Margate model train manufacturer Hornby remains on track despite the credit crunch and the gloomy economic forecast.

In its regular trading update ifor the period from October 1 to today, the company said that following more difficult trading conditions in the first half, Hornby "continued to experience cautious demand from its major retailers in the UK during the pre-Christmas period. Consumer demand remained muted during November and early December."

On a positive note, the company is "pleased to report that demand improved in the weeks immediately before Christmas. This continued immediately after Christmas and overall trading in December was significantly above the previous year.

European demand was encouraging as our brands and new releases continued to be well received, although the performance continued to be constrained by supply issues."

Based on current orders on hand and expected deliveries over the coming weeks, Hornby is expecting "a strong finish to the financial year."

However, it says sales lost in the autumn and pre-Christmas period due to cautious demand from major retailers are now unlikely to be recovered. The trading result for the year is therefore expected to be at the lower end of analysts’ expectations.

The report adds: "Despite this the company is in good financial health. We continue to operate within our banking facilities and we continue to enjoy an excellent relationship with our bankers."

Hornby remains "committed to our strategy to build a broadly based European hobby business."

The report also says "European businesses continue collectively to represent substantial growth opportunities.

Increased overall exposure to Euro denominated markets will help to mitigate the effects of the recent

dramatic depreciation of the pound against the US dollar, the currency in which most of our purchases are made."

The Airfix/ Humbrol and Corgi brands continue to show encouraging growth; the new product

releases have been well received and Hornby is "making encouraging progress in re-invigorating the

Corgi range. Customer feedback has been very positive and we anticipate a steady rebuilding of

sales."

The report concludes: "As we enter the annual round of global toy and hobby trade fairs, our primary focus is on continuing

to maximise our revenues across all markets. We have raised our prices in order to mitigate the

effects of the weak pound and it appears that these increased prices will be accepted by the

market. Our dollar requirements for the rest of the current financial year are largely covered at more

favourable exchange rates. However, unless sterling strengthens from its current rate we would

anticipate a material erosion to our margins in the year to 31 March 2010. We are considering a

number of measures to mitigate such erosion including, if appropriate, further price increases later

in the year."

Chairman, Neil Johnson said:"Our strategy of expansion in Europe and across additional hobby-based brands continues

to provide a broader revenue and profit base.

" We are pleased with the performance of the group in what was generally a difficult pre-

Christmas period. Strong demand in the early weeks of 2009 gives us further confidence that

our hobby-based businesses will continue to demonstrate their defensive characteristics in

what is likely to continue to be a challenging economic climate."