Harry Winston 2011 Revenues +13%, Yet Net Profits -38.6%

(IDEX Online News) – Despite a 19 percent drop in the volume of rough diamonds it sold, Harry Winston Diamonds' mining segment revenue increased 29 percent to $290.1 million. Retail revenue for the year increased 19 percent to $411.9 million.

The company's net profit fell 38.6 percent to $25.5 million. Excluding a de-recognition charge, the bottom line suffered from financing expenses related to the Kinross buy-back transaction with the final payment made in August 2011, higher mining exploration expenses and higher income tax expense.

Consolidated sales increased 13 percent to $702.0 million for the year ended January 2012 compared to $624.0 million for the prior year. 

Operating profit declined to $56.5 million from $68.3 million last year, partially due to a non-cash $13 million charge. EBITDA increased to $148.2 million.

Harry Winston sold 2.1 million carats for an average $137 per carat compared to 2.6 million carats for an average $106 p/c in the prior year.

The company said the decrease in rough diamond volume follows a decision to hold inventory.

Rough diamond production at Diavik was 3 percent higher, totaling 6.7 million carats, due primarily to an increase in ore processed. Harry Winston's 40 percent share of production is 2.7 million carats, which means the company has an increased inventory of about 600,000 carats.

"Our own rough diamond prices have now stabilized at levels approximately 20% above the beginning of the year and resumed a steady growth in many categories," said Chairman and CEO Robert Gannicott.

"This is consistent with the trends that we see in our luxury brand business where strong demand for watches has propelled not only our own timepiece orders but also the pricing of the small diamonds that are used throughout the watch industry."

The luxury brand segment sales increase resulted in an operating profit of $19.4 million compared to $14.9 million in the prior year.

"Our jewelry sales continue to show strong growth in the bridal and collection jewelry segments that we have targeted as a keystone of our expansion plans as we service not only new markets in China but also broaden our offering in our home market in the US," Gannicott said.

The company noted that in small high-quality diamonds that are primarily used in high-end watches, that supply demand imbalance is noticeable, with prices of some categories more than doubling in the first nine months of last year and only coming off slightly when the overall market weakened towards the end of 2011.