Paul Rowley - Prelim Results 2014 interview

The relocation to Botswana has gone seamlessly in so many ways, actually. It started probably two years ago in reality when we sent the QA and the aggregation teams ahead of the relocation itself, and then we kicked off obviously with the sale really as a pilot back in November, site 9 of 2013. I think it's probably fair to say that our site holders, our customers, were pleasantly surprised not only with Botswana itself but also the whole relocation of the building, the atmosphere, the environment, the transparency, the openness of the executive, I think, which they'd perhaps not seen for quite a while back in London, so it gave a different feel to it. Apart from the fact that we're seeing obviously 10 sites a year with some 250 or so people coming into the country now, it's also the knock-on effect: hotels, tourism, transport in general, banking facilities. The whole beneficiation has expanded in general with additional services of grading. We've also seen the knock-on sort of restaurants building up, so Gaborone is a bit of a hub of activity, not just in the site week itself but probably the week before and after also. Just as we went into the very first sight in Botswana, we saw an uptake in demand. We saw a bounce back from the fallback of 2013, and as we came into the first quarter, we saw demand really picking up, largely to do with a good season in the States, a very positive selling season, and of course we saw a lot of activity in the build-up to the Chinese New Year. Last year again we saw retailers looking to restock in Q1 and into Q2, and then from an industry's perspective we saw a slowdown that didn't really come into impact De Beers until probably the last quarter, and there we saw the market starting to get a little bit full of goods, for want of a better term, and we saw a little overhang of polish towards the end of the year, which saw ourselves slow down, but overall a very good year for De Beers. As we look into 2015, what I'm pleased to report is that we've had reports coming back from the season in America that have been extremely positive. As we move into Valentine's Day and the Chinese New Year, we remain hopeful that we'll see those markets also performing well over that period of time. What we haven't seen this year is perhaps the exuberance of the restocking phase in Q1 of 2014, and we see this as a slightly different phasing period. Certainly as we're going to Q2, we'd expect to see manufacturing coming back to a more expected level of capacity, and we'd expect sales to move through in a pretty strong way, and we've got good confidence for growth at a retail level during the year as well. The closure of ADB, I think, wasn't a surprise to begin with. We've been talking about it for a very long time, so I think most of our customers in the market in general in the industry were expecting the inevitable closure. Like all these things, it's a fairly large exposure to the industry, around 1.5 billion dollars, but at the same time the bank has been very sensitive and sensible in dealing with our customers in extending good long terms over the facilities for the transfer and the migration to new facilities and other banks. We've been quite fortunate that over this period of time we spend a lot of time with some new banks coming to the system, and some of the more traditional ones have also taken on some of those accounts. In addition to that, we're seeing site holders thankfully bringing some more of their own liquidity on the market as well. So although obviously there's an impact, I think it's been fairly smooth over the period. To some extent on the liquidity issue, the real impact came towards the last quarter of last year. What's happened post that is that finances started to come in, and of course there's been a lot less rough coming onto the market, so the pull on the liquidity is eased. So actually at the moment I'd say we're in a slightly easier liquidity position, but still it's a little bit sensitive. It's a year ago since we actually announced the criteria around the new sight order contracts. The real drivers behind it being one of flexibility and very much a customer relationship driven business, moving away from some of the mechanics of the past. However, what we did put into that was a strong financial compliance and governance, and that requires gating. The midstream is quite a changing environment at the moment. We've seen manufacturing, particularly in India, gravitate towards some very large engines, for want of a better term, operating out of Surat who have become incredibly efficient. The biggest issue we have at the moment is more around effective distribution of the product of the polished. So what we're looking for is seeing great efficiency on the one hand but really good distribution channels to market on the other. Personally for me, I'm a big lover of Africa. I've lived in Africa for probably around 25 years on and off, so it's nothing new for me. But what I think is really important has been able to welcome a lot of new individuals. You know, we had some 83 individuals and their respective families in most cases have migrated from London to Africa, and generally speaking they settled incredibly well. We've only had two people that in fact of the original 83 that have departed, and both on understandable grounds. So I think overall a great success, and we're enjoying very much as well the integration into the community in Botswana.