Di­a­monds are for­ever – if you spend a lot of money re­mind­ing peo­ple

CityPress - - Business - DEWALD VAN RENSBURG dewald.vrens­burg@city­press.co.za

Di­a­mond giant De Beers was al­most cer­tainly get­ting bang for its buck with its grow­ing ex­pen­di­ture on ad­ver­tis­ing, chief fi­nan­cial of­fi­cer Nimesh Pa­tel said this week.

In the first half of this year, De Beers bought out its part­ner in De Beers Di­a­mond Jew­ellers, a re­tail op­er­a­tion with 29 stores in 16 coun­tries. Lux­ury goods group LVMH held 50% of the busi­ness.

Along­side the Forever­mark branded di­a­monds, De Beers sells through 2 080 out­lets in 25 mar­kets, which means more ex­po­sure to the down­stream end of the di­a­mond busi­ness.

“Our in­volve­ment in the down­stream is for driv­ing de­mand. The core prin­ci­ple has been to drive that de­mand,” said Pa­tel.

In ef­fect, this is part of the group’s in­creas­ingly large mar­ket­ing bud­get.

De Beers spent $140 mil­lion (R1.8 bil­lion) on mar­ket­ing in the half year, 20% more than a year be­fore.

“Ev­ery time we talk about up­ping the bud­get for mar­ket­ing, I ask what the re­turn will be,” said Pa­tel.

“It is hard to mea­sure, but the his­tory of this in­dus­try shows a di­rect cor­re­la­tion be­tween dol­lars spent and de­mand. The best ex­am­ple is Ja­pan – a few years ago, we de­cided to re­al­lo­cate spend­ing from there into China. You can see the af­fect, not only in higher Chi­nese sales, but in lower Ja­panese sales. There is un­de­ni­ably a link.”

De Beers re­sults for the first half of this year show that the com­pany sold more carats at a lower av­er­age price, which is to some ex­tent due to the dis­rup­tion of the In­dian mar­ket by that coun­try’s un­ex­pected “de­mon­eti­sa­tion” ex­per­i­ment of re­mov­ing large-de­nom­i­na­tion notes from cir­cu­la­tion.

In­dia is a size­able di­a­mond mar­ket and one that is cash-based.

“There was a de­gree of dis­rup­tion with less lower value goods be­ing sold, but we knew that would hap­pen,” said Pa­tel.

To­tal carats sold in the first half of this year rose 7% to 18.4 mil­lion, but the price per carat fell 12% to $156.

This, said Pa­tel, re­flected the re­turn of the de­mand for those lower value di­a­monds in In­dia.

Over­all, the com­pany’s rev­enue fell slightly to $3.1 bil­lion, but earn­ings rose thanks in large part to a re­turn of mar­gins in De Beers’ mar­ket­ing divi­sion.

Mar­ket­ing con­trib­uted $281 mil­lion to earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion, which was slightly more than min­ing did.

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