De Beers' Earnings Down 50%

February 15, 2002

De Beers' Earnings Down 50%

In a year of internal restructuring and a weakened global economy, De Beers' 2001 sales figures were much lower than those in 2000. Headline earnings were down by 50%, from $1.7 billion in 2000 to $837 million in 2001. De Beers said its costs – $50 million – to become a private company last year make the figures not strictly comparable, though sales of rough diamonds were 21.5% lower, $4.45 billion in 2001 from $5.7 billion in 2000, Ralfe says.

De Beers officials say global retail sales in 2001 were healthier than expected following the Sept. 11 terrorist attacks. Initial assessments were that global retail consumption would shrink some 7%, but instead the figure was revised to 5%. Gary Ralfe, De Beers' managing director, credits the impetus given to marketing diamonds, a strong demand for diamond line bracelets and three-stone rings. He says this resulted in a stronger-than-expected showing in the fourth quarter, leading to a stronger Christmas season in the U.S. market.

Ralfe says last year's "overhang," or excess stock in the market, had been reduced substantially, and rough diamonds at the cutting centers were also reduced, though perhaps more reductions were necessary. He says the mood among sightholders is buoyant.

De Beers' restructuringcontinued in 2001 as De Beers Investments acquired 100% ownership of De Beers Consolidated Mines Ltd. and De Beers Centenary AG in June 2001. DBI, the holding company of DBCM and DBC,changed its name to De Beers Societe Anonyme.

De Beers officials say its negotiations with Angola remain in arbitration, saying the $8 million earmarked to spend prospecting in Angola might have to be spent elsewhere. Last year, De Beers' withdrew its prospecting team from Angola. The De Beers Canada exploration budget was the highest of all, constituting 40% of the total De Beers exploration budget.

Ralfe cites De Beers' four-year agreement with Alrosa, the giant Russian producer, highlighting the 800 million carats of rough marketed annually.

De Beers says it is optimistic about a positive outcome for its Supplier of Choice strategy, citing considerable progress in negotiations with competition authorities of the European Commission.

– by Robert Weldon, G.G., and Peggy Jo Donahue

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