Mr Ness stepped down in October after an apparent difference of opinion with other directors over the future strategy of the company which is best known for its train sets and Scalextric racing car games.
Hornby has been in negotiations with Mr Ness's lawyers ever since. In his last year, Mr Ness received a salary of pounds 113,000 and was on a three- year contract. However, he did waive his performance-related bonuses in 1993 and 1994. The pay-out represents a climbdown by the company which only a few months ago was saying that it expected to pay Mr Ness "significantly less" than his full entitlement.
Mr Ness led a management buy-out of Hornby in 1982 and took the company public four years later. However, the company struggled during the recession, hit by a combination of cheaper competition from abroad and the craze for computer games.
After changing its year-end to March, Hornby yesterday reported pre-tax losses of pounds 5.1m compared to the pounds 611,000 profit in the year to December 1994.
The dive into the red was caused by the pounds 4m loss on the disposal of the Fletcher speedboat business and pounds 288,000 of redundancy costs as well as the compensation payment to Mr Ness. A write-off on an investment in San Francisco Toymakers amounted to pounds 694,000.
The company is now concentrating on the main Hornby train business and Scalextric.
In its current trading statement the company said the radio-controlled car market was "increasingly difficult" with new competition. The company is now reviewing its arrangements with its current supplier and intends to make alternative plans next year to remain competitive.
A wide-ranging review of costs, product quality and exports is starting to pay off. In the second quarter of 1996 orders, sales and production were "above expectations". But the company stressed that as the key sales period was between October and December, it was too early to suggest that the trend might continue.
Retailers are continuing to hold prices down.
The company will now be called simply Hornby rather than Hornby Group. The shares rose 10.5p to 205p.Reuse content