Review launched as Dawson losses widen by 55%

STRUGGLING cashmere firm Dawson International took a side-swipe at its former chief executive yesterday, after revealing that first-half losses widened 55 per cent to £9.5 million.

Mike Hartley, executive chairman of the Kinross-based firm, has launched a strategic review, which might potentially lead to further job losses or the disposal of part of the business. But Hartley, who took over after chief executive Paul Munn resigned three weeks ago, said that Dawson’s main problem had been bad management.

The news came as it emerged that Italian Alfredo Canessa, who now holds a seat on the board, bought a further 385,000 Dawson shares just days before Munn quit, taking his total stake to 4.9 per cent.

Hartley told The Scotsman: "These figures are not just extremely disappointing, they’re totally unacceptable. That’s why I am conducting a strategic review."

He added: "It would be wrong to rule anything in or out, but the biggest thing that will come out of the strategic review is likely to be a change to the way things are managed. Some things have been handled very badly within the company."

Dawson’s shares were unchanged on the back of the results announcement but jumped 6 per cent once news of Cannessa’s share-buying hit the market in the afternoon, to close at 13.25p.

The "unsatisfactory" performance of each of the key businesses was compounded by weak market conditions and a 1.3m charge to the pension fund. But Hartley insisted the first half is traditionally loss-making anyway, due to seasonal trading fluctuations.

Turnover increased marginally to 24.8m, but net debts now stand at 14.8m against 3.7m at the same point last year - more than the company’s 13m market value.

Since Clydesdale Bank withdrew a 5m credit facility in July, Dawson has been relying on a loan from Guinness Peat Group - its biggest shareholder with a 29 per cent stake. Hartley said Dawson’s main lenders - Royal Bank of Scotland and Bank of Scotland - and its shareholders "remain supportive". But the directors are "considering various options" for long-term financing - which might see the firm launch a rights issue or secure new long-term debt.

Hartley said the main cashmere brand, Ballantyne, has built a tremendous presence in Italy and Japan and while it may not be showing on the bottom line yet, will prove to be the "golden nugget".

Enzio Gallo, another of the Italian investors behind International Fashion - the consortium which owns 23 per cent of Dawson - has previously said that Munn should have left the company sooner.

DEBTS SET TO GROW

DAWSON International has never really found its feet since completing the restructuring programme which saw it sell Pringle to Hong Kong firm SC Fang for 6.1 million three years ago.

Although praised at the time, the tactic endorsed by former chief executive Paul Munn of selling non-core businesses to devote the company to cashmere has yet to reap dividends. It has also led to the closure of several mills and the loss of thousands of jobs.

While the company is still pinning its faith on its luxury cashmere brand Ballantyne, the new executive chairman, Mike Hartley, admits its impact on the bottom line will not be instant. All this is going on in the context of a luxury goods industry that continues to suffer in line with the global economy.

As one Edinburgh stockbroker pointed out: "They will need to add about 30 per cent to the top line to reach break-even by the end of the year, which they’re not going to do. That means more debts."

He added: "Would I buy Dawson’s shares? Not with my worst enemy’s granny’s money."