There was a touch of inevitability about this week's news that Waterford Crystal would be implementing short-time working at its factories.

The news has not been good for the firm for some time, with profits in steady decline for the past three years.

Clear proof of this came in June, when it emerged that profits in the crystal division of the company's parent, Waterford Wedgwood, were down 89 per cent at €3.1 million for the six months to the end of March.

While this number included brands other than Waterford, it nonetheless offers an insight into the tough operating conditions being faced by the company.

Many of the problems that loom on this front are not of Waterford's making, with the global ceramics and luxury glass business as a whole suffering considerable pain over the past few years.

Underpinnng this has been an unwillingness on the part of consumers to spend large sums of money on top-end luxury goods at a time of economic uncertainty. And as consumer confidence improves, it seems crystal and china dinner sets are still losing out to more practical crockery and mass-produced glassware in the US department stores that account for 50 per cent of Waterford Wedgwood's sales.

This has led to cashflow problems across the group, with Tuesday's short-time announcement the most obvious consequence of this. The firm is easing off on production so that it can sell off its existing inventory and save on manufacturing costs at the same time.

The move comes as part of a "root-and-branch review" of group business than began in June. The objective here is to cut the amount Waterford Wedgwood needs to spend each day to remain in operation.

Working capital soaked up almost €50 million of cash flow in the year to March 31st, even though sales fell back on a constant-currency basis. High inventories were the natural consequence.

The most up-to-date information on trading at the group came in early July, when it said that first-quarter sales would be up 1 per cent on the same period of 2003. Signs of green shoots perhaps?

On one level yes, but on another, no. The 1 per cent increase was recorded before currency effects, thus suggesting that real growth remains thin on the ground.

This becomes particularly worrying when it is recalled that the first quarter of this financial year (April to June) is being compared to the same months of 2003, when sales fell by 9 per cent due to factors such as SARS and the invasion of Iraq.

To quote a July report from NCB, growth remains "elusive", with Waterford's high debt levels compounding the problem.

Net interest-bearing debt at Waterford Wedgwood stood at €408 million at the end of March. While the sale of cookware firm All-Clad for €209 million will have dented this in the meantime, this level of borrowings remains problematic for a firm that is not selling enough product.

Efforts were made to address this last year, when Waterford concluded a €38.5 million rights issue and issued a €166 million seven-year bond. While this satisfied creditors at the time, it failed to offer much in the way of long-term respite.

The coupon of almost 10 per cent attached to the bond actually increased interest costs (the All-Clad sale has alleviated this in part), while the professional fees for the refinancing almost cancelled out the rights issue proceeds.

The problem with this, of course, is that the debt burden could reach disastrous proportions if the recovery does not come. Put simply, debt repayments require cash.

Waterford's management has always been fairly optimistic on the recovery front, with chief executive, Mr Redmond O'Donoghue's remark of last November fairly typical.

"If nothing untoward happens, we would be quietly confident that there's a turnaround there," he said. While investors still wait for this dream to come true, some market watchers accuse the management of long being in denial of the serious problems facing the firm.

Changes have already been witnessed at the top, with a new chief financial officer appointed in April. This appointment of Mr Paul D'alton was well received, with a past in Bank of Ireland and Aer Lingus testifying to his capabilities.

New chief operating officer, Mr Peter Cameron, who came from All-Clad, has also been welcomed by shareholders.

The two appointments are significant since they inject fresh blood into the parts of the business that need help.

On the financial side, the Waterford Wedgwood group, as well as being debt-laden, has taken substantial exceptional charges every year bar two since 1997. While this has coincided with positive (financial) developments, such as the removal of 3,000 people from the payroll, the market's appetite for exceptionals is still wearing thin.

Compounding this is the expectation that the measures currently being taken to address inventory will lead to substantial write-downs, perhaps of up to €100 million, in this year's accounts.

The firm's currency exposure is also a problem, with Waterford's historically hedged stance against dollar fluctuations no longer in place. This leaves the firm wide open to the dangers attached to manufacturing in the euro-zone and selling in dollars, sterling and yen. In the year to March, this led to an exchange rate hit of €30 million being absorbed.

On the operational side, Mr Cameron's challenge is to convince today's consumers that they do actually want to spend the money it takes to own a luxury Waterford Wedgwood product.

The quality of the goods has never been in dispute, with each new Waterford, Wedgwood or Rosenthal piece more beautiful than the last. Paying for them, however, is another matter.

The problem here of course is that it will always be difficult to produce in a high-cost location (e.g. Waterford) without passing these costs on to customers. And of course this problem becomes even deeper when the products in question are competing against brands made in Asia.

Irish crystal made in China may not have the best ring to it, but necessity can breed strange bedfellows.

On a more fundamental level, Waterford's future as a public company is always a live background issue. Shareholders are certainly disgruntled, as evidenced by the level of vocal discontent at July's extraordinary general meeting to approve the All-Clad sale. Waterford's by now overdue annual general meeting (likely to take place in October) will provide the next opportunity for such opinions to be voiced, with the firm's current 15-cent share valuation unlikely to offer comfort in the meantime.

This naturally brings the intentions of the firm's largest shareholders - the O'Reilly and Goulandris families - into sharp focus. Sir Anthony O'Reilly, Waterford Wedgwood's chairman, is no stranger to taking public companies private, as most recently evidenced with Eircom.

Waterford is far from being a straightforward take-private case, however, with the firm's poor cashflow and high debt levels hardly acting as a draw for financial backers in a takeover.

A move to take the 26 per cent O'Reilly/Goulandris shareholding up to 100 per cent would thus either need to be based on affection for the group's brands, or some financial knowledge that has yet to be shared with the rest of us. With neither motivation seeming likely, it looks like Waterford Wedgwood's public status is secure for a while yet.