Chinese manufacturing costs up $2m for Hornby

Speaking at the company’s annual meeting, the models and collectibles group chairman Neil Johnson, said that while Hornby had taken steps to improve its supply chain performance, which last year held back sales of model railway products in Europe, there were still some problems. “Whilst many of the issues have been resolved by improved communication and providing additional engineering resource, both in the UK and also in China, some underlying problems continue, largely due to the increasing input costs borne by our suppliers,” he explained. “Accordingly, to assist further, we have agreed to revise our purchasing agreement with our principal Chinese supplier which will increase our purchasing costs in the current financial year by up to $2 million. We anticipate mitigating this cost pressure over time but it is likely that this will only partially be achieved by the end of the current financial year.” In a trading update for the period from 1 April to 30 June, Johnson said Hornby’s businesses in the UK, mainland Europe and the USA continued to experience good product demand. Sales had held up well in a challenging retail environment and order intake was better than the previous year. Hornby had a good product pipeline driven by licenses such as James Bond and McLaren, he went on, but “as is the case every year much will depend upon consumer confidence and the robustness of consumer demand in the pre-Christmas period in determining the overall result for the year. Historically hobby products such as ours have performed relatively well in times of consumer uncertainty.” The company’s acquisition of the Airfix and Humbrol brands in November 2006 had proved to be successful and the integration of the Corgi business, acquired in April 2008, was proceeding according to plan. The company expects Corgi to break even this year, and move into profit thereafter. “However, given the inevitable time-lag between buying the Corgi assets and receiving supplies of new products from our suppliers in China, earnings will be adversely affected in the first half of the current financial year,” warned Johnson.