Despite the challenges facing the global economy, strong demand and price growth drove De Beers earnings up, the group’s financial results announced on Friday have revealed.
The company, which is owned 15 percent by Botswana government, saw its total sales increasing by 26 percent to US$7.4 billion (about P53 billion) from US$5.9 billion (about P42.3 billion) in the full year 2010, the results for the year ended 31 December 2011showed.
De Beers said in a statement accompanying the results that despite global economic shocks, it expected to see continued growth in global diamond jewellery sales, but lower than the exceptional 2011 growth.
“This will be driven by the overall strength of the luxury goods market, improving sentiment in the US (the largest diamond jewellery market), continuing growth in China, and the positive impact of the 2011 polished price growth on retail jewellery prices,” the company said.
During the period, sales of rough diamonds by the Diamond Trading Company (DTC) increased by 27 percent to US$6.5 billion (including those through joint ventures) while DTC prices increased 29 percent from 1 January 2011 to 31 December 2011.
In the H1 2011, the consumer demand grew which, when coupled with lower than historical levels of global diamond production, resulted in very strong polished and rough diamond price growth.
However, during the second half of the year, both retail and cutting centre sentiment was impacted by the challenging macro-economic environment, restricted liquidity (particularly in dollars) in the cutting centres and a slowdown in the rate of growth of consumer demand at retail.
As a result, during the latter half of the year, De Beers experienced lower levels of demand for its rough diamonds and prices receded slightly from the highs seen in the middle of the year.
The company’s Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) increased 21 percent to US$1.7 billion (2010: US$1.4 billion) while profit after tax was higher at US$ 978 (about P 7 billion) compared to US$ 638 (about P4.6 billion) in the full year ended 2010.
However, despite rise in sales, production went down. Diamond production totaled 31.3 million carats which was 5 percent down from 33.0 million carats recorded in same period in 2010.
Debswana was flat as it produced 23 million carats a slight improvement from 22.2 million in 2010.
De Beers said going forward it will not increase production, but output will be based on the demand of its sightholders adding that the priority will be on waste stripping and maintenance backlogs and we therefore do not expect a material increase in carat production in 2012.
“This focus, which began in H2 and will continue during Q1 2012, will position De Beers to ramp-up profitable carat production as Sightholder demand dictates,” De Beers stated.
“In the medium to longer term, the industry fundamentals remain positive with consumer demand, fuelled by the emerging markets of China and India, outpacing what will likely be level carat production.”
The company results showed that during H1, in spite of a number of challenges ÔÇô including heavy rainfall in southern Africa, maintenance backlogs, poor contractor performance, skills shortages, and protracted labour negotiations ÔÇô De Beers produced 15.5 million carats, similar to that of H1 2010 (15.4 million carats).
During H2, De Beers produced another 15.8 million carats despite a shift of its operational focus, in light of prevailing rough diamond market trends in Q4.
The company said it utilised this period to address maintenance and waste stripping backlogs in order to better position the mines to increase their rate of production as demand from Sightholders increases. This is likely to continue for several months into 2012.
The company continues to scour for diamonds where it owns exploration licenses despite the exploration budget falling. Under the period, De Beers Exploration spent US$43 million in 2011 (2010: US$47 million) on work programmes focused on 11,347 square kilometres of ground holdings in Angola, Canada, India, Botswana and South Africa.
De Beers rise in fortunes come at a time when it has introduced products in the market that target the growing Asian market.
Under the period, De Beers Diamond Jewellers reported good growth in sales across all regions, with Greater China particularly strong.
“The China opportunity is a priority for De Beers, with further 2012 expansion plans following the opening of stores in Beijing, Tianjin, Dalian and a second Hong Kong store in 2011.”
Forevermark continued its expansion both in its existing markets of China, Hong Kong and Japan and in H2 launched in India and the US. Forevermark is now available in 658 retail doors across nine markets, an increase of 89 percent vs. 2010.
De Beers said the Jwaneng Cut 8 project is on schedule and on budget. More than 40 million tons of waste have been stripped to date, and infrastructure construction is over 90 percent complete, with the remaining work forecast to be completed during 2012.