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The timing of auctions saw half-year revenues dip at coloured gem stones producer Gemfields (LON:GEM), but the company should pick up the slack in the second half.
The group has three auctions lined up for the second half of its financial year, which should balance out full year revenues, with the group confident that sales throughout the first half of 2013 will be well supported by the expansion of marketing activities across a broader target market.
Revenue in the six months to the end of December 2012 slipped to US$27.7mln from US$45.7mln in the corresponding period of 2011. The group held only one rough auction during the reporting period, as against two in the same period of 2011.
Chief executive officer Ian Harebottle explained to Proactive Investors that the company only held one auction in the period for a number of reasons, including the success in its previous auctions which had left it with enough cash to take a longer term view of the market.
Not having to prepare for auctions enabled the company to focus for six months on operational activities, “primarily on the removal of waste” from its Kagen mine.
“The other thing as well, towards the end of last year – November, December – markets were quite jittery … and while we could have had an auction, and I am sure we would have done fine, we have a healthy cash balance so there was just no reason to do so for the sake of it,” Harebottle said.
Profit before tax was US$9.43mln, against US$30.8mln the year before, while underlying earnings (EBITDA) came in at US$19.5mln, versus US$32.2mln a year earlier.
Harebottle said the numbers should not have come as a surprise to the market, as it reports quarterly. His message to shareholders was that, although there may be some fluctuations in performance from quarter to quarter, the thing to remember is that the company is playing a long game, as it seeks to boosts the appeal and prestige of coloured gem stones so that they are no longer regarded as the poor relations of diamonds.
Harebottle thinks the decision to hold only one auction in the reporting period was the right one, though he concedes time will tell, and he is bullish about the prospects for the company’s next auction, which will feature lower quality stones.
“We think this will be our best lower quality auction ever,” Harebottle said, noting in an aside that gems can only be excavated and sold once, so the timing of sales is important.
“It’s not like they are a renewable resource,” he observed.
Cash in hand at the end of the year totalled US$27.9mln, down from US$32.4mln at the end of 2011.
On the operational side, the group achieved a substantial improvement in the average production cost, lowering it to US$0.57 per carat of emerald and beryl from US$0.83 per carat.
In the six month period Gemfields produced 14.5mln carats of emerald and beryl, up from 8.8mln carats the year before.
Since the end of the period the group has completed its acquisition of 100% of the iconic Fabergé jewellery brand and named celebrated actress Mila Kunis as its global brand ambassador.
“We have expanded our footprint substantively with the commencement of the ruby bulk sampling operation in Mozambique, ensured that all of our core projects are well capitalised as and where required, continued to retain healthy cash and stock balances and have finalised the acquisition of Fabergé. We have also, at the same time, made good progress on our marketing campaigns and through our collaboration with Mila Kunis, continued to position Gemfields' ethical coloured gemstones as the gemstone of choice," said Harebottle.