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Article Excerpt
(All figures are in United States dollars unless otherwise indicated)
TORONTO, March 14 /PRNewswire-FirstCall/ -- HIGHLIGHTS
Aber's net earnings for the year were $81.3 million with earnings per share of $1.40 (cash earnings per share of $3.57(1)) as compared to net earnings of $53.1 million and earnings per share of $0.92 (cash earnings per share of $2.96(1)) for the prior year.
The Company's sales for the fiscal year ended January 31, 2006 were $505.2 million compared to $385.4 million for the prior year.
Sales from the mining segment increased by 24% compared to the prior year. Earnings from operations were $163.9 million compared to $117.3 million for the prior year. The Diavik Mine's exploration program is well underway to access new ore reserves.
Sales from the retail segment for the year were 44% higher compared to the prior year. Earnings from operations were $11.8 million compared to $4.5 million for the prior year. The prior year results for Harry Winston include the ten-month period from the date of acquisition, being April 1, 2004. During the fourth quarter, Harry Winston opened new salons in Bal Harbour, Florida, Ala Moana, Hawaii and relocated the Beverly Hills, California salon to a new flagship store on Rodeo Drive.
Aber's share of diamonds recovered from the Diavik Mine was 3.3 million carats for the twelve months ended December 31, 2005, compared to 3.0 million carats for the same period of the preceding calendar year.
Aber continues to generate strong levels of working capital, with a working balance of $285.7 million at January 31, 2006, compared to $156.6 million at January 31, 2005.
The Company has declared a quarterly dividend of $0.25 per share to be paid on April 13, 2006 to shareholders of record on March 29, 2006.
------------------- (1) Cash earnings per share is not a recognized measure under Canadian GAAP and does not have a standardized meaning prescribed by Canadian GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Cash earnings per share is earnings before non-cash income tax expense, non-cash foreign exchange gain (loss), and depreciation and amortization on a per share basis. See "Non-Canadian GAAP Performance Measures" in the Company's Management's Discussion and Analysis for the three and twelve months ended January 31, 2006, for a reconciliation of earnings to cash earnings. MANAGEMENT'S DISCUSSION AND ANALYSIS Prepared as of March l4, 2006 (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 Aber Diamond Corporation ("Aber", or the "Company") for the fiscal year ended January 31, 2006, and its financial position as at January 31, 2006. This MD&A is based on the Company's consolidated financial statements prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP") and should be read in conjunction with the consolidated financial statements and notes thereto. Note 22 of the financial statements includes a reconciliation of Canadian GAAP net income to net income determined under generally accepted accounting principles in the United States ("US GAAP"). Unless otherwise specified, all financial information is presented in United States dollars. All references to "year" refer to the fiscal year of Aber ended January 31.
Certain information included in this MD&A may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" 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 projected capital expenditure requirements, estimated production from the Diavik Mine in 2006, timelines and targets for construction, development and exploration activities at the Diavik Mine, projected sales growth and new store openings at Harry Winston, expected diamond prices, gross margin rates from jewelry sales by Harry Winston and expectations concerning the diamond industry.
Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, construction and exploration activities at the Diavik Mine, world economic conditions, the expected sales mix at Harry Winston and potential improvements in sourcing and purchasing polished diamonds. Specifically, in making statements concerning Aber's projected share of the Diavik Mine capital expenditure requirements, Aber has used a Canadian/US dollar exchange rate of $0.89, and has assumed that construction will continue on schedule with respect to the A-418 dike and with respect to current underground mining construction initiatives. In making statements regarding estimated production at the Diavik mine, Aber has assumed that mining operations will proceed in the ordinary course according to schedule. With respect to statements concerning sales growth and new store openings at Harry Winston, as well as expected gross margin rates, Aber has assumed that current world economic conditions will not materially change or deteriorate, and that Harry Winston will be able to realize improvements in sourcing and purchasing of inventory. While Aber considers these assumptions to be reasonable based on 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, risks associated with joint venture operations, fluctuations in diamond prices and changes in world economic conditions, the risk of fluctuations in the Canadian/US dollar exchange rate, and the risks of competition in the luxury jewelry segment. Please see page 26 of this Annual Report, as well as Aber's current Annual Information Form, for a discussion of these and other risks and uncertainties involved in Aber's operations.
You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While Aber may elect to, it is under no obligation and does not undertake to update this information at any particular time.
The following MD&A makes reference to certain non-Canadian GAAP measures such as cash earnings and cash earnings per share to assist in assessing the Company's financial performance. Non-Canadian GAAP measures do not have any standard meaning prescribed by Canadian GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. See "Non-Canadian GAAP Performance Measures". Certain comparative figures have been reclassified to conform to the current year's presentation.
Summary Discussion
Aber Diamond Corporation is a specialist diamond company focusing on the mining and retail segments of the diamond industry. The Company supplies rough diamonds to the global market from production received from its 40% ownership interest in the Diavik Diamond Mine (the "Diavik Mine"), located off Lac de Gras in Canada's Northwest Territories. Aber also holds a 52.83% interest in Harry Winston Inc. ("Harry Winston"), the premier fine jewelry and watch retailer. Aber's mission is to deliver shareholder value through the enhanced earning power and longevity of the Diavik Mine asset as the cornerstone of a profitable synergy with the Harry Winston brand. In a changing diamond market-place, Aber has charted a unique course to continue to build shareholder value.
The Company's most significant asset is a 40% 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 Aber Diamond Mines Ltd. (40%) where Aber owns an undivided 40% interest in the assets, liabilities and expenses. DDMI is the operator of the Diavik Mine. Both companies are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England, and Aber Diamond Mines Ltd. is a wholly owned subsidiary of Aber Diamond Corporation of Toronto, Canada.
Market Commentary The Diamond Market
Rough diamond prices continued to increase throughout fiscal year 2006, building on the momentum of the prior year, before stabilizing towards the end of the year. The diamond market continues to experience a scarcity of large better quality, white goods.
Prices for polished diamonds have risen in most categories, but in line with the scarcity of rough, the larger and better qualities have had the most significant increases. In the lower quality ranges, there has been a build-up of polished stocks due to lower than expected demand during the holiday season, putting downward pressure on the prices in this range. Conversely, a robust luxury market ensured that demand for high-end polished goods remained strong throughout the year. The vigorous growth in Internet sales has been positive for the polished diamond market but the unpredictability of sales has required the diamond manufacturers operating in this segment of the market to hold a broader range of inventory, thus increasing their financing costs.
The Retail Jewelry Market
The fourth quarter of the year reflected the recent strength of the US economy, despite mid-year inflation concerns, rising interest rates and the US hurricanes. The luxury goods segment of the retail jewelry industry, comprising mainly jewelry and high-end watches, posted strong sales and outperformed low-price items.
Consolidated Financial Results
The following is a summary of the Company's consolidated quarterly results for the eight quarters ended January 31, 2006 following the basis of presentation utilized in its Canadian GAAP financial statements:
(expressed in thousands of United States dollars, except per share amounts) (quarterly results are unaudited) ------------------------------------------------------------------------- 2006 2006 2006 2006 Q4 Q3 Q2 Q1 ------------------------------------------------------------------------- Sales $125,891 $153,512 $115,699 $110,132 Cost of sales 52,782 57,641 53,065 59,119 ------------------------------------------------------------------------- 73,109 95,871 62,634 51,013 Selling, general and administrative expenses 36,654 24,189 22,711 23,394 ------------------------------------------------------------------------- Earnings from operations 36,455 71,682 39,923 27,619 ------------------------------------------------------------------------- Interest and financing expenses (4,511) (3,353) (3,668) (3,401) Other income 1,767 795 885 886 Foreign exchange gain (loss) (5,392) (4,184) (2,263) 496 ------------------------------------------------------------------------- Earnings before income taxes 28,319 64,940 34,877 25,600 Income taxes 10,534 30,775 15,400 12,412 ------------------------------------------------------------------------- Earnings before minority interest 17,785 34,165 19,477 13,188 Minority interest 2,876 423 457 (394) ------------------------------------------------------------------------- Earnings $ 14,909 $ 33,742 $ 19,020 $ 13,582 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share $ 0.26 $ 0.58 $ 0.33 $ 0.23 Diluted earnings per share $ 0.27 $ 0.57 $ 0.32 $ 0.23 Total assets(2) $ 1,044 $ 1,016 $ 928 $ 936 Total long-term liabilities(2) $ 434 $ 421 $ 378 $ 390 ------------------------------------------------------------------------- UNAUDITED ------------------------------------------------------------------------- 2005 2005 2005 2005 Q4 Q3 Q2 Q1 ------------------------------------------------------------------------- Sales $144,581 $104,065 $ 84,487 $ 52,269 Cost of sales 77,730 45,244 37,746 28,591 ------------------------------------------------------------------------- 66,851 58,821 46,741 23,678 Selling, general and administrative expenses 27,500 20,452 17,632 8,714 ------------------------------------------------------------------------- Earnings from operations 39,351 38,369 29,109 14,964 ------------------------------------------------------------------------- Interest and financing expenses (5,138) (3,522) (3,530) (3,407) Other income 8,102 574 467 495 Foreign exchange gain (loss) 2,837 (8,543) 760 (349) ------------------------------------------------------------------------- Earnings before income taxes 45,152 26,878 26,806 11,703 Income taxes 13,755 18,921 14,798 8,862 ------------------------------------------------------------------------- Earnings before minority interest 31,397 7,957 12,008 2,841 Minority interest 1,865 (503) (287) 44 ------------------------------------------------------------------------- Earnings $ 29,532 $ 8,460 $ 12,295 $ 2,797 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share $ 0.51 $ 0.15 $ 0.21 $ 0.05 Diluted earnings per share $ 0.50 $ 0.14 $ 0.21 $ 0.05 Total assets(2) $ 897 $ 958 $ 835 $ 818 Total long-term liabilities(2) $ 312 $ 403 $ 334 $ 321 ------------------------------------------------------------------------- AUDITED ----------------------------------------------------- 2006 2005 TOTAL TOTAL ----------------------------------------------------- Sales $505,234 $385,402 Cost of sales 222,607 189,311 ----------------------------------------------------- 282,627 196,091 Selling, general and administrative expenses 106,948 74,298 ----------------------------------------------------- Earnings from operations 175,679 121,793 ----------------------------------------------------- Interest and financing expenses (14,933) (15,597) Other income 4,333 9,638 Foreign exchange gain (loss) (11,343) (5,295) ----------------------------------------------------- Earnings before income taxes 153,736 110,539 Income taxes 69,121 56,336 ----------------------------------------------------- Earnings before minority interest 84,615...
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