A very British coup - ToyNews

A very British coup

Hornby?s acquisition of Corgi created one of the most complete hobby suppliers on the market, with a wide portfolio of product and good international reach. Ronnie Dungan took a trip down to the firm?s Margate HQ to hear chief executive Frank Martin talk about the company?s very British success story?
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What’s the best bit of toy advertising on TV now? Hasbro’s Indiana Jones’ Whip? Nerf? Gormiti? The Lelli Kelli earworm of a jingle?

Nope. The best bit of toy marketing on TV at the moment is not even a toy campaign. It’s for a bank. It’s the Abbey campaign featuring Lewis Hamilton being made from an Airfix kit, complete with branding, iconic blue-print instructions and snap-off plastic parts.

If it doesn’t evoke some wistful memories of Lancaster Bombers, Messerschmitt 109Es, decals and glue in men of a certain age, then it would be surprising to say the least.
Prime time advertising of that type is simply out of reach for toy manufacturers these days, but it demonstrates the strength and confidence in the name that it should be identified as the default modelling brand.

And Airfix is now part of the Hornby group and was joined in April by the equally iconic Corgi brand. With its own classic train range and Scalextric too, the firm has become a haven for classic British toy brands.

But far from being a collection of out-dated hobby brands the group has been progressing steadily since 2000 with profits increasing every year from £1.2m to £9m today. The beginning of its acquisitive period in 2004, with the purchase of its Spanish distributor Electrotren, did not disturb that upward growth pattern.

“We’re stronger in all sorts of ways, internationally and sectorally we have a big brand portfolio and geographical spread and we’re much more brand-based,” chief executive Frank Martin tells ToyNews.

“We’ve bought very keenly throughout,” he says.

Indeed, the firm has expanded its international reach with the aforementioned Electrotren; Lima of Italy in the same year; French firm MKD in 2005 and then the ailing Airfix and Humbrol in 2006.

And all are doing nicely. In fact profits in Electrotren are up 40 per cent since it came under Hornby’s wing and sales on the continent overall are up 30 per cent year on year.

Hornby has become the UK toy industry’s most public success story and its iconic collection of labels make it a real joy for the City pages looking for something a little quirky to report on.

“The City expects huge profits, just like that,” says Martin, clicking his fingers. “But there’s no doubt that any expansion is a response by shareholders to grow the business. That can put the business under pressure, but ultimately, that’s what they want.

“Our share price is lower than it should be, but I’ve been told by our analyst not to worry too much about that,” says a slightly concerned-looking Martin. “Our peers are doing the same.”

And so to the purchase of Corgi earlier this year in a whirlwind deal costing some £8.3m (£7.5m cash, plus stock), which was completed in less than two months. It ends a long courtship of the company by Hornby.

“We looked at them about four years ago just after Zindart bought them,” says Martin.

Essentially Hornby has bought the core of Corgi, the collectables business that became part of the larger Cards, Inc group of film and TV-licensed products that never quite seemed to fit too snug with Corgi’s image as a traditional collector’s favourite.

It gives Hornby perhaps the most complete range of hobbies and collectables on the market, covering trains, slot-cars, models and now collectable die-cast.

Martin says he is “delighted” with the Corgi deal.

“We’ve got an incredibly solid brand and product portfolio and the geographic spread to maximise the brands we’ve got,” he adds.

Corgi was the large missing piece of Hornby’s hobbyist puzzle, so the pace of its acquisition trail is likely to slow considerably now as it beds in its new lines and looks at how to once again grow its investments.

“I’d like to see a period of consolidation,” says Martin.
So don’t expect the firm to stray too far from its roots with a straightforward toy line.

“We’d never say never but the focus is predominantly hobby. Hobby is incredibly hard work, the gross margins are high and you have to spend a lot in capital investment. Individual volumes are low but the positive side is that you almost never have to sell below cost. If you have something left over you can almost always sell it because it’s not as fashion-driven as toys.”

Martin has great faith in the hobby market despite the competitive pressure from more contemporary childhood entertainments and, yes, toys too.

“Last year was one of the strongest years ever for video games but Scalextric sales were up 23 per cent. That was heavily influenced by the Lewis Hamilton and Maclaren effect.

Hopefully that debunks that myth that it must either be video games or hobbies. There’s room for both, clearly.

“We’ll be looking to do the same with Airfix with the Doctor Who and Shaun the Sheep lines.

“A large part of the market is the adult hobbyist but unless you also feed the market with new entrants it will disappear. And you’re only ever going to get a small percentage each year,” Martin says.

True, but by being the most complete hobby and collectables supplier on the market, Hornby has pretty much guaranteed who that one per cent will turn to.

Hornby timeline:

1901 Frank Hornby invents Meccano
1920 Model train production commenced (‘O’ scale)
1938 ‘OO’ scale model railways introduced
1964 Acquired by Triang, becoming Triang Hornby
1974 Acquired by Dunbee Combex Marx
1981 Acquired by management buy-out
1986 Floats on London Stock Exchange
1997 Transfer of production to China begins
1999 Acquires Scalextric US
2002 China production transfer completed
2004 Buys its Spanish distributor Electrotren
2004 Buys Lima. Renames it Hornby Italia
2005 Acquires MKD. Renames it Hornby France
2006 Buys Heico Modell
2006 Acquires Airfix and Humbrol
2008 Buys Corgi

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