1. Keep safety as top priority
2. Maximise demand opportunities
3. Produce in line with client demand
4. Drive cost reductions across the business
5. Enhance operating efficiencies
6. Focus on cash management

In line with most products in the luxury goods sector, the diamond industry was severely affected by the global recession. Reduced consumer demand, constricted liquidity and high levels of inventory in the pipeline combined to produce particularly challenging economic conditions for rough diamonds.

However, trading conditions, which were most acutely affected in the first quarter, began to moderate and improve in the second half. Consumer demand for diamond jewellery improved in the fourth quarter, with a slightly better than expected Christmas in the US and growing demand in India and China. At the same time, inventory levels that had built-up throughout the diamond pipeline began to contract as a result of greater pull-through at all levels.

2009 was a year of unprecedented challenges: the men and women of De Beers met them head-on with energy and resolve. As the magnitude of the economic crisis became apparent toward the end of 2008, De Beers instituted a pro-active 6 Point Recession Action Plan to address our commercial vulnerabilities and ensure the company was positioned for growth once recession gave way to recovery. These actions helped De Beers' clients to reduce inventory and debt levels.

In spite of exceptionally difficult trading conditions, which saw De Beers' sales decline from US$6.89 billion in 2008 to US$3.84 billion in 2009, De Beers exceeded its primary sales and cost targets, and remained cash positive for the year.

The 6 Point Recession Action Plan focused on:

1. Keep safety as top priority - De Beers' safety performance showed marked improvement in 2009, and the company is proud to report no fatalities on its operations. Lost Time Injuries (LTI) decreased to 40 in 2009 from 66 in 2008.

2. Maximise demand opportunities - due to the highly volatile levels of rough diamond demand, the Diamond Trading Company (DTC) employed a flexible approach to its sales. The diamond industry was affected most acutely in the first quarter, with both slow-moving inventories and, to a lesser degree, lower achievable values impacted. However, as the year progressed client demand improved, which allowed the company to increase its rough prices and sales volumes throughout the second half of the year. DTC sales for the year totalled US$3.23 billion, significantly below last year (2008: US$5.93 billion) but above our half year expectations. Forevermark™ continued to expand in China, Hong Kong, Japan and Macau and the brand is now available in 245 stores across Asia. The Everlon Diamond Knot Collection™, which is a De Beers-devised co-operative marketing campaign with DTC Sightholders and leading retailers, has made a strong contribution to improving Christmas diamond sales in the US.

3. Produce in line with client demand - at the beginning of 2009, and in response to, and in line with, reduced demand from DTC Sightholders, De Beers dramatically reduced production across its portfolio of mines, resulting in a significant reduction in carats produced compared to 2008. Sightholder demand increased gradually, beginning in the second quarter, and De Beers responded by increasing its production to 18 million carats in the second half of the year (2008: 24 million carats), an increase of 173 percent compared with the first half, resulting in a full year total of 24.6 million carats (49 percent below 2008).

4. Drive cost reductions across the business - across the Group, De Beers pro-actively tackled costs, achieving a US$0.9 billion reduction in production and operating costs, down 45% compared to 2008.

5. Enhance operating efficiencies - through a process of de-layering and de-centralisation of the business, De Beers recorded a 23% reduction of its global workforce.

6. Focus on cash management - De Beers' focus on cash management and capital expenditure - which was reduced by US$222 million compared with 2008 - enabled the company to remain cash positive in 2009, despite the exceptionally challenging trading conditions.

Given the effects of a weak US Dollar and the impact of the global recession on De Beers' pricing and production levels, De Beers has been required to make a non-cash impairment provision of US$700 million against its Canadian operations.

The crisis provided De Beers with an opportunity to improve its balance sheet and to ensure it was well positioned as the industry emerged from the downturn. De Beers commenced discussions with its international banking syndicate to renew its outstanding US$3 billion facility, of which US$1.5 billion becomes due in March 2010. International and South African financing term sheets were finalised in December, together with an agreement by the shareholders to invest US$1 billion in new equity by way of a rights offer, which will enable a reduction in overall debt levels. The detailed documentation of the new financing structure is expected to be in place before the end of March 2010.

Few businesses or products were immune from the global recession, but 2009 served as a compelling reminder of the enduring value of diamonds. As consumers recalibrated their attitudes about discretionary purchases, they focused on fewer, but better things. Consumers want something that lasts, that carries an emotional resonance and delivers real value for money. The improved Christmas season, and continued strong growth in emerging markets, is evidence that diamonds continue to play an important role in people's lives.

The short-term is uncertain, and De Beers will be focused on incorporating the 6 Point Recession Action Plan into its normal way of working, with a strong focus on cost management at all levels of the business.

History shows that diamond demand and values recover strongly in most post-recessionary periods. In addition, the long-term supply / demand dynamics indicate that future demand growth for diamond jewellery in emerging markets is expected to outpace what is forecast to be lower levels of diamond supply for many years to come, providing a strong foundation for future profitability.