Editor’s Note
This article provides a brief overview of the Harry Winston Diamond Corporation, highlighting its dual role as a supplier of rough diamonds from the Diavik Mine and a premier luxury retailer through its Harry Winston salons worldwide.
Harry Winston Diamond Corporation is a specialist diamond enterprise with premium assets in the mining and retail segments of the diamond industry. The Company supplies rough diamonds to the global market from its 40% ownership interest in the Diavik Diamond Mine, located in Canada’s Northwest Territories. The Company’s retail division, Harry Winston Inc., is a premier diamond jeweler and luxury timepiece retailer with salons in key locations including New York, Paris, London, Beijing, Tokyo and Beverly Hills.
The Company focuses on the two most profitable segments of the diamond industry, mining and retail, in which its expertise creates shareholder value. This unique business model provides key competitive advantages; rough diamond sales and polished diamond purchases provide market intelligence that enhances the Company’s overall performance. Moreover, being one of the world’s leading rough diamond suppliers enables the Company to use its strong client relationships to secure the highest-quality polished diamonds for its retail division. By linking the production and retailing of diamonds, Harry Winston Diamond Corporation benefits from the market synergy created between rough diamond producer, polished diamond buyer and retailer of fine diamond jewelry.
The majority owner and operator of the Diavik Diamond Mine, Rio Tinto, has taken the same approach with deferral of capital expenditures and reduction in operating costs through production cuts as all participants in the diamond industry adjust production levels to the diminished needs of their customer base. Diamond markets have recently stabilized as rough diamond prices adjust against the new levels of polished diamond prices. This means that diamond prices have recovered somewhat from their lows as the supply pipeline has emptied in response to severely diminished credit. It will, however, take a resurgence of demand from the consumer to return prices to the levels of last year.
The Diavik Diamond Mine is one of the lowest cost diamond producers in the world. It remains cash positive even through this very challenging environment. With the help of Rio Tinto we have soundly prepared all of our business segments to weather the uncertainties of the present as we prepare for the earnings power of the future.
(All Figures are in United States dollars unless otherwise indicated)
Harry Winston Diamond Corporation recorded consolidated net earnings of $70.1 million or $1.15 per share for the year, compared to net earnings of $106.4 million or $1.82 per share in the prior year. Consolidated net earnings for the year included a non-cash write-down of the goodwill relating to the retail operations of $93.8 million or $1.54 per share. The write-down was partially offset by a $59.1 million net foreign exchange gain or $0.96 per share, compared to a net $43.4 million foreign exchange loss or $0.74 per share in the prior year. Consolidated net earnings also included an after-tax gain on insurance settlement of $9.9 million or $0.16 per share, compared to $8.0 million or $0.14 per share in the prior year.
Consolidated sales were $609.2 million for the year compared to $679.3 million for the prior year, resulting in a 13% decrease in gross margin and a 24% decrease in consolidated earnings from operations.
The mining segment recorded sales of $328.2 million, a 21% decrease from $413.8 million in the prior year. The decrease in sales resulted from lower rough diamond production and lower rough diamond prices in the fourth quarter. Rough diamond production for the calendar year was down 23% to 3.7 million carats produced versus 4.8 million for the prior year. Earnings from operations for the mining segment decreased 24% to $168.6 million compared to…