De Beers: Results for the Year Ended 31 Decemhttps://www.newswire.ca/en/releases/archive/February2007/09/c6539.html
Directors' Comment
Consumer Demand Buoyant as De Beers Invests US$2 Billion to Bring New
Production Onstream
JOHANNESBURG, South Africa, Feb. 9 /CNW/ -
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- DTC sales at US$6.15 billion (2005: US$6.54 billion) the second
highest on record, were lower than 2005 reflecting reduced Russian
supply available to the DTC, and the continued challenging
environment in the wholesale market for rough diamonds, where a lack
of liquidity, margin pressure and increased financing costs impacted
pipeline demand. However solid consumer demand for diamond jewellery
continued in 2006, with China and India reporting strong sales growth
and the USA growing in line with GDP.
- EBITDA at US$1.232 billion (2005: US$1.403 billion) is down 12% as a
result of lower level of DTC sales and increased exploration and
development costs.
- Net earnings at US$730 million (2005: US$554 million) increased by
32% due to the sale of 26% of DBCM to Ponahalo, a broad-based Black
Economic Empowerment consortium, and the sale of the Group's interest
in the Fort a la Corne joint venture in Canada.
- Underlying earnings at US$425 million are US$277 million lower than
2005, after adjusting for the impact of the Canadian tax credit, due
to reduced margins in the diamond account, the impact of increased
finance charges and the dilution in earnings caused by the sale of
26% of De Beers Consolidated Mines (DBCM).
- Cash available from operating activities increased to US$809 million
from US$473 million in 2005.
Financial Summary - Full Year
US Dollar Millions
2006 2005 % change
DTC sales 6 150 6 539 - 6%
EBITDA 1 232 1 403 - 12%
Net earnings 730 554 + 32%
Underlying earnings 425 850 - 50%
Cash available from operating activities 809 473 + 71%
Capital expenditure - expansion 949 370 + 156%
Gearing 38.7% 34.5%
2006 Operational Highlights
Strengthening our partnerships
- On 4 April De Beers announced agreement to implement the sale of 26%
of DBCM to Ponahalo Holdings (Proprietary) Limited, creating a new
partnership in DBCM which will add value to the company.
- On 19 May the Government of Botswana and De Beers signed the renewal
of the Mining Licence for Jwaneng mine. The renewed licence will run
for twenty five years (effective from 1 August 2004). In addition,
the currently held licences for the Orapa, Lethlakane and Damtshaa
mines were extended to run until 2029, in line with the Jwaneng
Licence. The agreement also covered the sale of Debswana's production
to the DTC for a further five years and the establishment in Botswana
of Diamond Trading Company Botswana, a 50:50 partnership between De
Beers and the Government of Botswana, which will sort and value all
Debswana's diamond production. In addition, it was announced that
Diamond Trading Company Botswana will carry out local sales and
marketing activities to support the establishment of local diamond
manufacturing operations.
- On 30 January 2007 De Beers and the Government of Namibia formalised
the agreement to extend the DTC sales contract for a further eight
years (effective from 1 January 2006) and to establish a new Namibian
company - Namibia Diamond Trading Company - a 50:50 partnership
between De Beers and the Government of Namibia, that will sort and
value Namdeb's diamond production and carry out local sales and
marketing activities.
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Record production from existing mines
The De Beers family of companies achieved record production in 2006 of
51 million carats (2005: 49 million). Debswana produced a record 34.3 million
carats (2005: 31.9 million) and Namdeb production exceeded two million carats
(2005: 1.8 million carats) for the first time since 1977, with land and sea
each contributing over one million carats, while in South Africa, production
totalled 14.6 million carats (2005: 15.2 million carats) from six mines in the
DBCM Group.
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US$ 2 billion capital expansion programme
- In June, DBCM announced that it had been granted a new order right to
mine for diamonds at the Voorspoed Mine, near Kroonstad in the Free
State. This will be the Group's first "greenfields" mine since
Venetia (US$170 million).
- The mining vessel Peace In Africa, has arrived in Cape Town and, once
commissioned, will commence mining off the west coast of South Africa
in Q3 2007 (US$145million).
- In Canada, De Beers is on target to start production at the Snap Lake
mine in North West Territories in October 2007 and at the Victor mine
in Ontario in Q4 2008 (US$1.7 billion).
When all four are in full production they will contribute approximately
3.3 million carats and US$700 million to De Beers' annual production capacity.
Significant investment in exploration
In 2006 De Beers positioned itself to take advantage of exciting
exploration opportunities:
- In Angola, De Beers was granted three new concessions, each covering
an area of 3,000 square kilometres. Airborne surveys completed during
2006 identified new targets to be followed up in 2007.
- In Botswana De Beers has been granted prospecting licences around the
Jwaneng and Orapa areas. The AK6 project is under evaluation and
shows potential.
- De Beers has access to prospective ground in the Democratic Republic
of the Congo, and a number of joint ventures are in place.
- On 6 September, De Beers and ALROSA signed a Memorandum of
Understanding which should lead to joint diamond prospecting and
exploration activities in Russia.
- As part of De Beers' global strategy of rationalising our project
portfolio, on 22 September, De Beers Canada Corporation announced the
sale of the company's entire 42% participating interest in the Fort a
la Corne joint venture project in Saskatchewan to Shore Gold Inc.,
for CAN$180 million in cash.
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Effective marketing programmes
DTC marketing initiatives continued to drive demand for diamond
jewellery. Preliminary anecdotal reports suggest global sales of diamond
jewellery increased by four to five percent in 2006 with China and India
achieving double digit growth. DTC marketing programmes such as 'Journey
Diamond Jewellery' and 'Trilogy' were strong growth drivers in 2006.
The pilot 'Forevermark' programme in Hong Kong continues to achieve its
targets, and the programme is being expanded in Asia.
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Investing in independently managed businesses
- De Beers Diamond Jewellers (DBDJ), the De Beers retail joint venture
with LVMH, had an excellent year. While continuing its steady growth
in Japan, it reported a promising performance in the United States, a
market that it entered in late 2005 in New York and Los Angeles. De
Beers has strengthened its presence in London and opened its first
boutique in the Middle East, in Dubai. The Talisman and Secrets of
the Rose collections, fine jewellery and engagement rings contributed
to substantial growth in revenue per store. To increase its
recognition and image, a new advertising campaign was launched in
2006 for DBDJ. The company introduced its first wristwatch collection
this past Christmas, and will increase its presence in the United
States (in Las Vegas last month), the Middle East, Japan, Hong Kong
and Korea.
- Element Six continues to achieve sustained growth and recorded good
profits for 2006.
Regulatory compliance and reputation
- On 31 January 2007, the European Commission formally announced that
it had decided to reject all of the outstanding complaints against De
Beers and the DTC in respect of the DTC Sales and Marketing policy,
and the Russian Trade Agreement.
- Following the announcement in 2004 that De Beers had reached a
settlement with the United States Department of Justice, De Beers
announced agreement in March 2006 to settle and consolidate all of
the class actions against De Beers for a total sum of US$295 million.
- In December, De Beers published its 'Report to Stakeholders'
which details the Group's performance against a wide range of issues
identified by relevant stakeholders covering economics, ethics,
employees, communities, and the environment.
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Management Changes
De Beers is pleased to announce that Rene Medori, Finance Director of
Anglo American plc, will be joining the Board of De Beers s.a. with effect
from 6 February 2007. David Hathorn, Executive Director of Anglo American plc,
will therefore be stepping down with effect from the same date.
Also announced today is the retirement of Ollie Oliveira, who will step
down from the De Beers s.a. Board on 28 February 2007.
Outlook
The outlook for further growth in retail diamond jewellery sales remains
positive, with India and China likely to be the leading growth markets, and
the US continuing its five-year growth trend. While DTC sales are likely to be
constrained by availability in 2007, due to the reduction in Russian purchases
as agreed with the EU, the De Beers Group will benefit from bringing new
production on-stream towards the end of Q3. De Beers will focus on
implementing its new vision of 'maximising the value of its leadership
position'. This includes, in addition to new production, reviewing assets that
do not fit the De Beers portfolio criteria, focussing exploration on the most
prospective areas, continuing to improve cost efficiency, and investing in
DBDJ and the Forevermark marketing programmes.
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De Beers announces results as follows:
De Beers Societe Anonyme
Consolidated Income Statement
for the year ended 31 December 2006
(Abridged)
US Dollar millions
Year to Year to
31 December 31 December
2006 2005
Diamond sales
- DTC 6 150 6 539
- Other 476 513
Joint venture and other income 1 012 906
7 638 7 958
Deduct:
Cost of sales 5 737 5 906
Sorting and marketing 428 484
Exploration, research and development 287 242
Group services and corporate overheads
(Note 1) 138 130
Net diamond account 1 048 1 196
Deduct:
Net finance charges (Note 2) 140 101
New business development 24 19
Income before taxation 884 1 076
Taxation (Note 3) 361 283
Income after taxation 523 793
Attributable to outside shareholders in
subsidiaries (Note 4) 74 1
Own earnings 449 792
Share of retained income of joint
ventures 4 22
Net earnings before special items 453 814
Special items:
Surplus in respect of the sale of 26% of 229
DBCM (Note 4)
Surplus in respect of the sale of Fort a
la Corne (Note 5) 105
Payment in terms of class action (57) (260)
settlement agreement (Note 1)
Net earnings 730 554
Underlying earnings reconciliation (Note 6)
Net earnings before special items 453 814
Adjusted for :
Surplus on realisation of fixed assets
less provisions (9) (14)
Mine impairment and retrenchment costs 35 48
(Gains) losses on non-hedge derivative
financial instruments (48) 16
Taxation and minority interests (6) (14)
Underlying earnings 425 850
EBITDA 1 232 1 403
Ordinary distributions in respect of:
2004 - Final 200
2005 - Interim 150
- Final (including a partial repayment of
share premium) 250
2006 - Repayment of share premium 473
- Interim 150
- Final 50
De Beers Societe Anonyme
Consolidated Balance Sheet
31 December 2006
(Abridged)
US Dollar millions
31 December 31 December
2006 2005
Ordinary shareholders' interests 3 532 3 597
Outside shareholders' interests (Note 4) 302 104
Total shareholders' interests 3 834 3 701
Net interest bearing debt (Notes 2 & 7) 2 944 2 362
Other liabilities 1 487 1 729
8 265 7 792
Fixed assets 6 394 5 790
Investments and loans 94 66
Diamond inventory and other assets 1 777 1 936
8 265 7 792
Exchange rates US$ = Rand
- average 6.72 6.39
- year end 6.99 6.36
Cash flow information
for the year ended 31 December 2006
Cash available from operating activities 809 473
Investing activities
Fixed assets - stay-in-business 245 248
- expansion 949 370
Investments (442) 21
752 639
Financing activities
Preference share capital redeemed 214 214
Share premium redeemed 473
(Increase) in debt (962) (645)
Ordinary distributions 173 600
(102) 169
De Beers Societe Anonyme
31 December 2006
Notes and Comments.
1. In the prior year US$10 million in respect of legal costs incurred in
concluding the class action settlement agreement were included in
corporate overheads. These have been reclassified as special items in
the current year and added to the original class action payment of
US$250 million.
In terms of an amended class action settlement agreement dated
17 March 2006, a further US$45 million was paid into escrow on
28 April 2006 pending conclusion of the settlement process. Legal
costs incurred in 2006 in respect of the settlement amount to
US$12 million.
2. Preference share capital is included in net interest bearing debt.
Preference dividends, amounting to US$32 million (2005 :
US$54 million) are included in finance charges.
On 30 June 2006, the Company took advantage, for the third time, of
an early redemption clause attaching to its 10 per cent preference
shares in issue and redeemed the maximum permissible amount of
US$214 million, or 25 per cent of the total originally in issue.
3. In the prior year, following the approval of the Victor Project, the
value of the group's accumulated tax losses in Canada was brought to
account as a deferred tax asset which had the effect of reducing the
2005 tax charge by US$148 million.
4. De Beers concluded a broad based Black Economic Empowerment (BEE)
transaction on 18 April 2006 which resulted in 26 percent of De Beers
Consolidated Mines Limited being sold to the Ponahalo Consortium for
R3.7 billion. This has resulted in a profit of US$229 million in the
consolidated income statement. As a result of the sale transaction,
US$473 million has been returned to shareholders through a repayment
of capital. The sale process involved, inter alia, the arrangement of
incremental financing of US$640 million in revolving and term
facilities and facilitation by De Beers in the form of guarantees
amounting to approximately US$130 million.
With effect from 18 April 2006, Ponahalo's share of DBCM's earnings
has been included in income attributable to outside shareholders in
subsidiaries in the income statement. The impact of the BEE
transaction was US$50 million on underlying earnings for the year and
$184 million in respect of net asset value.
5. On 28 September 2006, De Beers Canada concluded the sale of its
42 per cent participating interest in the Fort a la Corne Joint
Venture to Shore Gold Inc for C$180 million (US$155 million), of
which tax amounting to US$50 million was attributable.
6. In previous reporting periods Headline Earnings were reported as a
primary indicator of performance. In line with accepted practice,
De Beers believes that the presentation of Underlying Earnings
provides a better indicative measure of underlying performance
principally through the exclusion from earnings of significant
non-operating items and unrealised profits or losses which arise due
to the valuation impact of financial market volatility.
Underlying earnings comprises net earnings attributable to
shareholders adjusted for the effect of any special items and
remeasurements, less any tax and minority interests. Special items
include closure costs, exceptional legal provisions and profits and
losses on disposals of assets.
Remeasurements include adjustments to ensure that the unrealised
gains and losses on non hedge derivative instruments are recorded in
underlying earnings in the same period as the underlying transaction
against which these instruments provide an economic, but not formally
designated, hedge.
7. Cash has been offset against interest bearing debt.
Visit the official De Beers group website for more information on the
Company and where you can view and download a selection of images -
www.debeersgroup.com.
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For further information: De Beers London: Lynette Gould,
44-20-7430-3509, 44-7740-393260; De Beers South Africa, Tom Tweedy,
27-11-374-7173, 27-83-308-0083; De Beers Botswana, Chipo Morapedi,
267-361-5205, 267-7132-1889