'Teething problems' with new systems took the sparkle out of the first half-year at jewellery designer and distributor Abbeycrest, lopping £14,000 off its interim profits to £509,000 pre-tax. James Crux reports.

Abbeycrest (ACR), the only fully listed designer, manufacturer and distributor of gold and silver jewellery, was hit by the cost of introducing new systems at its core UK jewellery operation G&A. New software and hardware systems, plus a business process reengineering project, failed to run smoothly and Abbeycrest had to employ 80 more staff and consultants than last year to sort it out.

'We've had serious teething problems which are ongoing', says finance director John Sutcliffe, 'and we have had to retrain our entire workforce'. He does not expect significant benefits to show through until the year to February 2004.

Chairman Michael Lever warns that this year's operating costs will come in £1.2 million higher on account of these problems. These problems saw pre-tax profits for the six months to August down from £523,000 to £509,000, despite a 25 per cent increase in sales to £37.4 million.

Borrowings and interest expense rose, mainly because G&A needed more working capital, but this also reflected funding costs for the acquisition of wedding ring manufacturer Brown & Newirth and of minority interests in its Far East businesses.

Financing costs took the sparkle out of a strong commercial performance in the UK, where demand for jewellery remains buoyant. Wedding ring supplier Brown & Newirth, bought for an initial £4.25 million last December, achieved excellent results during its first six months, always the busiest half of its year.

Elsewhere, Abbeycrest's Far East businesses enjoyed mixed fortunes. Hong Kong based Dynamic Creations (DCL) traded strongly, both in the UK and internationally, but Essex International in Thailand is finding its US markets tough.

Abbeycrest paid £2.5 million to acquire minority interests in these businesses. It now owns 99 per cent of Essex and 75 per cent of DCL.

Analysts at ABN Amro predict full year pre-tax profits of £3.8 million, giving earnings of 10.7p a share, with £5 million and 14.4p to follow in 2003. Investors marked the shares down by 6p to 82.5p in early trade, placing Abbeycrest on an undemanding prospective p/e ratio of 7.7.