De Beers Confirms 2016 Rebound as Rough Diamond Sales, Profits Rise

Rough Market
21/02/2017 10:19

Anglo American and De Beers' 2016 Annual Financial Results (preliminary) confirm a solid rebound from 2015 for the rough diamond giant, with annual revenues increasing 30% to $6.1 billion from $4.7 billion, on the back of a 37% rise in rough diamond sales, which reached $5.6 billion. This was attributable to a 50% increase in consolidated sales volumes to 30.0 million carats (2015: 19.9 million carats), partly offset by a 10% decrease in the average realised rough diamond price to $187/carat (2015: $207/carat), reflecting the 13% lower average rough price index, offset to some extent by an improved sales mix.

The report reads, "Underlying EBITDA increased by 42% to $1,406 million (2015: $990 million). This was the result of higher revenues from stronger rough diamond demand, which led to reduced inventory levels, reflecting improved trading conditions compared with those experienced in the second half of 2015. Results also benefited from cost-saving programmes, portfolio changes and the impact of favourable exchange rates. Unit costs decreased by 19% from $83/carat to $67/carat." Production volume declined 5% to 27.3m cts from 28.7m cts, "reflecting the decision, taken in 2015, to reduce production in response to prevailing trading conditions," and this continues the downward trend from the 32.6m cts. produced in 2014 and 31.2m cts in 2013. Likewise, De Beers' strong performance did not make it all the way back to 2014 levels, when they earned $7.1 billion in revenue from the sale of 32.7m cts. at $198/ct, but they have carried over their 2016 momentum with a strong start to 2017.

Market (quote from press release)

"Sustained diamond jewellery demand growth in the US and marginally positive growth for the full year in China (in local currency, though declining slightly in US dollars) contrasted with weakening demand in the other main diamond markets. In India, a month-long jewellers’ strike in March and the government’s surprise demonetisation programme which started in November, had a considerable negative impact on demand. For the full year, global consumer demand, in US dollars, is estimated to be in line with 2015. Additional marketing in the US, China, India and Japan in the final quarter of the year, the main selling season, had a positive impact.

Producers destocked during 2016, as sentiment in the midstream improved and rough and polished inventories normalised, supported by a series of initiatives put in place by De Beers, starting in the second half of 2015. These included lowering rough prices, providing flexibility to Sightholders for their purchase arrangements and increased marketing activity to drive consumer demand."

Outlook (quote from press release)

"Macro-economic conditions underpinning consumer demand for diamonds remain broadly stable in aggregate, with the US expected to continue to be the main driver of global growth in 2017. The extent of global growth will, however, be dependent upon a number of macro-economic factors, including the new administration in the US, the strength of the US dollar impacting consumer demand, economic performance in China, the effects of Indian demonetisation, and sentiment following the main US and Chinese New Year retail season.

With midstream stocks having returned to more typical levels in 2016, rough diamond demand is expected to normalise in 2017, reflecting underlying consumer and retail demand. While producers continue destocking, forecast diamond production (on a 100% basis, except Gahcho Kué on an attributable 51% basis) for 2017 is expected to be in the range of 31-33 million carats, subject to trading conditions."

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