De Beers is considering a range of possibilities as it ponders the future of its Forevermark diamond brand, chief financial officer Sarah Kuijlaars tells JCK following the release of the company’s 2022 financial results.
“We are interested in finding the most effective model for retail and how we engage with our end clients and consumers,” she says. “I think it’s a model that we’ll have to evolve because consumers are evolving.”
Asked whether Forevermark’s current wholesale model will continue, she says, “We’re looking at all options about how we can grow the downstream part of the business and grow it profitably.”
Despite recent changes at Forevermark, there’s been “a lot of continuity,” Kuijlaars says. “That’s the advantage of [former De Beers CEO] Bruce [Cleaver] continuing as co-chair. We’re working to really land what is the most effective model going forward to ensure that we are growing our retail side of the business as well as the broader midstream and upstream.”
The company now uses its Tracr origin-tracing technology on half the goods it sells, in response to greater consumer demand for provenance information. De Beers is charging sightholders a “nominal” fee for the service, Kuijlaars says. “We have invested huge amounts of money in this platform over the last five years, in getting to the stage where we’re confident there’s a value proposition there, that we will be beginning to charge for.”
Last week, Botswana president Mokgweetsi Masisi made news by suggesting the country was willing to walk away from its longstanding relationship with De Beers. De Beers responded it’s “confident” a new deal will come together.
Kuijlaars is unwilling to predict that a new contract with Botswana will be signed before the current deal runs out in June. (It’s been extended three times since it originally expired in 2021.) But she adds: “I am convinced we’ll see some progress this year.”
The negotiations “cover the sales agreement but also the life extension of Debswana,” she says. “It’s a pretty complex negotiation, across many aspects of the value chain. Inevitably it’s going to take some time to land.”
She adds: “Our relationship with the Botswana goes over 50-odd years. It’s a relationship we’re really proud of. I think it’s important to put it in context. Out of the $1.4 billion EBITDA [earnings before interest, taxes, depreciation, and amortization] we announced today, some $614 million comes from the Debswana joint venture. That’s 19.2% [of Debswana’s revenue]. Which means there’s another 81% that’s going directly to the Botswanan government.”
As for as Masisi’s comments, she says, “It’s important to acknowledge that we have had a good relationship with the president. Bruce introduced [new De Beers CEO] Al [Cook] to the president last autumn, and they will be visiting him again shortly. In those private conversations, it’s very positive. It’s very much focused on how do we get to a win-win arrangement going forward, building on that long-term relationship we’ve had for the last 50 years.”
Overall, De Beers’ financial results for 2022 were strong, reflecting the industry’s COVID-era boost.
De Beers’ revenue for the year was $6.6 billion (up from $5.6 billion the prior year), with rough diamond sales accounting for $6 billion of the total. Its average realized price rose by 35% to $197 per carat, driven by a larger proportion of higher-value rough diamonds. Underlying EBITDA increased by 29% to $1.4 billion, from $1.1 billion the prior year.
“The holiday season for 2021 was particularly strong,” says Kuijlaars. “That spilled over into the beginning of 2022—January and February were strong. By the middle of the year, things calmed down a bit. There was a bit more concern about the macro [environment], concerns about inflation, the cost of living. Things softened a bit towards the end of the year, but when you look at the whole, 2021 was a real outstanding year [for diamond sales], and 2022 is pretty close to that.”
Looking ahead to 2023, De Beers believes the Chinese market is coming back. “In the coming weeks, after the Hong Kong show, we’ll get a much better sense of where the market is going.”
She does admit the first sight of 2023 was “on the smaller side.”
“That recognizes cautious optimism from ourselves and our sightholders, but we are confident longer term there’s a lot of resilience in the diamond market, and even longer term, supply and demand works in our favor. We are cautiously optimistic about the future.”
Cook stepped into the De Beers CEO role Feb. 20, and posted his first impressions on LinkedIn.
(Photo courtesy of De Beers)
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