ALROSA Investor Presentation - 29 November 2019
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ALROSA
Investor Presentation
29 November 2019Disclaimer
For notes: The below applies to the presentation (the “Presentation”) following this important notice, and you are therefore advised to read this
important notice carefully before reading, accessing or making any other use of this Presentation.
This Presentation contains statements about future events and expectations that are forward-looking statements. Any statement
herein (including, without limitation, a statement regarding our financial position, strategy, management plans and future objectives)
that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and
other factors which may cause ALROSA’s actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such forward-looking statements. Past performance should not be
taken as an indication or guarantee of future results, and no representation or warranty, express or implied, is made regarding future
performance. The information and opinions contained in this document are provided as at the date hereof (unless indicated
otherwise) and are subject to change without notice. ALROSA assumes no obligation to update, supplement or revise the forward-
looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.
This Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an
offer to buy or acquire any securities in any jurisdiction or an inducement to enter into any investment activity. The contents hereof
should not be construed as investment, legal, tax, accounting or other advice, and investors and prospective investors in securities of
any issuer mentioned herein are required to make their own independent investigation and appraisal of the business and financial
condition of such issuer and the nature of the securities and consult their own advisers as to legal, financial, tax and other related
matters.
This Presentation has not been independently verified. No representation or warranty or undertaking, express or implied, is made as
to the accuracy, completeness or fairness of the information or opinions contained in this Presentation. None of ALROSA nor any of
its shareholders, directors, officers or employees, affiliates, advisors, representatives nor any other person accepts any liability
whatsoever for any loss howsoever arising from any use of this Presentation or its contents or otherwise arising in connection
therewith. No reliance may be placed for any purpose whatsoever on the information contained in this Presentation or on its
completeness, accuracy or fairness.
This Presentation is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or
located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to
law or regulation or which would require any registration or licensing within such jurisdiction. Persons in whose possession this
Presentation and/or such information may come are required to inform themselves thereof and to observe such restrictions.
Some figures included in this Presentation have been subject to rounding adjustments.
By reviewing and/or attending this Presentation you acknowledge and agree to be bound by the foregoing.Table of Content 01. About ALROSA – strategic priorities p.4 02. Market fundamentals p.11 03. Executing to strengthen our business p.28 04. Q3 2019 results p.44 05. Corporate governance p.52 06. Appendix
01
ABOUT ALROSA –
STRATEGIC PRIORITIES03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 5
High Quality Assets
ALROSA’s assets geography
• ALROSA develops world’s largest reserves with strong cost/quality
balance allowing to achieve the highest EBITDA margin in the
industry
• Strong diamond yields delivery of 0.91 ct/t in 2018
• Profitability of assets is one of the highest among peers on a sustainable Republic of Sakha
level 10% (Yakutia)
Arkhangelsk
Region 90%
ALROSA sustainably tops the ranks Russian Federation
as one of the most profitable miners
EBITDA margin, %
2014 2015 2016 2017 2018
53%
42% 39% ALROSA owns 41% of
53%
Open-pit mining
1,064 m ct Total resources,
Catoca Ltd (Angola) from 8 mines in 2018
including reserves
21% Angola
628 m ct Total reserves
Underground mining
23%
from 3 mines in 2018
Alluvial mining from
24%
alluvial deposits in 2018
ALROSA 1
Peer 1 Peer 2 Peer 3
Sources: Source: Companies data, AWDC Bain report “The Global Diamond Industry 2018”.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 6
Focus on Responsible Mining
• Improving industrial safety with focus on prevention
• Structural reform promoting a culture of safety
• Diagnostic and treatment services aimed to promote disclosure and
reduce illnesses
RUB 5.2 bn1: RUB 6 bn1:
Capex on Environmental Activities Support to Local Communities
• Reduce CO2 emissions Health 11%
1%
• Maintain high share – at least 86% - of clean (incl. & Safety 4% Charity expenses
renewables) electricity and heat consumption Local infrastructure
Healthcare
54% Education
30%
People of Other expenses
ALROSA
• Corporate pension fund
Environment Social
• Indigenous people traditions
• Culture & sports
Source: Company data and analysis.
1. Based on 2018 figures, excl. sponsorship and social infrastructure maintenance.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 7
Creating a Clearer and Sustainable Environment
Latest developments Reduction of CO2 emissions1
CO2 emissions down by c.20% from 2016 ths tonnes
Already impressive share of clean electricity and heat
consumption of 86% 1,067 1,064
858
ESG Ratings:
MSCI ESG: BB (August 2019)
Sustainalytics: 59 (September 2018)
Bloomberg ESG Disclosure: 56.6/100
ISS Quality Score: 3/10 (1 is the best)
2016 2017 2018
ALROSA is a constituent of the FTSE4Good Index Series created
by the global index and data provider FTSE Russell Share of clean (incl. renewable) electricity and heat consumption
ALROSA is a certified member of the Responsible Jewellery 2018
Council (RJC) by achieving certification against its Code of
Practices. 14%
In 2019, ALROSA received the Diamond Empowerment Fund
(DEF) award for implementing social projects in the regions
where it operates (Community Stewardship).
ALROSA has the National Corporate Governance Rating at 8 86%
“Advanced Corporate Governance Practices”
Share of clean electricity and heat consumption Other
Source: Company data and analysis.
1. Include PJSC ALROSA’s diamond production assets and the Heat and power supply company, which was removed from PJSC “ALROSA” structure starting from 01.01.2017 and became its subsidiary PTWS LLC.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 8
Employee Safety is Our Top Priority
Strong Commitment to Promote a Culture of Safety and Reduce the Number of Accidents
One of the lowest LTIFR
compared to the diamond industry and other sectors1
Lost Time Injury Frequency Rate per 200,000 hours
Structural changes Procedures 8.7
6.3
HSE committees at all
management levels Revised HSE Policy
Tailored reporting system New approach to control
to ensure prompt detection the flow of production
and response to incidents 1.6 1.9
Regular HSE education
HSE supervision at each and training sessions 0.5
stage of production chain 0.22
DPA Power Metals & Transportation Utilities /
Mining Construction
Source: Company data and analysis.
1. Based on S&P Global: “The Diamond Producers Association Final Results Workshop”.
2. ALROSA’s LTIFR as of 2018, peers’ LTIFR as of 2016.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 9
Superior TSR Compared to Global Peers
Cumulative total USD TSR since ALROSA IPO in October 2013, %
200%
+57.1% Luxury goods producers
150%
+41.9% ALROSA
100%
Diversified miners, incl.
-7.0%
other diamond producers
50%
0%
Oct-13 Apr-14 Nov-14 May-15 Dec-15 Jun-16 Jan-17 Aug-17 Feb-18 Sep-18 Mar-19 Oct-19
Source: Bloomberg.
Note: Luxury Goods Producers index includes LVMH, Hermes, Richemont, Kering, Swatch, Prada, Tiffany, Tapestry, Burberry, Ralph Lauren, Capri, Moncler and Tod‘s; Diversified Miners, incl. other diamond producers,
index includes Anglo American, Rio Tinto, BHP, Glencore, Vale, Gem Diamonds, Petra Diamonds, Lucara Diamond Corp., Firestone Diamonds, Mountain Province Diamonds and Stornoway Diamond Corp. All indices are
weighted by market cap on a daily basis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 10
Journey Ahead
Developing Efficient Organisation... …and Taking Advantage of
Strong Market Fundamentals…
Focus on Core Business and
Unique Product
Efficiency
…to Maximise Free Cash
Prudent Capital Allocation Growing Demand Flow and Shareholder
Returns
Conservative Financial Policy Declining Supply02
MARKET
FUNDAMENTALS03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 12
Diamond Value Chain
Rough diamonds Polished diamonds Diamond jewelry
Cutting & Jewelry
Production Sales Sales Sales
polishing manufacturing
• Exploration of diamond • Sale of rough diamonds • Cutting and polishing • Polished diamond • Jewelry design and • Jewelry
resources from producers rough diamonds to wholesale manufacturing
• Rough diamond • Rough diamond trading produce polished • Polished diamond
production and sorting diamonds trading
Large retailers control
Number of players Top-5 = 70% of market ~100 ~10,000 (90% are in India) >10,000
~35% of the market
Entry barriers High Low Medium
Profitability 3-5% small retailers
22-24% 1-3% 2-4%
(average) 9-11% large retailers
~$80bn
Value chain size
$15bn $26bn
in 2018 Cash payment Sell on credit
Rough diamonds Polished diamonds Diamond jewelry
Banks provide funding to polishers
Source: AWDC Bain report “The Global Diamond Industry 2018” (December 2018).03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 13
Historical Statistics
“Whip Effect” on Demand Suppliers Illustrated
Diamond jewellery sales Rough diamond sales Rough diamond output
$ bn $ bn m ct
17
15 15
14 176
81 ~80 13 13
12 151
12 11-12
61
141
8 52% 126
120
57
25% 20% 19%
11%13% 7% 9% 7%
5% 3% 4% 0% 5% 4% 3% 1% 5% 4% 1% 2%
(3%) (3%) (0%)(2%) (5%)(3%) (4%) (4%) (1%) (2%)(5%)
(7%)(5%) (5%)
(28%) (25%) (26%)
(36%)
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019E
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019E
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019E
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 14
“Perfect Storm” Ingredients in 2019
Key factors impacting diamond markets
Retailers: over-optimism in 2018 Financial bubble burst hitting mid-stream Retail: Rise of online
• Strong 2017/2018 Christmas and growth • Indian banks beefed-up lending, • Shopping around online to buy jewelry
rates 2x higher than historical scarifying borrowers’ “quality” becomes a new normal with 25% share
YoY change $ bn by 2025
10.2% -28%
~25%
5.3% 5.9%
16.5 ~10%
13 13.5
10.5 11 9.7
5
1999 2005 2010 2014 2015-17 2018 2019E 2013-2016 2018-19 2025
2014 2015 2016 2017 2018 Q1-Q3’19
• Led to excessive inventory buildup when • Financial scandals in 2018, interest rates • This trend, along with market
market turned down from Dec’18 аfluctuations, weaker currency lead consolidation, is leading to lower
financial tightening in 2018/19 working capital requirements, improved
planning, and new approaches to
marketing
Source: Bloomberg, IDEX, Edahn Golan Diamond Research & Data, Company’s estimates.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 15
Indian Trade Statistics
Drivers of destocking Indian midstream destocking in 2019
$ bn
Lower demand from retailers (demand + on-line factors) -15% YoY 10M'18 10M'19
-25% YoY -$3.1 bn
Level of stocks is approaching low levels (uptick in purchasing -$3.3bn +3% YoY
of rough registered `prompting a sequential sales growth) 20.2
17.1 +$0.2 bn
13.1
9.8
Gross margin (net exports minus net imports) increased by 7.1 7.3
$0.2 bn, partially compensating for lower credit availability
Net imports Net exports Gross margin
(rough diamonds) (polished diamonds)
Monthly volumes of imported and exported diamonds Monthly prices of imported and exported diamonds
m ct Net imports (LHS) Net exports (RHS) $/ct Rough imported (LHS) Polished exported (RHS)
2.7 2.6 2.6 177 949
2.3 2.4 2.3 912 147
1.9 1.9 127 126
16.9 1.7 845 106
102
12.3
14.1 13.1 13.0 12.8 87 91
10.5 10.6 883 878
1.6 9.5 9.4 849856
6.4 7.7 819
4.4 5.1 780 89 93 87 818
68 769
746 737
J-18 A-18 J-18 O-18 J-19 A-19 J-19 O-19 J-18 A-18 J-18 O-18 J-19 A-19 J-19 O-19
Source: GJEPC, Company’s analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 16
Financial Crisis in India
Bad loans problem in banking sector Midstream leverage Financial bubble burst hitting mid-stream
% of non-performing assets % of revenue $ bn
11%
75% -$4 bn
9%
61%
7% 53%
3% 4% 4% 16.5
2% 2% 2% 3% 13.5
10,5 9.7
6,5
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2002 2008 2013 2017 2019Е 2000 2005 2014 2015-17 2019E
• Share of non-performing assets at Indian • Financing conditions remain tight for • Indian banks and NBFCs* beefed-up
commercial banks increased to the Indian polishers (90% of global polishing) lending, scarifying borrowers’ “quality”
highest levels for the last 10 years after fraud in 2018 and stricter financing • Financial scandals in 2018, interest rates
from banks (as Indian baking sector is аfluctuations, weaker currency lead
preparing for Basel III regulations) financial tightening in 2018/19
Source: GJEPC, Edahn Golan Diamond Research & Data, CEIC Data
* NBFC – non-bank financial corporation.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 17
Diamond Miners Decreased Supply by ~25%
Rough diamonds sales – 2019 factors analysis 2019 ALROSA and De Beers supply – decreased by 1/4
$ bn $ bn
-24%
-25% -25%
16 7.4
5.6
15 15 15
12 Av. 9M 2017/18 9M 2019
11-12
Volume ALROSA 2019 total sales
Price/mix $m
MoM change
346 377
282 319
266 259 264
222 182
171
42% +9% YoY
23%
9% 7% 2%
(14%) (15%) (17%) (16%) (23%)
2014 2015 2016 2017 2018 2019E Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Source: Company data and analysis.
1. Data based on results of ALROSA and De Beers. Industry experts, investment banks.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 18
Price Dynamics for Gem-quality Diamonds
Highlights ALROSA price index for like-for-like gem-quality diamonds mix
Q3’19 like-for-like price index (LFL PI) was -3.1% QoQ Average index change 2 Average price index
9M LFL PI was down ~7.5% due to lower demand from 1.00 1.03 0.97 0.93 0.95 1.00 1.02 1.04 1.02 0.99 0.98 0.94
0.90 0.88
mid-stream and limited access to affordable financing
for mid-stream in India 3% 3% 3% 2% 2%
Q3’19 ARP for gem-quality diamonds rose 5% QoQ to
(2%) (3%) (2%) (3%)
$135/ct due to a lower share of small-size diamonds (5%) (8%) (7.5%)
Q3’19 ARP for GEMs was 32% YoY down due to: 2013 2014 2015 2016 2017 2018 9M'19 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
o LFL PI decrease of 9.2% YoY (9M’19: -7.5%) ALROSA ARP1 for gem-quality diamonds
o Mix effect as in Q3’19 share of small-size stones in $/ct
Price change
sales dropped from 83% to 76% 199
175 172 170 164 164
149 136 154 153 135
128 123 130
21% 22%
6% 5% 5%
(2%) (1%) (12%) (9%) (22%) (23%) (19%)
2013 2014 2015 2016 2017 2018 9M'19 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Source: Company data and analysis.
1. ARP (Average Realized Prices) are also impacted by changes in the product mix throughout the reported period.
2. Average index change of like-for-like diamonds prices (excl. +10.8 carats)03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 19
Consolidated Diamond Supply
About 60% of global rough diamond output is
Core diamond mines of the BIG-3 market leaders attributable to BIG-3
6% Catoca1
25% ALROSA
148 24% De Beers
m ct
12% Rio Tinto
30% Other
Republic of Sakha 3% Petra Diamonds
Arkhangelsk (Yakutia)
Region
Canada
Russian Federation
Countries with the largest diamond reserves
14% 2% Russia
43% Africa
Canada
41%
Other
Angola
Botswana
Namibia Australia
South Africa The global diamond reserves base is highly concentrated
with the top 10 countries by reserves volume accounting
for over 95% of total reserves.
Sources: Company’s analysis, Kimberley Process statistics, De Beers and Rio Tinto company data, AWDC Bain report “The Global Diamond Industry 2018”.
1. ALROSA owns 41% stake.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 20
Supply Continues to Tighten
Due to depletion of deposits and lack of exploration capex over the last 10-15Y
2018 to 2023 supply forecast – 9 m ct down 2019 to 2023 major project capacity changes 2
m ct m ct
151 Depletion Expansion
148 144
Other1 141 140 139
136 (14.0) Argyle (Rio Tinto)
South Africa
Angola (3.5) Diavik (Rio Tinto)
Australia (21.3)
(2.9) Gahcho Kue (De Beers)
Congo
(0.9) Victor (De Beers)
Botswana
Ekati (Dominion Diamond) 4.6
Canada Luaxe (Catoca) 2.3
Chidliak (De Beers) 1.8
12.8
Russia 1.8
Star Orion South (Star Diamond)
Debswana (De Beers) 1.2
2017 2018 2019E 2020E 2021E 2022E 2023E
DBCM3 (De Beers) 1.1
Source: Company data and analysis, brokers’ reports., Kimberley Process statistics.
1. Other includes Zimbabwe and Namibia. 2. Not including ALROSA assets. 3. Stands for De Beers Consolidated Mines, includes Venetia and Voorspoed mines.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 21
Favorable Supply/Demand Fundamentals
… will drive the market into a deficit and support positive diamond price pressure
Global Supply / Demand balance outlook Accumulated diamond deficit in 2019-2023
m ct m ct
~100
180
170
160
156
150 ~30
140 139
130
Base case scenario Optimistic scenario
120 % of annual
20% 70%
production’18
2018 2019E 2020E 2021E 2022E 2023E
Source: Company data and analysis, AWDC Bain report “The Global Diamond Industry 2018” (December 2018).03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 22
Demand Drivers
Highlights Global luxury market breakdown in 2019E
2019E luxury market valued at c. €1.3 trillion € bn
(+8% YoY) is steadily growing Incl. ~1/3 42 34 26 1,268
76 53
of diamond jewelry 206
550
Most dynamic growth is concentrated in Asia incl.
Japan and China 281
Diamond jewelry consumption is correlated with
USA GDP and disposable income Personal Lux Hospitality Fine Fine food Designer Fine art Jets & Total
luxury cars wines furniture yachts 2018E
Personal luxury market forecast Personal luxury market growth1 by region 2019E
€ bn
+7% +3-5% Market size
30%
CAGR 335-375
262 281
9% 11%
5%
2% 0%
2018 2019E 2025F Europe Americas Rest of Asia China Japan RoW
Source: Bain-Altagamma 2019 Worldwide Luxury Market Monitor.
31% 29% 15% 11% 9% 5%
1. Trends at current exchange rates.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 23
Strong Long Term Demand Outlook
...driven by disposable income growth and middle class expansion
Real disposable income growth Middle class growth Diamond jewellery demand growth forecast
CAGR 2016-2030F m people over 2016-2030F By region, CAGR range 2016-2030F
Indi 7% 13.7 3-7%
Chin 6% 24.6 2-4%
US 2% 2.4 1-4%
Eur 1% 3.5 1-4%
RoW 3% 52.1 1-4%
Lower point refers to base case scenario;
upper point to optimistic scenario
Source: Company data and analysis, Euromonitor, AWDC Bain report “The Global Diamond Industry 2018” (December 2018).03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 24
… As Jewelry Demand “Quality” Improves in EMs
Highlights Total jewellery market vs diamond jewellery
Total jewelry market (from cheaper items – e.g. $ bn $ bn
Pandora, Swarowski to luxury e.g. Tiffany) has over TOP-5 all jewelry consumers
~320
$320 bn capacity 106
China and India are 2 largest jewelry markets, 64 56
though dominated by cheaper goods sales 8.2 6.2 ~80
… Diamond jewelry comprises ¼ of it,
China India USA Japan HK All jewellery Diamond jewellery
As middle class is expanding in EM – there is a
qualitative change in jewelry spending Average unit price growth 2007 vs. 2012
… as globally unit price per luxury jewelry item 90%
increased from $2,402 in 2007 to $2,636 in 2012
58%
… but regional breakdown of unit price inflation 45% 37%
indicates to the structural change in Emerging 25% 24%
Markets
-5%
Asia Pacific E.Europe M.East & Africa LatAm Australia N.America W.Europe
Source: Euromonitor.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 25
Diamonds are Different from Commodities
Mature demand and supply discipline result in low price volatility
Mature and stable consumer-driven demand Consolidated production, Low price volatility
concentrated in developed markets supporting supply discipline compared to commodities
Diamond jewellery retail sales, $, 2017 Top-3 producers market share, 2018
India Low Price volatility 1 High
6% RoW
Diamonds 63% 11%
7%
China
20% Iron Ore 40% 33%
Japan Aluminium 31% 14%
5%
EU Coking coal 27% 36%
9%
Nickel 22% 22%
USA Copper 20% 18%
53%
Silver 15% 34%
Developed markets Gold 11% 16%
67%
Source: Company data and analysis, AME Research, GFMS, Thomson Reuters, Wood Mackenzie, Bloomberg.
1. Calculated as ratio of standard deviation of daily prices to 10 year average price.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 26
Demystifying LGDs
LGD myth #1: LGD myth #3:
Case study: LGD positioning
Myth: LGD and diamonds are identical Myth: Launch of LGD brand by a major natural by a major player
Truth: LGD has the same physical and chemical diamond producer endorses LGD as a valid
characteristics as diamonds, but they are not substitute to natural diamonds Fixed price
identical, and they are easily detected using Truth: Differentiated market positioning clearly At ~20% of diamond price
widely available identification equipment illustrates the differences between diamonds and for 1 ct stone
LGD and will serve as a baseline for LGD
perception by customers and industry players Linear pricing
¼ ct stone price is ¼ of 1 ct
LGD myth #4: stone price
LGD myth #2:
Myth: LGDs is an eco-friendly and ethical alternative to Standard, commodity-like
Myth: FTC ruling stated that LGDs and diamonds diamonds colour, size and quality
are the same
Truth: Most LGDs are produced in China and India with
Truth: For LGDs, FTC guides require businesses to No specifications other than
fossil-fueled energy, estimated CO2 emissions associated
“disclose clearly and conspicuously that the with production of 1 ct of LGD are 3.0x greater vs natural size and colour
product is not a mined diamond”. In fact, in all key diamond. In 2019 U.S. FTC warned LGD companies about
markets LGDs have to be identified as manmade deceptive marketing. Over 99% of supplied natural No grading reports or
diamonds are conflict free; proceeds from sales support certification
local communities and employment.
Source: Company data and analysis, DPA, Trucost (S&P Global) report “The Socioeconomic and Environmental Impact of Large-Sacle Diamond Mining” (May 2019)03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 27
Expanding LGD Discount Illustrates Different
Market Perception of LGD vs. Diamonds
LGD discount to natural diamonds
Price of 1 carat polished diamond: Round, VS clarity, F-H color
2016 2017 2018 Now
(16)% (18)%
(42)%
~(60)%
5x (81)%
LGD price discount to natural Lightbox discount to natural
Source: Company data and analysis, Paul Zimnisky report “2018: The Year of the Lab-created Diamond”.03
EXECUTING
TO STRENGTHEN
OUR BUSINESS03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 29
ALROSA: the Story of the Industry Leader in 4 Charts
The largest and most profitable player in the industry
Reserves1 Production ‘18 EBITDA ‘18 EBITDA margin ‘18
m ct m ct $ bn %
Inferred 2.4 52%
ALROSA 628 436 resources 37
Peer 1 212 35 1.2 20%
Peer 2 105 8 0.2 32%
Peer 3 43 4 0.2 37%
Peer 4 40 18 0.3 43%
Source: Company data and analysis, Diamond producers’ data.
Note: Diamond producers include De Beers, Rio Tinto, Dominion Diamonds, Petra Diamonds.
1. Reserves are as per latest available data.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 30
Key Challenges for the Industry
… and how we address them from a value creation perspective
1
Lack of new deposits, limited • Investment in exploration and production development to
exploration success maintain reserves base and production
2 Grade deterioration, cost inflation • Operational efficiency program and culture
3
Ever increasing competition from
other luxury goods • Increasing our marketing efforts to promote
the unique appeal of our product
4
Rising scrutiny over capital • Focus on core business
allocation discipline • Prudent investment program
• Focus on shareholder returns03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 31
Superior Exploration Capabilities
… result in solid track record of resource replenishment at low finding costs
Unique full-cycle exploration operations… Track record of resource replacement2
m ct
Field geological exploration
1 250
Technological center With exploration works
(incl. drilling) Scientific research
and analytics
1 000
+395 m ct
… Backed up by advanced technologies
750
Complex
Aerogeophysical Georadar footage
Footage-5
500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
High resolution
Radio Wave • Discovered resources: 395 m ct
seismic survey
Geointroscopy
in 3D / 2D • Average finding costs of $3.1 per ct1
Source: Company data and analysis.
1. For the period from 2009 to 2018.
2. Based on resources in accordance with the Russian classification.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 32
Production Outlook Supported by New Projects
2020 output revised downward in response to the current market situation
Production outlook Key drivers
m ct
• Development of new projects/debottlenecking:
38.0 37.7 37.4 37.6 37-38
36.7 - V. Munskoye deposit: +c.2.0 m ct – full ramp-up by ‘20
34.3
Other 5.1 4.7 5.0 4.8
4.8 - Udachny underground mine: +c.3.0 m ct – full ramp-
3.1
Almazy Anabara
5.4
5.1 3.3
5.0 5.0 5.0 up by ‘21
Verkhne-Munskoye 1.8 1.9 1.9 1.8 1.8
Severalmaz 3,6
0.2 - Severalmaz: +c.1.4 m ct (debottlenecking) from ‘21-22
3.9 4.2 4.8 5.0
5.1
Botuobinskaya 1.5
4.1 1.7 - Nyurba division: +c.2 m ct (debottlenecking) in ‘19-20
4.1 3.8 4.1
Nyurbinskaya 6.2
6.0
4.9 3.7 3.8 3.6 • Decline in diamond output:
Jubilee 9.0 7.2 5.2 4.8 4.5 - Jubilee: -1.5 m ct from ’19 (due to production at
6.5
2.8 2.6 3.3 kimberlites with a lower grade)
2.9 1.9
International 3.4
3.7 4.9 5.6 5.5 5.5 - International underground mine: decrease in ’18-’22
Udachny 2.5
due to mining and geological conditions
2018 2019E 2020E 2021E 2022E 2023E 2024-30E
Average Grade,
carats per tonne 0.9 0.9 1.1 0.9 0.9 0.9 0.9
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 33
Focus on Value Accretive Capex
Capital-intensive phase is over
Capex dynamics Key projects
RUB bn Infrastructure: total 2019-24 capex – RUB 35 bn
2020 capex expected
to be revised down Reconstruction of Mirny Airport: total Capex for 2019-’23 ~RUB 10 bn
Gasification of production facilities in Udachny: total Capex for 2019-’23 – RUB 5.4 bn
32
Sales Division Facilities: total Capex for 2019-’21 – RUB 5.3 bn
28 28
6 27 26
Infrastructure Gas processing facility by ALROSA-Gaz: total Capex for 2019-’21 – RUB 2.7 bn
2 23
5 22
8 11 Mining capacity: total 2019-24 capex – RUB 38 bn
5 18
8 16 Completion of Udachny underground mine construction
Mining capacity 17 17 3
14
10 11 6 5 Completion of Verkhne-Munskoye diamond deposit development
5 5
2 Construction of Maiskaya pipe
Equipment
9 10 10 9 10 Construction of Zaria pipe
maintenance 8 8 8 8
Equipment maintenance: total 2019-24 capex – RUB 55 bn
2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
Investment program with targeted IRR1 of 20%+
Source: Company data and analysis.
1. For investments in new mining capacity and operational efficiency projects.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 34
Focus on Efficiency
Dedicated operating efficiency program launched in 2017
Scaling up initiatives Delivering tangible results Key initiatives
Number of Initiatives Nominal Unit Costs 1, k RUB/m3
Real terms2
Optimisation of ore beneficiation and
(8%) (5%)
208 YoY change, % separation processes
8 Other 1.16 1.15
1.12 1.10
42 G&A Restructuring of construction and
geological exploration units
Operating 2016 2017 2018 9M '19
53 improvements
General and administrative expenses, RUB bn Implementation of centralised
187
management and usage-based
Real terms3
143
YoY change, %
(10%) (2%) approach for transportation
105 Energy efficiency 12.4
11.6 11.7
Labour productivity increase
2016 2017 2018 G&A optimisation
2017 2018 2019E As % of
4% 4% 4%
revenue
Source: Company data and analysis.
1. Include payroll and other employee payments, fuel and energy, materials, external services and transportation, other production costs.
2. Labour costs, services and transportation are adjusted based on CPI. Material costs, fuel and energy are adjusted based on respective price indexes.
3. Calculated based on CPI, excl. impairment of receivables.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 35
Case Study: Operational Turnaround Program at Nyurba
Nyurba’s success can be replicated and scaled up across other divisions
Key streams and initiatives Run of mine Diamond production growth
m m3 m ct
+12%
Improving mine fleet dispatching
processes by SIC1 procedures 17 19
+26%
implementation
9.7
Optimizing OEE2 by reducing 7.7
non-value added operations Overall equipment efficiency
% +16 p.p.
Optimizing maintenance and repairs
operations will lead to improved 47%
63%
equipment availability and
… improved plant availability
Processing
Increasing hourly throughput by mt +18% 2018 2019E
optimizing ore blending processes 2.1 2.5
Source: Company data and analysis.
1. Short interval control. 2018 2019E
2. OEE – overall equipment efficiency.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 36
Case Study: Automotive Transport Optimization
Centralization and usage-based approach provide long-term cost cutting effect
Key streams and initiatives Number of vehicles Cumulative effect in cost cutting
Units (36%) RUB mn, expenses related to transportation
Number of vehicles went down 1,240 791
following implementation of new Cost saving:
RUB 643mn
processes and tools: usage-based
approach to vehicles request and Vehicles utilization factor (16%)
% +55%
utilization, route optimization and 3,923
59
reduction of fleet renewal 38 3,280
program
Headcount
Revision of organizational FTE (19%)
structure and headcount 1,719 1,388
optimization
2018 2019E
Shift to natural gas from gasoline Fuel
and diesel leads to decreased fuel m tn (32%)
Gasoline 9,469
cost decline and reduced 1,376 6,453
684
Diesel 8,093 5,769
emissions
2018 2019E
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 37
Case Study: Working Capital Management
Reduction in rough diamond WIP inventory days
Optimization levers Reduction of diamonds WIP1 cycle
99 Production Chain of Rough Diamonds
8 Downtime reduction
11
Final sorting
Workflow optimisation Final Preliminary
29 Mine
Recovery sorting
and box Inventory
assembly
34 New analytics
7 and modelling
7 51
6 Process automation
14 WIP Cycle
2018 Now
Decrease in average … leading to lower rough diamond … and by Value2
Key enablers WIP Cycle WIP inventory by Volume
Number of days m ct $ mn
Team and capability development
2017 78 8.8 902
Productivity monitoring and benchmarking
Now 61 7.1 804
New productivity based motivation system
IT systems upgrade (17) (1.7) (98)
Source: Company data and analysis.
1. Rough diamonds before sorting is completed. Does not include +10.8 ct and industrial grade diamonds.
2. Based on prices of diamonds set by reference to price lists approved by the Ministry of Finance of the Russian Federation.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 38
Employee Training and Development System
… to further improve long term competitiveness and productivity
Key initiatives and programmes Labour productivity growth
k m3 of run-of-mine ore per employee
Revision and simplification of remuneration system
Improvement to increase transparency and link it to performance
of remuneration
system Launch of share-based incentive program to retain +12%
top management and align their interests with
shareholders +17%
2.4
Implementation of a multi-stage competency 2.1
Development assessment system for the selection and
1.8
of talent pool professional development of the talent pool
members
Development of in-house corporate educational
Establishment system covering various grades and business
of Corporate
divisions
University
Implementation of internal coaching and mentoring
programmes 2014 2018 Target
2024E
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 39
Marketing Strategic Initiatives and Ongoing Digitalization
Industry initiative Ongoing digitalization in ALROSA
• Participation in DPA to promote the integrity
Generic and reputation of natural diamonds
(category) Virtual
marketing
• Differentiation of natural diamonds and Adoption of Reality
Digital
Mine
Drill-and-blast
Automation
LGDs markets driven by rarity, uniqueness best practices
and inherent value of natural diamonds in operational
digitalization
Company initiatives Unmanned
Big Data Driven
Predictive Maintenance Technologies
Promotion of
• Active promotion of fluorescent diamonds to
stimulate demand in B2C segment
different
assortment • Marketing initiatives to improve broader
categories • Participation in pilot projects involving M2M
sentiment towards fluorescent diamonds and Tracr tracing platforms
Introduction • Implementation of digital twin technology
of digital providing detailed information about each
Marketing of
• Promotion of large, exceptional quality
marketing stone
diamonds
diamond
collections • Promotion of fancy coloured diamonds
• Development of digital platform for online
sales
Source: Company data.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 40
Diamond Producers Association
Key initiatives DPA marketing campaigns by regions
Diamond Producers Association (DPA) formed by 7 major diamond % represents share of a region in global jewelry consumption
producers in 2015 supports the development of the diamond sector
6%
through promotion of reputation of diamonds
N. America (USA from 2016)
20%
Marketing campaigns with a tagline “Real is Rare. Real is a Diamond” India (from 2017)
launched in the US (2016) and in India (2017) 53%
Asia Pacific ex. Japan (China from 2018)
DPA’s activities include: 21% RoW
paid advertisement on TV, internet, cinema, social networks
promotion in social media by social influencers
participation in industry events
Marketing budget of the industry association growth
work with industry and non-industry organizations
market surveys and research $m
In 2018 DPA’s activities expanded into China (while continued in the US
and India)
60 60 70
New marketing campaign addressed to women who purchase
diamonds for themselves is called “From Me, To Me”, launched in mid- 10
September 2018
2016 2017 2018 2019E
Source: Company data.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 41
Capital Allocation – Key Principles and Policy Overview
Focus on Core Prudent Capital Conservative
Business Allocation Financial Policy
Organic Growth Investment Program Commitment to
with 20%+ IRR1 Balanced Debt Profile
Operating
Efficiency
Divestiture of FCF-linked
Strong Liquidity Position
Non-core Assets Dividend Policy
Maximising Shareholder Returns
1. For investments in new mining capacity and operational efficiency projects.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 42
Strong Balance Sheet
… with leverage at historic-lows
Highlights Net Debt evolution to investment grade credit ratings
$m
• Total debt is $1.6bn with the weighted average cost of debt of
1.9x 1.9x
5.2% 1.7x
• In April 2019 ALROSA issued 5-years $500 m Eurobond with a 3,951
3,119
0.5x 0.7x
0.4x 0.6x
coupon rate of 4.65% pa 2,781
1,374 1,494
• Investment grade credit rating 971 978
• S&P – BBB- (Stable)
• Fitch – BBB- (Stable) 2013 2014 2015 2016 2017 2018 Q3'19
• Moody’s – Baa2 (Stable) Net Debt
1
Net Debt / Adjusted EBITDA (RUB denominated)
• Conservative long-term financial targets in line with investment
Liquidity position Debt2 repayment schedule
grade criteria
$m 4,288 $ m, as of 1 October 2019
• Target Net Debt / EBITDA range: 0.5-1.0х
• Minimum liquidity reserves of over RUB 35 bn of cash and Eurobonds Bank Loans
Credit Lines
committed lines
3,635
• Natural FX hedge – financial liabilities are matched with Cash and
equivalents
496 510 501
income streams (incl. deposits) 28 13 8
• Solid public debt track record with fixed-income investors 653
Q3'19 Q4'19 2020E 2021E 2022E 2023E 2024E
Source: Company data and analysis.
1. Including operating lease obligation (RUB 5.0 bn) starting from 2019Y
2. Excluding operating lease obligation (RUB 5.0 bn) and amortization of discount03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 43
Dividend Policy Focused on Maximisation of Shareholder Returns
Historical dividend payments1 Dividend policy overview
$m
1,281
1,110 Dividend
929 Free Cash Flow
662 Base
H1’18 448
12M’16 H1’19
311 244
190 619
480 Frequency Semi-annual
12M’13 12M’17
12M’14 12M’15 H2’18
2014 2015 2016 2017 2018 2019
Dividend payout ratio Condition of
Below 0.0x 0.0x to 0.5x >0.5x to 1.0x 1.0x to 1.5x
Payment ratio based on IFRS net income Net Debt/EBITDA2
Payment ratio based on FCF 100% 100%
70% 76%
59% 52% 95%
50%
26% 70% 76%
> 100% 100% 70-100% 50–70%
50% 50% Payout Ratio
35% 37%
Subject to minimum dividend payout of 50% of IFRS net income
2013 2014 2015 2016 2017 H1'18 H2'18 H1'19
Source: Company data and analysis.
1. Dividends paid. Amounts are based on FX rates as of the dividend record dates (2014-H2’18) or as of the end of the period (H1’2019).
2. Based on first and second half year ND/EBITDA and FCF.04 Q3 2019 RESULTS
03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 45
Sales
Lower supply as mid-stream destocks
Highlights Diamond sales in carats
Q3’19 Sales m ct Industrial quality diamonds Gem-quality diamonds
13.4 29.1
Diamond sales decreased 23% QoQ (down 5% 25.3
YoY) to 6.4 m carats against the backdrop of 10.6 8.0
3.2 9.0 9.0 8.3
declining demand due to excessive stocking of 7.0
6.7 2.7 6.4
rough and polished diamonds by cutters and 2.7 3.7 2.3
10.1 2.0 2.1 21.1
retailers, and continued difficulties faced by India’s 6.3 7.9 6.0
18.2
4.7 5.3 4.3
cutting business in securing affordable financing.
Ongoing consolidation in the jewellery sector and Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 9M'18 9M'19
growth in jewellery sales through on-line channels Diamond sales in U.S. dollars
in the US result in a non-recurrent reduction in $m Industrial quality diamonds Gem-quality diamonds
polished diamond stocks across the retail sector as 3,588
businesses embrace more efficient stock 1,582 65
management practices, which is in turn impacts 26 2,386
1,057 988 51
rough diamonds purchases by mid-stream. 949
824 796
23 18
16 3,523
Sales were down 24% QoQ to USD 601 m (down 1,556 22 16 601
1,034 16 2,334
37% YoY) 933 802 969 780 585
Q1'18 Q2'18 Q3'18 Q4'18 Q1'18 Q2'19 Q3'19 9M'18 9M'19
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 46
Output
Q3 2019: increase in diamond production
Highlights Ore and sands processing
Q3’19 mt Grade, cpt
0.80 0.87
Production grew 24% QoQ (up 15% YoY) primarily 1.30 0.84 0.61 1.38 1.23 0.93 0.71
due to seasonal return to production at alluvial
deposits
33.0 34.0
Av. grade seasonally decreased 24% QoQ to 0.71
17.2 17.2
cpt 5.7 10.1 7.5 6.4 10.5
9M’19 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 9М'18 9М'19
The volume of processed ore and gravels grew by Diamond production
3% to 34.0 m t supported by the ramp-up of m ct Open pit Underground Alluvials 29.7
production at the V.Munskoye deposit and 26.4
12.1
increased productivity an Nyurba Division and 10.5 10.3 7.5
9.7 8.2
Udachny’s processing plant 8.5 0.5 7.8 5.3
7.4 1.9 5.4
Production increased by 12% to 29.7 m ct 0.2 2.3 5.8 3.3 0.2 5.1
2.0 1.5 2.2
2.1 1.6
Av. diamond grade up 9% to 0.87 cpt 1.0
13.1
16.9
5.3 6.5 6.1 5.6 5.2
4.1 3.8
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 9М'18 9М'19
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 47
Key Financials
Resilient financial performance with strong margins and positive free cash flow
Highlights Superior profitability
Q3’19: $ bn Revenue EBITDA EBITDA margin 52%
46%
57% 57%
Revenue came at $0.7 bn (-20% QoQ) due to a 50%
44% 44% 44% 46%
23% decline in gem-diamond sales in carats.
34% YoY decrease due to decrease in both sales 2.5
2.2
volumes and like-for-like prices 0.8 0.7
4.7 4.8
1.7 0.6 0.5
0.4 0.4 0.3
EBITDA was $0.3 bn (-16% QoQ and -47% YoY) 1.2 1.1 0.9 1.1 0.9 0.7
largely due to top line decrease
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 2017 2018
EBITDA margin was flat at 46% (-11 p.p. YoY)
Strong Free Cash Flow Generation
Net income was up by 1% QoQ to $ 0.2 bn (-44%
YoY) $m 1,514
718 1,260
FCF amounted to $39 m
Net debt / LTM EBITDA stood at 0.6x 395
342
242 215
37 39
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 2017 2018
Source: Company data and analysis.
1. Q3’19 amounts are based on average FX rates for the period – RUB 64.5936/$.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 48
Revenue Drivers
Highlights Q3 2019 gem-quality rough diamond revenue bridge (QoQ)
Q3 ‘19 gem-diamond sales were down by 25% RUB bn
QoQ to RUB 38 bn driven by:
o (-) 28% decrease in sales volumes (in carats) (14) 3 (2) 0.1
o (+) normalized product mix 50
38
o (-) softer like-for-like prices
(av. index change – -3.1%)
Q2 '19 Sales Sales mix Pricing FX Q3 '19
o (+) positive FX rate impact as RUB weakened Revenue volume like-for-like Revenue
39% YoY decrease driven by: Q3 2019 gem-quality rough diamond revenue bridge (YoY)
o (-) 8% reduction in sales volumes (in carats) RUB bn
(5)
o (-) weaker product mix
o (-) softer like-for-like prices (14) (4)
(av. index change – -9.2%) (1)
61
o (-) FX rate impact on stronger RUB 38
Q3 '18 Sales Sales mix Pricing FX Q3 '19
Revenue volume like-for-like Revenue
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 49
Profitability Drivers
Highlights Q3 2019 EBITDA – key drivers (QoQ)
Q3 ‘19 EBITDA was down by 16% QoQ driven by: RUB bn
o (-) 23% decrease in volumes: net impact -RUB 8 bn 3 (2) 2
(8) 0.1
(revenue decline: -RUB 14 bn, COGS reduction: +RUB
6 bn)
25 21
o (+) sales mix +RUB 3 bn
o (-) like-for-like prices: -RUB 2 bn
o (+) FX rate: +RUB 0.1 bn Q2 '19 Sales Sales mix Pricing FX Other Q3 '19
EBITDA volume like-for-like EBITDA
o (+) other factors: net impact +RUB 2 bn
9M 2019 EBITDA – key drivers (YoY)
9M ‘19 EBITDA was down by 40% YoY driven by:
RUB bn
o (-) 13% reduction in carat sales: net impact -RUB 11 bn
(11)
(revenue decline: -RUB 32 bn, COGS reduction: +RUB
20 bn) (35) (7) 9 (6)
o (-) sales mix: -RUB 35 bn 129
78
o (-) like-for-like prices: -RUB 7 bn
o (+) FX rate: +RUB 9 bn 9M '18 Sales Sales mix Pricing FX Other 9M '19
EBITDA volume like-for-like EBITDA
o (+) other factors: net impact -RUB 6 bn
Source: Company data and analysis.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 50
Free Cash Flow and Total Debt Analysis
EBITDA to Free Cash Flow bridge Q3 2019 Net debt1 bridge
RUB bn RUB bn
ND / LTM EBITDA
Q2 EBITDA 25.1 Q2'19 Net Debt 35.4 0.3x
Change in profitability (4.1)
FCF (2.5)
Q3 EBITDA 21.1
Dividends paid 29.8
Changes in NWC (11.9)
Income tax (5.7) Net intetest (0.8)
Other 0.2 FX 1.3
Operating cash flow 7.1
2
Other (0.1)
Capex (4.6)
Free cash flow 2.5 Q3'19 Net Debt 63.0 0.6x
Source: Company data and analysis.
1. Including finance lease liabilities.
2. Mainly includes income from grants, operating lease obligation change etc.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 51
Outlook
Market outlook ALROSA performance
Diamond jewelry sales in 2019, following a several 2019 capex outlook revised down from RUB 28 to 23 bn with
consecutive years of growth, are expected to stabilize at no effect on operational performance
around 2017 levels (down from all-time record high of
2019 production outlook is expected at ~38.5 m ct driven by
2018)
efficiency gains
Market started to gradually restore supply and demand
2020 production is expected to decrease to 34.3 m ct
balance in H2’19 – supply of rough diamonds was quickly
adjusted, while polished stocks at mid-stream are expected 2019 sales are expected to come lower than planned to 32-
to decrease as season approaches 33 m ct due to market conditions. ALROSA’s “price over
volume” strategy offers more flexibility and accuracy when it
Long-term fundamentals for the jewelry demand growth
comes to defining sales, hence holding back pressure on the
remain strong in both Developed and Emerging markets
market05 CORPORATE GOVERNANCE
03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 53
Corporate Governance and Shareholder Support
Commitment to improving standards of corporate governance
Increased share of INEDs in the Board of Directors
• Regular and transparent disclosure and commitment to best in class
Number of Members
corporate governance practices
Independent Nominees of RF and Yakutia
• New initiatives are under way:
‒ Corporate Strategy till 2024 2014 2 13
‒ HR Strategy with the overhaul of the organization structure and
motivation schemes (stock option program is one of the initiatives)
Now 4 11
‒ Introduction of a long-term incentive plan linked to total shareholder
return (TSR) targets to align management and shareholder interests and
provide incentives for sustainable long-term development 6 – Russian Federation
4 – Republic of Yakutia
‒ Approval of new HSE policy, aimed to promote a culture of safety 1 – Local Communities of Yakutia
INEDs represent 100% in Audit and 75% in RemCo committees
Number of Members
Chaired by INEDs
Strategy with RemCo
1
3 INEDs Committee –
out of 13 3 INEDs out of 4
Audit – 3 INEDs out of 3
Source: Company data.03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 54
Current Board has Supported Initiatives to Improve
Alignment of Shareholder Interests
New management team Transparency and disclosure
New senior management team with tenured Commitment to regular and transparent disclosure
professionals committed to increase shareholders of operational and financial results and publishing
return and modernise ALROSA’s corporate of social and environmental report.
structure and operations.
HSE strategy
New clear financial and dividend policy
Approval of new HSE policy, aimed to promote a
Financial policy to ensure an appropriate balance culture of safety.
between capital structure and liquidity at hand.
New clearly articulated semi-annual dividend
policy based on FCF and target leverage. Long-term incentive plan
Introduction of a long-term incentive plan linked to
a set of financial, operational and total shareholder
return (TSR) targets to align management and
shareholder interests03. Executing to strengthen
01. Strategic priorities 02. Market fundamentals
our business
04. Q3 2019 results 05. Corporate governance 55
Board Agenda for 2019-2020
1 Focus on continuous business transformation to ensure long-term
competitiveness and sustainable production
2 Emphasis on developing risk management culture within the company
3 Highlight long-term strategic issues in marketing
4 Reform of HR and pay structure
5 Active engagement with all stakeholders06 APPENDIX
57
ALROSA: Key Highlights
Rough diamond sales
● Revenue is set to stabilize on stable sales volumes m ct Av. selling price for gem-quality diamonds, $/ct
● Company demonstrates stable – above 45% margins – well 174 172 170 164
supported by cost control / high utilization rates at the mines 149
136
● Capex to trend down as growth projects are up and running
37.1 38.4 30.2 40.0 41.2 38.1
2013 2014 2015 2016 2017 2018
ALROSA’ capital intensity is decreasing Revenue, EBITDA and EBITDA margin
$ bn $ bn Revenue EBITDA
CAPEX FCF
52% 53% 51%
42% 45% 46%
1.6 1.5
1.2 1.1 1.3 5.3 5.4 4.6 4.6 4.8
0.9 0.7 3.7
0.5 0.6 0.5 0.5 0.4 2.2 2.4 1.9 2.5 2.1 2.4
2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
Source: Company data58
Information On Assets
Type Cash costs, $/ct Price, $/ct Spread, $/ct Grade, ct/t Diamond production, ‘000 ct Expected JORC reserves
of mining LOM (1 July 2018), ‘000 ct
2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2019E 2020F
Aikhal Division 13,011 11,850 9,622 175,561
Jubilee pipe open-pit 18 191 141 137 123 118 1.33 1.14 10,160 9,063 6,520 2034 104,937
Aikhal underground mine underground 25 25 47 48 22 23 5.83 4.86 2,480 2,429 2,731 2044 66,346
Komsomolskaya pipe open-pit 174 992 239 234 65 135 0.36 0.37 370 358 371 2019 809
Zaria pipe open-pit - - - - - - - - - - 2030 3,469
Mirny Division 7,231 4,195 3,908 57,779
International underground mine underground 29 343 210 165 181 132 6.89 6.20 3,699 3,448 2,887 2045 49,566
Mir underground mine underground 38 504 130 113 92 63 3.71 2.86 2,772 30 - -
Alluvial and technogenic deposits alluvial 59 965 205 167 147 71 0.19 0.16 760 718 1,021 2035 8,213
Udachny Division 3,821 3,929 6,438 164,462
Udachnaya pipe open-pit 37 - 90 - 53 - 0.63 - 1,046 - - -
Udachny underground mine underground 73 606 103 99 30 38 1.87 1.32 1,615 2,530 3,697 2064 128,475
Zarnitsa pipe open-pit 100 937 165 154 65 62 0.28 0.26 786 952 841 2035 5,350
Verkhne-Munskoe deposit open-pit 68 1088 65 149 -3 41 1.07 0.57 80 207 1,772 2041 30,391
Alluvial deposits alluvial 92 857 90 83 -3 -2 0.26 0.26 294 240 128 246
Nyurba Division 7,713 7,719 9,059 125,510
Nyurbinskaya pipe open-pit 4.80 4.49 4,774 4,057 3,784 2035 29,447
Botuobinskaya pipe open-pit 44 44 87 98 43 54 6.12 4.54 1,211 1,379 4,126 2035 76,254
Alluvial deposits alluvial 1.97 2.53 1,728 2,283 1,150 2035 19,809
Severalmaz 2,642 3,636 3,900 73,890
Arkhangelskaya pipe open-pit 0.70 1.04 1,283 1,530 1,745 2031 47,433
31 209 47 53 16 34
Karpinskogo-1,2 pipes open-pit 0.95 1.06 1,359 2,106 2,155 2028 26,458
Almazy Anabara alluvial 38 30 63 78 26 48 0.40 0.40 5,197 5,420 5,091 23,533
ALROSA 37 36 113 108 77 72 1.01 0.91 39,614 36,749 38,017 34,300 620,735
underground 37 39 134 111 97 72 4.11 2.83 10,566 8,437 9,315
open-pit 34 32 114 113 80 81 1.19 1.12 21,069 19,651 21,313
alluvials 43 41 83 91 40 50 0.42 0.43 7,979 8,661 7,389
1. Increase by 7% due to diamond production decrease by 11% driven by processing lower-grade ore (down 14%). 2. Decrease by 43% due to price factor and decrease of pipe share in Processing plant №8 costs. 3. Increase by 18% due to diamond production
decrease by 7% driven by processing lower-grade ore (down 10%). 4. Increase due to the closure of the Mir underground mine. In 2018 remaining ores inventory were processed. 5. Increase by 66% due to increase of general expenses, increase of ore processing
by 10% and diamond production decrease by 6% driven by processing lower-grade ore (down 14%). 6. Decrease due to a scheduled ramp-up to design capacity. 7. Decrease due to stronger USD, cash costs per carat in RUB not changed. 8. Increase by 60% due to
processing lower-grade ore (down 47%). 9. Decrease by 36% due to due to diamond production increase by 38% driven by processing higher-grade ore (up 30%).You can also read
