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Ningxia Zhongyin weaves Todd & Duncan cashmere business

Jun '09
The Company announces that it has signed an agreement with Ningxia Zhongyin Cashmere Company Limited ("Zhongyin") for the conditional sale of the business and certain of the assets of the Todd & Duncan division of Dawson International Trading Limited ("DITL"). The business and assets will be acquired by a wholly owned subsidiary of Zhongyin, renamed Todd & Duncan Limited ("T&DL").

Information on the Todd & Duncan business
The Todd & Duncan business ("Todd & Duncan") currently operates as a division of DITL and is a manufacturer of highest quality cashmere, blended and woollen yarns. It sources the majority of its raw material from China and exports around 60% of its product to the European market. Zhongyin is a major supplier of cashmere fibre to Todd & Duncan.

Todd & Duncan is based in Kinross, Scotland and has approximately 200 employees. On completion, these employees will transfer to T&DL which will continue to operate from Kinross.

In 2008 Todd and Duncan reported an operating loss of £0.5 million after exceptional charges on turnover of £22.2 million (including intra-group turnover of £2.7 million). Net assets at the year end were £14.6 million with the average for the year being £16.3 million.

Terms of the Sale
The subjects of the sale are the fixed assets, the stocks and the business of Todd & Duncan, including its intellectual property. The consideration will be based on the value of the fixed assets and the stocks, estimated to be around £13.5 million at completion less a discount of £5.125 million. An initial consideration of £6.151 million will be settled on completion, firstly by offset of any trading balance due to Zhongyin with the balance due in cash. Any excess consideration will be satisfied by offsetting payment for future purchases of goods by the Group from Zhongyin.

As a consequence of the sale the Company will liquidate the remaining net working capital of Todd & Duncan which is estimated to be approximately £5.0 million. An impairment charge of £1 million which was charged in 2008 in respect of Todd & Duncan will be released in 2009.

As part of the sale, the Company has agreed to enter into two supply agreements:
• The Barrie division of DITL which currently sources some of its yarn from Todd & Duncan will enter into a four year supply agreement at completion to source yarn from T&DL at similar levels.
• The Dawson Forte business, based in the USA, currently sources some of its garments from Zhongyin and will enter into a four year supply agreement at completion to continue offering a minimum level of garment orders to Zhongyin.

As part of the sale Andy Bartmess, the Chief Executive Officer of the Company will provide an ex gratia consultancy service to Zhongyin for a maximum period of 18 months from completion. The provision of such services will not exceed 16 hours in any month.

Application of proceeds
The proceeds of the sale will be used initially to settle any trading balance due to Zhongyin and reduce Group borrowings. As the retained working capital is liquidated it is anticipated that additional funds will be generated which will be applied towards achieving the longer term strategic objectives of the Group.

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