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The transformation of De Beers

The document summarizes the transformation of De Beers from 1998-2001. It outlines the company's strategic review process which found that De Beers needed to shift from supply control to driving demand. The resulting strategic plan focused on becoming a supplier of choice, driving greater demand through marketing, and developing brands like De Beers to increase sales. Initial progress included the Forevermark identity, value-added services for sightholders, and demand driving pilots.

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www.debeersgroup.com 1 The Transformation of De Beers James Campbell Manager: e-Business, De Beers Rotterdam School of Management, Erasmus Graduate School of Business Johannesburg, 26 June 2001
www.debeersgroup.com 2 Agenda  Historical context  The Strategic Review  The Strategic Plan  The future ...
www.debeersgroup.com 3 1998 - a new beginning  New Chairman, new MD  New international CHQ  Separation of management and operational ties with Anglo American  One company, One purpose Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 4 1998 - annus horribilis  Total dividend reduced by 22%  Negative operating cash flow  Diamond stocks and borrowings up by $377m and $480m respectively  CSO sales down 28% to $3 345m  Headline earnings per linked unit down 40% Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 5 Strategic Review Strategic Review Launched January 1999: (Templeton Seminars) (With Bain & Company as strategy partners from April 1999) Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 6 Strategic Mission “The need to create and enhance stakeholder value, and especially shareholder value.” Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 7 Historical context: 1990s  Flat demand growth – Asian crisis / Japanese recession – Continued US market growth  Supply exceeds demand  Competitor producers emerge – Argyle leaves the CSO – Canadian production commences  Downstream restructuring begins – Consolidation / vertical integration Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 8 De Beers Share Price vs. Dow Jones 0 60 120 180 240 300 Jan 1991 Jan 1992 Jan 1993 Jan 1994 Jan 1995 Jan 1996 Jan 1997 Jan 1998 CAGR (1990-1998) Dow Jones 14% De Beers (8%) Historical context: 1990s Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 9 Historical context: 1990s Real price declines 90 100 110 120 130 140 150 1985 1987 1989 1991 1993 1995 1997 1999 1985 = 100 DTC Price Index (1985-2000) - Real measured against US CPI Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 10 Historical context: 1990s De Beers diamond stock growth 1989-1998 of $2.3 billion driven by exogenous factors US/Europe recession Strong US/Asian demand; Japanese recession Angolan production falls; Canadian production begins Russian stockpile leakage; Uncontrolled production in Angola Crisis in East Asia Argyle outside World production increases by $1 billion 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1,000 2,000 3,000 4,000 5,000 US$Million CAGR 7.7% Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 11 Historical context: 1990s  De Beers diamond operating profits decline over the decade CSO Sales -2.2% 89 91 93 95 97 0 1,000 2,000 3,000 4,000 5,000 CAGR 1989-98 CSO Sales (Nominal) US$M EBIT -8.9% 89 91 93 95 97 0 250 500 750 1,000 1,250 CAGR 1989-98 Diamond Business EBIT (Nominal) US$M Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 12 Gap to create economic value 1990 1991 1992 1993 1994 1995 1996 1997 1998 0 Capital Charge NOPAT Economic Profit (WACC = 11% Real) US$Million  Capital charges prevented economic value creation Financial Review: Key Insight Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 13 Financial Review: Key Insight  A high relative market share should be matched by returns exceeding cost of capital -20 -15 -10 -5 0 5 10 15 20 <0.3 0.3 - 0.6 0.6 - 1.2 1.3 - 2.4 2.5 Above cost of Capital Below cost of Capital (10%) (5%) 1.0% 12% 18% NetROCE Relative Market Share Source: Bain & Co research Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 14 Financial Review: Conclusions  Cost cutting / operational efficiency - but not a principal driver of value creation  The cost of supply control impedes value creation  Compete, not restore  The major value driver is sales growth - not seller of last resort  Strategies to drive retail demand and differentiate our product are crucial Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 15 Strategic Review: Key Insight  Global under-performance of Diamond Jewellery Sales in the 1990s 0 100 200 300 400 500 Luxury Goods GDP Diamond Jewellery 1980 1986 1988 1990 1992 1994 1996 1998 20001982 1984 Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 16 Strategic Review: Key Insight Global Advertising Spend as a % of Sales by Industry Luxury Goods Coca Cola Tobacco Watches Jewellery 10.5% 9.0% 8.0% 6.0% 1.0%  Marketing drives maintenance of consumer goods profits - diamond jewellery is the exception Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 17 Strategic Review: Key Insight  The diamond jewellery retail category is remarkably ‘unbranded’ Perfume brands Top 13 brands = 80% of sales Prestige watch brands Top 16 brands = 50% of sales Diamond jewellery brands Top 15 brands = 13% of sales Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 18 Key Insights: 50-carat assets  Mystique of natural diamonds  De Beers and partners - the world’s largest producer  Leadership position and sightholder relationships  Diamond knowledge and technical expertise  “De Beers” brand potential Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 19 Strategic Thrust  From supply control to driving demand Controlling supply as custodian Driving demand as leader Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 20 US$3 bn 2000 US$10 bn 2004 The Corporate BHAG  Diamond Business Value at US$10bn by 2004 Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 21 Strategic Plan As is Plus Significantly improving operating efficiencies and economies From seller of last resort to supplier of choiceSupplier of Choice Driving greater demand by working more closely with our SightholdersDriving Demand Branding initiatives Seeking ways to develop multiple brands, including De Beers, to drive significant additional demand Introduction Historical context Strategic Review Strategic Plan The future
www.debeersgroup.com 22 Strategic Plan: As-Is Plus “Significantly improve operating margins and efficiencies.” Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 23 Exploration: Craton Ratings Premier league (Promotion candidates) Premier league Super league Relegation candidates Relegated
www.debeersgroup.com 24 Southern African Operations Lake Victoria WILLIAMSON TANZANIA ELIZABETH BAY NAMIBIA Windhoek ⚫ AUCHAS BOTSWANA SOUTH AFRICA Pretoria ⚫ ⚫ Johannesburg Kimberley ⚫ ⚫ Durban ⚫ Cape Town FINSCH KIMBERLEY MINES KOFFIEFONTEIN JWANENG PREMIER VENETIA LETLHAKANE ORAPA NAMAQUALAND MINES MARSFONTEIN THE OAKS Gaborone ⚫ NAMDEB Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 25 Mining BHAG  Mining BHAG: 50% of world production by value by 2004 South Africa 11% Botswana 29% Namibia 6%Russia 21% Canada 6% Angola 10% Australia 5% D.R. Congo 5% Others 7% Estimated World Production 2000 Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 26 Progress: As-Is Plus  Significant reduction in unit working costs – Target to reduce real dollar costs by 15% between 2000 and 2003 – Dollar cash costs reduced in 2000 by 5%  Better ‘bang for our buck’ – US$50 million shaved off exploration and advertising budgets 1998 - 2000  Sorting and valuing efficiencies – “Work in progress” pipeline reduced by 40%, 1999 - 2001 Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 27 Progress: As-Is Plus  Acquisitions – Venetia: purchase of Saturn royalty – Canada: Snap Lake acquired from Winspear Diamonds and Aber Resources – Australia: failed bid for Ashton’s Argyle interest  Full legal audit – Particular focus on US anti-trust Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 28 Strategic Plan: Supplier of Choice “To create proprietary channels for our diamonds through those diamantaires best able to market and distribute them.” Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 29 Progress: Supplier of Choice  Four pillars of Supplier of Choice A Powerful New Identity Value Added Services Best Practice Principles Policy Statement with objective criteria Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 30  New identity - Forevermark – Symbol for best practice – 5th ‘C’ - ‘Confidence’ – Powerful marketing tool – $180 million this year Progress: Supplier of Choice Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 31 Progress: Supplier of Choice  Value added services – Sightholder Extranet Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 32 Strategic Plan: Driving Demand “Driving demand by working more closely with our sightholders.” Objective: Grow global diamond jewellery retail demand at a rate which at least matches diamond-weighted GDP growth. Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 33 Pilot Programmes  Leveraging greater marketing spend downstream Right Product Drive Incremental Sales Right Place Right Price Right Promotion Progress: Driving Demand Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 34 Progress: Driving Demand  Distribution pilots - Diamond.com Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 35 Progress: Driving Demand  Distribution pilots - Nakshatra Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 36 Strategic Plan: Branding Opportunities “Seeking ways to develop multiple brands, including De Beers to drive significant demand.” Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 37  De Beers/LVMH JV - 16 January 2001 Progress: Branding Opportunities Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 38 Structural review: People  Executive accountability and performance-based compensation  Leadership development and succession planning  Performance culture throughout De Beers – KPI-driven performance measures and rewards for management  War for Talent  Employment equity Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 39 Structural review: Organisation  Business Units: Clarifying structure and accountability Nicky Oppenheimer Gary Ralfe Mining Operations and Exploration Gavin Beevers Producer Relations, Purchases and Sorting Peter Somner Sales and Marketing Nigel Wisden Finance Paddy Kell Legal and Administration (Tim Capon) Debswana Louis Nchindo Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 40 Structural review: Supply / Demand  Supply/Demand Management – Supply/Demand committee established  26 Markets  Five Size Segments  10 Year Forecast  Different Economic Scenarios Rough Supply Polished Demand Exploration DTCMining Cutting Centres Polished Market Retail Consumer Jewellery Manu- facture RTOP 77 Producers  Five Size Segments  10 Year Forecasts  Multiple Scenarios Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 41 Structural review: Value inhibitors  The place of De Beers’ primary listing  The complicated dual structure of De Beers  The cross-holding with Anglo American Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 42 Structural review: Value inhibitors 0 2 4 6 8 10 12 14 16 18 20 Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01  Anglo holding dominates De Beers’ market capitalisation = market value of De Beers’ holding in AA plc = implied market value of De Beers’ diamond business US$ Billion Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
www.debeersgroup.com 43 ‘Public’ structure Introduction Historical context Strategic Review Strategic Plan The future De Beers Anglo American DebswanaCHL 3% 5%32% Public 60% 7% 58% Public Botswana Government 50% 50%35%  Pre-transaction position: De Beers’ corporate structure – reduces transparency, accountability and liquidity – strongly disliked by investors – results in under-valuation of both De Beers and Anglo American  Proposed transaction delivers substantial benefits to all shareholders
www.debeersgroup.com 44 ‘Private’ structure Introduction Historical context Strategic Review Strategic Plan The future Anglo American Debswana CHL 45% 10% 45% Public 93% Botswana Government 50% 5% 11% DBI (Luxembourg) De Beers 50% CHL Subsidiary 89%2%  DBI Shareholder Agreement agreed  CHL Management Contract agreed – De Beers managed independently of Anglo American
www.debeersgroup.com 45 Going forward...  The transformation of De Beers … from supply control to driving demand. Introduction Historical context Strategic Review Strategic Plan The future

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The transformation of De Beers

  • 1.
    www.debeersgroup.com 1 The Transformation ofDe Beers James Campbell Manager: e-Business, De Beers Rotterdam School of Management, Erasmus Graduate School of Business Johannesburg, 26 June 2001
  • 2.
    www.debeersgroup.com 2 Agenda  Historical context The Strategic Review  The Strategic Plan  The future ...
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    www.debeersgroup.com 3 1998 - anew beginning  New Chairman, new MD  New international CHQ  Separation of management and operational ties with Anglo American  One company, One purpose Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 4 1998 - annushorribilis  Total dividend reduced by 22%  Negative operating cash flow  Diamond stocks and borrowings up by $377m and $480m respectively  CSO sales down 28% to $3 345m  Headline earnings per linked unit down 40% Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 5 Strategic Review Strategic Review LaunchedJanuary 1999: (Templeton Seminars) (With Bain & Company as strategy partners from April 1999) Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 6 Strategic Mission “The needto create and enhance stakeholder value, and especially shareholder value.” Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 7 Historical context: 1990s Flat demand growth – Asian crisis / Japanese recession – Continued US market growth  Supply exceeds demand  Competitor producers emerge – Argyle leaves the CSO – Canadian production commences  Downstream restructuring begins – Consolidation / vertical integration Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 8 De Beers SharePrice vs. Dow Jones 0 60 120 180 240 300 Jan 1991 Jan 1992 Jan 1993 Jan 1994 Jan 1995 Jan 1996 Jan 1997 Jan 1998 CAGR (1990-1998) Dow Jones 14% De Beers (8%) Historical context: 1990s Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 9 Historical context: 1990s Realprice declines 90 100 110 120 130 140 150 1985 1987 1989 1991 1993 1995 1997 1999 1985 = 100 DTC Price Index (1985-2000) - Real measured against US CPI Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 10 Historical context: 1990s DeBeers diamond stock growth 1989-1998 of $2.3 billion driven by exogenous factors US/Europe recession Strong US/Asian demand; Japanese recession Angolan production falls; Canadian production begins Russian stockpile leakage; Uncontrolled production in Angola Crisis in East Asia Argyle outside World production increases by $1 billion 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1,000 2,000 3,000 4,000 5,000 US$Million CAGR 7.7% Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 11 Historical context: 1990s De Beers diamond operating profits decline over the decade CSO Sales -2.2% 89 91 93 95 97 0 1,000 2,000 3,000 4,000 5,000 CAGR 1989-98 CSO Sales (Nominal) US$M EBIT -8.9% 89 91 93 95 97 0 250 500 750 1,000 1,250 CAGR 1989-98 Diamond Business EBIT (Nominal) US$M Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 12 Gap to createeconomic value 1990 1991 1992 1993 1994 1995 1996 1997 1998 0 Capital Charge NOPAT Economic Profit (WACC = 11% Real) US$Million  Capital charges prevented economic value creation Financial Review: Key Insight Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 13 Financial Review: KeyInsight  A high relative market share should be matched by returns exceeding cost of capital -20 -15 -10 -5 0 5 10 15 20 <0.3 0.3 - 0.6 0.6 - 1.2 1.3 - 2.4 2.5 Above cost of Capital Below cost of Capital (10%) (5%) 1.0% 12% 18% NetROCE Relative Market Share Source: Bain & Co research Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 14 Financial Review: Conclusions Cost cutting / operational efficiency - but not a principal driver of value creation  The cost of supply control impedes value creation  Compete, not restore  The major value driver is sales growth - not seller of last resort  Strategies to drive retail demand and differentiate our product are crucial Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 15 Strategic Review: KeyInsight  Global under-performance of Diamond Jewellery Sales in the 1990s 0 100 200 300 400 500 Luxury Goods GDP Diamond Jewellery 1980 1986 1988 1990 1992 1994 1996 1998 20001982 1984 Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 16 Strategic Review: KeyInsight Global Advertising Spend as a % of Sales by Industry Luxury Goods Coca Cola Tobacco Watches Jewellery 10.5% 9.0% 8.0% 6.0% 1.0%  Marketing drives maintenance of consumer goods profits - diamond jewellery is the exception Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 17 Strategic Review: KeyInsight  The diamond jewellery retail category is remarkably ‘unbranded’ Perfume brands Top 13 brands = 80% of sales Prestige watch brands Top 16 brands = 50% of sales Diamond jewellery brands Top 15 brands = 13% of sales Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 18 Key Insights: 50-caratassets  Mystique of natural diamonds  De Beers and partners - the world’s largest producer  Leadership position and sightholder relationships  Diamond knowledge and technical expertise  “De Beers” brand potential Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 19 Strategic Thrust  Fromsupply control to driving demand Controlling supply as custodian Driving demand as leader Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 20 US$3 bn 2000 US$10 bn 2004 TheCorporate BHAG  Diamond Business Value at US$10bn by 2004 Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 21 Strategic Plan As is Plus Significantlyimproving operating efficiencies and economies From seller of last resort to supplier of choiceSupplier of Choice Driving greater demand by working more closely with our SightholdersDriving Demand Branding initiatives Seeking ways to develop multiple brands, including De Beers, to drive significant additional demand Introduction Historical context Strategic Review Strategic Plan The future
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    www.debeersgroup.com 22 Strategic Plan: As-IsPlus “Significantly improve operating margins and efficiencies.” Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 23 Exploration: Craton Ratings Premierleague (Promotion candidates) Premier league Super league Relegation candidates Relegated
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    www.debeersgroup.com 24 Southern African OperationsLake Victoria WILLIAMSON TANZANIA ELIZABETH BAY NAMIBIA Windhoek ⚫ AUCHAS BOTSWANA SOUTH AFRICA Pretoria ⚫ ⚫ Johannesburg Kimberley ⚫ ⚫ Durban ⚫ Cape Town FINSCH KIMBERLEY MINES KOFFIEFONTEIN JWANENG PREMIER VENETIA LETLHAKANE ORAPA NAMAQUALAND MINES MARSFONTEIN THE OAKS Gaborone ⚫ NAMDEB Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 25 Mining BHAG  MiningBHAG: 50% of world production by value by 2004 South Africa 11% Botswana 29% Namibia 6%Russia 21% Canada 6% Angola 10% Australia 5% D.R. Congo 5% Others 7% Estimated World Production 2000 Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 26 Progress: As-Is Plus Significant reduction in unit working costs – Target to reduce real dollar costs by 15% between 2000 and 2003 – Dollar cash costs reduced in 2000 by 5%  Better ‘bang for our buck’ – US$50 million shaved off exploration and advertising budgets 1998 - 2000  Sorting and valuing efficiencies – “Work in progress” pipeline reduced by 40%, 1999 - 2001 Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 27 Progress: As-Is Plus Acquisitions – Venetia: purchase of Saturn royalty – Canada: Snap Lake acquired from Winspear Diamonds and Aber Resources – Australia: failed bid for Ashton’s Argyle interest  Full legal audit – Particular focus on US anti-trust Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 28 Strategic Plan: Supplierof Choice “To create proprietary channels for our diamonds through those diamantaires best able to market and distribute them.” Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 29 Progress: Supplier ofChoice  Four pillars of Supplier of Choice A Powerful New Identity Value Added Services Best Practice Principles Policy Statement with objective criteria Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 30  New identity- Forevermark – Symbol for best practice – 5th ‘C’ - ‘Confidence’ – Powerful marketing tool – $180 million this year Progress: Supplier of Choice Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 31 Progress: Supplier ofChoice  Value added services – Sightholder Extranet Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 32 Strategic Plan: DrivingDemand “Driving demand by working more closely with our sightholders.” Objective: Grow global diamond jewellery retail demand at a rate which at least matches diamond-weighted GDP growth. Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 33 Pilot Programmes  Leveraginggreater marketing spend downstream Right Product Drive Incremental Sales Right Place Right Price Right Promotion Progress: Driving Demand Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 34 Progress: Driving Demand Distribution pilots - Diamond.com Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 35 Progress: Driving Demand Distribution pilots - Nakshatra Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 36 Strategic Plan: BrandingOpportunities “Seeking ways to develop multiple brands, including De Beers to drive significant demand.” Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 37  De Beers/LVMHJV - 16 January 2001 Progress: Branding Opportunities Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 38 Structural review: People Executive accountability and performance-based compensation  Leadership development and succession planning  Performance culture throughout De Beers – KPI-driven performance measures and rewards for management  War for Talent  Employment equity Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 39 Structural review: Organisation Business Units: Clarifying structure and accountability Nicky Oppenheimer Gary Ralfe Mining Operations and Exploration Gavin Beevers Producer Relations, Purchases and Sorting Peter Somner Sales and Marketing Nigel Wisden Finance Paddy Kell Legal and Administration (Tim Capon) Debswana Louis Nchindo Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 40 Structural review: Supply/ Demand  Supply/Demand Management – Supply/Demand committee established  26 Markets  Five Size Segments  10 Year Forecast  Different Economic Scenarios Rough Supply Polished Demand Exploration DTCMining Cutting Centres Polished Market Retail Consumer Jewellery Manu- facture RTOP 77 Producers  Five Size Segments  10 Year Forecasts  Multiple Scenarios Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 41 Structural review: Valueinhibitors  The place of De Beers’ primary listing  The complicated dual structure of De Beers  The cross-holding with Anglo American Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 42 Structural review: Valueinhibitors 0 2 4 6 8 10 12 14 16 18 20 Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01  Anglo holding dominates De Beers’ market capitalisation = market value of De Beers’ holding in AA plc = implied market value of De Beers’ diamond business US$ Billion Strategic plan • As Is Plus • SoC • Driving Demand • Branding Opportunities • People • Organisation • Supply- Demand • Value inhibitors
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    www.debeersgroup.com 43 ‘Public’ structure Introduction Historical context Strategic Review Strategic Plan The future DeBeers Anglo American DebswanaCHL 3% 5%32% Public 60% 7% 58% Public Botswana Government 50% 50%35%  Pre-transaction position: De Beers’ corporate structure – reduces transparency, accountability and liquidity – strongly disliked by investors – results in under-valuation of both De Beers and Anglo American  Proposed transaction delivers substantial benefits to all shareholders
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    www.debeersgroup.com 44 ‘Private’ structure Introduction Historical context Strategic Review Strategic Plan The future Anglo American Debswana CHL 45% 10% 45% Public 93% Botswana Government 50% 5% 11% DBI (Luxembourg) DeBeers 50% CHL Subsidiary 89%2%  DBI Shareholder Agreement agreed  CHL Management Contract agreed – De Beers managed independently of Anglo American
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    www.debeersgroup.com 45 Going forward...  Thetransformation of De Beers … from supply control to driving demand. Introduction Historical context Strategic Review Strategic Plan The future