ALROSA Key highlights and ESG topics - 8 November 2018
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ALROSA
Key highlights and ESG topics
8 November 2018DISCLAIMER
For notes: The below applies to the presentation (the “Presentation”) following this important notice, and you are
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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
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the forward-looking statements contained herein to reflect actual results, changes in assumptions or
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2GLOBAL DIAMOND JEWELRY MARKET GROWS BY 4%
• World diamond jewelry sales increase by 4% annually since Diamond jewelry market
2010 $ bn
81 83
• In 2017, global diamond jewelry sales grew 5% across all the 76 78 79 79
regions 69
62
• North America and Asia-Pacific, which comprise ~70% of
diamond jewelry market, enjoyed even stronger demand for Diamond jewelry sales
diamond jewelry in H1’18 amid better consumer sentiment
and a favorable macro environment
2010 2011 2012 2013 2014 2015 2016 2017
• US, India and China key drivers for diamond jewelry demand
in the long-term are: Outlook for world diamond jewelry demand
o USA (50% total market): continued real disposable CAGR 2016-2030F
Base case scenario
income growth;
7% Optimistic scenario
o China: economic growth and expansion of the Chinese
middle class, early stage of adoption of bridal rings gifts
4% 4% 4% 4%
tradition; 3%
2%
o India: the ongoing expansion of bridal diamond jewelry 1% 1% 1%
and the middle class.
US India China Other Total
Source: Company’s estimates, AWDC Bain report “The Global Diamond Industry 2017” (December 2017) 3ROUGH DIAMOND: SALES AND PRICES
• Rough diamond sales follow trend of demand for diamond Rough diamond sales demonstrates moderate recovery
jewelry $ bn
ALROSA Others
• In 9M 2018, global diamond sales in value terms were up 4%
on demand recovery and stronger prices ~16
~15 ~15 ~15 ~15 ~15
~12 9.0 8.2 8.6
• ALROSA’s average realized prices of gem-quality rough
diamonds recovered from two major “one-off” factors –
namely monetization reform in India, and anti-bribery 28% 28% 29% 32% 28% 29%
31%
initiatives in India - and returned to its 5-year average levels
2011 2012 2013 2014 2015 2016 2017 9М'16 9М'17 9М'18
• In Q3 average realized price for gem-quality diamonds was
up to 199 $/ct driven by better diamond market demand ALROSA’s average realized price
$/ct
• $160 per carat – 5Y average realized price of gem-quality Gem-quality diamonds
rough diamonds
197 194 199
175 172 170 164
149 154
123 136
2010 2011 2012 2013 2014 2015 2016 2017 Q1'18 Q2'18 Q3'18
Source: Company’s estimates, AWDC Bain report “The Global Diamond Industry 2017” (December 2017) 4ROUGH DIAMOND: OUTPUT & MIDSTREAM SITUATION
• In 9M 2018, major diamond producers’ output decreased by Decrease in global diamond output, 6M 2018*
3% y-o-y, elsewhere output remained flat m ct
111 108
• Q3 2018 midstream inventories dropped to a multi-year lows ALROSA Others
mainly on destocking of small stones
81
• Indian imports of rough were seasonally down; no excessive 37 41 40 39
81
33 33 35
buying of rough in the midstream suggests now inventory
27 31 30 28
overhang in the system 24 26 26
30 27
9 10 10 10 7 9 11
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 9M'17 9M'18
Midstream rough and polished diamond inventories
$ bn
42.7 41.8
41.5 41.3 41.0
39.5 40.3 40.1
Q4'14 Q4'15 Q4'16 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
Note: * data based on results of ALROSA and other major diamond producers (De Beers, Catoca, Petra Diamonds, Mountain Province and Stornoway Diamond) 5ROUGH DIAMOND: SUPPLY TO REMAIN TIGHT
• Supply is well consolidated with BIG-3 controlling 2/3 of ~70% of global rough diamond output controlled by BIG-3
global supply
• Supply is quickly reacting to the demand deterioration ALROSA 26% 22% De Beers
• Lack of new “quick-to-develop” deposits and mines 151
depletion m cts 14% Rio Tinto
Other 23%
• Significant decrease in supply is expected by 2020,
7% DDC
Petra Diamonds 3% 5% Catoca
• … with limited impact on the market due to sub-par quality
of the products (brown diamonds with 80% price discount to
standard gem-quality)
World diamond production forecast
m ct
151 150
145 146
134 136 135 133
127 129 126
125
2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
Source: Company’s analysis, Kimberley Process statistics, diamond mining companies’ forecast 6ALROSA: ASSETS GEOGRAPHY
Republic of Sakha (Yakutia)
Arkhangelsk region 93% of 2017 diamond production
7% of 2017 diamond production 6 Open-pit mines
2 Open-pit mines 4 Underground mines
2017 production: 2.6 m ct 14 Alluvial deposits
2017 production: 37.0 m ct
Arkhangelsk
Yakutsk
Moscow
Mirny
Russian Federation
7HIGHEST QUALITY ASSETS & LARGEST RESERVES
• ALROSA develops world’s largest reserves Diamond reserves according to JORC
m ct
• Cost production at 44 $/ct while Company’s average realized
377
price of gem-quality rough diamond is 160 $/ct inferred
resources
• Cost of underground production per carat is close to open-
pit mining while grades at underground are higher by over 3x
653
• Output to stabilize at ~38 m ct, which is slightly above 2013- 434
2016 volumes 132 95 48
ALROSA Peer 1 Peer 2 Peer 3 Peer 4
ALROSA’s diamond production to stabilize at 37-38 m carats High profitability margin maintained even the bottom of the cycle
m ct $/ct
max
176 $/ct
$180 5Y av. realized price of gem-quality rough diamonds
160 $/ct
min
136 $/ct
39.6 $100 78
38.3 ~37.5-38.0
36.9 37.4 36.6
36.2 $60
Udachny UG mine
39 42 44
$30
28
Inter
Aikhal Open-pit mines Alluvials
UG mine
UG mine
2013 2014 2015 2016 2017 2018Е 2019F 2.5 21.1 3.7 8.0 1.6
Source: Source: JORC as of 01 July 2016 (Micon), Company’s estimates 8ALROSA: KEY HIGHLIGHTS
• Revenue is set to stabilize (ex FX effect) on stable sales Sales and revenue
volumes RUB bn
Revenue Diamond sales, m ct
• Company demonstrates stable – above 40% margins – well
supported by cost control / high utilization rates at the mines 317 303
275
225
• Capex to trend down as growth projects are up and running 207
• Targeted leverage at between 0.5x to 1.0x of Net 38.4 30.2 40.0 41.2 ~39
Debt/EBITDA
2014 2015 2016 2017 2018Е
ALROSA’ capex and free cash flow indicators ALROSA’ EBITDA and EBITDA margin
RUB bn RUB bn
EBITDA EBITDA margin
CAPEX FCF 111 112
176
160
71 118 127
93 45% 53% 56% 46% 53%
36 42 34 41
32 30 30
2014 2015 2016 2017 2018Е 2014 2015 2016 2017 2018E
Source: Company’s estimates 9ALROSA: DEBT POSITION
• Total debt amounted to USD 1.3 bn, down USD 310 m year- Debt profile changes
to-date $ bn
Total debt Net debt ND/EBITDA (RUB)
• Liquidity decreased by 18% q-o-q to USD 753 m mainly due 1.9x 1.9x 1.7x
to 2017 dividends of RUB 38.6 bn payment
0.5x 0.7x
• Net debt / EBITDA reduced to 0.2x vs 0.7x earlier this year on 0.2x
the back of robust free cash flow 4.2 3.9 3.5 3.1 3.1 2.8 2.3 0.6
1.4 1.6 1.5 1.3
• Active debt management drove interest payment 50% down
(year-on-year) 2013 2014 2015 2016 2017 30.09.2018
• S&P upgraded ALROSA credit rating to investment grade in
Liquidity position Debt repayment schedule
July 2018 $m $m
3,874
Eurobonds
3, Bank loans
Credit lines 12 954
1
343
Cash & 75
equivalents
0 6 6 2
3
30.09.2018 2018 2019 2020 2021 2022 2023
Source: Company’s estimates 10CASH RETURN POLICY
• In August 2018, ALROSA’s Board of Directors approved an Dividend payout ratios
updated dividend policy: 70%
59% 52% 75%
o free cash flow as the basis 50% 70%
o payments twice a year 50%
50% 50%
o minimum payout at 50% of IFRS net income 35% 37%
26%
• Dividend pay-out estimate under the new policy: 2013 2014 2015 2016 2017 H1'18
❶ Net debt / EBITDA < 0.0 – over 100% FCF Payout ratio as % of FCF based New dividend policy
❷ Net debt / EBITDA: 0.0–1.0 – 70–100% FCF Payout based on Net Income (“Old” Dividend policy)
❸ Net debt / EBITDA: 1.0–1.5 – 50–70% FCF
Dividend payment
• Based on the Company’s performance in 6M 2018, the $m
0.16
General Meeting of Shareholders approve dividends of
RUB 5.93 per share (70% of free cash flow) USD per share
0.09*
• Targeted leverage at between 0.5x to 1.0x of Net
1,145
Debt/EBITDA 0.04 0.04 0.04
0.03 666*
277 317 275
204
2013 2014 2015 2016 2017 6М'18
Note: * based on FX rate as of 30.09.2018 11ENVIRONMENT
• 2017 capex related to environmental activities stood at the Financing of environmental activities
level of RUB 4.4 bn RUB bn
• Efficient disclosure are acknowledged by ESG ratings: 6.6
5.9 6.0
5.5
o 3rd place (out of 33) in the “First rating of 4.4
environmental performance of mining companies in
Russia”
o Rated among top-10 Russian companies with
transparent corporate reporting according to
Transparency International-Russia research 2013 2014 2015 2016 2017
Area of disturbed land continue to decrease ALROSA plans to reduce CO2 emissions mostly arising from the trucks use
ha 000’ t
1,414
1,080 530
460 465
571
2015 2016 2017 2015 2016 2017
Note: 2017 numbers does not include the Heat and power supply company, which was removed from PJSC “ALROSA” structure starting from 01.01.2017 and became its subsidiary PTWS LLC 12ENERGY RESOURCES
• ALROSA aims to increase share of renewable energy Share of renewable energy consumption
consumption to 95%
• 2017 unit energy consumption decreased by 7% y-o-y to Now Target level
0.327 GJ/carat meanwhile diamond production increased by
6% y-o-y
87% 95%
• 2017 water intake for production purposes decreased by 2.3x
mainly due to excluding of the Heat and power supply
company, which was removed from PJSC “ALROSA” structure
starting from 01.01.2017 to subsidiary PTWS LLC
Water intake (production) Per unit energy consumption
m m3 GJ/carat
12.5
11.3
0.351 0.327
0.323
4.9
2015 2016 2017 2015 2016 2017
13ENVIRONMENT: CASE STUDIES
In order to improve energy efficiency ALROSA implements Effect from measures for energy conservation
technical measures, such as: 000’ DJ
200
❶ Fuel saving
Measure 1
Diversification of fuel types, replacement of worn-out isolation
in heat supply network, replacement of heating radiators, using 102
Measure 2
75
heat-reflecting screens and others 56
30 Measure 3
❷ Thermal energy conversation
Installation of a domestic heating plant, plate and frame heat 2013 2014 2015 2016 2017
exchanger and others
Effect from measure for water saving
❸ Electric energy conservation 000’ m3 982
Installation of line-conditioning filters, optimization of power
equipment operations, regulation of lighting systems, thermal Measure 3
screens and others
239
❹ Water saving 15 8 79
Introducing the in-house water circulation scheme in the tailings
facilities of Udachny Division and others 2013 2014 2015 2016 2017
14OUR PEOPLE
• In 2017 the headcount declined by -2% to 36.4 thousand Total headcount as of the end of the year
employees 000’ people
40.3 40.7 40.2
• Woman account for 37% of total staff members and 32% of 37.2 36.4
executive staff – according to PWC, ALROSA is a leader in this 38%
38% 38% 37%
indicator among industry’s companies 37%
Women
• The majority of staff are employees of 30-50 years – 57%
62% 62% 62% 63% 63% Men
• The average age of workers – 41.4 years
2013 2014 2015 2016 2017
• Most of employees (86.7%) work in the territory of Western
Yakutia where the main production facilities are located
Age groups as of 2017 Territorial distribution of staff
% of the total headcount % of the total headcount
5%
4%
19% 4%
Yakutia
24% 57% 30-50 years Moscow
87%
>50 years ArkhangelskRESPONSIBLE ENTERPRISE
2017 Company’s key corporate social programs results: 2017 funding of corporate social programs
RUB m
❶ Wellness and recreation of employees and their family members
o 14.0K persons used corporate voucher for wellness and recreation
o 5.2K people visited ALROSA’s health centers at the Black Sea Program 1 1,017
❷ Health
o The diagnostic and treatment services were provided to 2.2K people
o 5.0K employees were screened under the programs aimed at prompt Program 2 399
exposure and reduction of illnesses
❸ Culture and sports
o ALROSA’s sport clubs held 550 athletic, wellness and healthcare
Program 3 226
events, culture clubs held more then 4K events
❹ Housing
o Constructed 130-apartment house in Udachny
Program 4 536
❺ Private pension plans
o Company transferred RUB 2 bn to the JSC Almaznaya Osen Non-State
Pension Fund
o 19.3K persons receive non-state pensions under the pension Program 5 2,001
contracts
16SUPPORT TO LOCAL COMMUNITIES
• As one of the largest industrial companies ALROSA Social expenditures
responsible to the society and operation regions RUB m
• In 2017, social expenditures amounted to c. RUB 6 bn 6,485
5,973
5,707
• ALROSA makes social investments in several areas: 5,410
4,609
o Regional development programs, including charity
projects in education, healthcare, culture and sports,
and urban development
2013 2014 2015 2016 2017
o Sponsorship and charity projects of the federal level –
ALROSA supports federal initiatives in education,
2017 social expenditures breakdown
culture and sports % of total expenses
• ALROSA’s charity efforts are based on:
o High social value of sponsored projects 55% Charity expenses
33% 33% Local infrastructure maintenance
o Targeted financial and sponsorship aid
5% Medicine
o Transparency, accountability and intended use of funds 2% Education
55%
o Joint decisions on the allocation of aid 5% Other expenses
17HEALTH AND SAFETY
• Expenses on labor protection and industrial safety per 1 Health and safety costs
employee are stable at level RUB 39,000 since 2015 and 000’ RUB per 1 person
totals RUB 1.1-1.4 bn per year 0.48 0.45
0.94
0.21 0.38 LTIFR1
• LTIFR1 in 2017 was increased up to 0.94 due to Mir mine
39.3 38.9 39.1
accident in August which injured 13 miners 33.3
29.9
• In 2017, ALROSA began building an independent H&S investments
management vertical structure in H&S functions – the safety
services were withdrawn from the supervision of divisions’
chief engineers and organized to report to Managing 2013 2014 2015 2016 2017
Director.
Independent management structure to ensure industrial safety
• Established permanent industrial safety committees:
CEO Central Committee
o Central Industrial Committee under the supervision of
Managing Director
CEO (quarterly meetings to define the strategy) Managing Director’s
Deputy CEO for H&S Committee
o Committee under the supervision of Managing Director
(quarterly meetings to strategy implementation) H&S Department Division Committee
o Committee under the supervision of the division head Divisions’ directors
(weekly meetings to review any violations and develop
remedial measures) H&S Services
Note: (1) number of lost time injuries per 1 m hours worked 18GOVERNANCE
• The Corporate Governance Code was approved by Supervisory Board composition
Supervisory board in 2013 Number of members
15 15 15 15 15
• Board has three active committees with independent
directors:
Other
11 9 9 10
o The Strategic Planning Committee 12
Executive directors
o The Auditing Committee
5 Independent directors
o The HR and Remunerations Committee 2 3 4 4
2014 2015 2016 2017 2018
• Continuous progress in corporate governance reflected in
positive rating dynamics
Corporate governance rating
• Regular and transparent disclosure
• New initiatives are under way:
o Corporate Strategy till 2024
o HR Strategy with the overhaul of the organization
7++ 7++ 8
structure and motivation schemes (stock option 7+ 7+
program is one of the initiatives)
2015 2016 2017 2018 Oct-2018
Source: Russian Institute of Directors 19Thank you!
Head of Corporate Finance M: +7 985 760 55 74
Sergey Takhiev E: st@alrosa.ru
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