agm 3 2010 harry winston
TRANSCRIPT
Harry Winston Diamond CorporationANNUAL GENERAL MEETING | JUNE 2010
2
Forward-Looking Information
Information in this disclosure that is not current or historical factual information may constitute forward-looking information or
statements within the meaning of applicable securities laws. Forward-looking information is based on certain factors and
assumptions regarding, among other things, mining, production, grade and tonnage, construction and exploration activities at the
Diavik Diamond Mine, world and US economic conditions, the worldwide demand for luxury goods and the level of worldwide
diamond production. Specifically, in making statements regarding expected diamond prices and expectations concerning the
diamond industry and expected sales trends, margins, profitability and market conditions in the retail segment, Harry Winston
Diamond Corporation (“the Company”) has made assumptions regarding, among other things, continuing recovery of world and
US economic conditions, diamond supply and demand for luxury goods. 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 activities
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 Diavik Diamond Mine,
the number and timing of expected rough diamond sales, 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, and expected
sales trends and market conditions in the retail segment. Actual results may vary from the forward-looking information. While the
Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be
incorrect.
Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to
differ materially from what we currently expect. These factors include, among other things, the uncertain nature of mining
activities, including risks associated with underground construction and mining operations, risks associated with joint venture
operations, risks associated with the remote location of and harsh climate at the Diavik Diamond Mine site, risks associated with
regulatory requirements, fluctuations in diamond prices and changes in US and world economic conditions, the risk of fluctuations
in the Canadian/US dollar exchange rate, cash flow and liquidity risks, risks relating to the Company’s salon expansion strategy
and competition in the luxury jewelry segment as well as changes in demand for high end luxury goods. Readers/viewers are
cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this disclosure, and
should not rely upon this information as of any other date. While the Company may elect to, it is under no obligation and does not
undertake to update or revise any forward-looking information, except as required by law. Additional information concerning
factors that may cause actual results to materially differ from those in such forward-looking statements is contained in the Harry
Winston Diamond Corporation’s filings with Canadian and United States securities regulatory authorities and can be found at
www.sedar.com and www.sec.gov respectively.
3
Agenda
• Introduction
• Financial Highlights
• Retail Segment
• Mining Segment
• Q & A Session
4
PICE INFOMATION
SUPPLY
LEVERAGE
The Diavik Mine
Cutters/Polishers
Diavik Mine
Supply
Harry Winston: The Unique Proposition
Price?
5
PICE INFOMATION
SUPPLY
LEVERAGE
The Diavik Mine
Other Rough
Diamond SuppliersOther
Jewelers
Cutters/Polishers
Diavik Mine
Supply
Harry Winston: The Unique Proposition
Price?
6
PICE INFOMATION
SUPPLY
LEVERAGE
The Diavik Mine Retail Customer
Other Rough
Diamond SuppliersOther
Jewelers
Cutters/Polishers
Diavik Mine
Supply
Harry Winston
Retail Demand
PRICE INFORMATION
Harry Winston: The Unique Proposition
7
PICE INFOMATION
SUPPLY
LEVERAGE
The Diavik Mine Retail Customer
Other Rough
Diamond SuppliersOther
Jewelers
Cutters/Polishers
Diavik Mine
Supply
Harry Winston
Retail DemandSUPPLY LEVERAGE
PRICE INFORMATION
Harry Winston: The Unique Proposition
8
Indexed on S&P/Goldman Sachs spot metal prices and Harry Winston rough sales indexed to shipment 01/07
Diamond Prices Have Recovered Rapidly
9
Harry Winston rough sales and polished purchases indexed to January 2008
Rough Prices Underpinned by Polished
10
Financial Highlights
11
FY
2009
FY
2010
110
156
Q1
-29%
FY
2009
FY
2010
95
186
Q2
-49%
FY
2009
FY
2010
75
149
Q3
-50%
FY
2009
FY
2010
134
118
Q4
+14%
Turnaround Began in Q4 FY2010
Consolidated Sales
(in millions of US dollars)
12
Q1
FY2010Q1
FY2011
114110
Sales Gross Margin
Q1
FY2010Q1
FY2011
37
26
(in millions of US dollars)
And Continued in Q1 FY2011
Consolidated
EBITDA1
Q1
FY2010Q1
FY2011
23
8
1 EBITDA is earnings before interest, taxes, depreciation and amortization.
13
Q1
CY 2009Q1
CY 2010
625
714
Carats Recovered1
(in thousands)
Mine Plan Contemplated Lower Production
in Q1 FY2011Mining Segment
Q1
FY 2010Q1
FY 2011
49
58
Sales
1 Represents 40% share of Diavik Production
(in millions of US dollars except carat amounts)
14
Underlying Strength in Rough MarketMining Segment
Q1
FY 2010Q1
FY 2011
98%
-54%
Achieved Price
Q1
FY 2010Q1
FY 2011
18
10
EBITDA1
(in millions of US dollars)
1 EBITDA is earnings before interest, taxes, depreciation and amortization.
15
CY
2008
CY
2009
CY
2010
2,226
3,690
FY
2009
FY
2010
FY
2011
188
328
Carats Recovered 1 Sales
Mining Segment Full Year Growth
(in millions of US dollars except carats amounts)
(in thousands)
1 Represents 40% share of the Diavik production
625
FY
2009
FY
2010
FY
2011
45
233
EBITDA 2
+/-3,200
2 EBITDA is earnings before interest, taxes, depreciation and amortization.
16
Q1
FY2010Q1
FY2011
65
52
Sales Gross Margin
Q1
FY2010Q1
FY2011
34
(in millions of US dollars)
25
Retail Segment Shows
Considerable Improvement in Q1 FY2011
EBITDA1
Q1
FY2010Q1
FY2011
5
-2
1 EBITDA is earnings before interest, taxes, depreciation and amortization.
17
(in millions of US dollars)
FY
2009
FY
2010
FY
2011
225
281
FY
2009
FY
2010
FY
2011
108
133
Sales Gross Margin
Expected to Continue for the Year
Retail
FY
2009
FY
2010
FY
2011
-3
10
EBITDA1
1 EBITDA is earnings before interest, taxes, depreciation and amortization.
18
Debt
47
-323
January 31, 2009
(in millions of US dollars)
Cash Net Debt
-276
Debt
90
-198
April 30, 2010
Cash Net Debt
-108
Debt
63
-185
January 31, 2010
Cash Net Debt
-122
Significant Balance Sheet De-leveraging
FYE 2009 FYE 2010 Q1 FY 2011
Consolidated
19
Debt
41
-105
January 31, 2009
(in millions of US dollars)
Cash Net Debt
-64
Debt
62
-23
April 30, 2010
Cash Net Cash
39
Debt
45
-7
January 31, 2010
Cash Net Cash
38
Significant Balance Sheet De-leveraging
FYE 2009 FYE 2010 Q1 FY 2011
Mining Segment
20
Debt
6
-218
January 31, 2009
(in millions of US dollars)
Cash Net Debt
-212
Debt
28
-176
April 30, 2010
Cash Net Debt
-148
Debt
18
-178
January 31, 2010
Cash Net Debt
-160
Significant Balance Sheet De-leveraging
FYE 2009 FYE 2010 Q1 FY 2011
Retail Segment
21
Retail Segment
22
• Our Mission
• The Harry Winston Brand
• Trends in the Global Luxury Market
• Five Year Growth Plan
• Financial Vision
Retail Segment
23
Retail Segment Mission Statement
Create financial value for Shareholders,
by creating emotional value for Clients and
goodwill from Society,
by being the most exclusive Diamond
Jeweler and Watchmaker in the world.
24
Retail Segment Financial Vision
FY2010 FY20131 FY20161
Last year
Revenue $225M 20% CAGR 15% CAGR
Gross Margin % 48% +/- 51% +/- 52%
Operating Profit % -7% +/- 7% +/- 12%
EBITDA % -1.2% +/- 11% +/- 15%
1 Figures for internal planning and measurement purposes. This is not a forecast of actual results.
25
Brand Mission Statement
Celebrate the meaningful moments
of our clients’ lives
26
• Our Mission
• The Harry Winston Brand
• Trends in the Global Luxury Market
• Five Year Growth Plan
• Financial Vision
Retail Segment
27
Harry Winston is a Brand…..
for Meaningful Moments
Luxury is about celebrating relationships & giving
Emotion, gratitude, attachment, commitment, love
with Meaningful ProductsAdamas. Diamonds are timeless symbols of power and purity.Best Quality: capture the rarest essence of nature
Best Craftsmanship: express the genius of man, shaping nature and time
by Meaningful PeopleHarry Winston people are:
Knowledgeable, passionate, trustworthy, service oriented
28
Heritage is a Source of Power
Jennifer Jones,
Hollywood, 1944…
Harry Winston invents
Red Carpet dressing
Lesotho, Jonker,
Star of Sierra LeoneMythical Gemstones owned by Harry Winston
29
Innovation is a Source of Power
The youngest legitimateHorology Brand
In one decade, Opus has gained the respect of century-old brands
Pioneer of modern
jewelry craftsmanship
Invention of fluid shapes
and the Cluster Design
30
Philanthropy is a Source of Power
1958, Harry Winston
donates Hope to the World
A chief act of generosity, 2nd
most visited artifact in the world
Court of Jewels- the heart of
American philanthropy
The first socially responsible
jeweler was born
Retail Segment - Market Opportunity
Page 31
• A Jewelry market over $150 billion1, 85% of which is
unbranded
• Brands bring a sense of History, Social Status &
Style Guidelines
• Branding Phenomenon in the 2000’s: Luxury and
Fashion brands are set to conquer the jewelry field
Market Shift to Branded Jewelry
Sources: Company estimates based on multiple sources
32
• Our Mission
• The Harry Winston Brand
• Trends in the Global Luxury Market
• Five Year Growth Plan
• Financial Vision
Retail Segment
33
Luxury in 2010
Entering a Post-recession Era
ASIA (ex-Japan) - Booming
China 15%, Rest of Asia 10%
THE WEST - Slow Recovery
North America 4%, Europe 3%
JAPAN - Still very Profitable but saturated
Japan -3%
Year 2010 growth forecast
Global luxury market 5-10%
Sources: Bain & Co, April 2010; American Express, 2010
34
Old World, Young WorldThe Global Age Gap Shaping Luxury Markets
Source: CIA World Factbook, 2009
35
Where the Wealthy LiveHigh Net Worth Individual Population by Region
Page 35
Latin America:
0.4M2005-2008: +25%
North
America: 2.7M2005-2008: -7.4%
Europe: 2.6M2005-2008: +7.7%
Asia Pacific
(incl. Japan): 2.4M2005-2008: 0%
Africa: 0.1M2005-2008: 0%
Middle East: 0.4M2005-2008: +25%
Sources: CapGemini Merrill Lynch, 2009
Footnote: HNWI: People with more than 1 million dollars in investable assets excluding primary
residence, collectibles, consumables and consumer durables
36
At the Very TopTop countries and cities with billionaires
CityNumber of
billionaires
New York 60
Moscow 50
London 32
Istanbul 28
Los Angeles 27
Hong Kong 25
Mumbai 20
Dallas 17
San Francisco 14
Tokyo 14
Harry Winston Retail Presence
• In 2010,China has the most
billionaires outside of the US
• Closely followed by Russia,
Germany and India
• HW already has a strong
presence in key cities where
top billionaires reside
Source: Forbes, 2010
37
Luxury Consumers and the Internet
• Luxury consumers declare the Internet is the most useful
source of information for them
• 80% of wealthy consumers use search engines on a daily
basis
• Luxury consumers shop both online and in stores
• On average, Internet users are richer and younger than in-
store shoppers
Sources: Google, 2008; Luxury Institute, 2010
38
• Our Mission
• The Harry Winston Brand
• Trends in the Global Luxury Market
• Five Year Growth Plan
• Financial Vision
Retail Segment
39
Retail Segment - Strategic Statement
Create a Global and Scalable platform,
to substantially Grow Sales and Profitability
over five years,
through an Integrated Marketing strategy
40
Branding Strategy
Consolidate & Expand our Position
Target Consumer Base Size
Exclusivity
ScaleExpressed through:
Price points
Number of Stores
Consumer Perception
Affordable / Everyday Luxury
Designer Eyewear, Fragrances, Spirits, Silver Jewelry…
Core & Premium Luxury
Generalist watch & jewelry brands
Designer accessories & apparel
Ultra High-End
Bespoke
41
Branding – Blend Tradition & Innovation
• Rejuvenate the delivery of our message to appeal to the new
generation
• Use our name & history to boost our communication exposure
Harry Winston: a Brand of extremes, uncompromising
42
Jewelry Collections
• Strengthen the Iconic High End
− Reinforce our core product segment
− Revive our legacy business, use the “umbrella effect”
• Become a Bridal Destination
− Use our legitimacy in diamonds to gain market share in a
highly competitive market
• Collections: Modern, Creative, Innovative
− Rejuvenate our offer, appeal to a younger clientele
43
Timepieces Collections
• Rationalize, broaden our offer
− More compact collections for more commercial impact &
better product rotation
− Introduce variety in designs to target different market
segments
• Optimize Margins & Assortment
− Use our scalable manufacturing capacity to improve gross
margins
44
Communication
• Amplify, Integrate, Synchronize
Printed Material
Visual Merchandising
Packaging
Exhibition Design
Media Planning
Website / Online
Marketing
AdvertisingPublic
Relations
Harry Winston’sMessage
45
Retail Salon Network
• Salon Profitability Action Plans
− Focused action plans to improve
existing Salon profitability
• Capture Growth Opportunities
− Asia (ex-Japan)
− Japan
− Europe
Retail Network Today
North America
8 Salons
Europe
2 Salons
Asia(ex-Japan)
4 Salons
Japan
5 Salons
46
Projected Retail Network by 2016
Asia (Ex-Japan)
13 Salons North America
9 Salons
Europe
6 SalonsJapan
7 Salons
47
48
Other Channels
• Wholesale
• Room for growth: develop network of authorized watch
retailers
• Partner Salons: Hybrid Distribution Model
• Harry Winston Salons operated by business partners
• Maintain control of Brand image
• Limit company exposure in riskier markets
• Exhibitions & E-commerce
• Extend our reach while minimizing operating costs
49
• Our Mission
• The Harry Winston Brand
• Trends in the Global Luxury Market
• Five Year Growth Plan
• Financial Vision
Retail Segment
50
Retail Segment Financial Vision
FY2010 FY20131 FY20161
Last year
Revenue $225M 20% CAGR 15% CAGR
Gross Margin % 48% +/- 51% +/- 52%
Operating Profit % -7% +/- 7% +/- 12%
EBITDA % -1.2% +/- 11% +/- 15%
Operated Salons 19 +/- 26 +/- 35
Partner Salons 0 +/- 12 +/- 20
Wholesale Doors 188 250+ 300+
1 Figures for internal planning and measurement purposes. This is not a forecast of actual results.
51
Mining Segment
A21
Measured
Resource
Indicated
Resource
Inferred
Resource
Exploratory
52
Diavik Mine: Reserves and Resources
52
9400 L
9350 L
9300 L
9250 L
9200 L
9150 L
9100 L
9050 L
9000 L
8950 L
8900 L
8850 L
8800 L
8750 L
8700 L
53
Exceptional grade makes Diavik
one of the highest value tonne mines
Source: Based on 2008 data from Company Estimates, Annual Reports, BMO Diamond Research (Jan 2009)
Rock Value US$/Tonne for Major KimberlitesRelative to 2008 Production Value
Dia
vik
$8
00
m
Mir $
54
6m
Vic
tor
$29
9m
Sna
p L
ake
$14
8m
Eka
ti $
53
5m
Jw
ane
ng
$1,7
09
m
Ve
ne
tia $
63
8m
Nyu
rba
$59
6m
Aik
hal $
37
2m
Ud
ach
ny $
79
6m
Letlh
aka
ne
$24
0m
Ora
pa
$1,0
00
m
Ca
toca
$45
1m
Lets
eng
$21
5m
Arg
yle
$21
1m
Fin
sch $
19
7m
Elle
ndale
$109m
$8,000m $7,000m $6,000m $5,000m $4,000m $3,000m $2,000m $1,000m $0m
$0
$50
$100
$150
$200
$250
$300
$350
Rock Value
per tonne in
millions of
US dollars
Production value in millions of US dollars
54
Source: De Beers estimates 2008
Other (fragmented) includes: Artisanal & Illicit (8%) and Juniors (19%)
Rio Tinto
6% BHP
4%
Harry
Winston
4%
De Beers
40%
Total US$14.8 billion
Gem diamond production (value)
World Diamond Production
Other
(highly fragmented)
27%
Alrosa
19%
55
Underground Mining Methods
56
Underground Mining Methods
57
Underground Mining Methods
Sublevel Caving
58
Diamonds
100%
Jewellery
Source: De Beers Group analysis; World Gold Council Gold Demand Trends, February 2009; Angloplat 2008 Annual Report, page 20
80%
60%
40%
20%
0%
Gold Platinum
Industrial and Autocatalyst Investment
99%
1%
58%
12%
29%
6%
73%
23%
Diamonds are Different
59
Diamond Exploration Challenge
Gold Mines
Source: De Beers exploration data (diamonds) and Metals Economic Group (gold mines)
5,000
850
50
5,000
1,500
1,000
500
0
Diamond exploration results from the last 140 years
Kimberlites
sampled
Diamond-
iferous
Economic
1,025
60
Diavik Exploration Potential
61
Source: De Beers
World Supply Reducing
No new material production is expected to come
online in the near future
62
Diavik Underground is a Major Development
Project
Source: Based on Janse/Read: Diamonds (15 March 2009), Company Estimates, Public Company data
Rock Value US$/Tonne for Advanced ProjectsRelative to 2008 InSitu Value Estimates
Rock value per
tonne in millions
of US dollars
Value estimates in millions of US dollars
63
Diavik and
Harry Winston
premium assets
supporting each other