Hornby's financial updates to the Stock Market

[grahame]

 Essentially it's business as normal 

 

Did anyone mention it wasn't?

 

G.

[GordonC]

Not all older modelers are rich so there is a market for it. For every highly detailed layout here there are 1000's more out there where anything goes and its bought on a budget regardless of if they are 7 or 70 years old.

 

£30 for one wagon could be a huge wad out their state pension.

 

They don't care about how many rivets there is, if the box on the underframe should be painted white/black/pink or if a red stripe is 0.005mm too high.

 

If you have ever seen the layouts in the back of the Hornby collectors club mag you will see what I mean.

 

Kids and pensioners on a budget. There is a huge market out there that they could make big bucks from.

 

If Hornby was to stick a few of the ads on the transfer sheet that came with every building in the 80's at local stations that Flying Scotsman passed through, then kids would see it and ask mummy and daddy for a little steam train to play with.

I don't doubt there is a market for cheaper, simpler models ... but does that example at £90 fit as a cheaper model? I'd say it's too pricey for what it is.

[adb968008]

Piko do an excellent two range system.

 

They have emerged from the communist models of the past, the modern range has some excellant super detailed models in their "expert range" priced handsomely around the £100-150 range.

But competitively against the other boys in the DACH market they also have a lesser detailed hobby range priced at the £50-100 range... crucially these are NEW modern image toolings.

 

Herein is the issue, the railroad range, doesnt appeal to the market it sells to.

Its old guff from the 70s, representing models from the 60s... this doesnt appeal to the older modeller, whom wants the super detail, nor does it appeal to the younger modeller whom has no idea what much of this stuff ever was.

 

If Hornby was to start making a range of EMU's in the budget range that looked like the stuff wandering the network today, they could actually fill 3 markets... the kids whom could afford it, the 20 somethings who see it daily, and the older somethings whom have been starved of EMU's for decades and haven't got £400 for a 4 coach train.

This also could be volume effective.. a 4 car emu could just be 2 different coach toolings.. a centre car and a driving car, and dispense with the 10 different class variation options.. 

 

 

Whilst i'd love to see a 304 unit, modern reality would be a 319 or a 377 etc (electrostar) in a budget range appealing to a wider budget conscious audience.

Edited June 30, 2017 by adb968008

[APOLLO]

Shopping around is the name of the game these days (especially for us pensioners).

 

This last 18 months or so I have bought (all brand new) a Hornby Crosti for £80, K1 for £65, B1 for £80, Q6 for £70. All via links on RMWeb "Bargains" thread. No way would I pay Hornby's RRP.

 

Also I'm not over fussed with super detail, rarely fitting the small bits, especially the unseen fiddly ones - I leave them in the box.

 

I have quite a few Railroad locos - they're the best thing Hornby has done in my opinion. Superb models that run well.

 

Brit15

[The Johnster]

The sad thing is the US steam locos that Athearn produce are uglly looking naff things not a patch on class of Gresleys, Peppercorns , Staniers 4 6 2s.

 

Is that because Athearn are bad at producing good looking locos or that you don't like American locos?  As far as I can tell, they produce pretty good models of American prototypes and I see no reason why a Gresley, Peppercorn, Stanier pacific or any other British loco produced by them should be ugly, naff, or not a patch on, anything.  I worry more about their reaction to the smaller volumes needed to satisfy the British market and whether they think it's worth messing about with; I'm fairly happy that I'd be quite at ease with any models they produce, ex-Hornby or their own.  And Hornby aren't a dead duck qutie yet!

Edited June 30, 2017 by The Johnster

[APOLLO]

I don't know about Athearn's modern stuff but around 1980 I dabbled a bit in American HO. I bought a few Athearn locos and was amazed at the running & build qualities  - central can motor, 8 or 12 wheel drive via cardan shafts & flywheels - super slow running etc (still have em and they still run). Their freight car "kits" were amazing also. Took all of 5 minutes to fit the supplied couplers, wheels to bogies then 2 screws fixed bogies to bodies, couple of other bits n bobs and away they rolled. Loveley detail and factory applied paint jobs also.

 

Brit15

[The Johnster]

I don't know about Athearn's modern stuff but around 1980 I dabbled a bit in American HO. I bought a few Athearn locos and was amazed at the running & build qualities  - central can motor, 8 or 12 wheel drive via cardan shafts & flywheels - super slow running etc (still have em and they still run). Their freight car "kits" were amazing also. Took all of 5 minutes to fit the supplied couplers, wheels to bogies then 2 screws fixed bogies to bodies, couple of other bits n bobs and away they rolled. Loveley detail and factory applied paint jobs also.

 

Brit15

 

I built an Athearn boxcar kit when I was about 12, a present from a visiting American friend of my fathers's.  Pre-painted and printed, and the closest thing I have ever come to true 'shake the box' assembly, and a lovely smooth runner.

[Mike Storey]

Piko do an excellent two range system.

 

They have emerged from the communist models of the past, the modern range has some excellant super detailed models in their "expert range" priced handsomely around the £100-150 range.

But competitively against the other boys in the DACH market they also have a lesser detailed hobby range priced at the £50-100 range... crucially these are NEW modern image toolings.

 

Herein is the issue, the railroad range, doesnt appeal to the market it sells to.

Its old guff from the 70s, representing models from the 60s... this doesnt appeal to the older modeller, whom wants the super detail.

 

If Hornby was to start making a range of EMU's in the budget range that looked like the stuff wandering the network today, they could actually fill 3 markets... the kids whom could afford it, the 20 somethings who see it daily, and the older somethings whom have been starved of EMU's for decades and haven't got £400 for a 4 coach train.

 

Whilst i'd love to see a 304 unit, modern reality would be a 319/377 in a budget range appealing to a wider budget conscious audience.

 

You are right about Piko, although I think the price band for the Expert range is generally rather higher than you state. Nonetheless, their prices for comparative or even superior products are increasingly competitive. I don't completely understand their business model, but they do appear to own a factory in China (for the vast bulk of their HO output as well as all TT and N) as well as their factory in Germany, primarily producing G gauge items, and their continuing growth is exceptional in the market. They are certainly challenging the reputation of Jouef for the VFM end of the market, having aggressively marketed into France and Italy (but the bulk of their sales are still in Germany). What we don't really know is how they have managed to do this (no general, state of the company, press release was arranged this year, unlike in previous years), and it is privately owned by the founder, so we do not really understand profitability. But it suggests Hornby should take a very close look at how they do things.

[adb968008]

You are right about Piko, although I think the price band for the Expert range is generally rather higher than you state. Nonetheless, their prices for comparative or even superior products are increasingly competitive. I don't completely understand their business model, but they do appear to own a factory in China (for the vast bulk of their HO output as well as all TT and N) as well as their factory in Germany, primarily producing G gauge items, and their continuing growth is exceptional in the market. They are certainly challenging the reputation of Jouef for the VFM end of the market, having aggressively marketed into France and Italy (but the bulk of their sales are still in Germany). What we don't really know is how they have managed to do this (no general, state of the company, press release was arranged this year, unlike in previous years), and it is privately owned by the founder, so we do not really understand profitability. But it suggests Hornby should take a very close look at how they do things.

 

They have also aggressively pursued the Polish market, with several all new toolings, which are very well detailed and production run sizes are reasonably large.

 

The prices of these are also very keen. My assumption is they are trading volume for margin and so achieving a lower price, in much the same way the UK market is much more competitive than much of the continent... so i'd have thought the strategy there could apply here too.

 

This would make sense in Poland where disposable income is lower than western europe, but their success is easy to see.. they have made EU06/07,SU45,SM42, ET41 (twin double motored), CHME3 and just released the ET22 in the last few weeks, the SM42 and EU06/7 has been through several iterations (including at least 4 different body toolings on the EU06/7) and there aren't many on shelves.

The clue (and suspect the secret to the Polish success) is that they've resisted steam or retired prototypes... what you see on the polish railways really is what you get in the box, whilst Roco gestated for 3 years on their £300 S160, nice as it is, I'm pretty much convinced Piko has sold far more £100-150 PKP modern image and tooled up  a near half dozen prototypes in the same time period.

 

I have also heard it rumoured that they maybe an OEM supplier to at least one of our UK Suppliers in the 00 market for a few years.

 

They are obviously doing something right.

Edited June 30, 2017 by adb968008

[jjb1970]

The concept of graduated ranges is quite common in the North American and European markets. As well as those companies already mentioned, Marklin and Trix offer hobby models, and Roco and Fleischmann also offer entry models. Interestingly, in the case of some of these companies there is far less distinction in terms of marketing than we might imagine. Hornby often get criticised for not having a clear differentiator between their three product levels (old Lima and pre-China Hornby Railroad models, modern Railroad models and full fat main range) yet Trix in many cases do not have any differences in packaging or marketing for their entry level models other than the lower price, ditto for the Fleischmann and Roco start models. Marklin do use the Hobby moniker, but it is a small logo on standard Marklin packaging and marketing and the concept seems to be more of Marklin quality made a bit cheaper rather than as a distinct entry range. I've got some of the Roco and Fleischmann start models (such as a DR Br242 diesel) and there is nothing on the packaging to indicate they're lower cost entry level models, and in fairness they are more than good enough to run alongside their newest models.

 

I think something that all this shows is that there are all sorts of options and possibilities and it is easy to concentrate too much on the business model and lose sight of the fact that how well it is executed is just as important. Apologies if I'm like a record with a scratch saying the same thing over and over again, but there is no such thing as a standard business model that should be applied universally, there are very few fixed costs in a business and you cannot overstate the importance of business efficiency and good decision making. We often see stories that such and such a model is unviable because company X say's so, or that models cost £Y because that's what company X also say's. Well, that may be true for company X, but there is no reason at all why it has to be true for companies A, B, C et al. The costs of product development are not an immutable constant, neither are the required returns, quantity to be produced to return the necessary profit at a given price point, product lead times etc etc. All of this ultimately comes down to the skills, business acumen and corporate efficiency of a business and those are all variables. Not to mention local factors.

 

On Piko, they're making some terrific models. I have one of their Vectron models and it is a better model than the Marklin/Trix alternative in my opinion although the Marklin/Trix alternative is in their Hobby series (not that this is obvious unless you make an effort to notice it). The Br103 is arguably the best RTR model of that iconic type around at the moment, the bogies blow the otherwise superb  Marklin/Trix model away and I personally think Piko nailed the shape better than Roco. The running qualities and mechanism (as well as lots more) are in a different world from the Fleischmann model (which in fairness, still stands up well given its age). If you look at some of the bogie details on Piko Expert models it is outstanding, and all of the Expert models I have are beautifully smooth and quiet as well as being able to pull the proverbial house down. I'd say they're doing something right, but it'd be more accurate to say they're doing an awful lot right. 

[The Stationmaster]

Forget about Athearn as such.  Athearn is a subsidiary of Horizon Hobby of Champaign IL (although it has a UK subsidiary based in Witham, Essex) and Horizon Hobby is in turn effectively owned by Armory Capital LLC and Mill City Capital LLP.  It is very difficult to get any publicly accessible (for free) data about Horizon Hobby US or its owners although there is limited information available about the UK subsidiary which doesn't look particularly rosy in financial terms.  

 

If there is any US interest in Hornby Group (and I sincerely hope there isn't in view of the way some past US takeovers have destroyed British companies) it would no doubt effectively come from Horizon Hobby or its owners.  And they have been free to buy shares in Hornby for some considerable time past and don't seem to have done so (unless they have used nominees of course).

[Clearwater]

Mike

 

At present lots of US companies are seeing "value" in acquiring UK companies due to the devaluation of Sterling that's occurred over the last twelve months. They wouldn't need/want to buy shares on the market as that effectively signals their intentions. More likely, IF (and it's a big IF), they were looking at Hornby, they'd sign an Non-Disclosure Agreement with Canham's mob to do proper due diligence on the company. Given the path to control lies through the 50odd% Phoenix stake, you'd be better off negotiating and agreeing a price with them prior to making an offer to the balance of Hornby's shareholders.

 

Given what Athearn do, its possible they see underlying value in the brand portfolio and see real synergies from being able to improve their buying power with the Chinese factories. Equally, their private equity fund owners will be looking for growth opportunities for Athearn and Hornby may represent a lower risk way to enter the UK market. It's not an uncommon strategy for private equity firms to consolidate similar companies, strip out common management overheads and other synergies and then capture the value on sale in 3-5 years. Buying companies also helps show a larger revenue compound annual growth rate.

 

I'd not heard of Athearn and suspect I'm not alone in that position. Would Athearn have the ability to develop uk outline models for the uk and commonwealth market? Yes,I'm sure they would, but look at the struggle that say Oxford is having in breaking into the market. Buying the market leading brand plus its distribution network plus its Intellectual Property in the form of the development team, would make a lot of sense. I'd be amazed if Numis, who are advising Hornby, haven't been shopping the group around their North American client base to try and find a better deal for Hornby's shareholders. That's their job after all.

 

From our narrow perspective would they be good or bad owners? No idea.

 

David

[The Johnster]

We are latching on to what is only a rumour backed by speculative supposition here; nobody has any idea if Athearn or anyone else is actually interested in Hornby, which is still in business in it's own right at the moment and not a carcass yet.  But if they were...  Athearn are in a very different position to brave little Oxford, who are trying to break into the market from the bottom end and have very limited resources; I very much doubt that they can lay their hands of £25 million beer vouchers, and would be probably foolish to try, as the repayments would cripple them.  They may, as I say, be able to cherry pick some mouldings and toolings if H go under and a receiver sells things off piecemeal, that's 2 ifs.  I can envisage a situation in which someone forms a consortium to carry on producing Flying Scotsman, Smokey Joe, and a few train sets for the department store and mail order outlets, but more 'enthusiast' items such as Pecketts or Q6s being taken on by 'proper' model railway rtr producers (don't argue, I'm including Oxford in that description for the sake of this discussion).  Ox are looking for ways in, and this could be one for them, but, again, remember I am speculating.

 

Athearn, on the other hand, have the sort of backing that most British, indeed most European, rtr manufacturers can only dream about, and £25m is small change to that sort of backing.  They will be looking to make money, and if they decide the tiny British market is worth their bother, could easily make H into a subsidiary.  Hornby is of some value as a word; they are the only player in the UK market who are a household name, and everybody knows them, something that cannot be said about any other rtr player here.  If I go over the pub now and ask 'who's heard of Hornby railways', every hand will shoot up; if I ask 'who's heard of Bachmann railways', most of them will assume it's something to with Bachmann Turner Overdrive, which they'll all have heard of as a 70s rock band or a maker of automotive components, well, they ain't seen nununothing yet!  I'd be surprised if anyone put their hand up.  They will probably all assume that Hornby are generically Hornby Dublo, and will want to know how much the extremely rare Duchess of Montrose train set in the attic, scratched, non-working, hafl the track missing and without boxes, is worth to a collector.

 

This would be the value of Hornby to the likes of Athearn, or anyone else in their position, an instant entry into the UK game with the advantage of, not one of the top, but the top and arguably the only name in terms of general market awareness.  Athearn have been in the game themselves a very long time, and are extremely experienced player who know their business; I would prefer not to see Hornby go under or be taken over by a foreign buyer, but someone like Athearn is probably the least undesirable candidate if that were to happen.  They are not the sort of Americans who asset strip and run, and anyway there isn't much in the way of assets to strip physically in the UK  I imagine they would continue current production, perhaps cut a few losers from the range, and parachute in their own people to impose whatever sort of managerial regime they prefer, but the outcome for us should be the continuation of the brand, which nobody wants to lose, the denial of a virtual monopoly to Baccy (I like Baccy's stuff, but we saw how things went when Triang Hornby had the market to itself 40 years ago, or those of us my age do; it wasn't good), and presumably the development and introduction of new models; that's when we'll be able to make judgement calls about whether the new regime is cutting it or not.

 

How they'll react to tension locks and 4mm is another question...

[phil gollin]

.

 

As Hornby's British railways range SEEMS to be profitable, I cannot see it being got rid of (unless there is an offer "too good to be refused") but I can see the continental brands being got rid of.

 

.

[DonnyRailMan]

Is that because Athearn are bad at producing good looking locos or that you don't like American locos?  As far as I can tell, they produce pretty good models of American prototypes and I see no reason why a Gresley, Peppercorn, Stanier pacific or any other British loco produced by them should be ugly, naff, or not a patch on, anything.  I worry more about their reaction to the smaller volumes needed to satisfy the British market and whether they think it's worth messing about with; I'm fairly happy that I'd be quite at ease with any models they produce, ex-Hornby or their own.  And Hornby aren't a dead duck qutie yet!

No US steam loco`s are just so ugly / naff looking.

[The Johnster]

I don't mind them, but then I'm no oil painting myself, so don't feel qualified to criticise...

[tetsudofan]

All this talk of Athearn sniffing around reminds me that Athearn and Hornby already have links.......they were both customers of Sanda Kan.

 

Keith

[adb968008]

I'd imagine with Atearn ,it would be more liveries and numbers, but less variety in prototypes.

 

Instead of a run of 500 or so in 30 different locos classes it'll probably more like 1500 or so in 10 different loco classes with lots more numbers.

More like the smaller manufacturers, e.g. The recent J94 or 14xx etc.

 

Otherwise I doubt much would change.

The name of the game is to reduce cost and sell more, making less prototypes, but in greater volume is the US way.

An example may be the k1, more likely we'd see all 10 numbers in 1 year, but then no K1's for several years.

Edited July 1, 2017 by adb968008

[robmcg]

No US steam loco`s are just so ugly / naff looking.

 

Impossible!    Without wishing to cause any dispute, 

 

From an MTH H0 model, Union Pacific 4-8-8-4 ready for work.

 

 

or a Duluth, Missabe and Iron Range Railroad 2-8-8-4...

 

 

The above are mechanical art, beyond all dispute. But the works of Bulleid, Gresley, and Stanier to name a few are simple practical machines...  For example, A4 60013 'Dominion of New Zealand'.

 

 

I do hope this post is taken with the light heart intended, being somewhat off-topic. Hornby International do outstanding US articulated steam locos, let us not forget.

 

Cheers

Edited July 2, 2017 by robmcg

[The Johnster]

I'd imagine with Atearn ,it would be more liveries and numbers, but less variety in prototypes.

 

Instead of a run of 500 or so in 30 different locos classes it'll probably more like 1500 or so in 10 different loco classes with lots more numbers.

More like the smaller manufacturers, e.g. The recent J94 or 14xx etc.

 

Otherwise I doubt much would change.

The name of the game is to reduce cost and sell more, making less prototypes, but in greater volume is the US way.

An example may be the k1, more likely we'd see all 10 numbers in 1 year, but then no K1's for several years.

 

This is, indeed, the 'Amurrikan Way' that Superman fights for along with Truth and Justice, and is rooted in prototype railways which have traditionally and still do outsource their locos and stock, in steam days to the likes of Lima or ALCO, and they are still mostly doing it with diesels.  This means their rtr market is based on a few models which can be knocked out in different liveries, with 'standard' coaches and freight vehicles.  A standard range esteblished and selling in volume, they then turn their attention to exotica from Ronoake or Schenachtady and so on.  The UK isn't like that, although modern image veers towards it steam age modelling requires several locos and a wide range of vehicles from BR and the big 4, and we still pester them with wishlists!

[The Johnster]

Impossible!    Without wising to cause any dispute, 

 

From an MTH H0 model, Union Pacific 4-8-8-4 ready for work.

 

4013_4-8-8-4_UP_Big_Boy_shed_portrait1_2ab_r1200.jpg

 

or a Duluth, Missabe and Iron Range Railroad 2-8-8-4...

 

226_2-8-8-4_DMIR_portrait1_3a_r1200.jpg

 

The above are mechanical art, beyond all dispute. But the works of Bulleid, Gresley, and Stanier to name a few are simple practical machines...  For example, A4 60013 'Dominion of New Zealand'.

 

60013_A4_portrait30_2a_r1200.jpg

 

I do hope this post is taken with the light heart intended, being somewhat off-topic. Hornby International do outstanding US articulated steam locos, let us not forget.

 

Cheers

My personal taste is for locos that look like locos, and I find streamlining universally ugly, but I can make a bit of an exception for an A4, without valences.  My all time least favourite in this sense is the hideous Southern Pacific Daylight.  But, then, I have a great fondness for the visual aspects of 56xx, so don't take any notice of me...

 

Not an invitation to an aesthetics debate, just a bit of light hearted OT.  But I really don't like streamliners; style over substance.

[Caledonian]

This is, indeed, the 'Amurrikan Way' that Superman fights for along with Truth and Justice, and is rooted in prototype railways which have traditionally and still do outsource their locos and stock, in steam days to the likes of Lima or ALCO, and they are still mostly doing it with diesels.  This means their rtr market is based on a few models which can be knocked out in different liveries, with 'standard' coaches and freight vehicles.  A standard range esteblished and selling in volume, they then turn their attention to exotica from Ronoake or Schenachtady and so on.  The UK isn't like that, although modern image veers towards it steam age modelling requires several locos and a wide range of vehicles from BR and the big 4, and we still pester them with wishlists!

 

A little 'Murrican practice could actually go a long way, of it means more pre-WW2 and pre-grouping liveries, The problem with enthusiastic cries for filling "gaps" in the standards is that while they might have some adherents they are pretty limited in their appeal. Conversely, the Peckett and the Wainwright offer something close to an American level of variety - and sales potential.

[robmcg]

I think that whatever the tastes of customers are, when it comes to volume, conventional wisdom is that more will generate a better bottom line, or profit.

 

It looks to me as if the biggest sellers of quality RTR models are limited to such as A4s, Duchesses, and rebuilt Bulleids, all of which are to be seen in real life by all ages, evoking the great beauty of steam machinery.

 

I am constantly surprised by the ability of anyone to produce such as a high quality RTR 00 LNWR G2a or coal tank at a profit, but it appears to be true.  On the other hand such superb models of the SECR C class 0-6-0 and the H class 0-4-4T might well do, because they are simply so very appealing to a wide cross-section of people.

 

It would be interesting to know the exact size of production runs of, say, a variation of the Bulleid Light Pacific in either original or rebuilt prototype form, the logistics of painting them must alone be very complex, thus my admiration for Hornby for their continuing production at current prices and returns.

 

Cheers

[steventrain]

Hornby has rejected a takeover offer from its largest shareholder, Phoenix Asset Management - BBC.

 

Phoenix launched a mandatory bid for Hornby last month, after it bought a stake from another investor that gave it a 55% holding in the company.

The offer, of 32.375p per share, values Hornby - which also owns the Scalextric and Airfix brands - at £27.4m.

However, Hornby's directors said they believed the offer "does not reflect an adequate premium for control and significantly undervalues Hornby and its prospects".

Edited July 4, 2017 by steventrain

[Fireline]

Hornby has rejected a takeover offer from its largest shareholder, Phoenix Asset Management - BBC.

 

Phoenix launched a mandatory bid for Hornby last month, after it bought a stake from another investor that gave it a 55% holding in the company.

The offer, of 32.375p per share, values Hornby - which also owns the Scalextric and Airfix brands - at £27.4m.

However, Hornby's directors said they believed the offer "does not reflect an adequate premium for control and significantly undervalues Hornby and its prospects".

 

Almost. Hornby has recommended to the share holders that they reject the takeover. Typical BBC accuracy....