LONDON — De Beers SA reported a 99 percent decline in first-half net profit Friday, hurt by what the diamond mining company called the “historically difficult trading conditions” that it faced at the start of the period.
This story first appeared in the July 27, 2009 issue of WWD. Subscribe Today.
In the six months to June 30, net profit fell to $3 million from $316 million in the same period last year, while total sales fell 54.2 percent to $1.71 billion from $3.74 billion during the same period last year.
De Beers, which is 45 percent owned by South African resources giant Anglo American, said the fall in sales was due to reduced rough diamond purchases by its core clients — or sightholders — as they cut inventory levels, along with a subdued demand for diamonds in the U.S. retail market. “The industry has been severely impacted by the global economic environment being the most difficult in decades,” the company said.
De Beers said it has taken steps to respond to the current conditions by cutting its overall costs by more than 50 percent compared with the same period last year — a program it began at the end of 2008 — which resulted in savings of $612 million. It also reduced the global workforce by 23 percent, a move it anticipates will be permanent, and cut production by 73 percent compared with the same period last year, to 6.6 million carats. The company said it expects carat production for the full fiscal year to be about half that of 2008. The company also said it has begun discussions with lending banks to renew a $1.5 billion loan facility, which expires in March. It expects the discussions to conclude during the second half of the fiscal year. The company’s net debt stands at $4.06 billion and its net cash at $622 million.
The second quarter was a brighter spot for De Beers — the company said it saw industry sentiment improve and the price of rough diamonds begin to rise during the period, with “a significant pickup in sales.” The company recorded sales of $1.31 billion during the second quarter, compared with $400 million during the first, while it recorded a net loss of $186 million in the first quarter versus a net profit of $189 million during the second.
De Beers added it is seeing positive demand from China and India, and the company’s Forevermark diamond brand will be sold in a further six cities in China. Looking ahead, the company said as demand in emerging markets grows, and without any major new diamond discoveries and low worldwide reserves, it expects diamond sales to eventually outstrip forecast diamond supply.
“De Beers will continue to take a cautious approach in terms of production, sales and cost management, while anticipating the steady recovery of the industry,” the company said.