Big rise in price of gold hurts Abbeycrest as it dips into red

SURGING bullion prices, pressure from retailers and weak consumer sentiment drove jewellery group Abbeycrest to a £3m annual pre-tax loss.

The Leeds-based company, which recently bought breathing space from its banks by renegotiating covenants, said it was hammered by a 30 per cent increase in gold prices in 2010.

Gold hit an average monthly price of £825 per ounce in 2010, compared with £636 a year earlier. Gold was yesterday trading above $1,500 (£939) per ounce, with investors piling into precious metals due to concerns over the Eurozone debt crisis.

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Abbeycrest said the three per cent fall in revenues to £38.5m was significantly higher when precious metal inflation was factored in. The group added high gold prices are also denting consumer spending, leading to a 16 per cent fall in hallmarking during the year.

“The sustained rise in gold prices continues to have an impact on consumer demand,” it said.

The company’s £2.97m pre-tax loss in the year to the end of February compared with profits of £1.56m a year earlier. It included £1.9m of exceptional costs as Abbeycrest consolidated its Hong Kong operations into its Thailand factory and made an unspecified number of redundancies.

Abbeycrest has been focusing on its branded operations to boost margins, but yesterday admitted it did not make the desired progress in 2010.

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“Our higher value-added collections did not make the progress anticipated and the group’s activities in its traditional markets continued to be affected by further volume decline and margin pressures,” said executive chairman Simon Ashton in a statement.

However, he insisted the group is sticking with the branded strategy, is making progress, and has made a “satisfactory” start to the year.

“Although trading conditions in our core markets remain difficult, the group has made a satisfactory start to the current financial year,” said Mr Ashton.

“The benefits of consolidating our Hong Kong and Thailand operations are becoming evident and our Essentials division is trading in line with the board’s expectations, albeit against a continuing backdrop of long-term pressure on precious metal prices.

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“The board remains firmly of the view that the strategy of moving towards higher value-added, branded jewellery collections is aligned to current and expected global jewellery trends and we are seeing definite signs of progress.”

Abbeycrest typically sells direct to high street jewellers such as Ernest Jones and Goldsmiths, as well as retailers including Argos and Asda.

As part of its branded strategy, it yesterday confirmed plans to open a jewellery shop under its Brown & Newirth (B&N) brand. The retail strategy, as revealed by the Yorkshire Post in December, will target select locations across the North.

It plans to open a handful of shops in independent shopping areas such as Leeds’s Queens Arcade and Harrogate, in a bid to accelerate its move upmarket.

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The group is also opening an online store to support B&N, and plans to build the brand’s share of the UK engagement ring market. It has also appointed a new creative director, Julie Large, to oversee the development of B&N.

It said the branded division’s turnover held steady at £12.7m but pre-exceptional operating profits halved to £200,000 because of underperformance and unspecified “short-term loss of management focus and margin control”.

During the year Abbeycrest’s Essentials arm, which designs and sells mass market jewellery, saw sales fall five per cent to £25.8m. However, with gold prices factored in, the decline would have been nearer 15 per cent. The division’s pre-exceptional operating profits slumped to £600,000 from £1.6m a year earlier.

Shares in the company shed another 0.62p yesterday to close at 1.75p. The 26.05 per cent fall gives it a market valuation of just £1.3m. Abbeycrest declined to comment beyond the statement.

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The company employs 747 across the group compared with about 890 a year earlier.

Backing from lenders

Abbeycrest signed new and extended banking facilities with its lenders in May.

It had been in breach of its covenants with its senior lender, Burdale Financial. Burdale, a subsidiary of Bank of Ireland, extended the renewal of its UK bank facility to March 2014 and to re-set associated covenants. Siam Commercial Bank (SCB) also agreed a £3m rise in the seasonal working capital facilities of the group’s Thai subsidiary, Abbeycrest Thailand. Yesterday Abbeycrest cast uncertainty over its going concern status, warning it needs to either reduce its working capital requirements by about £400,000 in October, or extend its current facilities.

The company added it is confident it can achieve this.

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