Shifting the bulk of its assembly operations to low-cost Thailand as part of a consolidation of its operations could be the making of jewellery manufacturer Abbeycrest. The latest figures showed a big turnaround, but there is more to come.

With major clients including Argos and Asda, Abbeycrest concentrates primarily on gold and silver gemset and jewellery parts manufacture. Subsidiaries include G&A, its core UK operation; Essex International, which is based in Thailand but focuses on sales into the US; and Hong Kong-based Dynamic Creations, which accesses low-cost, high-quality production facilities in China.

In December 2000, the company also bought wedding ring designer Brown & Newirth (B&N) for £4.75 million. B&N has consistently increased turnover and profits. Another small subsidiary, DRT Jewellery, is a small jewellery designer and manufacturer based in Middlesborough.

Rising diamond prices in the past four years have made for a challenging environment, but, until 2002, the company continued to build turnover and sustain profits in the £4 million to £5 million range.

Then it came a cropper implementing a new SAP-based operating system at G&A. More than 80 staff and consultants had to be hired to ensure customer retention while the technical glitches were sorted out. In 2002, profits fell to £2.36 million.

The teething problems also increased the company's stock levels, creating a knock-on effect during the next year. The increased working capital required sent gearing soaring to 97 per cent.

A sudden deterioration in the trading performance as well as management and control issues at Essex International exacerbated Abbeycrest's woes. In the year to end-February 2003, turnover increased eight per cent to £98.8 million, but the business reported a loss of £560,000.

This prompted a major business review overseen by new appointees, finance director Phil Walker (now chief executive) and G&A's managing director, Andrew Clark. As a result, Abbeycrest is in the process of closing its Birmingham operations.

The small, high-quality 18-carat manufacturing operation has been relocated to Leeds, where Abbeycrest has a warehouse and distribution facility, while the rest of the jewellery parts manufacture will be transferred to the factory in Lamphun, Thailand, in the course of the year. The production of finished gold jewellery assembly at recently created Abbeycrest (Thailand) and Essex International has also been moved to the Lamphun site.

Walker admits the moves are not without complications, but the initial costs of £1.5 million should produce annual savings of a like amount.

The restructuring enabled Abbeycrest to restore pre-tax profits for the year to February 2004 to £1.6 million, on a slightly lower turnover of £97 million. Gearing has also dropped to 73 per cent and borrowings should fall a further £2 million this year.

'First we had to get our balance sheet sorted out,' contends Walker. 'We were overtrading and had spiralling debt.' In 2004, the company will initiate the second half of its review, focusing on commercial sales.

'We were not always so great on the commercial front,' admits Walker. But this should change. Abbeycrest has opened an office in New York, using the offices of Star Diamond Group, which is owned by its 16 per cent shareholder (and coincidentally Arsenal FC's leading shareholder), Danny Fiszman.

Broker ABN Amro forecasts pre-tax profits for 2004/5 of £3.5 million. That would translate into earnings per share of 8.77p. In the current, soggy, market Abbeycrest shares remain flat at 67.5p, where they trade for under eight times projected earnings. Buy.