Hornby secure £18 million loan

[The Stationmaster]

Wow, in one page we’ve gone from Hornbys £18mn, to China is terrible, as is UK management and landed back on David Cameron...

 

All without once blaming Europe.

 

That’s a feat in itself.

 

So, what do we think Hornby will do with £18mn ?

Well they might buy the rest of some things which are profitable - at present they effectively own, through LCD Enterprises c.45% of Oxford Diecast Ltd and c.24% of Oxford Diecast (HK) Ltd, the latter being a Chinese registered company based in Hong Kong and manufacturing diecast vehicles, both of these companies are profitable and accordingly benefit Hornby PLC's bottom line.  Equally they might seek to invest in the latter company to allow it to make Hornby Group diecast models thereby giving them great control over the production costs for such models.

 

Beyond that if it has been decided to slim Hornby PLC some of the money will no doubt be spent on the costs (redundancy etc) of doing that and there might be costs for withdrawing from whatever licence etc agreements the company still has and wishes to shed.  

Beyond that the logical thing to do is invest in the product areas which are the most profitable/offer the greatest chances of improving profitability and income within the Hornby Group - we don't know what they are as we have no real information beyond sales figures.  

The other possibility is that some of the money could be invested in moving production from China to countries with currently lower costs and where it might even be possible for Hornby to establish wholly owned, or fully controlled, production facilities - that would be a major step and a big change from what currently happens so is perhaps an outside bet.

[DJM Dave]

The latter takes us to an interesting (and worrying?) example of Hornby's current marketing malaise - an area where they have definitely gone backwards since the new regime arrived.  So the Thomas range is axed but what do we find in the July issue of 'the Modeller'  - a full page multi-colur ad for the three trainsets in the Thomas range  .  This ad tells us to visit Hornby or our local model shop to purchase one of the three advertised sets and 'start our Thomas adventure today'; just as well the 'local model shop' is mentioned as Hornby themselves only have two of the sets in stock, the third one is 'out of stock'.

 

So what is the ad about?  Is it a bid to try to clear stocks of the Thomas range or is it a matter of Hornby's left and right hands not communicating with each other?  And why, on their website, are some items shown as 'sold out' while others are shown as 'out of stock' - does the latter imply they will be restocked?  It could all of course be a simple error but equally it really does give an impression of either a lack of connection between marketing and company policy,or maybe an act of desperation to clear stock?

 

 

 

This removal of Thomas is even more interesting, especially as there is a Thomas film due for release this year, i believe.

[Clearwater]

Wow, in one page we’ve gone from Hornbys £18mn, to China is terrible, as is UK management and landed back on David Cameron...

All without once blaming Europe.

That’s a feat in itself.

So, what do we think Hornby will do with £18mn ?

Given they don't have a positive operating profit, even after adding back depreciation, even the loan of £12m (excluding the Phoenix subordinated loan) strikes me as pretty aggressive. Few companies can sustain more than 4x EBITDA as debt.

[robmcg]

....

 

The other possibility is that some of the money could be invested in moving production from China to countries with currently lower costs and where it might even be possible for Hornby to establish wholly owned, or fully controlled, production facilities - that would be a major step and a big change from what currently happens so is perhaps an outside bet.

 

Did not Hornby move some production outside China in the early days after the Sanda Kan debacle, with not-very-great outcomes? QC issues.

 

Quite apart from issues around training of staff and so on in countries like Bangldesh, India or Vietnam.  My feeling is that the assembly of RTR trains requires an established culture, not just the planting of a factory somewhere. 

[APOLLO]

The Chinese, Japanese and other far eastern races are very adept at making intricate small and complex articles from all manner of electronics etc to model railways.

 

Could other less developed countries do similar ? I doubt it without a lot of culture change, training etc. A huge investment in both time and money would, I think, be required.

 

Hornby could not afford it.

 

Brit15

[dibber25]

Did not Hornby move some production outside China in the early days after the Sanda Kan debacle, with not-very-great outcomes? QC issues.

 

Quite apart from issues around training of staff and so on in countries like Bangldesh, India or Vietnam.  My feeling is that the assembly of RTR trains requires an established culture, not just the planting of a factory somewhere. 

 

Yes, we were told at one of the annual Broadstairs meetings that they had tried  getting the then-new 28XX assembled in India but the right skills did not exist. At that time they were having some Airfix kits produced in India and that was more successful. It seems that the Chinese - especially the ladies - are particularly nimble-fingered. The down-side is that there's a high turnover of staff and the constant need to train new people means that experienced staff are thin on the ground. (CJL)

Edited June 17, 2018 by dibber25

[Ben Alder]

Anyone who has to reassemble a China made loco is painfully aware how nimble fingered they are...

[LBRJ]

Sometime ago now I became aware that the global race to the bottom for skilled work and workers was more or less at an end.

Outside of SE Asia there is not (yet) the required skills base for intricate and technical assembly work (specially not at the wages offered).

 

Maybe the expansion of the Chinese empire  area of economic interest will create a more suitably skilled workforce in Africa in the near future.

[jjb1970]

There's no reason that the work force in any country couldn't be trained to assemble model locomotives. What tends to happen is people compare early efforts of a new factory with the efforts of a well regarded established player and then add two and two together to get three. Anybody who has seen factory workers engaged in complex manufacturing in any sector will appreciate the skill involved and how workers build up some quite remarkable skills. Early Korean brass was considered well below the standards of the Japanese master brass builders (such as Microcast Mizuno, Fujiyama, Toby etc) and within a handful of years the Korean's had left the Japanese behind. Similar comparisons were made with early Chinese brass models.

A few years ago when the South Korean ship yards entered the LNG carrier market they brought in Norwegian specialists to supervise manufacture of the LNG tanks and gas systems. At that time I remember some rather smug comments from those people about how rubbish the Korean's were and that it'd take more than a decade for the Korean's to master the technology. Within a couple of years the Korean's had mastered it and basically took over that whole market, one of the most lucrative in ship building. And that needs an awful lot more technical expertise and skill than making model trains.

If companies decide to build a capability elsewhere and the costs add up they'll do it.

[robmcg]

Whatever the pros and cons of finding a cheap and skilled labour force, I think the days of intricately assembled cheap RTR models are over. 

 

That's why I rather like my Hornby Clans and other very attractive models which are unlikely to be repeated.

[wombatofludham]

Well they might buy the rest of some things which are profitable - at present they effectively own, through LCD Enterprises c.45% of Oxford Diecast Ltd and c.24% of Oxford Diecast (HK) Ltd, the latter being a Chinese registered company based in Hong Kong and manufacturing diecast vehicles, both of these companies are profitable and accordingly benefit Hornby PLC's bottom line.  Equally they might seek to invest in the latter company to allow it to make Hornby Group diecast models thereby giving them great control over the production costs for such models.

I hope to God that Hornby do NOT buy any more of Oxford. The last thing we want is Hornby's narrow focussed dead hand taking greater control. One thing you can say about Oxford Diecast is that Lyndon and Eloise have a knack of producing both surprises and good bread and butter models, witness their announcement of the new 1:76 Duple Commander coach for later this year, not a massively popular design in it's day but which sold to a number of larger fleets including several popular liveries like Southdown. As a model coach it's a daringly niche but a canny choice. Their diecast range is full of oddballs and other more sensible types, plus they interact with their customers really well and bring items to market swiftly. Frankly if Hornby took control I think there would be uproar in the Oxford community and it wouldn't end well.

 

Let's face it, Hornby's stewardship of Corgi has been mixed and for the most part a lost opportunity to develop a complementary range of 1:76 road vehicles for their railway sales.

[jjb1970]

I also think it'd be terrible, the last thing I want is Hornby models being improved to Oxford rail standards.

[JSpencer]

Let's face it, Hornby's stewardship of Corgi has been mixed and for the most part a lost opportunity to develop a complementary range of 1:76 road vehicles for their railway sales.

 

It also produced some out right expensive items whose quality falls short of everyone else on the market (speaking of military subjects, the only part of diecast that interests me).

 

They either need to move towards Dragon standards or bring the price down to Oxford's standards. Currently they are Dragon prices and Oxford's standard, a bad combination.

[jjb1970]

Some of the Corgi aviation models are superb, I have the 1/32 Mosquito and seams aside (which are hard to avoid on a diecast model of that type) it is an excellent model. Ditto quite a few of their other aircraft releases which IMO are better than Oxford's aviation models.

[No Decorum]

Guided by the skilled hands of our masters, the UK is decending towards third-world status. I recall a story from about the time of the move of production to China that Hornby was doing another run of an old model which was proving difficult to assemble. Luckily, some old hands remembered the trick and the problem was sorted out. Those skills have been lost. However, consider the Little Loco Co. It has been producing in the UK and it has been painful but LLC has been persevering and I think those skills will be built up again.

 

It’s early days but I suspect that we shall see an 0 Scale Class 22 at Heljan prices but much superior to Heljan. Perhaps it wouldn’t work in 00.

 

(Expecting flak. )

[Keep the Faith]

Guided by the skilled hands of our masters, the UK is decending towards third-world status...

 

"third-world status" - really?

[Mike Storey]

Guided by the skilled hands of our masters, the UK is decending towards third-world status. I recall a story from about the time of the move of production to China that Hornby was doing another run of an old model which was proving difficult to assemble. Luckily, some old hands remembered the trick and the problem was sorted out. Those skills have been lost. However, consider the Little Loco Co. It has been producing in the UK and it has been painful but LLC has been persevering and I think those skills will be built up again.

 

It’s early days but I suspect that we shall see an 0 Scale Class 22 at Heljan prices but much superior to Heljan. Perhaps it wouldn’t work in 00.

 

(Expecting flak. )

 

There is also Roundhouse of course, still making 32mm and 45mm live steam and battery diesel models (plus a range of other things now) in their factory in Doncaster. When Accucraft, a Chinese-made make, entered the game, there were worries for Roundhouse. Years later, no worries.

[Allegheny1600]

Guided by the skilled hands of our masters, the UK is decending towards third-world status. I recall a story from about the time of the move of production to China that Hornby was doing another run of an old model which was proving difficult to assemble. Luckily, some old hands remembered the trick and the problem was sorted out. Those skills have been lost. However, consider the Little Loco Co. It has been producing in the UK and it has been painful but LLC has been persevering and I think those skills will be built up again.

 

It’s early days but I suspect that we shall see an 0 Scale Class 22 at Heljan prices but much superior to Heljan. Perhaps it wouldn’t work in 00.

 

(Expecting flak. )

On the whole, I agree with you.

I foresee a UK where the typical employment is sales/marketing, retail or education - mostly. We do and hopefully will continue to retain some quality engineering, witness the various F1 manufacturers, aerospace divisions and indeed, military constructors (do we still have any?) and can still (just) produce some high quality steel but on the whole, it's a pretty bleak outlook for heavy engineering.

It's not just a British problem though, too much of the 'Western' world seems to have adopted this attitude of exporting all the 'heavy' jobs and importing a finished product - fine for the short-term but very bad for the long-term.

Now, if we could develop a way of importing part completed models and finishing them off here (adding value), could that turn things around? By which I mean - save the skills crisis, help our economy and put a "Made in Britain" sticker on everything.

Also (Expecting flak.  )!

John.

[adb968008]

.

Edited November 6, 2018 by adb968008

[Mike Storey]

On the whole, I agree with you.

I foresee a UK where the typical employment is sales/marketing, retail or education - mostly. We do and hopefully will continue to retain some quality engineering, witness the various F1 manufacturers, aerospace divisions and indeed, military constructors (do we still have any?) and can still (just) produce some high quality steel but on the whole, it's a pretty bleak outlook for heavy engineering.

It's not just a British problem though, too much of the 'Western' world seems to have adopted this attitude of exporting all the 'heavy' jobs and importing a finished product - fine for the short-term but very bad for the long-term.

Now, if we could develop a way of importing part completed models and finishing them off here (adding value), could that turn things around? By which I mean - save the skills crisis, help our economy and put a "Made in Britain" sticker on everything.

Also (Expecting flak.  )!

John.

 

I think you are both forgetting that the UK now "makes" more cars than it has ever done before, albeit a significant percentage are assembly rather than manufacture, but many of the parts suppliers to them are manufacturers in their own right, and much of their output is exported. Quite what will happen to much of that, post a certain date which we will not discuss here, we don't know. 

 

But there is chemical engineering, bio-engineering and software engineering, all of which the UK excel at, but which are increasingly desperately short of qualified staff and scientists. I agree that steel making should have a protected, strategic status, but then certain other things that have been sold off to foreign owners, or exported, should have had them too.

 

One of the key issues that dogged British industry, despite much of the rose-tinted monocles, is that a large proportion of British youth in the 50's and 60's simply found it boring to work in a factory and felt no pride in what they were making. They did not identify with the success of their factory or industry, for a variety of complex reasons, hence they did not care whether they went on strike and it shut down (I generalise of course). Only people with families to support had anything much to lose. Has that changed? If not, how do you change it?

 

But "Made in Britain" has a simplistic appeal. Unfortunately, it leads to the sort of trade wars we may well be about to experience, as in large part, it is protectionism (particularly if it means you must subsidise it or raise tariffs on imports for it to thrive). That may be justifiable for key infrastructure and some R&D and manufacture (such as energy, defence and key communications software etc.) but economic history should rule over hearts for most. Protectionism post the 1929 Crash, was largely blamed for prolonging the great depression, a lesson a certain section of the US public seem not to have learned. Another aspect is that the UK (along with the USA) has nearly "full" employment, with enormous skills shortages, let alone retaining any. There is a decent argument that this has relied on a plethora of low paid and insecure jobs, but those jobs will still be needed to be done by someone if a significant portion of the working population is upskilled and paid more. I would certainly argue for training and educating our people towards a better paid and more secure life, but I am wondering, given where we are probably heading, where all those people are going to come from.

 

Anyway, Hornby (with Airfix and Humbrol) and Dapol, are dipping their toes in the water with returning to UK production for some things. Let's see how they fare.

[Pint of Adnams]

Now, if we could develop a way of importing part completed models and finishing them off here (adding value), could that turn things around? By which I mean - save the skills crisis, help our economy and put a "Made in Britain" sticker on everything.

Also (Expecting flak.  )!

John.

I was under the impression that part of the attraction of the Far East was the ability of the workers to better handle the fine details and finishes than could be achieved in the UK, as the Far East moved on from the post-war 'Made in Hong Kong' cheap and cheerful to emulating then exceeding the best of production elsewhere. Why for example did the US model market turn to the Far East for high quality brass models?

 

I would like to see the UK become a high quality manufacturer again and cease giving away all our inventions, but does the UK labour market of today really have anywhere near the capability for fine detail repetitive work?

[LBRJ]

On the whole, I agree with you.

I foresee a UK where the typical employment is sales/marketing, retail or education - mostly. We do and hopefully will continue to retain some quality engineering, witness the various F1 manufacturers, aerospace divisions and indeed, military constructors (do we still have any?) and can still (just) produce some high quality steel but on the whole, it's a pretty bleak outlook for heavy engineering.

It's not just a British problem though, too much of the 'Western' world seems to have adopted this attitude of exporting all the 'heavy' jobs and importing a finished product - fine for the short-term but very bad for the long-term.

Now, if we could develop a way of importing part completed models and finishing them off here (adding value), could that turn things around? By which I mean - save the skills crisis, help our economy and put a "Made in Britain" sticker on everything.

Also (Expecting flak.  )!

John.

 

The UK is still the 8th largest manufacturing country in the world.

 

Aerospace sector employs 130000 people with a turnover of £31Bn

Automotive 170000 and £70Bn

Defence 142000 and £24Bn

[adb968008]

I was under the impression that part of the attraction of the Far East was .... ?

The lowest €$¥£₼лв₡₪денлв₫ and of course.. ¥ p/hr. Edited June 19, 2018 by adb968008

[jjb1970]

Why for example did the US model market turn to the Far East for high quality brass models?

 

 

In the case of brass models it was much more a case of Japanese craftsmen creating a product which was embraced by the North American market rather than US companies outsourcing or seeking a product.

[jjb1970]

The underlying argument seems to go back to the allegation of a global race to the bottom. There is no race to the bottom, if there is a race in terms of human capital and income (and that is itself highly questionable) then it would be a race to the middle. People in the developed world (Europe, NA, Australia, Japan etc) see through from the prism of declining wages, eroded T&C's etc. People in China, Indonesia, India etc see this through a prism of previously undreamed of wealth creation, the creation of a large and wealthy middle class and opportunity. This may surprise some, but countries like China, Korea, Indonesia are not backwards muck holes full of workers happy to work for a bowl of rice. As economies develop so do expectations and aspirations and wage levels in much of the emerging world are not as low as some might think. What we're seeing is a gradual equalisation. And countries like China don't just compete on low cost, over the last 30 years or so they've invested heavily in their education system, promoting professional development of scientists, engineers, doctors etc and now have a formidable scientific/technical capability.