De Beers on Friday said rough diamond sales through its Diamond Trading Company totaled $6.15 for 2006, a 6 percent decline when compared with the $6.54 billion in sales for in 2005.
De Beers, in its earnings report for the fiscal year ended Dec. 31, said the decrease in sales reflected “reduced Russian supply available to the DTC, and the continued challenging environment in the wholesale market for rough diamonds, where a lack of liquidity, margin pressure, and increased financing costs impacted pipeline demand.”
The statement added that there was solid consumer demand for diamond jewelry in 2006, with China and India reporting strong sales growth and the United States growing in line with its gross domestic product.
Other highlights of the year-end report include:
• Earnings before interest, taxes, depreciation and amortization fell 12 percent to $1.23 billion as a result of lower level of DTC sales and increased exploration and development costs, the statement said.
• Net earnings increased 32 percent to $730 million due to the sale of 26 percent of De Beers Consolidated Mines to Ponahalo, a broad-based Black Economic Empowerment consortium, and the sale of the Group’s interest in the Fort à la Corne joint venture in Canada.
• Underlying earnings at $425 million are $277 million lower than 2005, after adjusting for the impact of the Canadian tax credit, due to reduced margins in the diamond account, the impact of increased finance charges and the dilution in earnings caused by the sale of 26 percent of DBCM.
• DTC marketing initiatives continued to drive demand for diamond jewelry, De Beers said in its statement, noting that preliminary reports indicate that global sales in diamond jewelry increased 4 to 5 percent in 2006, led by China and India with double-digit growth.
• The De Beers Group mine production rose in 2006 to a record 51 million carats, primarily due to a record output from mines in Bostwana (which produced a record 34.3 million carats), Namibia (more than two million carats), and South Africa, (14.6 million carats from six mines).
• De Beers Diamond Jewellers, the De Beers retail joint venture with LVMH, had an “excellent year,” De Beers said, with steady growth in Japan, and “promising” performance in the United States, a market that it entered in late 2005 in New York and Los Angeles. De Beers strengthened its presence in London and opened its first boutique in the Middle East, in Dubai. The Talisman and Secrets of the Rose collections, fine jewelry and engagement rings did well, according to the statement. A new advertising campaign was launched in 2006. The company introduced its first wristwatch collection this past Christmas, and will increase its presence in the United States (in Las Vegas last month), the Middle East, Japan, Hong Kong, and Korea.
• René Médori, finance director of Anglo American plc (which owns 45 percent of De Beers), has joined the Board of De Beers s.a. He replaces David Hathorn, executive director of Anglo American plc. Ollie Oliveira, is retiring and will step down from the De Beers s.a. Board on Feb 28.
In its outlook report, De Beers said it expects further growth as retail diamond jewelry sales remains positive, with India and China likely to be the leading growth markets, and the U.S. continuing its five-year growth trend.
Meanwhile, the company said DTC sales “are likely to be constrained by availability in 2007, due to the reduction in Russian purchases as agreed with the EU.” Under the EU agreement, De Beers’ purchases of rough diamonds from Russia’s Alrosa will fall from $600 million in 2006 to $500 million in 2007, $400 million in 2008, and to zero in 2009.
The De Beers Group will bring in new production towards the end of the third quarter, according to the statement. De Beers will focus on implementing its new vision of ‘maximizing the value of its leadership position.’ This includes reviewing assets that do not fit the De Beers portfolio criteria, focusing exploration on the most prospective areas, continuing to improve cost efficiency, and investing in DBDJ and the Forevermark marketing program.