Waterford Wedgwood has started a major refinancing, designed to satisfy the demands of its bankers and position the company for long-term growth, writes Una McCaffrey.
News of the financial revamp, which includes a €38.5 million rights issue and a €165 million bond offering, came as Waterford Wedgwood said operating profits had plunged by 90 per cent to €4.2 million over the first half of the year.
Sales over the period fell by 14 per cent to €405.8 million, with demand for the group's luxury goods shrinking by 9 per cent during the US-led invasion of Iraq in the first quarter and the SARS epidemic.
Currency movements were also unhelpful, with the dollar's weakness eating into results when translated into euros.
Chief executive Mr Redmond O'Donoghue described the first three months of the group's financial year as a "quarter from hell", but said trading had improved significantly since then, with the latest figures pointing to a 3 per cent uptick on a constant currency basis.
"If nothing untoward happens. we would be quietly confident that there's a turnaround there," he said.
Central to Waterford Wedgwood's positioning in the face of this expected economic recovery is the group's new-look capital structure, which will emerge from a rights issue, a new bond issue and a new senior debt structure.
The company has been under pressure from its bankers to arrange a refinancing for a number of months and has missed two previous deadlines set in this regard.
Yesterday's resolution of the matter was welcomed in the market, with Waterford Wedgwood shares climbing two cents to 31 cents in Dublin.
The rights issue will be made on a three-for-11 basis at 18 cents and will be fully underwritten by Davy Stockbrokers.
The company's largest shareholders, the O'Reilly and Goulandris families, will take up the full allocation due to their 24.6 per cent stake at an estimated cost of €9.5 million, with other large shareholders thought likely to follow suit.
The rights issue is conditional on the completion by the group of a €165 million, seven-year, high-yield bond, with the proceeds of both issues to be used to pay down the group's high levels of borrowings. Net debt is expected to fall from last March's €357 million to €350 million before the end of March, 2004.
The bond, which is expected to deliver a coupon of about 10 per cent, has been awarded a B- rating by Standard and Poor's and a P(B3) rating by Moody's.
The firm has also rolled over €278 million of its €419 million in existing syndicated and private placement debt, with chief financial officer Mr Richard Barnes expressing confidence in the "ample headroom" contained within the new debt covenants.
He confirmed the group was not able to pay a dividend over the first half, but said the resumption of dividend payments could be expected in the future.
Mr O'Donoghue said Waterford would continue to focus on debt reduction over the medium term, with no acquisitions likely for some time.
"We've weathered the storm of the last two years and we feel much better about where the business is and the outlook for the future," he said.
Waterford Wedgwood has shed almost one-third of its workforce, or 3,000 people, over the past two years, with its crystal factory in Waterford still engaged in a round of redundancies.
Negotiations with unions continue on the company's current proposal to cut 234 staff at the facility.
The group took a restructuring charge of €32.7 million over the first half, but expects the programme of change to deliver annual cost savings of €38.5 million going forward.
