Hornby's financial updates to the Stock Market

[Ron Ron Ron]

   

[Hroth]

I was surprised how close the prices are in Eastern Europe - I would estimate that setting up a factory would bring in a fist full of government grants too. They are more expensive, but not 'orders of magnitude' more expensive, and your employment costs can be regulated with types of contract. You could also bring in more work from outside - didn't Hornby used to make combs too?

 

Plus, how much is a delay of a month or two worth when you have no control over schedules and miss your Christmas sales period? Quite a lot I reckon.

Rovex used to make small plastic objects, mainly toys for Marks and Spencers, other products included combs. M&S "commissioned" a toy train set which went on sale for Christmas 1950.  When the train business took off, the other products fell by the wayside and Triang bought Rovex in 1951 for the toy trains.

 

Combs have never been a product of the Hornby business empire!

[Titan]

More people than we could ever imagine is my guess

 

Some even combine the two!

 

[Coryton]

Rovex used to make small plastic objects, mainly toys for Marks and Spencers, other products included combs. M&S "commissioned" a toy train set which went on sale for Christmas 1950.  When the train business took off, the other products fell by the wayside and Triang bought Rovex in 1951 for the toy trains.

 

Combs have never been a product of the Hornby business empire!

 

On the other hand, according to the Bachmann web site the original US company began by mainly manufacturing combs...

 

http://www.Bachmann.co.uk/home.php

 

If you substitute "model trains" for Lego, I wonder how many on RMWeb would fall into this category?!

 

Surely both come in the category where there is no such thing as "too much"?

Edited February 23, 2016 by Coryton

[lochlongside]

My own experience of Barclays, in a very different business matter, suggests that it is not a good listener.

Not sure how UK banks work but interesting comments on some legal sites about breach of financial covenant – to paraphrase:- one site (US) Banks do not like calling in the debt if there is in their view an underlying profitable business, because "Ongoing businesses can be a revenue source for banks even when the loan has developed problems. Besides, banks must set aside reserves for loans they classify as being in default, and they don't like to do that since capital tied up in reserves is capital that can't be put to work earning money for the bank in the form of loans to other borrowers”. In banking I believe an owed good debt is actually an asset and I can see that as applicable in UK as well particularly when the economy is on the up. The big question is, is the business profitable,  and do Barclays want to be the bank that shot “Thomas" for less than they hand out in compensation possibly every week (you can see the headlines already!!).

[Clearwater]

Not sure how UK banks work but interesting comments on some legal sites about breach of financial covenant – to paraphrase:- one site (US) Banks do not like calling in the debt if there is in their view an underlying profitable business, because "Ongoing businesses can be a revenue source for banks even when the loan has developed problems. Besides, banks must set aside reserves for loans they classify as being in default, and they don't like to do that since capital tied up in reserves is capital that can't be put to work earning money for the bank in the form of loans to other borrowers”. In banking I believe an owed good debt is actually an asset and I can see that as applicable in UK as well particularly when the economy is on the up. The big question is, is the business profitable, and do Barclays want to be the bank that shot “Thomas" for less than they hand out in compensation possibly every week (you can see the headlines already!!).

All banks work in exactly the same way... Yes, a loan is an asset to a bank and, as I commented earlier, banks set covenants so as to be able to intervene whilst the company in question is still profitable and, hopefully, worth more than the loan outstanding

 

I'm sorry but Barclays will not analyse the situation from a PR perspective. The consideration about "who shot Thomas" is not an argument that will be made with any relevance. How can you explain that to your shareholders? The compensation argument is also irrelevant.

 

Barclays loan to Hornby is a tiny, tiny fraction of its loan book. By comparison Barclays will lend hundreds of millions to single FtSe 25 companies. When a loan defaults, the loan is typically transferred to a specialist recovery group. Those guys will be very hard nosed about retrieval of the cash. I'm afraid pr rarely features on their radar. Not Barclays, but you may recall a few years ago HBOS pulled a loan on Farepak just before Christmas leaving lots of people out of pocket. Got dire PR. Didn't stop them. I very much doubt whether Hornby will get any special treatment as the franchise holder for 00 Thomas...

 

David

[Ron Ron Ron]

In any event, Hornby do not own Thomas. It's not their property.

Hornby will have simply bought the rights to use the Thomas branding, so they can sell Thomas themed products in particular specified markets, for a specified period of time.

If Hornby is "shot", the owners of Thomas will just as easily rent out the rights to someone else.  

[Clearwater]

Agreed Ron - I'm sure would take Bachmann all of 5 nano seconds to extend their license to the uk and export their existing, tooled product to the uk as well...

 

Question is what would they pay Hornby/adminstrators for that licence assuming Hornby has not defaulted on the agreement. If I were h, I might look to sell that licence in the next couple of months

 

David

[Joseph_Pestell]

Agreed Ron - I'm sure would take Bachmann all of 5 nano seconds to extend their license to the uk and export their existing, tooled product to the uk as well...

 

Question is what would they pay Hornby/adminstrators for that licence assuming Hornby has not defaulted on the agreement. If I were h, I might look to sell that licence in the next couple of months

 

David

 

If I were licensing a product, it would be part of the deal that administration voided the agreement.

[Clearwater]

Agreed - depends on the change of control language in the legal agreement. I'd not want to lose control of "my" product however I doubt it captures a change of control of Hornby as a whole

 

David

[Willie Whizz]

...

 

The Finances  and Mr Ames’ departure

When I read the accounts (I am no accountant but someone on here probably is and can correct my figures !!)  if your profit for the year was only St321k, a write-off of St1M or 10% equiv of stock held is significant. I would assume – reading between the lines that possibly what did for Mr Ames (the catalysts if not the only reasons) was discovering things like St1M of write-off less than 6 months after producing an annual report and an optimistic rights issue proposal for GBP15M where this was not even alluded to in the risks, an extension of a revolving credit facility of GBP10M(?) of which a significant sum (GBP8M used to clear existing debt ?? – not clear to me) together with a collapse on post Xmas Sales when everyone had been led to believe in the Rights documentation (Risk 1.5) that Hornby normally (that’s what it implies!) do pretty well. When the bad news is followed by a 75% fall in share price a sacrifice is essential to indicate that “something” is being done to the “scribblers”. The CEO is normally the fall guy.!!

 

...

 

Yes, and sometimes deservedly so, e.g. Fred Goodwin with Royal Bank of Scotland a few years back.

 

Now there's a classic case of a 'rights issue' of shares being made in a problem situation for the company, which got away successfully on the back of a prospectus that turned-out to be incomplete and misleading.  (I suppose I must add "allegedly" ...)  The business crashed just a few months later, and thousands of disgruntled shareholders (including Lady Whizz) have formed an action group to sue the Bank.  You can't sue for just losing your money of course - that's the risk you take as a shareholder, always bottom of the pile - but you can certainly sue if you were induced to put more money in by a 'false prospectus'.

 

The problem here is that "British Justice" takes so long to work that the Court Case doesn't even come up until 2017 now, and the threat of losing it is one factor that's kept the share price so low since.  One hopes nothing of this kind and duration will happen at Hornby (where I am fortunately an ex-shareholder, having got out about 3 years ago).

Edited February 23, 2016 by Willie Whizz

[Ron Ron Ron]

Without knowing anything about the details of such arrangements, I find it inconceivable that the licensee or franchisee (Hornby in this case) would have carte blanch to transfer or trade their licence, whether in good financial health or otherwise, to another party.

Company take overs and administration are probably well covered legally as a matter of course.

Outside of default or breach of the terms, deals may or may not be allowed through or at the behest of the owners.

[Joseph_Pestell]

Yes, and sometimes deservedly so, e.g. Fred Goodwin with Royal Bank of Scotland a few years back.

 

Now there's a classic case of a 'rights issue' of shares being made in a problem situation for the company, which got away successfully on the back of a prospectus that turned-out to be incomplete and misleading.  (I suppose I must add "allegedly" ...)  The business crashed just a few months later, and thousands of disgruntled shareholders (including Lady Whizz) have formed an action group to sue the Bank.  You can't sue for just losing your money of course - that's the risk you take as a shareholder, always bottom of the pile - but you can certainly sue if you were induced to put more money in by a 'false prospectus'.

 

The problem here is that "British Justice" takes so long to work that the Court Case doesn't even come up until 2017 now, and the threat of losing it is one factor that's kept the share price so low since.  One hopes nothing of this kind and duration will happen at Hornby (where I am fortunately an ex-shareholder, having got out about 3 years ago).

 

No, I think you are on safe ground saying that it was "incomplete and misleading". The question is whether people allege that was done deliberately or negligently.

 

Hornby too, I believe, has raised extra funds from the shareholders in the not-so-distant past.........

[darren01]

Hornby too, I believe, has raised extra funds from the shareholders in the not-so-distant past.........

Don't think this will happen again.

[Andy Y]

I haven't any idea whether it's evidence of wider thinking within retail but a retailer I spoke to today said that they hadn't placed their usual January Hornby order (with new lines etc) as there had been less interest than usual from their customers in what Hornby were up to principally because there was no catalogue for people to look at and discuss. It's a moot point whether such customers are any less interested in Hornby in purchasing terms if they see less brand and product advertising in the media a traditional market would expect to see advertising and products. Looking at the average customer who falls into this scenario they are not likely to be researching on Hornby's website or seeing their Facebook output.

 

As they say, it's not rocket science.

[RDL]

I work in a major UK bank on the Corporate side. I would say that for the amount of money Barclays has out to Hornby vs. Negative PR that would result if they called in the receivers and broke up / sold off the group rather than trying to help them turnaround will be at the forefront of their minds.

If Barclays do go down a forced sell off then it means the problems are seen as intractable which is very bad news, likely be down to one major model manufacturer (which itself is going through supply issues).

[Pete47401]

I haven't any idea whether it's evidence of wider thinking within retail but a retailer I spoke to today said that they hadn't placed their usual January Hornby order (with new lines etc) as there had been less interest than usual from their customers in what Hornby were up to principally because there was no catalogue for people to look at and discuss. It's a moot point whether such customers are any less interested in Hornby in purchasing terms if they see less brand and product advertising in the media a traditional market would expect to see advertising and products. Looking at the average customer who falls into this scenario they are not likely to be researching on Hornby's website or seeing their Facebook output.

 

As they say, it's not rocket science.

 

We haven't either. Waiting (probably in vain) to see if they even notice. Perhaps a friendly email from the sales office or a rep... "Can we interest you in any of our great new 2016 product Pete?". If they aren't interested then I'm not interested.

 

No doubt what we would have ordered can just be sold direct to the public.

[Andy Y]

Perhaps a friendly email from the sales office or a rep... 

 

Have you still got a rep Pete? Apparently the Midlands is without a rep as he left at Christmas, or as told to me, his services were no longer required.

[Pete47401]

Have you still got a rep Pete? Apparently the Midlands is without a rep as he left at Christmas, or as told to me, his services were no longer required.

 

Andrew Blanchette?

 

No, neither he nor they have bothered to tell me about that, but it would explain recent lack of contact.

 

Perhaps they don't want people going around trying to do stupid things like sell models to model shops when they'd rather sell them direct.

[Clearwater]

I work in a major UK bank on the Corporate side. I would say that for the amount of money Barclays has out to Hornby vs. Negative PR that would result if they called in the receivers and broke up / sold off the group rather than trying to help them turnaround will be at the forefront of their minds.

If Barclays do go down a forced sell off then it means the problems are seen as intractable which is very bad news, likely be down to one major model manufacturer (which itself is going through supply issues).

I'm not sure I quite agree with you. I too have spent most of the last twenty years in front office banking.

 

I quite agree that if Barclays gets to the point of pushing the business into liquidation the problems are intractable. However, Whilst I wan probably a bit quick to leap to a conclusion above, I don't think there will be negative PR for them around this situation and hence not an influence on their decision making process. We've seen enough press articles, a disproportionate number for such a small company, that are all predictable and allow Fleet Street's finest to hone their rail related cliches. You can read the headline now "end of the line for Hornby as bank closes business." Etc etc as nasueam. They'll be some more hand wringing talking head columns about how terrible it is children of today don't play with old fashioned toys couples to an admission they buy their kids an iPad. Of dear and how sad for the enthusiasts. However, the tone will be if the business isn't making money then what else could the bank do? They are not a charity and are not going to continue to fund the working capital of the Hornby business.

 

Where is the bad publicity, where are the millions of customers saying we must keep this business open, will Jermey Corbyn be demanding a statement from Cameron asking what he will be doing to protect this iconic British brand? I'm afraid I can't see it. Even on this site which is broadly supportive of all manufacturers, there is a recognition that if they don't make money, they will eventually fold. I can't see how a risk committee will translate that into a loss of more than the gbp10m so Barclays has out to them.

 

Yes I'm sure Barclays would rather avoid any bad publicity and ideally wants to see the business either sold or retuned to profitability but I can't see a reason why they would hesitate around reputation all risk here.

 

As othersr have said, let's not prhuedge the situation befor Hornby's year end and let's hope for a positive outcome

 

David

[Ozexpatriate]

Even on this site which is broadly supportive of all manufacturers, there is a recognition that if they don't make money, they will eventually fold. I can't see how a risk committee will translate that into a loss of more than the gbp10m so Barclays has out to them.

I think the issue here is that we don't understand why Hornby, which while certainly struggling, did appear to have fixed some fundamentals and a £2M loss on the year would not have had this result.  It is the dramatic reversal of fortunes with a poorly explained, projected £6M loss that is so shocking.

 

There is more to this story than publicly available numbers alone can show.

Edited February 23, 2016 by Ozexpatriate

[davknigh]

Just for reference, when does Barclays have to make their decision, or when are they likely to be making their decision?

 

Cheers,

 

David

[Andy Hayter]

There is no fixed point.  Given the public release of information Barclays may already have made the decision of what has to be done.  They are not bound to make a public statement and indeed making such a statement may limit the oportunities for improving the situation.  It is not in Barclays best interest to simply make the company bankrupt, unless there are no other financially viable alternatives. 

[Trains4U]

Since the catalogue was released (and we can make a more informed choice), we've placed our 2016 order. -  though for the third year in a row, I'm not ordering everything.

 

Perhaps others have done the same and the Feb figures might start to look more promising!

[Zunnan]

A few of the model outlets that I speak with are ordering no Hornby products what so ever, not as a result of Hornbys financial issues, simply as a result of the awful treatment they've had. And to be honest, who can blame them? It says a lot that Ian Allen (certainly in B'ham) are one of those outlets who are winding down on stocking Hornby. I'm beginning to wonder if this is an accumulation of a few problems over the years, the production issues, the 2012 debacle and alienating a massive chunk of their domestic retail just for starters...something seems to be coming home to roost, and it looks like it could be trouble.

Edited February 24, 2016 by Zunnan