De Beers 2011 Sales Up 26%, Earnings Rise by 62%

De Beers reported a 26 per cent increase in total sales to US$ 7.4 bn, a 21 per cent rise in EBITDA to US$ 1.7 bn and a 62 per cent increase in earnings to US$ 968 mn during 2011 notwithstanding the fact that it described the second half of 2011 as one that was characterised by “lower levels of demand for rough diamonds” and prices that “receded slightly from the highs seen in the middle of the year”.

A company release stated that these strong results were driven by “consumer demand” and “price growth” especially during the first half of the year. It believes that the demand during H1 reflected “robust market fundamentals”, though it also added that “rough diamond prices in this period included an element of speculative buying in the trading centres”.

The release said that ”in total, 2011 was an exceptional year on the demand side, with record levels of consumer demand growth estimated at between 11 per cent and 13 per cent over the full year.” However it clarified that during H2, both retail and cutting centre sentiment was impacted by the challenging macro-economic environment, restricted liquidity (particularly in dollars) in the cutting centres and a slowdown in the rate of growth of consumer demand at retail.

Sales of rough diamonds by the Diamond Trading Company (DTC) increased 27 percent to US$ 6.5 billion (including those through joint ventures), largely driven by a 29 per cent growth in prices, even as production declined by five percent from 33 mn carats to 31.3 mn carats. The DTC figures are the second highest ever level of sales.

No figures were released for the branded segment, though the release noted that “De Beers Diamond Jewellers reported good growth in sales across all regions, with Greater China particularly strong” and “Forevermark™ continued its expansion both in its existing markets of China, Hong Kong and Japan, and in H2 launched in India and the US”.

De Beers expects continued growth in global diamond jewellery sales, albeit at lower levels than the exceptional 2011 growth in spite of uncertainty, and barring a global economic shock. This will be driven by the overall strength of the luxury goods market, improving sentiment in the US (the largest diamond jewellery market), continuing growth in China, and the positive impact of the 2011 polished price growth on retail jewellery prices.

On the production front, the company plans to prioritise waste stripping and maintenance backlogs, and does not expect a material increase in carat production in 2012. This focus, which began in H2 and will continue during Q1 2012, will position De Beers to ramp-up profitable carat production as Sightholder demand dictates.

In the medium to longer term, the industry fundamentals remain positive with consumer demand, fuelled by the emerging markets of China and India, outpacing what will likely be level carat production.