Hornby may be derailed by suppliers

The Margate-based group, whose brands also include Airfix, Scalextric and Corgi, said sales over the crucial Christmas period were “reasonably strong”, but that supply issues will hit revenues and profits for the year to March 31.

It has agreed a deal in the last week to cut ties with the Chinese supplier from July, although it said the impact on sales in the current year would wipe out profits at an underlying level while a further currency blow would leave it with losses of £1m overall.

Shares slumped more than seven per cent after the warning, which comes after a difficult past few years for Hornby.

The firm faced a supply squeeze in 2012 after its then biggest manufacturer shut a factory producing the group’s model railways in a year that also saw it suffer slower-than-expected demand for Olympic-themed products.

It has since been broadening its supplier base, moving production to other Chinese firms as well as those in India and bringing some manufacturing back to Britain.

The firm said it has agreed to pay the supplier £600,000 as part of a “managed exit”, which it hopes will put the production difficulties behind it.

But it admitted the issues would mean model trains now account for only 61 per cent of sales in the UK and 68 per cent in Europe this financial year, against previous expectations for 88 per cent and 80 per cent respectively.

Chairman Roger Canham said: “I am confident that this draws a line under this painful period of the group’s recent trading.”