By  on February 21, 2006

PARIS — Strong demand for diamonds in India, China and the Arabian Peninsula — plus impressive pricing power — added up to sparkling fortunes at De Beers Société Anonyme last year.

For the year ended Dec. 31, net earnings rose 11.2 percent to $554 million from $498 million as rough diamond prices were bumped up twice for a total 9.5 percent increase over 2004.

Group revenue rose 13 percent to $7.96 billion during the period. Sales of rough diamonds via its marketing arm, the Diamond Trading Co., jumped 14.8 percent to $6.54 billion last year. All figures were stated in dollars.

Group diamond production rose 4 percent to a record 49 million carats, but the increase was still below De Beers' forecasts of 7 to 8 percent growth.

The company blamed below-target output at its Namibian operations and a mature mine in Debswana for the shortfall. It also noted a $48 million charge for shuttering loss-making operations in Kimberley and Koffiefontein in South Africa.

Still, the company painted an upbeat picture for 2006, citing steady demand for rough diamonds and a climate of "global economic growth." It is targeting 7 percent growth in consumer demand for diamond jewelry this year.

Retail sales in 2005 were characterized as flat in Europe, with single-digit increases in America and the Asia-Pacific region. Holiday sales in the U.S. were described as "satisfactory," with high-end independent and online retailers outperforming the market.

During a conference call from Johannesburg, Gary Ralfe, managing director of De Beers Group, highlighted dramatic growth in India, where 11 out of 12 diamonds are polished, but where consumers are only now taking a strong shine to the product. He said India now ranks as the company's "third or fourth" market.

Commenting on De Beers LV, the retail partnership with LVMH Moët Hennessy Louis Vuitton, Ralfe said it "has so far been disappointing" as it hasn't generated the "instant results" anticipated when the deal was announced five years ago. The partners initially had expected the joint venture to break even within 18 months — a fast pace for profitability by retail standards. However, Ralfe noted the London flagship on Old Bond Street and two of the four Japan locations are now breaking even "at the shop level."Philippe Pascal, president of the watches and jewelry business group at LVMH, said in a statement, "At LVMH, we know that establishing a luxury brand takes time, and we believe that De Beers LV has achieved strong growth. The stores in London and Japan are profitable, and the new products and stores in the U.S. are off to a good start."

As for the U.S., Ralfe expressed optimism about the success of the venture in that market. De Beers LV opened its first store in America in New York in June 2005, followed by one on Rodeo Drive in Beverly Hills in December.

"We would like to think we are reaching a turning point," Ralfe said of the joint venture, noting further expansion is planned for 2006. Revenues at De Beers LV rose 61 percent last year.

During the call, Nicky Oppenheimer, De Beers chairman, predicted better times ahead given the firm's promising assets in Canada and prospecting activities via zeppelin in places like Botswana.

"I can't think of a time when De Beers has committed to so many projects in so many places in the world at the same time," he said.

The company also announced the retirements of Ralfe and finance director Paddy Kell, effective at the end of February. Their successors are Gareth Penny and Stuart Brown, respectively.

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