Model maker Hornby will issue new shares in the business in a bid to raise £12 million as it reports increased losses and declining revenues.

The Sandwich-based company has also revealed it will acquire a 49% stake in LCD Enterprises, the owner of miniature car and van maker Oxford Diecast.

In a flurry of announcements, it also revealed growing half-year losses of £5.7 million, up 21%, and sales of £17 million, down 22%.

Some of the money raised from the new share offer – issuing 40.7 million shares at 29.5p per share – will go towards funding the acquisition, which will cost £1.6 million.

The tie-up comes after it appointed former Oxford Diecast boss Lyndon Davies as its chief executive in October.

Mr Davies will remain the majority shareholder of LCD Enterprises.

The company’s announcement to shareholders today said: “Given Lyndon Davies’ appointment as chief executive officer of the company, the board is keen to ensure that the interests of both the company and LCD Enterprises are aligned and the acquisition provides an opportunity to achieve this.”

The cash injection from the share offer will provide £1.1 million to “reinvigorate” key brands, £2.4 million to fund restructuring costs, £3.2 million to reduce its net debt and £3.7 million “to support appropriate product pricing”.

Mr Davies said the plans will “provide the platform for long term sustainable profitability and cash generation”.

Within a fortnight of being appointed, he had warned investors to expect lower revenues and profitability at the end of this financial year after he cancelled plans to offload large quantities of stock at a discount.

Interim chairman David Adams said: “With new management in place and an exciting new strategy to execute, the board of Hornby is seeking new funds to support the next stage of its development.

“Lyndon Davies and his team has identified the need for further investment in the company’s brands.

“This will come in the form of direct capital expenditure and the acquisition of the stake in LCD Enterprises.

“I am confident that both will have a positive impact on the company’s offer to customers.

“The new funds will also strengthen the balance sheet, allowing Hornby to fully exploit the benefits of its investment.”