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DT
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Hornby Chairman Neil Johnson said today at the company's annual meeting, that the company have taken positive steps to improve their supply chain performance, which last year constrained their sales of model railway products in Europe.

Hornby have agreed to revise their purchasing agreement with their principal Chinese supplier which will increase the purchasing costs in the current financial year by up to US$2M.

Hornby will spread this new cost over time but it is likely that this will only partially be achieved by the end of the current financial year.

Hornby's recent strategy has been to diversify and strengthen the Group's supply and revenue streams. The acquisition of the Airfix and Humbrol brands in November 2006 has proved to be successful and the acquisition of Corgi in April 2008, is proceeding according to plan. Hornby expect this business to be earnings neutral in the current year, and earnings positive thereafter.

The Scalextric brand has done well for Hornby with tie-ins to the forthcoming Bond film and deals with McLaren giving slotcar racing fans access to Lewis Hamilton cars.

Lets hope that the prices don't go up too much and that the quality remains the same.
 

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QUOTE (Doug @ 28 Jul 2008, 15:31) <{POST_SNAPBACK}>Hornby have agreed to revise their purchasing agreement with their principal Chinese supplier which will increase the purchasing costs in the current financial year by up to US$2M.
What would that be in percentage terms when compared with their turnover of Chinese produced items ?
 

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QUOTE (Brian Considine @ 29 Jul 2008, 06:16) <{POST_SNAPBACK}>What would that be in percentage terms when compared with their turnover of Chinese produced items ?'
If you take a look at 'Investor relations' on Hornby's site the report is there in full. Just looking at the financial summary on p31, turnover was £55.7M. More significant is their 'cost of sales' figure of £20M, and if that is largely the costs of developing and producing their products in China, then the increase is 10% in round numbers. That is likely to 'move through' as a percentage increase on the retail price, based on my general experience in manufacturing businesses...
 

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Would that not be nearer to 5% as the cost increase was quoted in USD ?

That would not be too bad considering the way raw materials & other costs are going up. IMHO, if costs to the manufacturer rise above their predictions where will they claw their margin back ?
 

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QUOTE (Brian Considine @ 29 Jul 2008, 07:29) <{POST_SNAPBACK}>Would that not be nearer to 5% as the cost increase was quoted in USD ?
Whoops, you are right. But that only holds while the exchange rate is at the atypical $2 = £1. Since the economic fundamentals are unchanged, when the exchange rate reverts to the more usual $1.4 = £1 of recent years, the increase will be more like 8%. Hornby may hedge on the currency futures market of course to contain that.

Oh it was all so much simpler when I made flint axes and traded them with Og over the hill for his pottery...
 

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QUOTE Oh it was all so much simpler when I made flint axes and traded them with Og over the hill for his pottery...

Hi my name is Ugg, I'd like to trade my new invention with you for sme of your highly recommended flint axes.
My invention is sort of the shape you get when you put the tip of your index finger and the tip of your thumb together, it makes moving heavy things around really easy, I predict it will revolutionise modern living in the Tri-cave area


On a serious note, is this rise in costs just with Hornby or accross the whole group? If it's the whole group them it is not as bad as it seems as the costs which will have to be passed on eventually have more places to go and with Hornby being more expensive than Bachmann I doubt they will want to put too much on these lines.
 

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QUOTE (5696Arethusa @ 30 Jul 2008, 16:18) <{POST_SNAPBACK}>Hi my name is Ugg, I'd like to trade my new invention with you for sme of your highly recommended flint axes.
My invention is sort of the shape you get when you put the tip of your index finger and the tip of your thumb together, it makes moving heavy things around really easy, I predict it will revolutionise modern living in the Tri-cave area


I wish you success - my attempt kept sticking on the corners


Regards
 

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QUOTE (5696Arethusa @ 30 Jul 2008, 17:18) <{POST_SNAPBACK}>On a serious note, is this rise in costs just with Hornby or accross the whole group? If it's the whole group them it is not as bad as it seems as the costs which will have to be passed on eventually have more places to go and with Hornby being more expensive than Bachmann I doubt they will want to put too much on these lines.
On a quick skim of the report summary it appears to apply to all the products Hornby have contracted Sanda Kan to make for them; but I haven't read the report in detail (not a Hornby shareholder so it isn't high on the priority list) to see whether that is broken down across the various product ranges. The realist (or pessimist) in me says that Hornby will distribute the resulting price rises among their product ranges to maximise their profit. Their big recent success financially has been Scalextric, and they will want to protect that, particularly as the market demographic is a young one. The report is on their site, accessed from 'investor relations' if you want to sift through it.
 

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Given the current economic environment, a lot is being made of the 2mil. Yes its a lot of money but as a % its not that bad.

Model trains are a luxury product. You should buy what you can afford and if there are things you cant afford hope some of your friends get one so that you can admire and maybe play with it.

John
 

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QUOTE (john woodall @ 31 Jul 2008, 16:29) <{POST_SNAPBACK}>Given the current economic environment, a lot is being made of the 2mil. Yes its a lot of money but as a % its not that bad.

Model trains are a luxury product. You should buy what you can afford and if there are things you cant afford hope some of your friends get one so that you can admire and maybe play with it.

John

***Quite right... its nothing special in todays business climate.

In the same period wages in China have increased significantly more than that percentage and raw materials such as plastics are rapidly rising almost continuously - within the lst 6 months ex china mfg cost have actually risen about 15% for some electronic products so Sanda Kan must be meeting part of this with either increased efficiencies or as a short term buffer, managing cost absorbtion of part of the cost... but that will not continue.

It also matches the probable significant rise in bachmann predicted some time ago.

Modellers will have to accept this, plus probably accepting a slowing of new models as higher costs will mean slower recovery of the significant research, tooling and development costs for each locomotive and wagon....

I would expect to see ex China Mfg to keep rising this way for the next 12 months and beyond quite steadily - both wages and raw materials are not going to stabilise any time soon as the large developing nations are absorbing all they can get from everywhere and paying any price they can for it. Inevitably there will then begin a shift in Mfg from China to Indochina and India to lower labour costs if cost rise past market acceptance and then the cycle will start again.....

Raw materials really are rising - new steel and coal contracts ex Australia have been signed with prices paid at more than 70% above previous levels, and all other metals such as lead, zinc etc are simply impossible to buy at any price.

Hearking back to the Marklin thread, this increase in costs is more than mirrored outside China, so I'd not expect any positive impact on brands still making locally in EU - the opposite in fact! I'd guess that as soon as the investment company can respectably overturn or negotiate a payout for the long term labour contracts of Marklin staff, Marklin will consolidate ranges then all core Mfg will shift east (much marklin component making is already there anyway - I recently talked to the company that makes Marklins stainles steel rail for example)

Richard
 

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I may not like the price increases, but as long as the detail level continues to improve (except the wheel flanges
) then it is something I can live with.

I would hate to see prices stay the same but instead of the 2000's level of detail, stock goes back to the 1980's level of detail.

John
 

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QUOTE (john woodall @ 31 Jul 2008, 19:26) <{POST_SNAPBACK}>I may not like the price increases, but as long as the detail level continues to improve (except the wheel flanges
) then it is something I can live with.

I would hate to see prices stay the same but instead of the 2000's level of detail, stock goes back to the 1980's level of detail.

John

I don't think detail will slip back at all in any brand - as price increases the need to validate it increases too.... but perhaps there may be a wider divide coming between toy and scale model.

As to your comment above...John... the quickest cost saving would be a huge reduction in metal used in Marklin locos by removing the added pizza cutter from each flange and saving yet another 33% in metal costs by reverting to 2 rail!


They could call it Trix Junior


Actually Hornby will buy it, Move manufacturing to Binns Road, apply all their old diecast body tooling to the marklin chassis and re-release it as Hornby Dublo. (or perhaps Hornby Dubro of Binns Load, Shanghai.)

Cheers

Richard
 

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QUOTE (Richard Johnson @ 31 Jul 2008, 12:55) <{POST_SNAPBACK}>Actually Hornby will buy it, Move manufacturing to Binns Road, apply all their old diecast body tooling to the marklin chassis and re-release it as Hornby Dublo. (or perhaps Hornby Dubro of Binns Load, Shanghai.)

Cheers

Richard

 

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I think we are seeing here a process that will go on steadily for a number of years, as Chinese costs slowly rise towards those in the developed world.

I'm not convinced that world manufacturing can in fact shift to some other third world country, simply because China is so big, and its own domestic demand has been rising at a similar rate to its exports . IndoChina is a drop in the bucket compared to China, and I'm a little sceptical about India, because it is not actually a dirt poor country (though it has many desperately poor people) and therefore labour costs are unlikely to be dramatically lower - in fact in recent years some manufacturing has apparently shifted from India to China... Not to mention the fact that China's infrastructure is now better than India's

And as more of China's production is absorbed by the domestic market , sooner or later some production is going to have to resume in the West as the cost gap closes . Where exactly we are going to find the people to work in these factories is an interesting question, although there are some parts of Europe where unemployment is still high.

At the moment prices of British outline aren't high enough seriously to inhibit demand , and I think we still have some way to go before that begins to happen. But you can get to a situation where a product is just too expensive for the market to bear and demand falls away. I think that is what has happened in Germany - it doesn't seem to be the case that German manufacturers have lost major market share to cheap Chinese competitors , what seems to have driven the disaster overtaking the traditional manufacturers is a collapse in total demand, not loss of market share. I do suspect quite strongly that the root cause of it is that the product is just too expensive for the market to bear : I don't believe 30% or 50% of Geman modellers have recently vanished

There are only 2 ways round that - either you try to make an expensive product artificially cheap by using cheap labour , or you come up with an affordable product (diecast metal wasn't a cheap approach to start with , and what current metal prices must be doing to costs can't be good). Running two versions of every product , in 2 and 3 rail, with 2 digital systems to cover, can't help either - there must be diseconomies of scale all though the chain from design to the model shop shelf (where twice as many product items must be stocked). This sort of thing did for Meccano (Hornby Dublo) a long time ago

There is no way you can make a Porsche an affordable mass market car by trying to slash the wages in Bavaria by 20% - it's not real world stuff , hence it's not clear where Marklin go from here - the news from Hornby signals that trying to relocate production to China might only be a temporary fix,

But if the cost of RTR is going to rise inexorably at 8% per annum from here on in, then at some point , perhaps in a decade's time , the price even of Hornby and Bachmann will begin to inhibit demand.

And I have a very strong suspicion that things like "museum quality" models and widespread DCC Sound are gold plate and bells and whistles that we can't actually afford in the long term. Not if we are to have "affordable" RTR (to borrow a jargon word from the housing market)
 

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QUOTE (Ravenser @ 1 Aug 2008, 07:27) <{POST_SNAPBACK}>But if the cost of RTR is going to rise inexorably at 8% per annum from here on in, then at some point , perhaps in a decade's time , the price even of Hornby and Bachmann will begin to inhibit demand.

And I have a very strong suspicion that things like "museum quality" models and widespread DCC Sound are gold plate and bells and whistles that we can't actually afford in the long term. Not if we are to have "affordable" RTR (to borrow a jargon word from the housing market)
I think museum quality models are already very limited in their appeal. Micro Metakit, Fulgurex etc are not affordable for 99% of modellers. I think the cost of DCC sound will go down slightly as it becomes a standard feature, which I think it will.

I have to say I am thinking a lot more about cost now and am reluctant to fork out as much for some locos. I'm probably not the only one. UK outline is unlikely to increase to Continental prices as the UK market will not sustain that and the manufacturers know it. They will get a higher price for DCC sound but it is still cheaper than you would pay for the Continental equivelant. This year most of my purchases have been UK outline as it seems better value for money.

I think this has not gone unoticed by Maerklin as Trix has introduced some budget models this year. Prices are a bit lower on some new items. The forthcoming KBay S3/6 with sound will cost me $100 less than a sound loco would have done last year.
 
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