The group said a combination of tough trading in the British clothing market, the strong pound and the turbulence in Asia had made it a difficult year.

But despite the traumas, the company said it had managed to edge pre-tax profit up by 1%.

Battle against the odds

Sir David Alliance CBE, chairman of Coats Viyella, said: "Coats Viyella's trading results reflected an unprecedented combination of unfavourable external conditions.

Clothing manufacturing is shifting overseas where it is cheaper

"Our global thread business was adversely affected by continued turbulence in world markets and sterling strength.

"This was compounded in our domestic business by well-publicised weakness in almost all sectors of the UK high street."

The company said clothing manufacturing had increasingly been moved out of Europe to lower cost markets with the UK leading the trend.

Profits slightly up

The group unveiled pre-tax profits for the year to December 31 of £35.5m, up fractionally from £33.3m in 1997.

Total turnover fell 12% to £2.08bn, down from £2.36bn last year.

Shareholders will receive a final dividend of 1.5p a share making 3p for the year, down from 4.7p for 1997.

The group's core thread-making business saw operating profits trimmed because of the clothing slowdown and a move to cheaper markets for manufacturing.

Currency translation hit returns from Asia and demand was weak in South America and Russia.

The contract clothing division, which makes clothes for own-brand retailers narrowly returned to operating profit in 1998 after a new management team was put in place.

Tough trading

Its own clothes brands and retail business suffered from tough trading conditions and although like-for-like sales increased in the spring and autumn fashion season operating profits were down.

The group's Jaeger retail business had a particularly bad year due partly to weakness in women's fashion sales, but also due to poor management of supply, the company said.

And its home furnishings operation was also hit by the slowdown although Coats Viyella said its Dorma bedwear business held up as did sales to Marks & Spencer.

Earlier this month Coats Viyella announced it was to sell its precision engineering business Dynacast to venture capitalist group Cinven for £322m, ahead of analysts valuation for the business.

The sale will help the group reduce its outstanding debt which stood at £320.8m at the end of 1998.