Irish china and crystal maker Waterford Wedgwood PLC said 4 June 2003 it has cut its full-year dividend by 50%, blaming the move on the difficult market conditions the luxury-goods company is currentl…
Irish china and crystal maker Waterford Wedgwood PLC said 4 June 2003 it has cut its full-year dividend by 50%, blaming the move on the difficult market conditions the luxury-goods company is currently fighting against. The dividend reduction is a break with its tradition of increasing its dividend each year. “We think this is a prudent response to the difficult situation we“re in,” said company chief executive Redmond O“Donoghue. Although the dividend is yielding 8% at current levels, analysts had expected the company at least to match the previous year“s dividend of EUR 0.024. Approximately 27% of the company is held by Waterford Wedgwood Tony O“Reilly. Waterford Wedgwood also said it is planning to “adjust” loan agreements that were scheduled to expire at the end of 2003. Finance director Richard Barnes told reporters the company and its 12 lenders, led by Bank of Ireland PLC and Royal Bank of Scotland PLC, are about to renegotiate a EUR350 million revolving-credit facility, but he did not disclose the terms. In total, Waterford Wedgwood has around EUR480 million in loan facilities. Waterford Wedgwood, like most luxury-goods companies, has suffered heavily in the wake of September 11 and the worldwide economic slowdown. In March 2003, it issued a negative trading statement that lead to a series of earnings downgrades. Margins have been under pressure because of continuing slack demand from major U.S. store groups. Sales in the important US market have also been hit by the strengthening of the EUR against the dollar. The company posted earnings in line with analysts“ low expectations and announced further far-reaching restructuring because of weak trading conditions worldwide. Waterford Wedgwood posted pretax profits of EUR 7.2 million, which compares with a pretax loss of EUR 53.5 million for the full year to March 2002. The loan renegotiation is part of the substantial restructuring the company is undertaking to improve its financial stability. It also said the loans needed to be revised because of the change in its fiscal year-end to 31 March 2003 from 31 December 2003, which has changed the timing of the expiry date of its existing borrowing agreements. “The advent of restructuring puts us into a position where it would be difficult to see how we would meet our Dec. 31 covenants, so we just moved the negotiations forward three months,” Barnes said. “We have enough (banking) facilities to meet our needs.” When asked about a rights issue, O“Donoghue was non-committal. The company“s gearing, or ratio of debt to equity, deteriorated to 170%, compared with 163% at the same time in 2002. Barnes said interest cover – the ratio of cash reserves to interest obligations – is more applicable to a company like Waterford Wedgwood, whose cover improved to 2.7 times, versus 2.0 times a year ago. As part of its restructuring plans, Waterford Wedgwood will move its Johnson Brothers earthenware plant to China and close down two earthenware factories in the U.K. with 1,058 job losses. These moves, along with other aspects of the restructuring plan, should lead to cost reductions of EUR 28.7 million per year, the company said, adding that it will take a restructuring charge of EUR 35.7 million in 2003 and EUR 28.7 million in 2004. Analysts were forewarned of the weak full-year sales figure because the company issued a profit warning in March 2003, saying that sales so far in the year were worse than expected. Analysts responded with a wave of earnings downgrades. Since then, analysts had cut their forecasts in line with the company“s new earnings-per-share guidance of between EUR 0.045 cents and EUR 0.05 cents to March 2003. O“Donoghue said it was difficult to say how its future earnings will fare. “We“ve spoken to the analysts this morning and asked them to come back with revised numbers,” he said. “When they revise their numbers, we will be able to give appropriate and limited guidance.” But he added: “There“s no visibility in this topsy-turvy world.” An analyst at Merrion Stockbrokers, said she was reviewing her full-year 2004 numbers. “The group“s trading outlook remains weak,” she said. “We currently rate Waterford Wedgwood an “avoid“ until we can ascertain with more certainty the base from which normalized earnings can begin to recover.”