Waterford Crystal set to sparkle

Waterford Crystal will announce sparkling results when its parent, Waterford Wedgwood, releases preliminary figures, tomorrow. But the group is not firing on all its three cylinders. Rosenthal, the German porcelain subsidiary, has produced good results; returning to a small profit. But Wedgwood, the British fine bone china and earthenware subsidiary, the third leg of Waterford Wedgwood, with lower operating profits, continues to be a drag on the group.

The results are likely to show a widening in the contributions from Wedgwood and Waterford Crystal. Indeed, the crystal company is now probably making double the level of operating profit generated by Wedgwood. So despite the bumper results from Waterford Crystal, and the better-than-expected contribution from Rosenthal, Waterford Wedgwood will record just modest profit and earnings growth for 1998. Waterford Wedgwood announced operating profits of €57.4 million (£45.2 million) in 1997. These are likely to have grown by a little more than 10 per cent to over €64 million (over £50 million), broadly in line with brokers' projections. This should be reflected in a similar growth in earnings per share to over 6.5c (over 5p).

However, Wedgwood, although performing better than its domestic competitors, has not bucked the slippery trend established in the first half. Its operating profits were then down from €7.24 million (£5.7 million) to €6.22 million (£4.9 million). It was hit on three fronts; exposure to Asia, soft domestic sales, and the strength of sterling.

Most of its profits come through in the second half and it was hoped that the refocusing of its business to improve margins might come to its rescue. That has provided to be a pious hope. It will not be surprising if operating profit for the full year are down by a quarter.

In contrast, Waterford Crystal is continuing to bound ahead with plenty of gusto. A minor fear that things might slow down in the US did not materialise. Indeed, this market is providing plenty of growth.

Waterford Crystal generated an operating profit of €30.09 million (£23.7 million) in 1997. This is likely to have grown to more than €40 million (over £30 million) in 1998. Importantly, the profit margin widened by a percentage point to 10.3 per cent in the first half. It will be surprising if the margin has not improved further in the full year. Last year, group chairman, Dr Tony O'Reilly said the crystal company remained the engine of growth. That will be reaffirmed by Tuesday's figures.

Following a rationalisation programme, Rosenthal, had broken even in the first half of last year. Its sales had grown by 3 per cent as it had increased its presence in the US and Japan, on the back of Wedgwood products and was expected to barely nudge into profits in the second half. Rosenthal has done a little better than that but this would not have been large enough to have an impact on earnings.

The preliminary results for 1998 will show that Waterford Wedgwood is nearing the targeted sales of €825 million (£650 million) by the year 2000. However, it now seems unlikely to achieve the target operating profit margin of 15 per cent. While Waterford Crystal may get close, and Rosenthal should make an increasing contribution, Wedgwood will continue to be a drag. But then Wedgwood, following the major rationalisation programme, has the potential to record a strong recovery. Industry sources say there are some signs that the Japanese market has bottomed out. Analysts will be waiting to see what the preliminary statement has to say about Wedgwood's future prospects.