Legendary crystal firm is facing turbulent times
REDMOND O’Donoghue became the local boy made good in November, 2001 in becoming the chief executive of Waterford Wedgwood, but he could not have taken the coveted post at ‘The Glass’ at a worse time.
Waterford Crystal sustains the city. It provide jobs for thousands directly and indirectly from high-paid glass cutters and blowers to student summer jobs at the city’s main tourist attraction the Waterford Glass Visitor Centre.
For a man born, bred and educated in the city to become the boss must have been a dream come true for Redmond O’Donoghue but others would surely have regarded the job in 2001 as a nightmare. Just two months earlier the firm was going well. Waterford Wedgwood (WW) had a market capitalisation on the stock exchange of €741m. Then came 9/11.
As the world adjusted, WW became just one of the many enterprises for which the world would never be the same again.
A month after 9/11 the value of Waterford Wedgwood fell to €446m on the Irish Stock Exchange. They have yet to recover.
A month later Redmond O’Donoghue was appointed chief executive. Yesterday, as the company’s value of the Stock Exchange was just €159m the firm announced pre-tax losses of €45m.
The results left Redmond O’Donoghue open to the indignity of being asked on Morning Ireland if he intended to resign. He scoffed at the notion.
Mr O’Donoghue has overseen a massive overhaul of the business with over €300m invested in technology and restructuring.
Through a combination of outsourcing production and leveraging technology in Ireland, WW has reduced overall production costs to those enjoyed by competitors in low-cost countries.
In essence, the company is ready to pounce on any recovery in its core US market. The figures associated with WW are baffling. It is worth just €159m according to its stock market capitalisation yet it is in the process of selling off one of its core business units, All-Clad for €205m. This is €46m more than the entire company was worth, including the US cookware maker.
WW has an incredible €320m in inventory waiting to be sold and it says it is looking at reducing this to free-up working capital.
Analysts say the All-Clad sale will boost cash reserves but also believe the loss of a very decent cash-generative unit is a high price to pay to ease debts of €382.9m.
Meanwhile, Dolmen Securities Stuart Draper rates the shares a buy and says they are significantly undervalued.
“Following the All-Clad disposal, WW’s net debt falls to ca €200m, which given the current share price of 16.5c and forecast current year EBITDA of €64.5m, gives an EV/EBITDA ratio of only 6.2 times. This makes the company appear significantly undervalued,” he said.
But for the presence of the 27.5% shareholding block held by chairman Tony O’Reilly and others, WW shares could well be in play as an acquisition target.
Still, there are a lot of variables which need to come right for WW to thrive, not least a pick-up in US luxury goods spend and a simultaneous strengthening of the dollar.
Despite being the market leader with Waterford in the crystal sector, Wedgwood, the No 2 china brand, and Waterford China, the No 4 brand, WW has made a loss.
WW plans to invest as much as an extra €10m a year in marketing some of the best-known brands in the West to boost sales but the question facing the company is: Has the loss of its steel cookware star All-Clad left The Glass too fragile to survive on its own?
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