Leeds textile firm restores fabric of forgotten sector: Camouflaged khaki can't hide success in troubled times. Robert Cole reports

PERHAPS it is the fact that Leeds Group camouflages the uniforms for eight of the world's armies that sets it apart from most of the textiles sector. It has made a nonsense of the usual investor's perception of textiles companies being high-cost, low- margin businesses competing in mature markets.

Leeds Group prints and dyes cloth and yarn from factories in the heartland of what is left of the industrial North of England, imports fabric from the cheap labour areas of the world, and turns it into material ready for the shirt, skirt and curtain maker. It prints most of the famous material for Liberty, and, in half a dozen specialist processes, colours a good chunk of the clothes sold on the high street.

The secret is in exploiting the needs of its UK customers. Manufacturers and retailers, particularly during a recession, want maximum control of supply and minimal lead time. Leeds has been able to build up a good profit margin on the quality of its product and relatively short machine runs.

Under its chairman, Robert Wade, the company has identified a lucrative market and protected itself from harsh economic circumstances by building a broad spread of customers. It consistently spends more on new equipment than it writes off in depreciation of old plant - which means its manufacturing operation is constantly improving.

Last summer Mr Wade negotiated the purchase of two German finishing machines at about pounds 500,000 apiece and sealed the deal before devaluation of the pound on Black Wednesday. The first was for immediate delivery but paid in instalments. Leeds has an option to buy the second machine in 18 months' time, but at the pre-devaluation price.

On Mr Wade's own admission, Leeds' main weakness is Europe. Perhaps as much as half its product ends up overseas, but precious little is direct from its own mills.

He has considered buying a manufacturing base on the Continent but concluded that Leeds already has adequate technology and capacity. What is needed is marketing, he believes, and that probably means an acquisition.

'We need to buy people who know what they are doing. To that end we are willing to pay for quality,' he said. 'There is no use buying at net asset value. Anyone can look clever turning a company around - but we are not interested.'

Most of Leeds' expansion is paid for by cash generated by existing operations. Other moves are funded by placing shares with institutions. The chairman dislikes rights issues: 'It dilutes the private investors' shareholdings. Many of them could not afford to subscribe, and, because they have held shares for so long, some have got holdings worth hundreds of thousands of pounds.'

He stressed that Leeds' most valuable asset is its workforce, but is equally considerate of the shareholders, many of whom are private individuals who have shares passed from one generation to the next.

Over the past year, shares have risen by 75 per cent in actual value and by 50 per cent more than the market average.

Mr Wade is positively blase about this impressive performance. To him it is not what happens this month or next that is important, but what happens over decades.

What happens in the City is of secondary importance. 'We will never be a go-go stock,' he said. Private investors are cherished, rather than being ignored or seen as a nuisance.

John Macready of the stockbrokers Granville is forecasting pounds 6m pre-tax profit for the year to next September and earnings per share of 23.5p - putting the current 400p share price at 17 times earnings, which is no better than the market average.

But now that the secret of Leeds' success is there for all to see, the rating should improve.

(Photograph omitted)