February 9th, 2008
By Charles Wyndham.
Haphazardly, whilst my book keeper Ann was having her monthly visit to sort my chaotic finances out, I listened into the results presentation of De Beers, I picked up the comment that 2007 had been a good year for the company.
As the presentation rambled on and between the usual grilling from Ann about where was the chit for this particular cup of coffee purchased at some odd airport, I printed out their media release with the numbers.
I was not surprised at the claim that 2007 had been a good year, it had for most in the industry, especially on the back of the disaster of 2006.
De Beers' sales saw a minimal drop of 3% to $6.8 billion (rough diamond sales in this number amounted to $5.9 billion compared to $6.1 billion in 2006). Carat production had held up well and underlying earnings rose by 14% to $483 million.
Lets pass by the billion dollars or so of increased borrowing or even the $965 million ‘Impairment Charge’ against its Canadian mines; also, lets not go into the details of a reduction in exploration, research and development by a marginal $11 million to $288 million, even though it was the expenditure on exploration which only a short while ago was being trumpeted.
No, I would like to focus on that underlying earnings figure where the increase of 14% has to be viewed against the staggering 50% fall in 2006; or put differently to remind all about the point raised by James Picton that De Beers profits were over $900 million about a couple of decades ago.
To be even talking, let alone thinking that such an increase equals a good year, against this backdrop, shows, if nothing else, great self confidence.
Not a confidence that MD Gareth Penny displayed to any great degree to me when asked about his update on progress to an EBITDA goal of $2 billion by 2009; the reply petered out into some low mumbling.
As the chit chat droned on, not that anyone can make such events particularly interesting even in the best of times, the harsh reality that came to me was that a simple improvement in the De Beers / DTC business model in 2007 would have been to have bought their own boxes and traded them.
This would have added at least another $250 million to the bottom line.
Anything above that number would imply that they would know how to sell the boxes and that really would entitle them to be able to claim a good year.
I wonder when we will be told down the ‘banana telephone’ what the next BHAG (Big Hairy Audacious Goal) is going to be?
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