Textiles printer and dyer, the Leeds Group has fought its way slowly but steadily up the hallowed presence of the great growth stocks. Jim Levi explains how prudence paid, with dividends.
At the annual meeting of the Leeds Group last February a shareholder rose to his feet to congratulate chairman Robert Wade. It had been a tough year for the textile industry but Wade and his team had delivered record results. The shareholder related how he had inherited his shares in the days when the company gloried in the more fulsome title of Leeds Dyers and Finishers. 'Never sell the Dyers', was the cryptic message Wade's mother scribbled on the share certificate before she died.
If the ultimate test of good management is in the delivery of shareholder value, then Wade and his management team pass with flying colours. Though the company is little known outside textile circles - it operates in the specialist market of textile printing and dyeing - it is up there in the hallowed presence of the great growth stocks of the past decade, along with Glaxo, Sainsbury, Hanson, Rentokil and BTR.
Although it still only sports a tiny stock-market value of around £82 million, shareholders have seen the value of their holdings rise by nearly 2000% since the beginning of the 1980s. In 1968 - a benchmark year because every year since then the company has paid a higher dividend - the shares were the equivalent of 4p each. Today they are worth comfortably more than 400p. Wade says: 'Some shareholders have seen the value of their holdings rise a hundredfold.'
With profits growing steadily over more than two decades - in the past 10 years they have grown from £1.2 million to £5.5 million and this year they are expected to be nearer £7 million - the message about the Wade formula for success has finally begun to get through to the major financial institutions. Indeed, when the company arranged in April to place a million new shares on the market to finance its first overseas acquisitions - two Dutch companies - they could, in Wade's words, have placed the stock 'four times over'.
Wade rules his business - he is both chairman and chief executive - from a modest little office attached to a yarn dyeing factory in Pudsey. He plays down any attempt to portray the company as a high flyer, or himself as some sort of business genius. 'We are a tortoise, not a hare,' he repeats like a mantra, reminding me that 'after all, it was the fabled tortoise who won the race'.
'The plain fact is that if a company can maintain a steady annual compound growth of 15% - not a spectacular performance by any means - it is up there with the top 5% of growth companies in Britain,' he says. 'Maintain that year after year and you really are at the top - a pearl beyond price.'
After the exuberant 'boom and bust' experiences of the '80s, the lugubrious Yorkshire virtues of aversion to debt and slow but steady progress are back in fashion with a vengeance.
Wade is not adverse to expanding via acquisitions.Since 1986 he has taken the group into textile printing with a string of four carefully-targeted, agreed bids - bringing good management along with them. The result is now an amalgam of 10 units covering the company's three main areas of business: textile printing, fabric dyeing and yarn dyeing. Each has been given a great deal of autonomy. Eight of them are based in the UK. The remaining two are in Holland.
Wade, whose father and grandfather were both chairmen of the company before him, is aware of the old warning about 'clogs to clogs in three generations' and is determined not to put a foot wrong. His son Jonathan has recently joined the business as a graduate trainee at one of the company's textile printing works at Todmorden. But there is no family control of the group. The Wades own less than 10% of the shares, and directors and their families own, together, less than 20%.
That success can be achieved in a mature - some would say declining - industry such as textiles is something of a tribute to the vision of men like Tom Ashdown. This veteran textile engineer - he joined as Wade's deputy managing director 10 years ago after stints with Dawson International and Associated Weavers - recalls how, some years ago, the company made 'the very good strategic decision to concentrate only on dyeing and printing', the last stages of the textile finishing process.
'Although the manufacture of cloth in this country is in decline, the market still has to be supplied with fashionable goods, either from the UK or from overseas. We sit here in the middle, ready to meet the demand from customers for higher standards of coloration and design and for quicker delivery in smaller volumes.' There are, he stresses, always opportunities for technical breakthroughs. 'We can respond to the pressure to create new standards, and deliver just-in-time. In other words, we can produce what the customer wants better, cheaper and more quickly.'
The Leeds Group has deliberately resisted the temptation to get into the heavier end of textiles. 'We own no looms, no knitting machines, no spindles and no clothing manufacturing interests, nor do we have any aspirations in those areas,' Wade says. 'Our fundamental principle is that we operate only with colour and design. We dye and we print.'[QQQ] Since the war the production of commodity textiles - long production runs of basic cloths and yarns - has moved relentlessly to new bases in developing worlds. The good news is that, as Wade says, the markets of the developed world 'want ever more variety and colour, ever more quickly and in smaller lots'. The mismatch between the way textile production has gone and the way the demands of the marketplace are changing has created opportunities for growth.
'We have become not just a coloration agent but a kind of retailer - buying in bulk and selling in bits,' he says. By adopting this role, Leeds has found a wider spread of customers and range of markets, despite the poor economic climate.
In fact, Leeds has profited from the recession, thanks to its flexibility to respond to new pressures in the marketplace. Time was when the multiple retailer of women's fashions was happy to order ahead to cover each of the four fashion seasons. But, as Wade says: 'George Davis of Next broke the mould by introducing new goods all the time which made the shopper want to find out what was in the store each week.'
The arrival of computerised systems into stores meant that the retailer knew first thing Monday morning what he had sold on Saturday. 'If he sold red stripes, but not green check, he would be demanding more red stripes and would not want to know about green check,' Wade says.
A tour of the Strines textile printing works in the Goyt Valley on the edge of the Derbyshire Peak District demonstrates the versatility of printing and dyeing technology. There has been a textile printing works on this site for 200 years. Ten years ago it was closed down by Tootal, which could not make it profitable. It was then very quickly bought by the management, led by Charles Hopwood. Production restarted with 40 of the old employees. Under Hopwood's leadership, Strines has made a profit ever since. Today, two years after it was acquired by the Leeds Group, it has a workforce of over 200 and is bustling with activity.
Director Maurice Cribb proudly reveals that the factory's biggest customer is Liberty. 'We probably print 80% of Liberty's fabrics. Everyone has heard of Liberty but nobody has heard of Strines,' he says. 'Experience tells us to have as broad a range of customers as possible because you never know when one style is going to disappear and be replaced by another.' Under one roof, and often on the same machine, the Strines plant can print a range of fabrics from camouflage for the armies of nine countries to the uniforms for staff at Tesco.
Strines's commercial director, Malcolm Reeves, says the company has been able to change tack during the recession because of the freedom it is given by group management. Certain areas of the business in fashion fabrics were squeezed. 'We had to replace them quickly,' he says. 'We deliberately structured the business so that we dealt with four or five main areas. We felt if any two of those areas went into decline, we could build on the other areas. The strategy has worked well.'
Two growth areas at Strines during the recession have been camouflage and boxer shorts. Reeves says: 'Ten years ago we started dealing with the Ministry of Defence in one fabric and one design. Now we are dealing with nine different countries and talking to the South African, Australian and even the US army about possibly supplying them.'
Robert Wade describes the fashion for boxer shorts as 'a textile printer's dream - you can print with any pattern you like from Christmas holly leaves to the Financial Times for City gents'.
Now that the recession appears to be on the wane, Strines is on 24-hour shifts and there is even some Sunday working in an effort to meet rising demand. It may not be too long before it has to start recruiting new workers. 'The pendulum has really swung,' Reeves says. 'With sterling's devaluation we can certainly compete on price in the German market, for example, but the German printers can deliver in two weeks, whereas our turnround time at the moment is nearer four weeks.'
Decisions will have to be made soon about whether to expand capacity at Strines. But this may take time as Wade runs a group of companies where a lot of power is devolved to the operating units. It is certainly the fashionable way to run a business - a small head office devolving as much power as possible to individual managements within the group. However, John Schofield, Leeds's company secretary for 20 years and one of the three-man head office executive team, points out that the company has 'always been run in this basically decentralised way to ensure that management is properly motivated and rewarded for success'.
Wade sees his job as controlling the whole operation - but in a loose sense. 'In most groups the head office is where the real power lies. They spend all their time talking to the subsidiaries and trying to understand them,' he says. 'We think the decision-taking should be done at branch level with the centre almost subservient to them.' A three-tier management structure has evolved at Leeds giving young managers responsibility early in their careers. As well as boards of directors in each of the operating subsidiaries, there is the main group board and a trading company board. Wade describes this as 'the main board, plus the next generation of management. Thus we can achieve a career structure which allows young people to come through.'
This year's acquisition of two Dutch businesses will be an acid test of the management's ability to control an increasingly complex business. The move gives the group access to a different form of printing - transferring designs from paper - for the first time. The Dutch distribution company it has acquired gives the company's direct exports greater access to the single European market. 'Our target with the two Dutch acquisitions is to sell more Dutch production into the UK and sell more UK production into the rest of Europe.'
'At present only about £1 million of more than £40 million of sales is direct export,' Wade admits. 'Though as much as 60% of our wool-related production is indirectly exported. Our printing side related to cotton is not really into exports.'
City analysts who have followed the company's progress, such as John McCready of Granville, project continued growth in profits over the next couple of years. The Leeds Group, he points out, has been gaining UK market share from major importing competitors from the Continent, but has so far been unable to break into Northern European markets. 'They now have an excellent opportunity of changing this,' he believes.