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De Beers Sales Exceed $7B in 2011, Earnings Soar

DTC Prices Rise 29% During the Year

Feb 10, 2012 2:50 AM   By Avi Krawitz
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RAPAPORT... De Beers group sales jumped 26 percent year on year to $7.38 billion in 2011 driven by strong rough diamond price growth in the first half of the year. The company noted that prices at its Diamond Trading Company (DTC) distribution unit rose 29 percent through the year, even despite the fact that demand softened in the second half. Group net earnings grew 72 percent to $939 million. (MP3 audio of De Beers results conference call.)

DTC rough sales, including  Diamdel, increased 27 percent to $6.47 billion. De Beers also receives revenue from Element Six, an industrial diamonds business, and from De Beers Diamond Jewellers (DBDJ), a retail partnership with LVMH. Sales at Diamdel, which sells about 10 percent of De Beers production through online auctions, grew 30 percent to $405 million.

''With strong consumer demand for diamond jewelry – led by China, India and the U.S. – and a lower than historical level of global diamond production, polished and rough diamond prices grew rapidly during the first half,'' said Philippe Mellier, De Beers chief executive.

However, Mellier noted that growth cooled in the second half of the year as global economic uncertainty set in, causing consumer buying to slow and restricting cutting center liquidity. Subsequently, prices softened from their mid-year highs, he added.

Mellier, who was appointed to his role in July, stressed that uncertainty continues to impact the diamond market and that growth in 2012 will be at a slower pace than in 2011. ''We still see softness in the market generated by the economic outlook and we still see sightholders being a little nervous,'' he said. ''The uncertainty will be there for the first half and I hope that by the second half of the year we will have more visibility and a much better outlook for the market for the rest of the year and 2013.''

De Beers curbed production in the second half of 2011 as demand slowed and the company utilized the period to carry out maintenance at its mines and address waste stripping backlogs. Mellier explained that this would continue through the first half of 2012.

De Beers full year production fell 5 percent to 31.3 million carats with its Botswana output up 3 percent to 22.89 million carats. Production in South Africa fell 28 percent to 5.443 million carats and production in Namibia dropped 9 percent to 1.335 million carats. De Beers Canada production declined by 5 percent to 1.66 million carats. De Beers stated that group production is expected to remain flat at around 31 million carats in 2012.

Despite the weaker second half, De Beers estimated that consumer demand for diamond jewelry increased by 11 percent to 13 percent for the full year. Growth was driven by improved demand in the U.S. and strong growth in China and India, Mellier said. The company stressed that it has prioritized penetrating the Chinese market by expanding its number of DBDJ stores there and through its Forevermark brand. Forevermark doubled its global presence and is currently available in 658 stores across nine markets.

De Beers cut its interest bearing debt by 29 percent to $1.26 billion while its cash flow fell 49 percent to $467 million. Operating profit grew 64 percent to $784 million after cost of sales rose 22 percent to $6.09 billion. Earnings before interest, tax, depreciation and amortization grew 21 percent to $1.72 billion.

De Beers is currently 40 percent owned by Anglo American, 45 percent held by the Oppenheimer family and 15 percent owned by the Botswana government. Anglo recently agreed to buy the Oppenheimer stake and will boost its share to 85 percent when the deal is expected to close in the second half of the year.

Anglo shares rose 2 percent to 2,792 pence in early Friday morning trade in London.  

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Tags: Avi Krawitz, Botswana, De Beers, Diamond Trading Company, diamonds, DTC, Philippe Mellier, Rapaport, Rough Diamonds
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