2009 was a testing year for De Beers. It was shaped externally by the economic fallout that followed the near collapse of the global financial system in the fourth quarter of 2008 and, internally, by the proactive measures we took across the Family of Companies to ensure that not only were we fit for purpose, but also fit for circumstances.
De Beers' total sales in 2009 of US$3.84 billion were well below the 2008 figures of US$6.89 billion. Likewise EBITDA of US$654 million was well below the 2008 figure of US$1.22 billion. Such a dramatic drop in revenues would in any other year be a cause for alarm. In 2009, however, it serves as a testament to the adaptability of our business, the resilience of our partnerships and the resourcefulness and diligence of our employees at a time of great insecurity.
Diamond producers were hit particularly hard by the economic crisis. The sudden drop in consumer demand in the fourth quarter of 2008 in established markets fed back into an already highly leveraged cutting and polishing pipeline burdened by significant inventories and a drying up of liquidity. This, in turn, induced a precipitate drop in demand for rough diamonds towards the end of 2008 that continued through the first quarter of 2009.
As the crisis broke we realised that bold and prompt action was required to ensure the continued health of the business. An action plan initiated in the fourth quarter of 2008, focussed on ensuring that our production levels were properly aligned to diminished client demand; protecting diamond equity; managing our debt; conserving cash and reducing operating costs. As a result, by January 2009, our plans to ensure De Beers' ability to withstand a potentially sustained downturn were already well underway. Critically, we implemented these plans without diminishing our focus on achieving a zero harm environment and it is with some pride that we can report zero fatalities in 2009 throughout the Group.
Our ability to weather the difficult economic conditions over the past year was greatly facilitated by the action taken by our government joint venture partners. While a difficult decision at the time, our partners' support of our plans to implement a series of production holidays proved farsighted and effective, not only for the Group, but also our clients, and enabled our mines to gradually ramp up production in the second half of the year as client demand increased.
The cornerstone of our downturn strategy in 2009 was to ensure that our production levels were properly aligned to reduced Sightholder demand for our rough diamonds. This enabled us to manage our cash position more effectively until demand for rough diamonds increased. To reduce De Beers' overall operating costs a number of business units restructured some of their core functions. An inevitable and painful consequence of this process was an overall reduction in our total workforce by 23% by the end of 2009. While this action was the right thing to do to ensure the sustainability of our business and the value it generates for its many stakeholders it is never easy to say farewell to so many friends and colleagues. They will be greatly missed.
The recent economic crisis has been something of a watershed in the way many companies do business. It has given cause to re-evaluate some of the key assumptions that businesses have operated under in recent years; in particular with respect to risk appetite and debt financing. While it is still premature to take a view on what the "new normal" looks like, the external business environment has changed sufficiently to say that, when we return to "business as usual", it will not be the same usual that preceded the economic crisis. In De Beers' case this external environmental change also prompted an equally significant sequence of internal changes. To this extent, by the end of 2009 De Beers was not only operating in a different environment, it was also a substantially changed company.
The adage "never waste a good crisis" has been of more than passing relevance to De Beers over the past year. The restructuring prompted by the economic crisis has provided us with the opportunity to rethink how key elements of our business are organised and to hard-wire some of the many efficiencies we made over the course of 2009 into the very DNA of our operating culture.
The economic crisis has also reminded us of those elements of our business model that have contributed most to our historical success. These will be the pillars around which our future plans will crystallise. Most important among these are our strong partnerships based on an effective and balanced synergy of purpose, in particular with producer governments and our local communities, our clear commitment to sustainability and our conviction that as a business we must live up to the qualities of the product we sell.
As much as I believe that the worst of the economic turmoil precipitated by the financial crisis is behind us, prudence dictates that we temper our optimism for the immediate future with the caution born of hard experience.
At the same time, we the shareholders are united in our confidence in the long term
positive fundamentals of De Beers. We signified this belief by providing US$500
million of shareholder loans in the first half of 2009. This improved the Group's
financing structure even though management chose not to draw fully upon this facility
during the course of the year. An additional commitment by each of us to follow
our rights in a US$1 billion rights issue is further positive news for De Beers.
It will help ensure that the company is well positioned to capitalise on any future
recovery.
