De Beers 1H Sales -54%, Profits -99%

RAPAPORT... De Beers Group's sales for the first half of 2009 fell 54 percent to $1.7 billion. The company reported net earnings of $3 million, which was a drop of 99 percent. De Beers registered underlying losses — i.e., operating losses — of $164 million, compared with underlying earnings of $350 million one year ago. First-half sales for the Diamond Trading Company (DTC) were down 57 percent to $1.4 billion. De Beers noted the sales decline was "due to reduced purchases by sightholders as they worked to reduce inventory levels and increase liquidity in the face of the global economic downturn."
Production fell 73 percent to 6.6 million carats as many mining operations were placed on care and maintenance during the first quarter. Subsequently, though, all except one mine have resumed operations, according to De Beers. For the full year, De Beers predicts production will be half that of 2008.
De Beers reduced costs by more than 50 percent in the first half, realizing $612 million in savings and reducing capital expenses by $241 million. Shareholders provided $500 million in additional subordinated loan funding, brining total loans to $817 million before International Financial Reporting Standards (IFRS) interest adjustments. The company stated that it is working with banks to renew a $1.5 billion term loan, which expires in March 2010. Net debt as of June 2009 was at $4.1 billion, up from $3.8 billion in December.
"The trading environment in the rough diamond market was extraordinarily difficult in the first quarter but, during the second quarter, De Beers began to see positive trends in demand, sales and price," according to the company's statement. De Beers reported that "consumer desire" for diamonds was strong, and that it was therefore investing in three separate initiatives to turn that sentiment into sales.
De Beers remains at the forefront of several marketing initiatives. In the Far East, De Beers’ Forevermark has expanded in Hong Kong, Macau, China and Japan, and is available in 245 retail locations. Forevermark is being expanded into six new cities in China. De Beers is currently developing its latest "Big Idea" concept with sightholders and retailers in the U.S. in time for the Christmas season. De Beers is also a founding member of a new industry marketing initiative, The International Diamond Board (IDB), "which aims to drive demand and protect consumers’ confidence in diamonds," according to De Beers.
Looking ahead, De Beers expects more stable conditions. Inventories of rough in the cutting centers have been reduced by some 30 percent from their peak in 2008, according to the company, and debt levels across these centers have now been reduced "to more sustainable levels."
"De Beers will continue to take a cautious approach in terms of production, sales and cost management, while anticipating the continued steady recovery of the industry. Looking to the medium term, diamonds have historically performed well in periods following recessions, with significant price growth seen in almost every recovery period dating back to before the 1970s. In the long term, the fundamentals of the diamond industry remain strong. With no major new diamond discoveries in more than a decade, and with worldwide reserves at an all-time low, diamonds will become more scarce. As demand grows in emerging markets, it is likely that sales will outpace forecast diamond supply for many years to come," the company reported.
source : diamonds.net