De Beers reported an underlying loss of $102 million for 2020, versus underlying earnings of $45 million in 2019 due to the decline in consumer demand and operational disruptions caused by Covid-19.
The firm’s revenue decreased by 27% to $3.4 billion with rough diamond sales falling by 30% to $2.8 billion caused by the difficult market conditions, lockdowns in India and associated flexibility offered to customers, De Beers pointed out.
Rough diamond sales volumes decreased by 27% to 21.4 million carats and the average realised price decreased by 3% to $133/carat, with a 10% decline in the average rough index largely offset by an increased proportion of higher value rough sold in 2020, driven by midstream demand and inventory mix.
Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) decreased by 25% to $417 million owing to the impact of the lower sales volumes and the lower rough price index reducing margins in both the mining and trading business, particularly in the first half of the year.
Despite the reduction in production volumes, unit costs decreased by 10% to $57/carat owing to cost-saving measures and favourable exchange rates that have resulted in a higher mining margin of 54%.
“The diamond industry started 2020 positively after a strong US holiday season at the end of 2019, with robust demand for rough diamonds. The onset of the Covid-19 pandemic, and measures taken by governments in response, had a profound impact on global diamond supply and demand. Much of the industry was temporarily unable to operate, with up to 90% of jewellery stores closed at the peak of lockdowns, first in China, then in Europe and the US,” De Beers said.
“Reduced demand from jewellery retailers due to store closures, combined with the closure of diamond cutting and polishing factories in India from April to June, led to a substantial reduction in rough diamond purchases in the first six months. In response, De Beers reduced production and offered significantly increased flexibility to customers,” it added.
“The gradual easing of restrictions across the globe led to improved trading conditions and an increase in demand throughout the supply chain in the second half of the year. Consumer demand for diamond jewellery improved in key markets, particularly in China, which continued its strong recovery, while demand in the US has also been encouraging. The recovery in consumer demand supported polished price growth in the second half and a rebuild in inventory levels in advance of the year-end holiday season,” De Beers noted.
Covid-19 significantly impacted De Beers’ brand sales in 2020, with large-scale store closures in Asia in the first quarter, followed by Western markets in the second quarter and beyond. However, both De Beers Jewellers and Forevermark saw a strong recovery in sales as restrictions eased and stores reopened.
Online sales continued to show strong growth, reflecting De Beers’ investments in e-commerce and increasing consumer willingness to purchase diamond jewellery through these channels.
“Recent consumer demand trends have been positive in key markets and industry inventories are in a healthier position, providing the potential for a continued recovery in rough diamond demand during 2021, subject to the ongoing impact of Covid-19. Consumer desirability for natural diamonds is set to remain high over the medium to long term despite the economic impact of the pandemic and increasing supply of lab-grown diamonds,” De Beers said.
“In the longer term, the impact of Covid-19 has accelerated the transformation that was already underway across the industry and which is expected to continue at pace. This includes more efficient inventory management, increased online purchasing, and a growing consumer desire for products with demonstrable ethical and sustainability credentials, including an enhanced appreciation for the natural world. The long term outlook for the sector remains positive as De Beers continues to focus on its business transformation to support the continued growth of its own business and the wider diamond value chain,” it noted.
De Beers’ production guidance for 2021 is 32-34 million carats, subject to trading conditions, the extent of further Covid-19-related disruptions and ongoing operational challenges.