TORONTO, April 5, 2012 /PRNewswire/ --
Harry Winston Diamond Corporation (TSX: HW) (NYSE: HWD) (the "Company") today announced its fourth quarter and year-end results for the period ending January 31, 2012.
Annual Results Highlights:
- Consolidated sales increased 13% to $702.0 million for the year ended January 2012 compared to $624.0 million for the prior year. This resulted in operating profit of $56.5 million, compared to an operating profit of $68.3 million last year. Included in the fiscal 2012 results was a non-cash $13.0 million charge ($8.4 million after tax) related to the de-recognition of certain components of the backfill plant at the Diavik Diamond Mine. Excluding this non-cash charge of $13.0 million, the Company's operating profit would have been $69.5 million representing a slight increase over the prior fiscal year.
- EBITDA was $148.2 million compared to $145.4 million in the prior year.
- For the mining segment, the Company sold 2.1 million carats for a total of $290.1 million for an average price per carat of $137 compared to 2.6million carats for a total of $279.2 million for an average price per carat of $106 in the prior year. The increase in sales resulted from a 29% increase in the Company's achieved rough diamond price per carat. This was partially offset by a 19% decrease in volume of carats sold as the Company elects to hold inventory.
- Rough diamond production for the calendar year 2011 was 6.7 million carats compared to 6.5 million carats in the prior calendar year (on a 100% basis). Rough diamond production was 3% higher than the prior calendar year due primarily to an increase in ore processed.
- Luxury brand segment sales increased 19% (12% at constant exchange rates) to $411.9 million from $344.8 million in the prior year. The increase in sales resulted in operating profit for the year of $19.4 million compared to $14.9 million in the prior year.
- The Company recorded consolidated net profit attributable to shareholders of $25.5 million or $0.30 per share for the year, compared to consolidated net profit attributable to shareholders of $41.5 million or $0.52 per share in the prior year. Excluding the $8.4 million after-tax charge for de-recognition of certain paste plant assets in the mining segment, the Company would have recorded a net profit attributable to shareholders of $33.8 million or $0.40 per share for the period.
- Excluding the paste plant derecognition charge, consolidated net profit decreased primarily due to higher financing expenses related to the Kinross buy-back transaction with the final payment made in August 2011, higher mining exploration expenses and higher income tax expense. The higher income tax expense primarily resulted from the revaluation of both non-monetary assets and liabilities and of the net deferred income tax liability due to foreign exchange fluctuations.
Robert Gannicott, Chairman and Chief Executive Officer stated: "Our own rough diamond prices have now stabilized at levels approximately 20% above the beginning of the year and resumed a steady growth in many categories. This is consistent with the trends that we see in our luxury brand business where strong demand for watches has propelled not only our own timepiece orders but also the pricing of the small diamonds that are used throughout the watch industry. Our jewelry sales continue to show strong growth in the bridal and collection jewelry segments that we have targeted as a keystone of our expansion plans as we service not only new markets in China but also broaden our offering in our home market in the US."
He continued, "In light of Rio Tinto's review of its diamond business, including the Diavik Diamond Mine, Harry Winston has decided, not to release a full life of mine plan for the Diavik project at this time in the expectation that project parameters may change in the course of this review."
Fourth Quarter Highlights:
- Consolidated sales were $216.0 million for the fourth quarter compared to $215.4 million for the comparable quarter of the prior year. Operating profit increased 45% to $30.7 million, compared to an operating profit of $21.2 million in the comparable quarter of the prior year. EBITDA was $58.2 million compared to $45.9 million in the comparable quarter of the prior year.
- For the mining segment, rough diamond sales for the fourth quarter were 24% higher at $102.2 million compared to $82.7 million for the fourth quarter last year. This increase resulted from a 14% increase in the volume of carats sold and a 9% increase in the Company's achieved rough diamond prices. The average price per carat during the quarter was $120, compared to $110 in the comparable quarter of the prior year.
- Rough diamond production during the calendar quarter from the Diavik Diamond Mine was 1.60 million carats, compared to 1.54 million carats for the fourth calendar quarter of last year (on a 100% basis).
- Luxury brand segment sales for the fourth quarter decreased 14% (18% at constant exchange rates) to $113.8 million from $132.7 millionfor the comparable quarter of the prior year. The decrease was primarily due to a high-value transaction in the prior year's quarter that was not repeated in the current quarter.
- Consolidated net profit attributable to shareholders for the fourth quarter was $16.6 million or $0.20 per share compared to a consolidated net profit attributable to shareholders of $13.7million or $0.16 per share in the fourth quarter of the prior year.
The Company now reports its sales on a geographic basis. The mining and luxury brand segments now discloses four geographic areas being North America, Europe, Asia excluding Japan, and Japan. Additionally, the Company now reports a third segment "Corporate", distinct from the mining and luxury segments, for expenses not specifically related to the individual segments.
Fourth Quarter and Fiscal 2012 Financial Summary
(US$ in millions except Earnings per Share amounts)
Three months Three months Twelve months Twelve months
ended ended ended ended
Jan. 31, 2012 Jan. 31, 2011 Jan. 31, 2012 Jan. 31, 2011
Sales 216.0 215.4 702.0 624.0
- Mining Segment 102.2 82.7 290.1 279.2
- Luxury Brand Segment 113.8 132.7 411.9 344.8
Operating Profit (loss) 30.7 21.2 56.5 68.3
- Mining Segment 27.4 17.9 48.7 62.3
- Luxury Brand Segment 6.8 5.3 19.4 14.9
- Corporate Segment (3.5) (2.0) (11.6) (8.9)
Net Profit attributable to
shareholders 16.6 13.7 25.5 41.5
Earnings per share $0.20 $0.16 $0.30 $0.52
Outlook
For the mining segment, a mine plan and budget for calendar 2012 has been approved by Rio Tinto plc, the operator of the Diavik Diamond Mine, and the Company. The plan for calendar 2012 foresees DiavikDiamond Mine production of approximately 8.3 million carats (100% basis) from the mining of 2.0 million tonnes of ore and processing of 2.2 million tonnes of ore. Open pit mining of approximately 1.0 million tonnes is expected to be exclusively from A-418. Underground mining of approximately 1.0 million tonnes is expected to be sourced equally from the A-154 South and A-154 North kimberlite pipes. Included in the estimated production for calendar 2012 is approximately 1.0 million carats from reprocessed plant rejects ("RPR") and 0.1 million carats from the implementation of an improved recovery process for small diamonds. These RPR and small diamond recoveries are not included in the Company's reserves and resource statement and are therefore incremental to production.
Looking beyond calendar 2012, the objective is to fully utilize processing capacity with a combination of production from the underground portions of A-154 South, A-154 North and A-418 supplemented by the A-21 open pit. The A-21 project now enters final feasibility study with the objective of approval in time to mobilize equipment on the next winter road.
For the luxury brand segment, the Company is targeting a compound annual revenue growth in the mid-teens, a gross margin target in the low 50% range, and an operating profit margin target in the low to mid-teens by fiscal 2016. The current salon growth target is to expand to approximately 35 directly operated salons, 15 licensed salons, and to grow to 300 wholesale timepiece doors by fiscal 2016.
Conference Call and Webcast
Beginning at 8:30AM (ET) on Thursday, April 5, 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 web site at http://investor.harrywinston.com or by dialing 800-510-9691 within North America or 617-614-3453 from international locations and entering passcode 22046474.
An online archive of the broadcast will be available by accessing the Company's investor relations web site at http://investor.harrywinston.com. A telephone replay of the call will be available one hour after the call through 11:00PM (ET), Thursday, April 19, 2012 by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 87878793.
About Harry Winston Diamond Corporation
Harry Winston Diamond Corporation is a diamond enterprise with premium assets in the mining and retail segments of the diamond industry. Harry Winston supplies rough diamonds to the global market from its 40 percent ownership interest in the Diavik Diamond Mine. The Company's luxury brand segment is a premier diamond jeweler and luxury timepiece retailer with salons in key locations, including New York, Paris, London, Beijing, Shanghai, Hong Kong, Singapore, Tokyo and Beverly Hills.
The Company focuses on the two most profitable segments of the diamond industry, mining and retail, in which its expertise creates shareholder value. This unique business model provides key competitive advantages; rough diamond sales and polished diamond purchases provide market intelligence that enhances the Company's overall performance.
For more information, please visithttp://www.harrywinston.comor for investor information, visithttp://investor.harrywinston.com.
Highlights
(ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)
FOURTH QUARTER RESULTS
Consolidated sales were $216.0 million for the fourth quarter compared to $215.4 million for the comparable quarter of the prior year, resulting in a 17% increase in gross margin to $86.2 million and an operating profit of $30.7 million, compared to an operating profit of $21.2 million in the comparable quarter of the prior year. Consolidated EBITDA was $58.2 million compared to $45.9 million in the comparable quarter of the prior year.
The mining segment recorded sales of $102.2 million, a 24% increase from $82.7 million in the comparable quarter of the prior year. The increase in sales resulted from a 14% increase in volume of carats sold and a 9% increase in achieved rough diamond prices. The mining segment recorded an operating profit of $27.4 million compared to an operating profit of $17.9 million in the comparable quarter of the prior year. EBITDA for the mining segment was $51.7 million compared to $38.5 million in the comparable quarter of the prior year.
The luxury brand segment recorded sales of $113.8 million, a decrease of 14% from sales of $132.7 million in the comparable quarter of the prior year (a decrease of 18% at constant exchange rates). Operating profit was $6.8 million for the quarter compared to $5.3 million in the comparable quarter of the prior year. EBITDA for the luxury brand segment was $9.9 million compared to $9.0 million in the comparable quarter of the prior year.
The Company recorded a consolidated net profit attributable to shareholders of $16.6 million or $0.20 per share for the quarter, compared to a net profit attributable to shareholders of $13.7 million or $0.16 per share in the fourth quarter of the prior year.
ANNUAL RESULTS
Consolidated sales were $702.0 million for the year compared to $624.0 million for the prior year, resulting in a 6% increase in gross margin to $250.1 million and an operating profit of $56.5 million, compared to an operating profit of $68.3 million in the prior year. Consolidated EBITDA was $148.2 million compared to $145.4 million in the prior year.
The mining segment recorded sales of $290.1 million, a 4% increase from $279.2 million in the prior year. The increase in sales resulted from a 29% increase in the Company's achieved rough diamond price per carat. This was partially offset by a 19% decrease in volume of carats sold as the Company elected to hold inventory. The mining segment recorded an operating profit of $48.7 million compared to an operating profit of $62.3 million in the prior year. Excluding the $13.0 million non-cash charge for de-recognition of certain paste production assets in the mining segment incurred in the third quarter of fiscal 2012, operating profit would have been $61.7 million. EBITDA for the mining segment was $127.5 million compared to $125.7 million in the prior year.
The luxury brand segment recorded sales of $411.9 million, an increase of 19% from sales of $344.8 million in the prior year (an increase of 12% at constant exchange rates). Operating profit was $19.4 million for the year compared to $14.9 million in the prior year. EBITDA for the luxury brand segment was $31.8 million compared to $27.2 million in the prior year.
The Company recorded a consolidated net profit attributable to shareholders of $25.5 million or $0.30 per share for the year, compared to a net profit attributable to shareholders of $41.5 million or $0.52 per share in the prior year. Excluding the $8.4 million after-tax charge for de-recognition of certain paste production assets in the mining segment incurred in the third quarter of fiscal 2012, the Company would have recorded a net profit attributable to shareholders of $33.8 million or $0.40 per share for the period.
Management's Discussion and Analysis
PREPARED AS OF APRIL 4, 2012 (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 HarryWinston Diamond Corporation ("HarryWinston Diamond Corporation", or the "Company") for the twelve months ended January 31, 2012, andits financial position as at January 31, 2012. This MD&A is based on the Company's consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") and should be read in conjunction with the consolidated financial statements and notes. Unless otherwise specified, all financial information is presented in United States dollars. Unless otherwise indicated, all references to "year" refer to the fiscal year ended January 31. Unless otherwise indicated, references to "international" for the luxury brand segment refer to Europe and Asia.
Certain comparative figures have been reclassified to conform to the current year's presentation.
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", "foresee", "appears", "believe", "intend", "estimate", "predict", "potential", "continue", "objective", "modeled" 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, liquidity and working capital requirements and sources, estimated reserves and resources at, and production from, the DiavikDiamond Mine, the number and timing of expected rough diamond sales, the demand for rough diamonds, expected diamond prices and expectations concerning the diamond industry and the demand for luxury goods, expected cost of sales and gross margin trends in the mining segment, targets for compound annual growth rates of sales and operating income in the luxury brand segment, plans for expansion of the luxury brand retail salon network, and expected sales trends and market conditions in the luxury brand segment. Actual results may vary from the forward-looking information. See "Risks and Uncertainties" on page 20 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, world and US economic conditions, and the worldwide demand for luxury goods. Specifically, in making statements regarding expected diamond prices and expectations concerning the diamond industry and expected sales trends and market conditions in the luxury brand segment, the Company has made assumptions regarding, among other things, the state of world and US economic conditions, worldwide diamond production levels, and demand for luxury goods. While the Company 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 20.
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, including risks associated with the inability to control the timing and scope of future capital expenditures, risks associated with the remote location of and harsh climate at the Diavik Diamond Mine site, risks resulting from the Eurozone financial crisis, 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, cash flow and liquidity risks, the risks relating to the Company's expansion strategy and of competition in the luxury jewelry business as well as changes in demand for high-end luxury goods. Please see page 20 of this Annual Report, as well as the Company's current Annual Information Form, available at http://www.sedar.com, for a discussion of these and other risks and uncertainties involved in the Company's operations.
Readers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this MD&A, 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 MD&A, 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 currently expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. While the Company 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 Company's filings with Canadian and United States securities regulatory authorities and can be found at http://www.sedar.com and http://www.sec.gov, respectively.
Summary Discussion
Harry Winston Diamond Corporation is a diamond enterprise with premium assets in the mining and retailing segments of the diamond industry. The Company supplies rough diamonds to the global market from its 40% ownership interest in the Diavik Diamond Mine, located in Canada's Northwest Territories. The Company's luxury brand segment is a premier diamond jeweler and luxury timepiece retailer with salons in key locations including New York, Paris, London, Beijing, Shanghai, Tokyo, Hong Kong and Beverly Hills.
The Company's mining asset is an 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 HarryWinston Diamond Limited Partnership ("HWDLP") (40%) where HWDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI and HWDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England.
Market Commentary
The Diamond Market
In parallel with the 2011 global economic environment, rough diamond prices rose strongly in the first half of the fiscal year but partially weakened in the second half, primarily due to the ongoing European sovereign debt crisis. Additionally, a substantial increase in rough diamond supply from Zimbabwe market resulted in a build-up of rough diamond inventories, which exerted downward pressure on polished diamond prices during the third quarter. However, by year end resilient retail demand for diamond jewelry returned greater stability to the market and fiscal 2012 closed with prices significantly higher than at the start of the fiscal year.
The medium-term diamond supply demand imbalance looks ever more positive. In small high-quality diamonds that are primarily used in high- end watches, that supply demand imbalance is already noticeable, with prices of some categories more than doubling in the first nine months of last year and only coming off slightly when the overall market weakened towards the end of 2011.
The Luxury Jewelry and Timepiece Market
The luxury jewelry and timepiece market continued to perform very well during the year. Increased consumer demand for luxury products was supported by new, young wealthy consumers from emerging market economies. These consumers focus on purchasing unique, high-quality luxury products from global brands. Strong increases in tourism from China and other emerging markets in Asia, Latin America and Eastern Europe continued to fuel the growth in demand for luxury products in the US and European markets as well as in their local markets. The economic recovery in the US has strengthened, providing additional demand for luxury goods. Global brands are investing in expanding distribution networks to meet the increasing demand for luxury products.
Consolidated Financial Results
The following is a summary of the Company's consolidated quarterly results for the eight quarters ended January 31, 2012 following the basis of presentation utilized in its IFRS and Canadian generally accepted accounting principles ("GAAP") financial statements:
(expressed in thousands of United States dollars except per share amounts and where otherwise noted) (quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Sales $ 216,017 $ 119,716 $ 222,378 $ 143,932 $ 215,358
Cost of sales 129,807 75,524 150,177 96,452 141,391
Gross margin 86,210 44,192 72,201 47,480 73,967
Gross margin (%) 39.9% 36.9% 32.5% 33.0% 34.3%
Selling, general and
administrative expenses 55,500 46,155 49,101 42,795 52,722
Operating profit (loss) 30,710 (1,963) 23,100 4,685 21,245
Finance expenses (3,481) (4,040) (5,183) (3,983) (3,727)
Exploration costs (177) (600) (781) (212) (351)
Finance and other income 81 164 83 258 278
Insurance settlement - - - - -
Dilution loss - - - - -
Foreign exchange gain
(loss) 458 436 288 (177) 1,392
Profit (loss) before
income taxes 27,591 (6,003) 17,507 571 18,837
Income tax expense
(recovery) 11,001 (1,272) 7,519 (3,027) 5,137
Net profit (loss) $ 16,590 $ (4,731) $ 9,988 $ 3,598 $ 13,700
Attributable to
shareholders $ 16,602 $ (4,728) $ 9,986 $ 3,596 $ 13,693
Attributable to
non-controlling interest (12) (3) 2 2 7
Basic earnings (loss)
per share $ 0.20 $ (0.06) $ 0.12 $ 0.04 $ 0.16
Diluted earnings (loss)
per share $ 0.19 $ (0.06) $ 0.12 $ 0.04 $ 0.16
Cash dividends declared
per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Total assets (i) $ 1,631 $ 1,651 $ 1,665 $ 1,666 $ 1,604
Total long-term
liabilities (i) $ 670 $ 654 $ 625 $ 605 $ 603
Operating profit (loss) $ 30,710 $ (1,963) $ 23,100 $ 4,685 $ 21,245
Depreciation and
amortization (ii) 27,512 23,121 20,716 20,291 24,635
EBITDA (iii) $ 58,222 $ 21,158 $ 43,816 $ 24,976 $ 45,880
Total assets and total long-term liabilities are expressed in
(i) millions of United States dollars.
Depreciation and amortization included in cost of sales and selling,
(ii) general and administrative expenses.
Earnings before interest, taxes, depreciation and amortization
(iii) ("EBITDA"). See "Non-GAAP Measure" on page 18.
The comparability of quarter-over-quarter results is impacted by
seasonality for both the mining and luxury brand segments. Harry
Winston Diamond Corporation expects that the quarterly results for
its mining segment will continue to fluctuate depending on the
seasonality of production at the Diavik Diamond Mine, the number of
sales events conducted during the quarter, and the volume, size and
quality distribution of rough diamonds delivered from the Diavik
Diamond Mine and sold by the Company in each quarter. The quarterly
results for the luxury brand segment are also seasonal, with
generally higher sales during the fourth quarter due to the holiday
season. See "Segmented Analysis" on page 10 for additional
information.
TABLE CONT'D
CDN
GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Sales $ 140,877 $ 153,728 $ 114,000 $ 702,043 $ 623,963 $ 412,901
Cost of sales 84,765 85,798 75,711 451,960 387,665 291,722
Gross margin 56,112 67,930 38,289 250,083 236,298 121,179
Gross margin
(%) 39.8% 44.2% 33.6% 35.6% 37.9% 29.3%
Selling,
general and
administrative
expenses 41,282 37,998 35,948 193,552 167,950 143,150
Operating
profit (loss) 14,830 29,932 2,341 56,531 68,348 (21,971)
Finance
expenses (3,835) (2,985) (2,880) (16,687) (13,427) (11,541)
Exploration
costs (212) (76) (27) (1,770) (666) -
Finance and
other income 69 154 168 586 669 592
Insurance
settlement - - - - - 3.350
Dilution loss - - - - - (34,761)
Foreign
exchange gain
(loss) 135 1,043 (2,213) 1,005 357 (31,493)
Profit (loss)
before income
taxes 10,987 28,068 (2,611) 39,665 55,281 (95,824)
Income tax
expense
(recovery) (2,410) 10,877 (5,524) 14,222 8,080 (18,803)
Net profit
(loss) $ 13,397 $ 17,191 $ 2,913 $ 25,443 $ 47,201 $ (77,021)
Attributable to
shareholders $ 12,657 $ 13,043 $ 2,137 $ 25,454 $ 41,530 $ (73,176)
Attributable to
non-controlling
interest 740 4,148 776 (11) 5,671 (3,845)
Basic earnings
(loss) per
share $ 0.15 $ 0.17 $ 0.03 $ 0.30 $ 0.52 $ (0.99)
Diluted
earnings (loss)
per share $ 0.15 $ 0.17 $ 0.03 $ 0.30 $ 0.51 $ (0.99)
Cash dividends
declared per
share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Total assets
(i) $ 1,584 $ 1,596 $ 1,522 $ 1,631 $ 1,604 $ 1,495
Total long-term
liabilities (i) $ 596 $ 539 $ 457 $ 670 $ 603 $ 477
Operating
profit (loss) $ 14,830 $ 29,932 $ 2,341 $ 56,531 $ 68,348 $ (21,971)
Depreciation
and
amortization
(ii) 18,657 19,515 14,200 91,639 77,007 64,112
EBITDA (iii) $ 33,487 $ 49,447 $ 16,541 $ 148,170 $ 145,355 $ 42,141
(i) Total assets and total long-term liabilities are expressed in
millions of United States dollars.
(ii) Depreciation and amortization included in cost of sales and selling,
general and administrative expenses.
(iii) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-GAAP Measure" on page 18.
The comparability of quarter-over-quarter results is impacted by
seasonality for both the mining and luxury brand segments. Harry
Winston Diamond Corporation expects that the quarterly results for
its mining segment will continue to fluctuate depending on the
seasonality of production at the Diavik Diamond Mine, the number of
sales events conducted during the quarter, and the volume, size and
quality distribution of rough diamonds delivered from the Diavik
Diamond Mine and sold by the Company in each quarter. The quarterly
results for the luxury brand segment are also seasonal, with
generally higher sales during the fourth quarter due to the holiday
season. See "Segmented Analysis" on page 10 for additional
information.
Three Months Ended January 31, 2012 ComparedtoThree Months Ended January 31, 2011
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a fourth quarter consolidated net profit attributable to shareholders of $16.6 million or $0.20 per share compared to a net profit attributable to shareholders of $13.7million or $0.16 per share in the fourth quarter of the prior year.
CONSOLIDATED SALES
Sales for the fourth quarter totalled $216.0 million, consisting of rough diamond sales of $102.2 million and luxury brand segmentsales of $113.8 million. This compares to sales of $215.4 million in the comparable quarter of theprior year (rough diamond sales of $82.7million and luxury brand segment sales of $132.7 million). The Company now reports sales based on the selling location. See"Segmented Analysis" on page 10 for additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's fourth quarter cost of sales was $129.8 million, for a gross margin of 39.9% compared toa cost of sales of $141.4 million and a gross margin of 34.3% for the comparable quarter of the prior year. The Company's cost of sales includes costs associated with mining, rough diamond sorting and luxury brand sales activities. See "Segmented Analysis" on page 10 for additional information.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of selling, general and administrative ("SG&A") expenses include expenses for salaries and benefits, advertising and marketing, rent and building related costs. The Company incurred SG&A expenses of $55.5 million for the fourth quarter compared to $52.7million in the comparable quarter of the prior year.
Included in SG&A expenses for the fourth quarter was $2.1 million for the mining segment compared to $3.0 million for the comparable quarter of the prior year, $49.9 million for the luxury brand segment compared to $47.9 million for the comparable quarter of the prior year, and $3.5 million for the corporate segment compared to $1.8 million for the comparable quarter of the prior year. The corporate segment captures costs not specifically related to operations of the mining or luxury brand segments. See"Segmented Analysis" on page 10 for additional information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $11.0 million during the fourth quarter, compared to a net income tax expense of $5.1 million in the comparable quarter of the prior year. The Company's combined Canadian federal and provincial statutory tax rate for the quarter is 27.9%. There are a number of items that can significantly impact the Company's effective tax rate, including foreign currency exchange rate fluctuations, the Northwest Territories mining royalty, earnings subject to tax different than the statutory rate such as earnings in foreign jurisdictions, and changes in our view of whether deferred tax assets are probable of being realized. As a result, the Company's recorded tax provision can be significantly different than the expected tax provision calculated based on the statutory tax rate.
The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations. The Company's functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the fourth quarter, the Canadian dollar weakened against the US dollar. As a result, the Company recorded an unrealized foreign exchange gain of $1.2 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange loss of $3.5 million in the comparable quarter of the prior year. The unrealized foreign exchange gain is recorded as part of the Company's deferred income tax expense, and is not taxable for Canadian income tax purposes. During the fourth quarter, the Company also recognized a deferred income tax expense of $2.8 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate on translation of foreign currency non-monetary items. This compares to a deferred income tax recovery of $3.0 million recognized in the comparable quarter of the prior year. The recorded tax provision during the fourth quarter also included a net income tax recovery of $0.6 million relating to foreign exchange differences between income in the currency of the country of origin and the US dollars. This compares to a net income tax recovery of $1.6 million recognized in the comparable period of the prior year.
The rate of income tax payable by Harry Winston Inc. varies by jurisdiction. Net operating losses are available in certain jurisdictions to offset future cash taxes payable in such jurisdictions. The net operating losses are scheduled to expire through 2032.
Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.
CONSOLIDATED FINANCE EXPENSES
Finance expenses of $3.5 million were incurred during the fourth quarter compared to $3.7 million during the comparable quarter of the prior year.
CONSOLIDATED EXPLORATION COSTS
Exploration costs of $0.2 million were incurred during the fourth quarter compared to $0.4 million in the comparable quarter of the prior year.
CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $0.1 million was recorded during the quarter compared to $0.3 million in the comparable quarter of the prior year.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $0.5 million was recognized during the quarter compared to a net foreign exchange gain of $1.4 million in the comparable quarter of the prior year. TheCompany does not currently have any significant foreign exchange derivative instruments outstanding.
Twelve Months Ended January 31, 2012 ComparedtoTwelve Months Ended January 31, 2011
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded consolidated net profit attributable to shareholders of $25.5 million or $0.30 per share for the twelve months ended January 31, 2012, compared to a net profit attributable to shareholders of $41.5 million or $0.52 per share in the comparable period of the prior year. Excluding the $8.4 million after-tax charge for de-recognition of certain paste production assets in the mining segment incurred in the third quarter of fiscal 2012, the Company would have recorded a net profit attributable to shareholders of $33.8 million or $0.40 per share for the period.
CONSOLIDATED SALES
Sales for the twelve months ended January 31, 2012, totalled $702.0 million, consisting of rough diamond sales of $290.1 million and luxury brand segmentsales of $411.9 million. This compares to sales of $624.0 million in the comparable period of theprior year (rough diamond sales of $279.2million and luxury brand segment sales of $344.8million). The Company now reports sales based on the selling location. See"Segmented Analysis" on page 10 for additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the twelve months ended January 31, 2012, was $452.0 million, for a gross margin of 35.6% compared toa cost of sales of $387.7 million and a gross margin of 37.9% in the comparable period of the prior year. The Company's cost of sales includes costs associated with mining, rough diamond sorting and luxury brand sales activities. See "Segmented Analysis" on page 10 for additional information.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of SG&A expenses include expenses for salaries and benefits, advertising and marketing, rent and building related costs. The Company incurred SG&A expenses of $193.6 million for the twelve months ended January 31, 2012, compared to $168.0million in the comparable period of the prior year.
Included in SG&A expenses for the twelve months ended January 31, 2012, was $13.5 million for the mining segment compared to $11.5 million for the comparable period of the prior year, $168.6 million for the luxury brand segment compared to $147.9 million for the comparable period of the prior year, and $11.5 million for the corporate segment compared to $8.6 million for the comparable period of the prior year. The corporate segment captures costs not specifically related to operations of the mining or luxury brand segments. See"Segmented Analysis" on page 10 for additional information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $14.2 million during the twelve months ended January 31, 2012, compared to a net income tax expense of $8.1 million in the comparable period of the prior year. The Company's combined Canadian federal and provincial statutory tax rate for the period is 27.9%. There are a number of items that can significantly impact the Company's effective tax rate, including foreign currency exchange rate fluctuations, the Northwest Territories mining royalty, earnings subject to tax different than the statutory rate, such as earnings in foreign jurisdictions and changes in our view of whether deferred tax assets are probable of being realized. As a result, the Company's recorded tax provision can be significantly different than the expected tax provision calculated based on the statutory tax rate.
The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations. The Company's functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the twelve months ended January 31, 2012, the Company recorded an unrealized foreign exchange loss of $0.5 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange loss of $12.5 million in the comparable period of the prior year. The unrealized foreign exchange loss is recorded as part of the Company's deferred income tax recovery, and is not deductible for Canadian income tax purposes. During the twelve months ended January 31, 2012, the Company also recognized a deferred income tax expense of $5.6 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate on translation of foreign currency non-monetary items. This compares to a deferred income tax recovery of $17.6 million recognized in the comparable period of the prior year. The recorded tax provision during the twelve months ended January 31, 2012 also included a net income tax recovery of $4.4 million relating to foreign exchange differences between income in the currency of the country of origin and the US dollars. This compares to a net income tax recovery of $4.7 million recognized in the comparable period of the prior year.
The rate of income tax payable by Harry Winston Inc. varies by jurisdiction. Net operating losses are available in certain jurisdictions to offset future cash taxes payable in such jurisdictions. The net operating losses are scheduled to expire through 2032.
Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.
CONSOLIDATED FINANCE EXPENSES
Finance expenses of $16.7 million were incurred during the twelve months ended January 31, 2012, compared to $13.4 million during the comparable period of the prior year. Finance expenses were impacted by increased debt levels in the mining segment related to the $60.0 million outstanding on the Standard Chartered Bank credit facility during the year and the $70.0 million promissory note payable to Kinross Gold Corporation ("Kinross") issued on August 25, 2010, which was repaid on August 25, 2011.
CONSOLIDATED EXPLORATION COSTS
Exploration costs of $1.8 million were incurred during the twelve months ended January 31, 2012, compared to $0.7 million in the the prior year.
CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $0.6 million was recorded during the twelve months ended January 31, 2012, compared to $0.7 million in the prior year.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $1.0 million was recognized during the twelve months ended January 31, 2012, compared to a net foreign exchange gain of $0.4 million in the prior year. TheCompany does not currently have any significant foreign exchange derivative instruments outstanding.
Segmented Analysis
The operating segments of the Company include mining, luxury brand and corporate segments. The corporate segment captures costs not specifically related to operations of the mining or luxury brand segments.
Mining
The mining segment includes the production, sorting and sale of rough diamonds.
(expressed in thousands of United States dollars) (quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Sales
North America $ 2,727 $ 8,835 $ 447 $ 3,009 $ 2,689
Europe 78,846 21,993 80,131 50,752 75,715
Asia 20,659 5,411 9,030 8,274 4,291
Total sales 102,232 36,239 89,608 62,035 82,697
Cost of sales 72,783 34,112 67,613 53,443 61,822
Gross margin 29,449 2,127 21,995 8,592 20,875
Gross margin (%) 28.8% 5.9% 24.5% 13.9% 25.2%
Selling, general and
administrative expenses 2,061 3,274 3,489 4,630 3,017
Operating profit (loss) $ 27,388 $ (1,147) $ 18,506 $ 3,962 $ 17,858
Depreciation and
amortization (i) 24,284 19,932 17,461 17,083 20,669
EBITDA (ii) $ 51,672 $ 18,785 $ 35,967 $ 21,045 $ 38,527
are unaudited)
(i) Depreciation and amortization included in cost of sales and selling,
general and administrative expenses.
(ii) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-GAAP Measure" on page 18.
TABLE CONT'D
CDN
GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Sales
North America $ 2,560 $ 1,128 $ 4,040 $ 15,018 $ 10,418 $ 7,310
Europe 50,353 81,462 40,146 231,722 247,677 148,364
Asia 7,795 4,237 4,736 43,374 21,059 32,211
Total sales 60,708 86,827 48,922 290,114 279,154 187,885
Cost of sales 45,039 54,408 44,143 227,951 205,412 174,651
Gross margin 15,669 32,419 4,779 62,163 73,742 13,234
Gross margin
(%) 25.8% 37.3% 9.8% 21.4% 26.4% 7.0%
Selling,
general and
administrative
expenses 3,031 2,872 2,558 13,454 11,478 19,502
Operating
profit (loss) $ 12,638 $ 29,547 $ 2,221 $ 48,709 $ 62,264 $ (6,268)
Depreciation
and
amortization
(i) 15,428 16,352 10,975 78,760 63,424 51,154
EBITDA (ii) $ 28,066 $ 45,899 $ 13,196 $ 127,469 $ 125,688 $ 44,886
(i) Depreciation and amortization included in cost of sales and selling,
general and administrative expenses.
(ii) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-GAAP Measure" on page 18.
Three Months Ended January 31, 2012 ComparedtoThree Months Ended January 31, 2011
MINING SALES
During the quarter, the Company sold 0.86 million carats for a total of $102.2 million for an average price per carat of $120 compared to 0.75million carats for a total of $82.7 million for an average price per carat of $110 in the comparable quarter of the prior year. The increase in sales resulted from a 14% increase in volume of carats sold and a 9% increase in the Company's achieved rough diamond price per carat. The increase in the carats sold was primarily the result of the sale of a portion of the lower priced goods held back by the Company at October 31, 2011 due to an oversupply in the market.
On a quarterly basis, the Company expects that results for its mining segment will continue to fluctuate depending on the seasonality of production at the Diavik Diamond Mine, the number of sales events conducted during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine and sold by the Company in eachquarter.
MINING COST OF SALES AND GROSS MARGIN
The Company's fourth quarter cost of sales was $72.8 million, resulting in a gross margin of 28.8% compared to a cost of sales of $61.8million and a gross margin of 25.2% in the comparable quarter of the prior year. Cost of sales included $24.3 million of depreciation and amortization compared to $20.7 million in the comparable quarter of the prior year. The mining gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.
A substantial portion of cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. Cost of sales also includes sorting costs, which consist of the Company's cost of handling and sorting product in preparation for sales to third parties, and amortization and depreciation, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.
MINING SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the mining segment decreased by $1.0 million from the comparable quarter of the prior year primarily due to a decrease in professional fees.
Twelve Months Ended January 31, 2012 ComparedtoTwelve Months Ended January 31, 2011
MINING SALES
During the twelve months ended January 31, 2012, the Company sold 2.1 million carats for a total of $290.1 million for an average price per carat of $137 compared to 2.6million carats for a total of $279.2 million for an average price per carat of $106 in the prior year. The increase in sales resulted from a 29% increase in the Company's achieved rough diamond price per carat. This was partially offset by a 19% decrease in volume of carats sold as the Company elected to hold inventory.
The Company expects that results for its mining segment will continue to fluctuate depending on the seasonality of production at the Diavik Diamond Mine, the number of sales events conducted during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine and sold by the Company in eachquarter.
MINING COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the twelve months ended January 31, 2012, was $228.0 million, resulting in a gross margin of 21.4% compared to a cost of sales of $205.4 million and a gross margin of 26.4% in the prior year. Cost of sales included $78.8 million of depreciation and amortization compared to $63.4 million in the prior year. Included in the cost of sales for the fiscal year was a non-cash $13.0 million charge ($8.4 million after-tax) related to the de-recognition of certain components of the backfill plant (the "Paste Plant") associated with paste production at the Diavik Diamond Mine. The original mine plan envisioned the use of blastholestoping and underhand cut and fill underground mining methods for the Diavik ore bodies using paste to preserve underground stability. It is now expected that the higher velocity and lower cost sub-level retreat mining method, which does not require paste, will be used for both the A-154 South and A-418 underground ore bodies. As a result, certain components of the Paste Plant necessary for the production of paste will no longer be required and accordingly were de-recognized during the third quarter. Excluding this charge, cost of sales would have been $215.0 million (gross margin of 25.9%), a 5% increase from the prior year. This increase was the result of higher volume of production during the fiscal year from the higher cost underground mine offset by a 19% decrease in volume of carats sold. The mining gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.
A substantial portion of cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. Cost of sales also includes sorting costs, which consist of the Company's cost of handling and sorting product in preparation for sales to third parties, and amortization and depreciation, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.
MINING SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the mining segment increased by $2.0 million from the prior year due to stock-based compensation and executive severance costs.
MINING SEGMENT OPERATIONAL UPDATE
Production for calendar year 2011 at the Diavik Diamond Mine was 6.7million carats consisting of 5.4 million carats produced from 1.80 million tonnes of ore from the A-418 kimberlite pipe, 0.7million carats produced from 0.36 million tonnes of ore from the A-154 North kimberlite pipe, and 0.4million carats produced from 0.10million tonnes of ore from the A-154 South kimberlite pipe. Also included in production for the calendar year was an estimated 0.2 million carats from reprocessed plant rejects ("RPR"). These RPR are not included in the Company's reserves and resource statement and are therefore incremental to production. Rough diamond production was 3% higher than the prior calendar year due primarily to an increase in ore processed.
Ore production for the fourth calendar quarter consisted of 0.1million carats produced from 0.04million tonnes of ore from the A-154 South kimberlite pipe, 0.2million carats produced from 0.10million tonnes of ore from the A-154 North kimberlite pipe and 1.2million carats produced from 0.42 million tonnes of ore from the A-418 kimberlite pipe. Also included in production for the calendar quarter was an estimated 0.05 million carats from RPR. Average grade increased to 2.9 carats per tonne in the fourth calendar quarter from 2.8 carats per tonne in the comparable quarter of the prior year. The increase in average grade was the result of the production of RPR in the current calendar quarter.
HARRY WINSTON DIAMOND LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK DIAMOND MINE PRODUCTION
(reported on a one-month lag)
Three Twelve Twelve
months months months
Three months ended ended ended
ended December December December
December 31, 31, 31, 31,
2011 2010 2011 2010
Diamonds recovered (000s carats) 641 617 2,670 2,599
Grade (carats/tonne) 2.88 2.77 2.99 3.15
Mining Segment Outlook
PRODUCTION
A mine plan and budget for calendar 2012 has been approved by Rio Tinto plc, the operator of the Diavik Diamond Mine, and the Company. The plan for calendar 2012 foresees Diavik Diamond Mine production of approximately 8.3 million carats from the mining of 2.0 million tonnes of ore and processing of 2.2 million tonnes of ore. Open pit mining of approximately 1.0 million tonnes is expected to be exclusively from A-418. Underground mining of approximately 1.0 million tonnes is expected to be sourced equally from the A-154 South and A-154 North kimberlite pipes. Included in the estimated production for calendar 2012 is approximately 1.0 million carats from RPR and 0.1 million carats from the implementation of an improved recovery process for small diamonds. These RPR and small diamond recoveries are not included in the Company's reserves and resource statement and are therefore incremental to production.
Looking beyond calendar 2012, the objective is to fully utilize processing capacity with a combination of production from the underground portions of A-154 South, A-154 North and A-418 supplemented by the A-21 open pit. The A-21 pre-feasibility study currently being undertaken, assumes that the A-21 pipe will be mined with the open pit methods used for the other pipes. A dyke would be constructed similar to the two other pits but smaller in size. Detailed plans are still being refined and optimized although no underground mining is being planned. The capital expenditures are estimated to be in the region of $500 million (100% basis). The Company still expects that the A-21 pipe, if mined together with the other pipes, would have a positive net present value.
PRICING
The rough diamond market experienced a modest improvement in prices during the fourth quarter of fiscal 2012 from the market deterioration in the third quarter. Based on prices from the Company's last complete rough diamond sale in February 2012 and the current diamond recovery profile of the Diavik processing plant, the Company has modeled the approximate rough diamond price per carat for each of the Diavik ore types in the table that follows.
February 2012
average price per
carat
Ore type (in US dollars)
A-154 South $ 160
A-154 North 205
A-418 A Type Ore 145
A-418 B Type Ore 100
RPR 55
COST OF SALES AND CASH COST OF PRODUCTION
The Company expects cost of sales in fiscal 2013 to be approximately $330 million. Included in this amount is depreciation and amortization of approximately $110 million at an assumed average Canadian/US dollar exchange rate of $1.00. The increase over fiscal 2012 is due to a combination of an increase in the proportion of underground ore mined, which is more costly to produce, and the expected sale during fiscal 2013 of the remaining lower priced goods previously held back in inventory by the Company. At January 31, 2012, the Company had 0.8 million carats of rough diamond inventory available for sale with an estimated current market value of approximately $80 million. Of these, approximately 65% were goods held back by the Company at October 31, 2011 due to an oversupply in the market.
The Company's share of the cash cost of production at the Diavik Diamond Mine for calendar 2012 is expected to be $173 million at an assumed average Canadian/US dollar exchange rate of $1.00. This compares to cash cost of production of $168 million for calendar 2011 at an actual average Canadian/US dollar exchange rate of $1.00.
The Company's MD&A refers to cash cost of production, a non-GAAP performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Diavik Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the mining segment cost of sales disclosed in these financial statements for the fiscal year ended January 31, 2012.
(expressed in thousands of United States dollars) 2012
Diavik cash cost of production $ 167,787
Private royalty 5,535
Other cash costs 4,009
Total cash cost of production 177,331
Depreciation and amortization 88,302
Total cost of production 265,633
Adjusted for stock movements (37,682)
Total cost of sales $ 227,951
CAPITAL EXPENDITURES
During fiscal 2012 and the fourth quarter, HWDLP's 40% share of capital expenditures at the Diavik Diamond Mine was approximately $42.6 million and $12.2 million, respectively. During fiscal 2013, HWDLP's 40% share of the planned capital expenditures at the Diavik Diamond Mine is expected to be approximately $78 million at an assumed average Canadian/US dollar exchange rate of $1.00.
EXPLORATION
The Company has additionally staked 226,000 acres of mineral claims on the prospective geological trend to the southwest of the existing mine site and is starting a small but important basal till drilling program to assess the potential for new diamondiferous kimberlite pipes over the coming years. On September 6, 2011, the Company announced that Harry Winston Diamond Mines Ltd. and its wholly owned subsidiary, 6355137 Canada Inc., entered into an option agreement with North Arrow Minerals Inc. ("North Arrow") and Springbok Holdings Inc., ("Springbok") in regards to their Lac de Gras properties in the Northwest Territories. Under the terms of the agreement, the two properties collectively will form a "Joint Venture Property". In order for the option to vest, the Company is to carry out exploration on the Joint Venture Property, making expenditures of at least $5 million over a five-year period. Upon vesting, a joint venture will be formed, in which the Company will hold a 55% interest, and in which North Arrow and Springbok will equally share a 45% interest, in the entire Joint Venture Property.
Luxury Brand
The luxury brand segment includes sales from Harry Winston salons, which are located in prime markets around the world, including eight salons in the United States: New York, Beverly Hills, BalHarbour, Honolulu, Las Vegas, Dallas, Chicago and Costa Mesa; five salons in Japan: Ginza, Roppongi Hills, Osaka, Omotesando and Nagoya; two salons in Europe: Paris andLondon; and five salons in Asia outside of Japan: Beijing, Shanghai, Taipei, Hong Kong and Singapore.
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Sales
North America $ 41,537 $ 28,817 $ 27,183 $ 35,487 $ 46,489
Europe 31,204 19,561 26,098 17,446 15,701
Asia (excluding
Japan) 17,272 13,133 59,056 14,354 50,817
Japan 23,772 21,966 20,433 14,610 19,654
Total sales 113,785 83,477 132,770 81,897 132,661
Cost of sales 57,024 41,378 82,513 42,958 79,518
Gross margin 56,761 42,099 50,257 38,939 53,143
Gross margin (%) 49.9% 50.4% 37.9% 47.5% 40.1%
Selling, general and
administrative
expenses 49,929 40,635 43,331 34,716 47,866
Operating profit
(loss) $ 6,832 $ 1,464 $ 6,926 $ 4,223 $ 5,277
Depreciation and
amortization (i) 3,089 3,048 3,115 3,069 3,688
EBITDA (ii) $ 9,921 $ 4,512 $ 10,041 $ 7,292 $ 8,965
(i) Depreciation and amortization included in cost of sales and selling,
general and administrative expenses.
(ii) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-GAAP Measure" on page 18.
TABLE CONT'D
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
CDN
GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Sales
North America $ 20,977 $ 19,456 $ 21,578 $ 133,024 $ 108,500 $ 72,764
Europe 27,155 20,327 15,441 94,309 78,624 52,339
Asia
(excluding
Japan) 16,671 10,858 14,158 103,815 92,504 45,601
Japan 15,366 16,260 13,901 80,781 65,181 54,312
Total sales 80,169 66,901 65,078 411,929 344,809 225,016
Cost of sales 39,675 31,339 31,517 223,873 182,049 117,071
Gross margin 40,494 35,562 33,561 188,056 162,760 107,945
Gross margin
(%) 50.5% 53.2% 51.6% 45.7% 47.2% 48.0%
Selling,
general and
administrative
expenses 34,942 33,081 31,967 168,611 147,856 123,648
Operating
profit (loss) $ 5,552 $ 2,481 $ 1,594 $ 19,445 $ 14,904 $ (15,703)
Depreciation
and
amortization
(i) 2,882 2,816 2,878 12,321 12,264 12,958
EBITDA (ii) $ 8,434 $ 5,297 $ 4,472 $ 31,766 $ 27,168 $ (2,745)
(i) Depreciation and amortization included in cost of sales and selling,
general and administrative expenses.
(ii) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-GAAP Measure" on page 18.
Three Months Ended January 31, 2012 ComparedtoThree Months Ended January 31, 2011
LUXURY BRAND SALES
Sales for the fourth quarter were $113.8 million compared to $132.7 millionfor the comparable quarter of the prior year, a decrease of 14% (a decrease of 18% at constant exchange rates). North American sales decreased 11% to $41.5 million, European sales increased 99% to $31.2 million, sales in Asia (excluding Japan) decreased 66% to $17.3 million and sales in Japan increased 21% to $23.8 million. The fourth quarter of the prior year included a significant sale in Asia (excluding Japan) that was not repeated in the current fourth quarter. During the quarter there were $6.7 million of high-value transactions, which carry generally lower-than-average gross margins, compared with $48.0 million in the comparable period of the prior year.
LUXURY BRAND COST OF SALES AND GROSS MARGIN
Cost of sales for the luxury brand segment for the fourth quarter was $57.0 million compared to $79.5 million for the comparable quarter of the prior year. Gross margin for the quarter was $56.8 million or 49.9% compared to $53.1 million or 40.1% for the fourth quarter of the prior year. The improvement in gross margin was primarily due to product mix and several high-value transactions in the prior year totalling $48.0 million that generated lower-than-average gross margins.
LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased by 4% to $49.9 million from $47.9 million in the comparable quarter of the prior year. The increase was due primarily to higher advertising, marketing and selling expenses and increased rent and building related expenses. Fixed costs accounted for $1.9 million of the increase, while variable expenses linked to higher volume of sales accounted for $0.2 million of the increase. SG&A expenses included depreciation and amortization expense of $3.0 million compared to $3.6 million in the comparable quarter of the prior year.
Twelve Months Ended January 31, 2012 ComparedtoTwelve Months Ended January 31, 2011
LUXURY BRAND SALES
Sales for the twelve months ended January 31, 2012, were $411.9 million compared to $344.8 millionfor the prior year, an increase of 19% (12% at constant exchange rates). North American sales increased 23% to $133.0 million, European sales increased 20% to $94.3 million, sales in Asia (excluding Japan) increased 12% to $103.8 million and sales in Japan increased 24% to $80.8 million. During the period there were $67.5 million of high-value transactions, which carry generally lower-than-average gross margins, compared to $54.0 million in the prior year.
LUXURY BRAND COST OF SALES AND GROSS MARGIN
Cost of sales for the luxury brand segment for the twelve months ended January 31, 2012, was $223.9 million compared to $182.1 million for the prior year. Gross margin for the twelve months ended January 31, 2012, was $188.1 million or 45.7% compared to $162.8 million or 47.2% for the prior year. The decrease in gross margin resulted primarily from development costs related to the launch of two new watch collections during the year.
LUXURY BRAND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased by 14% to $168.6 million from $147.9 million in the prior year. The increase was due primarily to higher advertising, marketing and selling expenses, higher variable compensation expenses resulting from higher sales and increased rent and building related expenses. Fixed costs accounted for $16.9 million of the increase, while variable expenses linked to higher volume of sales accounted for $3.8 million of the increase. SG&A expenses included depreciation and amortization expense of $12.1 million compared to $11.9 million in the prior year.
LUXURY BRAND SEGMENT OPERATIONAL UPDATE
During the fiscal year ended January 31, 2012, the luxury brand segment generated sales of $411.9 million, an increase of 19% over the prior year at actual exchange rates and a 12% increase at constant exchange rates. The Company recorded high-value transactions of $67.5 million during the twelve-month period compared with $54.0 million in the prior year. The North American market generated sales of $133.0 million, an increase of 23% over the prior year. The long-term trend of growing wealth in Asia has resulted in increased mobility of luxury consumers, benefiting the North American market. In Japan, sales of $80.8 million increased by 24% at actual exchange rates and by 13% on a constant exchange rate basis over the prior year. Asia (excluding Japan) had sales of $103.8 million, representing an increase of 12% at actual exchange rates and 5% on a constant exchange rate basis over the prior year. In Europe, sales of $94.3 million were 20% higher at actual exchange rates and 8% higher on a constant exchange rate basis over the prior year.
Two new licensed Harry Winston salons were opened during the fiscal year: in the Emirates Towers and in the Dubai Mall, in Dubai, United Arab Emirates. During January 2012, a new Harry Winston directly operated salon was opened in Shanghai, China.
The luxury brand segment's distribution network consists of 20 directly operated salons, four licensed salons (in Manila, Philippines, Kiev, Ukraine and two in Dubai, United Arab Emirates) and 194 wholesale watch doors around the world.
Luxury Brand Segment Outlook
With the long-term trend of increasing global demand for luxury products, the Company is optimistic that fiscal 2013 will represent a strong opportunity to grow sales and profitability. The influx of new young wealthy consumers from emerging markets is expected to continue to drive demand for luxury products in the US and Europe as well as in local markets. Luxury brands with strong global distribution networks are well positioned to benefit from the increased mobility of wealthy consumers. The Company will continue to focus on expanding its distribution network, especially in emerging markets such as China, Russia and the Middle East, where consumer demand for luxury products is growing rapidly. The strength of the Harry Winston brand, the introduction of new jewelry and watch products, supported by innovative advertising campaigns and promotional events, will allow the Company to continue to build global brand awareness.
In fiscal 2013, a new directly operated flagship salon in Shanghai, China, is expected to be opened during the first quarter, and a second directly operated salon in London, United Kingdom, in mid-year. Also during the fiscal year, two new licensed salons are expected to be opened in Moscow, Russia, and Kuwait City, Kuwait. The Company also plans to expand by 30 wholesale watch doors to more than 220 doors by the end of fiscal 2013. A key component of the luxury brand segment's growth strategy is the expansion of its salon network and wholesale distribution network. The growth target is to expand to approximately 35 directly operated salons, 15 licensed salons and 300 wholesale doors by fiscal 2016. Management's long-term financial objectives to fiscal 2016 include compound annual revenue growth in the mid-teens, a gross margin target in the low 50% range, and an operating profit margin target in the low to mid-teens.
On May 19, 2011, the Company announced that Harry Winston Inc. had entered into a business arrangement with Diamond Asset Advisors AG ("DAA"), which is in the process of establishing a polished diamond investment fund (the "Fund"). The Fund will be structured as a limited partnership with total funding of up to $250 million, offering institutional investors direct exposure to the wholesale market price of polished diamonds. Under the terms of the arrangement with the Fund, the Company's expert diamond team will source diamonds for the Fund that have the same high-quality characteristics that the luxury brand segment uses in its jewelry and watches, with a portion of the diamonds coming from the Company's existing inventory. The Fund will purchase the diamonds and then consign them to Harry Winston Inc., which will act as custodian. Harry Winston Inc. will use the consigned polished diamonds in the manufacturing of its jewelry and watches, paying the Fund when the jewelry or watch is sold. The price paid by the Fund to replace the sold polished diamonds will be used to determine the Fund's market value. This arrangement will increase the inventory available to Harry Winston Inc.'s expanding international salon network without additional demands on working capital. The Fund is expected to raise the first capital subscription of approximately $100 million from investors in fiscal 2013, with the remaining $150 million expected to be raised over the following year, subject to market conditions.
Corporate
The corporate segment captures costs not specifically related to operations of the mining or luxury brand segments.
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Sales $ - $ - $ - $ - $ -
Cost of sales - 34 51 51 51
Gross margin - (34) (51) (51) (51)
Gross margin (%) -% -% -% -% -%
Selling, general and
administrative
expenses 3,510 2,246 2,281 3,449 1,839
Operating profit
(loss) $ (3,510) (2,280) (2,332) (3,500) (1,890)
Depreciation and
amortization (i) 139 141 140 139 278
EBITDA (ii) $ (3,371) $ (2,139) $ (2,192) $ (3,361) $ (1,612)
(i) Depreciation and amortization included in cost of sales and selling,
general and administrative expenses.
(ii) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-GAAP Measure" on page 18.
TABLE CONT'D
(expressed in thousands of United States
dollars)
(quarterly results are unaudited)
CDN GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Sales $ - $ - $ - $ - $ - $ -
Cost of sales 51 51 51 136 204 -
Gross margin (51) (51) (51) (136) (204) -
Gross margin (%) -% -% -% -% -% -%
Selling, general
and
administrative
expenses 3,309 2,045 1,423 11,487 8,616 -
Operating profit
(loss) (3,360) (2,096) (1,474) (11,623) (8,820) $ -
Depreciation and
amortization (i) 347 347 347 558 1,319 -
EBITDA (ii) $ (3,013) $ (1,749) $ (1,127) $ (11,065) $ (7,501) $ -
(i) Depreciation and amortization included in cost of sales and selling,
general and administrative expenses.
(ii) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-GAAP Measure" on page 18.
Three Months Ended January 31, 2012 ComparedtoThree Months Ended January 31, 2011
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by $1.7 million from the comparable quarter of the prior year primarily due to travel expenses and salaries and benefits related to additional corporate employees.
Twelve Months Ended January 31, 2012 ComparedtoTwelve Months Ended January 31, 2011
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by $2.9 million from the prior year primarily due to stock-based compensation, and travel expenses and salaries and benefits related to additional corporate employees.
Liquidity and Capital Resources
Working Capital
As at January 31, 2012, the Company had unrestricted cash and cash equivalents of $78.1million compared to $108.7million at January 31, 2011. The Company had cash on hand and balances with banks of $76.0million and short-term investments of $2.1million at January 31, 2012. During the year ended January 31, 2012, the Company reported cash from operations of $59.0million compared to $72.8million in the prior year. At January 31, 2012, the Company had 0.8 million carats of rough diamond inventory available for sale at an estimated current market value of approximately $80 million.
Working capital increased to $439.0million at January 31, 2012, from $328.6million at January 31, 2011. During the year, the Company increased accounts receivable by $4.3 million, increased inventory and supplies by $42.0million, increased other current assets by $4.2 million, decreased trade and other payables by $31.2million and increased employee benefit plans by $2.1 million.
The Company's liquidity requirements fluctuate from quarter to quarter depending on, among other factors, the seasonality of production at the Diavik Diamond Mine, the seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine and sold by the Company in each quarter, along with the seasonality of sales and salon expansion in the luxury brand segment. The Company's principal working capital needs include investments in inventory, other current assets, trade and other payables, and income taxespayable.
The Company assesses liquidity and capital resources on a consolidated basis. The Company's requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements at least for the next twelve months.
Financing Activities
The mining segment maintains a senior secured revolving credit facility with Standard Chartered Bank that was increased from $100.0 million to $125.0 million on February 28, 2011. At January 31, 2012, $50.0 million was outstanding compared to $50.0 million at January 31, 2011.
During the year, the Company paid the $70.0 million promissory note plus accrued interest owing to Kinross from cash on hand. The promissory note was issued to Kinross on August 25, 2010, as part of the consideration for reacquiring Kinross's 9% indirect interest in the Diavik Joint Venture.
As at January 31, 2012, $nil and $4.3 million was outstanding under the Company's revolving financing facility relating to its Belgian subsidiary, Harry Winston Diamond International N.V., and its Indian subsidiary, HarryWinston Diamond (India) Private Limited, respectively, compared to $nil at January 31, 2011.
During the year ended January 31, 2012, the luxury brand subsidiary, Harry Winston Inc., increased the amount outstanding on its secured five-year revolving credit facility to $200.5 million from $165.0 million at January 31, 2011.
Investing Activities
During the fiscal year, the Company purchased property, plant and equipment of $64.9million, of which $45.2million was purchased for the mining segment and $19.7 million for the luxury brand segment.
Contractual Obligations
The Company has contractual payment obligations with respect to interest-bearing loans and borrowings and, through its participation in the JointVenture, future site restoration costs at the Diavik Diamond Mine level. Additionally, at the Joint Venture level, contractual obligations exist with respect to operating purchase obligations, as administered by DDMI, the operator of the mine. In order to maintain its 40% ownership interest in the Diavik Diamond Mine, HWDLP is obligated to fund 40% of the Joint Venture's total expenditures on a monthly basis. HWDLP's current projected share of the planned capital expenditures at the Diavik Diamond Mine, which are not reflected in the table below, including capitalexpenditures for the calendar years 2012 to 2016, is approximately $140million, assuming a Canadian/US average exchange rate of $1.00 for the fiveyears. The most significant contractual obligations for the ensuing five-year period can be summarized as follows:
CONTRACTUAL OBLIGATIONS Less than Year Year After
(expressed in thousands
of United States
dollars) Total 1 year 2-3 4-5 5 years
Interest-bearing loans
and borrowings (a)(b) $ 321,751 $ 39,578 $ 260,954 $ 4,852 $ 16,367
Environmental and
participation
agreements incremental
commitments (c) 93,330 82,676 4,844 - 5,810
Operating lease
obligations (d) 220,352 22,439 39,288 35,997 122,628
Total contractual
obligations $ 635,433 $ 144,693 $ 305,086 $ 40,849 $ 144,805
(a) Interest-bearing loans and borrowings presented in the foregoing table include current and long-term portions. The mining segment maintains a senior secured revolving credit facility with Standard Chartered Bank for $125.0 million. The facility has an initial maturity date of June 24, 2013, with two one-year extensions at the Company's option.There are no scheduled repayments required before maturity. At January 31, 2012, $50.0 million was outstanding.
The Company has available a $45.0million revolving financing facility (utilization in either US dollars or Euros) for inventory and receivables funding in connection with marketing activities through its Belgian subsidiary, HarryWinston Diamond International N.V., and its Indian subsidiary, HarryWinston Diamond (India) Private Limited. Borrowings under the Belgian facility bear interest at the bank's base rate plus 1.5%. Borrowings under the Indian facility bear an interest rate of 12.0%. At January 31, 2012, $nil and $4.3 million were outstanding under this facility relating to its Belgian subsidiary, HarryWinston Diamond International N.V., and its Indian subsidiary, HarryWinston Diamond (India) Private Limited, respectively. The facility is guaranteed by HarryWinston Diamond Corporation.
Harry Winston Inc. maintains a credit agreement with a syndicate of banks for a $250.0million five-year revolving credit facility, which expires on March 31, 2013. There are no scheduled repayments required before maturity. At January 31, 2012, $200.5 million had been drawn against this secured credit facility.
Also included in long-term debt of Harry Winston Inc. is a 25-year loan agreement for CHF 17.5 million ($18.9 million) used to finance the construction of the Company's watch factory in Geneva, Switzerland. The loan agreement is comprised of a CHF 3.5 million ($3.8 million) loan and a CHF 14.0 million ($15.1 million) loan. The CHF 3.5 million loan bears interest at a rate of 3.15% and matures on April 22, 2013. The CHF14.0 million loan bears interest at a rate of 3.55% and matures on January 31, 2033. At January 31, 2012, $16.6 million was outstanding. The bank has a secured interest in the factory building.
HarryWinston Japan, K.K., maintains unsecured credit agreements with three banks, amounting to ¥1,250 million ($16.1million). HarryWinston Japan, K.K. also maintains a secured credit agreement amounting to ¥575million ($7.5million). This facility is secured by inventory owned by HarryWinston Japan, K.K. At January 31, 2012, $23.6 million was outstanding.
The Company's first mortgageon real property has scheduled principal payments of approximately $0.2 million quarterly, may be prepaid at any time, and matures on September 1, 2018. On January 31, 2012, $6.3 million was outstanding on the mortgage.
(b)Interest on loans and borrowings is calculated at various fixed and floating rates. Projected interest payments on the current debt outstanding were based on interest rates in effect at January 31, 2012, and have been included under interest-bearing loans and borrowings in the table above. Interest payments for the next twelve months are approximated to be $10.3million.
(c)The Joint Venture, under environmental and other agreements, must provide funding for the Environmental Monitoring Advisory Board. These agreements also state that the Joint Venture must provide security deposits for the performance by the Joint Venture of its reclamation and abandonment obligations under all environmental laws and regulations. Theoperator of the Joint Venture has fulfilled such obligations for the security deposits by posting letters of credit of which HWDLP's share as at January 31, 2012, was $81.1million based on its 40% ownership interest in the Diavik Diamond Mine. There can be no assurance that the operator will continue its practice of posting letters of credit in fulfillment of this obligation, in which event HWDLP would be required to post its proportionate share of such security directly, which would result in additional constraints on liquidity. The requirement to post security for the reclamation and abandonment obligations may be reduced to the extent of amounts spent by the Joint Venture on those activities. The Joint Venture has also signed participation agreements with various native groups. These agreements are expected to contribute to the social, economic and cultural well-being of area Aboriginal bands. The actual cash outlay for the Joint Venture's obligations under these agreements is not anticipated to occur until later in the life of the DiavikDiamond Mine.
(d)Operating lease obligations represent future minimum annual rentals under non-cancellable operating leases for HarryWinston Inc. salons and office space, and long-term leases for property, land and office premises.
Non-GAAP Measure
In addition to discussing earnings measures in accordance with IFRS, the MD&A provides the following non-GAAP measure, which is also used by management to monitor and evaluate the performance of the Company and its business segments.
The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have a standardized meaning according to IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company defines EBITDA as sales minus cost of sales and selling, general and administrative expenses, meaning it represents operating profit before depreciation and amortization.
EBITDA is a measure commonly reported and widely used by investors and analysts as an indicator of the Company's operating performance and ability to incur and service debt and as a valuation metric. EBITDA margin is defined as the ratio obtained by dividing EBITDA by sales.
CONSOLIDATED
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Operating profit (loss) $ 30,710 $ (1,963) $ 23,100 $ 4,685 $ 21,245
Depreciation and amortization 27,512 23,121 20,716 20,291 24,635
EBITDA $ 58,222 $ 21,158 $ 43,816 $ 24,976 $ 45,880
TABLE CONT'D
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
CDN GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Operating profit (loss) $14,830 $29,932 $2,341 $56,531 $68,348 $(21,971)
Depreciation and
amortization 18,657 19,515 14,200 91,639 77,007 64,112
EBITDA $33,487 $49,447 $16,541 $148,170 $145,355 $42,141
MINING SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Operating profit (loss) $ 27,388 $ (1,147) $ 18,506 $ 3,962 $ 17,858
Depreciation and amortization 24,284 19,932 17,461 17,083 20,669
EBITDA $ 51,672 $ 18,785 $ 35,967 $ 21,045 $ 38,527
TABLE CONT'D
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
CDN GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Operating profit (loss) $12,638 $29,547 $2,221 $48,709 $62,264 $(6,268)
Depreciation and
amortization 15,428 16,352 10,975 78,760 63,424 51,154
EBITDA $28,066 $45,899 $13,196 $127,469 $125,688 $44,886
LUXURY BRAND SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Operating profit (loss) $ 6,832 $ 1,464 $ 6,926 $ 4,223 $ 5,277
Depreciation and amortization 3,089 3,048 3,115 3,069 3,688
EBITDA $ 9,921 $ 4,512 $ 10,041 $ 7,292 $ 8,965
TABLE CONT'D
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
CDN GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Operating profit (loss) $5,552 $2,481 $1,594 $19,445 $14,904 $(15,703)
Depreciation and
amortization 2,882 2,816 2,878 12,321 12,264 12,958
EBITDA $8,434 $5,297 $4,472 $31,766 $27,168 $(2,745)
CORPORATE SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
IFRS
2012 2012 2012 2012 2011
Q4 Q3 Q2 Q1 Q4
Operating profit (loss) $ (3,510) (2,280) (2,332) (3,500) (1,890)
Depreciation and amortization 139 141 140 139 278
EBITDA $ (3,371) $ (2,139) $ (2,192) $ (3,361) $ (1,612)
TABLE CONT'D
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
CDN GAAP
2011 2011 2011 2012 2011 2010
Q3 Q2 Q1 Total Total Total
Operating profit (loss)(3,360) (2,096) (1,474) (11,623) (8,820) $ -
Depreciation and
amortization 347 347 347 558 1,319 -
EBITDA $(3,013) $(1,749) $(1,127) $(11,065) $(7,501) $ -
Risks and Uncertainties
Harry Winston Diamond Corporation is subject to a number of risks and uncertainties as a result of its operations. Inaddition to the other information contained in this MD&A and the Company's other publicly filed disclosure documents, readers should give careful consideration to the following risks, each of which could have a material adverse effect on the Company's business prospects or financial condition.
Nature of Mining
The operation of the Diavik Diamond Mine is subject to risks inherent in the mining industry, including variations in grade and other geological differences, unexpected problems associated with required water retention dikes, water quality, surface and underground conditions, processing problems, equipment performance, accidents, labour disputes, risks relating to the physical security of the diamonds, force majeure risks and natural disasters. Particularly with underground mining operations, inherent risks include variations in rock structure and strength as it impacts on mining method selection and performance, de-watering and water handling requirements, achieving the required crushed rock-fill strengths, and unexpected local ground conditions. Hazards, such as unusual or unexpected rock formations, rock bursts, pressures, collapses, flooding or other conditions, may be encountered during mining. Such risks could result in personal injury or fatality; damage to or destruction of mining properties, processing facilities or equipment; environmental damage; delays, suspensions or permanent reductions in mining production; monetary losses; and possible legal liability.
The Diavik Diamond Mine, because of its remote northern location and access only by winter road or by air, is subject to special climate and transportation risks. These risks include the inability to operate or to operate efficiently during periods of extreme cold, the unavailability of materials and equipment, and increased transportation costs due to the late opening and/or early closure of the winter road. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Company's profitability.
CONT'D
