Waterford ‘likely to continue decline in 2005’

CREDIT ratings agency Fitch expects no improvement in the financial position over the next year.

In a research note yesterday Fitch Ratings said since 2001 Waterford Wedgwood’s profitability has declined due to weak demand, the negative impact of foreign exchange and industry overcapacity.

It said these problems are likely to persist for next year, which could impact further on its profit margins.

The agency has assigned a low grade to the company’s debt pointing out the problems facing the company.

Waterford shares slipped nearly 1.5% on the news.

Fitch does, however, say Waterford Wedgwood has progressed on improving its cashflow and working capital requirements.

The company has hired a firm of management consultants to reduce inventories and trade receivables in a bid to generate working capital cash inflows of €30 million next year and €10m in 2006. “The recent changes in management at Waterford have precipitated a greater focus on cash flow generation, particularly working capital management,” said Fitch analyst Daragh Murphy.

“The ratings and stable outlook are contingent on Waterford achieving the necessary working capital improvements without damaging its brands and successfully adapting to changing consumer tastes.”

The analyst said he was concerned that the sale of Waterford’s All Clad division has removed one of the main contributors to profitability.

The company said its debt level “remains high for such an operationally leveraged company in a seasonal and cyclical business.”

It expects the remaining core business to encounter further declines in profitability due to negative currency movements against a backdrop of weak demand.