Scottish Leather Group has seen profits fall sharply as high prices for raw hide depressed margins, but it has signalled confidence by maintaining its dividend.

The group lifted turnover by £5m to £142m in the year to March 2015, according to accounts just filed at Companies House, but operating profit slid from £4.75m to £2.66m and pre-tax profit from £4.5m to £2.6m.

Return on capital slumped from 8.6 to 5.1 per cent, and operating profit per employee dropped from £8.20 to £4.30.

The directors write: “Challenging trading circumstances in the second half of the year influenced a lower than anticipated profit for the year as a whole. Gross margins remained under pressure due to continued raw hide prices. Net cash inflow from operations improved year on year resulting in a stronger year end cash position.”

Scottish Leather Group, led by chairman Jonathan Muirhead, is the UK’s biggest leather manufacturer. Its five companies include Bridge of Weir Leather, 110 years old, whose specialities include luxury automotive leathers; Paisley tanners W J & W Lang, dating back to 1872; and Glasgow-based Andrew Muirhead, celebrating its 175th anniversary this year, which makes high performance leather for airline interiors, with customers including British Airways,Thomson, Virgin Atlantic and Singapore Airlines.

The Muirhead and Lang families own more than 90per cent of Scottish Leather Group, with the rest held by the workforce.

The other businesses are Bridge of Weir-based tanners NCT Leathers (1936), and SLG Technology set up in 2008 to run the group’s £6m privately-funded thermal energy plant.

The group also holds, through a wholly-owned Hong Kong subsidiary, a 50 per cent stake in Zibo Polygrace Bridge of Weir Leather Company registered in China.

In 2013-14, turnover rose by almost 20 per cent, boosted by higher automotive leather and wet blue hide sales, but working capital came under pressure.

The 2014-15 accounts show a big turnround in cash inflow, up £6.9m or £3m at the net level, following the previous year’s net £4.4m outflow.

SLG maintained its dividend to shareholders at £1.59m, and year end funds stood at £8.m, a rise of £3m.

Group shareholder funds slipped by £1.5m to £52.8m.

Average employee numbers crept up during the year, from 561 to 577, taking the wage bill to £19.2m.

The directors’ wage bill was down marginally at just under £1m, with the highest-paid director receiving £182,332, up from £177,049.

The cost of pensions rose on the balance sheet.

After four years of surpluses, the employee fund dropped into a deficit of £1.53m while the directors’ scheme had a deficit of £640,000, hit by the continuing rise in liabilities around interest rates and longevity.

The firm’s contributions into its defined contribution scheme also rose sharply, from £375,000 to £498,000.

Capital expenditure was up by £50,000 at £1.74m.

Four years ago, the group was making a return on capital of 17.4 per cent – more than three times last year’s figure – while creditor days had been pushed down to 25, compared with last year’s 44 (up from 30).

At that time it also established the SLG Academy to encourage young people to consider a career in the industry. It offers work placements to fifth and sixth-year pupils from local schools

The directors say: “Despite the challenging business environment over the past 12 months, the group remains in an enviably strong position in terms of its balance sheet, its products and its people.”