Waterford Wedgwood

PLC 2008
Brandan L. Still
Harvard Law School
Lisa D. McNary
North Carolina State University
Clare Burns
Lamar University
WATFF (on London Exchange)
www.waterfordwedgwood.com
Over the past two centuries, Waterford Crystal has grown to be one of the worlds best known and valued crystal brands. In
addition to gracing the tables of royalty, fine establishments, and families, Waterford crystal adorns the New Years Eve Ball on
Times Square, trophies for championships in almost every major sport, and the chandeliers in the Kennedy Center, Windsor
Castle, and Westminster Abbey.
The beauty and refinement of the Waterford crystal reflect the creativity and skill of its artisan and craftsmen. The
designs reveal a uniquely Irish influence couple with the finest in modern design. Waterford pieces become family heirlooms
cherished for generations and in style for lifetimes. Waterford has recently diversified into other areas of household luxury
products and entered into a number of collaborative and cooperative relationships with famous designers including Versace,
Bulgari, Jasper Conrad, and John Roche, as well as internationally known as chefs.
However, Waterford has come upon hard times of late. The companys net income for 2007 was negative 270.8 million
euros, preceded by negative 183.9 million euros in 2006. Waterford needs a clear strategic plan for the future.

History
Glass has been regarded with significant respect in civilization since the dawning of the Iron Age. Evidence of glassmaking has
been found by archeologists in Ireland dating as far back as the 13th century. Waterford Crystal was founded over 225 years ago
on the quays of the Irish port of Waterford by two prominent developers and businessmen, brothers William and George Penrose.
They employed a number of local artisans who produced a crystal of brilliance and clarity unmatched by any in the British Isles.
In short order, merchant ships with cargoes of the fine crystal were bound for ports throughout Europe and across the Atlantic in
North America. The crystal produced in Waterford City developed an unequalled reputation in a relatively short period of time.
However, the company ceased operating for more than a hundred years after falling on hard times.
Following World War II, in an era of increasing Irish independence and enterprise, glassmaking once again commence
in Waterford and a small factory was set up only 1 miles from the original factor on Merchants Quay. Since that time,
Waterford has opened additional factories in Ireland and around the world, but its principal production site remains just outside of
Waterford.
In 1967, Waterford became a listed company on the London Stock Exchange. The present Waterford Crystal maintains
strong ties with its predecessor namely, a dedication to purity of color, design, and quality in their crystal. However, the
company today comprises far more than just crystal. Waterford Wedgwood, plc, the modern holding company created by a
merger between Waterford Crystal and the English ceramics company, Wedgwood, in 1986, contains divisions producing
products ranging from the traditional crystal to linens and homewares as well as writing instruments and ceramic flatwares. The
combined company (the Group) is listed on the Irish and London Stock Exchanges under the stock symbol WATFF. The Groups
organizational chart is presented in Exhibit 1.

Mission/Vision/Value Statements
Waterford Wedgwood has no vision statement. However, the companys mission statement states its desire to be the worlds
leading portfolio of luxury lifestyle brands with particular emphasis on table top, gifting and the home. The companys Code of
Corporate Conduct includes detailed statements of values in relation to different stakeholders, customers, and employees. For
example, the value statement on business integrity states, The Group trusts and respects all of its Directors and employees and
aims to conduct business through people who will apply uncompromising integrity, by strictly adhering to standards of personal
honesty in their dealings with others to earn their trust. The entire Code of Conduct of Corporate is available at
www.waterfordwedgwood.com/investor.asp.
EXHIBIT 1 Organizational Chart

EXHIBIT 2 Waterford Brand Structure

Ceramics Group

Wedgwood
Rosenthal
Royal Doulton
Hutschenreuther
Coalport
Masons
Johnson Brothers
Royal Albert
Minton

Waterford Wedgwood, PLC

Waterford Crystal

Waterford Crystal
Marquis by Waterford
Stuart Crystal
Cashs Mail Order

W-C Designs & Springs

W-C Designs
Spring

Business Organization
Waterford Wedgwood holds a portfolio of brands and divides these brands among three operating groups: (1) Waterford
Crystal, (2) Ceramics Group, (3) W-C Designs and Spring. These groups comprise 26.9 percent, 67.6 percent, and 5.5 percent of
revenue, respectively, for the fiscal year ending March 2007. The three groups are the result of a recent consolidation from five
operating groups to three and the sale of All-Clad, an American cookware company. The brand structure of the groups is shown
in Exhibit 2. Waterford sells products in North America, Europe (excluding the United Kingdom), the United Kingdom, and the
Far East, which accounted for 41.1 percent, 26.3 percent, 16.6 percent, and 10.0 percent respectively of the companys total
revenue in the fiscal year ended March 31, 2007.

Waterford Crystal
Four main brands reside within the Waterford Crystal operating group: (1) Waterford Crystal, (2) Marquis by Waterford, (3)
Stuart Crystal, and (4) Cashs Mail Order. Waterford Crystal is a hand-blown, hand-cut crystal primarily made at the companys
facilities in Ireland; however, some production for smaller and midrange-priced has been shifted to continental European
production facilities.
The production process is based on an artisan process. Craftsmen are apprenticed for a number of years into one of
three crafts: blowing, cutting, or engraving. After a period of approximately ten years, these craftsmen become master craftsmen
and enter the normal workforce at the factory. From that point on, they are paid on a piece-rate basis for the prices they work that
pass inspection after their step of the process. For example, a blower blows a glass vase and it is inspected after blowing; if
passed, the blower is paid and the piece will go a cutter, whose work is subsequently inspected. No manufacturers seconds are
sold; any piece not passing inspection at any point is broken and recycled.
Waterford Crystal is one of the companys flagship brands and undoubtedly has one of the highest profiles. Long
considered traditional and elegant, this brand has entered into cooperative branding and design arrangements with modern
designers, resulting in a number of sub-lines of the traditional Waterford Crystal brand including the Jasper Conrad and John
Roche lines. Once Waterford Crystal introduces a stemware design, the design is never retired, allowing for the completion of
settings over tome and replacement of any broken pieces. The company acquired Cashs Mails Order in 2002 and sells both the
Groups and the other licensed products via catalogue, primarily to the United States. Marquis by Waterford is a machine-cut
crystal crafted in continental Europe. The same blend of ingredients is used as in Waterford Crystal, but the crystal in not handcrafted. These pieces contain a range of design styles and a wide range of product variety. Marquis does not command the same
prices as true Waterford Crystal; it is considered an entry-level crystal product that could promote trading-up by consumers.
Stuart Crystal, a British crystal company with a strong presence in the United Kingdom market, was acquired in 1995 and is
manufactured primarily in continental Europe.

Ceramics Group
The Ceramics operating group consists primarily of Wedgwood, Royal Doulton, Rosenthal and Hutschenreuther. Wedgwood is a
manufacturer of a ceramic tableware and giftware; the Wedgwood brand umbrella includes fine china, earthenware, and other
brands, acquired through acquisitions including Coalport and Johnson Brothers. Royal Doulton, acquired in 2005, is a large
producer of chinaware under the Royal Doulton, Minton, and Royal Albert brands. Rosenthal, a German manufacturer of ceramic
and porcelain tableware and giftware, was acquired in 2002. Production in the ceramics group is divided between the United
Kingdom, Indonesia, and Germany.

W-C Designs and Spring

The W-C Designs and Spring operating group comprises a much smaller portion of the business and reflects relatively new
additions to the brand portfolio. Ashling Corporation, owner of the W-C Designs brand, was acquired in 2001, and Spring, a
small premium cookware manufacturer, was acquired in 2002. These brands have led to the introduction of flatware, linens, and
other household products under the W-C Designs brand and the Spring brand. As mentioned above, these products only generate
5 percent of the total revenue of the Group but they are gradually working into co-promotion opportunities with more traditional
Waterford Wedgwood products in department and specialty stores as well as penetrating new retail outlets and broadening access
to Waterford Wedgwood products. Overall, approximately a third of the production of the Group is outsourced to manufactures
in Germany, other European countries, and Asia.

Internal Issues
Finance
Wedgwood is not doing well financially. The Groups consolidated financial statements for the year ended March 31, 2007 were
prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements for the year ended
March 31, 2007 were previously prepared in accordance with Irish Generally Accepted Accounting Principles and were restated
on a consistent basis, except where otherwise required or permitted by IFRS 1, First Time Adoption of International Accounting
Standards.
The company is in a state if balance sheet insolvency. When the company restated their 2007 financial statements, they
recognized a deficit pertaining to the defined benefit pension schemes in non-current liabilities, and this resulted in a deficit in
their equity account. The deficit has increased due to losses experienced by the company in 2006 and 2007.
The company has struggled to maintain sales, which have declined every year since 2000, with the exception of 2003 in
sales remained flat at constant exchange rates. The increase in sales in 2006 was solely due to acquisition of Royal Doulton in
January of 2005. Revenues declined in fiscal 2007 from 772.6 million euro to 741.5 million euro. The company has faced
significant problems with debt management but has recently concluded a restructuring that is expected to result in significant cost
saving. The company has sold some businesses, including All-Clad, consolidated some of its operating groups, and completed a
series of financial transactions, including an open offer of shares, in order to fund losses, regain financial footing, and more
effectively manage debt.
The Groups income statements for 2007 and 2006 and recent balance sheets are provided in Exhibit 3 and 4. Interim
financial information for 2007 and 2006 is also included in Exhibit 4, so a more thorough analysis of the companys results of
operations can be performed. Segment information has been included in Exhibit 5 for the purpose of analyzing the individual
financial results of the three operating divisions.

Marketing and Distribution

Waterford Wedgwood distributes its products through a multi-channel distribution network (including wholesalers and
arrangements with select retail and department chains), direct retail from company-owned establishments (including the
Waterford Crystal Gallery at the Waterford, Ireland factory), mail order, and via regional Internet retail Web sites.
Department store displays, word of mouth, and the Web sites are the primary marketing tools utilized by the company,
but these are also supplemented by more traditional advertising efforts. The iconic status of a number of the companys brands
allows the company to maintain its image without relying heavily on advertising. In addition to these efforts, the company
continues to be involved with the creation of trophies for more sporting events and with special projects such as the Times Square
New Years Eve Ball.
The company also introduces special pieces to commemorate specials events. For example, the company introduced a
Waterford Crystal football helmet and football to commemorate the University of Floridas collegiate football championship in
2007. These products enhance the image of the company and may increase the customer base beyond traditional crystal buyers.

EXHIBIT 3

Waterford Wedgwood Consolidated Income Statement

(Amounts stated in millions of euros except per share data)

Year Ended March 31
2007
Revenue
Cost of sales
Gross profit/(loss)
Operating loss before exceptional items
Exceptional items
Operating loss

2006

2005

741.5
(387.5)
354.0
(14.9)
(2.2)
(17.1)

772.6
(452.6)
320.0
(68.2)
(62.6)
(130.8)

699.7
(423.2)
276.5
(73.0)
(105.6)
(178.6)

0.2
(53.9)
(70.8)
(0.4)
(71.2)
(71.2)

0.5
(49.8)
(9.3)
(189.4)
0.5
(188.9)
(188.9)

0.3
(47.4)
(19.1)
(244.8)
(1.3)
(12.0)
(258.1)
106.8
(151.3)

(71.3)
0.1
(71.2)

(190.8)
1.9
(188.9)

(149.2)
(2.1)
(151.3)

(4.96)

(16.87)

Finance income and costs:

Interest receivable and similar income
Interest payable and similar charges before exceptional items
Exceptional finance costs
Loss before income tax
Income tax income/(expense)
Exceptional income tax expense
Loss for the year continuing operations
Profit for the year from discontinued operations
Loss for the year
(Loss) profit attributable to:
- Equity holders of the company
- Minority interests
Loss per share continuing operations
- Basic and diluted (cents)
Earnings per share discontinued operations
- Basic and diluted (cents)

7.04

Loss per share continuing and discontinuing operations

- Basic and diluted (cents)

Sources: Waterford Wedgwood 2007 Annual Report and

http://www.waterfordwedgwood.com/investor _financialReports.asp.

(4.96)

Accounts,

Waterford

Wedgwood

2007

Annual

(9.83)

Report

and

Accounts,

Inheritance is a problem for Waterford in that many of the types of products sold by the company are considered
heirloom items that are handed down from one generation to the next, reducing sales. This practice also encourages a brand
perception of Waterford Wedgwood as old or associated with prior generation.
The Groups various brands are generally not marketed together as complementary products; each brand tends to be
marketed individually. The company also faces questions regarding the allocation of marketing resources to newer product lines.
Whatever the company is doing, its financial performance is not positive.
In the prior fiscal year ending March 2006, 44.5 percent of the Groups sales came from Europe, 38.9 percent from
North America, 10.1 percent from Asia (primarily Japan), and 5.5 percent from the rest of the world (primarily Australia). This
dispersion of sales causes the company to be very sensitive to exchange rates and other economic fluctuations in each of its
markets. The companys primarily centralized production for each of its products results in significant transportation costs for the
products to reach their markets.

Exhibit 4 Waterford Wedgwood Consolidated Balance Sheet

(amounts stated in millions of euros)
31-Mar-2007
SETS
Non-current assets
Property, pl a nt a nd equi pment
Ta ngi bl e a s s ets
Fi na nci a l a s s ets
Tra de a nd other recei va bl es
Deferreed i ncome ta x a s s ets
Total non-current assets

154.5
124.7
3.4
1.2
1.2
285.0

31-Mar-2006

174.1
124.6
3.6
0.6
1.3
304.2

31-Mar-2005

214.3
128.9
3.4
2.1
1.0
349.7

1-Apr-2004*

221.6
105.2
12.7
0
13.3
352.8

Current Assets
Inventori es
Tra de a nd other recei va bl es
Deri va ti ve fi na nci a l i ns truments
Ca s h a nd ca s h equi va l ents
Total current assets

249.4
115.2
3.3
17.8
385.7

233.7
117.0
1.0
25.8
377.5

222.1
105.7

295.5
120.4

20.0
347.8

51.6
467.5

TOTAL ASSETS

670.7

681.7

697.5

820.3

LIABILITIES
Non-current liabilities
Fi na nce l ea s e obl i ga ti ons
Reti rement benefi t obl i ga ti ons
Deferred i ncome ta x l i a bi l i ti es
Provi s i ons for other l i a bi l i ti es & cha rges
Borrowi ngs
Tra de a nd other pa ya bl es
Total non-current liabilities

24.0
147.8
11.0
11.7
402.0
6.1
602.6

22.7
234.6
10.6
15.0
371.8
7.0
661.7

24.1
283.7
12.0
4.8
299.4
3.7
627.7

18.4
161.9

Current liabilities
Tra de a nd other pa ya bl es
Fi na nce l ea s e obl i ga ti ons
Current i ncome ta x l i a bi l i ti es
Deferred i ncome ta x l i a bi l i ti es
Provi s i ons for ther l i a bi l i ti es & cha rges
Total current liabilities

156.1
3.0
5.3
1.0
11.0
176.4

148.6
3.1
6.0
0.7
29.0
187.4

163.2
1.7
6.8

174.5
1.1
5.8

15.2
186.9

11.6
193.0

TOTAL LIABILITIES

779.0

849.1

814.6

806.0

(167.4)

(177.1)

14.3

324.1
203.7
(698.8)
1.0
0.3
(169.7)
2.3
167.4
681.7

197.1
208.5
(522.6)

73.5
213.7
(287.2)

(0.4)
(117.4)
0.3
(117.1)
697.9

2.8
11.8
2.5
14.3
820.3

TOTAL ASSETS LESS TOTAL LIABILITIES

EQUITY
Capital and reserves attributes to the
company's equity holders
Equi ty s ha re ca pi ta l
Sha re premi um a ccount
Reta i ned l os s es
Ca s h fl ow hedgi ng res erve
Other res erves
Mi nori ty i nteres ts
TOTAL EQUITY
Tota l equi ty a nd l i a bi l i ty

399.0
201.9
715.6
3.3
0.8
(110.6)
2.3
(108.3)
670.7

422.9
9.8
613.0

Note: *Transition date from Irish GAAP to IFRS

Sources: Waterforf Wedgwood 2006 Annual Report and Accounts, Waterford Wedgwood 2005 Annual Report and Accounts, Waterford Wedgwood 2004
Annual Report and Accounts. Http://www.waterfordwedgwood.com/investor_financialReports.asp.

EXHIBIT 5 Financial Data by Segment

Fiscal Year Ended
March 31
2006
2007
(euro in millions)
Revenue by segment:
Waterford Crystal
Ceramics group
W-C Designs & Spring
Revenue
Operating profit/(loss) by segment:
Waterford Crystal
Ceramics Group
W-C Designs & Spring
Unallocated costs
Operating profit/(loss)
Net Operating expenses by segment:
Waterford Crystal
Ceramics Group
W-C Designs & Spring
Unallocated costs
Total operating expenses

206.5
527.8
38.3
772.6

199.4
501.5
40.6
741.5

(18.1)
(99.1)
(1.0)
(12.6)
(130.8)

11.2
(19.1)
(1.2)
(8.0)
(17.1)

224.6
626.9
39.3
12.6
903.4

188.2
520.6
41.8
8.0
758.6

Source: Company Annual Report, 2007 p.8

As the statistics show, a significant amount of the Groups sales come from North America and from Europe with
Asian sales a distant third. Opportunity exists for growth in the Asian region, especially, among brand-conscious Japanese
consumers.

Competition
The market for luxury homewares has traditionally been segmented with different producers producing significantly different
products. However, as Waterford Wedgwood has expanded their product lines, they have entered into the strategic areas of other
rival manufacturers. One example of this can be found in their Waterford Crystal brand where the number of pieces containing
colored crystal has increased in recent years. This type of piece has traditionally been the preserve of other European crystal
competition from new manufacturers in lower-cost countries Eastern Europe.
While the Group itself has taken advantage of the ability to manufacture at lower costs in Asia, these areas present the
potential for competition as well. The lower labor costs, less stringent regulation, and a more limited view of intellectual property
present in some Asian countries all present significant challenges to competing companies from outside Asia.
Two of the Groups established competitors include Steuben and Baccarat. Steuben is a division of Corning
Incorporated (known as Corning Glass Works until 1989) based in Corning, NY. Steuben offers a full line of luxury glass
products including barware, stemware, vases, and decorative pieces. These items are crafted almost exclusively out of clear glass.
In 2003, Stueben added several product lines including barware, stemware, and tableware produced in Germany to its portfolio.
However, most of Steubens glassware is designed and produced at the companys Corning headquarters. The company
distributes its products through its Web site and specialty retailers. Steuben makes up a relatively small portion of Cornings
sales. The division, aggregated with several other small divisions, comprises approximately 8 percent of Cornings total sales or
approximately $400 million.
Baccarat is a French crystal company based in Levallois Perret, France, with a wide range of luxury glass items
including jewelry, tableware stemware, lighting, and decorative crystal. Baccarat is well known for its vividly colored glassware
and contemporary designs. In addition to glassware the company offers fashion accessories crafted from gold, silver, and
precious stones. Baccarat distributes its products through high-end retailers throughout the world. Baccarat had sales of $187
million in 2006 and net income of $10.9 million.

The Future
Waterford Wedgwood is attempting to more effectively manage its labor costs, as well as continue to introduce new
contemporary product lines to complement its existing offering. High labor costs (much related to hand-crafting) have been a
continuing problem, and the companys recent closing of its plant on Dungarvan, Ireland, resulted in the layoff of several
hundred employees.
The company continues to introduce additional product lines to follow trends while maintain quality and tradition. The
possibility of the dilution of the brand is always present, and the company seeks to stroke a close balance between flexibility in
new product offerings and the maintenance of the iconic status of its brands.
In addition to the simple of product lines, the company plans to increase the number of distribution channels through
which their products are sold. This includes a desire to place their products in additional retailers such as Bed Bath & Beyond in
the United States as well as in wine shops through a collaborative branding arrangement with Robert Mondavi, an American
winemaker. Alliances such as these are considered a method to achieve both an increase in product lines as well as possible
increase in distribution channels.
Tradition and quality have always been the foundation of Waterford Wedgwoods success. Is it possible for the
company to maintain its tradition while introducing contemporary products attractive to customers? Can the company expand
into additional markets while maintain quality and managing costs? Can the company maintain quality and effectively manage
costs? Based on the interim, annual, and segment financial data presented, does it appear the restructuring will be successful and
a turnaround is beginning to occur?
Prepare a three-year strategic plan for Waterford Wedgwood. Address opportunities for sales growth both in product
design and in newer markets, such as Japan, and threats presented by competition both in Europe and Asia. Evaluate the strength
of the publics ongoing positive perception of the Waterford Wedgwood brands and the ongoing weakness in sales and
dependence on the United States market. Imagine that you are the CEO of Waterford Wedgwood as you evaluate the factors that
will influence the companys direction over the next three years. What type of strategy should be pursued? How should any
changes be financed? Develop projected financial statements for the first year of implementation to assess the impact of any
changes that you will make.
EXHIBIT 6 Segment Operating Analysis
Fiscal year
ended
March 31,
2006
Operating profit/(loss) by segment as reported:
Waterford Crystal
Ceramics Group
W-C Designs & Spring
Unallocated Costs
Operating profit/(loss) as reported
Exceptional items by segment:
Waterford Crystal
Ceramics Group
W-C Designs & Spring
Unallocated Costs
Exceptional items
Operating profit/(loss) by segment before exceptional
items:
Waterford Crystal
Ceramics Group
W-C Designs & Spring
Unallocated Costs
Operating profit/(loss) before exceptional items
(1)

Fiscal year
ended
March 31,
(1)
%Margin
2006
(euro in millions, expect percentages)

(1)

%Margin

(18.1)
(99.1)
(1.0)
(12.6)
(130.8)

(8.8%)
(18.8%)
(2.6%)
n/a
(16.9%)

11.2
(19.1)
(1.2)
(8.0)
(17.1)

5.6%
(3.8%)
(0.3%)
n/a
(2.3%)

(5.8)
(56.8)

(1.1)
(1.1)

(62.6)

(2.8%)
(10.8%)
n/a
n/a
(8.1%)

(2.2)

(0.6%)
(0.2%)
n/a
n/a
(0.3%)

(12.3)
(42.3)
(1.0)
(12.6)
(68.2)

(6.0%)
(8.0%)
(2.6%)
n/a
(8.8%)

12.3
(18.0)
(1.2)
(8.0)
(14.9)

6.2%
(3.6%)
(3.0%)
n/a
(2.0%)

Margin is calculated for each of the periods presented by dividing operating profit/(loss) and exceptional changes for each segment by the applicable segment
revenue figure.
Source: Company Annual Report, 2007, p. 10.