Economic buoyancy to boost sales


Waterford Wedgwood is poised to continue to record strong profit growth this year. Sales for the first two months were 20 per cent higher, with double digit growth in both crystal and ceramics. Also, All-Clad, the US cookware manufacturer acquired last year, will make a 12-month contribution compared with six months in 1999.

All the brands should benefit from continuing buoyancy in the US economy, though the warning by Federal Reserve chairman Mr Alan Greenspan yesterday that US interest rates would have to keep moving upwards in the months ahead to curb the ardour of that economy, may slow things down later.

Other good auguries are: the Asian economies, which are improving; Britain, which should continue to grow and the German economy, which appears to have steadied.

Waterford Crystal plans to maintain the sales momentum. It expects to do this through building on the new consumers recruited by its Millennium products, with an array of new products used as gifts, and to hold on to ground floor retail space.

Outsourced products, which had given the group an extra dimension, have now become much more competitive. To cope with this it has embarked on Marquis - phase three. All-Clad, and other products including Waterford writing instruments, holiday heirlooms, Wedgwood gourmet foods, linens and cutlery, should contribute increasingly. They almost doubled their sales to €87.6 million and profits to €14.1 million last year. Although small compared with crystal, the contribution was almost as much as the €15 million profits generated by ceramics.

Waterford Wedgwood will never become a fully fledged group until ceramics (Wedgwood and Rosenthal) make a far larger contribution. Up to now, it has been all downhill. The return on sales in 1997 was 9.2 per cent. It fell to 6.1 per cent in 1998 and dropped again to a mere 3.8 per cent last year. That should now have bottomed out. The ceramics division has completed its rationalisation programme with the closure of six factories and workforce reductions of 2,000, invested in a host of new products, and should produce strong cash-flow.

It also has a 14.9 per cent stake in loss-making rival Royal Doulton which is in the throes of a three-year rationalisation programme. As a strategic investment, there are unlikely to be any immediate returns from this acquisition.

The ceramics division badly needs to increase sales in order to boost margins. But can it do this in an industry which it admits still has considerable over-capacity? If it were to generate the 15 per cent target return on sales, ceramics would boost group operating profits by more than 50 per cent. A worthwhile target, but not attainable in the immediate future.