Tuesday, July 26, 2011

De Beers’ new chief relishes luxury of time

Philippe Mellier, the new chief executive of De Beers, is enjoying a luxury that does not fit on a finger or hang on a neck.

An outsider, with 30 years’ experience in the train and automotive industries, Mr Mellier needs time to understand the workings of the famously insular diamond industry before deciding a strategy for the industry’s biggest participant.

Fortunately, time is on his side. On Tuesday, De Beers, supported by booming diamond prices, more than doubled its net profits in the first half of the year from $255m to $694m (£423m).

With record-breaking interim profits, diminishing debts and a strong outlook on demand, De Beers is much changed from the company that Gareth Penny, his predecessor, struggled to steer through the paralysing industry downturn of 2009.

On his second full day in the job, Mr Mellier told the Financial Times: “We are achieving good results, but at the same time we need to project the company into the future.

“The fact that we are doing well today gives what is to me a luxury: time; a bit of time to plan.”

The hiring of Mr Mellier, a French executive with no experience in diamonds or mining, broke 120 years of tradition at the South Africa-based miner. He is a face of change, exciting much speculation in an industry still guided by De Beers.

However, he declined to answer questions about his plans, saying it is too early to talk about specifics. “You will have to ask Nicky about that,” he says several times, referring to 40 per cent shareholder Nicky Oppenheimer, the South African billionaire and De Beers chairman.

But he makes it clear that growth is his priority.

While De Beers controlled a majority of world diamond sales 15 years ago, its share is now about 35 per cent. It is still the biggest seller of rough diamonds, but its production is now matched by Alrosa, its Russian rival. Sector competition has grown, placing no antitrust barriers in the way of De Beers’ expansion, he says.

For the company to grow intelligently, he suggests, it needs to drop some ingrained attitudes.

“Maybe one of the catalysts for the decision to bring in an outsider was to cope with the fact that for many years the diamond industry was De Beers,” he says.

“Today De Beers is the key player, but there are competitors. We have new markets opening. We are in constant discussions with governments. This is where I can bring some experience.

“I think the shareholders understood that to grow in a new environment De Beers is going to need some work. You need new skills.”

Speaking on the diamond-sorting floor of De Beers’ London offices, Mr Mellier says he will never be an expert in diamonds. “The purpose of a CEO is not to become a specialist and impose views.”

He entered his last job, as chief of Alstom Transport, with no experience in signalling software. He says by the time he left Alstom had the second-biggest signalling business in the world. Before Alstom he worked at Ford Motor.

Mr Mellier resists drawing parallels between a diamond company and a train or car company. But he mentions several similarities. Cars are often distributed by family owned dealers that often go back generations, much like diamond dealers. Trains and diamonds are made in factories, but the individual end products are unique.

“Every train is totally unique ... but you learn to standardise things in train manufacturing, which could be a good idea here: to standardise exploration around the world in the mines.”

There are over 12,000 different pricing points for diamonds, he says. “It is unbelievable, so many prices for one material.”
Pricing a diamond is “as complex as selling a brand new line of car with all the options”.

Mr Mellier will spend August visiting De Beers’ mines in Botswana and South Africa. “First I need to understand all the processes of this company. It is going to take time.”


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