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Waterford Wedgwood plc

('Waterford Wedgwood' or 'The Group' or 'The Company')

Interim Results for the 26 weeks ended 4 October 2008

Summary

• In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations' the Rosenthal business has been treated as a disposal group and its results are excluded from the above table.  

• At constant exchange rates, Group revenues for the 26 weeks ending 4 October 2008 were 6 per cent lower than the same period last year. Group revenues in the first quarter were in line with the comparable prior year period, but slowed in the second quarter reflecting the increasingly difficult economic environment. Despite challenging market conditions, the Directors believe that Waterford Wedgwood is generally outperforming its competition. The Group has maintained and/or increased its market share in many of its key markets, confirming the strength of its product offering and the standing of its brands as international market leaders.

• EBITDA (before exceptional items) for the 26 weeks was a €24.6 million loss (2007: €13.5 million loss) and the operating loss (before exceptional items) was €29.0 million (2007: €23.3 million loss). After exceptional items of €23.9 million (2007: €1.1 million), the Group made an operating loss of €52.9 million (2007: €24.4 million loss).

• Cash outflows from operating activities for the first 26 weeks of €56.0 million showed a marked improvement over the comparable prior year period where cash outflows were €99.3 million. This improvement reflects a disciplined focus on cash management. Though some of the measures currently being implemented by management are impacting negatively on the Group's earnings short-term, the Directors consider them in the best interests of the Group as they significantly benefit both cash flow and the future earnings of the Group.

• Net debt at 4 October 2008 (excluding the liability component of the cumulative convertible preference shares and including net debt of the Rosenthal business) was €448.9 million (2007: €419.5 million).  

 David Sculley, Group Chief Executive, commented:

'As I said in my statement in the 2008 Annual Report and Accounts, this year is pivotal for Waterford Wedgwood. Despite immense challenges there are a lot of things that are right about this business and the Group has a future that is worth fighting for.

'Anthony Jones and I have developed a comprehensive business plan designed to deliver a sustainable recovery in the financial performance of the Group. Implementation of the plan is well underway, but in order to continue with the plan it is clear the Group requires additional financing. We are currently in negotiations with a number of interested institutional investors about a possible investment in the Company on terms which, if consummated, would be different to those described in the prospectus and which, more significantly, are likely to require as a pre-condition a comprehensive financial restructuring. As a result, any such investment would therefore be larger than the Company's originally planned equity funding.

'We continue to make good progress with potential investors and currently enjoy the support of our senior lenders. We are also grateful for the ongoing support of our customers and suppliers as well as our employees.'  

                                        4 December 2008

Enquiries:

Powerscourt (UK and International) Rory Godson Matthew Fletcher Rob Greening	+44 (0) 20 7250 1446
Dennehy Associates (Ireland)  Michael Dennehy	+353 (0) 1 676 4733

 

Overview

In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations' the Rosenthal business has been treated as a disposal group and its results are excluded from each of the line items in the income statement and are reflected in the section titled 'discontinued operations'. Accordingly the following commentary refers to the results of continuing operations comprising Waterford Crystal, Ceramics Group (Wedgwood and Royal Doulton), W-C Designs & Spring.  

Results

Revenues

• The recovery of Wedgwood's business continued with first half revenues 5 per cent ahead of the comparable prior year period, representing a strong performance in a challenging market. Revenues in the US, UK and Europe were all ahead of the comparable prior year period. 

• Compared with the comparable period in the prior year, Royal Doulton revenues were down 16 per cent largely due to a change in strategy by new management, the impact of which can be seen through a seven percentage point improvement in gross margin compared with the comparable prior year period.

• Waterford's half year revenues were 8 per cent down on the comparable prior year period. The key US market, however, which represents approximately two thirds of sales, was only 5 per cent down in difficult market conditions, due to Waterford's market share gains of approximately 3 percentage points in both the stemware and giftware categories.

• The Spring businesses continued to grow, with a year on year revenue improvement of 8 per cent. 

• W-C Designs revenues declined 24 per cent compared with the prior year period reflecting the difficult market conditions in the US table and bed linen markets.  

   

Operating loss and EBITDA

The Group incurred a pre-exceptional loss of €24.6 million at the EBITDA level (earnings before interest, taxes, depreciation and amortisation) in the 26 weeks ending 4 October 2008, compared with an EBITDA loss of €13.5 million in the same period of the prior year. The operating loss (before exceptional items) was €29.0 million compared with a loss of €23.3 million in the prior year. After exceptional items of €23.9 million, the operating loss was €52.9 million compared with a loss of €24.4 million in the prior year. 

Exceptional Items 

In the 26 weeks ending 4 October 2008, there was a net exceptional charge of €23.9 million (2007: €1.1 million). The exceptional charge principally reflects the charge for the restructuring of the Waterford Crystal manufacturing and supply chain operations and the further integration of the Wedgwood and Royal Doulton operations. Details of the charges and credits for exceptional items are shown in note 4 towards the end of this document.

Finance Costs

Finance costs for the 26 weeks ending 4 October 2008 were €32.3 million compared with €25.5 million in the comparable prior year period. The increase in finance costs principally reflects a higher charge for the interest cost on the liability component of convertible preference shares as a result of both an increase in the level of the liability component following the issue of additional preference shares in December 2007 and July 2008 and the fact that the prior year period only included a charge for a three month period as the first issue of preference shares did not take place until early July 2007.

 Discontinued operations

Following the announcement that the Group were conducting a strategic review of the Rosenthal business that may include the potential sale of the Group's shareholding and/or sale of all or part of its assets, in accordance with IFRS 5 the Rosenthal business has been treated as a disposal group and its results are included in the income statement in the section titled 'discontinued operations'. 

Cash flow and net debt

Cash outflows from operating activities for the first six months of €56.0 million showed a marked improvement over the comparable prior year period where cash outflows were €99.3 million. This improvement reflects a disciplined focus on cash management.

Net debt at 4 October 2008 (excluding the liability component of the cumulative convertible preference shares and including net debt of the Rosenthal business) was €448.9 million (2007: €419.5 million). 

Divisional Overview

Waterford Crystal

Waterford Crystal's revenues of €70.0 million were down 8 per cent at constant exchange rates on the comparable prior year period. At prevailing exchange rates, revenues were down 17 per cent compared with the prior year period. 

Waterford Crystal's EBITDA (before exceptional items) was a loss of €9.5 million compared with an EBITDA profit of €12.0 million for the same period last year. The reduction in EBITDA reflects the impact of lower sales but significantly also includes a substantial under-recovery of manufacturing overheads due to excess capacity at the Kilbarry plant. The operating loss (before exceptional items) was €10.0 million, compared with a profit of €7.8 million in the same period last year. Including exceptional items of €23.4 million (2007: €0.7 million) the operating loss was €33.4 million compared with a profit of €7.1 million last year. 

Ceramics Group (Wedgwood and Royal Doulton)

Ceramics Group revenues of €122.9 million reflect contrasting performances for the Wedgwood and Royal Doulton businesses. Whilst Wedgwood revenues were up 5 per cent (at constant exchange rates) on the comparable prior year period, Royal Doulton revenues were down 16 per cent (at constant exchange rates). At prevailing exchange rates, Ceramics Group revenues were down 14 per cent. 

EBITDA (before exceptional items) was a loss of €9.3 million compared with a loss of €20.4 million in the same period of last year. The improved EBITDA performance reflects improved gross margins in both the Wedgwood and Royal Doulton operations and lower overheads as a result of the impact of the restructuring actions together with management's continued focus on reducing expenditure. The operating loss (before exceptional items) was €13.1 million compared with a loss of €25.9 million in the same period last year. Including exceptional items, the operating loss was €16.2 million compared with a loss of €26.3 million.

W-C Designs & Spring 

W-C Designs & Spring revenues of €14.7 million were down by 10 per cent (at constant exchange rates) and by 18 per cent at prevailing exchange rates. Revenue growth at Spring was boosted by strong hospitality sales but W-C Designs experienced difficult market conditions in the US table and bed linen markets. The division incurred an EBITDA loss of €1.9 million in the first half (2007: €0.6 million loss) and an operating loss of €2.0 million (2007: €0.7 million loss), principally reflecting lower overall revenues.  

Current Trading

As noted in the recent Interim Management Statement, issued on 17 November, 2008, in the face of today's particularly challenging market conditions, October revenues were 19 per cent down compared with October 2007. However, preliminary November revenues indicate the rate of decline has slowed to approximately 15 per cent. 

Recent currency movements have been in the Group's favour. The Group's main net foreign currency exposures are the U.S Dollar and Japanese Yen (some US$80 million and Yen 2.7 billion, respectively). These exposures were hedged for the current financial year at rates of approximately USD:EUR 1.49 and JPY:GBP 220, in line with the Group's planning assumptions. The recent substantial strengthening of the U.S Dollar and Japanese Yen, if sustained, would make a significant positive contribution to the Group's financial performance from the next financial year. By way of example, a 5 cent change in the U.S Dollar rate versus the euro would have a net financial impact of approximately €2 million and a 10 Yen change versus sterling would have a net financial impact of approximately €1 million. 

  

Principal Risks and Uncertainties - Transparency (Directive 2004/109/EC) Regulations 2007

• The luxury lifestyle goods market is exposed to changes in consumer tastes and fashion which could materially affect the Group's business if the Group does not properly anticipate and adapt to such changes. New product and marketing initiatives introduced over recent years and a renewed focus on the Group's core products and brands represent an important element of the Group's response to the change in consumer preferences which could otherwise adversely impact on sales. 

• The Group's businesses are subject to the general risks to which all companies operating in the same markets as the Group are subject. The markets in which the Group operates may be affected by numerous factors, many of which are beyond the Group's control and the exact effect of which cannot be accurately predicted. Within geographical markets, such factors include general economic and political activities, including the extent of any governmental regulation and taxation. The Group could be adversely affected by changes in economic, political, administrative, taxation or other regulatory factors whether under Irish law or in any other jurisdictions in which the Group may operate now or in the future.

• The Group is subject to a broad range of laws, regulations and standards, including those relating to pollution, the health and safety of employees, protection of the public, protection of the environment and the storage and handling of hazardous substances and waste materials. These regulations and standards are becoming increasingly stringent. It is the Group's policy to require that all Group companies comply with the applicable laws, regulations, and standards. However, violations of such laws, regulations and standards, in particular environmental and health and safety laws, could result in restrictions on the operations of the Group's sites, damages, fines or other sanctions and increased costs of compliance with potential reputational damage.  

• Although the Group owns world-leading brands, which in many cases hold number one or number two positions in their key markets, the market for crystal, ceramics, linens and luxury gifts is highly competitive. The Group is exposed to the risk that competitors will produce similar products at lower prices. In addition, there can be no guarantee that the Group's competitors or new entrants will not bring superior products to the market.

• The planned cost restructuring programme outlined in the prospectus dated 18 September 2008 is a critical part of a range of initiatives designed to return the Group to profitability. The estimated future cost savings from the planned cost restructuring programme are based upon a number of estimates and represent the savings that the Group anticipates will result from the full implementation of the programme. This programme may not realise these costs savings if: (i) the Group's estimates are proved incorrect; (ii) there are additional unanticipated costs; or (iii) the implementation of the programme is not completed for any reason in the time period envisaged.

• The Group's ability to support the maintenance of plant and equipment, undertake new product development and refurbish retail floor space requires significant capital expenditures. In addition, capital expenditures are necessary in connection with the planned restructuring programme. If the Group fails to make the capital expenditures envisaged in the planned restructuring programme or to invest adequately in product line renewal and infrastructure modernisation, the current level of sales, market share and future growth prospects could be adversely affected.

• As with any manufacturing facility, the Indonesian manufacturing facility is subject to operational risks including equipment failure, failure to comply with applicable regulations and standards and to maintain necessary permits and approvals, material supply disruptions, labour force shortages or work stoppages, events impeding or increasing the cost of transporting the Group's products, fire, flood, earthquake or other accidents or natural disasters. The location of the operation in Indonesia gives rise to a variety of country specific risks and there can be no assurance that the Group's operations in Indonesia will not be adversely affected by these risks. However, the Group, through its Royal Doulton subsidiary, has operated successfully in Indonesia for over 12 years and during that period has experienced only one day of lost production.

• If the Group fails to adequately manage its costs, the results of operations could be materially and adversely affected. During periods of declining sales or increased competitive pressure, the Group's ability to reduce its costs on a timely basis is critical to the maintenance of profit margins. If the Group is unable to continue to adjust its cost base accordingly, its financial performance could suffer. 

• A substantial proportion of the Group's current manufacturing costs are relatively inflexible as a result of the large capital investments required for owned and operated production facilities. Consequently, the Group needs to ensure that unused capacity is minimised quickly. If the Group is unable to maximise the use of production capacity, either through generating increased demand for products made in-house, bringing outsourced production in-house, or otherwise through effective management of production capacity, it will have an adverse impact on the results of Group operations.

• A large portion of the Group's selling, marketing and distribution costs and administrative expenses are relatively inflexible in the short term as they relate to staff costs and the cost associated with infrastructure. If the Group experiences a decline in sales and/or gross margins, it must react quickly to reduce such expenses, otherwise it will have an adverse impact on the results of Group

• If the Group fails to successfully manage inventory, results of operations could be adversely affected. If the Group is unable to control inventory successfully, obsolete inventory may result. This could require the Group to dispose of and/or write-off such inventory, which could adversely affect results of operations.

• The Group is dependent on members of its senior management team and skilled personnel and believes its future success will depend, in part, on its ability to attract and retain highly skilled management and personnel. If the Group does not succeed in attracting and retaining skilled personnel, it may not be able to grow its businesses as anticipated. Further, the departure of any of the Company's executive Directors or significant changes in senior management could, in the short term, have a material adverse effect on the Group's businesses. In order to mitigate the risk of any such key departures arising, incentive arrangements such as a new share option scheme are proposed. 

• A proportion of the Group's employees are members of trade unions. The Group currently consults with its employees and the relevant trade unions regarding pay, work practices and conditions of employment. While industrial relations issues in the Group have previously been resolved through either negotiation or the existing industrial relations or the Labour Relations Commission and the Labour Court, there can be no assurance that in the future this will always be the case and neither can there be any assurance that the Group's employees might not resort to industrial action. In particular, the likelihood of further redundancies and changes in certain working practices pursuant to the implementation of the planned restructuring programme may carry an increased risk of future industrial action.
  

  In the event the Group becomes subject to industrial action or other labour conflicts, this may result in lower sales and/or increased costs and could have a material adverse effect on its business, financial condition or operating results.

• The Group operates several pension schemes in a number of its businesses throughout the world. These schemes are structured to accord with local conditions and practices in each country in which they operate and include both defined contribution and defined benefit schemes. The assets of the schemes are held, where relevant, in separate trustee administered funds.

  Updated actuarial valuations at 4 October, 2008 for the Group's defined benefit schemes show, under IAS 19, an aggregate net deficit in the schemes of €111.1 million. Under IAS 19, the pension deficit is recognised in the Group's balance sheet. The value of this deficit is based, amongst other things, on assumptions regarding inflation, discount rates, expected return on pension plan assets, salary increases, payment increases and mortality rates. The assumptions may differ from the actual data as a result of changes in economic and market conditions.

  In the event that the market value of the pension schemes' assets declines in relation to their assessed liabilities, the Group may, in respect of certain of its schemes, be required to increase its contributions to cover any further funding shortfalls. This could have an adverse impact on the Group's operational results and cash flow. 

• The Board believes that an appropriate amount of money must be invested in marketing in order for the Group to retain its leading position in its respective markets. The ability to maintain this investment at an appropriate level may be constrained by the lack of flexibility afforded by the Group's existing banking facilities and also depends on the ability of the Group to generate sufficient cash flow from operations. The Board believes that the failure to invest appropriately in marketing may have a detrimental impact on the Group's operational performance and accordingly, is committed, subject to the availability of sufficient resources, to continuing to make such investment.

• Waterford Wedgwood's results of operations are affected by movements in exchange rates, particularly between the US dollar and euro and between the yen and sterling, as a substantial portion of net sales are denominated in US dollar and yen whilst expenses are denominated largely in euro and sterling. Adverse changes in foreign exchange rates relative to the euro and/or sterling could adversely affect the Group's competitive position, reported earnings and cash flow.

• Protection of the ''Waterford'', ''Wedgwood'', ''Rosenthal'' and ''Royal Doulton'' brand names is extremely important to the Group's business. Even though the Group has registered its brand names in the major markets in which it operates, the Group still has to defend its intellectual property rights in order to prevent others from misappropriating or infringing on brand names or registering similar sounding internet domain names (cybersquatting) in an attempt to sell products with names similar to the Group's brand names over the internet or through other channels of distribution. In several such cases in the past the Group has sought to protect its brand and domain names, including through litigation if necessary. Should the Group be unable to protect its brand names adequately, its competitive position could be adversely affected.

• The Group depends on outside suppliers of raw materials. If those supplies cease or are materially interrupted it could disrupt the Group's ability to manufacture many of its products. If the cost of raw materials increases materially, the Group may be unable to pass such cost increases on to its customers. Cessation or material interruption of supply of raw materials and/or material cost increases of such supply could have an adverse impact on sales and, in turn, on the results of operations. The Group depends on outside suppliers for raw materials used in the production of crystal, fine bone china, porcelain, earthenware, stoneware and cookware products. Although significant proportions of raw materials (such as calcinated animal bone and ash, precious metals and energy) are purchased from only one or two suppliers, the Group believes that it can obtain adequate supplies from other sources if necessary. 

• The Group increasingly depends on third party manufacturers for many of its outsourced products. The inability of such manufacturers to deliver products in a timely manner or to maintain high quality standards could have an adverse effect on sales and results of operations.

• The Group's ability to continue to access adequate financing, whether in the form of debt or equity, is necessary to fund restructuring, capital expenditure and working capital. The Group's ability to meet its debt service obligations depends on the Group's future operating and financial performance, which will be affected by the Group's ability to implement successfully its business strategy and restructuring plans as well as general economic, financial, competitive, regulatory, technical and other factors beyond its control. If the Group cannot generate sufficient cash to meet its debt service requirements, it may, among other things, need to refinance all or a portion of its debt, obtain additional financing, delay planned capital expenditure or sell material assets. If the Group is not able to refinance any or all of its debt, obtain additional financing or sell assets on commercially reasonable terms or at all, it may not be able to satisfy its obligations with respect to its debt. In that event, the Group's facilities may be accelerated or become payable on demand and the Group may not have sufficient funds to repay all of its debts.

• The Group's ability to successfully conclude the financing initiatives disclosed in note 1 of this condensed interim financial report could affect its ability to continue as a going concern.

Consolidated Income Statement

26 weeks ending 4 October 2008 and 30 September 2007

		2008			2007
		(unaudited)			(unaudited)
Continuing operations	Note		€m			€m
Revenue	3		207.6			245.3
Operating loss before exceptional items	3		(29.0)			(23.3)
Exceptional items	4		(23.9)			(1.1)
Operating loss			(52.9)			(24.4)
Finance income	9		22.0			-
Finance costs	5		(32.3)			(25.5)
Loss before income tax			(63.2)			(49.9)
Income tax expense			(0.5)			(0.3)
Loss for the period from continuing operations			(63.7)			(50.2)
Discontinued operations
Loss for the period from discontinued operations	14		(12.1)			(6.9)
Loss for the period			(75.8)			(57.1)
Loss attributable to:
Equity holders of the company			(74.9)			(56.7)
Minority interests			(0.9)			(0.4)
			(75.8)			(57.1)
Loss per share - continuing operations
- Basic and diluted (cents)	6		(1.17)			(0.93)
Loss per share - discontinued operations
- Basic and diluted (cents)	6		(0.23)			(0.13)
Loss per share - continuing and discontinued
Operations
- Basic and diluted (cents)	6		(1.40)			(1.06)

  Consolidated Balance Sheet

As at 4 October 2008 and 30 September 2007

                                                                                                                                                                                                5 April

		2008  2007			2008
		(unaudited)	(unaudited)		(audited)
ASSETS	Note	€m	€m		€m
Non-current assets
Intangible assets		28.9	119.8		30.6
Property, plant and equipment		83.7	145.0		112.0
Financial assets		3.8	3.3		3.5
Trade and other receivables		1.8	1.8		1.7
Deferred income tax assets		-	1.5		-
Total non-current assets		118.2	271.4		147.8
Current assets
Inventories		205.9	261.7		252.4
Trade and other receivables		82.5	131.6		103.4
Derivative financial instruments		-	3.4		-
Cash and cash equivalents		8.4	15.1		15.1
		296.8	411.8		370.9
Assets of a disposal group classified as held for sale	14	140.2	-		0.5
Total current assets		437.0	411.8		371.4
TOTAL ASSETS		555.2	683.2		519.2
LIABILITIES
Current liabilities
Trade and other payables	13	121.8	127.6		116.7
Finance lease obligations		2.2	3.0		3.0
Derivative financial instruments		4.0	-		0.2
Current income tax liabilities		5.3	5.8		5.1
Bank overdraft and short term borrowings		2.4	0.4		-
Provisions for other liabilities and charges		32.7	7.1		15.9
		168.4	143.9		140.9
Liabilities directly associated with assets of a disposal group classified as held for sale	14	127.9	-		-
Total current liabilities		296.3	143.9		140.9
Non-current liabilities
Finance lease obligations		17.8	22.6		20.2
Retirement benefit obligations		84.5	93.1		147.9
Deferred income tax liabilities		-	10.2		-
Provisions for other liabilities and charges		7.3	11.0		8.7
Borrowings		467.3	462.5		480.2
Derivative financial instrument	9	10.0	19.0		30.9
Trade and other payables		8.9	5.4		10.3
Total non-current liabilities		595.8	623.8		698.2
TOTAL LIABILITIES		892.1	767.7		839.1
EQUITY
Capital and reserves attributable to the Company's equity holders
Equity share capital	11	399.0	399.0		399.0
Share premium account	11	201.9	201.9		201.9
Retained losses	11	(1,003.2)	(724.6)		(962.9)
Cash flow hedging reserve	11	(3.9)	3.4		(0.2)
Other reserves	12	68.8	34.0		41.0
		(337.4)	(86.3)		(321.2)
Minority interest	11	0.5	1.8		1.3
TOTAL EQUITY		(336.9)	(84.5)		(319.9)
TOTAL EQUITY AND LIABILITIES		555.2	683.2		519.2

 

Consolidated Statement of Recognised Income and Expense

26 weeks ending 4 October 2008 and 30 September 2007

	2008		2007
	(unaudited)		(unaudited)
	€m		€m
Items of income and expense recognised directly within equity:
Currency translation adjustments	0.7		(3.1)
Actuarial gain on defined benefit pension schemes	34.6		47.7
Fair value movement on cash flow hedges:
- Transferred to Income Statement	(0.2)		(2.4)
- (Loss)/gains taken to equity	(3.5)		2.5
Net income recognised directly in equity	31.6		44.7
Loss for the period	(75.8)		(57.1)
Total recognised income and expense for the period	(44.2)		(12.4)
Attributable to:
Equity holders of the Company	(43.4)		(11.9)
Minority interest	(0.8)		(0.5)
Total recognised income and expense for the period	(44.2)		(12.4)

  Consolidated Cash Flow Statement

26 weeks ending 4 October 2008 and 30 September 2007

		2008		2007
		(unaudited)		(unaudited)
		€m		€m
Cash flows from operating activities
Cash used in operations		(55.4)		(98.9)
Income tax paid		(0.6)		(0.4)
Net cash used in operating activities		(56.0)		(99.3)
Cash flows from investing activities
Disposal of All Clad USA Inc		-		0.9
Purchase of property, plant and equipment		(4.0)		(5.2)
Proceeds from sale of property, plant and equipment		2.4		1.9
Net cash used in investing activities		(1.6)		(2.4)
Cash flows from financing activities
Proceeds from issue of cumulative preference shares		33.4		109.9
Pre-funding of issue of ordinary shares		24.7		-
Expenses relating to the issue of shares		(0.5)		(2.7)
Interest paid		(20.6)		(20.8)
Proceeds from borrowings		42.0		69.2
Repayment of borrowings		(25.6)		(55.1)
Payment of finance lease liabilities		(0.9)		(0.8)
Net cash generated from financing activities		52.5		99.7
Net decrease in cash and cash equivalents		(5.1)		(2.0)
Cash and cash equivalents at the beginning of the period		15.1		16.8
Exchange gains and losses on cash and cash equivalents		0.4		(0.1)
Cash and cash equivalents at the end of the period		10.4		14.7

Reconciliation of loss before income tax to net cash used in operating activities

26 weeks ending 4 October 2008 and 30 September 2007

		2008		2007
		(unaudited)		(unaudited)
		€m		€m
Loss before income tax - continuing operations		(63.2)		(49.9)
Loss before income tax - discontinued operations		(11.9)		(7.6)
Loss before income tax		(75.1)		(57.5)
Adjustments for:
Finance income		(22.0)		-
Finance costs		35.2		27.8
Exceptional items		25.1		1.1
Depreciation and amortisation		7.6		13.3
Non-cash share-based payment		(3.2)		1.0
Loss on sale of property, plant & equipment		-		(1.4)
Unrealised foreign currency exchange movements		5.5		(1.7)
Restructuring spend		(10.0)		(5.3)
Loss from operations before changes in working capital and provisions		(36.9)		(22.7)
Increase in inventories		(5.0)		(18.6)
Increase in operating receivables		(18.4)		(20.2)
Increase/(decrease) in operating payables		4.9		(37.4)
Cash used in operations		(55.4)		(98.9)

  

Notes to the interim financial report

1. Basis of preparation of unaudited interim financial report and going concern

This condensed interim financial report has not been audited or reviewed by the auditors of the Group pursuant to the Auditing Practices Board guidelines on Review of Interim Financial Information. The financial information is prepared for a 26 week period ending 4 October 2008. Comparatives are for the 26 week period ended 30 September 2007. The balance sheets have been drawn up as at 4 October 2008 and 30 September 2007 respectively.  

The condensed interim financial report for the six months ended 4 October 2008 has been prepared in accordance with the Transparency Regulations 2007, the Transparency Rules of the Irish Financial Services Regulatory Authority and IAS 34 'Interim Financial Reporting'. The condensed interim financial report should be read in conjunction with the annual financial statements for the 53 weeks ended 5 April 2008, which are prepared in accordance with IFRS as adopted by the European Union.

The Group has reported trading losses in recent years. However, the directors are committed to returning the Group to profitability and have made a number of key management changes to lead an operational and financial turnaround of the Group. Additional funding is required to complete the turnaround. 

On September 16, 2008 the Company announced its intention to raise capital by way of the 2008 Equity Issue, comprised of an Open Offer of up to €101.7 million and a subsequent placing of the balance up to an aggregate of €153.7 million (before expenses), the details of which were contained in the prospectus issued by the Company on September 18, 2008 (the 'Prospectus'). On October 13, 2008 the Company announced that the Open Offer had successfully raised €79.6 million but had earlier announced that the Placing was not likely to complete until some time after the completion of the Open Offer. 

On November 17, 2008 the Company announced that amidst ongoing market turbulence the Placing was unlikely to be completed on existing terms and within the target date of November 30, 2008 and that the Company's directors in consultation with its advisors were exploring alternatives to raising equity under terms which may be different than those pursuant to the Placing and which, more significantly, may encompass a comprehensive financial restructuring. 

On December 1, 2008 the Company announced further that, as part of regular and ongoing discussions, the Group's senior lenders had agreed to a forbearance in respect of certain conditions of the Group's facility agreement as set out in that announcement. While this forbearance is for the period to December 5, 2008, the Company is continuing its discussions with its senior lenders in parallel with ongoing discussions with interested institutional investors.

Though there cannot be certainty that successful agreements will be reached with any potential investor, the Company's directors are satisfied at this time that a transaction can be successfully concluded to provide the Group with adequate financial resources to meet its future funding requirements and undertake the comprehensive financial restructuring. However, failure to reach said agreements or failure to obtain further forbearance from the senior lenders in respect of the conditions described above would compromise the Group's ability to continue as a going concern. 

In addition, the Directors continue to pursue a strategic review of the Rosenthal business that may result in the potential sale of the Group's shareholding in Rosenthal and/or the sale of all or a part of its assets. The success of this transaction or otherwise will also impact on the Group's funding requirements.

Accordingly, the directors believe that it continues to be appropriate to prepare these financial statements on a going concern basis.  

  2. Seasonality

The Group's revenues tend to be concentrated during the last six months of the calendar year, particularly during the Thanksgiving and Christmas holiday periods in November and December. In contrast, the Group's fixed costs are incurred evenly across the year. Operating result in the second half of the calendar year tends to account for a significantly higher proportion of total operating result than the first half of the calendar year, while revenues in the first calendar quarter are usually lower than revenues in each of the other three quarters. 

3. Segment reporting by class of business

	Revenue			Pre exceptional operating (loss)/profit			Operating (loss)/profit
	2008	2007		2008	2007		2008	2007
	€m	€m		€m	€m		€m	€m
Waterford Crystal	70.0	84.9		(10.0)	7.8		(33.4)	7.1
Ceramics Group	122.9	142.5		(13.1)	(25.9)		(16.2)	(26.3)
W-C Designs & Spring	14.7	17.9		(2.0)	(0.7)		(2.0)	(0.7)
Unallocated costs	-	-		(3.9)	(4.5)		(1.3)	(4.5)
	207.6	245.3		(29.0)	(23.3)		(52.9)	(24.4)
Discontinued operations - Ceramics	69.2	72.1		(7.8)	(5.3)		(9.0)	(5.3)
	276.8	317.4		(36.8)	(28.6)		(61.9)	(29.7)

	Pre exceptional EBITDA			EBITDA
	2008	2007		2008	2007
	€m	€m		€m	€m
Waterford Crystal	(9.5)	12.0		(32.9)	11.3
Ceramics Group	(9.3)	(20.4)		(12.4)	(20.8)
W-C Designs & Spring	(1.9)	(0.6)		(1.9)	(0.6)
Unallocated costs	(3.9)	(4.5)		(1.3)	(4.5)
	(24.6)	(13.5)		(48.5)	(14.6)
Discontinued operations - Ceramics	(4.6)	(1.8)		(5.8)	(1.8)
	(29.2)	(15.3)		(54.3)	(16.4)

4. Exceptional items

The following exceptional (costs)/gains have been (charged)/credited to the income statement:

							2008		2007
							€m		€m
Redundancy and integration costs - continuing operations							(29.3)		(1.1)
Equity settled share based payment							3.5		-
Impairment of property, plant and equipment							(0.3)		-
Gain on disposal of property, plant and equipment							2.2		-
							(23.9)		(1.1)
Redundancy and integration costs - discontinued operations							(1.2)		-
							(25.1)		(1.1)

Redundancy and integration costs

As part of its continuing initiative to lower operating costs, the Group incurred a charge of €29.3 million (2007: €1.1 million) relating to redundancy and integration costs in its key operations.

Equity settled share based payment

As a result of redundancy, share options held by a number of participants in the Group's Share Price Recovery Incentive Plan have not vested resulting in a credit of €3.5 million (2007: €nil million)  

Impairment of property, plant and equipment 

Impairment charge of €0.3 million (2007: €nil million) arising from a review of the carrying value of certain property, plant and equipment at the Group's ceramic manufacturing facility in the United Kingdom.

Gain on disposal of property, plant and equipment

Profits arising from property activities amounting to €2.2 million (2007: €nil million)

5. Finance costs

							2008		2007
							€m		€m
Interest payable and similar charges							20.4		22.6
Interest cost on liability component of convertible preference shares							7.8		2.0
							28.2		24.6
Interest on pension scheme obligations in excess of expected return on pension schemes' assets							3.4		0.1
Interest element of finance lease payments							0.7		0.8
Finance costs - continuing operations							32.3		25.5
Finance costs - discontinued operations							2.9		2.3
Total finance costs							35.2		27.8

6. Loss per ordinary share

				2008				2007
				Loss	No. of shares	Per share		Loss	No. of shares	Per share
				€m	Million	cents		€m	million	cents
Loss on continuing operations attributable to equity holders of the Company				(62.8)	5,354.8	(1.17)		(49.8)	5,354.4	(0.93)
Discontinued operations				(12.1)	5,354.8	(0.23)		(6.9)	5,354.4	(0.13)
Loss attributable to equity holders of the Company				(74.9)	5,354.8	(1.40)		(56.7)	5,354.4	(1.06)

In the six months to 4 October 2008 and the six months to 30 September 2007, none of the share options or the cumulative convertible preference shares were dilutive as they would have decreased the loss per share.

7. Restructuring provision

							2008		2007
							€m		€m
Balance at 6 April 2008 and 1 April 2007							13.9		10.2
Charged to income statement as an exceptional item: - continuing operations           - discontinued operations							29.3 1.2		1.1 -
Charged to income statement as an operating cost							-		0.2
Utilised during the period Reclassified to liabilities classified as held for sale							(10.0) (5.1)		(5.3) (1.0)
Translation adjustments							0.1		(0.1)
Balance at 4 October 2008 and 30 September 2007							29.4		5.1

The above amount is included within provisions for other liabilities and charges in the balance sheet.

  8. Net debt

				2008				2007
				Contin-uing	Discont-inued	Total		Contin-uing	Discont-inued	Total
				€m	€m	€m		€m	€m	€m
Cash and cash equivalents				(8.4)	(4.4)	(12.8)		(15.1)	-	(15.1)
Bank overdraft and short-term borrowings				2.4	-	2.4		0.4	-	0.4
Finance lease obligations				20.0	2.6	22.6		25.6	-	25.6
Bank borrowings				383.5	59.4	442.9		418.2	-	418.2
Unamortised debt issue costs				(6.2)	-	(6.2)		(9.6)	-	(9.6)
				391.3	57.6	448.9		419.5	-	419.5
Convertible preference shares - liability component				90.0	-	90.0		53.9	-	53.9
Net debt				481.3	57.7	538.9		473.4	-	473.4

9. Convertible preference shares ('preference shares')

The preference shares and warrants are recognised in the balance sheet as follows;

									Fair
				At 6 April 2008	Gross proceeds		Trans- action costs	Effective interest charge	value adjust-ment	At 4 October 2008
				€m	€m		€m	€m	€m	€m
Equity component				49.4	31.0	(0.6)		-	-	79.8
Debt component				80.9	1.3	-		7.8	-	90.0
Derivative financial instrument (put and call options)				30.9	1.1	-		-	(22.0)	10.0
				161.2	33.4	(0.6)		7.8	(22.0)	179.8

The €22 million fair value adjustment to the derivative financial instrument (put and call option) has arisen as a result of a substantial movement in the assumed yield rate of Waterford Wedgwood debt considered in the valuation. The Group has based the rate on the effective yield of the Group's 9 ⅞ mezzanine notes traded on the Luxembourg Stock Exchange.

On 7 July 2007, the Company issued 3,340,593 preference shares at a price of €10 per share and 190,413,801 warrants at nil consideration, pursuant to the 2007 second underwriting agreement.

  

At 1 April 2007

Gross proceeds

Trans- action costs

Effective interest charge

At 30 September 2007

				€m	€m	€m	€m		€m
Equity component				-	36.7	(1.5)		-	35.2
Debt component				-	54.2	(2.3)		2.0	53.9
Derivative financial instrument (put and call options)				-	19.0	-		-	19.0
				-	109.9	(3.8)		2.0	108.1

10. Retirement benefit obligation

Between 6 April 2008 and 4 October 2008 the Group's net retirement benefit obligation liability has reduced from €147.9 million to €111.1 million (of which €26.6 million relates to discontinued operations). This reduction in the retirement benefit obligation principally reflects a decline in asset values offset by a 0.6% percentage points increase in the weighted average rate used to discount scheme liabilities.

The amount recognised in the balance sheet are determined as follows:

				2008				2007
				Contin-uing	Discont-inue	Total		Contin-uing	Discont-inued	Total
				€m	€m	€m		€m	€m	€m
Fair value of scheme assets				675.5	-	675.5		814.8	-	814.8
Present value of scheme obligations				(760.0)	(26.6)	(786.6)		(907.9)	-	(907.9)
Net pension and other post employment benefit liability				(84.5)	(26.6)	(111.1)		(93.1)	-	(93.1)

11. Reconciliation of changes in equity

	Attributable to equity holders of the Company
	Share capital	Share Premium	Retained Losses	Cash  flow hedging reserve	Other reserves (note 12)	Sub  total	Minority interests	Total equity
	€m	€m	€m	€m	€m	€m	€m	€m
At 6 April 2008	399.0	201.9	(962.9)	(0.2)	41.0	(321.2)	1.3	(319.9)
Currency translation adjustments	-	-	-	-	0.6	0.6	0.1	0.7
Fair value movement on cash flow hedges:
Transferred to Income Statement	-	-	-	(0.2)	-	(0.2)	-	(0.2)
Loss taken to equity	-	-	-	(3.5)	-	(3.5)	-	(3.5)
Actuarial gain on defined benefit pension schemes	-	-	34.6	-	-	34.6	-	34.6
Loss for the period	-	-	(74.9)	-	-	(74.9)	(0.9)	(75.8)
Issue of convertible preference shares	-	-	-	-	30.4	30.4	-	30.4
Share-based payments	-	-	-	-	(3.2)	(3.2)	-	(3.2)
At 4 October  2008	399.0	201.9	(1,003.2)	(3.9)	68.8	(337.4)	0.5	(336.9)
At 1 April 2007	399.0	201.9	(715.6)	3.3	0.8	(110.6)	2.3	(108.3)
Currency translation adjustments	-	-	-	-	(3.0)	(3.0)	(0.1)	(3.1)
Fair value movement on cash flow hedges:
Transferred to Income Statement	-	-	-	(2.4)	-	(2.4)	-	(2.4)
Gain taken to equity	-	-	-	2.5	-	2.5	-	2.5
Actuarial gain on defined benefit pension schemes	-	-	47.7	-	-	47.7	-	47.7
Loss for the period	-	-	(56.7)	-	-	(56.7)	(0.4)	(57.1)
Issue of convertible preference shares	-	-	-	-	35.2	35.2	-	35.2
Share-based payments	-	-	-	-	1.0	1.0	-	1.0
At 30 September 2007	399.0	201.9	(724.6)	3.4	34.0	(86.3)	1.8	(84.5)

  12. Other reserves

				Translation reserve	Share based payment	Capital conversion reserve	Preference share-equity   component		Total other reserves
				€m	€m	€m	€m		€m
At 6 April 2008				(17.6)	6.6	2.6	49.4		41.0
Currency translation adjustments				0.6	-	-	-		0.6
Share-based payment				-	(3.2)	-	-		(3.2)
Issue of convertible preference shares				-	-	-	30.4		30.4
At 4 October 2008				(17.0)	3.4	2.6	79.8		68.8

				Translation reserve	Share based payment	Capital conversion reserve	Preference share-equity   Component		Total other reserves
				€m	€m	€m	€m		€m
At 1 April 2007				(5.6)	3.8	2.6	-		0.8
Currency translation adjustments				(3.0)	-	-	-		(3.0)
Share-based payment				-	1.0	-	-		1.0
Issue of convertible preference shares				-	-	-	35.2		35.2
At 30 September 2007				(8.6)	4.8	2.6	35.2		34.0

13. Trade and other payables

Trade and other payables includes an amount of €24.7 million (2007: nil million) representing the open offer pre-funding by the O'Reilly/Goulandris and Corporate Partners II interests (see note 18). 

14. Disposal group classified as held for sale

The assets and liabilities related to Rosenthal AG (part of the Ceramics division) have been presented as held for sale following the announcement, in August 2008, that the Group is conducting a strategic review of the Rosenthal business that may include the potential sale of the Group's shareholding and/or the sale of all or part of its assets. The comparative information in the income statement has been reclassified to accord with the current year presentation.

(a) Assets of disposal group classified as held for sale

   

							2008		2007
							€m		€m
Intangible assets							2.3		-
Property, plant and equipment							28.7		-
Financial assets							0.1		-
Inventory							60.6		-
Trade and other receivables							44.1		-
Cash and cash equivalents							4.4		-
							140.2		-

 

(b) Liabilities of disposal group classified as held for sale

   

							2008		2007
							€m		€m
Trade and other payables							32.9		-
Finance lease obligations							2.6		-
Provisions for other liabilities and charges							5.9		-
Retirement benefit obligations							26.6		-
Long and medium term borrowings							59.4		-
Other non-current liabilities							0.5		-
							127.9		-

(c) Analysis of results of discontinued operations is as follows:

   

							2008		2007
							€m		€m
Revenue							69.2		72.1
Operating loss before exceptional items							(7.8)		(5.3)
Exceptional items							(1.2)		-
Operating loss							(9.0)		(5.3)
Finance cost							(2.9)		(2.3)
Loss before income tax							(11.9)		(7.6)
Income tax expense							(0.2)		(0.2)
Loss after tax for disposal group							(12.1)		(7.8)
Gain on sale of All Clad USA Inc							-		0.9
Loss for the period from discontinued operations							(12.1)		(6.9)

(d) Analysis of cash flows of discontinued operations is as follows: 

   

							2008		2007
							€m		€m
Operating cash flows							(13.7)		(20.0)
Investing cash flows							(2.3)		(0.6)
Financing cash flows							14.8		19.4
							(1.2)		(1.2)

15. Exchange rates

The exchange rates used for consolidation purposes between the euro and the principal currencies in which the Group does business were as follows:

	Income statement			Balance sheet as at
	2008	2007		2008	2007
U.S. Dollar	$1.55	$1.36		$1.38	$1.43
Sterling	£0.79	£0.68		£0.78	£0.70
Yen	Y162.43	Y162.41		Y145.0	Y163.84

16. Contingent liability

In calculating the taxation creditor at the period end, the Directors have taken into account the ability to utilise tax losses to offset certain trading gains. In the event that the tax losses cannot be offset, additional taxation liabilities of up to €6.3 million may become payable.

17. Capital expenditure

During the period the Group spent €4.1 million (2007: €5.2 million) principally on new plant and equipment.

18. Related party transactions

2008 Irrevocable Undertakings 

On 16 September, 2008, the O'Reilly/Goulandris interests entered into an agreement with the Company and Davy whereby they, inter alia, irrevocably undertook (a) to take up an aggregate of €60 million worth of the 2008 Open Offer units (being no more than their pro rata entitlement thereunder) and (b) to consent to the redemption for a nominal amount in respect of such number of Preference Shares as is notified by the Company, up to a maximum aggregate number of 5,775,517 Preference Shares currently held by them.

Also on 16 September, 2008, the Corporate Partners interests entered into an agreement with the Company whereby they, inter alia, irrevocably undertook (a) to apply for an aggregate of €15 million worth of Subscription Units under the 2008 Equity Issue Offer as follows: (i) its pro rata share of the Open Offer (approximately €9.7 million); (ii) an excess election under the Open Offer of approximately €5.3 million; and (b) to consent to the redemption for a nominal amount in respect of such aggregate number of Preference Shares as is notified by the Company, up to a maximum aggregate number of 386,287 Preference Shares

Under the 2008 Irrevocable Undertakings, the O'Reilly/Goulandris interests and the Corporate Partners interests had the right from time to time prior to 14 October, 2008 pay to the Company an amount of money in part payment of the subscription amount that the O'Reilly/Goulandris and the Corporate Partners interests had irrevocably undertaken to pay pursuant to the 2008 Irrevocable Undertakings. They agreed to pay an aggregate such amount of €20 million, (€15 million from the O'Reilly/Goulandris and €5 million from the Corporate Partners interests) to the Company by 30 September 2008. Such monies were available for use by the Company from the date of receipt. In satisfaction of this undertaking the Company received an aggregate amount of €24.7 million prior to 30 September, 2008 (see note 13).

Please refer to note 37 of the 5 April 2008 Annual Report and financial statements for details of other related party transactions which continue to apply.

Transactions with key management personnel

In accordance with the disclosure requirements of IAS 34, key management personnel received compensation in the form of salary, short-term employee benefits, post-employment benefits and equity compensation benefits which amounted to €2.7 million for the six months ended 4 October 2008 (2007: €2.7 million).

19. Subsequent events

Details of the Group's funding initiatives and subsequent events related to those initiatives are set out in note 1 of this condensed interim financial report.

20. Accounting policies

The accounting policies adopted are consistent with those contained on pages 57 to 66 of the annual financial statements for the year ended 5 April 2008. The following new standards, amendments to standards and interpretations are mandatory for the financial year ending 4 April 2009:

• IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction' (effective from 1 January 2008*). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Group is in compliance with this interpretation.

• IFRIC 12, 'Service concession arrangements' (effective from 1 January 2008*). IFRIC 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of Infrastructure for public sector services. IFRIC 12 is not relevant to the Group's operations because none of the Group's companies provide public sector services.

 

 21. Statutory accounts

The financial information presented in this interim report does not represent full statutory accounts. Full statutory accounts for the year ended 5 April 2008, prepared in accordance with IFRS as adopted by the EU and containing an unqualified audit report, which contains an emphasis of matter pertaining to the Group's ability to continue as a going concern, have been delivered to the Registrar of Companies.

22. Statement of directors' responsibilities

 

• the condensed interim financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

• the interim management report includes a fair review of the information required by:

Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed interim financial report; and a description of the principal risks and uncertainties for the remaining six months of the year; and

Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The directors of Waterford Wedgwood plc are listed in the Waterford Wedgwood Group Annual Report for the 12 months 
ended 5 April 2008. A list of current directors is maintained on the Waterford Wedgwood Group website  www.waterfordwedgwood.com

ENDIR FSEFWLSASEDE