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De Beers Announces 84 Sightholders
Introduces Strategic Supply to Support Downstream Branding
Mar 31, 2015 10:05 AM
By Avi Krawitz
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RAPAPORT... De Beers selected 84 sightholders to receive rough diamond supplies during the new three-year contract period that begins on April 1.
Of the total, 82 companies will receive supplies as part of De Beers global sightholder sales (GSS), while 20 companies in all will receive beneficiation supplies in Botswana, eight in South Africa and 11 in Namibia. Two companies were awarded accredited buyer status, which provides them with the opportunity to purchase rough from De Beers on an ad-hoc basis, depending on the availability of ex-plan, which is supply that is in excess of sightholders annual applications – otherwise known as intentions to offer (ITO).
De Beers will publish the sightholder names on its sightholder directory website during the next sight, which begins on May 4. The current sightholder list from the previous contract also lists 84 companies.
Simplified Process
Nigel Simson, the senior vice president of De Beers GSS, explained that the company took a different approach to its selection process for the new contract period.
He outlined five principles that dictated the process, which included the sightholder's continued commitment to the sightholder system and building stronger relationships with its customers. De Beers also simplified the application process by abolishing the bureaucratic questionnaires that were previously required of applicants, and it also aimed to introduce greater flexibility with its supply programs.
Finally, Simson stressed that the company sought to raise the banking sector’s confidence in the industry and in the sightholder community by tightening its financial requirements. De Beers required sightholders to align their financial reports to International Financial Reporting Standards (IFRS), or have a program to be IFRS compliant by 2016, have an unqualified De Beers-approved auditor sign off on the financial statements and have a debt-to-equity ratio of 70 to 30.
Simson reported that about one-quarter of sightholders met all of those requirements at the start of the new contract period.
Strategic Supply
As part of its program to bring greater flexibility in supply, De Beers is launching the accredited buyer program at the next sight and continuing to be flexible with its auction sales. In addition, De Beers is introducing a pilot program of “strategic supply,” through which it will allocate supply to businesses that demonstrate good, strong, financially sound, downstream marketing initiatives that are linked either to their own brand programs -- including De Beers Forevermark -- or with a retailer, Simson explained.
The program will begin at the May sight and will include a small proportion of De Beers supply that Simson stressed would not encroach on the ITOs.
“The ITO remains the main avenue of our supply and we’re not looking to undermine the ITO by pulling goods out,” he said. “It’s really supporting our strategy to grow demand for diamond jewelry at a consumer retail level.”
Changing Supply Patterns
Simson reported that the level of ITO applications, which reflect sightholders’ applications for rough supply over the coming year are about in line with last year, despite the current weak state of the market.
He noted, however, that there has been a change in the pattern of when sightholders have chosen to take their supply. Whereas there is usually a strong pull for rough diamonds in the first quarter, a quieter second quarter and strong demand in the third quarter before the market tapers off around the Diwali and Christmas season, Simson observed that the phasing supplies is very different this year.
After a slow first quarter, he expects demand to remain relatively weak in the second quarter before improving in the second half of the year. “That’s almost reverse to what we would normally see,” he said, adding that the company has not changed its production plan in response to the changing supply patterns.
Rapaport estimates that De Beers rough sales fell by more than 30 percent year on year to around $1.45 billion in the first quarter of 2015 as sightholders refused about 30 percent of their allocated supply at last weeks’ March sight. (See full sight report here).
Simson said that De Beers expects steady growth in consumer demand in 2015, after the company estimated that global diamond jewelry sales grew 3 percent to $81.4 billion in 2014. With that growth, he added that retailers will come back into the market to get the polished diamonds in time for the gifting seasons in 2015.
Simson stressed that he is confident sightholders will be able to capitalize on that growth and make a profit in the new contract period.
“We want to get back to a market in which all the major stakeholders are profitable and sustainably so,” he said. “We need our customers to make money and to be able to invest in efficiencies and in marketing and downstream initiatives. Because if we can’t get the growth in consumer demand, then everyone is going to struggle in the long term.
“De Beers has invested in mining and future capacity and in marketing and consumer confidence because we very much believe in the long term future of this industry, and we very much see profitability coming back in the short term,” he added.
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Tags:
Avi Krawitz, Botswana, De Beers, diamonds, Forevermark, Jewelry, Rapaport, Sightholders
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