KN26035

KEY NOTE Market Report Plus : China and Earthenware Market Report : February 2005

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This report covers: china, and earthenware, stoneware, bone china, hard porcelain, ovenware, tableware, kitchenware, ornamental, ware, giftware,

EXECUTIVE SUMMARY

Key Note estimates that the value of retail sales of china and earthenware, which includes tableware, kitchenware and ornamental ware was virtually static in 2004. This is in the context of a highly competitive market in which manufacturers, facing overcapacity, have had to cut margins and retailers had to discount. Five rises in the Bank of England's base rate in a year have taken it to 4.75%, the highest level since 2001, and appear to be having the desired effect of slowing down escalating house prices and consumer spending. Between September and October 2004, the volume of UK retail sales fell by 0.4%, decreasing across all sectors except textile, clothing and footwear stores. Since spending on ornamental ware and, to a lesser extent, tableware is discretionary, any slowdown in consumer expenditure does not bode well for the industry.

The value of UK manufacturers' sales of ceramic household and ornamental articles fell by 29.5% in the 4 years from 2000 to 2003, to £391.7m. By late 2004, Josiah Wedgwood and Royal Doulton, the two companies dominating the industry, were in discussion about a possible takeover of the ailing Royal Doulton by the former's parent company, Dublin-registered Waterford Wedgwood PLC. On 17th January 2005, it was announced that Waterford Wedgwood had received valid acceptances, in respect of its offer, for 69.38% of Royal Doulton's ordinary shares. Added to the group's existing holding, it now owns 90.54% of the current issue ordinary share capital of Royal Doulton. Waterford Wedgwood urges any Royal Doulton shareholders who have yet to do so, to accept the offer before Waterford Wedgwood compulsorily acquires any remaining shares. This takeover is likely to change the character of the industry further and there are fears that the whole giant operation may move production overseas, a move they have both started to varying degree.

Both Portmeirion and Churchill China, two of the other sizeable companies in the industry, have already announced that they are to provide more storage space and reduce production capacity as outsourcing becomes a more important part of their quest for shareholders' profits. This has led Ceramic and Allied Trade Unions (CATU) to voice the fear that Stoke-on-Trent, the UK home of ceramic manufacturing, is in danger of turning into the warehouse of the UK industry. Investment is reportedly flooding into the area but is concentrated on the retail side.

The UK's previously favourable trade balance in china and earthenware has been decreasing steadily since 1998. In 2003, the balance was recorded at £21.5m compared with £216.3m in 1998. This illustrates the ongoing demise of a traditional UK manufacturing industry, which has had a profound influence on the Stoke-on-Trent area for generations. In recognition of this, in June 2000 the Department of Trade and Industry's (DTI's) secretary announced that it would provide £1.5m funding to help the UK's ceramics industry raise its performance so it can compete in world markets. The 5-year grant supports the Ceramics Industry Forum (CIF) in its work to improve the sector's productivity and competitiveness and various ongoing schemes are in place in an attempt to achieve this.

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Text © 2005 Key Note

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Last updated by Amanda Porteous February 2005