(Source: Canada Newswire)
TORONTO, April 2 /CNW/ - Harry Winston Diamond Corporation (TSX: HW, NYSE: HWD) today reported fourth quarter and annual results for the period ending January 31, 2009. The Company 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 the prior year. The decrease was due primarily to lower sales and to a lesser degree a decrease in gross margin.
The retail segment recorded a 6% increase in sales to $281.0 million, with a loss from operations of $2.5 million compared to a loss from operations of $3.1 million in the prior year. Retail segment SG&A as a percentage of sales remained consistent with the prior year at 48%.
Fourth Quarter and Fiscal 2009 Financial Highlights
(US$ in millions except Earnings per Share amounts)
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Three Three Twelve Twelve
months months months months
ended ended ended ended
Jan. 31, Jan. 31, Jan. 31, Jan. 31,
2009 2008 2009 2008
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Sales 118.4 188.2 609.2 679.3
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Earnings from operations 10.1 59.1 166.1 217.7
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Net earnings (loss) (73.0) 90.4 70.1 106.4
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Earnings (loss) per share $(1.19) $1.55 $1.15 $1.82
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Robert Gannicott, Chairman and Chief Executive Officer said, "Credit is the vascular system of the diamond industry. Its rapid decline last October shocked the diamond supply chain to a sudden standstill that persisted into this year. Our response, and that of our mine operating partner, Rio Tinto, has been defensive while preserving the ability to increase production promptly when conditions have sufficiently improved by reducing capital and operating costs without jeopardizing the future of our production and sales platforms. With the successful completion of the Kinross investment, we have now paid down our mining segment debt.
We now see some tentative recovery in the diamond market, albeit from a reduced base compared to 6 months ago. Diamonds are underpinned by their deeply rooted use in bridal ceremonies throughout the world. The Diavik Mine remains one of the highest margin diamond mines and Harry Winston a premier diamond brand. We are well positioned for an improvement in global economic conditions."
Thomas J. O'Neill, President added, "Harry Winston has met the economic challenges with concentrated marketing and substantial cost reductions. The premium position of the brand and the international diversity of our business model support us through the present conditions and position us well for future economic recovery."
Conference Call and Webcast
Beginning at 9:00AM ET, on Friday, April 3, the company will host a conference call for analysts, investors and other interested parties. Listeners may access a live broadcast of the conference call on the company's investor relations website at http:// investor.harrywinston.com or by dialing 800-510-0146 within North America or 617-614-3449 from international locations and entering passcode 37236627.
An online archive of the broadcast will be available by accessing the company's investor relations website at http:// investor.harrywinston.com. A telephone replay of the call will be available one hour after the call through 11:00PM ET, April 16, 2009, by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 73080790.
Information in this news release that is not current or historical factual information may constitute forward-looking information or statements within the meaning of applicable securities laws. Implicit in this information, particularly in respect of statements as to future operating results and economic performance of Harry Winston Diamond Corporation and statements about the Diavik Diamond Mine are assumptions regarding world economic conditions, projected revenue and expenses, diamond prices, construction timelines and mine operating plans and budgets, ore grades and the Canadian/US dollar exchange rate. Specifically, in estimating Harry Winston Diamond Corporation's projected share of the Diavik Diamond Mine capital expenditure requirements over the next five years, Harry Winston Diamond Corporation has used an average Canadian/US dollar exchange rate of $0.86. These assumptions, although considered reasonable by Harry Winston Diamond Corporation at the time of preparation, may prove to be incorrect. Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what we currently expect. These factors include, among other things, the uncertain nature of mining activities, including risks associated with underground construction and mining operations, risks associated with joint venture operations, risks associated with the remote location of and harsh climate at the Diavik Diamond Mine site, risks associated with regulatory requirements, fluctuations in diamond prices, changes in US and world economic conditions, risks of competition in the luxury jewelry segment, financing and credit market risk, risks relating to the Company's salon expansion strategy and the risk of fluctuations in the Canadian/US dollar exchange rate.
About Harry Winston Diamond Corporation
Harry Winston Diamond Corporation (TSX: HW; NYSE: HWD) is a specialist diamond enterprise with assets in the mining and retail segments of the diamond industry. The company supplies rough diamonds to the global market from its 40% interest in the Diavik Diamond Mine, located in Canada's Northwest Territories. The company's retail division, Harry Winston, Inc., is a premier jewelry and timepiece retailer with salons in key locations including New York, Paris, London, Beijing, Tokyo and Beverly Hills. For more information, please go to www.harrywinston.com or for investor information, visit investor.harrywinston.com.
Investor Relations - (416) 362-2237 ext 290 or investor(at)harrywinston.com.
Highlights
(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 the prior year. The decrease was due primarily to lower sales and to a lesser degree a decrease in gross margin.
The retail segment recorded a 6% increase in sales to $281.0 million, with a loss from operations of $2.5 million compared to a loss from operations of $3.1 million in the prior year. Retail segment SG&A as a percentage of sales remained consistent with the prior year at 48%.
Management's Discussion and Analysis
Prepared as of April 2, 2009 (all figures are in United States
dollars unless otherwise indicated)
The following is management's discussion and analysis ("MD&A") of the results of operations for Harry Winston Diamond Corporation ("Harry Winston Diamond Corporation", or the "Company") for the fiscal year ended January 31, 2009, and its financial position as at January 31, 2009. This MD&A is based on the Company's consolidated financial statements prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP") and should be read in conjunction with the consolidated financial statements and notes thereto. Unless otherwise specified, all financial information is presented in United States dollars. Unless otherwise indicated, all references to "year" refer to the fiscal year of Harry Winston Diamond Corporation ended January 31. Unless otherwise indicated, references to "international" for the retail segment refer to Europe and Asia.
Certain comparative figures have been reclassified to conform with the current year's presentation.
Caution Regarding Forward-Looking Information
Certain information included in this MD&A may constitute forward- looking information within the meaning of Canadian and United States securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding plans, timelines and targets for construction, mining, development, production and exploration activities at the Diavik Diamond Mine, future mining and processing at the Diavik Diamond Mine, projected capital expenditure requirements and the funding thereof, new salon openings, liquidity and working capital requirements and sources, estimated reserves and resources at, and production from, the Diavik Diamond Mine, the number and timing of expected rough diamond sales, expected diamond prices and expectations concerning the diamond industry, expected cost of sales and gross margin trends in the mining segment, and expected sales trends in the retail segment. Actual results may vary from the forward looking information. See "Risks and Uncertainties" on page 19 for material risk factors that could cause actual results to differ materially from the forward looking information.
Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, production, construction and exploration activities at the Diavik Diamond Mine, credit and general capital market conditions and the ability of the Company to refinance or replace its existing credit facilities, the level of worldwide diamond production and world and US economic conditions and demand for luxury goods. Specifically, in estimating Harry Winston Diamond Corporation's projected share of the Diavik Diamond Mine capital expenditure requirements over the next five years, Harry Winston Diamond Corporation has used an average Canadian/US dollar exchange rate of $0.86. In making statements regarding expected diamond prices and expectations concerning the diamond industry and expected sales trends in the retail segment, the Company has made assumptions regarding, among other things, world and US economic conditions and demand for luxury goods. While Harry Winston Diamond Corporation considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. See "Risks and Uncertainties" on page 19.
Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what we currently expect. These factors include, among other things, the uncertain nature of mining activities, including risks associated with underground construction and mining operations, risks associated with joint venture operations, risks associated with the remote location of and harsh climate at the Diavik Diamond Mine site, risks associated with regulatory requirements, fluctuations in diamond prices and changes in US and world economic conditions, the risk of fluctuations in the Canadian/US dollar exchange rate, financing and credit market risk, risks relating to the Company's salon expansion strategy and the risks of competition in the luxury jewelry segment. Please see page 19 of this Annual Report, as well as the Company's current Annual Information Form, available at www.sedar.com, for a discussion of these and other risks and uncertainties involved in Harry Winston Diamond Corporation's operations.
Readers are cautioned not to place undue importance on forward- looking information, which speaks only as of the date of this Management's Discussion and Analysis, and should not rely upon this information as of any other date. Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this Management's Discussion and Analysis, actual events may differ materially from current expectations. The Company uses forward looking statements because it believes such statements provide useful information with respect to the future operation and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. While Harry Winston Diamond Corporation may elect to, it is under no obligation and does not undertake to update or revise any forward-looking information, whether as a result of new information, future events or otherwise at any particular time, except as required by law. Additional information concerning factors that may cause actual results to materially differ from those in such forward-looking statements is contained in the Harry Winston Diamond Corporation's filings with Canadian and United States securities regulatory authorities and can be found at www.sedar.com and www.sec.gov, respectively.
Summary Discussion
Harry Winston Diamond Corporation is a specialist diamond company focusing on the mining and retail segments of the diamond industry. The Company supplies rough diamonds to the global market from production received from its 40% ownership interest in the Diavik Diamond Mine, located off Lac de Gras in Canada's Northwest Territories. The Company also owns a 100% interest in Harry Winston Inc., the premier fine jewelry and watch retailer operating under the Harry Winston(R) brand.
As at January 31, 2009, the Company's most significant asset is a 40% ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and Harry Winston Diamond Mines Ltd. (40%) where Harry Winston Diamond Corporation owns an undivided 40% ownership interest in the assets, liabilities and expenses. DDMI is the operator of the Diavik Diamond Mine. Both companies are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England, and Harry Winston Diamond Mines Ltd. is a wholly owned subsidiary of Harry Winston Diamond Corporation of Toronto, Canada.
On March 19, 2009, the Company announced a strategic investment by Kinross Gold Corporation ("Kinross"), whereby Kinross will make a net investment of $150.0 million to acquire an indirect interest in the Diavik Diamond Mine and a direct equity stake in the Company. Kinross will subscribe for 15.2 million of the Company's treasury shares at a price of $3.00 per share, being approximately 19.9% of the Company's issued equity post the transaction. Kinross will also subscribe for new partnership units representing a 22.5% interest in the limited partnership which holds the Company's 40% ownership interest in the Diavik Diamond Mine, for a net effective subscription value of $104.4 million. The transaction closed on March 31, 2009 and the Company's economic interest in the Diavik Diamond Mine is now 31%. With the closing of the Kinross transaction, all amounts outstanding on the Company's senior secured term and revolving credit facilities were repaid as of March 31, 2009. If the transaction had closed on January 31, 2009, the Company would have recorded a non-cash dilution loss of approximately $30 million in respect of its interest in the Diavik Diamond Mine.
Market Commentary
The Diamond Market
During the first eight months of fiscal 2009 sales of rough diamonds were strong and increases in prices were achieved. Commencing in the fourth quarter of fiscal 2009, the diamond industry began to be significantly impacted by the global economic slowdown and the ongoing world-wide credit crisis.
The availability of credit to the diamond processing and jewelry manufacturing sectors of the industry has declined, thus reducing demand for rough diamonds as the industry supply lines de-stock. The Company anticipates challenging trading conditions for the near- term although subdued demand has returned for certain rough diamond categories reflecting the sell-through of core engagement ring type products which account for about half of the overall polished diamond market.
The decline in polished diamond prices has been significantly less than the price declines in rough diamonds although sales volumes have declined substantially as the world economic crisis has deepened.
(R) Harry Winston is a registered trademark of Harry Winston Inc.
The Retail Jewelry Market
The luxury diamond jewelry market has also been negatively affected by the severity of the global economic downturn. The major markets of the United States and Japan have experienced the most significant decreases in demand, while consumers in the Middle East and parts of Asia continue to purchase luxury diamond products.
