De Beers reported Friday that 2005 earnings rose by 26 percent over the previous year to $782 million. The increase was mostly derived from a specific deferred tax gain of $148 million. Without this benefit own earnings would have been 2 percent higher than in 2004.
Diamond Trading Company sales set at a record $6 54 billion, 15% higher than in 2004, but without the favorable impact of the stockpile releases that took place in 2004, diamond account margins were lower, said the South African-based company, adding that 2005 was adversely affected by mark-to-market differences on hedges and the mine closure costs referred to below.
Initial reports of retail sales of diamond jewelry for the year indicate growth in the 6 percent to 7 percent range, De Beers said, with growth in all areas with the exception of Europe. The U.S. holiday season was considered “satisfactory,” by the company, “with overall annual growth in line with the world trend.” The high-end independents and internet retailers outperformed the market. Japan and the rest of Asia-Pacific grew in low single digits, with China doing better after the poor first half of the year. Asia-Arabian was in the double digits for 2005.
During the year, the DTC raised its rough diamond prices on two occasions, the effect was that sales by the DTC in 2005 were at prices, on average, 9.5 percent higher than in 2004, De Beers said. For most of the year, demand for rough diamonds from the cutting centres was strong. In addition, the DTC successfully launched a suite of Value Added Services to clients.
“Demand for rough diamonds continues to be steady,” De Beers said in its outlook. “However stocks of both rough and polished in the cutting centres were relatively high at the beginning of 2006 as were aggregate debt levels. As a result, DTC clients were happy to see a relatively modest January sight, preferring to spread their ITO (Intention to Offer) allocation much more evenly over the first half. However, the 2006 outlook remains positive, with market growth expected to be similar to 2005 in line with expectations for global economic growth.”
Diamond production in 2005 for the world’s biggest diamond producer, including joint ventures in Namibia and Botswana, was 49 million cts., an increase of 4 percent over 2004, De Beers said. Debswana produced a record 31.9 million cts., an increase of 2 percent over 2004. Namdeb’s production of 1.8 million cts. was 5 percent lower than in 2004. De Beers’ South African mines produced a total of 15.2 million cts., a 10 percent increase over 2004. De Beers Consolidated Mining completed the closing of its loss-making underground operations in Kimberley and Koffiefontein resulting in impairments and provisions for retrenchments amounting to $48 million.
Operating cash flow fell to $723 million, before the payment of $250 million to settle a class-action lawsuit with the U.S., from $985 million in 2004, mainly as a result of an increase in working capital requirements during 2005.