De Beers Seminar to
Anglo American
Analysts
23rdBeers
September 2004
Copyright De
2004
Agenda
• Welcome by Nicky Oppenheimer, Chairman
• Introduction by Gary Ralfe, Managing Director
• Paddy Kell, Finance Director
• Gareth Penny, Managing Director, DTC
Copyright De Beers
• Gary Ralfe, Managing Director
• Q&A
• Advertising Commercials
2004
De Beers Group of companies
Debswana
Group
Central Holdings
Group
11%
Anglo American
Group
89%
Central
Investments (DBI)
Lux
10%
45%
45%
DB Investments
(Lux)
100%
De Beers sa
(Lux)
Copyright De Beers
100%
De Beers
Centenary
(Swtizerland)
50%
Debswana
(Botswana)
2004
100%
De Beers
Consolidated Mines
(South Africa)
50%
Namdeb
(Namibia)
100%
DTC*
(UK)
*DTC (Pty) Ltd
(South Africa)
wholly owned by
DBCM
De Beers & the Diamond
Industry
Size of the Diamond Business 2003
World Production of Rough ($bn)
De Beers
Group
+
$3.6
World Supply of Rough ($bn)
+
$5.6
Polished Equivalent of Supply ($bn)
Global Sales of Diamond Jewellery ($bn)
=
$9.1
=
$10.1
$5.5
De Beers
Group
Copyright De Beers
Other
Producers
Other
Producers
$4.5
2004
$16.1
$57
Change in business model
Custodianship to Leadership
Supply Control
Driving Demand Growth
Utilising key assets:
–
–
–
–
Mystique of the natural diamond
Producer partnerships
Diamond knowledge and expertise
“De Beers” brand potential
Copyright De Beers
2004
With full legal compliance
Driving demand
Supplier of
Choice
De Beers’
Brand
Effective
Organisation
Privatisation - 2001
Dedicated diamond mining and marketing business
Since delisting we have:
– Liberated $2.06 billion from stocks
– Generated operating cash flow of $4.5 billion
– Reduced net gearing level from 57% to 21%
Copyright De Beers
2004
– Repaid $4.5bn acquisition facility ahead of schedule
– Refinanced on favourable terms with $2.5bn revolving facility
– Paid ordinary dividends of $838m (pref dividends $266m)
Primary strategic levers
Profitability
Sustainability
1. Demand growth
5. Producer proposition
2. Profitable production growth
6. Synthetics response
3. Creating
value through
Copyright
DetheBeers
DTC
4. Cost and working capital
efficiencies
7. Organisation effectiveness
2004
Paddy Kell
Copyright
De Beers
Finance Director
De Beers
2004
Agenda
•
Results for 6 months ended 30 Jun 2004
•
Trends:
•
•
•
•
•
•
EBITDA
ROCE
ROE
Cash flow / debt
Costs
Copyright De Beers
Looking forward
2004
Results 30 June 2004
•
DTC sales $2,983m ( 2.2%)
•
Headline earnings $424m ( 12.8%)
•
Net debt $1,169m ( $593m)
Copyright De Beers
•
2004
Operating cash flow $870m
Headline earnings
June 2003 - 2004
650
600
550
112
89
9
500
US$ M
63
450
400
350
300
107
24
424
376
68
82
Copyright De Beers
2004
250
200
Headline
June 2003
Currency
Price &
volume
Trade
investment
& other
income
Sorting and
marketing
Financing
Tax
JV's
Other
Headline
June 2004
EBITDA
NFO/GMR
appointed
2000
Privatisation
1800
1600
1400
US$ M
1200
1000
800
600
Copyright De Beers
400
2004
200
0
Dec1994
Dec1995
Dec1996
Dec1997
Total
Dec1998
Dec1999
Dec2001
Dec2000
Diamond business only
June
Dec- Jun- Dec- Jun2002 2003 2003 2004
ROCE
25.0%
20.0%
15.0%
10.0%
Copyright De Beers
5.0%
2004
0.0%
Dec1994
Dec1995
Dec1996
Total
Based on headline earnings
Dec1997
Dec1998
Dec1999
Diamond business only
Dec2000
Dec2001
Dec- Jun- Dec- Jun2002 2003 2003 2004
Diamond business (June)
ROE
25.0%
20.0%
15.0%
10.0%
Copyright De Beers
2004
5.0%
0.0%
Dec1994
Dec1995
Dec1996
Dec1997
Total
Based on headline earnings
Dec1998
Dec1999
Dec2000
Diamond business only
Dec2001
June
Dec- Jun- Dec- Jun2002 2003 2003 2004
Operating cash flow
2500
2000
US$ M
1500
1000
500
Copyright De Beers
2004
0
-500
Dec1994
Dec1995
Dec1996
Dec1997
Total
Dec1998
Dec1999
Diamond business only
Dec2000
Dec2001
Dec- Jun- Dec- Jun2002 2003 2003 2004
Diamond business (June)
Net Debt
4500
4000
4008
3500
3290
US$ M
3000
2572
2500
2000
1500
Copyright De Beers 1783
2004
1762
1169
1000
500
0
Dec 2001
Jun 2002
Dec 2002
Jun 2003
Dec 2003
Jun 2004
Dec 2004
Net working capital
6000
5000
US$ M
4000
3000
2000
Copyright De Beers
2004
1000
0
Dec94
Dec95
Dec96
Dec97
Dec98
Dec99
December
Including diamond stocks
Dec00
June
Dec01
Dec- Jun02
03
Dec- Jun03
04
Cash costs
1,700
1500est
1,500
1292
1,300
US$ M
1,100
995
878
900
700
500
Copyright De Beers
2004
300
100
(100)
2001
Production costs
Exploration & research
2002
2003
2004F
Sorting, selling & marketing
Corporate
Increasing carat production…
Millions
SOUTH AFRICAN, DEBSWANA & NAMDEB OPERATIONS - DIAMOND RECOVERY
50
0.2
1.5
45
40
0.2
1.3
0.2
1.4
0.3
1.9
35
Carats
30
30.4
25
29.6
28.4
26.4
20
15
Copyright De Beers
2004
10
5
10.7
10.4
11.9
13.4
2001
2002
2003
2004 Forecast (Aug)
DBCM
Debswana
Namdeb
Williamson Diamonds Limited
…together with more waste tons
mined...
Millions
SOUTH AFRICAN, DEBSWANA & NAMDEB OPERATIONS - WASTE TONS MINED
180
1.0
160
-
140
Waste Tons Mined
-
120
24.4
33.6
31.5
25.5
66.4
100
62.1
80
60
60.4
54.2
Copyright De Beers
2004
83.9
40
20
51.0
52.2
2001
2002
60.9
-
DBCM
Debswana
2003
Namdeb
2004 Forecast (Aug)
Williamson Diamonds Limited
…resulting in increased mining
costs
16
160,000,000
14
140,000,000
$11.56
12
Waste Tons Mined
120,000,000
10
100,000,000
8
$7.53
80,000,000
6
60,000,000
40,000,000
Copyright De Beers
2004
4
$4.53
$3.25
20,000,000
2
-
-
2001
DBCM
Debswana
2002
Namdeb
2003
US$ cash cost per ton treated
2004 Forecast (Aug)
US$ cash cost per mined
US$ cash cost per Ton Treated
SOUTH AFRICAN, DEBSWANA & NAMDEB OPERATIONS - WASTE TONS MINED vs US$ CASH COST PER TON
180,000,000
Finance focus
•
Risk management, governance
•
Cost of capital
•
Copyright
De future
Beers capital funding
Cash
flows and
2004
De Beers WACC (real)
•
Before privatisation:
•
Immediately after :
10.4%
8.2%
• End
Copyright
De2003:
Beers9.4%
2004
•
End 2004:
•
Optimum target:
9.8%
6.7%
Finance focus
•
Risk management, governance
•
Cost of capital
•
Copyright
De future
Beers capital funding
Cash
flows and
2004
De Beers Sales and Marketing
Gareth Penny
Copyright
Beers
Managing De
Director
Diamond Trading Company
2004
De Beers’ 1999 Strategic
Plan
Driving
demand
Supplier of
Choice
Copyright De Beers
De Beers’
Brand
2004
Effective
Organisation
Driving Demand
% Growth in World Nominal DJ Sales (CAGR)
4.0%
3.6
3.0
2.0
Copyright De Beers
1.0
0.0
-1.0
2004
-0.2
94-98
99-03
The rate of growth in World diamond jewellery sales is
increasing
(% growth US$ PWP)
% change
10%
8%
6%
Copyright De Beers
2004
3%
0%
2002
2003
H1 2004
Estimated H1 world retail markets up
+5.5% in LC and +8% in PWP
LC Retail Sales Growth Est. H1 2004
7
USA
Italy
Germany
-4
-3
France
6
UK
Japan
8
1
Taiwan
Copyright
De Beers
Thailand
China
Gulf
2.5
5
6
7
India
12
Turkey
WORLD
17
2004
19
5.5
+8.0% PWP
H1 DJ sales growth encouraging with
cautiously optimistic outlook
•
Rough markets still strong
– Rough imports up from Jan-Jul ‘04 v. same period ‘03
– Premiums on DTC goods have come down
•
Polished market
– Polished exports up +21% from Jan-Jul ’04 v. same period ‘03
– Stocks down -17% from July ‘03
– Price increases experienced since beginning of ’04 still holding
by sustainability being tested by slower trading
•
Copyright De Beers
2004
Retail markets
– Preliminary PRG estimates of world H1 LC DJ sales up +5.5%
→ +8% in USD PWP
– Slowdown of economic activity in US and Japan expected
– DJ trade still optimistic with backdrop of strong DTC marketing
2004 New Initiatives
USA
Japan
Copyright De Beers
India
2004
China
De Beers built two thirds of the
US Market
New Occasions
New Products
Copyright De Beers
Copyright De Beers 2004
2004
New Segments
Driving Incremental Sales
USA: Three Stone Jewellery Sales
Retail Sales
3500
3000
2500
$m
Copyright De Beers
2000
2004
1500
1000
500
0
1999
2000
2001
2002
2003
Right Hand Ring advertising is
a huge hit in 2004
Copyright De Beers
2004
2004 New Initiatives
USA
Japan
Copyright De Beers
India
2004
China
Highly visible presence in-store
Copyright De Beers
2004
3-stone Diamond Jewellery growing rapidly
Value Share and Growth Trend (12mmt)
80
70
60
50
(%)
40
30
20
10
0
-10
Copyright De Beers
3.4 3.5 3.5 3.5 3.5 3.3 3.4 3.4 3.4 3.5 3.4 3.3 3.4 3.4 3.5 3.5 3.6 3.7 3.8 3.8 3.9
4
4.3 4.7
5
5.2 5.5 5.9
2004
Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug-Sep- Oct- Nov-Dec- Jan- Feb- Mar- Apr02 02 02 02 02 02 02 02 02 02 02 02 03 03 03 03 03 03 03 03 03 03 03 03 04 04 04 04
-20
% share (3 stone)
Total DJ
3 stone
Source : DDB
2004 New Initiatives
USA
Japan
Copyright De Beers
India
2004
China
Nakshatra Flagship
• Nakshatra (Constellation) revitalised floral
jewellery
• Launched October 2000
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• Sales over $100m in 3 years. No. 1 brand in India
2004
• Awarded
status
Aishwarya Rai – Brand
ambassadress
Copyright De Beers
2004
2004 New Initiatives
USA
Japan
Copyright De Beers
India
2004
China
The DWR cultural imperative has
been quickly adopted in
China’s major cities
DLJ acquisition amongst all recently married women
84%
73%
66%
54%
1997
2000
2002
43%
33%
Copyright De Beers
2004
21%
13%
Shanghai
Beijing
Source: China DWR 1997; China DCJ 2000, China DCJ 2002
Guangzhou
1999 Strategic Plan
Driving
demand
Supplier of
Choice
Copyright De Beers
De Beers’
Brand
2004
Effective
Organisation
Driving demand through efficient
Channels for Trilogy
DTC
and
Six Clients
Three
Major
Manufacturers
Copyright De Beers
Most
Major
Retailers
2004
Strong
Consumer
Campaign
Supplier of Choice
Copyright De Beers
2004
What Has Been Achieved….
Post
SOC
Pre
SOC
• Commodity focus
• Consumer dreams and needs focused
• Little product differentiation
• Product differentiation
• Low investment in marketing
• Higher investment in marketing
• Few brands
• Some recognised brands
• Luxury goods beating us
• Diamonds closing the gap
Copyright De Beers
2004
• Few proprietary channels
• Many proprietary channels
• Price driven
• Added value driven
• Unhealthy declining industry
• Healthy growth driven industry
• High stocks poor business
• Low stocks good business
Major Competitors
• Luxury travel
• Luxury watches
• Hi-Tech equipment
Copyright
De Beers
• Luxury
leather
goods
• Luxury fashion
2004
Areas of focus: Conflict Diamonds
Copyright De Beers
2004
Area of focus : Synthetics!
Firms currently producing synthetics:
•Apollo
•Gemesis
Copyright De Beers
2004
Current workstreams
•
•
•
•
•
Enhance Consumer Confidence
Trade education
Diamond promotion
Detection technology
Promoting
Disclosure
Copyright
Debest
Beers
practice
• Vigilance
• Maintaining perspective
2004
Our Strategic Objectives
We will be focussed on:
1.
2.
3.
4.
5.
6.
Driving consumer demand
Maintaining consumer confidence
“Supplier of Choice”
“Purchaser of Choice”
Copyright
De talents
Beersof our employees
The skills and
Providing exceptional value to our
shareholders
2004
Gary Ralfe
Copyright
Beers
Managing De
Director
De Beers
2004
Mining and Exploration
Historic Performance
DE BEERS GROUP
Total Diamond production (1995 - 2003)
50,000
+ 9%
45,000
+9%
CAGR 7%
Diamonds Recovered (Carats 000's)
40,000
35,000
30,000
25,000
Copyright De Beers
2004
20,000
15,000
10,000
5,000
1995
1996
1997
1998
1999
2000
2001
2002
2003
Mining and Exploration
2004 Production issues
Diamonds recovered
2003
Annual
2004
Annual
Actual
Million
Carats
DBCM
Namdeb
Debswana
Williamson
Total
August 2004
Budget
Million
Carats
Budget YTD
Million
Carats
Actual YTD
Million
Carats
Variance
Budget v
Actual YTD
Year-end
Forecast
Million
Carats
11.9
14.2
9.1
8.5
-7.2%
13.4
1.5
1.7
1.2
1.4
15.9%
1.9
20.3
18.1
-10.8%
29.6
Copyright
De
Beers
30.4
30.9
2004
0.2
0.3
0.2
0.2
13.9%
0.3
44.0
47.0
30.8
28.1
-8.6%
45.2
Continuing to Drive Supply
Beyond 2004 - Production Forecast
Supply Growth 2004 - 2009
54
In the project pipeline
Projects under review
Carats recovered - Million
52
Base Case
50
48
Copyright De Beers
2004
46
44
42
2004
2005
2006
2007
2008
2009
Continuing to Drive Supply
Beyond 2004 - Current Projects
• Major Planned Expenditure (Base Case)
Total additional
production1
Production
commences
Full
prod.
Estimated
capex2 $m
2m carats
2004
2004
62
Finsch Block 4
17m carats
2004
2006
302
BB1E Cullinan
5m carats
2004
2007
30
2008
2008
512
2008
2010
447
Elizabeth Bay Upgrade
Snap Lake
Orapa 3
Total
1
2
carats
Copyright19mDe
Beers
8.5m carats
2004
51.5m carats
Total additional production shown for the life of the project.
Approved capex is converted to US$ at R6.35 = US$1 and CS$1.34 = US$1 as per 2004 forecast average exchange rate.
1353
Continuing to Drive Supply
Beyond 2004 - Current Projects
• Projects under review:
Total additional
production1
Production
commences
Finsch Plant Upgrade 2m carats
Victor
6m carats
C-Cut Cullinan
115m carats
Finsch Block 5
16m carats
Total
139m
carats
Copyright
De
Beers
1
2
2006
2008
2009
2009
Full
prod.
2007
2008
2012-14
2010
2004
Total additional production shown for the life of the project.
Approved capex is converted to US$ at R6.35 = US$1 and CS$1.34 = US$1 as per 2004 forecast average exchange rate.
Estimated
capex2 $m
90
625
1291
425
2431
Continuing to Drive Supply
In the project pipeline
–
South Africa
•
Voorspoed (production from 2007)
•
Venetia
–
Underground (2015)
–
Satellite pipes
–
Copyright
Deat existing
Beers
2004
Botswana:
multiple projects
mines
–
Canada
•
Gahcho Kué (production from 2012)
Continuing to Drive Supply
Advanced Exploration Projects
Canada
o
Attawapiskat Satellites
o
Forte a la Corne JV
o
Knife Lake JV
o
Hardy Lake JV
o
Rockinghorse JV
Russia
o
Copyright De Beers
Grib
2004
Botswana
o
Jwaneng DK7
o
Orapa Satellites
Guinea, Gabon, Zimbabwe, South Africa, Brazil
Mining and Exploration
Supply side challenges
• Jwaneng Lease Renewal
• Rand strength - impact on marginal mines
• Working stock levels
Copyright De Beers
• De Beers market share
• Alrosa contract
2004
New Organisation
DBsa
Nicky Oppenheimer
DBsa
De Beers Group
Services
Gary Ralfe
Gary Ralfe
Strategy
& CFD
Business
Group
Development Director
Ollie Oliveira
Ollie Oliveira
Debswana
Louis Nchindo
Blackie Marole
Namdeb
IngeZaamwani
DTC
Gareth Penny
(MD Designate)
DBCM
Jonathan
Oppenheimer
(MD Designate)
(MD Designate)
Group CFO
Group
CFO
Kell
Paddy
Paddy
Kell
Group Mining/Tech.
Group Mining &
Services Director
Exploration
Director
Gavin Beevers
Beevers
Gavin
Copyright De Beers
Group IT IT
Director
Group
Director
2004
Debbie
Farnaby
Debbie Farnaby
Group General
Group General
Counsel
Counsel
Glenn Turner
Turner
Glenn
Group
HRHR
Director
Group
Director
Craig Mudge
Craig
Mudge
External Affairs Director
Being recruited
External Relations
• USA
–
DoJ settlement
–
Civil litigation
• Angola
–
Arbitration settlement
• Russia
–
Copyright De Beers
Alrosa trade agreement
2004
External Relations
• RSA
–
Transformation and Black Economic Empowerment transaction
–
Diamond Amendment Bill
• Botswana
– Jwaneng Lease Renewal
• Namibia
– Renewal of sales agreement
Copyright De Beers
2004
Adjacent Businesses
• Element 6

Sales H1 2004 up 20% compared to H1 2003 to $121m

Net earnings H1 2004 more than tripled compared to H1 2003 from $4.5m to $14.6m due to
efficiency improvements
• De Beers LV
Copyright De Beers
2004

Total sales 2004 YTD $10.5m (+4% > budget)

New Chief Executive and strengthened management team

US rollout planned for 2005

Both shareholders committed to long term investment of $400m ($80.5m invested to date by De
Beers)
Primary strategic levers
Profitability
Sustainability
1. Demand growth
5. Producer proposition
2. Profitable production growth
6. Synthetics response
3. Creating
value through
Copyright
DetheBeers
DTC
4. Cost and working capital
efficiencies
7. Organisation effectiveness
2004
Strategic Goal
Maintain the leadership position of the De Beers
Group of Companies and deliver sustainable
returns on capital in line with this position.
Copyright De Beers
2004
Q & A SESSION
Copyright De Beers
2004