Model maker Hornby is at risk of breaking its lending agreement with its bank after saying it expects trading losses to reach up to £6 million following a poor start to the new year.

While November and December had delivered a 17% increase in like-for-like sales, bosses said January had been in “stark contrast” with disappointing take up of product promotions.

It has meant about £3 million has been wiped off its previous profit forecasts, about half of which is down to its UK performance.

The Sandwich-based company, which also makes Airfix and Corgi models, has also written off £1 million after a full stock take at its Hersden warehouse near Canterbury and review of the balance sheet of its European subsidiaries.

In November, it predicted losses of £2 million this year, while in December it revealed it had made pre-tax losses of £4.5 million in the first six months of the financial year.

The company’s shares fell nearly 44% to 45.5p after today's announcement.

Directors said there is a risk the firm may breach the terms of its bank loans in March following the poor performance. Bosses said they are in discussions with the lender.

Internationally, sales have been affected by the restructure of its European business, although it said it is through the main period of disruption.

Chief executive Richard Ames said: “This has been a real year of change at Hornby.

“Undoubtedly this is a disappointing result, but we have a strong portfolio of brands that we are determined to see flourish.

“The feedback from customers at the recent International Toy Fairs was encouraging and we are facing the future where, with the right platform, we can build value for our shareholders and drive the group’s recovery.”

Bosses said UK trading is expected to improve in February and March, although it will not reach previously anticipated levels.

Internationally it saw like-for-like sales increase by 5% in December and January as changes to logistics, stock handling and distribution operations came into force.

However, it said this was still behind the board’s expectations.

The company still has a visitor centre in Margate, although it aims to move this to a new site in Ramsgate harbour by Easter.