Hornby said on Thursday that demand continued to be good in its first quarter as significant improvement in deliveries boosted European sales.
"The Group has experienced challenging circumstances over the past year, with supply chain issues and adverse currency effects putting a short-term brake on our financial performance," Chairman Neil Johnson said in a trading update relating to the period from April 1st.
"We believe that the worst effects of these factors are now behind us."
He said that there had been no major changes to the company's position since its report covering its financial year ending March 31st.
Net debt at June 30th was £12.4m ($20.44m) compared with £11.8m on March 31st. The company has committed bank facilities of £22m maturing between 2012 and 2014.
"Current indications are positive and historically hobby products such as ours have performed relatively well in times of consumer uncertainty," added Johnson.
He said sales in Germany, the largest model railway market in Europe, had been encouraging and better performance by the new owners of its principal suppliers based in China had led to a significant improvement in deliveries.
"Our businesses in the UK, mainland Europe and the US have continued to experience good demand for our products."