Can we learn from De Beers’ Recession Action Plan?

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The six-point plan that kept the diamond group afloat in tough times

De Beers has said that after a tough year, it is seeing signs of improvement in demand for rough diamonds and diamond jewellery. The group posted a sales rise of 24% in the second half of 2009 and has said that its six-point Recession Action Plan helped the business to weather the economic storm that caused a severe drop in demand for diamonds leading to a sales decline at the group from US$6.89bn (£4.42bn) in 2008 to US$3.84bn (£2.46bn) in 2009.

So what exactly is De Beer’s six-point Recession Action Plan?

Keeping safety as top priority
De Beers’ safety performance showed marked improvement in 2009, and the company reported no fatalities on its operations. Lost Time Injuries decreased to 40 in 2009 from 66 in 2008.

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Maximising demand opportunities
Due to the highly volatile levels of rough diamond demand, the Diamond Trading Company (DTC) employed a flexible approach to its sales. The market was affected most acutely in the first quarter, with both volumes and, to a lesser degree, prices impacted. However, as the year progressed client demand improved, which allowed the company to increase prices and sales volumes throughout the second half of the year. DTC sales for the year totalled US$3.23 billion, significantly below last year (2008: US$5.93 billion) but above half-year expectations. On the consumer side, Forevermark continued to expand in China, Hong Kong, Japan and Macau and the brand is now available in 245 stores across Asia. The Everlon Diamond Knot Collection, which is a De Beers-devised joint marketing campaign with leading retailers, has made a strong contribution to improving Christmas diamond sales in the US.

Producing in line with client demand
At the beginning of 2009, De Beers dramatically reduced production across its portfolio of mines, in response to and in line with, reduced demand from DTC Sightholders. This resulted in a significant reduction in carats produced compared to 2008. Sightholder demand increased gradually from the second quarter and the De Beers Family of Companies responded by increasing its production to 18 million carats in the second half of the year (2008: 24 million carats), an increase of 173% compared with the first half, resulting in a full year total of 24.6 million carats (49% below 2008).

Driving cost reductions across the business  
Across the family of companies, De Beers aggressively tackled costs, achieving a US$0.9 billion reduction in production and operating costs, down 45% compared to 2008.

Enhancing operating efficiencies 
Through a process of de-layering and de-centralisation of the business, De Beers recorded a 23% reduction of its global workforce.

Focusing on cash management
De Beers’ focus on cash management and capital expenditure – which was reduced by US$222 million compared with 2008 – enabled the company to remain cash positive in 2009, in spite of the exceptionally challenging trading conditions.

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