The Margate-based company, whose brands include Airfix, Scalextric and Corgi, paid the price for supply chain issues in China as losses widened to £4.6 million in the year to March 31, from £3.4 million a year earlier.
It has cut ties with a major model railway manufacturer in China and expects a gradual improvement in its reliability and quality this year as it broadens its supplier base and brings some production back to Britain.
Former Ladbrokes and Dixons director Richard Ames, who joined the company as chief executive at the end of April, said on top of the poor financial performance the issues jeopardised its relationship with end users.
Mr Ames said: "This is an extremely important issue, as these are the true fans of the brands. It is key that we do not take these fans for granted.
"With my experience of working in consumer focused businesses, I am making this one of my first key objectives."
The problems first struck in 2012 after its 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.
Like-for-like sales in the last financial year were down by 2%, with model rail sales falling to £11.4 million from £14 million a year earlier in the UK. Excluding one-off items, Hornby made a loss of £1.1 million.
One of the first steps taken by Mr Ames has been to move its UK warehousing and logistics operations to a new site 11 miles outside of Margate.
Mr Ames added: "It is early days, but I am convinced that Hornby can recover and return to profit in the future."