Clearwater

They also need to think about the non-exec team. I do think it's right to have someone with toy experience around the board table. They should know toy market trends, how licensing agreements work and bring some creativity to that side of the business plus contacts as relevant in the toy market. They should also be up to date on manufacturing trends and developments and be able to suggest to the mgmt team new ideas they think could be applicable. For example, how you take the electronic miniaturisation present in most toys and adapt for the Thomas range and how you use the same technology to appeal to adults (cf TTS or platform announcements etc) I also think they need someone with either rail or heritage rail sector experience. Failing that someone who is involved at a senior level in eg the RAF museum. That person should bring a perspective on what the enthusiast market in either rail or aviation is looking for. Based on posts here, most of us have more than a passing interest in planes, ships etc... Person needs to have board level experience, from a governance perspective. If I were the headhunter, I'd suggest someone like Simon Linnett, chair, at the NRM, Richard Croucher of GWS, or Bob Meanley of Vintage Trains. Equally a successful business person who is a rail enthusiast would also work. Clearly the gold standard is Jeremy Hosking. Another suggestion could be someone like Paul Francis who's run the porterbrook business for many years. Given I don't think it is likely that an executive team can be found with an enthusiast background, I think it's important that there is that perspective around the board table David

Various ways eg https://en.m.wikipedia.org/wiki/Short_(finance) David

The Guardian http://www.theguardian.com/lifeandstyle/shortcuts/2016/feb/15/lego-up-and-Hornby-down-whats-what-in-the-world-of-toys

Let's not forget that for the bankers, who will sit at the small corporate / retail end of the spectrum and not in Barclays investment bank), it is also pretty embarrassing to go back to credit committee and say "you know that name who we extended our loan to last year for a further 4 years when they did the rights issue, good, well now they are in breach of covenants"... You can spin it to say "we've caught a potential problem early" but it's not the best place to be David

That's a good point Mike around coaches in particular, wagons seem better catered for, and one I'd been meaning to edit to add! On previous threads, I've gathered coach economics are harder to square. I think kernow's gatestock is a rare (only?) example of new tooled retailer commission. Oxford rail have signalled their intentions with the Mk3. Salaries is a tricky one - I agree looks toppy and is perhaps part of the 'we're a big plc' culture that seems to exist in Hornby. However in small turnover, owner run companies, there is a wide variation in director remuneration from the high five figures to similar packages as seen here. To my point earlier, it's plausible that Hornby had to pay a certain level to hire Ames and who knows, maybe others were more expensive. From the remuneration report, I recall (I am in hospital with my wife at present who has just given birth to my second son so I'm both a bit distracted and don't have the report to hand (I also have a lot of sitting around hence am able to post to rmweb)) that they have substantial bonus and share options that won't have kicked in. As such, whilst it's galling he's been paid so much, he has earned substantially less than he expected l. Sadly for him, I think he'll find getting another ceo role challenging. David

Fwiw, if, and it's a big if, Hornby disappears, that would present a bigger opportunity for the commissioners and small independents to produce more of the o2, 14xx, beyer Garretts, Atlantic singles etc that a lot of us here like but aren't necessarily in the train set market. David

Noticeable one of them is firmly in the toy / licensing market.

Agreed however we don't know the deal with shareholders. Could well be Ames has to go now and you the chairman later but shareholders recognise that to kick out both chairman and ceo simultaneously would be even more destabilising David

Cynically I'd suggest the Hornby ceo role is not a top gig and they had a limited field

Rob Ukmainlinesteam.info gives some useful info http://www.uksteam.info/tours/trs16.htm You can put that data into realtime trains ( http://www.realtimetrains.co.uk/search/advanced) and follow the train from there Personally I find it easy to start with real time trains, put that on detailed view and find the train in question from there. You can then click on it and it will tell you he scheduled path David

Being a listed company chief executive is a bit like being a football manager. Do well and a bigger company will pay you more. Lose your shareholders money, it's the sack. Suspect the chairman and broker have had some to the point conversations with shareholders in the last few days and over the weekend

Thanks Mike. I agree. On costs, H is c4x turnover of Bachmann's uk outfit but c5x the staff. I think h does work and resource itself like a major Plc. I think the comment about delivery schedules jools1959 made above may be very pertinent albeit primarily a working capital issue. I can see how you can get your budgeting wrong if you expect sales based on when that product should have been delivered. Instinctively, I don't think that makes a difference to the the hobby market - we'll all relatively indifferent as to when our collett coaches are delivered albeit Hornby have to fund the timing mismatch. Hence my comment that preordering could help. To be clear, unlike the majority of preorders I've made, I think these need to be genuine sales with customers parting with hard cash. I do think it makes a difference when the Thomas sets arrive - suspect those being late was not helpful and can hit sales and expected cash flow. If you're buying for Christmas and it doesn't arrive until 20th Dec (can't recall date), I suspect most parents wouldn't/didn't buy. The working capital hit could be significant and if to solve it, there is a dash to cash through discounting, you could create a p&l issue. It can also create a debt leverage issue. Net debt increases to fund the working capital, ebitda is reduced, no sales, hence a debt/ebitda leverage covenant could be under significant pressure. Plus like pavlov's dog, consumers sit back and wait for discounts...there's plenty of anecdotal evidence for that on here! I think there are various routes - toy company, hobby specialist etc that could all be successful. As you indentify problem is trying to do both (eg design clever). David

One useful feature on google maps is the ability to draw a line and for them to tell you the length.

Equally I have no specific insight - you need proper due diligence to work out what would be viable given the weak public disclosure. Anecdotally, it seems the problems come when they step out of their core market and try something, whilst logical, new. Eg the Olympics losses a few years ago. An interesting investment thesis to test would be whether you try and position yourself more exclusively for the core demographic - ditch the toy line of thinking. I'd reckon that of most of Hornby's customers their buying patterns are relatively stable and predictable. From that, I think you could build a realistic business plan. It's not a sexy PE turnaround for a 25%+ irr over three years but one where some stable, predictable cash flows can be generated. Probably one for the alternatives end of a pension or insurance investor. Particularly if you can derisk the business by moving to a preorder system for new toolings. Ask for a deposit, or funding via a JV partner such as the retailers or locomotion, then you can fund your tooling costs without damaging cash flow with a less uncertainty on what you will sell. If you can get payback on the tooling from the initial runs, then you should be in a strong position. Points towards a move away from the one-off prototypes though! David

Presupposing there are some profitable business lines being obscured by the overall company position. Theoretically the equity market should be pricing in the cost of a turnaround. I think your 10m may be a bit optimistic - if they owe c10m to the bank, and you assume 2-3m for restructuring costs, I reckon you'd be budgeting at around £15m? David

I get around a 3.3% margin after adding back non-cash items (depreciation and amortisation) of ebitda (earnings before interest, tax, Depreciation and amortisation). Agreed that's pretty low hence why you don't need to go far wrong on the revenue line before you have a problem. I'd note Bachmann only sells to trade so their revenue figure will be lower than Hornby's per item sold and h should have a higher margin. I don't think the ownership is an issue for the margin (and in any event Bachmann's parent co Kader is listed in Hong Kong). The difference to me is that a public company has greater disclosure requirements and may need to show to public investors a growth profile whereas a private company can have more flexibility. However, private equity owners are generally pretty demanding of their management teams albeit they can take a 3/5 year view on when growth is achieved David

As an aside, when we consider Hornby's model rail business to a third party, we shouldn't forget the value of any production slots they have contracted. That seems to be the bottleneck for many firms bringing product to market. Also a likely suitor could be someone who also uses those same Chinese factories... David

I think peco is ducking the issue

Given Hornby's chequered financial history, I would be surprised if their lending bankers haven't been asking for very detailed information for a while (like you I've done that and that's what I'd have asked for when I've had borrowers with poor records of meeting covenants) Equally, if I were their broker, I would also have be asking for the same info as I'd be looking for a way to plug the cash flow gap and get the loan repaid. Lastly, if I were private equity, do also want the same info to work out if the sum of the parts of the business is worth more than the current market price. The CFO had better hope he's got his house in order to be able to provide that data... David

In terms of DJM's point and Ozexpatriot's comments, whilst I'm no aim expert and don't know the details of the rules some common sense observations apply. Given the fall, I am surprised trading in the shares has not been suspended. 1) you've now told the market you are sailing up a creek and have mislaid the paddle 2) however less than 3m ago, you said all was good. Less than 12m ago you told investors you had a great plan to resurrect this great brand It feels the least you should be doing is to set out a timetable as to when you will be updating investors on your plans and then stick to that date and say what you will be doing. See what rolls Royce said a few months ago about their strategic mishaps In your next announcement you need to directly address how your early December statement was so badly wrong before turning to your plans for turnaround. I reckon they have one shot left at convincing their bank and investors so they have to get it right otherwise the mgmt team will have to go. I suspect as we speculate the chairman, the ceo and cfo are sat in a room with their broker trying to figure out what to do... David

I agree. It's a pretty illiquid stock where the info provided to the market is poor. Hence the large movements when there is news flow. There looks to be two competing dynamics going on as investors scrabble to think what Hornby is actually worth. Firstly, I think investors are expecting, at the very least, a further rights issue. In a rights issue, investors pay the company for more shares but given the value of the company remains broadly the same, the price should theoretically fall. Some investors are trying to reflect that in their price. Equally some are thinking what is the inherent value of the brand and building their own models (financial in excel) as to what they think a small niche manufacturing business with a loyal customer base is worth. They are also trying to factor in the additional loss lead over and above the December statement. Those investors think the company, post dilution is worth way more than the £30m or so implied by the current share price and debt outstanding (note rather like a house the enterprise value of the company is the sum of the equity and the debt position) David

On here, we're all guilty of guessing. We don't know how underperformance in one area, eg scaletrix, may drive them to try and get sales in, eg trains, artificially higher through discounting. It's not a bad assumption that H is overstocked and hence discounting but it's possible the train discounting we see is a function of problems elsewhere David

Hopefully link will work. For those interested, Bachmann Europe plc's 2014 accounts from companies house: https://beta.companieshouse.gov.uk/company/02392907/filing-history Shows turnover of approximately £14m. I'd suggest Hornby's model rail turnover is higher but I've no evidence to support that assertion David

Plus articles on bbc website and guardian website. Given Hornby is a minnow of a company, this illustrates the potential value of the brand. DJM Dave makes a good point. I seem to recall that Jeremy Hosking was a major shareholder at one point. I'd wager that there was an element of sentimentality in that investment... Someone like him would be a good owner of Hornby from our perspective as users of their products David