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3 Behind the curtain: hidden dynamics of platinum jewellery demand 2017 Platinum Jewellery Business Review and 2018 Outlook PGI, London, 16th May 2018

4 Platinum Jewellery and PGI Jewellery is the 2 nd Biggest ounce contributor for platinum. Platinum is the only created demand source fuelled though marketing at very low cost of 56$/oz on average. CHINA 20 manufacturers 59 retailers 7,300 stores USA 32 manufacturers 650 retailers 3,000 stores INDIA 15 manufacturers 670 retailers 1,060 stores JAPAN 6 manufacturers 22 retailers 1,700 stores

5 The jewellery industry needs to respond to global megatrends OLD VS. YOUNG Millennials are well on their way to become the most important consumer segment for jewellery with a very different need profile. BIG VS. SMALL A looming industry consolidation that offers growth in return for scale. BRANDED VS. GENERIC Consumers steer away from generic fine jewellery but find appeal in relevant branded propositions in jewellery. DIGITAL VS. BRICKS&MORTAR A traditional bricks&mortar business is trying to find the digital sweetspot between e- commerce and offline-to-online The global megatrends in jewellery are a result of major seismic shifts in consumer preferences and retail dynamics

6 as well as addressing local challenges in 2017, most markets were able to do so. Biggest local challenges How to operate in an ageing society and hence grow in a shrinking market? 2017 Performance TOTAL JEWELLERY O GOLD JEWELLERY - How to keep jewellery relevant for the millennial consumer and make the industry digital? How to adapt from double-digit growth to the dynamics of a developed market? How to maintain the growth momentum while the government is redefining all rules? Very specific challenges in the markets are adding to the pressure on the industry to adopt their products, business models and how they engage consumers

7 Platinum jewellery is not a mono-business, it s multiple businesses across multiple markets KEY JEWELLERY OCCASIONS & PRODUCTS MARKET OBJECTIVE & PLATINUM S BUSINESS PROPOSITION TO THE TRADE BRIDAL Product: engagement ring, wedding band Occasions: engagement & wedding Platinum markets: China, USA, India, Japan GIFTING Products: necklace, pendant, ring, bracelet Occasions: Valentine s Day, Birthdays, Christmas Platinum markets: China, India, Japan SELF-PURCHASE Products: necklace, pendant, ring, bracelet Occasions: various by segment Platinum markets: Japan, China, India Market objective 2017 (What?) Protect bridal Investing in growth Harvest past marketing investment Harvest past marketing investment Business Proposition (How?) Leverage platinum s love equity Jewellery for the young generation at a better margin than gold Innovations that inspire the market Tailgate the diamond and facilitate innovation

8 What is the PJBR measuring? CHINA INDIA JAPAN USA MARKET SIZE Reported manufacturing demand in oz. in % vs 2016 Reported manufacturing demand in oz. in % vs 2016 Projected platinum jewellery sales at retail in oz. - RETAIL PERFORMANCE PGI Partner platinum jewellery sales to consumers in % vs PGI Partner platinum jewellery sales to consumers in % vs Total market platinum jewellery sales to consumers in % vs Trade sentiment in % vs 2016

9 J A P A N

10 2017 marked a year of continued moderate growth in Japan for platinum jewellery 2017 Jewellery benchmark Platinum s Annual Retail Performance +2.1 % total market platinum jewellery sales vs % Gold Jewellery Market Size 550.6K oz total market platinum jewellery retail sales in oz. Product Category Sentiment Bridal Non-Bridal moderate decline moderate growth Source: PGI, Yanos, World Gold Council

11 What s behind the moderate growth? After two decades of economic stagnation, Japan (and its female consumers) regained optimism - and their interest in jewellery acquisition The return of optimism to Japan especially for women, the key buyers of platinum jewellery Platinum is benefitting more than other metals from the positive momentum A positive outlook results in an uplift of purchases especially in the non-bridal category for various reasons from various consumer segments

12 After two decades of economic stagnation,japan (and its female consumers) are seeing the light at the end of the tunnel Japan GDP Growth QoQ More Women Staying in the Workforce after Marriage and Child-birth Global Asset Allocation 2017 (%) Global Asia-Pacific Europe Latin America North America Japan + Fixed Income Cash & cash equivalent Equity Alternative Investments Real estate Japan is now in its 5th year of consecutive economic growth More jobs and a departure from the traditional role of women, have increased the number of women staying in the workforce and increasing their disposable income Affluent in Japan means cash-rich more than anywhere else in the world

13 How does platinum benefit? Total Jewellery Unit sales basis, 17 RTB Platinum Unit sales basis, 17 RTB Share of Total Jewelry Unit Sales by Metal Unit sales basis % of unit sales 39.7% Pt 950 & above Pt 900 Pt 850 Platinum Jewellery Unit sales basis, 17 RTB 12 White Gold Unit sales basis, 17 RTB Above $2,000 47% of all platinum unit sales % 1 7 K10 and lower K14 K18 & above PT WG Pd Ag Other Gold (pink) YG WG Pt & Au combi PT Other Metal $5,000+ $2,000-2,999 $ $3,000-4,999 $1,000-1,999 Below $500 Platinum has always been synonymous with fine jewellery - it occupies a significantly larger share for products in the upper half of the price spectrum (>2000 USD) With the desire for high-end, fine jewellery comes the desire for the purest metals available a consumer benefit platinum owns and has hence seen an uplift for Pt 950 and above Consumer desire for great jewellery with high levels of purity combined with a favourable ounce price, have resulted in platinum displacing white gold

14 The increase in consumer demand for platinum jewellery has varied immensely by product category 2017 oz growth by product category 60% 50% WEDDING BANDS AND ENGAGEMENT RINGS declined as fewer consumers are getting married 40% 30% KIHEI CHAINS, i.e. heavy necklaces predominantly worn by men continued to be very popular 20% 10% FASHION RINGS, PENDANTS/NECKLACES AND OTHER JEWELLERY have grown on par with the decline in earrings and bracelets, a result of an overall trend towards heavier jewellery 0% -10% -20% Fashion Rings Pendant/Necklace Kihei Chains Earrings / Ear Studs Bracelets Others (Pin, Brooch, Men's)

15 The current socio-demographic profile presents opportunities for platinum beyond jewellery Platinum Born A branded collection for export, developed in collaboration with PGI USA Japan s first ever solid platinum miniature Buddhist Objets for the modern home 20+pieces

16 2018 OUTLOOK 2018 estimate Consumer and retail outlook Platinum s Annual Retail Performance +1-2% total market platinum jewellery sales vs Non-Bridal: we expect continued demand of heavier Kihei chains and other jewelry (including the religious objects) Market Size ~560K oz total market platinum jewellery retail sales in oz. Bridal: we expect bridal share of platinum jewellery to slightly decrease, but be made up by non-bridal sector. Product Category Sentiment Bridal Non-Bridal continued decline moderate growth

17 C H I N A

18 While decline has softened compared to 2016, platinum jewellery continued to contract in Jewellery benchmark Platinum s Annual Retail Performance -2.8 % PGI partners platinum sales YoY change +3 % Gold Jewellery vs Market Size 1.1m (net) 1.7m oz Manufacturing Demand -5.7 % Manufacturing Demand YoY% Product Category Sentiment Bridal Gifting Self-Purchase Strong growth Moderate decline Strong decline Source: PGI, World Gold Council

19 What is behind China s continued decline? Consumer preferences have changed, most retailers products and business model have not - yet. The market is in decline because underlying fundamentals have changed China s retail is moving from growth for everyone to fight for share - at the same time, platinum jewellery marketing has retreated. The transition is particularly painful for a generic jewellery business like platinum, yet the long-term opportunities are still enormous.

20 While consumers increasingly demand innovative, sophisticated jewellery that tells a story, the majority of the product available is still very generic GEM-SET 20 % BRANDED PIECE-BASED 65 % PLAIN 75 % WEIGHT-BASED UNBRANDED The majority of plain products is generic, not up to today s consumer needs. The majority of all jewellery sold is generic product without a compelling brand story, especially in China ~75% of all jewellery is sold by weight in China, most of which is sold without offering a luxury shopping experience Source: TNS Platinum Jewellery Acquisition Study, McKinsey: A multifaceted future: The jewelry industry in 2020, global estimate

21 Some retailers have already upped their game massively to attract savvy millennial consumers From jewellery market From a little bit for everyone From weightbased pricing to experience center to targeting key occasions or consumer segments to crafting products and brand propositions that allow piece-based pricing Better products More variety of design Piece-based pricing Increase in store traffic Higher stock turn Strategic changes that successful platinum retailers in China have taken in 2017 as a way to improve their entire business

22 As a result, the market is dividing into winners and losers among retailers PLATINUM RETAIL GROSS MARGIN PLATINUM RETAIL SALES VOLUME weight pricing 33% 57% Gem-set Plain +29% +121% piece pricing 39% 75% -76% -66% Retailers who made the leap are rewarded with a significant increase in margin, even when selling product by weight making them winners at retail while the platinum jewellery business of their less innovative peers is plummeting Source: PGI

23 and jewellery manufacturers alike. Platinum Jewellery Fabrication Growth by Company 2017 YoY 45% of the total fabrication 15% 0% -15% -30% -45% Cumulative production (k toz) Top 6 fabricators reported 2017 production the same as or higher than 2016, accounting for 45% of the market Winning fabricators invested in R&D and marketing, and diversified their customer portfolios with a focus on leading retailers Source: PGI

24 The fundamental overhaul of the China platinum jewellery business can also be observed in recycling volume 71% 28% 1% 644 oz. (38% of fabrication demand) to recyclers to retailers Consumer Return Dead Stock Industrial waste recycled to jewellers Total recycling volume Source: Recycled volume of platinum jewellery by segment, China, 2017, PGI Platinum Jewellery Recycling Study

25 In China, consumer recycling is a customer coming back mostly for more platinum 98% of all retailers offer trade-in services Of which 81% was exchanged for new plain platinum 68% of retailers only allow consumers to trade in platinum for platinum For new platinum 77% 21% For cash For other metals Retailers use recycling as a marketing tactic to incentivize customers to come back and buy more platinum jewellery Source: 2018 consumer recycling check, 1000 consumers in 10 cities / Trade survey among 59 retailers in PGI retail panel

26 Bridal jewellery is an exception as it remains with consumers forever Platinum jewellery recycling by occasion 3 % Bridal 97 % Non-Bridal Within the panel used for this survey there was no single wedding band returned. Source: 2018 consumer recycling check Base: all recycled platinum jewelleries in the past year

27 Why the transition is painful but necessary Retailers need time to find the right balance between weight-based and piecedbased product - this will take another few years but will ultimately make platinum jewellery a significantly better business for retailers. Once retailers have changed their product offering to a different variety of designs, manufacturers will benefit and enjoy better margins. Having a healthy level of recycling is a necessary path to product rejuvenation for platinum However, retailers need to replenish in platinum and marketing is required to drive sales.

28 While PGI s impact on the market has been diminished, there are consumer ounce opportunities of more than 500k oz yet to be mined PGI MARKETING FOOTPRINT CHINA OPPORTUNITIES Quantified Bridal T3 cities Love-Gifting Marketed product categories Bridal (100% of market) Self-Purchase Bridal (<30% of market) Ounce return Marketed ounces 1,200,000 oz 400,000 oz Identified Gem-set Self-purchase months months Time to market

29 2018 OUTLOOK 2018 estimate Consumer and retail outlook Platinum s Annual Retail Performance Market Size Product Category Sentiment -3 to -8% PGI partners platinum sales YoY change -5 to -10% Manufacturing demand YoY change Bridal Gifting Self-Purchase Stable growth Continued decline Continued decline Bridal segment growth expected to continue, driven by consumerpenetration in lower tier cities Gifting and Self-purchase segment likely to suffer due to limited marketing Total market ounces continued to be pressured by underperforming generic product competition from 18k gold jewellery will likely intensify

30 I N D I A

31 While still hindered by ongoing legislations, 2017 was a year of double-digit growth 2017 Jewellery benchmark Platinum s Annual Retail Performance +21% PGI partners platinum sales YoY change +14 % Gold Jewellery Market Size 176k oz Manufacturing Demand +34% Manufacturing Demand YoY% Product Category Sentiment Bridal Gifting Self-Purchase Strong growth Strong growth Growth Source: PGI, Stratwon Research, World Gold Council

32 Growth is back on track in India 2016 marked the beginning of on-going government interventions that impacted jewellery the most After regulatory shell-shocks, platinum has rapidly picked up speed to pre growth rates The new rules have been a blessing in disguise for platinum, allowing it to win important market share for the future Despite these setbacks, India is on track to become a 500k oz market within the next 4 to 5 years

33 Jewellery is a key industry to the Indian government for their fight against corruption and tax-evasion was another year of legislative pressure 2016 regulations 2017 regulations 60B USD Annual jewellery sales January consumers need to provide tax identification for purchases over 2 lakhs July Introduction of GST of 5% leads to a slump in retail sales 6% Contribution of jewellery to national GDP November the government takes 80% of all cash in India off the market and introduced new notes that need to go through the banking system August the GST rate is revised August The Prevention of Money Laundering Act is applied to the jewellery trade Source: GJEPC

34 The actual target of these regulations is the unorganized trade, which accounts for 75% of the jewellery sector Unorganized retail Traditional formats Low cost retailing, small and medium scale local jewellery stores and home operated family jewellers Owner operated Absence of standardization in sourcing and store operations Growing at 6% in total Organized retail Privately owned structured businesses, retail chains and brands Higher on compliance and transparency, Hallmarked jewellery The relative uniformity and standardization of supply chain operations and sourcing Growing at 35% in total

35 Most platinum jewellers are part of the organized retail segment and are gaining market share quickly from unorganized retail TOTAL RETAIL 1 JEWELLERY 2 98% 76% 77% 55% 24% 23% 45% (E) (E) Organized Retail Unorganized Retail Source: 1. BCG, KPMI India-retailing, Deloitte Winning in India s retail sector 2. World Gold Council Report, Jan 2017

36 The government legislation shocked the industry - but created an opening for platinum to convince the trade to invest now to build a stronger platform for the future While the majority of the industry reduced their spending for marketing, PGI worked with its partners to increase investment for marketing It also allowed for the trade to be open to new initiatives such as auto-replenishment that helps retailers sell their platinum bestsellers faster Ultimately it landed platinum a space in retailers gold section - impossible for many retailers to consider previously. Platinum has dedicated additional shelf-space in 250 stores

37 As a result, PGI s strategic partners were able to significantly outperform the overall market All PGI retailers +21% PGI strategic partners +28% Strategic Partners contribute +50% of the PGI program Improved merchandise mix, replenishment model, additional display in the gold section Source: Stratwon Research, PGI

38 4 key strategies to reach 500,000 oz Volume Potential (in Koz) Make platinum a business imperative for organized retail: benefit from their growth plans Optimize retail distribution: Add another 4000 doors taking the total to doors Double the stock turn for Platinum Love Bands and Evara Current fabrication growth at 34% GDP growth forecast of 8% between as economy recovers Unlock the consumer potential through aggressive marketing Source: Stratwon Research, PGI

39 2018 OUTLOOK 2018 estimate Consumer and retail outlook Platinum s Annual Retail Performance +20 to 25% PGI partners platinum sales YoY change Young consumers looking for something different from gold to express their love PGI s successful marketing is growing consumer preference for platinum brands Market Size +30 to 40% Manufacturing demand YoY change Retailer focus on higher weight categories such as Evara and men s jewellerydueto the higher margin opportunity Higher stock turn for Platinum Love Bands and Evara through auto replenishment and gold section display Product Category Sentiment Bridal Gifting Self-Purchase Very Strong Growth Very Strong Growth Strong Growth Men s jewellery, which helps improve margins for retailers, is a significant opportunity

40 U S A

41 Favorable market conditions helped platinum enjoy double-digit growth in Jewellery benchmark Platinum s Annual Retail Performance +11% Trade sentiment on platinum s performance YoY +3% Gold Jewellery Product Category Sentiment Bridal Self-Purchase Strong growth Sizeable Opportunity

42 The reasons behind the exceptional growth in the US Despite the drama around the current administration, the economy is booming and jewellery in particular is benefitting. Platinum experienced a nearperfect market constellation in 2017 Platinum is boosted by favorable dynamics, mostly around the diamond engagement ring. The US is a harvest market for platinum with potential to grow further

43 2017 was great year, especially for jewellery Stock market performed the best since 2013 Cutting Corporate Tax Rates Mostly Benefits Those at the Top Share of benefits by income group, Monthly US Fine Jewellery & Watch Sales Growth, 2017 YoY 12 Consumer confidence reached 17-year high Lowest Fifth Second Fifth Middle Fifth 1% 4% 9% 6.7% 5.5% 5.6% 4.4% 3.8% 8.8% 8.4% 6.9% 7.2% 6.6% 6.6% 7.0% Unemployment remains at a historic low Fourth Fifth Top Fifth 15% Top 1% receives 34% of total benefits Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 was a VERY good year for the US economy and its consumers Tax-cuts added further positive sentiment, especially for the jewellery trade As a result, jewellery growth rates have almost doubled in some months of 2017, compared to 2016 Source: PGI, The Knot

44 In contrast to other markets, jewellery in the US is largely driven by diamond sales, a significant benefit for platinum Jewellery Sales by Category Diamond Jewellery 38% Platinum engagement ring sales account for 17% of total sales at independent retailers only 5% at national/regional chains All Other Appraisals Estate/Antique Jewellery Beads & Charms All Other Fine Jewellery Overall average engagement ring cost is $6,351 Cultured Pearl Jewellery Timepieces & Watchbands 4% Gold Jewellery 6% Fashion Jewellery 7% Colored Stone Jewellery 8% Repairs 11% Loose Diamonds 16% Over 60% of consumers did not know about the importance of setting diamonds in platinum 94% were willing to pay extra to secure their diamond, once they were educated On average, they would spend $469 for a platinum crown Source: JA Cost of Doing Business Survey

45 Stressing the importance of setting a diamond in platinum was a key priority for PGI in 2017 a message well understood by consumers 2018 CONSUMER BRAND TRACKER STUDY Platinum Yellow Gold White Gold Rose Gold Two-toned Metal Silver Stainless Steel Holds a diamond more securely Rel. Index n/a Rel. Index Marketing efforts around diamond settings led to a significant uplift in relevant brand metrics PGI partner growth in platinum settings: +10% in 2017

46 The US has the potential to grow beyond diamond jewellery Platinum Born Opportunity Women s self-purchase represents 33% of non-bridal, diamond jewelry purchases* Distribution Update: Successful test in 4 stores Q Launched in Q retail doors targeted *DeBeers Diamond Insight Report 2017

47 2018 OUTLOOK 2018 estimate Consumer and retail outlook Platinum s Annual Retail Performance +8 to 11% Trade sentiment on platinum s performance YoY Bridal platinum jewellery continues to increase supported by initiatives of platinum crown, retail marketing and more available designs Self purchase platinum jewellery is an incremental opportunity Product Category Sentiment Bridal Self-Purchase Strong Growth Opportunity