Page last updated at 00:05 GMT, Tuesday, 6 January 2009

How Waterford Wedgwood cracked

By Jorn Madslien
Business reporter, BBC News

The demise of Waterford Wedgwood - 250 years after Wedgwood was founded in Stoke-on-Trent and 226 years after Waterford began in Ireland - has come as a shock to many.

Waterford china cups
Waterford Wedgwood sells brands that many feel will survive the crisis

It shouldn't have.

Business journalists have pored over the iconic crystal and china manufacturer's difficulties for years, covering every twist and turn of the efforts of majority owners Sir Anthony O'Reilly and Peter John Goulandris to revive the Anglo-Irish company.

In May 2005, a 90m euro (at the time 60m) restructuring plan sparked a series of harsh job-cuts aimed at cutting costs.

Yet by October last year, pre-tax losses for the previous six months still exceeded 63m euros ($85m; 58m) and its debts stood at almost 450m euros.

In December, to cut costs further, the company announced that it would withdraw from the London Stock Exchange, ending its dual listing in Dublin and London.

Wedgwood and Waterford have become big names rather than big brands, in that it is not clear what they stand for,
Robert Jones
Brand consultant, Wolff Olins

But in the end a syndicate of banks reined in their lines of credit after the company failed to set aside sufficient reserves - forcing the company to call in the receiver in Ireland and enter into administration in the UK.

"We are consoled only by the fact that everything that could have been done, by management and by the board, to preserve the group, was done," says Sir Anthony, non-executive chairman.

Still valuable

In spite of the current difficulties it is unlikely that Waterford Wedgwood will disappear for good.

"Waterford, Wedgwood and Royal Doulton are quintessentially classic brands that represent a high quality product which is steeped in history," says Angus Martin, joint administrator, Deloitte.

And brand consultant Robert Jones of Wolff Olins agrees that the value of the company's brands should alone be enough to attract investors, who would then face a serious challenge,

"Wedgwood and Waterford have become big names rather than big brands, in that it is not clear what they stand for," he says.

"Wedgwood in particular should stop trading on its heritage and instead re-establish itself as an innovator."

Mr Jones believes it would make sense to sell the company's brands separately, though it is also possible that the company itself might survive intact.

It will continue to trade as a going concern, and chief executive David Sculley says he remains "optimistic" a buyer can be found.

Global impact?

A Waterford Wedgwood shop
The current global economic conditions have continued to affect the business
Deloitte

In the meantime, some 1,900 jobs in the UK and 800 jobs in Ireland are on the line.

And eventually the impact could stretch well beyond these shores.

Waterford Wedgwood has become an increasingly global player following the merger of Irish company Waterford Crystal with Wedgwood in 1987 and the subsequent acquisition of pottery firm Royal Doulton in 2005.

Its overseas subsidiaries now employs a further 5,800 people across the globe - in the US, Germany, Canada, Australia, Japan and Indonesia - though as yet these divisions remain unaffected by the situation in the UK and Ireland.

Too much or too little?

Many of Waterford Wedgwood's global jobs have been created gradually as much of the production has been switched to the Far East, in response to low-cost rivals producing in the region.

Such transfers of jobs out of the UK and Ireland have repeatedly come under fire, with critics insisting that customers would shy away from the products if the company strayed too far from its geographical roots.

Indeed, sales have shrunk for years - a root cause of the consolidation that sparked the mergers of the three brands.

But it is not clear whether this has been because the outsourcing has been the cause of customer disgruntlement or whether the shift to more competitive manufacturing facilities has simply been too slow to help the firm face up to cheaper Asian rivals.

Currency and credit

What is clear, however, is that the rise of the euro has hit Waterford Wedgwood's bottom line.

The company is based in Ireland and its accounts are in euros.

The currency's strength versus the US dollar has made it much harder to make money in its biggest market, the US.

Maintaining prices in dollars would boost losses, but raising prices in line with the euro's rise would hit sales.

In addition, it has felt the dual impact of a credit crunch that has both forced consumers to tighten their belts and made it harder for investors and companies to borrow money.

"The current global economic conditions have continued to affect the business," observes administrator Deloitte.


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