Financial market reacts positively to Waterford plan but remains cautious

Restructuring plans by Waterford Wedgwood have received a positive reaction from the Dublin market. However, analysts are still cautious about the company's prospects for the future.

"This is a significant restructuring which will go a significant distance in bringing the company back to a position where its longer-term future is more sustainable," said Goodbody analyst Neil Clifford.

However, he added that until there was more evidence of the company "delivering on this plan, we maintain our cautious view on the shares".

John Sheehan, industrial stocks analyst at NCB, echoed the caution. "The key question is 'will this work?'," he said

He noted that previous major restructurings in 2001 and 2003 promised significant savings (€40 million and €29 million respectively), but these were ultimately offset by "a continued decline in sales, the fall in the dollar, intense market competition and underlying cost inflation in the business.

"The €90 million savings targeted in this latest move would, if sustained, be a major achievement," he said.

Apart from taking steps to slash its cost base, Waterford Wedgwood has spent the past 18 months trying to address falling sales.

The company has reviewed it ranges, culling some, and placing more emphasis on contemporary design.

It has also adjusted its sights on distribution outlets. Traditionally, in the key US market, Waterford Wedgwood sold through department stores such as Macy's and Bloomingdales.

However, in a belated acknowledgment of changing consumer shopping patterns, it is offering its range through lower-cost homeware chains such as Bed, Bath & Beyond and Williams-Sonoma.

Chief executive Redmond O'Donoghue said the changing focus was already delivering results.

Ironically, last year, Waterford Wedgwood agreed to pay $500,000 to settle allegations that it colluded with department store giant May (which owns Macy's and Bloomingdales) and Federated to prevent Bed, Bath & Beyond selling their wares.

However, despite the changing strategic approach, Waterford Wedgwood announced in March that full-year figures to be presented next month would show a further decline in sales even before the negative impact of the falling dollar.

"The job cuts were the inevitable response to the exceptionally challenging market conditions which have, to date, shown no signs of abating," said Mr Sheehan.

Dolmen Securities analyst Stuart Draper agrees. "This is the most radical move yet. This is fundamental. They are tackling their own core business, which is something that needed to be done."

Waterford Wedgwood is not alone. Brown-Forman, the US conglomerate, is considering the future of its luxury tableware subsidiary Lenox, Waterford Wedgwood's main rival in the US market.

Analysts agree that, whatever chance Waterford Wedgwood has, it is based on delivering its restructuring on time and on stemming the recent fall in sales.

On that, Mr O'Donoghue agrees. "The only way to return this business to profit is to have our factories working full-time and to put our products where people are buying.

"This plan is designed to make money at a sales level of around €800 million, which is where we are, and at our current adverse exchange rates."