Waterford Wedgwood pretax losses hit €149.2m

Luxury goods group Waterford Wedgwood fell to a €82.2 million operating loss last year as it struggled with falling sales, adverse foreign exchange movements and a production slowdown designed to reduce inventory.

The figures compare to an operating profit of €28.4 million a year earlier. At the pretax level, losses rose to €149.2 million in the 12 months to the end of March last from €44.9 million in fiscal 2004.

The scale of the losses surprised analysts who had already been warned by the company last month that sales would fall short of previous forecasts. Goodbody's Neil Clifford said the profit figures were "significantly worse" than revised estimates. Company broker Davy had expected an operating loss of €65 million.

There was a broad welcome, however, for the company's performance in paying down debt. At year end, outstanding debt stood at €279.4 million compared to €383 million a year earlier and market projections of around €320 million.

Sales have continued to slide this year - down 8 per cent in the company's fiscal first quarter to the end of June on a like-for-like basis compared to a 6 per cent decline on the same basis for the whole of last year.

Chief executive Redmond O'Donoghue said sales would grow in the second half of the year on the back of a couple of "substantial contracts" that had recently been won.

However, he was cautious on his outlook for the year as a whole. "If sales were to be flat for the year, it would be a good outcome," he said.

While refusing to detail profit forecasts, he said he would be "sad" if the company was still making a loss next year.

Despite the mounting losses, Mr O'Donoghue insisted the company's position had improved over the past year. "We sold a major business (All-Clad) and bought a major business (Royal Doulton), we structured a major re-financing, we implemented a significant working capital reduction programme, we simplified the business dramatically, eliminating 50 per cent of our stock keeping units, and we made important management changes."

Chief operations officer Peter Cameron said the company expected to double to €40 million the annualised synergies available through the amalgamation of Royal Doulton with its existing Wedgwood business.

He also said all divisions of the company were involved in a series of new business initiatives. These include a link-up with a well-known US designer to replicate in that market the success of the John Rocha business in Europe, design initiatives to target a younger audience and efforts to tap growing markets in China and eastern Europe.

Most of these would come on stream next year, the company said, although it had already started distributing through the Bed, Bath & Beyond homewares stores in the US.

Mr Cameron said the company would outsource to eastern Europe and elsewhere an increasing amount of the "more elaborate, labour intensive pieces" of Waterford Crystal and Rosenthal products.

Mr O'Donoghue said that the forthcoming €100 million rights issue, designed to fund a €90 million restructuring including 1,800 job losses and the closure of the Dungarvan plant, would "give us the ammunition to get the business back to profit".

The rights issue will be put to an extraordinary general meeting on Monday.

NCB analyst John Sheehan said the continuing fall in sales raised concerns about the execution of the restructuring. He was also sceptical about the upside the company could expect from the strengthening dollar as it has hedged 91 per cent of its dollar exposure for this year.

"You are also likely to see further large write-offs this year," Mr Sheehan added.