presentation to anglo american analysts and investment banks/media/files/a/... · presentation to...

Presentation to Anglo American Analysts and Investment BanksLondon, 29 September 2005

AGENDA

• Welcome and introduction Gary Ralfe

• Finance Update Paddy Kell

• De Beers Strategy 2005 to 2009 Gareth Penny

• Supply Side Opportunities Ed Dowling

• Demand Side - DTC Varda Shine

• Summary Gary Ralfe

• Q&A

Demonstration of Synthetics Detection Equipment

• Chapter 1 concludes (99-04)

• Highlights 2005

Chapter 1- De Beers share price performance was “pedestrian”

0

100

200

300

400

Indexed (Jan 90=100)

De Beers Share Price vs. Dow Jones

1991 1992 1993 1994 1995 1996 1997 1998

Compound Annual Growth

(1990-1999)

14%

(3%)

Dow Jones

De Beers

1999

Source: Datastream

1990

1990

Source: De Beers Corporate Finance; Bain Analysis

Economic Profit

NOPAT

US$M

1,000

500

0

(500)

(1,000)

1991 1992 1993 1994 1995 1996 1997 1998

Chapter 1 - A company which had destroyed value over a decade

Transform De Beers’ gem

diamond operations into a demand

driven business increasing its

shareholder value to $10Bn by 2004

Driving Demand

Supplier Of Choice

Rapids As Is Plus

Vision

Strategic initiatives

Chapter 1 - In 1999 we transformed from a supply control to a demand driven business

(1) Implied see-through Market Value of diamond business•(2) NPV at privatisation (TFR Model) + cash and other assets of US $1.8 bn

(2)

(1)

(2)

Enterprise Value ("EV") - Past, Present and Future

9.3

5.7

-1.8-2

0

2

4

6

8

10

12

14

1991-2001 June 2001 2009/10 Objective

$ bn

Chapter 1 - Diamond Business

(1)

CUMULATIVE THRESHOLD CASHFLOWACTUAL TO 31 DECEMBER 2004

3 500

-

4 5004 591

4 010

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

2001 2002 2003 2004

US

$ M

illio

ns

ThresholdStretchOriginal PlanActual to 2003 (Ave R7,64)Actual to 2004 (Ave R6,51)

Chapter 1 - Cash flow generation

Chapter 1 – Supply side summary

Robot99-04 (A)

‘History’Average CAGR

(A)

SLA

3.5%1.2%Share of world production (by carats)

-2.3%0.9%Margin per ton

-0.7%-0.6%Revenue per ton

4.4%-8.5%Cost per ton

6.5%4.1%Mining revenue

7.2%5.6%DB tons treated

7.8%2.5%DB carat production

-0.2%0.4%Share of world production (by value)

Chapter 1 - Supply side summary ctd….

Robot99-04 (A)


(A)

SLA

-0.4%6.6%Profit per Manhour

2.0%5.7%Tons per Manhour

Chapter 1 – Demand side summary

Robot99-04 (A)


(A)

SLA

-20%

-19%

19%

0.2%

-4.8%

1.8%

-0.9%

1.4%

N/AGlobal Quality Marketing Spend

-1.7%Market Share

0.3%Real Rough Price Growth

0.8%Real Rough Sales Growth

Dem

and Grow

th

1.5%$ PWP Consumer Demand Growth

Efficiency

0%Pipeline Length - London

1%Rough Stock Levels

1.7%DTC Marketing Spend

Chapter 1 – Financial Summary

12.7%6.9%Average ROCE

Robot99-04 (A)


(A)

SLA

1266835Average EBITDA

1406621Average Operating Cash Flow

Chapter 1 Conclusions

• Supply Side– Production growth has outperformed history– Share of world production, by value, has been in decline– Challenges remain in terms of efficiency and productivity

• Demand Side– Significant improvements in pipeline efficiencies– Significant stock reductions– DTC market share in decline– Price/sales growth still modest

• Financials– Strong financial performance particularly with regard to cash flow

H1 2005 Highlights

• Strong rough market

• DTC adding value, driving demand

– New client list– Value Added Services launched

• Angola exploration agreement

• Canada capital projects

• BEE

• Re-financing of DBsa

H1 2005 Challenges

• Diamond Amendment Bill

• Beneficiation in producer countries

• Internal transformation / new organisation

• Transformation in South African environment

• “Hot” labour environment in global mining

• Exchange rate– H1 2005 $1:R6.17– H1 2004 $1:R6.58

• Legal– Brussels– USA

Production Table

4.8 22.6422.6 19.3423.72GRAND TOTAL

(15.2)0.12(19.8)0.120.10Williamson

9.7 6.7319.0 6.217.39DBCM

(1.4)0.96(0.6)0.960.95

3.1 14.8226.8 12.0515.28Debswana

Variance %(Million carats)

Variance %

(Million carats)

(Million carats)

Budgetvs H1 2004ActualActual

H1 2005H1 2005H1 2005 H1 2004H1 2005

Namdeb

DTC Sales

• 2 price increases of 3% this year

• Rough market strong

• Client selection – 11 new clients, Total of 93 DTC clients for a 2.5 year contract period

• Value Added Services launched in July 2005

+7%3.03.2Sales%H1 2004H1 2005$Billion

AGENDA







• Q&A


Financial summary

$728m$736m+1%EBITDA

19.0%14.3%ROCE

6.586.17-6%R/$ exchange rate

$871m$158mOperating cash flow

$424m$336m- 21%Headline earnings

$373m$345m- 8%Own earnings

$3.0bn$3.2bn+ 7%DTC published sales

H1 2004H1 2005

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1998 1999 2000 2001 2002 2003 2004 H1 2005

ROCE

Based on headline earnings

14.3%

2009

Financial ratios

20.8%28.7%Net gearing*

35%40%Tax rate

20%18%Net diamond account margin

Restated2004 H12005 H1

* Defined as net interest bearing debt as a percentage of total capital employed

AGENDA







• Q&A


De Beers Strategy 2005 - 2009

Gareth PennyMD Designate

De Beers Group

CHALLENGES

• SUPPLY SIDE• Diamond Amendment Bill• Beneficiation in producer countries• Internal transformation / new

organisation• Transformation in South African

environment• “Hot” labour environment in global

mining • Exchange rate• Legal

•

DEMAND SIDE• Maintaining demand growth• Cont. to be the Supplier of Choice• Competition from luxury goods• Synthetics response• Building Value through the DTC• Maintain Industry transformation• Legal

De Beers Group has a planDe Beers Group has a plan

5. Producer partnerships

6. Synthetics response

7. Organisation effectiveness

1. Demand growth

2. Profitable production growth

3. Value creation through the DTC

4. Cost efficiencies

Drive Returns on Capital Sustainable

DRIVE RETURNS ON CAPITAL

DEMAND GROWTH

3.2%

5%

-0.2%

-1.0%

5.0%

94-98* 99-04* 05-09*


DEMAND GROWTHWe need to maintain the growth in quality trade marketing spend

Client IndirectGlobal

Other

TaiwanFrance

ItalyHong Kong

Japan

USA

2000 2001 2002 2003F

186

244

365

429

0

100

200

300

400

$500M

Quality trade marketing investment, 00-03

32%

'00-'03CAGR

44%

19%

-4%10%24%12%33%


PROFITABLE PRODUCTION GROWTH


PROFITABLE PRODUCTION GROWTHOpportunities lie in four main areas (Angola, Russia, DRC

and India)


PROFITABLE PRODUCTION GROWTH• GME Business Unit:

– Portfolio development – enabling focus on the high value prospective areas and projects

– ANDD – aim to halve the time taken from targeting to delivery of new mines

– GME restructuring - to enable focus on core functions of supply delivery

• Operational excellence – Asset Efficiency improvement – A new safety BHAG


VALUE CREATION THROUGH THE DTC

Supplier of Choice


COST EFFICIENCIESIn all operations and business units

SUSTAINABLE

PRODUCER COUNTRIES

TanzaniaCanadaRussia

NamibiaSouth AfricaBotswana

SUSTAINABLE

SYNTHETICS RESPONSE

SUSTAINABLE

ORGANISATION EFFECTIVENESS

• Developing Group Purpose, Vision & Values

• Group structure

• Talent Management

• New appointments and Succession Planning

De Beers Group has a planDe Beers Group has a plan

5. Producer partnerships

6. Synthetics response

7. Organisation effectiveness

1. Demand growth

2. Profitable production growth

3. Value creation through the DTC

4. Cost efficiencies

Drive Returns on Capital Sustainable

DE BEERS CHAPTER 2 TARGETS

Group stretch targets for 2009:

EBITDA $2bn

ROCE 20%

Group Enterprise Value $12bn

AGENDA







• Q&A


Dr EC Dowling

Group Mining and Exploration Director

De Beers 29/09/2005 12:37

JV Partner Companies

Operating Companies

De Beers Group organisation chartDe Beers s.a.

Board of DirectorsChairman

NF Oppenheimer

De Beers GroupManaging Director

GM Ralfe(GPH Penny Designate)

Boards of DirectorsGovernment Representatives

De Beers Representatives

DebswanaManaging Director

B Marole

NamdebManaging Director

I Zaamwani

DBCM Managing DirectorJME Oppenheimer

DTC Managing Director

GPH Penny(V Shine – Designate)

Group Mining & Exploration

DirectorEC Dowling

Strategy & Business

Development Director

MLS D’Oliveira

External Relations Director

S LussierFinance Director

GPL Kell

Legal CounselB Cleaver

Human Resources Director

CW Mudge(L Smith –Designate)

IT DirectorDA Farnaby

De Beers 29/09/2005 12:37

Develop and execute a Develop and execute a supply strategy which supply strategy which

delivers increasing value to delivers increasing value to De Beers Group and De Beers Group and Partners Partners ……. forever . forever

GME Purpose

De Beers 29/09/2005 12:37

De Beers Group safety performance

LTIFR compared with Anglo American (2nd quarter 2005)

0.00.20.40.60.81.01.21.41.61.82.0

Ang

lo P

latin

um

Ang

lo G

old

Ash

anti

Ang

lo E

xplo

ratio

n

Ang

lo C

oal A

ustr

alia

De

Bee

rs D

TCA

nglo

Indu

stria

lm

iner

als

Ang

lo B

ase

met

als

Ang

lo F

erro

us m

etal

s

Ang

lo In

dust

ries

Ang

lo C

oal R

SA

Ang

lo M

ondi

DB

CM

GM

E

De

Bee

rs G

roup

Deb

swan

a

Nam

deb

LTIFR AAC LTIFR DB

Snap Lake

Victor

Williamson Diamonds

De Beers 29/09/2005 12:37

Supporting Functions

Business Value Chain

Finance and IT

GME Focus Areas

RightsAcquisition

(Legal / Exploration)

Design Build

(Projects)Operations

MarketingSelling

(Commercial)

Safety, Health and Environmental Management

HR and Training

Engineering and Maintenance

Supply Chain and Logistics

Technical Services and R&D

Group Portfolio Development – where to focus efforts

De Beers De Beers Group Group

Portfolio Portfolio Development Development and Executionand Execution

Group Group Recommended Recommended

PortfolioPortfolio

De Beers De Beers Preferred Preferred PortfolioPortfolio

Group Agreed Group Agreed PortfolioPortfolio

Manage and Manage and maintain The maintain The

World World Portfolio Portfolio

ModelModel

Supply Supply Forecast Forecast (Find and (Find and Produce)Produce)

Group Partner Forum

Investment Committee

Partner Portfolio

Management

Group Portfolio Forum

De Beers Group Company and

Partner Alignment

De Beers Group Demand/Supply

Alignment

De Beers 29/09/2005 12:37



Finance and IT

GME Focus Areas

Design Build

(Projects)

RightsAcquisition


OperationsMarketing

Selling(Commercial)


HR and Training




De Beers 29/09/2005 12:37

diamond recovery process technology for more value from ore

De Beers 29/09/2005 12:37

Raven : Final production stage by laser sorting, shown here at Namdeb

De Beers 29/09/2005 12:37

Vision Size Frequency Distribution - on-line imaging for process control and supply pipeline informatio– newly developed

De Beers 29/09/2005 12:37

Accelerated New Diamond Delivery (ANDD) – shortening the time from Targeting to Mine Delivery

ANDD Process …

6 Years

… shortened the cycle time from 12 to 6 yearsA

cces

s to

G

roun

d

Dis

cove

r D

epos

its

Eval

uate

D

epos

its

Con

cept

ual

Stud

ies

Pre-

Feas

ibili

ty

Feas

ibili

ty

Com

mis

sion

an

d C

onst

ruct

ion

• Gain Faster Access

• Ensure Sustainable Access

• Portfolio driven • Quick decision making• Project management principles• Best resources; best opportunity

• Assurance • Understand permitting • Use of evolving Multi-disciplinary teams

• Clear Strategy• Faster

Evaluations• Customise

process to business case

• Take quantified risks

• Use Conceptual Framework to guide decision making

• Reduce risk through Phased Mining

• Construct mine using Standard Building Blocks

Strategic AccessStrategic Access ExplorationExploration Group Portfolio Development ProjectsProjects

De Beers 29/09/2005 12:37

Front end loading in projects – to ensure successful execution

De Beers 29/09/2005 12:37

Venetia

ProjectsOrapa

Finsch Plant

Finsch Underground

De Beers 29/09/2005 12:37

Projects

Victor Snap Lake

Voorspoed

SASA – Dock Express

De Beers 29/09/2005 12:37



Finance and IT

GME Focus Areas

OperationsDesign Build

(Projects)

RightsAcquisition


MarketingSelling

(Commercial)


HR and Training




De Beers 29/09/2005 12:37

Land Operations

De Beers 29/09/2005 12:37

De Beers Marine Operations

De Beers 29/09/2005 12:37

Seabed visualisation

Combined Jago/AUV survey

AUV with 3D “wing”

3D data

De Beers 29/09/2005 12:37

De Beers Marine Namibia rate improvement history

0

50

100

150

200

250

300

1999 2000 2001 2002 2003 2004 2005 2006

Min

ing

Rat

e in

m2/

h

Enlargeddrill pipe

Wide Channel

Jet Water

DBE II

DBE 2.5

Enlargeddrill pipe

Wide Channel

Jet WaterJet Water

DBE IIDBE II

DBE 2.5DBE 2.5

De Beers 29/09/2005 12:37

De Beers Marine Namibia productivity improvement (Utilisation & Rate)

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2,200,000

2,400,000

2,600,000

2,800,000

3,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 F/C 2006 B

AR

EA M

INED

- M2

0.000

0.100

0.200

0.300

0.400

REC

OVE

RED

GR

AD

E - C

ts/M

2

Area - DP,DA & GBRecovered GradeMining Rate

De Beers 29/09/2005 12:37

De Beers Production carats

-

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mill

ions

De Beers Production carats

De Beers 29/09/2005 12:37

Conclusion

These processes, systems and technologies will assist to significantly increase the De

Beers Group's productive capacity

AGENDA







• Q&A


Copyright De Beers 2004

De Beers Sales and Marketing

Varda ShineMD Designate

Diamond Trading Company


De Beers’ Sales and Marketing Plan

Driving demand

Supplier of Choice

Consumer Confidence

Effective Organisation


3.2%

-0.2%

-1.0%

5.0%

94-98* 99-04*

Driving DemandUS$ Retail Value

*Earlier year for each period is the base year for the CAGR


The rate of growth in World diamond jewellery sales is steady(% growth US$ PWP)

4%

7%

9%

6%

0%

5%

10%

2002 2003 2004 H1 2005


Estimated H1 2005 sales of DJ +5% in LC and +6% in US$ PWP

5

24

7

9

-2

-3

1

-1

-6

2

6

WORLD

Turkey

Gulf

India

Taiwan

Hong Kong

China

France

Italy

Japan

USA

+6% US$ PWP


2005 Initiatives

JapanUSA India China


All diamond jewellerygrowth coming from De Beers programmes

$24.9

$31.5

$0

$10

$20

$30

1999 2000 2001 2002 2003 2004

($ Billions)

Diamond Jewelery De Beers Programmes

+247%

+0%

Total Market Growth 1999-2004


Anniversary

Diamond Right Hand Ring

ChristmasPast, Present, Future



2005 Initiatives


Value Share and Growth Trend (12mmt)

3-stone Diamond Jewellery growing rapidly

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

-20

-10

0

10

20

30

40

50

60

70

80

Jan-02

Feb-02

Mar-02

Apr-02

May-02

Jun-02

Jul-02

Aug-02

Sep-02

Oct-02

Nov-02

Dec-02

Jan-03

Feb-03

Mar-03

Apr-03

May-03

Jun-03

Jul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

Apr-04

(%)

% share (3 stone) Total DJ 3 stone Source : DDB


Innovative marketing to

stimulate demand

Headline:

“It’s a huge hit –we’re very sorry”



2005 Initiatives


Strong retail growth driven by De Beers

Total 2004 DJ Retail Market:

Rs67.2Bn

PWP for 2004:

$961m

0

20

40

60

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Retail Market Size

Rupees Bn

RetailGrowth 21%21%6%6%10%26%10%12%8%

2004200320022001200019991998199719961995


Nakshatra: the No 1 jewellery brand in India



2005 Initiatives


0

100

200

300

400

500

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04

$m

$PWP

118653-1131110252942421

‘04‘03’02‘01‘00‘99‘98‘97’96‘95‘94‘93‘92‘91‘90$m PWP Trend %

Strong retail growth driven by De Beers


The Diamond wedding ring: a cultural imperative in the big cities

• China: the diamond jewellery market of the future

• 11% growth in 2004 vs 2003, the first double digit increase

• 8 out of 10 brides in Shanghai receives a diamond for her wedding

• 51% Acquisition rate in urban China


New Campaign: Eternal Girl



Driving demand

Supplier of Choice

Consumer Confidence



De Beers’ SalesSights 1-7 comparison 99-05

3,813

4,640

3,395

3,9794,137 4,182

4,770

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

99 '00 '01 '02 '03 '04 '05

+14.1%

Source: DTC Sales PlanningNote : Excludes sales to the Polished Division

$ m


Supplier of Choice

• Second client selection 2005 – 2008 = 93 clients (from 14 to 19 in S.A. 60 % BEE compliant)

• An initiative to provide a commercial platform for producer country beneficiation

• Growth in efficient distribution and effective marketing continues to transform the industry with the application of Supplier of Choice mechanisms.


Assessment

Modelling systems determine applicants’ relative performance against the Sightholder Criteria

DistributionFinance

MarketingBest

Practice Principles

Manufacture

Market Position


Three factors drive all SoC decisions

Assessment

ApplicationsAvailability


Client Marketing Focus

8%

23%

33%

44%

2001 2002 2003 2004

Goods in Efficient Channels


Driving Value for Sightholders


Driving demand

Supplier of Choice

Consumer Confidence




Area of focus: Consumer Confidence

Potential issues affecting our industry -• Conflict diamonds• Money-laundering• Social impact• Environmental impact• Synthetics• Treatments


Current workstreams

• Research & Planning – to be fully aware of awareness and attitudes

• Forevermark – to proactively mark genuine natural, ethical diamonds

• Natural Marketing – to win the hearts and minds of consumers

• Trade Education – to win the hearts and minds of the downstream trade


• Disclosure – to ensure all synthetics are fully disclosed

• Detection – to rapidly identify any genuine diamond

• Patents – to have legal protection in place for our technologies

• Best Practice Principles – to proactively manage corporate risk

Current workstreams


Driving demand

Supplier of Choice

Consumer Confidence




DTCInternational

DTCBotswana

DTC (Russia)

DTC(Canada)

DTC Namibia

DTCItaly

DTCSA

DTCIndia

DTC Hong Kong

DTCGulf

DTCJapan

Organisational Effectiveness

AGENDA







• Q&A


Chapter 2…

• DTC – adding value, driving demand

• Mining & Exploration – profitable production growth

• Promotion of natural diamonds

• Partnerships

• Organisation Effectiveness

• Purpose, Vision & Values

• Succession

AGENDA







• Q&A


presentation to anglo american analysts and investment banks/media/files/a/... · presentation to...

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