Frasers Group (nee Sports Direct) raises stake in Hornby to 9%

[adb968008]

3 hours ago, Johan DC said:

Tell me you have no idea what you’re talking about, without telling me you have no idea what you’re talking about.

 

i don’t claim to know it all, but I have enough experience in both operations and HR to tell you that firing everybody (and the kitchen sink) only leads to disasters. 

The only thing worse, is a merger where they fire no one, parachute in a bunch of “experts” and “managers” from the new parent who know it all, listen to nowt and wonder why everyone quits and leaves.

 

My best one was an acquisition where by the global head private jetted in to welcome us to the company but told us we all needed to cut back…

A year later he, his jet and half our BU had gone, but only our BU left voluntarily… most to the same competitor… the customers followed.

 

Companies are made by groups of people. No company has zero employees. They are therefore the biggest single asset of knowledge. But if you treat them wrong, they leave, that asset reduces to zero… Tech is worthless if collective minds dont know how to use it and get the best of it.

 

Edited March 21 by adb968008

[JohnR]

Lets not run away with ourselves here. Mike Ashley can only asset strip or sell off brands if he gets control of Hornby. He currently has less than 9%, and can only get control if the largest shareholder, Phoenix, wants to sell to him. Which really doesnt seem to be what they want, nor is it their usual way of doing business. 

[adb968008]

16 minutes ago, JohnR said:

Lets not run away with ourselves here. Mike Ashley can only asset strip or sell off brands if he gets control of Hornby. He currently has less than 9%, and can only get control if the largest shareholder, Phoenix, wants to sell to him. Which really doesnt seem to be what they want, nor is it their usual way of doing business. 

Indeed, he could be an unwanted smell in Margate.

 

Frasers profit £300mn, their 10% in Hornby worth c£6m.. this is not even the after dinner drinks bar bill to them.

 

Edited March 21 by adb968008

[ruggedpeak]

20 minutes ago, JohnR said:

Lets not run away with ourselves here. Mike Ashley can only asset strip or sell off brands if he gets control of Hornby. He currently has less than 9%, and can only get control if the largest shareholder, Phoenix, wants to sell to him. Which really doesnt seem to be what they want, nor is it their usual way of doing business. 

Hornby is majority owned by Castelnau Group, a closed fund set up by Phoenix. Phoenix are asset managers who are in the business of making money. They acquired the bulk of Hornby around 2017/2018 and put in new management who were from FMCG backgrounds. We all know what happened next.......We are now on the 3rd(?) attempt at getting the business back on a sound financial footing since then. They have not exactly been coining it since acquiring Hornby.

 

Castlenau state that they seek businesses that have:

 

"A demonstrable track record of high and enduring returns on capital employed. Our definition of “high” is an unlevered average of 15% after tax over a full economic cycle.
 

An “economic moat” surrounding the business to protect those returns on capital and ensure they stay high."

 

https://www.castelnaugroup.com/what-we-do

 

Neither of those apply to Hornby.

 

The Castelnau share price has fallen substantially since it was launched and is languishing well below its start price. The bulk of the fund is in the "end of life" business, Dignity. If the big fella wants Hornby and offers a decent price what reason would a fund manager have for retaining a business that has little near term prospect of a substantial return if they are offered cash now? The main issue is how to reinvest the money they would get, but with Ashley already sniffing they will be working on options for that. And even if Hornby have a decent turnaround plan this time it is likely that with Frasers they can do it quicker and better as Frasers have the resources and expertise that Castelnau don't.

 

Also bear in mind that Phoenix did or do (can't get current details of their holdings) have around 7% of Fraser shares in its portfolio (from when it was Sports Direct). So there is existing linkage between the companies.

 

So whilst I agree that we don't know if anything will happen, should Frasers want Hornby I suspect it will just be mostly a formality. Frasers add to their retail and IP portfolio and Castelnau/Phoenix get some sort of return on the Hornby investment.

[jjb1970]

I will be a little contrarian and say maybe Mike Ashley is the sort of person Hornby need.

 

The problem Hornby has faced isn't with their product, it is with managing their business. Their product is variable, having a lot of old legacy tooling but their modern tooling is excellent and while some will disagree I really don't have any issues with the trains they make. At their best they're as good as any OO releases, and TT120 was a bold and innovative move into a scale many touted as the ideal scale begging for UK outline RTR before Hornby went into it (or am I being too cynical?). However, their distribution and business processes have been woeful and seem to have lurched from problem to problem for years, that's what they have struggled with. 

 

People might not like Mike Ashley but he is no idiot and is clearly very good at what he does. He strikes me as being very much like Michael O'Leary, a figure people love to hate but one who is clearly very intelligent and highly competent and not one I'd want to bet against. Given that much of his success has been in relation to low margin goods for which efficient distribution and retail are almost everything he may just be the person to improve Hornby.

 

Of course, maybe he will be a harbinger of doom, but lets wait and see, maybe he'll be the medicine Hornby need.

[1andrew1]

1 hour ago, ruggedpeak said:

Also bear in mind that Phoenix did or do (can't get current details of their holdings) have around 7% of Fraser shares in its portfolio (from when it was Sports Direct). So there is existing linkage between the companies.

Showing today as 1%. It's interesting to see the stakes Frasers holds in other companies. It doesn't always acquire full ownership.

• ASOS 20.00%  
• Boohoo 22.08% 
• Castelnau 1.59%         
• Currys  6.59%    
• Hornby 8.94%    
• Hugo Boss 0.99%    
• Mulberry 36.82%    
• N Brown 20.02%  
• Northern Bear 0.43% 

https://uk.marketscreener.com/quote/stock/FRASERS-GROUP-PLC-9590226/company/

Edited March 21 by 1andrew1

[ruggedpeak]

57 minutes ago, 1andrew1 said:

Showing today as 1%. It's interesting to see the stakes Frasers holds in other companies. It doesn't always acquire full ownership.

• ASOS 20.00%  
• Boohoo 22.08% 
• Castelnau 1.59%         
• Currys  6.59%    
• Hornby 8.94%    
• Hugo Boss 0.99%    
• Mulberry 36.82%    
• N Brown 20.02%  
• Northern Bear 0.43% 

https://uk.marketscreener.com/quote/stock/FRASERS-GROUP-PLC-9590226/company/

Nice. If you can plant a director on the board and/or look at the detail ofthe business then that may be enough. I see they have a small stake in Castelnau, all interlinked one way or another....

[The Stationmaster]

One point in respect of Castelnau Group.  'Their' Hornby shareholding is actually registered in the name of Phoenix Asset Management who, of course,  have the controlling interest in Hornby shareholding.   That has been the case for some time and has not changed (or more accurately has not been declared to have changed).  How Phoenix manage matters internally lies with them but Castelnau do not , as such, own any Hornby shares according to stock market information.   Castelnau is regulated in Guernsey as a closed ended scheme and is described as a 'registered collective investment scheme'.  Effectively it would seem that Phoenix are using Castlenau to manage their Hornby shareholding (and maybe place its financial performance on Castelnau's books?). 

 

Referring to a comment above regarding Phoenix holding 7% of Sports Direct shares that must go back a long time as the 5% and greater level of ownership in such shares from 2012 and 2013 does not include Phoenix.  Frasers Group has been buying up its own shares at a steady pace for at least the past 5 years and is continuing to do so

[Gridiron]

On 29/02/2024 at 10:23, Clearwater said:

At the heart of the Sports Direct model is efficient and rapid distribution of their product.  They can and do move goods to and from their large distribution hub in Derbyshire.  I can see how they must look at businesses like Hornby and think we can cut the distribution overhead.  I suspect that's why they brought GAME and other businesses.  If they can add marginal load to lorries already doing a trip from the type of small towns that still have a model shop and a branch of Sports Direct, then they increase their overall profits.  

 

As a large single shareholder, whether Phoenix wants to invite them into join the board is a good question - I'm sure they're talking.  For Fraser Group, this is not just a financial play - it's an operational play.

Exactly, and they can go further by piggybacking the shipping of Hornby products from China etc with other brands shipping activities potentially further reducing costs. Perhaps also Phoenix have identified another link, that the youth of today big passion is technology and linking the model railway, model car and plastic kits to those popular games could be a money spinner because with your simple table top layout could easily be converted into some virtual reality West Coast Mainline or imaginary HS3 railway..

 

In my experience Asset Management companies do not tend to be long term investors so bringing in Mr Ashley would seem a logical exercise once the ship had been steadied with his experience in retail and logistics and distribution. One other interesting point to note, is that Phoenix is ultimately controlled by Channon Holding Limited which in turn is controlled a Mr Gary Andrew Scott Channon and a Mrs Sedef Channon. Mr Channon seems have had a very busy career in the past holding officers positions in no less that 353 entities, including a large number of funeral directors and similar industries.

 

 

[JohnR]

A good point was made earlier about Frasers stores stocking TT120. We've often moaned about the lack of visibility of model railways in the wider retail market, and perhaps this is something that Frasers can assist with - stocking Hornby product, making it visible to the buying public - and what better thing to do that the scale were Hornby are (effectively) the only suppliers?

[spamcan61]

Given Hornby's continuing inability to supply existing retailers with sufficient product i'm not convinced more demand would be a good idea'; yes maybe Frasers could help with that, but I doubt it given that toy train development and production, with its multi year timescales and limited number of suppliers, is a long long way from Fraser's usual mode of operation.

 

EDIT: other than the last link in the chain i.e. warehouse to retailers, maybe they can sort that out.; but if the product hasn't reached the warehouse that's academic.

Edited March 22 by spamcan61

[teletougos]

1 hour ago, spamcan61 said:

Given Hornby's continuing inability to supply existing retailers with sufficient product i'm not convinced more demand would be a good idea'; yes maybe Frasers could help with that, but I doubt it given that toy train development and production, with its multi year timescales and limited number of suppliers, is a long long way from Fraser's usual mode of operation.

 

EDIT: other than the last link in the chain i.e. warehouse to retailers, maybe they can sort that out.

Yes, it is a very different kind of product. And one that faces particular challenges.

 

At the end of the day the TT discussions can be very jostley and demandey, and are a bit ignorant, I'd say. Hornby sits atop it all but apart from smiling and nodding, can't do much about coaxing workers into factories. The continual talk of phases and resets of timescales is surely a distraction; they must know that the labour issues are unresolveable. 

 

In the end, this is an issue of folk from a country that decommissioned its manufacturing industries decades ago, grumbling about people in China who are just as aspirational, and do not see themselves as working their fingers to the bone making models in factories. 

 

Hence the economies of scale in getting stuff shipped more quickly with other Frasers' products, while an interesting suggestion, isn't necessarily going to free up anything in this supply chain.

[The Stationmaster]

3 hours ago, spamcan61 said:

Given Hornby's continuing inability to supply existing retailers with sufficient product i'm not convinced more demand would be a good idea'; yes maybe Frasers could help with that, but I doubt it given that toy train development and production, with its multi year timescales and limited number of suppliers, is a long long way from Fraser's usual mode of operation.

 

EDIT: other than the last link in the chain i.e. warehouse to retailers, maybe they can sort that out.; but if the product hasn't reached the warehouse that's academic.

If you don't make enough of something, anything, to meet demand then you can't sell what you haven't made.  If you make a lot more and sell more you can spread costs over more sales and reduce your selling price - something which Accurascale have grasped as part of its business model.   But you have to make the right things, at the right quality etc level, if you want to sell more of them.  The problem is picking the right things to make which needs a good understanding of the market or you are really brave and bright enough to create a new market (even in model railways).

 

It has been said time & time again - albeit from varying viewpoints in the hobby and on RMweb - that Hornby needs to get its marketing right but I somehow doubt that Mike Ashley will have much to offer there unless he is a closet  expert in such things as model railways and Airfix kit marketing. But the company definitely need help in sorting out sales/ordering processes and logistics so that would be well wprth getting c someone with the right expertise involved.

[wombatofludham]

3 hours ago, JohnR said:

A good point was made earlier about Frasers stores stocking TT120. We've often moaned about the lack of visibility of model railways in the wider retail market, and perhaps this is something that Frasers can assist with - stocking Hornby product, making it visible to the buying public - and what better thing to do that the scale were Hornby are (effectively) the only suppliers?

Would make for an interesting discussion in Sports Direct.

"I've just retired and want to take up golf so I need a bag of golf bats and some Rupert Bear trousers.  Do you have any in stock?"

"Certainly sir but have you thought about what you will do when it is raining or the course is waterlogged?  We've got a nice selection of space efficient Hornby TT120 model railway supplies perfect for an indoor bad weather hobby"

Pretty genius way of boosting sales when you think about it.

[The Stationmaster]

I see that Frasers Group have increased their Hornby shareholding from 8.9% to 9.13% (and the share price is up 2p on publication of that information).

[ruggedpeak]

4 hours ago, JohnR said:

A good point was made earlier about Frasers stores stocking TT120. We've often moaned about the lack of visibility of model railways in the wider retail market, and perhaps this is something that Frasers can assist with - stocking Hornby product, making it visible to the buying public - and what better thing to do that the scale were Hornby are (effectively) the only suppliers?

I agree, making a much better fist of making elements of all the Hornby ranges (whether TT120, Railroad, Corgi, Airfix etc) more mass market and high street/online retail friendly is probably the key and that is what Frasers can help with. Back to those instantly recognisable brands..........properly leveraged and deployed that is where the profits are.

 

[spamcan61]

20 minutes ago, ruggedpeak said:

I agree, making a much better fist of making elements of all the Hornby ranges (whether TT120, Railroad, Corgi, Airfix etc) more mass market and high street/online retail friendly is probably the key and that is what Frasers can help with. Back to those instantly recognisable brands..........properly leveraged and deployed that is where the profits are.

 

That's doesn't address the difficult bit i.e. manufacturing the right things in the right quantities in the first place. 

[Peter Kazmierczak]

Sales of Hornby products slump in Newcastle, after hearing of Mike Ashley's involvement...

[ruggedpeak]

8 minutes ago, spamcan61 said:

That's doesn't address the difficult bit i.e. manufacturing the right things in the right quantities in the first place. 

That is one of the areas that Frasers could bring their expertise to bear and add value. Hornby are still following a core operating model that has not changed in decades, even as competitors enter the market very successfully using other methods.

[spamcan61]

8 minutes ago, ruggedpeak said:

That is one of the areas that Frasers could bring their expertise to bear and add value. Hornby are still following a core operating model that has not changed in decades, even as competitors enter the market very successfully using other methods.

As I stated above, Frasers have no relevant experience in sourcing of long lead time, low volume products from a very small manufacturing base, I really can't see it happening. 

Edited March 22 by spamcan61

[teletougos]

1 hour ago, ruggedpeak said:

That is one of the areas that Frasers could bring their expertise to bear and add value. Hornby are still following a core operating model that has not changed in decades, even as competitors enter the market very successfully using other methods.

Not relevant.

 

Simple issue : there are not enough people in China who want to do the work. 

 

Complex issue : there are huge cultural factors at play here that create that situation, and which are unimaginable to a Westerner. 

 

What anyone from the UK business sector could add that would be of use in addressing those problems, I can't imagine. 

 

A slightly different issue but it does bear on this - I have hunted down little components in China that used to be manufactured but which vanished during Covid, for people in the UK. In those cases, it was just a personal favour.  Some stuff for embroidery, a few bits for laboratories. It's very hard to do. The reasons why even tiny widgets stop being made, are hugely complex. 

 

Edited March 22 by teletougos

[ruggedpeak]

I'm not convinced a group of experienced business people who have built a multi-billion pound business empire and overcome all sorts of problems don't have expertise or access to expertise to overcome difficult challenges like that. As they already have substantial holdings in various white goods, consumer electronic/digital firms they will have a decent overview of related manufacturing and supply chain challenges.

 

And if there aren't the people to do the work how is it the UK model railway business is seeing significant growth and huge outputs of product from new entrants to the market? It also assumes that Hornby's future relies on product made in China. Other model train companies can make high quality models without involving China. It may be prudent to shift to product lines that do not require Chinese manufacturing for financial, delivery and resilience reasons. And sometimes not having the straitjacket of conventional thinking can mean they are better at finding solutions.

 

As a hypothetical, if China as a manufacturing location is a primary strategic problem for the business one might:

 

• focus OO gauge models on Railroad which can be made outside of China
• concentrate Chinese manufacturing capacity of TT:120 if it continues to grow
• Boost non-Chinese made product lines like Airfix
• Develop other manufacturing capacity elsewhere

 

This might tie in with a hypothetical market situation - Hornby is facing stiff competition in OO, so is it worth investing time and effort there when Railroad can be rolled out to supermarkets, Game etc with minimal support (unlike say a highly detailed DCC Sound loco which is very supermarket retail unfriendly)? TT:120 has virtually no competition so would be worth, if the numbers stack up, focus Chinese capacity on that by removing OO production and driving that segment since Hornby dominate. Airfix and simpler Corgi products are very retail friendly and again can be made closer to home, offering the chance to boost volume etc withouth the Far Eastern issues.

 

All very simplistic but Frasers know how to get product on shelves and out the door. It may mean breaking some taboos and not doing OO any more but that has to be better than the bakery suggested earlier!!

Edited March 22 by ruggedpeak
typo

[1andrew1]

I think it's relatively few manufacturers who can do without China as it's become a  centre of expertise for the industry.

 

Playtrains are made in Vietnam so another benefit of that range is to test supply chains from another country. Vietnam is certainly picking up other work that used to go China so that's a possible new location if there is a factory there that can go beyond Playtrains level. 

[adb968008]

Buy a Washing machine get an 8f free..

 

might be the only way to get rid of the moulded smokebox dart 8fs

Ive still got my free Christmas tree from Hornby for buying a few coaches, big pot, got roots might do next year too.

 

AO lets go.

[ruggedpeak]

13 minutes ago, 1andrew1 said:

I think it's relatively few manufacturers who can do without China as it's become a  centre of expertise for the industry.

 

Playtrains are made in Vietnam so another benefit of that range is to test supply chains from another country. Vietnam is certainly picking up other work that used to go China so that's a possible new location if there is a factory there that can go beyond Playtrains level. 

Agree, Roco manufacture in Austria, Romania and Vietnam so it can be done.

 

Two more points I'd make, firstly moving away from China is now a strategic security and economic imperative for reasons we all know, so huge efforts are being put in globally to find other locations for things China currently does. Secondly if (big if) Frasers go large with Hornby they have the financial clout and buying power to make things happen that a small cap standalone company like Hornby does not have.