Maybe Simba-Dickie will make a new acquisition ...

unless they get themselves out of trouble (improved sales) there will be sharks sitting on the sideline waiting for a bargain.

there can be 2 scenarios: voluntary bankruptcy or the bank applies for bankruptcy in either case, the company has to stop trading until a administrator is appointed and the administrator can decide whether or not the company is worth trading (similar to Märklin).

John

Well the CEO has paid the price, "stepping down" with immediate effect.

Carim

.... a ray of hope (no pun intended).......I went to a local exhibition yesterday and there were lots of little children who were loving it (both boys and girls). The organisers provided plenty of stepping stools and the smarter exhibitors would even run a "Thomas-like" engine when they spotted a younger audience.

It would be interesting to see the books when they're released. Typically, companies which have engaged in aggressive acquisition are burdened by debt along with the financial covenants imposed on them by the Banks to justify lending against projected, consolidated income. It is usual to see a requirement that the borrower meet minimum interest and debt service coverage - the former can be as high as 3 times total interest cost.

That means simply making a profit is not necessarily enough - if you borrow say 10 mil at a rate of - call it 4%, total interest cost 400k. A covenant at a common 2.5x would see the business having to achieve earnings before interest and tax of 1mil.

Add to that, capital structure - lets say your assets totalled 20mil. The Bank allows you to borrow up to 10mil, based on your ability to service the debt (could be projected income based on consolidation of revenues from your existing business plus the one you want to acquire). The Bank is happy because it has set a maximum gearing ratio of 70% and assuming your only borrowings are the 10m it lent you against 20m in assets and say 2m in trade creditors etc. Your net asset position is 8m. Gearing is at 60% and the 2.0mil projected profit equates to 5.0x interest cover - happy days.

The recently acquired businesses have stretched your internal accounting systems to breaking point and substantial investment in infrastructure is required due to the previous owners not having invested in their business for some time. Total cost of group restructure 1.5mil.

Your auditors then advise you that in addition to your own tired stock with outdated technology, the company you just purchased also carries obsolete stock which must be written down - another 1mil.

Finally (you hope), the restructure you have just engaged in has seriously distracted your staff due to relocations, retraining in systems and new operations - add to that, teething problems with the new sales tracking and accounting systems which are inevitably ongoing. Cash earnings are down 2mil.

All things being equal, your 2.0mil profit from last financial year is now a 2.5mil loss. You are in breech of one of your financial covenant for interest and debt service cover and the Bank is interested in a meeting.

Worse, the added acquisition costs and write off in conjunction with drop in cash earnings erodes your capital by 4.5m. What was a comfortable level of gearing now turns into Bank debt 9mil (because you would have to have made some level of principle repayment) and trade creditors 3mil (because the drop in cash-flow has resulted in you having to extend your supplier terms). Total debt 12m against total assets of 20mil less 4.5mil = 15.5mil. Gearing is now 77%.

You have now breached your gearing covenant and the Bank is now questioning the true value of your remaining assets. If the Bank were to sell last year, 20mil of assets looked comfortable enough to recover 10mil of debt. Now at 15.5mil????? But wait, some of those assets were in fact the value of the business as a going concern - based on profitability of 2.0mil per annum profit. What is it worth now?

At its most simplified (and in addition to a declining market), this is what faced the administrators of M in their time and I can only hope that Hornsby can find a well capitalised saviour to rescue them as well.

Regards,

Michael.

I'm sorry to hear this about Hornby. I do still feel good about our Märklin as I don't believe Simba-Dickie would have bought them if they thought they were beyond turning around.

As for China, I do not feel sorry for them. If they want to be a world player, they need to play fairly. (and also stop poisoning peoples' beloved pets) Peter

Edited by moderator 08 February 2017 17:36:27(UTC)  | Reason: formatting (line breaks)

There has been considerable talk on other web-sites about the current Hornby policy with its emphasis on direct sales over supplying traditional hobby shops which in an age of limited batch production means the latter, usually the smaller shops, fail to get all or part of their requirements. Hopefully with a change of C.E.O. this will alter. It is worth remembering at least one of the reasons for the failure of the old Lima company was their treatment of their retailers.

Bob M.

Have you seen the prices for Hornby, WOW!

Marklin is now priced the same, but it's: QUALITY, QUALITY, QUALITY! Okay ninety nine percent of the time!

Sales have dropped, wow what a surprise, NOT!

Hornby should either pull up their socks or go the way of the dinosaurs!

Their products lately.........10-15 years are cheaply made and when you contact them for service it's NON EXISTENT!

Sent a parts request ..acknowledged ................week later reply; part not in stock contact; third party ie; Peters Spares, www.petersspares.com............SOL!!

Also worst of all the blinking price!!! Yes I'm upset that I have a collection of Hornby Class 08's and I dare not run them because of lack of basic parts. Way to go Hornby for digging your on grave, don't count me on being a dinosaur collector!

Let me the first to admit, the buck stops here!

The great news was that in 2012 I sold off my collection of Hornby to a collector who was very happy to get my collection and I was happy that I made him happy! Is't that what a business should be doing, make people happy!

Oh well good morning is so much nicer to say isn't it when you contact someone?

Michel

who said we are out of the last one.


I'm sorry to hear this about Hornby. I do still feel good about our Märklin as I don't believe Simba-Dickie would have bought them

if they thought they were beyond turning around. As for China, I do not feel sorry for them. If they want to be a world player, they need

to play fairly. (and also stop poisoning peoples' beloved pets)

Peter Cool

And poisoning peoples babies with poisoned baby formula.



Have you ever seen chinese bearings?????? make you cringe.

Dereck

Regarding a new financial crisis, there is lot of speculation over that after the Brexit voting results became public this morning and many have speculated that it will trigger a new finacial crisis. It has also been reported that Scotland is looking into ways to stay in since a much larger majority voted for the EU there compared to the small, but majority for Brexit in the UK as a whole.

The £ has fallen about 8% this morning as a result and that can't help Hornby when it comes to import from China to the UK.

Hi Per,
Overseas buyers who deal direct with Hornby UK or any UK hobby shop, will likely be able to buy cheaper now.
So they may see a rise in export sales.
The Scaledale range probably has a few accessory items of interest to modellers generally.

regards
Kimball

What I meant was that unless the CNY also drops, the import will become more expensive and that could trigger raised prices unless Hornby can afford lowering their margins.

For us within the EU it could become more expensive to buy from Hornby UK or from UK (or perhaps only English or Welsh) hobby shops since we are at least hit by national VAT, even if the shop may have added their local VAT as well. (This is something I have experienced buying model train engines and container wagons from the USA and model cars from Japan). But this will only happen when the UK has actually left the EU and that is a process that will start now and nobody can say today what the end result will be. Would Scotland, Northern Ireland and Gibraltar (I read that a large majority voted for staying in Gibraltar and hope my sourde was correct) somehow manage to stay in the EU since the majority there voted for staying? Nobody knows.

Companies like Hornby will have to look at how they set up their future business. Would they for instance make more of a difference between Liliput, Jouef and Electrotren all making continental models and the UK line of models? The continental brands may in many cases sell in several markets whereas I would guess that the interest on the continent for English models is more limited.

There is a risk that Märklin fans within the UK will see a price increase.

Sorry about that I wasn't thinking about you poor blokes in The UK, just in general overall!

The Hornby saga continues, in a trading update they said that revenues would be down 20-25% for 2016 and they are continuing reducing product lines and inventories. Well at least sales to independent retailers were up 4% over Christmas.

Carim

And Marklin decided to produce a gold plated model and sell it at exorbitant profits; will this ultra-low volume ULTRA high price, niche item help them to survive? I will wait for another five or ten years and let time be the judge on this strategy, when the older generation of supporters are gone.

They were not thinking, obviously!

Yes I remember, Most of it was rubbish, they must of made a bit with the Harry Potter franchise as well. What did they spend that on??
My local model shop owner said. That Hornby just did not listen to them and others, and eventually lost out to Bachman 00. Plus Graham Farish Bachman. All of it being very nice models. But getting more expensive?

The problem with modern Hornby is the quality when compared with the European brands. Marklin for instance price wise is not that more than Hornby and miles ahead in quality. Marklin is beautifully made, comes apart with nuts and bolts and spare parts are available. Hornby is quite obviously Chinese made and starts deteriately once it comes out of the box. There are many Hornby models you cannot even take apart without breaking lugs etc. as for spare parts, that went years ago.
It must be remembered that Hornby originally was a brand called Tri-ang, aimed at kids and was always a throw away product from the outset. 50 years ago Tri-ang had the chance to continue the quality of the aquired Hornby Dublo range which they did not. Now that the current market place is dominated by middle aged people who can desern quality and not the children of the past, there in is a problem. The Tri-ang business model may not be working so well anymore, loosing site of the current market. The prominent point with Marklin buyers was the the trains were made in Germany, to German quality. Marklin took big notice of this, brought production back from China. Modern Hornby are locked into China only production, with rising prices, a Chinese build tag, their future does not look good at all.

Bryan

Sorry, it should have read ' It must be remembered that modern Hornby originally was a brand called Tri-ang". If I may correct you also, Meccano did not go broke, their shares in February 1964 were still listed on the UK stock exchange, they never became insolvent. Lines Brothers bought all the Meccaco shares for 781,000 pounds, in a complete takeover bid, far from going broke.
Bryan