De Beers’ Profits Shoot Up-Revenue Also Increases

De Beers LogoGaborone: De Beers’ revenue and profits – reported as part of Anglo American’s preliminary financial results for 2016 announced yesterday – both showed an upward swing.

De Beers’ total revenue for 2016 reached US$ 6.1 billion, marking a 30% increase over 2015 revenue of US$ 4.7 billion. Its underlying earnings, or profits, for the period, however, shot up by 158.52% to US$ 667 million from US$ 258 million in 2015.

De Beers’ underlying EBITDA increased to US$ 1,406 million as compared to US$ 990 million achieved in 2015; registering a growth of 42%. The Company said this was due to its having garnered higher revenues due to stronger demand for rough diamonds; which led to a reduction of inventory levels, “reflecting improved trading conditions compared with those experienced in the second half of 2015”.

De Beers said that the results also reflected the positive benefits of “cost-saving programmes, portfolio changes and the impact of favourable exchange rates”. As a result, unit costs decreased by 19% from US$ 83/carat to US$$ 67/carat.

Commenting on the market situation, De Beers noted that in 2016  demand for diamond jewellery in the US witnessed a sustained  growth. China saw a marginal growth in local currency terms, but a slight decline in US dollar terms.  “In India, a month-long jewellers’ strike in March and the government’s surprise demonetisation programme which started in November, had a considerable negative impact on demand,” the Company commented.

By and large, consumer demand for diamond jewellery remained in line with 2015 figures, the Company said.  Additional marketing during the final quarter of the year — which is the main buying season —   conducted in the US, China, India and Japan had a positive impact.

“Producers destocked during 2016, as sentiment in the midstream improved and rough and polished inventories normalised, supported by a series of initiatives put in place by De Beers, starting in the second half of 2015,” the Company stated. “These included lowering rough prices, providing flexibility to Sightholders for their purchase arrangements and increased marketing activity to drive consumer demand.”

On the operational front, De Beers’ rough diamond production decreased by 5% to 27.3 million carats as compared to 28.7 million carats produced in 2015. This was due to the decision taken in 2015, to cut back production in response to the then prevailing trading conditions.

The Company reported that Debswana’s production amounted to 20.5 million carats and was almost the same as the previous year’s production of   20.4 million carats. While Jwaneng’s production increased by 23%; it was largely offset by a decrease   of 20% at Orapa.

Namdeb Holdings reported a production decline of 11%   to 1.6 million carats compared to 2015 production of 1.8 million carats, due to a reduced output at Debmarine Namibia.

In South Africa too, production declined — by 9% to 4.2 million carats as against   4.7 million carats in 2015, “mainly due to the early completion of the sale of Kimberley Mines in January 2016, partly offset by an increase of 12% at Venetia owing to the processing of higher grades”, the Company said.

Production in Canada decreased by 45% to 1.0 million carats compared to 1.9 million carats in the previous year, mainly due to   Snap Lake being placed in care and maintenance in December 2015.  “Production at Victor decreased by 7% to 0.6 million carats. Development of the Gahcho Kué project was completed on schedule, with the ramp-up to commercial production expected to be reached during the first quarter of 2017,” De Beers reported.

De Beers said that its Element Six, the industrial diamonds business, “experienced a challenging year” as a result of continued depressed market conditions.

Forevermark, the diamond brand of the De Beers Group of Companies, continues to expand its retailer network, the Company reported.  Currently, the brand is available in 2,010 outlets – which marks a 14% increase — in 25 markets, including, De Beers noted,  the new markets of Hungary, Thailand and now South Korea.

“In June 2016, Forevermark launched the Black Label collection (an innovative collection of fancy-shape diamonds) and, in the final quarter of the year, launched a US national television campaign featuring the Ever Us two-stone diamond collection,” De Beers recounted.

Summarising its other marketing efforts, De Beers said: “In the first half of 2016, De Beers also invested in category marketing campaigns to stimulate diamond jewellery demand during key gifting periods in both China and Hong Kong, as well as India (the latter in partnership with the Gem & Jewellery Export Promotion Council, commencing in the second half of 2016). In the third quarter, The Diamond Producers Association, co-funded by De Beers and other leading producers, launched “Real is Rare”, a new marketing platform targeting millennial consumers in the US.”

De Beers Diamond Jewellers, which is a   joint venture between LVMH Moët Hennessy Louis Vuitton and De Beers, remained focussed on fast-growing markets; and currently has   34 stores in 17 key consumer markets around the world. “The significant growth in mainland China sales helped to offset the impact of lower Chinese tourist levels in France and Hong Kong, while the highlight of the year was the successful relocation in November of the New York flagship store to a new location on Madison Avenue, completing the repositioning of the brand in the US,” De Beers stated.

For 2017, De Beers says its production is expected to be in the range of 31-33 million carats, subject to trading conditions.