Harry Winston Diamond's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Harry Winston Diamond (HWD)

Q4 2012 Earnings Call

April 05, 2012 8:30 am ET

Executives

Robert Gannicott - Chairman and Chief Executive Officer

Cyrille Baudet - Group Chief Financial Officer

Frederic de Narp - Chief Executive Officer of Harry Winston, Inc and President of Harry Winston, Inc

Raymond N. Simpson - Executive Vice President

Mats Heimersson -

Analysts

Des Kilalea - RBC Capital Markets, LLC, Research Division

Irene Nattel - RBC Capital Markets, LLC, Research Division

Oliver Chen - Citigroup Inc, Research Division

Seth Peterson - Berenberg Bank, Research Division

Brian MacArthur - UBS Investment Bank, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Harry Winston Diamond Corporation's Fiscal Year 2012 Fourth Quarter and Year-End Conference Call. My name is Chanel, and I'll be your conference coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

Please note that we will be making some forward-looking comments today. Various factors and assumptions were applied in deriving these comments, and actual results could differ materially. The principal factors and assumptions that were applied and risks that could cause our actual results to differ materially from our current expectations are detailed in our filings with Canadian and United States' securities regulatory authorities and can be found at www.sedar.com and www.sec.gov.

During today's call, we will also be discussing certain non-GAAP financial measures such as EBITDA. EBITDA does not have a standardized meaning according to GAAP, and Harry Winston defines it as sale minus cost of sales in selling, general and administrative expenses. Please see the press release and the MD&A we filed yesterday for further information about this non-GAAP measure.

I would now like to turn our presentation over to your host for today's call, the Chairman and CEO, Mr. Robert Gannicott. Please proceed.

Robert Gannicott

Thanks. Well, good morning, everyone, and welcome to this call which, of course, as you've just heard incorporates both the fourth quarter and the year-end results. Before I proceed, I'm just going to introduce some of the other people that I have sitting with me in the room and that are available to help with answering questions at the end of the call. As well as Frédéric de Narp, who runs the -- our luxury goods subsidiary, based in New York; and Cyrille Baudet, who is our Chief Financial Officer, who will be actually speaking on the call. As well as them, I also have Ray Simpson here. Ray leads our M&A Research Group. Richard Chetwode, who now runs our Investor Relations program, as well as our relationships with capital markets generally. Ray, you've -- most of you know, from a quite a long time. Richard has recently joined us. His background is, he came to us from Gem Diamonds, prior to that, a long career with De Beers. And before that, he actually worked in the city of London for James Capel.

Also in the room, I have Mats Heimersson. Mats is a Swedish mining engineer who has always worked in the Arctic. He began his career in Arctic, Sweden. Mats and I then met in the mid 1970s on a project in -- a mining project in West Greenland where Mats introduced a very innovative mining method for one of the ore bodies at the mine. He has since spent his time working on a lot of the Arctic mine startups, including Polaris and Lupin, and having some involvement with Nanisivik as well. And Mats is based in Yellowknife and is our prime resource on mining engineering issues.

So following that introduction, I'm just going to say then that for that -- I meant, well, I'm going to hand over to our CFO, Cyrille Baudet, who's going to review the year from a financial performance point of view. Cyrille will be followed by Frédéric, who will discuss the brand timepiece and jewelry business. And I'm then going to come back to discuss our rough diamond business.

By way of introduction, I'd say the year-end diamonds, generally, and our business in particular, has in large part reflected global economic developments. The early part of the year saw a strong surge in rough diamond prices, as demand anticipated a strong and immediate U.S. recovery, supplementing the new demand from China. This drove our own rough prices up by about 50% between the beginning of the year in July, at which point European debt issues and uncertainty in the U.S. recovery reversed that trend.

In the second half of the year, most, but not all categories of rough diamonds, surrendered about half the gains made in the first half. The most resilient categories being those delivering small high-quality stones used in the watch industry, and the weakest categories being the lower-quality diamonds where competition from the Marange area of Zimbabwe has had an impact as those diamonds have come to market following a resolution of Kimberley Process Certification for them.

The average price for our own assortments of rough diamonds ended the year about a 20% above the beginning of the year, and pricing and demand has now stabilized with most categories showing modest price increases again. Although we would all prefer more stable conditions that we saw over the last year, this experience has given a view of the effect of diamond supply demand imbalance hitting the diamond market.

Our Luxury brand business had shared the experience of other luxury brands, and significant sales growth as you're going to hear from Cyrille and Frédéric. Perhaps more important than the sales growth itself is that we continue to build the foundations of a strong and bridal jewelry and timepiece business to deliver more predictable growth than can be expected from reliance only on high-end sales. Our Japanese business has been particularly effective in this transition despite the challenges of the tsunami tragedy earlier in the year.

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