The hot debate about funding the Diamond & Jewellery Clients - - PowerPoint PPT Presentation

The ‘hot’ debate about funding the diamond industry

STRICTLY PRIVATE & CONFIDENTIAL 
 Diamond & Jewellery Clients Geert van Reisen May 18, 2016

Introduction – the ‘hot’ debate about funding the diamond industry

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“Every disadvantage has its advantage”

All stakeholders are important

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We are all stakeholders in this industry and as a result can have impact on how the industry develops

Is funding the real issue for the industry?

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Source: Top graph: RBC Capital Markets estimates Dec. 2015

Estimation of the Cutting Centre Debt Levels from 1992 – 2015 Main focus on the black line showing the ‘Retail Diamond Content in $ bn’

1999

• Debt ~$ 5.5bn
• Diamond ~$13.0bn

Debt ratio 42% 2013

• Debt ~$15.5bn
• Diamond ~$ 22.5bn

Debt ratio 69% 2015 ~60% Bottom graph Tacy & Pharosbeam

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Multiple explanations including:

• Higher price levels
• Higher business activities
• Longer credit terms to wholesalers / jewellery manufacturers /

retailers

• Higher amount of capital invested in the industry due also to more

modern manufacturing facilities and equipment

• Larger stock levels
• ‘trading’ transactions for funding purposes
• Diversion of funding to invest in other asset classes outside the

industry

Where did the funding go?

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Can the industry still prosper with less available funding?

• Industry should not accept trade transactions aimed at getting access to funding
• Further focus on improving working capital management (is already happening):

➢ Reduce manufacturing ‘cycle time’ ➢ increased focus on receivable collections and inventory management (‘automatic’ inventory appreciation days are over) ➢ Increased focus on payment terms. Also good examples in industry of more direct payments

• Structural reduced inventory for industry not only helps to mitigate price risk but also to

strengthen negotiations with the more fragmented ‘polished / jewellery’ buyers

• The industry would definitely benefit if also outside India there are more (international)

banks active, especially in Antwep

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How to address the geographical dislocation in funding?

• No need for additional funding, just (part) replacement funding
• Funding and access to bank accounts to Antwerp market is most ‘at stake’

Solutions are found / thought of when there is a need!

• Alternative funding structures incl. attracting funding from a.o. pension funds, insurance

companies

• Other (international) banks start to show interest
• But the industry can also change the ’operating model’

➢ Shorter payment terms for rough (trading) in local markets and to manufacturers (improved cycle times) ➢ Shorter credit terms for polished sales ➢ Higher focus on inventory management Lower inventories ➢ Reduce dependency on external funding / keep more equity in industry ➢ Rough Producers providing credit

• High(er) advance rates for purchase / inventory finance and receivables is not helping the

industry Think of the 4 steps mentioned by Geshe Michael Roach

Regulators and Banks are increasing their requirements

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• Rules for banks are becoming increasingly

strict

• Basel IV is envisaged to have a material

impact on the RWA’s and required capital of banks

• Payments within industry

typically see much higher ‘filter’ hits and subsequent operational handling

• in Europe industry is qualified as

increased risk leading to higher frequency of monitoring

• Reputational issues are

high on the agenda

Public opinion matters in EVERY industry

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• Public opinion is changing quickly around taxes,

compliance and sustainability

Industry should embrace initiatives to increase Pipeline Integrity & Sustainability

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• Mixed goods quickly loose the
• rigin of the rough
• KP certificate is not a guarantee

the rough is mined in a sustainable way

Industry should embrace initiatives to increase Pipeline Integrity & Sustainability

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• Currently 4 diamond mining producers are RJC

certified manufacturers (De Beers, Dominion, Lucara Diamond, Rio Tinto)

• Industry players providing

sizeable contributions to charity

• Launched

Maendeleo Diamond Standards respect Human Rights

Leadership Lessons from Dancing Guy

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https://m.youtube.com/watch?v=fW8amMCVAJQ

“It was the first follower that transformed the ‘lone nut’ into a leader. There is no movement without the first follower!”

Disclaimer

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This presentation has been prepared by ABN AMRO Bank N.V. (“ABN AMRO”) exclusively for the benefit and internal use of you to serve for

discussion purposes only. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by ABN AMRO. This presentation is proprietary to ABN AMRO and may not be disclosed to any third party or used for any

• ther purpose without the prior written consent of ABN AMRO.

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