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De Beers sees positive demand for roughs with market recovery : Read more
Company: »      News Date: 2010-02-13      « Back


The company has appointed a new Group Technical Director

De Beers has released a statement of its financial results for the year 2009.

Industry Overview

The year 2009 weighted heavy on performances for diamond industry, battling the global recession. The combination of three principal factors - high stock levels throughout the diamond pipeline, constricted liquidity in the industry, and lower levels of retail and consumer demand - led to substantially lower demand for rough diamonds. The behavior of the consumer markets revealed decline in global demand for diamond jewellery, for the full year in the low single digits, although the fourth quarter showed an improved and positive trend on 2008. Demand remained strong in India and China with US Christmas trading results likely to show the first year-on-year increase since September 2008. Industry inventory and debt levels reduced in the year.

De Beers undertook a 6-point Recession Action Plan in response to the global economic crisis. The plan focused on sustaining business through the recession and positioning it for future growth. Although the trading conditions saw sales decline from US$6.89 billion in 2008 to US$3.84 billion in 2009, the company exceeded its cost-reduction targets, and was cash positive for the year with positive EBITDA (US$654 million) and PBIT (US$318 million).

The 6-point action plan focused on: Keeping Safety as Top Priority – There were zero fatalities on company operations. Lost Time Injuries (LTI) decreased to 40 in 2009 from 66 in 2008. Maximising Demand Opportunities – The company adopted a flexible approach to sales to address highly volatile levels of rough diamond demand, when the market was affected with volumes and, to a lesser degree, prices impacted. With the improvement in client demand allowed the company to increase prices and sales volumes throughout the second half of the year. DTC sales for the year totalled US$3.23 billion, significantly below last year (2008: US$5.93 billion) but above our half year expectations. The company also markets its Forevermark™ brand in upcoming markets of China, Hong Kong, Japan and Macau and the Everlon Diamond Knot Collection™, that helped boost sales in the U.S. Christmas season. Producing In line with Client Demand - The company had reduced its production at the beginning of 2009 De Beers as demand from DTC sightholders had dipped. Sightholder demand increased gradually from the second quarter and the De Beers Family of Companies responded by increasing its production to 18 million carats in the second half of the year (2008: 24 million carats), an increase of 173 percent compared with the first half, resulting in a full year total of 24.6 million carats (49 percent below 2008). Driving Cost Reductions across the Business - Across the Family of Companies, De Beers aggressively tackled costs, achieving a US$0.9 billion reduction in production and operating costs, down 45 percent compared to 2008. Enhancing Operating Efficiencies BY de-layering and de-centralisation of its business, De Beers recorded a 23 percent reduction of its global workforce. Focusing on Cash Management –Capital expenditure reduced by US$222 million compared with 2008 and it remained cash positive in 2009. Given the nature of the assets, the effects of a weak US Dollar and the impact of the global recession on pricing and production levels, De Beers has been required to make a non-cash impairment provision of US$700 million against its Canadian operations.


Projects

In November, Debswana announced a major US$500 million expansion project (Cut-8) at Jwaneng Mine that will ensure continuous and profitable production at the mine until at least 2025. In the same month De Beers announced the sale of its effective 70 percent share in the AK06 diamond deposit in Botswana to Lucara Diamond Corporation, a Canadian junior diamond mining company, for US$49 million in cash. In July, Mountain Province Diamonds announced entering into an amended Joint Venture agreement with De Beers Canada on the Gahcho Kué deposit.

Refinancing

In the first half of the year, De Beers commenced discussions with its lending banks to renew its outstanding US$3 billion borrowing facility, of which US$1.5 billion is due and payable in March 2010. International and South African financing term sheets have been agreed, and credit approval granted, by the syndicates of lending banks. In addition, the shareholders have agreed to subscribe for additional equity capital of US$1 billion in proportion to their existing equity holdings, which will enable a reduction in overall debt and strengthen the De Beers Group balance sheet. The detailed documentation of the new financing structure is expected to be concluded before the end of March 2010.

Outlook

2009 presented some of the most challenging trading conditions, and De Beers’ actions have helped the DTC clients reduce inventory and debt levels, and with better than expected consumer sales in the fourth quarter, sentiment has improved markedly from a year ago. DTC noted increase in rough diamond demand in the first Sight of the year and the same is expected for in the February Sight. De Beers will continue to be cautious over the production and sales levels for 2010. With the encouragement from developing countries like India and China, consumer demand for diamond jewellery has been recovering, but with the fragility of the world economy and perceived weakness of the global recovery post recession, the company would only expect a gradual increase in production levels, sales and prices. The company’s long-term perspective on the supply / demand dynamics of diamonds remain highly attractive and the future growth in demand for diamond jewellery driven by China and India, is expected to outpace the predicted lower levels of diamond supply for years ahead.

Management Changes

The De Beers Group Technical Director Robin Mills will retire at the Annual General Meeting on 24 March 2010. Jim Gowans, currently CEO, De Beers Canada Inc, will assume the position of Group Technical Director.


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