Johnstons of Elgin cut its operating loss by more than £1million last year and benefited from a £10.8m improvement in its pension deficit.

The cashmere specialist which has sites at Elgin and Hawick saw turnover recover in 2013 to £51.6m, just above its 2011 level, from £46.8m in 2012.

The operating loss was slashed from £1.42m to £377,000, according to accounts just lodged at Companies House.

A lowered estimate of future pension liabilities enabled the group to record a pre-tax profit of £3.1m (£1.8m loss) after a reduction in financing costs from £446,000 to £308,000.

Family-owned Johnston won plaudits last year for its decision to maintain its workforce and key craft skills despite a challenging year, not helped by a mild winter, which dented short-term profitability.

But the company had predicted that turnover would regain previous levels in 2013 and the latest accounts show that one of Scotland's oldest firms, dating back to 1797, was rewarded with a quick rebound. Sales were up from £33.3m to £36.8m in the UK, and exports rose from £13.5m to £14.8m, fuelling the £1m profit improvement. Additionally, shareholder funds marched ahead from £26.8m to £33.9m thanks to a cut of £8.2m in pension liabilities, while the defined benefit scheme deficit plunged from £14.6m to £3.8m.

The directors write: "2013 was a transitional year with a number of changes in management, and the first steps have been taken on the way back to sustainable profitability." However they also admit that the 2013 performance was "behind budget due to some one-off restructuring costs and a failure to achieve all of the stretching manufacturing efficiency improvements targeted."

Last November, Johnstons appointed Simon Cotton as its new chief executive, some six months after the departure of former managing director James Dracup.

Mr Cotton, a Strathclyde University graduate, was previously divisional managing director at Swiss conglomerate Franke.

The directors continue: "Sales were up by 10.3 per cent as orders recovered to more normal levels following the de-stocking that had taken place in some major customers in the prior year. Gross margin improved to 22.2 per cent, from 21.4 per cent in 2012, but there remains much work to be done to improve operating efficiencies and to ensure the correct value is received for our products."

Although there was a £4.4m worsening in the cash position at the year end, the directors explain that this was due to holding more stock and at higher value.

"Midway through the year purchase prices of cashmere increased significantly and Johnstons invested in raw fibre whilst the market was on the way up to protect our position."

Employee numbers at the firm, which has shops at its mill sites and a further outlet at St Andrews, went up from 763 to 789.

The remuneration bill for directors rose from £571,000 to £686,000, with the highest-paid director earning £194,000, up from £180,000.

The dividend was unchanged on the previous year at £197,000, and the company expects its pension schemes to cost it £700,000 in the current year. Welcoming Mr Cotton's appointment last year, chairman and Johnston family member Ian Urquhart, said: "His experience of leadership in an international manufacturing business combined with marketing and business development skills are a great fit for us."

Mr Cotton was unavailable for comment yesterday.