The decline reflected weak demand, which forced the CSO to impose a 25 per cent reduction in the amount of diamonds it is willing to buy from miners. De Beers was also hurt by the flood of diamonds coming on to the open market from Angola and Russia, which the CSO has been forced to buy to protect prices.
Julian Ogilvie Thompson, De Beers' chairman, was unable to give any indication that demand was improving and some City analysts are predicting even worse news this year.
The giant group, whose operations are split between the Swiss-registered De Beers Centenary and the South African-based De Beers Consolidated Mines, saw its combined pre-tax earnings fall 29 per cent to dollars 728m (pounds 504m) last year. Earnings per combined unit fell from 200 cents to 129 cents.
The cut in the final dividend, trailed when De Beers announced its half-year results, meant the total payout fell from 112 to 79 cents.
Steve Oke, South African analyst at the stockbroker Smith New Court, is predicting no improvement in either profits or dividend this year. He pointed out that of the main markets for diamonds, Japan, Germany and France were suffering at present while recovery in the UK was fragile. Even in the US, where there had been an upsurge, there were threats of a luxury goods tax and higher taxes for the wealthy.
Though De Beers was able to put up diamond prices in January for the first time in two years, its optimism, largely based on a good Christmas in the US, has largely dissipated.
It also revealed that its stock of diamonds had increased by a quarter to dollars 3.77bn. Nicky Oppenheimer, deputy chairman, said that between dollars 500m and dollars 600m of this increase had come from purchases of diamonds illegally smuggled out of Angola and sold in either Zaire or on the Antwerp market.