Response to the following problem:
Watching the cash flows
When Waterford Wedgwood reports its annual results today, brokers will be focused not just on the income statement of the crystal and porcelain manufacturer, or the balance sheet - the traditional windows on the health of a company - but on the cash flow statement. Brokers, in particular, are looking for signs of improvement in the working capital position - the company's ability to squeeze more cash from suppliers, to get paid earlier by its customers and reduce the amount of costly product held in its warehouses or elsewhere in the supply chain. The signs are mixed. The company this month warned that profits for the period to March 31 would be A12m (£8m) or 15 per cent shy of what it had been predicting in January. It cited difficulties at its German porcelain subsidiary. It was also hit when US stores did not restock after the Christmas sales. The poorer trading means inventories levels should be lower. On the other hand, there is less cash generated to pay down the debt. . . . Going forward, the big challenge is to extract more cash from the businesses. Accenture, the consultant, has been asked to look at the issue. John Sheehan, at NCB stockbrokers, anticipates big inventories write-offs. ‘The real issue is can they do this without saturating the market and hurting the brand?' he asks. On the manufacturing side, the company is adopting a twin approach, outsourcing the manufacturing to cheaper locations while harnessing big-name designers to appeal to a younger consumer.