De Beers, the world's largest rough diamond supplier, confirmed today that its rough diamond sales fell in 2006. The company reported that its marketing arm, the Diamond Trading Company (DTC) sold $6.15 billion worth of goods, a 6 percent decrease from 2005's record sales of $6.54 billion.

 

The reduction in DTC sales reflects "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 company said this morning.

 

EBITDA are at $1.232 billion, down 12 percent from $1.403 billion in 2005. The decrease was pinned on lower level of DTC sales and increased exploration and development costs.

 

Net earnings, however, shot up 32 percent to $730 million. This is due to the sale of a 26 stake of De Beers Consolidated Mines (DBCM) to the black economic empowerment consortium Ponahalo, and the sale of the group’s interest in the Fort a la Corne joint venture in Canada.

 

Underlying earnings at $425 million are 39.5 percent ($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.

 

Cash available from operating activities increased to $809 million from $473 million in 2005.

 

Despite the reduction in rough diamond sales, the company reported that solid consumer demand for diamond jewelry continued in 2006. China and India reported strong sales growth while the U.S. grew in line with GDP.

 

The company also reported that the De Beers family of companies achieved record production in 2006 of 51 million carats (49 million in 2005). Debswana produced a record 34.3 million carats (31.9 million in 2005) and Namdeb production exceeded two million carats (1.8 million carats in 2005) for the first time since 1977, with land and sea each contributing over one million carats. In South Africa, production totaled 14.6 million carats (2005: 15.2 million carats) from six mines in the DBCM Group.

 

Regarding its retail front, the firm said De Beers Diamond Jewellers (DBDJ), the De Beers retail joint venture with LVMH, had an excellent year. "While continuing its steady growth in Japan, it reported a promising performance in the U.S., a market that it entered in late 2005 in New York and Los Angeles."

 

"De Beers has 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 contributed to substantial growth in revenue per store. To increase its recognition and image, a new advertising campaign was launched in 2006 for DBDJ. 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," the company said in the release, but did not reveal any figures.

 

The outlook for further growth in retail diamond jewelry sales remains positive, the company said, with India and China likely to be the leading growth markets, and the U.S. continuing its five-year growth trend.

 

"While DTC sales are likely to be constrained by availability in 2007, due to the reduction in Russian purchases as agreed with the EU, the De Beers Group will benefit from bringing new production on-stream towards the end of Q3. De Beers will focus on implementing its new vision of ‘maximizing the value of its leadership position’. This includes, in addition to new production, 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 programs," it concluded.

 

Click here for the full text of the results announcement.