De Beers said its total revenue in 2018 increased by 4% to $6.1 billion (2017: $5.8 billion), with rough diamond sales increasing by 4% to $5.4 billion (2017: $5.2 billion), driven by improved overall consumer demand for diamond jewellery and a 1% increase in the average rough diamond price index.
The average realised price increased by 6% to $171 per carat (2017: $162 per carat), reflecting the lower proportion of lower value rough diamonds being sold in the second half, which resulted in a 2% decrease in consolidated sales volumes to 31.7 million carats (2017: 32.5 million carats).
Other revenue also increased owing to improved ‘high end’ jewellery sales at De Beers Jewellers (consolidated for a full year in 2018, compared with nine months in 2017), partly offset by a 5% decrease in Element Six revenue due to a reduction in sales to the oil and gas market.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) decreased by 13% to $1.245 billion (2017: $1.435 billion). While unit costs and upstream profit margins were maintained, De Beers undertook incremental expenditure on a number of new initiatives, including the launch of Lightbox Jewelry, Tracr and Gemfair, as well as increasing expenditure in marketing, exploration and evaluation in Canada and increasing provisions in respect of closure obligations. Margins in the trading business were lower owing to volatile market conditions, and the margin at Element Six decreased as a result of lower sales to the oil and gas market.
Markets
De Beers said that preliminary data for 2018 indicates an improvement in global consumer demand for diamond jewellery, in US dollar terms. Global growth during the first half of the year was driven by solid US and Chinese consumer demand. However, during the second half, while the US maintained its growth rate, increased political and policy uncertainty and stock exchange volatility led to a general slowdown of demand. Chinese demand also slowed following the escalation in US-China trade tensions, slower economic growth and stock market volatility. In India, the significant depreciation of the rupee reduced local demand in US dollar terms.
The midstream started the year on a positive note due to healthy demand for polished diamonds from US and Chinese retailers. However, in the second half, the low-priced product segment came under considerable pressure due to weak demand and surplus availability, the rapid depreciation of the rupee and a reduction in bank financing in the midstream, it noted. This resulted in a surplus of low-priced polished diamonds at the end of the year, leading to lower sales at the start of 2019.
Mining and manufacturing
Rough diamond production increased by 6% to 35.3 million carats (2017: 33.5 million carats), which was in the lower half of the production guidance range of 35- 36 million carats.
In Botswana (Debswana), production increased by 6% to 24.1 million carats (2017: 22.7 million carats). Production at Jwaneng was flat, as the effect of processing planned lower grades was offset by a 12% increase in plant throughput.
In Namibia (Namdeb Holdings), production increased by 11% to 2 million carats (2017: 1.8 million carats).
In South Africa (DBCM), production decreased by 10% to 4.7 million carats (2017: 5.2 million carats), owing to a period of suspended production at Venetia following a fatal incident, as well as lower run-of-mine ore grades. Output was also affected by the placing of Voorspoed onto care and maintenance in the fourth quarter in preparation for closure.
In Canada, production increased by 19% to 4.5 million carats (2017: 3.8 million carats) due to the full year contribution from Gahcho Kué, which entered commercial production in March 2017, and higher grades at Victor.
Brands
Significant progress was made across the De Beers Group brands in 2018. De Beers Jewellers opened new stores in Hong Kong and in Xi’an, China, and launched new franchise partnerships in Russia and Saudi Arabia. In May, De Beers Jewellers launched a new online store in partnership with Farfetch, a global marketplace for the luxury industry with a presence in 100 countries.
Forevermark is now available in more than 2,400 retail outlets globally. New launches took place in Indonesia, Nepal, Bangladesh, Germany and France, as well as the opening of its first stand-alone store in Africa, in Botswana. In the year the brand celebrated its 10th anniversary, it launched a new retail concept, Libert’aime, by Forevermark.
De Beers launched a number of new initiatives in 2018. Lightbox, a laboratory-grown diamond fashion jewellery brand, was launched in the US and recorded its first sales in September. Tracr, De Beers Group’s blockchain project, was announced in January 2018. GemFair, an industry-wide pilot programme to create a secure and transparent route to market for ethically sourced artisanal and small-scale mined diamonds, was launched in April, with the first export of diamonds in December.
Outlook
De Beers said that although current economic forecasts remain positive, the outlook for 2019 global diamond jewellery consumer demand faces a number of headwinds, including the risk of a potential intensification of US-China trade tensions, the Chinese government’s ability to rebalance economic growth towards consumption, and further exchange rate volatility.
Production in 2019 is expected to be in the range of 31-33 million carats, subject to trading conditions. The lower production is driven by the planned process of exiting from the Venetia open pit, with the underground operation becoming the principal source of ore from 2023. Associated with this, an increased proportion of production in 2019 is expected to come from De Beers Group’s joint venture partners.