JOHNSTONS of Elgin, the cashmere specialist which manufactures jumpers and scarves, tumbled into the red last year as it suffered a hangover from a milder 2011/12 winter in key markets including the UK, but has achieved a "significant recovery" in 2013.

The company, founded in 1797, has meanwhile revealed that it took the decision to maintain its workforce and thus retain "key craft skills", in spite of the downturn in business in 2012, even though this strategy had led to a sharp reduction in efficiency in the short term.

Accounts which have just become available from Companies House show that the family-owned James Johnston & Co of Elgin fell to a pre-tax loss of £1.805 million last year, from a profit of £2.63m in 2011, as turnover dropped from £51.2m to £46.8m.

The company, which employs about 800 people and has manufacturing plants at Elgin and Hawick, declared that 2013 had "seen a significant recovery" and that turnover was expected to exceed £50m again in the current financial year to end-December.

The Johnstons of Elgin accounts signal that the tumble in turnover in 2012 resulted from a drop in UK sales.

UK turnover fell from £38.16m in 2011 to £33.3m in 2012. Turnover from exports rose from £13.04m to £13.53m.

The company noted that the relatively mild winter of 2011/12 in the UK had followed cold winters in 2009/10 and 2010/11.

Writing in the accounts, the directors of James Johnston & Co of Elgin say: "2012 was a challenging year for Johnstons. A mild winter in many of our consumer markets in 2011/12 resulted in high carry-over stocks being held by many customers and reduced orders to us through 2012.

"This, combined with ongoing sluggishness in the developed markets of the UK, Europe, and the US, resulted in sales lower by 8.5% in value."

The directors note that, with customers buying higher-value items, the fall in the volume of sales was even sharper.

They highlight the direct impact on gross profit of lower sales and the impact on margins of reduced operating efficiencies arising from the contraction in volumes.

However, highlighting its long-term approach, Johnstons of Elgin said: "Efficiency was greatly reduced as the business took the decision to maintain the workforce to ensure that, as volume returns to normal levels, key craft skills are retained in the business."

In their report on the 2012 accounts, the directors highlight growth in business with Japan and with "French luxury branded customers".

The company's customers include Hermes and Chanel.

Johnstons of Elgin will next month welcome on board Simon Cotton as its new chief executive. Mr Cotton, a Strathclyde University graduate, has worked recently as a divisional managing director at Swiss conglomerate Franke.

Ian Urquhart, chairman of Johnstons of Elgin, said: "Johnstons are delighted to welcome Simon on board. His experience of leadership in an international manufacturing business combined with marketing and business development skills are a great fit for us.

"Following a challenging year in 2012, the business performance has stabilised in 2013 and we look forward to Simon helping us return to growth in 2014 and beyond."

James Dracup, who was managing director of Johnstons of Elgin, left in the spring after nearly 12 years with the company.

The company's plant in Elgin, which employs about 450 people, manufactures woven products including scarves and shawls, and continues Johnstons' long tradition of producing cloth, which is used in the likes of interior furnishings and jackets. The Hawick plant, which employs about 250 people, produces knitted products including jumpers, gloves, hats and socks.

About 100 people are employed in Johnstons of Elgin's retail operations.

The company has retail outlets at its Hawick and Elgin sites, and in St Andrews.