De Beers: Rough Sales Fall 57 Percent, Profit 99 Percent

De Beers announced that rough sales in the first half of the year dropped some 57%, to $1.4 billion, 57 per cent lower than the first half of 2008. Net earnings were $3 million for the first half of 2009, compared to $316 million, a 99% drop.

 

Its diamond production fell as well. Production at its mines was 73 percent lower in the first half of 2009, with a more than 91 percent drop in  the first quarter, the result of production holidays at De Beers’ mines in Canada and Africa.. The company anticipates that carat production for 2009 will be half that of 2008.

 

Profits were helped by an aggressive reduction of operating and production costs, which saved $612 million. Its work force was reduced by 23 percent.

 

The company noted that “while the trading environment in the rough diamond market was extraordinarily difficult in Q1 but, during Q2, De Beers began to see positive trends in demand, sales and price.”

“As consumer desire for diamonds remains strong, De Beers is investing in three separate initiatives to turn this sentiment into sales,” it continued. “In the Far East, De Beers’ proprietary diamond brand Forevermark has continued to expand in Hong Kong, Macau, China and Japan with the result that the brand is now available in 245 doors across Asia. Forevermark is currently being expanded into a further six cities in China.”

“In the U.S., De Beers is currently developing its latest Big Idea concept with Sightholders and retailers, and the distinct new proposition will be unveiled later in the year in time for the Christmas retail season. Since 2001, 70 per cent of the incremental growth in the US retail diamond jewelry market has come from launching previous Big Ideas, such as Trilogy and Journey.”

 

It notes that De Beers is a founding member of a new industry marketing initiative, The International Diamond Board, which aims to drive demand and protect consumers’ confidence in diamonds.

 

It added: “At the retail level, demand remains subdued in the major US market. As the rate of decline in demand has slowed, however, the second half should see improvement. Demand from emerging markets, mainly China and India, remains positive”

 

“De Beers will continue to take a cautious approach in terms of production, sales and cost management, while anticipating the continued steady recovery of the industry. Looking to the medium-term, diamonds have historically performed well in periods following recessions, with significant price growth seen in almost every recovery period dating back to before the 1970s. In the long-term, the fundamentals of the diamond industry remain strong. With no major new diamond discoveries in more than a decade, and with worldwide reserves at an all time low, diamonds will become more scarce. As demand grows in emerging markets it is likely that sales will outpace forecast diamond supply for many years to come.”