Scottish cashmere and knitwear firm Dawson International revealed a £19.3million shortfall in its pension scheme yesterday as it also reported a near halving of annual profits.
Dawson, based at Kinross, said that its pension fund deficit had swelled from £6.7million during the year to January 2.
Chief executive Andy Bartmess said the firm was not alone in having to deal with an escalating shortfall, a situation common to many other companies.
He was speaking after Dawson said operating profits had increased to £2million last year, compared with £1.9million in 2008-09.
At the pre-tax level, profits nearly halved to £575,000 during the latest period with revenue from continuing operations sliding to £72.88million after reaching £85.71million the year before.
Investors were unimpressed, and Dawson’s shares lost more than 11% of their value to 2p.
Recent disposals have left the group to focus on its Barrie knitwear operation at Hawick, a private-label home furnishing division and US-based cashmere supplier Dawson Forte. Mr Bartmess said the company was now in much better shape to face a continuing tough trading climate, adding that UK sales were starting to pick up but its substantial US market was taking longer to recover.
Commenting on the increased pension fund shortfall, which is likely to rule out any acquisitions for a while, chairman David Bolton said it was the result of lower corporate bond yields and increased life expectancy assumptions. He added: “This escalation of the deficit represents a significant challenge for the UK businesses.
“Discussions are ongoing with the trustees and the Pensions Regulator (the pension industry watchdog) to agree the way forward. This issue is of course not unique to Dawson International and it is my view that a co-ordinated approach must be taken that shares the burden of reducing deficits and associated costs fairly among the various stakeholders involved.”
Dawson said a valuation being finalised could put the reported shortfall – in accordance with the IAS 19 industry standard – higher.
It said actions last year, including the sale of its Todd and Duncan spinning unit to a Chinese firm for an initial £6.151million, showed it was able to take the necessary steps to weather the tough trading conditions. Mr Bolton said: “The board is confident we can maintain and develop our businesses during the course of 2010.”