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De Beers’ Underlying Profit Down 49%

The company’s sales dropped 16.4 percent in 2012, a "challenging" year.

LONDON — Profits and sales at De Beers SA, a division of Anglo American, saw double-digit declines in 2012 in what the company described as a year of “challenging” trading conditions, with tough comparisons against the previous 12-month period.

De Beers, which was fully acquired by the mining giant Anglo American last year, said Friday that underlying profits fell 49 percent to $506 million. The figure refers to profit for the financial year attributable to equity shareholders and before special items and adjustments. De Beers did not break out net profit for the 12-month period.

Revenues fell 16.4 percent to $6.07 billion, with sales of rough diamonds decreasing 15.4 percent to $5.5 billion due to diminished demand, changing product requirements from Sightholders (De Beers’ preferred wholesale clients) and reduced availability of some goods.

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Some improvement is expected in 2013: De Beers said it anticipates “moderate” growth in diamond jewelry demand in 2013, supported primarily by a more positive picture emerging from China and India compared to 2012.

“Some upside is possible in the U.S., while trading conditions in other developed markets are likely to be challenging. The rough diamond manufacturing sector closed 2012 with high levels of inventory, particularly in the higher-end categories of diamonds, and faces continued pressure in terms of midstream liquidity,” the statement said.

De Beers added that, in the medium to long term, industry fundamentals are expected to strengthen as diamond production plateaus and demand continues to increase.

With regard to 2012, the company said the headwinds were strong.

“After an exceptional first half of 2011, the macroeconomic uncertainty that triggered difficult trading conditions in the fourth quarter of 2011 continued, as expected, into 2012,” the company said. “Demand for diamond jewelry in the key markets of the U.S., China and Japan grew, albeit at a slower pace than in 2011. This, together with higher polished stock levels, resulted in a decline in polished prices particularly in the third quarter of 2012.”

The company said that by the end of 2012 there was a “modest improvement” in consumer demand during the holiday sales season in most major diamond jewelry markets.

It said De Beers Diamond Jewellers, a retail joint venture with LVMH Moët Hennessy Louis Vuitton, faced “challenging” market conditions experienced by most high-end jewelers in 2012, but continued to focus on expanding its store network in China, a market of “significant opportunity” for high-end jewelry brands.

New stores were opened in Shanghai and Nanjing, giving the jewelry retailer five stores in China, with an additional store scheduled to open in 2013. Franchise partners will open further stores in Kuala Lumpur, Baku and Vancouver this year. The retailer currently has 43 stores in leading diamond consumer markets around the world.

Forevermark, the diamond brand owned by De Beers and sold through a network of more than 900 retailers worldwide, continued to grow strongly in 2012, the company said, particularly in the core markets of China, Japan, India and the U.S., and was launched in two new licensee markets – Canada and the United Arab Emirates.

“Since the launch of Forevermark, more than 500,000 diamonds have been inscribed with a unique identification number indicating that they have met the brand’s high standards of quality, ethical integrity and provenance,” the company said.