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Shine: Maintain Focus on Liquidity, Transparency

Jan 25, 2012 9:12 AM   By Varda Shine
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RAPAPORT... The following transcript is of the speech delivered by Varda Shine, the chief executive of the Diamond Trading Company, this past evening at the group's annual sightholder cocktail party in London.

Thanks, Philippe. Good evening everyone.

As you are all aware, this evening is a special event for us as it marks not only the beginning of a New Year in which we will start a new supplier of choice contract, but it is also the first time that Philippe and Cynthia join us at a January cocktail party, and of course it is the last time that Nicky will be with us at one of these evenings. Nicky and his family have been so integral to the DNA of this company and this industry for so long that it is unavoidable that this will be a poignant and emotional time.

As Nicky has said before, however, he and Jonathan remain hugely excited about the future of the diamond world and while we will of course greatly miss the Oppenheimer influence in our industry, they will continue to follow our progress closely in the years ahead. It is always difficult to prepare to say goodbye to our friends and move through a period of change but we all now have the opportunity to look to the future and chart a new course for ourselves and our businesses.

And rest assured, Anglo American’s stewardship of De Beers is one that we welcome wholeheartedly. As you have heard from Cynthia, Anglo remains committed to diamonds and committed to sightholders. It was Anglo’s long history in this business and understanding of what makes it a success which gave Nicky and Jonathan the confidence to know that selling their stake would not compromise the values on which their leadership of De Beers was founded.

Of course, alongside the prospect of development in the ownership structure of De Beers, this year will see a lot of change and a lot of new beginnings, but we should be excited by the future and we should embrace change. As Donald Trump observed, “What separates the winners from the losers is how a person reacts to each new twist of fate.”

Undoubtedly we saw something of a twist of fate last year, with the unprecedented growth in the first half of the year being tempered by the tougher conditions towards the end of 2011. I am heartened, however, by the fact that you, the leaders of this industry, showed yourselves to be winners by performing strongly throughout the year in spite of the challenges faced. It was also encouraging to see the strength of consumer demand when taking the year as a whole, despite the slowdown at year end.

Although 2011 did not close as we may have ideally wished, it was nonetheless undoubtedly a successful year for the diamond industry – especially when compared with returns on investment from stocks in 2012, for example – and I commend all of you for how you guided your businesses through the changing times.

In 2012, we will again see our ability to respond to change tested as the world continues to develop. Within De Beers, we will see a new supplier of choice contract with changes to our sightholder list, as well as evolution of supplier of choice, which will result in greater dynamism in our allocation process and increase our distribution efficiency as a result. Here, the opportunities are clear for those who react effectively to the change, as there is the potential for mid-contract changes to supply arrangements.

Equally, we will see a number of external changes influence the industry. We will need to maintain our focus on liquidity as the international banking norms continue to be affected by the requirements of Basel 2 and Basel 3. Increased transparency will be vital, and those companies best able to provide clear, objective information on their operations to their banking partners, and those best able to evidence strong ethical credentials, will be best placed to profit from the changes we are seeing. Additionally, reacting to the pressures on the banking system by looking at innovative ways to raise good value finance will be important in shaping the success of diamond businesses in 2012.

So, we will face a different environment in the year to come, but one ripe with opportunity; we just have to think about how best to capitalize on it then plan effectively. The writer and management consultant Peter Drucker put it quite nicely when he noted that “The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”

In spite of the changes we will see this year, there are of course also some things about which we can be a bit more confident. Consumer demand for diamonds is one. It is a reassuring fact that we have seen in the recently turbulent times that people want diamonds and jewelry, whatever the economic climate. Demand for diamonds remains, regardless of macroeconomic struggles, competition from other luxuries and the relative costs of other minerals. Even if exchange rate fluctuations cause a short term reduction in consumer purchases, we have seen with previous trends in gold and diamond buying that this is only a temporary situation and strong consumer purchasing behaviour soon returns.

We can also look forward confidently to a boost to the U.S. economy as we move through an election year in the States. History tells us that the U.S. economy nearly always rallies when consumers prepare to make a decision about their next president.

Political debate tends to galvanise investors and provides a welcome boost to the stock market. In fact, the stock market historian David Schwartz who researched the history of the S&P 500, a broadly based index of U.S. shares, discovered that the stock market has risen in 12 of the 15 election years since 1952, seven times by double-digit percentages. Schwartz’s conclusion when looking ahead to 2012 was to state, “I think the U.S. market will rise this year. What's intriguing about America at the moment is that the economy is really coming alive. Last year it was like a spring being pulled tighter and tighter - now the market is ready to rebound. The election will play a part.” Philip Saunders and Max King of Investec's global multi-asset team have also predicted that U.S. consumers will increase their spending in 2012 as a result of the combined benefits of low interest rates, falling inflation, improving housing conditions and a stabilising economic outlook.

When this is coupled with the positive news about Purchasing Managers Indexes (PMIs) increasing in all of the major economies, and the OECD’s latest composite leading indicators showing pick up in the U.S. and moderation in the fall in India’s CLI after the drop earlier in 2011, it is clear that 2012 provides ample opportunity for a strong year. Although we will doubtless see some challenges, we as leaders of the industry should be energized by this. Churchill noted that “The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” Let us ensure that we take an optimistic approach to the challenges of 2012.

Ladies and gentlemen, I have made the point before, but it is worth repeating. Regardless of the changes we will see this year, the individuals gathered here in this room are the leaders of the diamond industry. With this comes privilege, but also responsibility. We have the chance to shape the sentiment in the industry; the ability to fashion our own destinies; and the opportunity to show the rest of the world a glittering example of success. But we also have a responsibility to lead the way by ensuring we are ‘up to diamonds’ in absolutely everything we do.

Our great industry can set the pace in 2012 and throughout the 'Diamond Decade' if we all play our part and build on the wonderful legacy that the Oppenheimers have created. If we seize the chance in front of us then the diamond days of opportunity will stretch long into the future.

…But I am pleased to say that the Oppenheimers have not left us quite yet, and I would now like to invite Nicky to join us outside for one last January cocktail hurrah. Nicky, if you would…



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