| Thu 11 Feb 2010, 9:46 | | AGL - Anglo American plc - De Beers results for the year ended 31 December 2009 |
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AGL
ANAAL
AGL - Anglo American plc - De Beers results for the year ended 31 December 2009
Anglo American plc
Incorporated in the United Kingdom
(Registration number: 3564138)
Short name: Anglo
Share code: AGL
ISIN number: GB00B1XZS820
("Anglo American plc" or "the company")
De Beers results for the year ended 31 December 2009
2009 snapshot
- H2 sales increase by 24 percent over H1 for a full year total of US$3.84
billion (2008 US$6.89 billion)
- EBITDA of US$654 million (2008 US$1.222 billion)
- Profit before net interest charges and tax (PBIT) of US$318 million (2008
US$823 million)
- H2 free cash flow of US$161 million resulting in a positive full year cash
flow of US$35 million (2008 US$258 million)
- Full year production and operating costs reduced by 45 percent to
US$1.1 billion (2008 US$2.0 billion)
Industry Overview
In line with most products in the luxury goods sector, the diamond industry was
severely affected in 2009 by the global recession. The combination of three
principal factors - high stock levels throughout the diamond pipeline,
constricted liquidity in the industry, and lower levels of retail and consumer
demand - led to substantially lower demand for rough diamonds. In the consumer
markets we believe global demand for diamond jewellery declined for the full
year in the low single digits, although the fourth quarter showed an improved
and positive trend on 2008. Demand remained strong in the developing markets of
India and China with US Christmas trading results likely to show the first year-
on-year increases since September 2008. Industry inventory and debt levels
reduced as the year progressed, positioning De Beers to benefit from
improvements in consumer demand.
2009 Operating Performance
De Beers responded quickly to the global economic crisis with a 6-point
Recession Action Plan focused on sustaining the business through the recession
and positioning it for future growth. In spite of exceptionally difficult
trading conditions, which saw sales decline from US$6.89 billion in 2008 to
US$3.84 billion in 2009, De Beers exceeded its cost-reduction targets, enabling
the company to remain cash positive for the year and generate positive EBITDA
(US$654 million) and PBIT (US$318 million). The 6-point action plan focused on:
1. Keeping Safety as Top Priority - De Beers` safety performance showed marked
improvement in 2009, and the company is proud to report no fatalities on its
operations. Lost Time Injuries (LTI) decreased to 40 in 2009 from 66 in 2008.
2. Maximising Demand Opportunities - Due to the highly volatile levels of rough
diamond demand, the Diamond Trading Company (DTC) employed a flexible approach
to its sales. The market was affected most acutely in the first quarter, with
both volumes and, to a lesser degree, prices impacted. However, as the year
progressed client demand improved, which allowed the company to increase prices
and sales volumes throughout the second half of the year. DTC sales for the year
totalled US$3.23 billion, significantly below last year (2008: US$5.93 billion)
but above our half year expectations. On the consumer side, Forevermark
continued to expand in China, Hong Kong, Japan and Macau and the brand is now
available in 245 stores across Asia. The Everlon Diamond Knot Collection, which
is a De Beers-devised joint marketing campaign with leading retailers, has made
a strong contribution to improving Christmas diamond sales in the US.
3. Producing In line with Client Demand - At the beginning of 2009 De Beers
dramatically reduced production across its portfolio of mines, in response
to and in line with, reduced demand from DTC Sightholders, This resulted in a
significant reduction in carats produced compared to 2008. Sightholder demand
increased gradually from the second quarter and the De Beers Family of Companies
responded by increasing its production to 18 million carats in the second half
of the year (2008: 24 million carats), an increase of 173 percent compared with
the first half, resulting in a full year total of 24.6 million carats (49
percent below 2008).
4. Driving Cost Reductions across the Business - Across the Family of Companies,
De Beers aggressively tackled costs, achieving a US$0.9 billion reduction in
production and operating costs, down 45 percent compared to 2008.
5. Enhancing Operating Efficiencies -Through a process of de-layering and de-
centralisation of the business, De Beers recorded a 23 percent reduction of its
global workforce.
6. Focusing on Cash Management - De Beers` focus on cash management and capital
expenditure - which was reduced by US$222 million compared with 2008 - enabled
the company to remain cash positive in 2009, in spite of the exceptionally
challenging trading conditions.
Given the nature of the assets, the effects of a weak US Dollar and the impact
of the global recession on pricing and production levels, De Beers has been
required to make a non-cash impairment provision of US$700 million against its
Canadian operations.
Projects
In November, Debswana announced a major US$500 million expansion project (Cut-8)
at Jwaneng Mine that will ensure continuous and profitable production at the
mine until at least 2025. The estimated project cost is likely to total US$3
billion over the next 15 years, and will create access to a further 95 million
carats, with a value in excess of US$15 billion over the life of the mine
Additionally, in November, De Beers announced the sale of its effective 70
percent share in the AK06 diamond deposit in Botswana to Lucara Diamond
Corporation, a Canadian junior diamond mining company, for US$49 million in
cash. In July Mountain Province Diamonds announced that it had entered into an
amended Joint Venture agreement with De Beers Canada on the Gahcho Kue deposit,
which has led to the commencement of the Gahcho Kue Feasibility Study, due for
completion in the fourth quarter of 2010.
Refinancing
As reported in the interim results, during the first half of the year De Beers
commenced discussions with its lending banks to renew its outstanding US$3
billion borrowing facility, of which US$1.5 billion becomes due and payable in
March 2010. International and South African financing term sheets have been
agreed, and credit approval granted, by the syndicates of lending banks. In
addition, the shareholders have shown strong support by agreeing to subscribe
for additional equity capital of US$1 billion in proportion to their existing
equity holdings, which will enable a reduction in overall debt and strengthen
the De Beers Group balance sheet. The detailed documentation of the new
financing structure is expected to be concluded before the end of March 2010.
Outlook
2009 presented some of the most challenging trading conditions the diamond
industry has experienced. However, as a result of De Beers` actions, our clients
have been able to reduce inventory and debt levels, and with better than
expected consumer sales in the fourth quarter, sentiment has improved markedly
from a year ago. Demand for rough diamonds has been much improved at the first
Sight of the year and expectations are for this to continue in the upcoming
February Sight. However, De Beers will continue to take a cautious and prudent
approach to production and sales levels for 2010. Consumer demand for diamond
jewellery is beginning to recover, driven in part by the strength of the
developing markets of China and India. However, with the fragility of the world
economy and perceived weakness of the global recovery post recession, the
company would only expect a gradual increase in production levels, sales and
prices.
Desire for diamonds remains strong and, given the improvement of industry
fundamentals, the Directors are cautiously optimistic about medium-term
prospects.
In the longer-term, the fundamental supply / demand dynamics of diamonds remain
highly attractive. Future demand growth for diamond jewellery, driven by the
emerging markets of China and India, is expected to outpace what is forecast to
be lower levels of diamond supply for many years to come, providing a sound
foundation for future profitability.
Management Changes
At the De Beers board meeting on 9 February 2010, it was announced that Group
Technical Director Robin Mills will retire at the Annual General Meeting on 24
March 2010. Jim Gowans, currently CEO, De Beers Canada Inc, will assume the
position of Group Technical Director and join the board at that time.
For a more detailed look at the Operating and Financial Highlights for 2009
please visit De Beers` Operating & Financial Review online at
www.debeersgroup.com/ofr2009
De Beers announces final results as follows:
De Beers Societe Anonyme
Consolidated Income Statement
for the -year ended 31 December 2009
(Abridged)
US Dollar millions
Year Year
31 31 Decembe
December r 2008
2009
3 840 6 888
Total sales (Note 1)
Less: cost of sales 3 513 5 525
Gross profit 327 1 363
Less: operating costs (Note 2) 402 817
Operating (loss) profit (75) 546
Add:
Trade investment income 298 583
Foreign exchange gains (losses) 95 (306)
Profit before interest charges 318 823
and taxation
Less: net interest charges 225 240
(Note 3)
Profit before taxation 93 583
Less: taxation 125 304
(Loss) Profit after taxation (32) 279
Less: interests of outside (1) 55
shareholder in subsidiaries
(31) 224
Own (loss) earnings
Add: share of retained (loss) (6) 70
income of joint ventures
Net (loss) earnings before once- (37) 294
off items
Once-off items (Note 4) (706) (204)
Net earnings (743) 90
Underlying (loss) earnings (220) 515
(Note 5)
EBITDA 654 1 222
Consolidated Balance Sheet
31 December 2009
(Abridged)
US Dollar millions
31 31
December December
2009 2008
Share capital and reserves 1 943 2 408
Interests of outside 229 220
shareholders
Total shareholders` equity 2 172 2 628
Shareholders` loans 759 248
Other net interest bearing 3 200 3 552
debt*
Other non-current liabilities 709 665
6 840 7 093
Fixed assets 2 795 3 100
Other non-current assets and 2 927 2 933
investments
Net current assets 1 118 1 060
6 840 7 093
Other net interest bearing debt includes short-term borrowings and is net of
cash
De Beers Societe Anonyme
Summary of cash flows
for the year ended 31 December 2009
US Dollar millions
Year Year
31 December 31 December
2009 2008
Cash available from operating 226 700
activities
Less: investing activities
Fixed assets - stay-in-business 150 204
- expansion 31 199
Investments 10 39
191 442
Free cash flow 35 258
Less: financing activities
Ordinary dividends (including 105 358
payments to outside shareholders)
Cash flow (70) (100)
Add (Deduct):
Shareholder advances 553 264
Non cash movements (131) 341
Decrease in net interest bearing 352 505
debt
Notes
1. Total sales of natural rough 3 233 5 930
diamonds (including joint
ventures)
2. Operating costs include:
- Exploration, research and 93 232
development
- Sorting and marketing 131 266
- Group technical services 178 319
and corporate overheads
402 817
3. Net interest charges include 11 16
preference dividends amounting to
4. Once-off items comprise:
Costs in respect of a class 1 7
action settlement agreement
Costs in respect of restructuring 25
of debt
Impairment in respect of Canadian 696
mining assets
Impairment in respect of 176
goodwill attributable to the
Element
Six and DBDJ business
Net costs in respect of (16) 21
restructuring
706 204
5. Underlying (loss) earnings* is
calculated as follows:
Net earnings before once-off (37) 294
items
Adjusted for special items
and re-measurements:
Asset disposals (net) 6 1
Re-measurement gains on (189) 220
financial instruments
Underlying (loss) earnings (220) 515
* Underlying (loss) earnings comprise net earnings attributable to shareholders
adjusted for the effect of any once-off or special items and re-measurements,
less any tax and minority interests. Special items include closure costs,
exceptional legal provisions and profits and losses on the disposal of or
impairments of assets. Special items which are considered to be significant
relative to the results are categorised as being once-off. Re-measurements are
recorded in underlying earnings in the same period as the underlying transaction
against which these instruments provide an economic, but not formally
designated, hedge.
De Beers Societe Anonyme
Other information
US Dollar millions
Year Year
31 December 31 December
2009 2008
Exchange rates
US$ / ZAR average 8.25 7.75
US$ / ZAR period end 7.43 9.28
US$ / C$ average 1.15 1.08
US$ / C$ period end 1.06 1.23
Ordinary dividends paid
2008 - Interim 77
- Special Interim 88
- Final 53
Production summary
Tons Treated 000`s:
DBCM 11 321 21 832
Debswana 17 845 41 012
De Beers Canada 2 466 2 690
Namdeb 3 477 16 922
Williamson Diamonds 2 154
35 109 84 610
Carats recovered 000`s
DBCM 4 797 11 960
Debswana 17 734 32 276
De Beers Canada 1 140 1 640
Namdeb 929 2 122
Williamson Diamonds 134
24 600 48 132
Contacts:
De Beers London:
Lynette Gould +44 20 7 430 3509 / +44 (0) 7740 393 260
De Beers South Africa
Tom Tweedy +27 11 374 7173 / +27 (0) 83 308 0083
De Beers Botswana
Chipo Morapedi +267 361 5205 / +267 715 4662
Visit the official De Beers group website for more information on the Company
and where you can view and download a selection of images - www.debeersgroup.com
11 February 2010
Sponsor: UBS South Africa (Pty) Ltd
Date: 11/02/2010 09:46:02 Produced by the JSE SENS Department.
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