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PRELIMINARY FINANCIAL RESULTS FOR 2016

 

 

Production volume Sales volume

Price

Unit cost*

Revenue*

Underlying EBITDA*

Underlying EBITDA margin

Underlying EBIT*

Capex*

ROCE*

 

’000
carats

’000

carats(2)

$/ct(3)

$/ct(4)

$m(5)

$m

 

$m

$m

 

De Beers

27,339

29,965

187

67

6,068

1,406

23%

1,019

526

11%

 Prior year

28,692

19,945

207

83

4,671

990

21%

571

697

6%

Debswana

20,501

152

26

571

543

90

 Prior year

20,368

178

27

379

352

101

Namdeb Holdings

1,573

528

245

184

163

65

 Prior year

1,764

553

243

147

120

30

South Africa

4,234

121

53

268

172

156

 Prior year

4,673

131

58

282

174

279

Canada

1,031

271

212

79

13

184

 Prior year

1,887

275

182

154

65

254

Trading

378

371

3

 Prior year

107

100

2

Other(6)

(74)

(243)

28

 Prior year

(79)

(240)

31

(1)    Prepared on a consolidated accounting basis, except for production which is stated on a 100% basis, with the exception of the Gahcho Kué joint venture, which is on an attributable 51% basis.
(2)    Sales volumes on a 100% basis were 32.0 million carats (2015: 20.6 million carats).
(3)    Pricing for the mining business units is based on 100% selling value post-aggregation of goods. The group realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to group unit costs, which relate to equity production only.
(4)    Unit cost is based on total production and operating costs, excluding depreciation and operating special items, divided by carats recovered. Comparatives have been restated.
(5)    Includes rough diamond sales of $5.6 billion (2015: $4.1 billion).
(6)    Other includes Element Six, downstream, acquisition accounting adjustments, projects and corporate. Financial and operational overview

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.

Total revenue increased by 30% to $6.1 billion (2015: $4.7 billion), driven by higher rough diamond sales, which increased by 37% to $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.

Markets

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.


Operating performance

Mining and manufacturing

Rough diamond production decreased by 5% to 27.3 million carats (2015: 28.7 million carats), reflecting the decision, taken in 2015, to reduce production in response to prevailing trading conditions.

Debswana maintained production at close to the previous year’s levels, with output of 20.5 million carats (2015: 20.4 million carats). Jwaneng’s production increased by 23%; driven by higher tonnes treated, largely offset by Orapa, where production was 20% lower. By year end, 85% of the 500 million tonnes (Mt) of waste stripping required to expose the ore had been mined at Jwaneng Cut-8. The first Cut-8 ore to the processing plant remains scheduled for the first half of 2017, with Cut-8 becoming the main source of ore from 2018. Damtshaa (a satellite operation of Orapa) was placed onto temporary care and maintenance from 1 January 2016.

Production at Namdeb Holdings decreased by 11% to 1.6 million carats (2015: 1.8 million carats), with reduced output at Debmarine Namibia (as a result of the Mafuta vessel undergoing extended planned in-port maintenance) and lower grades at Namdeb’s land operations. Debmarine Namibia’s new sampling vessel, the SS Nujoma, was completed three months ahead of schedule and within budget, and sea trials commenced in November. The vessel is expected to become operational during 2017.

In South Africa, production declined by 9% to 4.2 million carats (2015: 4.7 million carats), mainly due to the early completion of the sale of Kimberley Mines in January 2016, partly offset by an increase of 12% at Venetia owing to the processing of higher grades. Construction of the Venetia Underground mine continues to progress, with the underground operation expected to become the mine’s principal source of ore from 2023.

In Canada, production declined by 45% to 1.0 million carats (2015: 1.9 million carats) owing to Snap Lake being placed onto care and maintenance in December 2015. In July 2016, approval was granted to flood the underground workings, which will reduce the costs of care and maintenance while preserving the long term viability of the orebody. Following conclusion of an unsuccessful process to gauge interest in an acquisition of Snap Lake, flooding commenced in January 2017. Production at Victor decreased by 7% to 0.6 million carats. Development of the Gahcho Kué project was completed on schedule, with the ramp-up to commercial production expected to be reached during the first quarter of 2017.

Owing to continuing depressed markets in key industrial sectors (principally oil and gas), Element Six, the industrial diamonds business, experienced a challenging year. The reduction in contribution arising from lower sales has been largely offset through a comprehensive cost-reduction programme.

Brands

Forevermark™ (the diamond brand of the De Beers Group of Companies) continues to expand its retailer network and is available in 2,010 outlets (a 14% increase) in 25 markets, including the new markets of Hungary, Thailand and now South Korea. In June 2016, Forevermark™ launched the Black Label collection (an innovative collection of fancy-shape diamonds) and, in the final quarter of the year, launched a US national television campaign featuring the Ever Us™(1) two-stone diamond collection. In the first half of 2016, De Beers also invested in category marketing campaigns to stimulate diamond jewellery demand during key gifting periods in both China and Hong Kong, as well as India (the latter in partnership with the Gem & Jewellery Export Promotion Council, commencing in the second half of 2016). In the third quarter, The Diamond Producers Association, co-funded by De Beers and other leading producers, launched “Real is Rare”, a new marketing platform targeting millennial consumers in the US.

De Beers Diamond Jewellers (a joint venture between LVMH Moët Hennessy Louis Vuitton and De Beers) maintained its focus on fast-growing markets, with 34 stores in 17 key consumer markets around the world. The significant growth in mainland China sales helped to offset the impact of lower Chinese tourist levels in France and Hong Kong, while the highlight of the year was the successful relocation in November of the New York flagship store to a new location on Madison Avenue, completing the repositioning of the brand in the US.

Namibia sales agreement

In May 2016, the Government of the Republic of Namibia and De Beers signed a new 10-year sales agreement for the sorting, valuing and sale of Namdeb Holdings’ diamonds. This represents the longest sales agreement ever concluded between the parties.

Outlook

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.