De Beers banks on deep pockets to ride out Covid crisis
Mbongeni Mguni | Friday August 14, 2020 12:33
With rising orders already noted ahead of the festive season and executives speaking of ‘pent up demand’ De Beers hopes to soon bounce back from a slump in revenue that saw its earnings for the first half of the year drop by 54% year-on-year to $1.2 billion (P13.2 billion).
De Beers, which is a 50/50 partner with government in Debswana, is amongst the principal anchors of government revenues through dividends, royalties and taxes. Government’s latest figures show that from expected mineral revenues of P20 billion in 2020/21, fiscal authorities now expect about P10.5 billion, due largely to the closure of borders and the slump in global demand as a result of COVID-19.
For De Beers, the festive period covering Thanksgiving in the United States, Christmas, the New Year and the Chinese New Year in February represents the peak retail period, with hundreds of millions of dollars invested each year in intensive marketing globally.
The US, China and India are the main consumers of diamond jewellery, with these sales supporting rough diamond output in countries such as Botswana, which is the world’s leading producer by value. With global travel restrictions and lockdowns limiting retail sales and exports of rough diamonds this year, De Beers’ revenue slump hit its books hard, but executives say healthy financial reserves and “historical resilience” will tide the company over to the lucrative festive retail period.
“We have a very resilient business and we have been carefully managing all the aspects of our business that we can control,” Paul Rowley, De Beers executive vice president, Diamond Trading, told local journalists in a briefing recently. “We have gone into this crisis with a very strong balance sheet allowing us to support our partners and investments in strategic initiatives. “We have been around for 130 years and what we are putting in place shows that we have the resilience to go through this crisis and lead into the future.”
Anglo American, which holds 85% equity in De Beers with the balance owned by the Government of Botswana, recently said the diamond group had enough working capital available to run for a maximum of 12 months, weathering the worst of the COVID-19 storm.
“Diamonds will clearly be market-dependent,” Anglo’s finance director, Stephen Pearce told analysts in a recent earnings call when asked about the working capital for diamonds.
“We’re confident the market will come back and demand will flow through quite strongly.
“Whether that happens in November-December or January-February, I’m not too bothered by. “It’s really about the market coming back and I know the team are looking at how they can sell diamonds in a different way given the circumstances.” De Beers, meanwhile, says a recent study it conducted to gauge the upcoming festive sales period, points to strong demand, which will lift its revenues for the year. The survey consisted of 2,800 men and women aged 20 to 65 with household incomes of at least US$75,000 (P825,000) in the US, China and India. “The intention to purchase diamond jewellery during the upcoming festive season was high across all markets,” De Beers’ researchers said in a report released this week.
“In the US, almost 60% of men surveyed said they intend to purchase diamond jewellery for a significant other, while nearly a third of women intend to purchase for themselves.
“In China and India, over 80% of both men and women were very or quite likely to purchase diamond jewellery for a significant other or for themselves.
“Under 35 professionals drove the high levels of intent and expectation to acquire diamond jewellery during the key festive season. These consumers tend to be of middle affluence and work full-time.”
De Beers plans to anchor its marketing activities for the upcoming festive period on emotional themes tied to the global mood around COVID-19.
“While it clearly demonstrates that consumer desire for diamonds is as strong as it has ever been, holiday communications to consumers should focus on the power of diamonds, as inherently beautiful miracles of nature, to convey emotional meaning, gratitude for loved ones and expressions of self-reward – all of which bring joy and positivity in a time when it is desperately needed,” said De Beers’ CEO, Bruce Cleaver.