In the first interview since he took over the position of De Beers’ executive vice president of global sightholder sales from Varda Shine earlier this year, 30-year De Beers vet Paul Rowley talked to JCK at the De Beers forum in Las Vegas about why banks are skittish about the industry, whether prices will go up, and how De Beers intends to ensure sightholders pay their bills.
JCK: You have been in the job for a number of months. Anything that you want to change as far as sightholder sales?
Paul Rowley: We are changing quite a lot. [CEO] Philippe [Mellier] spoke about the changes in the new contract. We have put a lot in place. Our biggest concern has been around the financials, the liquidity issue in the business. How do we make sure we have good strong financials in our clientele? So one of the things is the gating process. That is part of getting in.
We want to make it simpler. With Supplier of Choice, the fundamentals were spot on, we want to be very much demand-driven. But as we heard today, we became very fragmented. So we want to see a much simpler process.
We also want to be much closer to our clients. As much as we are in Botswana selling, we have to be in the various centers. There is a great opportunity for us to be now in the States. We have been moving around an awful lot. We want a much closer relationship with our sightholders.
JCK: How does the gating work?
Rowley: There are certain thresholds, particular around debt-to-equity. We are very keen to see a lot more skin in the game. The business has been over-leveraged for a long period of time. A number of the banks are starting to show their concerns. There is a market premium. As much as we are seeing Libor at historical lows, we are starting to see quite high interest rates being charged to the business. That’s because basically the banks are saying how much can we trust this business? We are starting to put in a little more structure. We’d also like to see more transparency in the way that our customers are working, both with ourselves and the broader financial industry. It gives you a cleaner, more ethical product.
It is not necessarily easier to become a sightholder, that’s for sure, because you have to get through the financial gate. But once you get through, the way we operate and interact with our customers is going to be a lot simpler.
JCK: What if you hear of a sightholder having financial issues or not paying?
Rowley: [The sightholders] go through a gate, but it’s not a question of going through the gate and that’s it. We will have regular third-party audits on the various businesses, which could be at any time. And the intention is to keep that gate all the way through the contract. It’s not a one-off and then we are all okay.
There is no doubt through this process there will be some form of consolidation. We have been talking about consolidation for a long period of time. It’s a natural phenomenon of the business.
JCK: Will marketing play a role in sightholder selection?
Rowley: It still plays a role, but it’s a different way of measuring it. In order to be successful in this business, you need to look at marketing, branding, excellent distribution, working through the right retailers. If you are not doing that, we don’t believe you will survive in this business. That still drives it. What we’re saying is, if you are buying those goods and distributing them appropriately, that is all the demonstration that we need. Let’s take out the necessity to compete against each other for market share, and let’s grow the whole category. So we measure it in a different way. But if you are purchasing on a regular basis, you must be distributing and adding value. That is what we are looking for.
JCK: Is there a certain amount you would like to see prices increase?
Rowley: Like any business, we would like to see long-term sustainable price growth. Philippe was very clear about the challenges for ourselves around the cost of extracting our product in the first place. That is one side of it, and we have to take that into consideration.
At the end of the day, what we are looking for is for the whole industry to see prices go up. It’s good for everyone to see sustainable price growth. What we don’t want to see is the peaks and troughs of the past—quick speculation, rough getting out of sync with polished, we don’t think that’s healthy. What we would like to see is steady growth in the coming years. That will only happen if there is a customer demand.
JCK: As buying at De Beers auction sales can lead to sightholder status, does that lead to unreasonably high bids?
Rowley: I can only speak about De Beers auction sales. There will be occasional bids here and there, and people will run their businesses how they want to run their business. But we are seeing purchases at a sensible sustainable price. We are looking to see this business grow collectively. We are seeing customers that are looking to get into particular categories of goods and showing a good interest in auction sales. But I don’t think we are seeing prices that are particularly exorbitant. What is happening with others, I don’t know.
JCK: Will there still be selection processes every three years?
Rowley: As with any business, we are looking for a much longer vision and understanding of supply, and we expect our customers to do the same. As we look at this as a gating process we look at people hopefully rolling over, unless there are issues down the line. We expect to see much longer terms going forward.
JCK: How has the move of the sales operations to Botswana gone?
Rowley: Extremely well, actually. A lot of people were fearful. We are in our sixth sight since we have been there, and I think it’s been a great success. Yes, we know that people have to travel a little bit further. But in fairness, there is a hub in the region. We are not the only people operating there and people are coming anyway. There is quite a good excitement about it. People are pleasantly surprised with what Gaborone has to offer. We have a state-of-the-art facility, we have a great thing around transparency, it’s a much more open environment than what we had in London. And I think the customers feel that. And that is something we are definitely trying to put across, how do we become more transparent, how do we get closer to our customers and really work in partnership. The Botswana move has almost been a catalyst of that.
JCK: Any other message for the industry?
Rowley: It’s an exciting time. There is tremendous change in the business. We need to differentiate our product, we need to invest in marketing. We are doing it through Forevermark. We hear the generic marketing question, but that is for the industry to collectively consider. But it is about keeping our product relevant.
Other interviews with industry power brokers at JCK Las Vegas:
Forevermark CEO Stephen Lussier
Botswana minister of minerals Onkokame Kitso Mokaila
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