Hornby, the maker of model trains and the Scalextric slot-car system, says it has made "excellent progress" in the past year and is hopeful of a boost from the new Toy Story 3 film.
The firm said it had cut its debt from £11.8m to £3.2m, although annual profits fell to £5.2m from £6.1m.
It holds rights for products linked to the London 2012 Olympics and Toy Story 3, and expects them to sell well.
Hornby also said it would resume paying a dividend.
Frank Martin, Hornby's chief executive, said: "Demand for our products has remained robust and we enjoyed a strong finish to the year.
"Many of our UK retailers have been keen to re-stock after a strong Christmas trading period."
Total sales rose 5% over the year to £64.7m.