Platform:Just how deep are the pockets of Sir Anthony O'Reilly and his brother-in-law Peter Goulandris? And more importantly, how long more can they continue to prop up the financially ailing crystal and ceramics group, Waterford Wedgwood?
So far they have invested more than €250 million, with €83 million in convertible preference shares - this for a group currently valued at only €120 million by the stock market. With a combined equity holding of some 51 per cent, their investment (excluding the preference shares) is valued at just €61 million, so they are nursing a paper loss of over €110 million.
But in cash flow terms they have spent the full €250 million. Obviously, even with very deep pockets, this sort of bail-out cannot continue. Even billionaires whose wealth is invariably valued in terms of gross assets cannot willy-nilly find free bundles of readily available cash.
It is perhaps interesting that, in the last €100 million preference share issue, they put up €70 million; in the new planned €100 million preference share issue they have committed to put up just €17 million, with a planned €50 million from an unnamed financial institution, understood to be Lazard, and the remainder from outside sources.
If the structure of this issue takes place as planned, and that could be doubtful, it will break the trend where Sir Anthony and Peter Goulandris have been shouldering an increasing proportion of the fundraising.
Other backers would have been unlikely to have stayed the course, with the group saying goodbye long ago to Waterford with its very high cost base. As it is, it has been on a slow drip; from 3,200 staff in Waterford 20 years ago to 1,000 now and to 500 early next year.
However, with such a vast investment so far, it has to be asked whether the duo have been foolhardy and blinkered? They have displayed a dogged determination and an impregnable belief in the group's internationally renowned products and the group's survival, a view not shared by many ordinary shareholders who have long abandoned the group.
With so many unfilled promises, that is not surprising. Indeed, the latest Waterford Wedgwood results - containing the admission that it did not have sufficient working capital to finance a normal progression of its business which was responsible for "inhibiting sales performance" - demonstrates how precarious its financial lifeline is.
At some stage fairly soon, Waterford Wedgwood, which lost €29 million before exceptionals in the first six months, will have to start to pay for itself.
Significantly, group chief executive Peter Cameron said: "with the capital markets in such turmoil, they [the unnamed financial institution and other third parties] need to look at what they are doing". So will Sir Anthony and his brother-in-law end up taking up more of the issue than planned?
Certainly the negative aura surrounding the equity market is a big factor for any new investors. Equally, the current financial state and future of the group is paramount. The interim cash-flow statement shows that the group was not able even to finance its operating activities.
The figures are stark. There was a negative operating cash flow of €99 million in the six months to September 30th, 2007, virtually all of which was financed from the proceeds of the preference shares!
Also looming large were interest payments of €21 million reflecting a high interest-bearing debt of €418 million, which looks cruel against negative equity funds of €85 million. Indeed, rather ominously, Standard & Poors has listed the group among the companies in Europe it sees as most likely to default on debt.
But what about the future? As usual, there is a more optimistic glow. The supply problems are now said to be resolved with Waterford's order book now up by an "encouraging" 14 per cent on last year. And despite everything Waterford Crystal managed to make a profit in the first half even if the group's ability to make a full-year operating profit was "at risk".
The outsourcing of some 40 per cent of its products (20 per cent Waterford crystal) to lower and less dollar-linked areas has kept the group in existence. Even though it has hedged the dollar at about €1.30 up to next March, it is still too dependent on that currency. A continuing cut in US interest rates together with the statement by China (which accounts for about half of the US current account deficit) that it would lighten its reserves of dollars must be negatives for the dollar.
While the group's balance sheet is in an almost unmentionable state, it does have hidden strengths that are not obvious from the raw figures. While it had goodwill of €85 million in last year's balance sheet, the group's brands are valued at just €36.4 million - clearly totally understated considering its well-known international brands such as Waterford Crystal, Marquis, Wedgwood, Royal Doulton and Rosenthal.
The resolve of Sir Anthony and Mr Goulandris has not only kept these brands intact but has also developed them through a whole host of by-products with well-known names such as Martha Stewart, Gordon Ramsay, Terence Conran and John Rocha. Just this week they launched a jewellery collection from Waterford Crystal.
They deserve to succeed and if they do, the present share price of about two cent will look a pittance - it topped €1 in 2001.
The group insists it is committed to retaining the remaining 500 staff at Waterford. Though admirable, wouldn't it be better to go for the whole hog this time and avoid a painful drip-drip later?
