Abbeycrest blow as covenants breached

JEWELLERY group Abbeycrest has breached profitability covenants after the high price of gold dented demand, margins and working capital.

Shares in the group dived 20 per cent on the update to close at 5p.

That gives the Leeds-based company a market value of just 3.68m.

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Abbeycrest warned last month covenant breaches were likely. Yesterday it confirmed the breaches with its senior lender, Burdale Financial, a subsidiary of Bank of Ireland.

"This has now occurred and the management is working closely with Burdale to reset these covenants," said the group. Abbeycrest is also in talks with its other lender, Thailand's Siam Commercial Bank, over extending its facilities.

Burdale could choose to call in its debts as a result of the breach, but Abbeycrest was yesterday upbeat.

"The directors are confident of a successful conclusion to both of these discussions," said the group.

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Abbeycrest has been hammered by the surging price of gold over the past year, caused by the flight to safety among investors.

The gold price increased by 25 per cent in the year to the end of February, giving an average price of 636 an ounce.

Gold struck record highs in late June, around the time of Abbeycrest's covenant test, on worries the debt crisis in Europe would spread, plus fears over the slowing US economy. Abbeycrest said gold hit 835 an ounce on June 17.

As well as stifling consumer demand for gold, the high price has also piled pressure on Abbeycrest's working capital needs.

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The group has warned it must either refinance or cut 600,000 from its working capital needs in September, usually a time when peak funding is needed.

Abbeycrest had net debt of 5.6m at the end of February.

It has an 8m asset-backed facility with Burdale, due to expire in March 2012.

Despite the problems, Abbeycrest insisted it is "now in a much better position to capitalise on opportunities in the global jewellery market".

Its "strategic withdrawal from lower margin activities" last year helped it record a pre-tax profit, before exceptional items, of 55,000, compared with a 1m loss the year before.

The Yorkshire Post was unable to contact Abbeycrest directors for comment.

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