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Wednesday, October 12, 2011

Harry Winston Says Retail Sales Sparkle While Mining is Ahead of Plan

Robert Gannicott, Harry Winstion Chairman and CEO

Harry Winston Diamond Corp., in an interim trading update, said the first two months of the third quarter have seen the jewelry and watch sales continue to increase. Sales have been particularly strong in the U.S. and Japan. Chinese customers represent a growing share of the clientele in all sales regions. Strong advertising of new product lines, such as Midnight watches, bridal and designer jewelry, has delivered particularly strong increases while sales continue in high jewelry, Harry Winston's traditional business.

The Toronto-based company, which does business as a luxury retailer and a diamond miner, said it released its update in response to recent market volatility surrounding the Euro sovereign debt crisis.

The company said its mining business, which consists of 40 percent ownership of the Diavik Diamond Mine in northwest Canada, is modestly ahead of its production plan while joint venture cash calls have been below budget in Canadian dollars which, combined with the fall in the Canadian dollar against the company's reporting and sales currency of US dollars, gives an 11 percent reduction in joint venture operating costs for the first two months of the quarter against plan.

The company said it has approximately $ 112 million of rough diamond inventory at June sales prices (prices peaked at the July sale) and a further $75 million of capacity in its mining debt facility. The jewelry and watch business has its own credit facility secured by its inventory.

Having increased in price by around 25 percent over the past year up to the end of July, the polished round diamonds that form the core of its jewelry sales, and polished diamond inventory, have since declined in price by about 10 percent. The price changes are not uniform with some items, such as fancy shapes, not declining at all. Over the same periods rough diamond prices increased by around 50 percent, but are now correcting against polished prices.

The credit facilities essential to the diamond polishing industry are largely underwritten by European banks that are currently under stress with European sovereign debt issues, the company said. Credit hasn’t been withdrawn or reduced, but neither have they been increased against higher unit prices. The processing industry is now selling polished and reducing rough purchases to increase liquidity even as jewelry retail consumption continues at levels higher than last year.

“The credit crisis of 2008/9 was centered on consumer credit and the banks that were supporting it. This had a dramatic effect on the consumer. The current crisis is centered on sovereign debt and the largely European banks that are its holders, while consumer off-take remains resilient,” said Robert Gannicott, Harry Winstion Chairman and CEO.

“Although we continue to make small sales of specific rough diamond assortments to specialist clients, we have elected not to make broader rough diamond sales into an unstable market that seeks bargains. As a result, significant rough sales revenues from this period will be deferred into the fourth quarter, and possibly subsequent periods. This time of the year is traditionally quiet in the rough diamond market being the Jewish and Indian holiday periods. We expect a return to normality in November as demand increases in the lead-up to the Christmas, Indian wedding and Chinese New Year seasons.”

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