Technology helps to maximise profits

WATERFORD Wedgwood is on track to continue with its pattern of steady, if unremarkable, growth. It appears to have all the necessary ingredients strong financial controls, up to date technology and marketing agility.

At yesterday's interim results presentation, Mr Redmond O'Donoghue, chief executive of the Waterford Crystal side, promised that the group "will never be behind in technology again", and spoke enthusiastically about the company's new products, in particular its millennium flute crystal glasses which are selling so well in the US. And Mr Brian Patterson, chief executive of Wedgwood, was loll of enthusiasm about the prospect in the Pan Asian market which he described as "quite amazing to behold".

However, the group will have a hard task to meet the challenge set by chairman, Dr Tony O'Reilly, of doubling the business by the year 2000. The management team has admitted that it has not decided how it can be achieved. So will this turn out to be an aspiration rather than a goal?

It could come close to achieving the target in terms of profits. Going on the present trend, doubling sales - without acquisitions - will be more difficult. The interim figures show only a modest 8 per cent growth in sales. In contrast, pre tax profits grew by 28 per cent. The group is not ruling out acquisitions, but most of future growth is likely to come from its core businesses.

Waterford Wedgwood is gaining benefits from previous capital investment, from more out sourcing of new products and from the launching of a continuous stream of new traditional products. It is also benefitting from lower interest costs following the reduction of debt.

The British and continental European markets continue to be difficult. And competition in the US market will remain intense. The Japanese market continues strong for the Wedgwood products and new markets such as Asia and Australia should provide plenty of fodder for growth. And the integration of Stuart Crystal with the group's crystal side should enhance earnings.

However, the greatest potential benefits have yet to come from Wedgwood. First, Johnson Brothers, which has been a drag, needs to be kicked into shape. Unprofitable lines have already been dropped so the problems are being addressed. Second, less than 5 per cent of Wedgwood's sales come from outsourced products. Wedgwood, following the lead set by Waterford Crystal, intends to substantially increase the percentage of out sourcing which should be, more profitable.

The second half is more important for Waterford Wedgwood, but on the basis of first half trends it should have little difficulty in pushing profits up from £28 million in 1995 to £36 million this year and to £45 million in 1997.

The shares, unchanged at 76p (12 month high 85p; low 55p), are on a prospective price/earnings ratio of 18.1 which is looking for strong growth in the future.