Blue Diamonds Jewellery Worldwide PLC, carrying accumulated losses of Rs.868.4 million in its balance sheet as at March 31, 2009, has summoned an extraordinary general meeting on December 23 to apprise shareholders of the net assets of the company falling to less than half its stated capital.

In a circular to members, the directors of the company have said that under provisions of the Company Act No.7 of 2007 the situation prevailing in the company which had suffered a loss of Rs.19.4 million (Rs. 0.20 per share) in the year ended March 31, 2009, down from a profit of Rs.10.4 million a year earlier, must be explained.

The company’s Auditors, KPMG Ford, Rhodes, Thornton & Company, has expressed serious reservations on the accounts for the last financial year saying they have not received independent confirmation of certain related party balances and had also referred to a credit facility obtained on the security of jewellery from an unnamed bank.

Mr. Godfrey de Kretser, Executive Director, of the company, on behalf of the board told shareholders that in the year 2007/08, they had been successful in recording an increase in operational returns and registered a profit.

"This was achieved even though this period was the start of the global financial recession which had a major effect on the jewelry business worldwide," he said.

Despite this adverse environment the company had been able to operate at break even level in the financial year 2008/09 but from February this year they had experienced "a dramatic reduction in orders which compelled us to most reluctantly to reduce the strength of our work force by 40%.’’

"Since there are now signs of the international jewelry trade re-activity itself we have been assured of orders from our regular buyers over the next few months. Some of these buyers have already placed orders for a range of jewelry (samples) which are to be exhibited at various international jewelry trade shows with a view of obtaining orders for our jewelry," he said.

De Kretser has outlined the steps taken during the period of recession to minimize losses which included downsizing the workforce and very strict control of all expenditure including curtailing of capital investment.

After a close market study the company had designed and manufactured a range of what the executive director called "price point" items of jewelery in metals other than gold or platinum.

He said they had also contacted Sri Lanka missions abroad and sought their assistance to be introduced to countries to which they were not exporting jewelry.

The extraordinary general meeting will be held on December 23 immediately after the company’s 19th annual general meeting where a resolution seeking shareholder authority to carry on the business of the company to the best advantage of all its stakeholders will be presented for consideration by members.

In the annual report of the company covering the year 2008/09, de Kretser said he was welcoming shareholders to the meeting in the absence of the Chairman, Mr. Lalith Kotelawala, and Mr. Bandula Ranaweera, the company’s Managing Director.

He reported that in the context of the slowdown in the international jewelry trade since August 2008, orders that the company had received had been cancelled and quantities reduced followed by the stoppage of any purchases.

"Our inquiries revealed that the global credit crunch had a severe impact on the jewelry trade worldwide with a high percentage of consumers reluctant to spend and the jewelry trade fearful to invest" de Kretser said.

Usually the period between July and March was the best both for manufacturers of jewelry and retailers preparing to meet consumer demand for events such as Ramadan, Deepavali, Christmas and Valentine’s Day.

They received large orders for these events in previous years but since November 2008 they have not been receiving the anticipated orders. The few they got were for reduced quantities.

This had compelled them to reduce their staff strength by 50 and impose other rigid financial controls to minimize losses and keep the business going anticipating that the market would stabilize itself.

``All members of the staff too assisted by taking a reduction in their monthly earnings. During this time our strict controls greatly assisted in maintaining the factory with a work force of over 50 employees who are highly skilled and experienced in the manufacture of jewelry," he said.

The company was now receiving orders from a few of their traditional buyers although in small quantities. These were samples to be exhibited at international jewelry shows for the purpose of obtaining orders and some small quantities for their retail sales network.

"At present we are in the process of designing and developing a new range of products based on our buyers design concepts and styles and we are confident and that your company will receive substantial orders during the coming months," de Kretser said.

He explained that the loss of Rs.19.3 million that has been posted was mainly due to provisions made in the financial statements with regard to inventory and trade debtors. They were confident that they would be able to realize a value higher than the net value shown in the financial statements in the event of "realization of the inventory and trade debtors."

Blue Diamonds has a stated capital of Rs.877.4 million and a general reserve of Rs.135 million. Nearly Rs.49 million is owing to related parties.

Net assets per one-rupee share were down to Rs.1.70 from Rs.1.93 the previous year and the share traded at a high of Rs.3.10 and a low of Rs.1.30 during the year under review. This compared to a trading range of Rs.3.60 to Rs.1.90 the previous year.

Dr. T. Senthilverl with 14.5% and Ceylinco Insurance with 14.5% are the major voting shareholders of the company. Many Ceylinco Seylan group companies are also among the top 20 voting shareholders.