Soaring prices for its main raw material, cashmere, resulted in a 35% fall in profits at Johnstons of Elgin last year, despite a rise in sales.
And, as the Moray-based firm released its annual accounts, it warned it will be “impacted adversely” by a no-deal Brexit.
For the year to the end of last December, Johnstons’ pre-tax profits were £6.5 million, compared to £10m in 2017, while its turnover increased by 7% to £79m over the same period.
In a strategic report accompanying the figures, the company said during the year cashmere prices increased to over 40% higher than 2017 values.
It added: “Higher sales to key customers than was expected also resulted in the consumption of material more quickly than anticipated, with more expensive fibre being utilised before prices could be corrected to reflect the change.”
Johnston’s chief executive, Simon Cotton, said: “Sales continued to grow in 2018 but, as anticipated, profits were reduced by a considerable rise in the price of cashmere, which is our main raw material and saw a 40% increase compared to 2017. We were unable to pass on the full impact of these prices to trade customers during the year.
“Throughout our 220-year history we have effectively managed change and we continue to invest heavily in new technology including work on our new R&D centre at our Hawick mill to retain our position as a market leader.”
The company has retail outlets at its manufacturing sites in Elgin and Hawick, as well as “flagship” stores in Edinburgh and London and Mr Cotton said the “bricks and mortar experience” was still “hugely important”.
Last year, the firm’s workforce increased to 1,024, from 956 in 2017.
In a warning on the impacts of a no-deal Brexit in its strategic report, the company said: “Tariffs could be levied at an average of up to 10% on sales of £16m to European customers and to customers in Japan, Canada and South Korea with whom trade arrangements are in place through the EU. In the sort-term there would also be interference in the smooth running of supply chains which involve moving product into the EU and from our partner vendors, many of whom operate in Italy.
“In the longer term there are also concerns regarding the availability of labour and a decreasing working-age population in the semi rural locations in which we operate.”