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De Beers Profits Fall 10 Percent in Half; Sales Increase 10 Percent

Sales at De Beers SA said net profits fell 9.7 percent in the first half to $316 million from $350 million, mainly because of higher tax rates.

LONDON – Sales at De Beers SA said Wednesday that net profits fell 9.7 percent in the first half to $316 million from $350 million, mainly because of higher tax rates.

 

Sales rose ten percent in the six months to June 30 to $3.74 billion, from $3.4 billion in the same period last year, the company said. De Beers said the rise in sales was thanks to an increase in demand for its rough diamonds from its Diamond Trading Company clients, which has enabled the company to raise the prices of rough diamonds. Of the sales during the period, $3.3 billion came from rough diamonds, while the remainder was sales of industrial diamonds and supplies of rough diamonds to non-site holders through its company Diamdel.

 

De Beers said it had also seen high double-digit sales growth at De Beers Diamond Jewelers, its joint venture with LVMH Moet Hennessy Louis Vuitton, during the period. This was driven by a demand for higher-end and bridal diamond jewelry and new store openings in cities including Dallas and Tokyo, in the Ginza district. The company added that it aims to have around 50 stores by the end of 2008. Sales of De Beers Diamond Jewelers are not included in the figures that De Beers SA reports.

 

De Beers said net profits were hit by a 66 percent increase in its tax rate this year. EBITDA rose 31 percent to $831 billion, from $632 billion in the same period last year, thanks to improved margins and the restructuring of loss-making mines.

 

But despite the rise in sales, and what the company described as a “robust,” demand for high-end diamonds, Gareth Penny, managing director, said the company is taking a cautious view of the second half in light of a dip in demand for less valuable diamonds in the U.S.. “We are obviously living in uncertain times, and that requires a more cautious outlook,” said Penny during a conference call Wednesday. “Mass market retail jewelry sales have been impacted by economic issues, particularly in the U.S. Whilst there has been strong growth in China, India, Russia and the Middle East, [that] has helped to mitigate, the overall retail market is likely to remain challenging for the mass market end of the business.”

 

Natural resources conglomerate Anglo American Plc owns 45 percent of De Beers SA, while 40 percent is owned by the Oppenheimer family and 15 percent by the Botswana government. Shares in Anglo American fell 2.09 percent to 2,767 pence, or $55.30 per share, on the London Stock Exchange Wednesday, following the announcement.

 

The company also said Wednesday that Gary Ralfe, a former managing director of De Beers, has retired from the board of De Beers SA. He will be replaced by Bruce Cleaver.

 

For complete coverage, see Thursday’s WWD.