Abbeycrest warns over likely breach of covenants

JEWELLERY group Abbeycrest warned that its annual trading performance will be "substantially" below expectations and it is likely to breach covenants with its senior lender.

The Leeds-based group blamed downward pressure on prices and the continuing rise of precious metal costs.

The company said it hopes to restore margins and reduce costs, which it warned will result in "significant" exceptional charges.

In light of these developments, it said that it will "in all likelihood" breach present covenants with its senior lender Burdale Financial Limited.

It added that Burdale remains supportive of the group and is working with the board to re-set covenants and provide adequate working capital facilities for Abbeycrest's ongoing requirements.

The board is putting together a revised business plan for the group and said it will provide an update on both its discussions with Burdale and its strategy in due course.

The group's shares closed down 17 per cent to 3.63p.

Abbeycrest is in the process of switching from mass market jewellery to design-led pieces with less gold content as the price of gold continues to rocket.

The company, which designs and manufactures jewellery, saw revenues increase by five per cent in the six months to August 31, but it made a pre-tax loss of 500,000 after its mass market Essentials group was hit by faltering consumer confidence and rising commodity prices.

Whilst the Brands division showed a marginal improvement in profitability, the group's pre-tax loss before exceptional items widened by 220,000 to 460,000 as operating profits from the Abbeycrest Essentials division reduced by 300,000.

Chairman Simon Ashton said the less price-sensitive luxury market and the more recession-proof Asia-Pacific region are leading the recovery in the global jewellery market – areas in which the company's strategy is "clearly focused" but where the group has yet to establish a material market presence.

Last year the group decided to quit the most price sensitive areas of the market and focus on a reduced customer base, with fewer products and a greater degree of product branding.

Abbeycrest has been hammered by the surging price of gold over the past 18 months, caused by the flight to safety among investors.