De Beers Annual Results 2003
Anglo American PLC
05 February 2004
News Release
5 February 2004
De Beers Societe Anonyme ("Dbsa") today reported headline earnings for the year
ended 31 December 2003 of US$676 million.
Anglo American plc ("AA plc") arrives at its headline earnings in respect of De
Beers by accounting for the interests arising from the ordinary shares and the
10% preference shares it holds in DB Investments ("DBI").
AA plc will therefore report headline earnings of US$386 million for the year
ended 31 December 2003 from its investment in DBI, as reconciled in the table
below:
Reconciliation of headline earnings for the year ended 31 December 2003
US$ million Total Ordinary shares Preference shares(3)
• DBI headline earnings - IFRS (100%) 676 - -
• GAAP adjustments (1) 40 - -
• DBI headline earnings - UK GAAP (100%) 716 599 117
• AA plc's 45% ordinary share interest 269 269 -
• Additional 3.65% ordinary share interest 22 22 -
(2)
• AA plc's portion of the preference shares 95 - 95
(3)
• AA plc headline earnings 386 291 95
(1) The GAAP adjustments include +US$39 million relating to the mark-to-market
of interest rate hedging contracts referred to in Dbsa's press release. Whereas
in Dbsa's earnings, the full amount of US$70 million is charged against earnings
in 2003, under UK GAAP only US$31 million is charged against earnings in 2003,
being the portion that was realised in the year.
(2) As a result of the De Beers' partial interest in Debswana Diamond Company
(Proprietary) Limited (one of the shareholders in DBI), AA plc accounts for an
additional 3.65% of DBI's post-tax earnings attributable to ordinary shares.
(3) AA plc grosses up its preference share income to the operating profit level
and accounts for its preference share interest in operating profit, exceptional
items, investment income and net interest, tax and minorities, in the same way
as it accounts for its ordinary share interest in these balances. This
treatment is in accordance with FRS9, paragraph 33, which indicates that where
preference shares are an integral part of the investor's long-term interest, it
is appropriate to include the preference share interest with the ordinary share
interest in determining the investor's overall share of an associate's results.
The headline earnings attributable to AA plc's US$70 million preference share
income are arrived at by adjusting for a proportion of exceptional items (+US$2
million) and goodwill amortisation (+US$23 million) in the same way as the
ordinary share interest is calculated.
In the year ended 31 December 2003, AA plc received a total of US$238 million in
dividends from DBI, consisting of US$56 million dividends on ordinary shares
relating to FY 2002, a US$112 million interim dividend on ordinary shares for
2003, US$35 million dividends representing the second US$35 million payment on
preference shares for 2002, and a US$35 million interim dividend on preference
shares for 2003. A US$68 million final dividend on ordinary shares relating to
FY 2003 and the second US$35 million payment on preference shares for 2003 are
expected to be received in early 2004.
In the year ended 31 December 2002, AA plc received a total of US$106 million in
dividends from DBI, consisting of US$29 million dividends on ordinary shares
relating to FY 2001, US$42 million dividends on preference shares (representing
7 months of 2001 following the De Beers transaction), and a US$35 million
interim dividend on preference shares for 2002.
Reconciliation of headline earnings for the year ended 31 December 2002 (4)
US$ million Total Ordinary shares Preference shares
• DBI headline earnings (100%) - restated (4) 575 - -
• GAAP adjustments - restated (4) 18 - -
• DBI headline earnings - UK GAAP (100%) 593 486 107
• AA plc's 45% ordinary share interest 219 219 -
• Additional 3.65% ordinary share interest 18 18 -
• AA plc's portion of the preference shares 87 - 87
• AA plc headline earnings 324 237 87
(4) As explained in Dbsa's press release, Dbsa's headline earnings for the year
ended 31 December 2002 have been restated to US$575 million (previously reported
as US$570 million) following its adoption of International Financial Reporting
Standards. As the restatement does not affect the UK GAAP figures previously
reported by AA plc, the GAAP adjustment has also been restated accordingly.
The above figures are unaudited.
De Beers Societe Anonyme
(Incorporated under the laws of Luxembourg)
Thursday 5 February 2004
DIRECTORS' COMMENT
Results for the year ended 31 December 2003
2003, overall, was a good year for the diamond industry with further encouraging
growth in retail sales of diamond jewellery. In spite of war in the Middle East
and the SARS virus impacting negatively on the global economy and consumer
confidence, diamond jewellery sales during the first half of the year were
marginally positive compared with the first half of 2002. However, strong growth
in sales was reported in the third and fourth quarters as the world economy and
consumer confidence rebounded. Preliminary indications are that global retail
sales of diamond jewellery for the year as a whole were about 5% higher than the
previous year in local currency and, because of the weakness of the US Dollar,
about 6% higher in US Dollars. The USA, which accounts for over 50% of world
diamond jewellery sales, was particularly strong as were India, China and the
UK. Encouragingly, Japan also recorded growth for the first time in a number of
years. These results should ensure that any excess pipeline stocks held by the
trade would have been cleared by the 2003 year end and hopefully should help to
reduce debt levels in the cutting centres which have been at historically high
levels.
The strong demand for rough diamonds from the cutting centres in the first half
of the year continued through into the second half and full year sales by The
Diamond Trading Company ("DTC"), the marketing arm of De Beers, were US$5.52
billion, 7% more than in 2002.
During the year, the DTC raised its rough diamond prices on three occasions and,
by the year end, its prices were, on average, about 10% higher than at the
beginning of the year. Increased sales at higher prices and lower financing
costs more than compensated for the negative impact on De Beers' 2003 results of
the significant appreciation of the Rand against the US Dollar in 2003, and
headline earnings at US$676 million were 17.6% higher than for 2002. Diamond
stocks were reduced further by nearly US$700 million during the year and, for
the second year running, operating cash flow of US$1.6 billion was generated.
This enabled the group to reduce net interest bearing debt from US$1,716 million
to US$906 million and to reduce net gearing to 15% (2002: 28%). De Beers intends
to give notice in June 2004 to preference shareholders of an early redemption of
25% of its preference shares, amounting to US$214 million.
The Board has recommended to the shareholders that a final ordinary dividend of
US$150 million in respect of the year 2003 be declared at the forthcoming Annual
General Meeting. Together with the interim ordinary dividend of US$250 million
paid in December 2003, total ordinary dividends for the year amount to US$400
million (2002 : US$124 million).
Outlook for 2004
There is optimism that 2004 will be another good year for the diamond industry.
Macro economic indicators are positive for the global economy and there is
growing evidence that the transformation of the diamond industry, stimulated by
De Beers' Supplier of Choice strategy, is producing the desired results. Greater
investment by the trade in marketing and branding is driving demand for diamond
jewellery and helping diamonds to gain a larger share of the luxury goods
sector.
Responding to the current strength of the diamond market and the positive
outlook for 2004, the DTC had a strong first sight at which it raised its rough
diamond prices by a further 3%.
Debswana Diamond Company's lease of the Jwaneng mine falls due for renewal in
July 2004, and discussions have begun with our partners, the Government of
Botswana.
Management changes
Peter Somner, after 33 years of executive service to the DTC and four years as a
Director of De Beers, is taking early retirement and stepping down from the
Board. We are grateful for his enormous contribution to the De Beers Group.
With effect from 1 July 2004, Jonathan Oppenheimer is appointed Managing
Director of De Beers Consolidated Mines Limited and Gareth Penny of the DTC.
They each succeed Gary Ralfe who remains Managing Director of the De Beers Group
of Companies.
De Beers Societe Anonyme
Consolidated Income Statement
for the year ended 31 December 2003
(Abridged)
US Dollar millions
Year to Year to
31 December 2003 31 December 2002
(Note 1)
Diamond sales
-DTC 5 518 5 154
-Other 397 380
Trade investment and other income 656 592
6 571 6 126
Deduct:
Cost of sales 4 794 4 444
Depreciation and amortisation (Note 2) 294 250
Sorting and marketing 490 391
Exploration and research 147 126
Corporate expenses 52 42
Net diamond account 794 873
Deduct:
Net interest paid 58 144
Costs related to reorganisation and restructuring 22 44
Income before taxation and debt redemption costs 714 685
Taxation 239 273
Income after taxation but before debt redemption costs 475 412
Attributable to outside shareholders in subsidiaries 10 14
Own earnings before debt redemption costs 465 398
Share of retained income of joint ventures 114 41
Total earnings before debt redemption costs 579 439
Costs of early debt redemption (Note 3) 95
Net earnings 484 439
Headline earnings reconciliation
Net earnings 484 439
Adjusted for:
Amortisation of intangible fixed assets 170 163
After tax surplus on realisation of fixed assets less provisions (3) (27)
Facility fees (Note 3) 25
Headline earnings 676 575
Cash available from operating activities 1 606 1 611
Dividends in respect of:-
2001 - Final Ordinary 65
2002 - Preference 86
- Final Ordinary 124
2003 - Preference 86
- Interim Ordinary 250
De Beers Societe Anonyme
Consolidated Balance Sheet
31 December 2003
(Abridged)
US Dollar millions
31 December 2003 31 December 2002
(Note 1)
Ordinary shareholders' interests 3 549 3 035
Preference shareholders' interests 856 856
Outside shareholders' interests 115 96
Total shareholders' interests 4 520 3 987
Net interest bearing debt (Note 4) 906 1 716
Other liabilities 1 517 1 136
6 943 6 839
Fixed assets 5 145 4 451
Investments and loans 53 33
Diamond stocks and other assets 1 745 2 355
6 943 6 839
Notes and Comments
1. The Annual Financial Statements have been prepared in accordance with
both International Financial Reporting Standards and South African Statements of
Generally Accepted Accounting Practice applying IFRS1 and AC138 ("First Time
Adoption of International Financial Reporting Standards"). The effect of this on
2002's previously reported results has been to increase other liabilities by
US$178 million (before deferred tax of US$46 million), being the recognition of
actuarial deficits in pension funds at 1 January 2002, and to increase net
earnings in that year by US$5 million. The comparative figures in the abridged
consolidated income statement and balance sheet have been restated accordingly.
2. Amortisation amounting to US$144 million in respect of the goodwill
attributable to De Beers Consolidated Mines Limited and De Beers Centenary AG
has been expensed in the current year (2002 : US$144 million).
3. The Senior Debt and revolving credit facilities, arranged
on leveraged buyout terms, were replaced during the current year with a US$2.5
billion revolving credit facility on standard commercial terms with a five year
tenor.
The costs associated with this early debt redemption comprised the balance of
US$25 million of facility fees not yet amortised, and US$70 million in respect
of the mark-to-market of interest rate hedging contracts that were required to
be entered into under the terms of the original Senior Debt facility. These
contracts were being hedge accounted in terms of IAS39 and AC133 (Financial
Instruments: Recognition and Measurement).
4. Cash has been offset against interest bearing debt.
Contacts:
De Beers London:
Lynette Hori +44 20 7430 3509/+44 7740 393260
De Beers South Africa
Nicola Wilson +27 11 374 7399/+27 83 299 5552
Visit the official De Beers group website for more in formation on the Company
and where you can view and download a selection of images -
www.debeersgroup.com. As an additional resource for images, please visit
www.vismedia.co.uk
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