Analysts say DBI has been hurt by the recession

Diamond sales by giant DB Investments (DBI), formerly De Beers, are expected to have fallen by at least a fifth last year on lower U.S. jewelry sales, analysts reportedly said.

DBI, 45% owned by Anglo American, which took the luxury firm private in a landmark $19 billion deal last year, announces full-year results on February 14.

Analysts estimated that slumping demand in the United States, which accounts for nearly half of global jewelry sales, will rein in DBI’s rough diamond sales to $4.2-4.4 billion in 2001 from a record $5.67 billion the previous year, Reuters reported.

This would be the lowest sales figures since 1998 when sales hit $3.3 billion as an economic crisis in Asia shattered demand in the key Japanese jewelry market.

Anglo’s diamond unit, which is also partly owned by the South African Oppenheimer family, contributes some 10% to Anglo’s profits. Anglo posts its results in March.

Sales by DBI’s Diamond Trading Company (DTC) marketing unit for the first half of last year came in at $2.619 billion, 25.5% lower than the previous year.

DBI will simultaneously release a provisional income statement, although as an unlisted firm it is not compelled to provide a full breakdown of its operations.

DBI posted headline earnings of $1.71 billion in 2000. Headline earnings for the first half of 2001 came in at $744 million, versus a $877 million.

DBI had aimed to reach rough diamond sales of $4.8 billion in 2001 but the sharper than expected U.S. slowdown by the middle of last year had made this target too optimistic, analysts reportedly said.

The September 11 attacks in New York and Washington also undermined sales at top-end U.S. jewelry retailers as shopping took a back seat.

Analysts will be watching closely for DBI’s view of the critical Christmas sales period where some jewelers noted a pickup in demand for diamonds as a symbol of lasting love amid uncertain times.

The diamond market is still marked by caution, shaky consumer sentiment and debt levels in cutting centers are close to record levels, analysts told Reuters.

DTC’s first sight sale-or auction-this year brought in less than $400 million in January, compared to normal sales of around $500 million, analysts told Reuters. The second takes place the week of Feb. 10.

Sales this year are also seen largely pinned on the timing and extent of a U.S. economic recovery and how quickly heady diamond stockpiles can be lowered.

So dramatic was the slide in luxury goods demand from consumers grappling with recession that DBI had to effectively ditch its new “supplier of choice” sales initiative last year and return to its tested formula of “buyer of last resort”.

By introducing quotas in the third quarter of last year, DBI moved to prop up falling diamond prices by keeping supplies tight in the main cutting and polishing centers. The firm also sought to keep its major buyers happy by offering them consignments more in line with their wishes.

DBI had hoped its supplier of choice initiative would be the launch of a new relationship with its clients centered on working on ways to boost global diamond demand rather than simply restricting supply.

The firm has also been compelled to rein in costs to get through the downturn and service the debt tied to the takeover deal, which took one of South Africa’s most high profile firms off the Johannesburg stock exchange and made it a private firm.

DBI has already delayed several mine projects, sold assets and retrenched staff, Reuters reported.