Global diamond giant De Beers, which is 45% owned by Anglo American, is “cautiously optimistic” on its outlook for diamond jewellery sales after having benefited from estimated growth of 8% in world diamond jewellery sales in the first half of the year.
However, the group expects this growth to slow in the second half of the year due to declines in the key markets in the United States and Japan, it emerged from a recent De Beers presentation to investment analysts.
Gareth Penny, managing director of De Beers’ sales and marketing arm, the Diamond Trading Company (DTC), characterised growth in diamond jewellery sales as “encouraging” over the first half of 2004, saying the outlook for the year was “cautiously optimistic”.
World diamond jewellery sales growth had accelerated to 8% in the January-June 2004 period from 6% in 2003 and 3% in 2002, with the US market posting 7% growth over the first half of 2004. Although Japan was growing at a pedestrian 1%, Taiwan posted the most rapid growth at 17%, and the huge Chinese market had experienced 6% growth.
According to Penny, the market for rough diamonds remained strong, with rough imports rising over the January-July 2004 period from a year earlier.
However, premiums on DTC goods had come down, he noted.
Meanwhile, polished exports had risen 21% over the January-July 2004 period from a year earlier, and polished stocks had fallen 17% from July 2003 levels.
Price increases implemented since the beginning of 2004 were still holding, he added, but their sustainability was being tested by slower trading. De Beers expected a slow down in economic activity in both the US and Japan, which could impact on the company’s diamond sales (as the US accounts for about 50% of the world’s diamond jewellery sales), however he was optimistic that this could be offset by strong DTC marketing.
Penny said De Beers had seen excellent results from its three-stone jewellery campaign in the US, with sales rising from $500-million in 1999 to over $3-billion in 2003, while its right-hand ring advertising had been a “huge hit” in 2004.
In India, the company’s Nakshatra (Constellation) floral jewellery brand launched in October 2000 had also experienced considerable success, notching up sales of over $100-million in three years and rising to the number one brand in the country.
Finance Director Paddy Kell said that for the six months to end-June 2004, De Beers’ DTC sales had grown 2,2% to $2,98-billion, while its headline earnings were up 12,8% to $424-million from $376-million a year earlier. Net debt fell by $593-million to $1,17-billion, and operating cash flow was $870-million.
The company’s return on equity was 22,5%, up from 21% the previous year. Its real weighted average cost of capital stood at 9,4% at the end of 2003 and was expected to rise to 9,8% by the end of 2004, although its optimum target was 6,7%. – I-Net Bridge