Industry News by Nemesis

De Beers 2015 EBIT -58% as Rough Demand Falls

February 16, 2016

De Beers underlying earnings before interest and tax (EBIT) slumped 58 percent to $571 million in 2015 as demand for rough diamonds weakened and revenue fell.

Tighter operating cost control and favorable exchange rates partly offset the negative impact, with the consolidated unit cost declining to $104 per carat from $111 per carat.

Total revenue dived 34 percent to $4.67 billion as rough-diamond sales plunged 36 percent to $4.1 billion, parent company Anglo American said in a statement February 16. The remaining $571 million was mostly generated by the Element Six industrial diamond business, as well as the Forevermark brand.

The midstream of the diamond industry was less willing to purchase additional rough because of a build-up in polished stocks. This resulted from weaker-than-expected consumer demand in 2015 that led retailers to reducing demand for polished.

Rough demand in 2016 will be dependent on consumer demand for diamond jewelry and the resultant levels of restocking required by retailers and, as a result, the midstream, De Beers said. The miner forecasts production to fall between 2.4 percent and 9.4 percent to 26 to 28 million in 2016, subject to trading conditions. Plans are in place to deliver $200 million of cash savings in production costs, overheads and capital expenditure.

Consolidated sales by volume fell 39 percent to 19.9 million carats. The impact of this was partly offset by a 5-percent increase in the average realized diamond price to $207 per carat because of a stronger product mix. De Beers rough price index retreated 15 percent from the final sight of 2014 to the final sight of 2015.

The miner said global consumer demand for diamond jewelry is expected to have declined marginally in 2015 in U.S. dollar terms from record levels in 2014. Growth in the U.S. – which accounts for about 45 percent of global market value – was slower than in 2014 and was offset by China’s economic slowdown and the strength of the dollar, the company explained. However, demand for diamond jewelry by Chinese consumers was still stable but demand contracted in India in local currency terms.

De Beers Forevermark brand continued to expand and is now available in 1,760 outlets, a 14 percent increase on 2014, and in 35 markets. The brand achieved “double-digit” sales growth despite challenging trading conditions, the company said. De Beers Diamond Jewellers, a joint venture with LVMH Moët Hennessy Louis Vuitton, saw “strong” sales in the higher-end market and with Chinese consumers worldwide.

 

Source: Rapaport

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