Dawson's problems spin out of control

Giving some idea of the situation's urgency, chairman Derek Finlay said it was having to ''look very carefully and quickly'' at alternative manufacturing locations to ''survive'' intense competition from Continental Europe and from Chinese suppliers of cashmere garments.

Dawson's shares dived 7.5p, or 13%, to 48.5p in the wake of yesterday's profits warning, which was made even more serious by news of a significant downturn in sales by the company's US businesses.

Finlay said it would take an exceptional charge of about #6m to cover the cutting back of its UK production base, on top of the already-flagged #4.9m cost of repaying debt in the US early.

Dawson estimated that, excluding this #11m of one-off charges, it would make ''only a modest profit before tax for 1998''.

The profits warning, which came on the day that competitor Grampian Brands announced 120 job losses and hard on the heels of the Sweater Shop chain's collapse, was just the latest of a raft of bad news for Dawson's shareholders and employees in recent years.

Only three years ago, more than 400 of the company's Scottish workforce was axed. Ousted directors who carried the can for Dawson's poor performance back then received pay-offs totalling #2.17m.

Dawson shares are now at less than half the 104p level at which they closed after news of the boardroom coup which brought Finlay and chief executive Peter Forrest to power in March 1995. And another 290 jobs were lost at flagship subsidiary Pringle, in Hawick, Berwick, and Galashiels only last year, and 83 redundancies in woollen yarn operation Laidlaw & Fairgrieve were announced at Dawson's annual meeting last month.

Dawson now plans to welcome bidders with open arms but Finlay admitted he did not know whether anyone would be interested.

Asked if he expected interest, he replied: ''The very fact that we have had no serious approaches in the last two or three years would be indicative of an answer to that.

''I wouldn't care to guess. I just don't know.''

But, citing some major restructuring of the sector in recent times, he added: ''We would have to look very seriously at anybody that approached us. If offers were forthcoming, we would have to look at those very seriously, really as a result of the issue of shareholder value which might result from that.''

Finlay said employees would be told of Dawson's specific redundancy plans within weeks and declined to put a figure on job losses beforehand.

But an analyst at one Scottish stockbroker, who declined to be named, said: ''I think you must be talking about hundreds.''

And he believed Dawson should sell itself off in pieces. He saw value in the company's brand names and in its Yorkshire-based fur fabrics business and cashmere operations.

Finlay indicated that Pringle, which employs about 920 people in Hawick, Galashiels and Berwick, would be among the worst hit by the impending redundancy programme.

He said: ''I think it is knitwear that is probably going to be hardest hit. The wool-spinning area is of concern - the very fact we have had to announce redundancies at Laidlaw & Fairgrieve (in Galashiels and Dalkeith) is evidence of that.''

Finlay pointed out that the luxury end of Dawson's businesses, Ballantyne Cashmere in Innerleithen and Bonnyrigg and Barrie Knitwear in Hawick and Annan, had been hit less severely. These businesses together employ 720 people.

But he added: ''Nevertheless, they are having to battle very much against the same kind of conditions.''

And Finlay highlighted the fact that cashmere-spinning subsidiary Todd & Duncan, based at Dawson's Kinross headquarters, was having to compete against Italian competitors which he said had gained a 25% to 30% price advantage from the lira's fall against the pound.

He described Todd & Duncan's profit margins as ''wafer-thin'' and said the position in the finished knitwear garments businesses was ''worse''.

Finlay said orders secured by Dawson for the autumn season were down, in some cases, by about 40%.

On a more positive note, he said the company's Blackwood Brothers carpet yarn-spinning business, which employs 430 people at Kilmarnock and Cumnock, and its Yorkshire-based fur fabrics operations were ''trading well''.

Sterling's almost relentless rise against Continental European currencies since the summer of 1996 has made Dawson's UK operations, which export about 60% of their production, far less competitive.

Finlay said: ''It is a very, very tough period that we are having to live through.''

Referring to the Government, he added: ''It is all very well to talk about looking for low-inflationary, steady growth over the long term. I just hope we are all alive at the end of it.''

Finlay said the company had also been hit hard by the ''shut down'' of demand in Japan and in other Asian countries reeling from the region's financial crisis.

Coinciding with the need to take the knife to UK manufacturing, Dawson has suffered a double-whammy in its US thermal underwear business.

Its JE Morgan subsidiary has been forced to take ''an unprecedented level of returns'' from US discount retailers, to maintain its relationships following the mild winter in the States. And Dawson said sales of its Duofold brand were ''well below expectation''.

Thorold Mackie, analyst at Edinburgh-based stockbroker Sutherlands, did not believe Dawson's current management were to blame for the latest dive in the company's fortunes.

He said: ''This management has been firefighting since they took office and haven't really had time to look at the wider picture. The market has been continually on the slide.''

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