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Five Features Steering De Beers’ Future
Aug 23, 2018 4:08 AM
By Avi Krawitz
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RAPAPORT... De Beers is strengthening its position in the diamond market without obsessing about production, after having made some bold moves in recent years. It has now emerged as a vertically-integrated diamond company.
It appears management has long recognized that mining natural rough diamonds will not stimulate the growth it — or parent company Anglo American — desires. A quick look at its earnings in the past decade shows revenue stagnated in that time: The miner had rough sales of $6.4 billion in 2007 and has only exceeded the $6 billion mark twice since then. The interim earnings report it published on July 31 suggests it won’t reach that milestone again for some time, arguably because it’s still in a transition phase.
To ensure long-term growth, De Beers has consciously shifted from being a volume-driven miner to being a brand-centric corporation. That started with the sale of some core South African assets around 2008 and the launch of Forevermark in the same year.
Since then, De Beers has carefully placed itself in every corner of the diamond market. Beyond its core mining and rough-trading operations, the company has retail stores and a diamond brand, grading operations, synthetics for industrial use — and now for jewelry as well — and synthetics-testing equipment. It also dabbles in polished sales from its outsourced manufacturing, as well as in third-party rough sales, and it buys jewelry from consumers and resells the polished to the trade.
In that context, the August edition of the Rapaport Research Report — released for subscribers on Wednesday — assesses the prospects laid out for De Beers in the next decade, following its somewhat disappointing interim results. We believe 2018 may well be a peak year for De Beers production, but revenue will show just marginal improvement.
As production declines, long-term growth can only come from two sources: higher rough prices and increased “other” sales. Those other businesses will gain in importance in the coming years, especially as its new Lightbox synthetic-diamond brand comes on stream.
Rapaport expects De Beers’ rough sales will reach $6 billion again only around 2025, driven by price growth. And we anticipate that combined “other” sales of its various side businesses will double in that time to more than $1 billion. Meanwhile, its Forevermark brand continues to gain exposure, providing longevity to the company where it matters most — among consumers.
De Beers was always a brand synonymous with the diamond industry. But it had to adapt to changes taking place in the corporate and consumer spaces. The Rapaport Research Report aims to gain a better understanding of De Beers’ overall business, outlining five areas that will characterize its strategy in the coming decade:
1. Lower production
2. Higher rough prices
3. Growth of “other” sales
4. An emphasis on brands
5. Steering industry initiatives
De Beers has not demonstrated growth in 2018, despite the prevailing positive sentiment in the diamond market. But that may not matter to Anglo American for now. Having navigated a turbulent diamond environment in the past 10 years, De Beers has set itself up for some protection against further fluctuations. With a lower mining output, it can sell all the rough it produces at higher prices, while capitalizing on — and leading — strong trends taking effect in the jewelry market.
De Beers is setting the agenda in the diamond industry, and it’s not about rough production. With its finger in many pies, the company appears well in control moving forward.
This article first appeared in the August edition of the Rapaport Research Report.To download a copy of the report, click here and login with your username and password, or learn more and subscribe today.
Image: Collage of images designed by Rapaport and sourced from De Beers, reflecting the company's businesses throughout the pipeline.
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Tags:
Avi Krawitz, De Beers, diamond, diamonds, Forevermark, jewellery, Jewelry, Lightbox, RapaportAnglo American
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