Presentation to Anglo American Analysts and Investment Banks. London, 29 September 2005

Transcription

1 Presentation to Anglo American Analysts and Investment Banks London, 29 September 2005

2 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

3 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

4 Chapter 1 concludes (99-04) Highlights 2005

5 400 Chapter 1- De Beers share price performance was pedestrian De Beers Share Price vs. Dow Jones Indexed (Jan 90=100) Compound Annual Growth ( ) 300 Dow Jones 14% De Beers (3%) Source: Datastream

6 Chapter 1 - A company which had destroyed value over a decade US$M 1, NOPAT (500) Economic Profit (1,000) Source: De Beers Corporate Finance; Bain Analysis

7 Chapter 1 - In 1999 we transformed from a supply control to a demand driven business Transform De Beers gem diamond operations into a demand driven business increasing its shareholder value to $10Bn by 2004 Vision Strategic initiatives Driving Demand Supplier Of Choice Rapids As Is Plus

8 Chapter 1 - Diamond Business Enterprise Value ("EV") - Past, Present and Future (2) 9.3 $ bn 8 6 (1) 5.7 (2) 4 2 (1) June /10 Objective (1) Implied see-through Market Value of diamond business (2) NPV at privatisation (TFR Model) + cash and other assets of US $1.8 bn

9 Chapter 1 - Cash flow generation CUMULATIVE THRESHOLD CASHFLOW ACTUAL TO 31 DECEMBER US $ Millions Threshold Stretch Original Plan Actual to 2003 (Ave R7,64) Actual to 2004 (Ave R6,51)

10 Chapter 1 Supply side summary SLA History Average CAGR (A) (A) Robot Share of world production (by value) 0.4% -0.2% Share of world production (by carats) 1.2% 3.5% DB carat production 2.5% 7.8% DB tons treated 5.6% 7.2% Mining revenue 4.1% 6.5% Cost per ton -8.5% 4.4% Revenue per ton -0.6% -0.7% Margin per ton 0.9% -2.3%

11 Chapter 1 - Supply side summary ctd. SLA History Average CAGR (A) (A) Robot Tons per Manhour 5.7% 2.0% Profit per Manhour 6.6% -0.4%

12 Chapter 1 Demand side summary Demand Growth SLA $ PWP Consumer Demand Growth Real Rough Sales Growth Real Rough Price Growth Market Share History Average CAGR (A) 1.5% 0.8% 0.3% -1.7% (A) 1.4% -0.9% 1.8% -4.8% Robot Efficiency DTC Marketing Spend Global Quality Marketing Spend Rough Stock Levels Pipeline Length - London 1.7% N/A 1% 0% 0.2% 19% -19% -20%

13 Chapter 1 Financial Summary SLA History Average CAGR (A) (A) Robot Average Operating Cash Flow Average ROCE 6.9% 12.7% Average EBITDA

14 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

15 H 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

16 H 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 H $1:R6.17 H $1:R6.58 Legal Brussels USA

17 Production Table H Actual H Actual H1 vs2005 H H Budget H (Million carats) (Million carats) Variance % (Million carats) Variance % Debswana Namdeb (0.6) 0.96 (1.4) DBCM Williamson (19.8) 0.12 (15.2) GRAND TOTAL

18 DTC Sales $Billion H H % 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

19 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

20 Financial summary H H DTC published sales + 7% $3.2bn $3.0bn Own earnings -8% $345m $373m Headline earnings - 21% $336m $424m Operating cash flow $158m $871m EBITDA +1% $736m $728m ROCE 14.3% 19.0% R/$ exchange rate -6%

21 ROCE 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 14.3% H Based on headline earnings

22 Financial ratios 2005 H1 Restated 2004 H1 Net diamond account margin Tax rate Net gearing* 18% 40% 28.7% 20% 35% 20.8% * Defined as net interest bearing debt as a percentage of total capital employed

23 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

24 De Beers Strategy Gareth Penny MD Designate De Beers Group

25 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

26 De Beers Group has a plan Drive Returns on Capital 1. Demand growth 2. Profitable production growth 3. Value creation through the DTC 4. Cost efficiencies Sustainable 5. Producer partnerships 6. Synthetics response 7. Organisation effectiveness

27 DRIVE RETURNS ON CAPITAL DEMAND GROWTH 5.0% 5% 3.2% -0.2% -1.0% 94-98* 99-04* 05-09*

28 DRIVE RETURNS ON CAPITAL DEMAND GROWTH We need to maintain the growth in quality trade marketing spend Quality trade marketing investment, CAGR '00-'03 $500M 32% Client In direct Global Other Taiwan France Italy Hong Kong Japan 33% 12% 24% 10% -4% 19% 100 USA 44% F

29 DRIVE RETURNS ON CAPITAL PROFITABLE PRODUCTION GROWTH

30 DRIVE RETURNS ON CAPITAL PROFITABLE PRODUCTION GROWTH Opportunities lie in four main areas (Angola, Russia, DRC and India)

31 DRIVE RETURNS ON CAPITAL 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

32 DRIVE RETURNS ON CAPITAL VALUE CREATION THROUGH THE DTC Supplier of Choice

33 DRIVE RETURNS ON CAPITAL COST EFFICIENCIES In all operations and business units

34 SUSTAINABLE PRODUCER COUNTRIES Botswana South Africa Namibia Russia Canada Tanzania

35 SUSTAINABLE SYNTHETICS RESPONSE

36 SUSTAINABLE ORGANISATION EFFECTIVENESS Developing Group Purpose, Vision & Values Group structure Talent Management New appointments and Succession Planning

37 De Beers Group has a plan Drive Returns on Capital 1. Demand growth 2. Profitable production growth 3. Value creation through the DTC 4. Cost efficiencies Sustainable 5. Producer partnerships 6. Synthetics response 7. Organisation effectiveness

38 DE BEERS CHAPTER 2 TARGETS Group stretch targets for 2009: EBITDA $2bn ROCE 20% Group Enterprise Value $12bn

39 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

40 Dr EC Dowling Group Mining and Exploration Director

41 De Beers Group organisation chart Government Representatives JV Partner Companies Boards of Directors De Beers Representatives De Beers s.a. Board of Directors Chairman NF Oppenheimer De Beers Group Managing Director GM Ralfe (GPH Penny Designate) Debswana Managing Director B Marole Namdeb Managing Director I Zaamwani Group Mining & Exploration Director EC Dowling Strategy & Business Development Director MLS D Oliveira External Relations Director S Lussier Finance Director GPL Kell Legal Counsel B Cleaver DBCM Managing Director JME Oppenheimer DTC Managing Director GPH Penny (V Shine Designate) Human Resources Director CW Mudge (L Smith Designate) Operating Companies IT Director DA Farnaby De Beers 29/09/ :37

42 GME Purpose Develop and execute a supply strategy which delivers increasing value to De Beers Group and Partners.. forever De Beers 29/09/ :37

43 De Beers Group safety performance LTIFR compared with Anglo American (2nd quarter 2005) Anglo Platinum Anglo Gold Ashanti Anglo Exploration Anglo Coal Australia De Beers DTC Anglo Industrial minerals Anglo Base metals Anglo Ferrous metals Anglo Industries Anglo Coal RSA Anglo Mondi DBCM GME De Beers Group Debswana Namdeb LTIFR AAC LTIFR DB De Beers 29/09/ :37

44 Snap Lake Victor Williamson Diamonds

45 GME Focus Areas Business Value Chain Rights Acquisition (Legal / Exploration) Design Build (Projects) Operations Marketing Selling (Commercial) Supporting Functions Finance and IT Safety, Health and Environmental Management HR and Training Engineering and Maintenance Supply Chain and Logistics Technical Services and R&D De Beers 29/09/ :37

46 GME Focus Areas Business Value Chain Rights Acquisition (Legal / Exploration) Design Build (Projects) Operations Marketing Selling (Commercial) Supporting Functions Finance and IT Safety, Health and Environmental Management HR and Training Engineering and Maintenance Supply Chain and Logistics Technical Services and R&D De Beers 29/09/ :37

47 Group Portfolio Development where to focus efforts Group Portfolio Forum Group Recommended Portfolio Investment Committee De Beers Group Demand/Supply Alignment Manage and maintain The World Portfolio Model De Beers Group Portfolio Development and Execution De Beers Preferred Portfolio De Beers Group Company and Partner Alignment Supply Forecast (Find and Produce) Partner Portfolio Management Group Agreed Portfolio Group Partner Forum

48 GME Focus Areas Business Value Chain Rights Acquisition (Legal / Exploration) Design Build (Projects) Operations Marketing Selling (Commercial) Supporting Functions Finance and IT Safety, Health and Environmental Management HR and Training Engineering and Maintenance Supply Chain and Logistics Technical Services and R&D De Beers 29/09/ :37

49 diamond recovery process technology for more value from ore De Beers 29/09/ :37

50 Raven : Final production stage by laser sorting, shown here at Namdeb De Beers 29/09/ :37

51 Vision Size Frequency Distribution - on-line imaging for process control and supply pipeline informatio newly developed De Beers 29/09/ :37

52 Accelerated New Diamond Delivery (ANDD) shortening the time from Targeting to Mine Delivery 6 Years ANDD Process Access to Ground Discover Deposits Evaluate Deposits Conceptual Studies Pre-Feasibility Feasibility Commission and Construction shortened the cycle time from 12 to 6 years Strategic Access Gain Faster Access Ensure Sustainable Access Exploration Clear Strategy Faster Evaluations Customise process to business case Portfolio driven Quick decision making Project management principles Best resources; best opportunity Group Portfolio Development Take quantified risks Use Conceptual Framework to guide decision making Projects Reduce risk through Phased Mining Construct mine using Standard Building Blocks Assurance Understand permitting Use of evolving Multi-disciplinary teams De Beers 29/09/ :37

53 Front end loading in projects to ensure successful execution De Beers 29/09/ :37

54 Projects Orapa Venetia Finsch Plant Finsch Underground De Beers 29/09/ :37

55 Projects Victor Snap Lake Voorspoed SASA Dock Express De Beers 29/09/ :37

56 GME Focus Areas Business Value Chain Rights Acquisition (Legal / Exploration) Design Build (Projects) Operations Marketing Selling (Commercial) Supporting Functions Finance and IT Safety, Health and Environmental Management HR and Training Engineering and Maintenance Supply Chain and Logistics Technical Services and R&D De Beers 29/09/ :37

57 Land Operations De Beers 29/09/ :37

58 De Beers Marine Operations De Beers 29/09/ :37

59 Seabed visualisation Combined Jago/AUV survey AUV with 3D wing 3D data De Beers 29/09/ :37

60 De Beers Marine Namibia rate improvement history 300 Wide Channel 250 Mining Rate in m2/h Jet Water DBE II DBE 2.5 Enlarged drill pipe De Beers 29/09/ :37

61 De Beers Marine Namibia productivity improvement (Utilisation & Rate) 3,000, ,800,000 Area - DP,DA & GB Recovered Grade Mining Rate 2,600, ,400,000 AREA MINED- M 2 2,200,000 2,000,000 1,800,000 1,600, RECOVERED GRADE - Cts/M ,400,000 1,200,000 1,000, F/C 2006 B De Beers 29/09/ :37

62 De Beers Production carats Millions De Beers Production carats De Beers 29/09/ :37

63 Conclusion These processes, systems and technologies will assist to significantly increase the De Beers Group's productive capacity De Beers 29/09/ :37

64 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

65 De Beers Sales and Marketing Varda Shine Copyright De Beers 2004 MD Designate Diamond Trading Company

66 De Beers Sales and Marketing Plan Driving demand Supplier of Choice Consumer Confidence Effective Organisation Copyright De Beers 2004

67 Driving Demand US$ Retail Value 5.0% 3.2% Copyright De Beers % -1.0% 94-98* 99-04* *Earlier year for each period is the base year for the CAGR

68 The rate of growth in World diamond jewellery sales is steady (% growth US$ PWP) 10% 9% 7% 6% 5% 4% Copyright De Beers % H1 2005

69 Estimated H sales of DJ +5% in LC and +6% in US$ PWP USA Japan Italy France China Hong Kong Taiwan India Gulf Turkey WORLD Copyright De Beers % US$ PWP 24

70 2005 Initiatives USA Japan India China Copyright De Beers 2004

71 ($ Billions) $30 $24.9 All diamond jewellery growth coming from De Beers programmes Total Market Growth $ % $20 $10 Copyright De Beers % $ Diamond Jewelery De Beers Programmes

72 Past, Present, Future Copyright De Beers 2004 Christmas Anniversary Diamond Right Hand Ring

73 2005 Initiatives USA Japan India China Copyright De Beers 2004

74 3-stone Diamond Jewellery growing rapidly Value Share and Growth Trend (12mmt) (%) Copyright De Beers 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 % share (3 stone) Total DJ 3 stone Source : DDB

75 Innovative marketing to stimulate demand Headline: It s a huge hit we re very sorry Copyright De Beers 2004

76 2005 Initiatives USA Japan India China Copyright De Beers 2004

77 Strong retail growth driven by De Beers Rupees Bn 60 Total 2004 DJ Retail Market: Rs67.2Bn Retail Market Size 40 PWP for 2004: $961m 20 Copyright De Beers Retail Growth 8% 12% 10% 26% 10% 6% 6% 21% 21%

78 Nakshatra: the No 1 jewellery brand in India Copyright De Beers 2004

79 2005 Initiatives USA Japan India China Copyright De Beers 2004

80 Strong retail growth driven by De Beers $m Copyright De Beers 2004 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 $PWP $m PWP Trend %

81 The Diamond wedding ring: a cultural imperative in the big cities Copyright De Beers 2004 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

82 New Campaign: Eternal Girl Copyright De Beers 2004

83 Copyright De Beers 2004

84 De Beers Sales and Marketing Plan Driving demand Supplier of Choice Consumer Confidence Effective Organisation Copyright De Beers 2004

85 De Beers Sales Sights 1-7 comparison $ m +14.1% 5,000 4,640 4,770 4,500 4,000 3,813 3,979 4,137 4,182 3,500 3,395 3,000 2,500 Copyright De Beers ,000 1, '00 '01 '02 '03 '04 '05 Source: DTC Sales Planning Note : Excludes sales to the Polished Division

86 Supplier of Choice Second client selection = 93 clients (from 14 to 19 in S.A. 60 % BEE compliant) An initiative to provide a commercial platform for producer country beneficiation Copyright De Beers 2004 Growth in efficient distribution and effective marketing continues to transform the industry with the application of Supplier of Choice mechanisms.

87 Assessment Finance Distribution Market Position Marketing Manufacture Copyright De Beers 2004 Best Practice Principles Modelling systems determine applicants relative performance against the Sightholder Criteria

88 Three factors drive all SoC decisions Assessment Copyright De Beers 2004 Availability Applications

89 Client Marketing Focus Goods in Efficient Channels 44% 33% 23% Copyright De Beers %

90 Driving Value for Sightholders Copyright De Beers 2004

91 De Beers Sales and Marketing Plan Driving demand Supplier of Choice Consumer Confidence Effective Organisation Copyright De Beers 2004

92 Area of focus: Consumer Confidence Potential issues affecting our industry - Conflict diamonds Money-laundering Social impact Environmental impact Synthetics Treatments Copyright De Beers 2004

93 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 Copyright De Beers 2004

94 Current workstreams 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 Copyright De Beers 2004 Best Practice Principles to proactively manage corporate risk

95 De Beers Sales and Marketing Plan Driving demand Supplier of Choice Consumer Confidence Effective Organisation Copyright De Beers 2004

96 Organisational Effectiveness DTC Botswana DTC Italy DTC SA DTC Gulf DTC Namibia DTC International DTC India Copyright De Beers 2004 DTC (Canada) DTC Hong Kong DTC (Russia) DTC Japan

97 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

98 Chapter 2 DTC adding value, driving demand Mining & Exploration profitable production growth Promotion of natural diamonds Partnerships Organisation Effectiveness Purpose, Vision & Values Succession

99 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