on this one.

I did a quick peruse of the standard I use, Hattons, to get some feeling of what a major retailer is up to (or not). Some observations:

1. It's a pretty good competitor for eebuygum. In the Bachmann and Horby steam locomotives sections I had the distinct impression that "used" far outnumbered "new".
2. There are an awful lot of discounted prices and stocks greater than 10. Couple of examples - Class 04 BR 2-8-0 Robinson ROD,  list £148.72, bargain £119.00. Class 1000 4-4-0 compound, list £159.95, bargain £89.00 (that's a 44% cut in price! Probably most of their margin).
3. For a new DCC sound locomotive I used the Hornby 28xx 2-8-0 - £242.00 (US $345.00). An LNER 2-8-0 Robinson is £253.50 (US $362.00). That's a pre-order, could well increase.

To get a comparative feel of what I would pay for a 2-8-0 over here I checked out Model Train Stuff in MD. An MTH 2-8-0 is going for $399.95 (£280.00), DCC sound, no discount, a BLI 2-8-0 is $449.99 retail, $309.99 actual (£216.00) with DCC sound.  Take off £70.00 for DCC sound. Stock levels are between 2-6, which indicates a much better feel for the market.

Not that much difference (except in the price of the decoder, ESU V4's are a lot less here than in the UK). It looks like the UK market has reached US pricing levels.

Martin and Chris both make the point about an aging modeling population, decreasing numbers, and fixed (pension) income. I suspect that before long many modelers will be back to the state of the hobby in the 1920's - very little rolling stock compared to today, much of it modified or home built. And new stock one of those "buy one a year" items. It's the same in North America, it's a depressing commentary that when I joined a local modular group a couple of years ago I brought down the average age. The one I now belong to has a fair number of younger members, their disposable income is less than mine!

My "railroad" is the Great Northern, nobody makes a plastic steam locomotive in HO that corresponds to the prototype. BLI is coming out (if the orders are there) with a GN 4-8-4 brass hybrid (cast chassis, plastic body, brass details with the correct Belpaire boiler for around $599.00 (DCC sound). Discount will get that to $500, which is pretty much my rolling stock budget for the year. That Tenshodo brass model built in the 1970's and that is currently going for $225 is looking decidedly good. Now to convince the family that a group present would be appreciated…….

If the number of modelers keeps on decreasing (and everything indicates it will) and the costs keep on increasing some of the manufacturers will go. As will some of the big retail stores. The hobby store I visit in Banbury on my annual trip used to be 50% model trains. It's now around 20% due to falling sales.

Nigel

Interesting comments :thumbs

Latest update.

http://www.bbc.co.uk/news/business-35576892

Hi Ed,

I love stock markets. Up a whopping 9p to (gasp) 33.5p. Pretty dismal considering they were trading between 129p-142p in 2011. Put another way that's an 80% loss in share capital in 5 years. Gut investment community reaction to the expected sacrificial scapegoat. Wouldn't surprise me to see it back down at 25p once the realization sets in that getting rid of somebody who was only at the job for a year (and who could not therefore be expected to address long-standing issues in anything under 5 years) doesn't go anywhere near solving the fundamentals - a shrinking market, debt, and probably severe under-capitalization following the spate of takeovers of even worse lame ducks. Hope the outgoing CEO Richard Ames has a decent golden parachute, Steve Canham and Steve Cooke should probably be going out of the door with him.  Hornby is on track for a corporate slice and dice on the butchers block once the dust settles. The warnings regarding performance (growth) and liquidity issue assumptions were clearly stated by the auditors in the annual report for 2015.

Nigel

And shares are now back above 40p which is where they were a couple of weeks ago before this all blew up.

More heads might yet roll but it seems the investors are content enough for now.

Forty pence. Hornby used to trade at £10.00. I did check (briefly) who now owns the decision making share blocks. Looks to me like some serious outs (as in I'm out of here) and ins (as in I see ROI here) took place, with shares changing hands in volumes that would normally happen over a year, not a few days. Unless sales get profitable, and dividends get paid (not for the past few years), "investor return" (and how many times have I heard that mantra over the years:roll:) will not be in selling toys. It's in selling the profitable bits of the business to the highest bidder, and selling the non-profitable bits to the next hopeful. No white knights charging in these days, just white sharks circling.

Hopefully the model train business will finally be separated from the toy (trains and other) business, and be run by a management team who actually have an interest in the hobby as a focus. I see Bachmann as the major player, Dapol, Hornby and Heljan as minor players. Still one (or even 2) too many for what is an insular (OO and British N) and limited marketplace.

Reading between the lines of last year's annual report, Hornby seem to be having some difficulty keeping track of their tooling in China. I suspect the real interest and ROI going forward would be in the tooling. Let's hope it doesn't get "lost". It wouldn't be the first time funny things happened to the tooling when a company ran into trouble.

Nigel

I'm no expert but I wonder how much of Hornby's problem comes from its product.  A number of my BR(NER) fleet come from the Hornby stable, the Bachmann chassis seems to be a better unit.  Furthermore, Hornby appear to have locked horns with Bachmann to produce models with sprung buffers, hinged fallplates etc etc.  Personally, I am not adverse to a Railroad model or something with fixed buffers etc.  Let me add that I model in analogue.

I wonder if the Railroad range may be a lifeboat option for Hornby railways - rather then compete with Bachmann, offer a lower spec, lower price range which would suit the various groups of modellers discussed above.  Younger modellers would welcome the lower prices and, to be honest, younger hands may well be better suited to the lower spec.

Hornby would have to up their game with their chassis though - the J15 was wonderful so they can do it!!

As I said, I'm no expert but I would be intersted to know if the modelling community are prepared to take lower spec offerings in exchange for a contunued RTR supply????

Barry

The Sharks are definately circling around the wounded body of the Hornby business. As a shareholder I am being urged by the board to resist a bid for the company from Phoenix UK Fund.
This group obviously smell blood and have made a share offer of the current market price (sell at 32.375p per share).

I am being told to await further news.

I am not hopefull.
I expect this to be the begining of the end for Hornby.

They're doomed, doomed I say!

None of this comes as much of a  surprise to me from my experiences of dealing with the company in recent years and the experiences of friends and aquaintances who have attempted to deal with them.
From my own circle of modelling friends I know of no one who has a positive experience of dealing with Hornby when looking for after market service. Having said that the same can be said of Bachmann as well.

How often have Hornby produced a reasonable product but only for a short run meaning that if you do not have the money to buy said product upon its release you will have missed the boat and will have to resort to searching E Bay? For example the Stanier Period III carriages in BR carmine and cream. I am still looking for more 2nd class saloons and corridors. Hornby can supply a 1st. Not impressed!

Their problems stem from their reliance upon China for their production. They get what they are served up by the Chinese and have to lump it.
Spare parts do appear to be a part of the deal hence so many negative reports from my friends who have been seeking what used to be all part of the service.
Having to buy orders in sufficient bulk to make it worth the shipping costs must limit business flexibility at the point of sale.
Please do not get me started on all the guess work that all the UK retailers (I refuse to call any of them manufacturers) indulge in when attempting to announce release dates. Anyone remember how many years Bachmann had the SECR N class in their catalogue before we saw it in the shops? Then when it did arrive the damn running plates distorted! Bachamann did not supply spares and denied there was a problem!
(Kernow's D600 Warship - How many years?)

Now that production costs are rising rapidly in China on has to question the long term wisdom of moving one's manufacturing base so far away from the bulk of one's consumers. Not that Hornby will ever be able to reverse that trend as I do believe they have sold off their old facility in Margate in a desperate attempt to raise capital.

As for my morribund investment; I will be getting out as soon as the offer price is raised by Phoenix UK Fund. There are so many other better businesses to invest in. No, not the banks!!!!!

I believe Hornby will just be the first domino to fall. Others will follow.
I just thank the Good Lord for soldering irons and a stockpile of kits in my workshop. Not forgetting the courage to put them together!
Yes, kit building is a matter of guts not skill!

Enough from me. Sorry there is no positive news! Oh, I have just looked outside; it's still raining!

Get used to it - many "manufacturers" over here (decision and research in the US/CAN, CAD work and production in China) will only order enough to satisfy the firm orders plus a few extra, and as few spares as possible based on prior experience, and in many cases will cancel if there is not enough demand. I think we're not expected to run them, just look at them (bit like the old brass days when it was all batch built by hand, one run and that was it).  

Having the locomotives made in China is no worse or better than anywhere else. It all depends on how much QC and QA is put into the process. And in my opinion this is where Hornby lost the plot. Not enough of either. same goes for Hattons/Kernow commissioned models. If you want a quality product you have to be there every month making sure what is produced is what you and the customers want.

As I mentioned earlier, it's often more cost effective to forgo some of the detailing and refurbish older models. At least spares are available (ancient brass excepted, but there are suppliers of new spares for even 60 year-old models. And you don't have to wait a year, no that's 2, no that's…forget it, I gave up and sold the layout.

Nigel