US clothing manufacturer, Fruit of the Loom, which employs 3,500 people in Donegal and Derry, has reported a recovery in profits in 1998 and predicts further strong growth this year.

Chief executive, Mr Bill Farley, said yesterday the company is now well positioned to achieve solid growth in its T-shirt and fleece businesses - much of which is manufactured at its Irish operations.

Mr Farley's comments will be welcome news for Fruit of the Loom's Irish workers at its seven sewing plants and two knitting and dyeing plants on the Inishowen Peninsula. The Irish operations have been vulnerable to changes in demand for its products in the European market. Over the past couple of years, the company has been forced to introduce long periods of short-time working for hundreds of workers in response to slow sales of its T-shirts and fleece products. The latest results show a drop in sales in the first three months of 1998, with higher profits being driven by substantial cost savings throughout the worldwide corporation and higher margins on products.

Mr Farley said sales had been lower than in the same period last year in line with expectations but predicted an improvement in the months ahead. "Based on orders in hand for the spring and summer, and inventory levels at wholesale customers, we believe we are well positioned for solid volume growth in our important screenprint T-shirt and fleece business."

He added that the group had "exceeded" its plans for reducing costs in the first quarter, but would remain focused on achieving additional cost reductions to ensure further improvement in profitability during the year.

The Buncrana-based manufacturing plants are part of a growing number of manufacturing networks being established by Fruit of the Loom in low-cost locations outside of the US.

Last year, there were fears for the Irish operations, after three of its senior management were removed as part of a European restructuring. The company has since invested in its Irish plants, and has been recruiting additional workers. The company has invested £3.3 million in the Irish factories upgrading and replacing its manufacturing processes.

Announcing the investment programme last year, European vice president, Mr Andy McCarter, said it should ensure the company remains competitive in the longer term.

About 600 people are directly employed in the Irish T-shirt manufacturing operations, which accounts for the bulk of the company's Irish output. Fleece production accounts for around 30 per cent but is rapidly growing. Mr Farley said the move towards more offshore locations had yielded substantial tax savings for the company in 1998, and had reduced its effective tax rate down from 28 per cent in the same quarter last year to 17 per cent. In the first three months of 1998, Fruit of the Loom reported a 9 per cent drop in sales, from $501 million (£357 million) in the first quarter of 1997 to $457 million (£326 million) this year. Despite the slump, pre-tax profit rose by 18.6 per cent from $31.7 million to $37.6 million as a result of higher margins and lower costs.

Mr Farley said the company still faced risks and uncertainties, with future growth largely dependent on the financial strength of the retail industry, the pricing environment, and the company's ability to move labour intensive segments of its manufacturing processes outside of the US. Fruit of the Loom employs 28,600 worldwide in 60 locations.