29 November 2019
ALROSA Investor Presentation 29 November 2019 Disclaimer For - - PowerPoint PPT Presentation
ALROSA Investor Presentation 29 November 2019 Disclaimer For - - PowerPoint PPT Presentation
ALROSA Investor Presentation 29 November 2019 Disclaimer For notes es: The below applies to the presentation (the Presentation) following this important notice, and you are therefore advised to read this important notice carefully before
Disclaimer
For notes es:
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
- ther 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
- therwise) 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
- ffer 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
- 02. Market fundamentals
- 03. Executing to strengthen our business
- 04. Q3 2019 results
- 05. Corporate governance
- 06. Appendix
p.4 p.11 p.28 p.44 p.52
ABOUT ALROSA – STRATEGIC PRIORITIES
01
5
Sources: Source: Companies data, AWDC Bain report “The Global Diamond Industry 2018”.
ALROSA’s assets geography
High Quality Assets
1,064 m ct Total
l resource urces, including reserves
628 m ct Total
l reserve rves
Angola
ALROS OSA A owns 41% % of Catoc
- ca Ltd
d (Angol gola) a) Open en-pi pit mining from
- m 8 mines
es in 2018 Under ergrou
- und
nd mining ng from
- m 3 mines
es in 2018 Alluvial al mining ng from
- m
alluvial deposi posits in 2018
53% 23% 24% Republi lic of Sakha (Yakutia ia) Arkhangelsk elsk Regio ion
Russia ian Federa erati tion
90% 90% 10% 10%
53% 21% 42% 39% AL ALROSA Peer r 1 Peer r 2 Peer r 3
2014 2015 2016 2017 2018
- 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
level
ALROSA sustain inab ably ly tops the ranks s as one of the most profit itab able le miners
EBITDA margin, %
1- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
54% 30% 4% 1% 11%
Focus on Responsible Mining
6
- Improving industrial safety with focus on prevent
ventio ion
- Structural reform promot
- motin
ing a cultu lture e of safety ety
- Diagnostic and treatment services aimed to promo
mote te disclo losure e and reduce ce illnes esses es
RUB 6 bn1:
Support to Local Communities
- Corporate pension fund
- Indigenous people traditions
- Culture & sports
RUB 5.2 bn1:
Capex on Environmental Activities
- Reduce
ce CO2 2 emissions
- Maintain high share – at least 86% - of clean
an (incl. renewables) electricity and heat consumption
Charity expenses Local infrastructure Healthcare Education Other expenses
Health & Safety Social Environment People of ALROSA
Source: Company data and analysis.
- 1. Based on 2018 figures, excl. sponsorship and social infrastructure maintenance.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
86% 14%
Creating a Clearer and Sustainable Environment
7
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.
CO2 emissions down by c.20% from 2016 Already impressive share of clean electricity and heat
consumption of 86%
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) ALROSA is a constituent of the FTSE4Good Index Series created
by the global index and data provider FTSE Russell
ALROSA is a certified member of the Responsible Jewellery
Council (RJC) by achieving certification against its Code of Practices.
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
“ Advanced Corporate Governance Practices”
Share of clean electricity and heat consumption Other
1,067 67 1,064 64 858 858
2016 2017 2018
2018
Latest st devel elopm
- pment
ents Reducti ction
- n of C
CO2 emiss ssions ions1
ths tonnes
Share e of c clean ean (incl.
- l. renewable)
able) elect ctric icit ity and heat consu sumption mption
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
0.22 0.5 1.6 1.9 6.3 8.7
DPA Power Metals & Mining Transportation Utilities / Construction
Employee Safety is Our Top Priority
Strong Commitment to Promote a Culture of Safety and Reduce the Number of Accidents
8
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.
HSE committees at all management levels Tailored reporting system to ensure prompt detection and response to incidents HSE supervision at each stage of production chain Revised HSE Policy New approach to control the flow of production Regular HSE education and training sessions
Lost Time Injury Frequency Rate per 200,000 hours
One of t the lowest st LTIFR compar pared ed to the diamo mond nd industr stry y and other er sector
- rs1
Structural ural changes s Procedures
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Superior TSR Compared to Global Peers
9
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.
0% 0% 50% 100% 150% 200% Oct- Oct-13 Ap Apr-14 Nov Nov-14 May-15 De Dec- c-15 Jun- Jun-16 Jan Jan-17 Aug Aug-17 Feb Feb-18 Sep Sep-18 Mar-19 Oct- Oct-19
Diversified miners, incl.
- ther diamond producers
+57.1%
- 7.0%
Luxury goods producers ALROSA +41.9%
Cumulat lative ive total al USD TSR since e ALROSA IPO in October ber 2013, 3, %
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Developing Efficient Organisation...
Journey Ahead
10 …to Maximise Free Cash Flow and Shareholder Returns
…and Taking Advantage of Strong Market Fundamentals…
Focus on Core Business and Efficiency Prudent Capital Allocation Conservative Financial Policy Unique Product Growing Demand Declining Supply
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
MARKET FUNDAMENTALS
02
- Exploration of diamond
resources
- Rough diamond
production and sorting
- Sale of rough diamonds
from producers
- Rough diamond trading
- Cutting and polishing
rough diamonds to produce polished diamonds
- Polished diamond
wholesale
- Polished diamond
trading
- Jewelry design and
manufacturing
- Jewelry
Numbe mber of players
Top-5 = 70% of market ~100 ~10,000 (90% are in India) >10,000 Large retailers control ~35% of the market
Entry barri riers
High Low Medium
Profitabi bility (average ge)
22-24% 1-3% 2-4% 3-5% small retailers 9-11% large retailers
Value chain size in 2018
Diamond Value Chain
12
Source: AWDC Bain report “The Global Diamond Industry 2018” (December 2018).
Rough diamon
- nds
Polish shed ed diamon
- nds
Diam amon
- nd jewelry
Rough
- ugh diamonds
- nds
Polish
- lished
d di diamon
- nds
ds Diamond
- nd jewelry
ry
$15bn $26bn ~$80bn
Cash payment Sell on credit
Ban anks ks provide funding to polishers
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Sales Jewelry manufacturing Sales Cutting & polishing Sales Production
13
Rough diamon
- nd output
Rough diamon
- nd sale
les Diam amon
- nd jewelle
lery y sales es
m ct $ bn $ bn (5%) (3%) (26%) 7% (4%) 4% 1% (4%) 2% (1%) 19% (2%) (5%)
176 120 126 151 141
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E
(0%) (2%) (36%) 52% 25% (5%) 3% 9% (28%) 20% 1% 5% (25%)
13 13 8 12 15 17 12 14 15 11-12
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E
5% (7%) (5%) 11% 13%7% 3% 4% (3%) 0% 5% 4% (3%)
61 57 81 ~80
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E
Source: Company data and analysis.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
“Whip Effect” on Demand Suppliers Illustrated
Historical Statistics
“Perfect Storm” Ingredients in 2019
14
Source: Bloomberg, IDEX, Edahn Golan Diamond Research & Data, Company’s estimates.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Retail ilers: s: over-op
- ptim
imism ism in 2018
- Str
Strong 2017 2017/201 018 Ch Chris istm tmas as and growt wth rat ates 2x higher er than an histo torica ical
- Led
ed to to exce excessive ve in invent ventory build ildup when market turned down from Dec’18
5.3% 10.2% 5.9%
2014 2015 2016 2017 2018 Q1 Q1-Q3’19
- Indian
an banks ks beef eefed ed-up up lend lending, scarif ifyin ying borrowers’ “quality”
5 10.5 13 16.5 13.5 11 9.7
1999 2005 2010 2014 2015-17 2018 2019E
Financial cial bubble burst hitting mid-stream eam
$ bn
- Financial scandals in 2018, interest rates
аfluctuations, weaker currency lead financial tightening in 2018/19
Retail il: Rise of online
- Sho
Shopping around onlin line to to buy buy jewe jewelr lry become ecomes a new ew normal mal with with 25 25% share by by 2025 2025
~10% ~25%
2013-2016 2018-19 2025
- This
trend, along with market market co consolid lidat ation, is leading to lo lower wer wor workin king cap capita tal requirements, impr improved ved pla lanning, and new ew ap approach aches es to to market ketin ing
YoY change
Key factors impacting diamond markets
- 28%
10.5 12.3 14.1 10.6 4.4 13.1 6.4 16.9 5.1 13.0 9.5 9.4 12.8 7.7 2.3 2.7 2.6 1.9 2.4 1.6 2.6 1.9 1.7 2.3
J- J-18 A- A-18 J- J-18 O- O-18 J- J-19 A- A-19 J- J-19 O- O-19
Net imports (LHS) Net exports (RHS)
Indian Trade Statistics
Lower demand from m retaile lers s (demand + on-line factors) Level of stocks s is approa
- ach
chin ing low levels s (uptick in purchasing
- f rough registered `prompting a sequential sales growth)
Gross s margin in (net exports s minus net imports) s) increas eased ed by $0.2 bn bn, partially compensating for lower credit availability
Source: GJEPC, Company’s analysis.
Indian midstream am destockin ing in 2019 Drive ivers s of destockin ing
15
$ bn
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
13.1 .1 20.2 .2 7.1 9.8 17.1 .1 7.3
Ne Net im imports (r (roug ugh h dia iamond nds) Ne Net e export xports (p (poli lishe hed d dia iamonds nds) Gross ma margin in
10M'18 10M'19
- 25% YoY
- $3.3bn
- 15% YoY
- $3.1 bn
+3% YoY +$0.2 bn
127 126 102 177 89 68 147 93 87 106 87 91 849856 780 819 883 912 746 878 845 949 818 737 769
J- J-18 A- A-18 J- J-18 O- O-18 J- J-19 A- A-19 J- J-19 O- O-19
Rough imported (LHS) Polished exported (RHS)
Monthly y prices s of imported and exported ed diamon
- nds
$/ct
Monthly y volume mes s of imported ed and exported diamon
- nds
m ct
Financial Crisis in India
Source: GJEPC, Edahn Golan Diamond Research & Data, CEIC Data * NBFC – non-bank financial corporation.
16
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
% of non-performing assets 2% 2% 2% 3% 3% 4% 4% 7% 9% 11%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Financial cial bubble burst hitting mid-stream eam Bad loans s problem m in banking sector
- r
6,5 10,5 16.5 13.5 9.7
2000 2005 2014 2015-17 2019E
$ bn
- Indian banks and NBFCs* beefed-up
lending, scarifying borrowers’ “quality”
- Financial scandals in 2018, interest rates
аfluctuations, weaker currency lead financial tightening in 2018/19
- Share of non-performing assets at Indian
commercial banks increased to the highest levels for the last 10 years
- $4 bn
75% 75% 61% 61% 53% 53%
2002 2008 2013 2017 2019Е
% of revenue
Midstream am leverag age
- Financing conditions remain tight for
Indian polishers (90% of global polishing) after fraud in 2018 and stricter financing from banks (as Indian baking sector is preparing for Basel III regulations)
(14%) 23% 23% 9% 9% (15%) (17%) (16%) (23%) 7% 7% 42% 42% 2% 2%
282 346 377 319 266 222 171 182 259 264
Jan Jan Feb Feb Mar Ap Apr May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct
MoM change
Diamond Miners Decreased Supply by ~25%
Source: Company data and analysis.
- 1. Data based on results of ALROSA and De Beers. Industry experts, investment banks.
Rough diamon
- nds
s sale les s – 2019 factor
- rs
s analy lysis sis
$ bn
ALROSA 2019 total l sales
$ m
7.4 5.6
Av
- Av. 9
9M 2 2017/18 9M 2 2019
17
2019 ALROSA and De Beers supply – decreas ased by 1/4
$ bn 16 16 12 12 15 15 15 15 15 15 11 11-12 12
2014 2015 2016 2017 2018 2019E
Volume Price/mix
- 25%
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
- 25%
+9% YoY
- 24%
(2%) (1%) (12%) (9%) 21% (22%) 175 175 172 172 170 170 149 149 136 136 164 164 128 128
2013 2014 2015 2016 2017 2018 9M'19
Price change 6% 22% (23%) (19%) 5% 5% 154 164 199 153 123 130 135
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Price Dynamics for Gem-quality Diamonds
Q3’19 like-for for-like like price ice index ex (LFL PI) was -3.1% 1% QoQ 9M LFL PI was down wn ~7.5% % due to lower demand from mid-stream and limited access to affordable financing for mid-stream in India Q3’19 ARP for gem-quality lity diamo amonds rose 5% QoQ to $135/ $135/ct ct due to a lower share of small-size diamonds Q3’19 ARP for GEMs Ms was 32% YoY down due to:
- LFL PI decrease of 9.2% YoY (9M’19: -7.5%)
- Mix effect as in Q3’19 share of small-size stones in
sales dropped from 83% to 76%
Highlights
ALRO ROSA SA price ice index ex for like-for for-like like gem-quality lity diamo amonds mix
$/ct
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)
ALRO ROSA SA ARP RP1 for gem-quali ality ty diamo amonds
3% (5%) (8%) 3% 3% (7.5%) 1.00 1.03 0.97 0.90 0.93 0.95 0.88
2013 2014 2015 2016 2017 2018 9M'19
Average index change 2 2% 2% 2% 2% (2%) (3%) (2%) (3%) 1.00 1.02 1.04 1.02 0.99 0.98 0.94
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Average price index
18
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Canad nada
Arkhangelsk RegionRepublic of Sakha (Yakutia)
Namibia ia South th Afric icaRussi sian an Federa rati tion n
19
Consolidated Diamond Supply
The global diamond reserves base is highly concentrated with the top 10 countries by reserves volume accounting for over 95% of total reserves.
Core e diamo amond mines of the e BIG-3 market ket lead ader ers Countrie ies with th the e lar arges est t diam amond reserves ves
41% 41% 43% 43% 14% 14% 2%
Russia Africa Canada Other
About 60% of global l rough diamo amond output tput is att ttribut ributable le to BIG-3
25% ALROSA OSA 24% De Beers 12% Rio Tinto 6% Catoca1 3% Petra Diamonds 30% Other
148 m ct
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.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Supply Continues to Tighten
Due to depletion of deposits and lack of exploration capex over the last 10-15Y
2018 to 2023 supply forecas cast – 9 m ct ct down
20
2019 to 2023 major
- r project capac
acit ity changes2
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.
1.1 1.2 1.8 1.8 2.3 4.6 (0.9) 9) (2.9) 9) (3.5) 5) (14.0) .0) Ekat ati (Dominio minion Diamo amond) Luaxe axe (Cat atoca ca) Chid idlia liak (De Beers) Star ar Orio ion South th (Sta tar Diamo amond) Debswa wana (De Beers) Argyle yle (Rio
- Tint
nto)
- )
Diavik avik (Rio io Tin into to) Gahch cho Kue Kue (De Beers) DBCM CM3
3 (De Beers)
Depletio letion n Expansio ion Victo ctor (De Beers) 151 151 148 148 141 141 144 144 136 136 140 140 139 139 20 2017 20 2018 20 2019E 9E 20 2020E 0E 20 2021E 1E 20 2022E 2E 20 2023E 3E Russia ia Botsw tswan ana South th Africa frica Canada Oth ther er1 Congo Austr tralia lia Angola la
m ct m ct
12.8 (21.3)
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
156 156 139 139 120 120 130 130 140 140 150 150 160 160 170 170 180 180 2018 2019E 2020E 2021E 2022E 2023E
Favorable Supply/Demand Fundamentals
… will drive the market into a deficit and support positive diamond price pressure
21
Global al Supply / Deman and balance ce outlook
- k
m ct
~30 ~100 Ba Base c e cas ase sce e scena nario io Op Optimis timistic s tic scen cenar ario io
Accumulat lated ed diamon
- nd deficit
it in 2019-2023 2023
20% % of annual l production’18 70%
m ct
Source: Company data and analysis, AWDC Bain report “The Global Diamond Industry 2018” (December 2018).
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
31% 31% 29% 29% 15% 15% 11% 11% 9% 9% 5% 5% 281 281 1,268 68 550 206 76 53 42 34 26
Person rsonal luxu xury ry Lu Lux cars rs Hospi
- spitality
Fine wines Fine foo
- od
Desi sign gner furn rniture re Fine art rt Jets & s & ya yachts Tota Total 2018E
Demand Drivers
22
2019E luxury market valued at c. €1.3 trillion (+8% YoY) is steadily growing Most dynamic growth is concentrated in Asia incl. Japan and China Diamond jewelry consumption is correlated with USA GDP and disposable income
Highlights
2% 5% 9% 30% 11% 0%
Europe America mericas Res Rest o t of A Asia ia China China Japan Japan Ro RoW
Global al luxury y mark rket breakd kdow
- wn in 2019E
€ bn
Source: Bain-Altagamma 2019 Worldwide Luxury Market Monitor.
- 1. Trends at current exchange rates.
Person
- nal
al luxury marke ket growth1 by region 2019E
- Incl. ~1/3
- f diamond jewelry
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Market ket size
Person
- nal
al luxury marke ket forecas ecast
€ bn 262 281 335-375
20 2018 20 2019E 9E 20 2025F 5F +3-5% CAGR +7%
Strong Long Term Demand Outlook
...driven by disposable income growth and middle class expansion
23
CAGR 2016-2030F m people over 2016-2030F By region, CAGR range 2016-2030F
Source: Company data and analysis, Euromonitor, AWDC Bain report “The Global Diamond Industry 2018” (December 2018).
7% 7% 6% 6% 2% 2% 1% 1% 3% 3% Indi Chin Chin US US Eur ur Ro RoW 3-7% 7% 2-4% 4% 1-4% 4% 1-4% 4% 1-4% 4% 52.1 3.5 2.4 24.6 13.7 Lower point refers to base case scenario; upper point to optimistic scenario
Middle class ss growth Diamond jewellery demand growth forecast Real l disposa sable le income e growth
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
~320 ~80
Al All jewe wellery ry Diamond
- nd jewellery
ry
… As Jewelry Demand “Quality” Improves in EMs
24
Source: Euromonitor.
106 64 56 8.2 6.2
Ch China ina Ind India ia USA SA Jap Japan HK HK
T
- tal jewelry market (from cheaper items – e.g.
Pandora, Swarowski to luxury e.g. Tiffany) has over $320 bn capacity China and India are 2 largest jewelry markets, though dominated by cheaper goods sales … Diamond jewelry comprises ¼ of it, As middle class is expanding in EM – there is a qualitative change in jewelry spending … as globally unit price per luxury jewelry item increased from $2,402 in 2007 to $2,636 in 2012 … but regional breakdown of unit price inflation indicates to the structural change in Emerging Markets
Highlights Total l jewelle lery marke ket vs diamon
- nd jewelle
lery
$ bn
Averag age e unit price growth 2007 vs. 2012
90% 58% 45% 37% 25% 24%
- 5%
As Asia ia Pa Paci cific ic E. E.Eur Europe M.Ea East & & Af Africa ca La LatAm Aus Australi lia N. N.Am Americ ica W.Eur urope
TOP-5 all jewelry consumers
$ bn
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Diamonds are Different from Commodities
Mature demand and supply discipline result in low price volatility
25
Mature and stable consumer-driven demand concentrated in developed markets Consolida
- lidated
ed production ion, supportin ing supply disciplin ipline
63% 63% 40% 40% 31% 31% 27% 27% 22% 22% 20% 20% 15% 15% 11% 11% Diamonds Iron Ore Aluminium Coking coal Nickel Copper Silver Gold
Low price e volat atil ilit ity compar ared to commod
- dit
ities es
11% 11% 33% 33% 14% 14% 36% 36% 22% 22% 18% 18% 34% 34% 16% 16% Low Price ice volat latilit ility 1 High Develop loped ed mar arkets kets 67% 67%
T
- p-3 producers market share, 2018
Diamond jewellery retail sales, $, 2017
USA 53% 53% EU EU 9% 9% Jap apan 5% 5% Chin ina 20% 20% India ia 6% 6% RoW 7% 7%
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.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Demystifying LGDs
26
Source: Company data and analysis, DPA, Trucost (S&P Global) report “The Socioeconomic and Environmental Impact of Large-Sacle Diamond Mining” (May 2019)
Case study: LGD position ionin ing by a major
- r player
Fixed ed pric ice e At ~20% of diamond price for 1 ct stone Linea ear pricin icing ¼ ct stone price is ¼ of 1 ct stone price Stan andard, , commod mmodity ity-li like colour, size and quality No specif ificat ication ions other than size and colour No grading ading reports ts or certification
Myth: Launch of LGD brand by a major natural diamond producer endorses LGD as a valid substitute to natural diamonds Truth: th: Differentiated market positioning clearly illustrates the diffe ference nces s betwe ween n diamonds and LGD and will serve as a baseline for LGD percept ceptio ion n by custome tomers and industry players Myth: LGD and diamonds are identical Truth: th: LGD has the same physical and chemical characteristics as diamonds, but they are not identical, and they are easily ily detecte cted using widely available identification equipment Myth: FTC ruling stated that LGDs and diamonds are the same Truth: th: For LGDs, FTC guides require businesses to “disclos close clearly ly and consp spicuo icuously usly that the product is not a mined diamond”. In fact, in all key markets LGDs have to be identified as manmade Myth: LGDs is an eco-friendly and ethical alternative to diamonds Truth: th: Most LGDs are produced in China and India with fossil-fueled energy, estimated CO2 emissions associated with production of 1 ct of LGD are 3.0x greate ter vs natur ural l diamo
- mond. In 2019 U.S. FTC warned LGD companies about
deceptive tive marke keting
- ting. Over 99% of supplied natural
diamonds are conflict free; proceeds from sales support local communities and employment.
LGD myth #1: LGD myth #2: LGD myth #4: LGD myth #3:
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
(16)% )% (18)% )% (42)% )% ~(60)% )% (81)% )% LGD price discount to natural Lightbox discount to natural 2016 2016 2017 2017 Now 2018 2018
Expanding LGD Discount Illustrates Different Market Perception of LGD vs. Diamonds
27
LGD discou
- unt to natura
ral l diamon
- nds
Price of 1 carat polished diamond: Round, VS clarity, F-H color 5x
Source: Company data and analysis, Paul Zimnisky report “2018: The Year of the Lab-created Diamond”.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
EXECUTING TO STRENGTHEN OUR BUSINESS
03
52% 20% 32% 37% 43%
ALROSA: the Story of the Industry Leader in 4 Charts
The largest and most profitable player in the industry
29 Reserves ves1 Production ‘18 EBITDA ‘18 EBITDA margin ‘18
% m ct m ct $ bn
37 37 35 35 8 4 18 18 2.4 2.4 1.2 1.2 0.2 0.2 0.2 0.2 0.3 0.3
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.
628 212 105 43 40 AL ALRO ROSA SA Peer 1 eer 1 Peer 2 eer 2 Peer 3 eer 3 Peer 4 eer 4 436 436
Inferred resources
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Key Challenges for the Industry
… and how we address them from a value creation perspective 30
- Increas
asin ing our marketin eting effor
- rts
s to promote the unique appeal of our product
- Operational
ional effi fici ciency cy program ram and culture
- Focus on core business
- Prudent investment program
ram
- Focus on sharehold
- lder
er returns ns
- Investme
ment in explora ration ion and production development to maintain reserves base and production
Lack ck of new deposit its, s, limited ed explorat ation
- n succe
cess ss
1
Grade de deter eriorat
- ration
ion, , cost inflati ation
- n
2
Ever increasing easing compet etit ition ion from
- ther
er luxury y goods
3
Rising ng scruti utiny ny over capit ital al allocat
- catio
ion n disci cipli pline ne
4
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
500 750 1 000 1 250 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Superior Exploration Capabilities
Unique ue full-cycle exploration operations… 31
Field geologi gical explor
- ration
- n
T echnolo
- logi
gical center (incl. . drilling) g) Scientific research and d analytics
… Backed up by advanced technologies
Complex x Aeroge geoph physi ysical Footage ge-5 Georada dar footage ge Radi dio
- Wave
Geointrosc
- scop
- py
High gh resolution
- n
seismi smic survey in 3D / 2D
Track ck recor
- rd of r
resour urce ce replace acement ment2
Source: Company data and analysis.
- 1. For the period from 2009 to 2018.
- 2. Based on resources in accordance with the Russian classification.
- Disco
scover ered ed resou sources: es: 395 m ct
- Aver
erage e findin ding cost sts s of $3.1 per ct1
+395 m ct
With ith explo lorat atio ion works ks
m ct
… result in solid track record of resource replenishment at low finding costs
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
2.5 3.7 4.9 5.6 5.5 5.5 3.4 2.9 1.9 2.8 2.6 3.3 9.0 6.5 7.2 5.2 4.8 4.5 6.2 4.9 6.0 3.7 3.8 3.6 1.5 4.1 1.7 4.1 3.8 4.1 3,6 3.9 4.2 4.8 5.1 5.0 0.2 1.8 1.9 1.9 1.8 1.8 5.4 5.1 3.3 5.0 5.0 5.0 4.8 5.1 3.1 4.7 5.0 4.8
2018 2019E 2020E 2021E 2022E 2023E 2024-3
- 30E
Production Outlook Supported by New Projects
32 Product duction ion outlook
- ok
m ct
Source: Company data and analysis.
- Develo
lopment ment of new project cts/de /debottlen tleneckin ecking:
- V
. Munsko koye ye deposit it: +c.2.0 m ct – full ramp-up by ‘20
- Udach
achny y under erground mine: +c.3.0 m ct – full ramp- up by ‘21
- Severalma
lmaz: z: +c.1.4 m ct (debottlenecking) from ‘21-22
- Nyurba divis
visio ion: +c.2 m ct (debottlenecking) in ‘19-20
- Declin
ine in diam amond outp tput: t:
- Jubilee:
ilee: -1.5 m ct from ’19 (due to production at kimberlites with a lower grade)
- Inter
ternatio tional l under erground mine: decrease in ’18-’22 due to mining and geological conditions
Key driver vers
2020 output revised downward in response to the current market situation
36.7 38.0 34.3 37.7 37.4 37.6 37 37-38 38
Average Grade, carats per tonne Almazy azy Anabara Verkhne hne-Muns unskoye Severalm almaz az Nyurbins inskay aya Jubil ilee Inter ernat national ional Udachny hny Other
0.9 0.9 1.1 0.9 0.9 0.9 0.9
Botuob
- bins
inskay aya
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
33
Focus on Value Accretive Capex
Capital-intensive phase is over
Source: Company data and analysis.
- 1. For investments in new mining capacity and operational efficiency projects.
Capex dynam amic ics Key projec ects ts
Infrastr frastruct cture: e: tota tal l 2019-24 4 capex x – RUB 35 bn bn
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 Sales Division Facilities: total Capex for 2019-’21 – RUB 5.3 bn Gas processing facility by ALROSA-Gaz: total Capex for 2019-’21 – RUB 2.7 bn
Minin ing capacit city: : tota tal l 2019 2019-24 4 capex x – RUB 38 38 bn bn
Completion of Udachny underground mine construction Completion of Verkhne-Munskoye diamond deposit development Construction of Maiskaya pipe Construction of Zaria pipe
Equip ipment ment main intena enance ce: : tota tal 2019 2019-24 4 capex x – RUB 55 55 bn bn
Investment program with targeted IRR1 of 20%+
RUB bn
9 8 8 8 8 10 10 9 10 17 14 17 10 11 6 5 2 5 6 5 2 5 8 11 8 5 3
32 32 27 27
28 28
23 23 26 26 28 28 22 22 16 16 18 18 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E
Infrastructure Mining capacity Equipment maintenance
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
2020 capex ex expected to be revised down
Focus on Efficiency
Dedicated operating efficiency program launched in 2017
34
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.
1.16 1.16 1.12 1.12 1.15 1.15 1.10 1.10 2016 2017 2018 9M '1 '19 143 143 187 187 105 105 53 53 42 42 8 2017 2018 2019E
Scali ling ng up i initiat iative ives
Number of Initiatives
Delive ivering ng tangib gible le result ults
General and administrative expenses, RUB bn
Key initiat iative ives
Optimisation of ore beneficiation and separation processes Restructuring of construction and geological exploration units Implementation of centralised management and usage-based approach for transportation Labour productivity increase G&A optimisation
Other Operating ing improveme ement nts G&A Energy gy effic icie ienc ncy
208 208
Nominal Unit Costs 1, k RUB/m3
Real terms2 YoY change, % (8%) (5%) Real terms3 YoY change, % (10%) %) (2%)
11.6 11.6 11.7 11.7 12.4 12.4 2016 2017 2018
As % of revenue 4% 4% 4% 4% 4% 4%
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Case Study: Operational Turnaround Program at Nyurba
Nyurba’s success can be replicated and scaled up across other divisions
35
7.7 7.7 9.7 9.7 2018 2019E
Key streams eams and initiat ative ives
Improving ving mine ne fleet et dispat atchin ching processes by SIC1 procedures implementation Opti timiz mizin ing OEE2 by reducing non-value added operations Opti timiz mizin ing main inten tenance e and repair irs
- perations will lead to improved
equipment availability and … improved plant availability Increasing hourly throughput by
- ptim
timizing izing ore e blendin ing proce cesses
Run of m mine Diamo mond nd product uction ion growth h
17 17 19 19
Overal all l equipment ment efficie iency ncy
+1 +12% 47% 47% 63% 63% +1 +16 p.p.
Proce
- cessing
sing
2018 2019E 2.1 2.1 2.5 2.5 +1 +18%
m ct
Source: Company data and analysis. 1. Short interval control. 2. OEE – overall equipment efficiency.
+26%
m m3 % mt
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Case Study: Automotive Transport Optimization
Centralization and usage-based approach provide long-term cost cutting effect
36 Key streams eams and initiat ative ives
Number of vehicles s went down followin lowing impleme mentat ation ion of new process sses s and tools ls: usage-based approach to vehicles request and utilization, route optimization and reduction of fleet renewal program Revisio sion of organiz izati ation
- nal
al structure and headcount
- ptimization
Shift to natura ral l gas from gasoline and diesel leads to decreased fuel cost decline and reduced emissions
Cumulat lative ive effect ct in cost cutting ng
3,923 3,923 3,280 3,280
RUB mn, expenses related to transportation
Cost saving: RUB 643mn
2018 2019E
Units
1,240 1,240 791 791 (36%) %)
m tn FTE %
38 38 59 59 +55% 1,719 1,719 1,388 1,388 (19%) %) 2018 2019E 8,093 5,769 1,376 684 684 9,469 6,453 (32%) %)
Gasoline Diesel
Number er of v vehic icle les Vehicl hicles es utili lizat zatio ion n factor
- r
Headcou dcount nt Fuel l
(16%) %)
Source: Company data and analysis.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
14 14 51 51 6 29 29 7 11 11 7 8 34 34 99 99
2018 Now Now 78 61 2017 Now Now (17) 8.8 7.1 (1.7) 902 804 (98)
Case Study: Working Capital Management
Reduction in rough diamond WIP inventory days
Optimizat mization ion lever ers s 37 Reducti ction
- n of d
diamo monds ds WIP1 cycl cle
Production Chain of Rough Diamonds
Final sorting and box assembly Preliminary sorting Final Recovery Mine WIP P Cycle ycle Inventory
Decrease se in average ge WIP Cycle Number of days $ mn m ct … leading to lower rough diamond WIP inventor tory by Volume … and by Value2
Key enable blers s
Team am and nd capability ility develo lopme ment nt Productivit ctivity y monit itorin ing and bench chmar markin king New product ctivity ivity based ed motiva tivatio tion system em IT systems ems upgrade ade
Downtime me reduction
- n
Workflow
- w optimis
misation
- n
New analyti ytics and d modelling Process ss autom
- mation
- n
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.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
38
1.8 1.8 2.1 2.1 2.4 2.4 2014 2018 Ta Target 2024E
Employee Training and Development System
Source: Company data and analysis.
k m3 of run-of-mine ore per employee
Key initiat iative ives s and programm ammes es Labou
- ur product
uctivi ivity y growth
… to further improve long term competitiveness and productivity
+17% +12%
Revision and simplification of remuneration system to increase transparency and link it to performance Launch of share-based incentive program to retain top management and align their interests with shareholders Implementation of a multi-stage competency assessment system for the selection and professional development of the talent pool members Development of in-house corporate educational system covering various grades and business divisions Implementation of internal coaching and mentoring programmes Development
- f talent pool
Improvement
- f remuneration
system Establishment
- f Corporate
University
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
39
Source: Company data.
Marketing Strategic Initiatives and Ongoing Digitalization
Industry initiati ative
- Participation in pilot projects involving M2M
and Tracr tracing platforms
- Implementation of digital twin technology
providing detailed information about each stone
- Development of digital platform for online
sales
Ongoing digitali lizat ation ion in ALROSA
Generic (category) marketing
- Participation in DPA to promote the integrity
and reputation of natural diamonds
- Differentiation
- f
natural diamonds and LGDs markets driven by rarity, uniqueness and inherent value of natural diamonds Promotion of different assortment categories
- Active promotion of fluorescent diamonds to
stimulate demand in B2C segment
- Marketing
initiatives to improve broader sentiment towards fluorescent diamonds Marketing of diamond collections
- Promotion of large, exceptional quality
diamonds
- Promotion of fancy coloured diamonds
Introduction
- f digital
marketing Adoption of best practices in operational digitalization
Digital Mine Virtual Reality Unmanned Technologies Drill-and-blast Automation Big Data Driven Predictive Maintenance
Compan any initiat iativ ives
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
40
Source: Company data.
Diamond Producers Association
Key initiat iativ ives DPA mark rketin ing campaig aigns s by regions
6% 20% 21% 53%
- N. America (USA from 2016)
India (from 2017) Asia Pacific ex. Japan (China from 2018) RoW % represents share of a region in global jewelry consumption
Marke keting ng budget of the industry y association
- ciation growth
$ m
10 60 60 70
2016 2017 2018 2019E
Diamo amond Producer cers Associat ciatio ion (DPA) ) formed by 7 major diamond producers in 2015 supports the development of the diamond sector through promotion of reputation of diamonds Marketi keting campa mpaig igns with a tagline “Real is Rare. Real is a Diamond” launched in the US (2016) and in India (2017) DPA’s activit tivitie ies inclu clude: paid advertisement on TV , internet, cinema, social networks promotion in social media by social influencers participation in industry events work with industry and non-industry organizations market surveys and research In 2018 DPA’s activit tivitie ies expan anded ed into to Chin ina (while continued in the US and India) New marketin keting campa mpaig ign addressed ed to women en who purchase diamonds for themselves is called “From Me, To Me”, launched in mid- September 2018
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
41
Capital Allocation – Key Principles and Policy Overview
Operating Efficiency Organic Growth
Focus on Core Business Conservative Financial Policy
Strong Liquidity Position Commitment to Balanced Debt Profile
Maximising Shareholder Returns Prudent Capital Allocation
Investment Program with 20%+ IRR1 FCF-linked Dividend Policy Divestiture of Non-core Assets
- 1. For investments in new mining capacity and operational efficiency projects.
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
28 28 496 496 510 510 13 13 8 501 501
Q4'19 2020E 2021E 2022E 2023E 2024E
Eurobonds Bank Loans 653 3,635 4,288
Q3'19
42
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 discount
- Tota
tal l debt t is $1.6bn with the weighted average cost of debt of 5.2%
- In April 2019 ALROSA issued 5-years $500 m Eurobond with a
coupon rate of 4.65% pa
- Inves
estmen tment grad ade e credit it rati ting
- S&P – BBB- (Stable)
- Fitch – BBB- (Stable)
- Moody’s – Baa2 (Stable)
- Conser
erva vative tive long-term erm finan ancia cial l tar argets ets in line e with th inve vestmen tment grad ade e criter iteria ia
- T
arget Net Debt / EBITDA range: 0.5-1.0х
- Minimum liquidity reserves of over RUB 35 bn of cash and
committed lines
- Natural FX hedge – financial liabilities are matched with
income streams
- Solid public debt track record with fixed-income investors
$ m $ m $ m, as of 1 October 2019
Highlights Net Debt evolution ion to investment grade credit ratin ings Liquidity position ion Debt2 repayme ment schedule
Cash and equiv ivale lents (incl. deposits sits) Credit it Lines s
Strong Balance Sheet
… with leverage at historic-lows
3,951 3,119 2,781 1,374 1,494 971 971 978 978 1.9x 1.9x 1.7x 0.5x 0.7x 0.4x 0.6x
2013 2014 2015 2016 2017 2018 Q3'19 '19
Net Debt Net Debt / Adjusted EBITDA (RUB denominated)
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
1
43
Dividend Policy Focused on Maximisation of Shareholder Returns
Histor
- rical
ical dividend payments1 Divide idend payout ratio io
$ m
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.
12M’13 12M’14 12M’15 12M’16 619 12M’17 480 H2’18 662 H1’18 448 H1’19
311 311 190 190 244 244 1,110 10 1,281 81 929 929
2014 2015 2016 2017 2018 2019
35% 50% 50% 50% 76% 95% 76% 70% 26% 37% 59% 52% 70% 100% 100%
2013 2014 2015 2016 2017 H1'18 H2'18 H1'19
Payment ratio based on IFRS net income Payment ratio based on FCF
Dividen vidend d Base
0.0x x to 0.5x 5x >0.5x 5x to 1.0x 1. 1.0x to 1.5x 5x
Condit ition ion of Net t Debt/EBIT ITDA2 Payout
- ut Ratio
Subject to minimum dividend payout of 50% of IFRS net income 100% 100% 70 70-10 100% 0% 50 50–70% 0%
Freq eque uency ncy
Semi-annual Free Cash Flow
Below 0.0x > 100%
Divide idend policy y overvi view
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Q3 2019 RESULTS
04
1,556 1,034 933 802 969 780 585 26 23 16 22 18 16 16 1,582 1,057 949 824 988 796 601
Q1'18 Q2'18 Q3'18 Q4'18 Q1'18 Q2'19 Q3'19
Industrial quality diamonds Gem-quality diamonds
Sales
45
Q3’19 Sales Diamond sales decreased 23% QoQ (down 5% YoY) to 6.4 m carats against the backdrop of declining demand due to excessive stocking of rough and polished diamonds by cutters and retailers, and continued difficulties faced by India’s cutting business in securing affordable financing. Ongoing consolidation in the jewellery sector and growth in jewellery sales through on-line channels in the US result in a non-recurrent reduction in polished diamond stocks across the retail sector as businesses embrace more efficient stock management practices, which is in turn impacts rough diamonds purchases by mid-stream. Sales were down 24% QoQ to USD 601 m (down 37% YoY)
Highlights
Diamo amond sales in carats
$ m
Source: Company data and analysis.
Diamo amond sales in U.S. . dolla lars
m ct 10.1 6.3 4.7 5.3 7.9 6.0 4.3 3.2 2.7 2.0 3.7 2.7 2.3 2.1 13.4 .4 9.0 6.7 9.0 10.6 .6 8.3 6.4
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Industrial quality diamonds Gem-quality diamonds
Lower supply as mid-stream destocks
21.1 18.2 8.0 7.0 29.1 .1 25.3 .3
9M'18 9M'19
3,523 2,334 65 51 3,588 2,386
9M'18 9M'19
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
5.7 10.1 17.2 7.5 6.4 10.5 17.2 1.30 0.84 0.61 1.38 1.23 0.93 0.71
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Grade, cpt
Output
46
Q3’19 Production grew 24% QoQ (up 15% YoY) primarily due to seasonal return to production at alluvial deposits Av. grade seasonally decreased 24% QoQ to 0.71 cpt 9M’19 The volume of processed ore and gravels grew by 3% to 34.0 m t supported by the ramp-up of production at the V .Munskoye deposit and increased productivity an Nyurba Division and Udachny’s processing plant Production increased by 12% to 29.7 m ct Av. diamond grade up 9% to 0.87 cpt
Highlights Ore and sands processin sing
m ct
Source: Company data and analysis.
Diam amon
- nd production
ion
m t 5.3 4.1 3.8 6.5 6.1 5.6 5.2 2.0 2.1 1.0 3.3 1.5 2.2 1.6 0.2 2.3 5.8 0.5 0.2 1.9 5.4 7.4 8.5 10.5 .5 10.3 .3 7.8 9.7 12.1 .1
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Open pit Underground Alluvials 33.0 34.0 0.80 0.87
9М'18 9М'19
13.1 16.9 5.1 5.3 8.2 7.5 26.4 .4 29.7 .7
9М'18 9М'19
Q3 2019: increase in diamond production
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
47
Source: Company data and analysis.
- 1. Q3’19 amounts are based on average FX rates for the period – RUB 64.5936/$.
Resilient financial performance with strong margins and positive free cash flow
Key Financials
1,26 ,260 1,51 ,514
2017 2018
718 718 342 342 242 242 215 215 395 395 37 37 39 39
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Q3’19: Revenue came at $0.7 bn (-20% QoQ) due to a 23% decline in gem-diamond sales in carats. 34% YoY decrease due to decrease in both sales volumes and like-for-like prices EBITDA was $0.3 bn (-16% QoQ and -47% YoY) largely due to top line decrease EBITDA margin was flat at 46% (-11 p.p. YoY) Net income was up by 1% QoQ to $ 0.2 bn (-44% YoY) FCF amounted to $39 m Net debt / LTM EBITDA stood at 0.6x
Highlights Superior
- r profita
itabil ilit ity
$ m
Strong Free Cash Flow Generat ation ion
$ bn 1.7 1.2 1.1 0.9 1.1 0.9 0.7 0.8 0.7 0.6 0.4 0.5 0.4 0.3
50% 57% 57% 44% 44% 44% 46%
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Revenue EBITDA EBITDA margin 4.7 4.8 2.2 2.5
46% 52%
2017 2018
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Revenue Drivers
48
Source: Company data and analysis.
Q3 ‘19 19 gem em-dia iamo mond sale ales wer were down by by 25 25% QoQ to to RUB 38 38 bn bn driven iven by by:
- (-) 28% decrease in sales volumes (in carats)
- (+) normalized product mix
- (-) softer like-for-like prices
(av. index change – -3.1%)
- (+) positive FX rate impact as RUB weakened
39 39% YoY decr creas ease driven iven by by:
- (-) 8% reduction in sales volumes (in carats)
- (-) weaker product mix
- (-) softer like-for-like prices
(av. index change – -9.2%)
- (-) FX rate impact on stronger RUB
Highlights Q3 2019 gem-qual alit ity rough diamon
- nd revenue bridge (QoQ)
RUB bn RUB bn
Q3 2019 gem-qual alit ity rough diamon
- nd revenue bridge (YoY
- Y)
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
50 38 3 0.1 (14) (2)
Q2 '19 Re Revenu nue Sale Sales volum lume Sale Sales m mix ix Pr Pric icing ing li like-for-li like FX FX Q3 '19 Re Revenu nue
61 38 (5) (14) (4) (1)
Q3 '18 Re Revenu nue Sale Sales volum lume Sale Sales m mix ix Pr Pric icing ing li like-for-li like FX FX Q3 '19 Re Revenu nue
Profitability Drivers
49
Source: Company data and analysis.
Q3 ‘19 EBITD TDA was down wn by 16% QoQ driven iven by:
- (-) 23% decrease in volumes: net impact -RUB 8 bn
(revenue decline: -RUB 14 bn, COGS reduction: +RUB 6 bn)
- (+) sales mix +RUB 3 bn
- (-) like-for-like prices: -RUB 2 bn
- (+) FX rate: +RUB 0.1 bn
- (+) other factors: net impact +RUB 2 bn
9M ‘19 EBITDA was down by 40% YoY driven iven by:
- (-) 13% reduction in carat sales: net impact -RUB 11 bn
(revenue decline: -RUB 32 bn, COGS reduction: +RUB 20 bn)
- (-) sales mix: -RUB 35 bn
- (-) like-for-like prices: -RUB 7 bn
- (+) FX rate: +RUB 9 bn
- (+) other factors: net impact -RUB 6 bn
RUB bn
9M 2019 EBITDA A – key drivers s (YoY
- Y)
Q3 2019 EBITDA A – key drivers s (QoQ)
RUB bn
Highlights
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
25 21 3 0.1 2 (8) (2)
Q2 '19 EBIT EBITDA DA Sale Sales volum lume Sale Sales m mix ix Pr Pric icing ing like- like-for-li like ke FX FX Ot Othe her Q3 '19 EBIT EBITDA DA
129 78 9 (11) (35) (7) (6)
9M '1 '18 EBIT EBITDA DA Sale Sales vo volum lume Sale Sales m mix ix Pr Pric icing ing like like-for-like like FX FX Ot Othe her 9M '1 '19 EBIT EBITDA DA
Free Cash Flow and Total Debt Analysis
50
Source: Company data and analysis. 1. Including finance lease liabilities. 2. Mainly includes income from grants, operating lease obligation change etc.
RUB bn RUB bn
0.3x
63.0 35.4 29.8 (0.1) 1.3 (0.8) (2.5)
Q3'19 N Net Debt Ot Other FX FX Ne Net in intetest Div Divid idend nds p paid id FCF FCF Q2'19 N Net Debt
ND / LTM TM EBITD BITDA 0.6x
2
EBITDA A to Free Cash Flow bridge Q3 2019 Net debt1 bridge
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
25.1 21.1 7.1 2.5 0.2 (4.1) (11.9) (5.7) (4.6)
Q2 EB EBITD TDA Ch Change ge in pr prof
- fitabi
bility Q3 EB EBITD TDA Ch Change ges s in NW NWC Incom
- me tax
Oth Other Ope Opera rating g cash flow
- w
Ca Cape pex Fre ree cash sh flow
- w
Outlook
51
Marke ket outloo
- ok
ALROSA perfor
- rmanc
ance Diamo Diamond jewel welry sa sale les in in 2019 2019, following a several consecutive years of growth, ar are expec ected to to sta stabil ilize ize at at ar aroun und 2017 2017 le levels vels (down from all-time record high of 2018) Ma Mark rket et star started to to gra raduall ually restor estore supply ly an and dema mand nd balan alance ce in H2’19 – supply of rough diamonds was quickly adjusted, while polished stocks at mid-stream are expected to decrease as season approaches Lo Long-term erm fu fundam amentals als fo for the je jewel elry deman mand growt wth remain in strong in both Developed and Emerging markets 2019 2019 ca capex ou
- utloo
look revised down from RUB 28 to 23 bn with no effect on operational performance 2019 2019 product ctio ion outlo utlook
- k is expected at ~38.5 m ct driven by
efficiency gains 2020 production ion is expected to decrease to 34.3 m ct 2019 2019 sa sale les are expected to come lower than planned to 32- 33 m ct due to market conditions. ALROSA’s “price over volume” strategy offers more flexibility and accuracy when it comes to defining sales, hence holding back pressure on the market
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
CORPORATE GOVERNANCE
05
53
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Source: Company data.
Increas ased share e of INEDs s in the Board of Direct ctor
- rs
s
Number of Members
2 4 13 11
2014 Now Now Independent Nominees of RF and Yakutia
6 – Russian Federation 4 – Republic of Yakutia 1 – Local Communities of Yakutia
INEDs Ds represe sent 100% in Audit and 75% % in RemCo committe ittees
Number of Members
Strategy with 3 INEDs
- ut of 13
RemCo Committee – 3 INEDs out of 4 Audit – 3 INEDs out of 3 Chaired by INEDs
Corporate Governance and Shareholder Support
- Regu
gular and tra ranspar sparent di disclos sclosure and com
- mmit
mitment to to best st in in class ss corpora rate governance practices
- New initiatives are under way:
‒ Corporate Strategy till 2024 ‒ HR Strategy with the overhaul of the organization structure and
motivation schemes (stock option program is one of the initiatives)
‒ 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
‒ Approval of new HSE policy, aimed to promote a culture of safety
Commitment to improving standards of corporate governance
1Current Board has Supported Initiatives to Improve Alignment of Shareholder Interests
54
HSE strategy
Approval of new HSE policy, aimed to promote a culture of safety.
New management team
New senior management team with tenured professionals committed to increase shareholders return and modernise ALROSA’s corporate structure and operations.
New clear financial and dividend policy
Financial policy to ensure an appropriate balance between capital structure and liquidity at hand. New clearly articulated semi-annual dividend policy based on FCF and target leverage.
Transparency and disclosure
Commitment to regular and transparent disclosure
- f operational and financial results and publishing
- f social and environmental report.
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 interests
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
Board Agenda for 2019-2020
55 Highlight long-term strategic issues in marketing Active engagement with all stakeholders Emphasis on developing risk management culture within the company Reform of HR and pay structure Focus on continuous business transformation to ensure long-term competitiveness and sustainable production
1 2 3 4 5
- 01. Strategic priorities
- 05. Corporate governance
- 04. Q3 2019 results
- 03. Executing to strengthen
- ur business
- 02. Market fundamentals
APPENDIX
06
ALROSA: Key Highlights
- Revenue is set to stabilize on stable sales volumes
- Company demonstrates stable – above 45% margins – well
supported by cost control / high utilization rates at the mines
- Capex to trend down as growth projects are up and running
57
37.1 38.4 30.2 40.0 41.2 38.1
174 172 170 149 136 164 2013 2014 2015 2016 2017 2018
- Av. selling price for gem-quality diamonds, $/ct
5.3 5.4 3.7 4.6 4.6 4.8 2.2 2.4 1.9 2.5 2.1 2.4 42% 45% 52% 53% 46% 51%
2013 2014 2015 2016 2017 2018
Revenue EBITDA 1.2 0.9 0.6 0.5 0.5 0.4 0.5 1.1 0.7 1.6 1.3 1.5
2013 2014 2015 2016 2017 2018
CAPEX FCF
Rough diamon
- nd sale
les Revenue, EBITDA A and EBITDA A margin
$ bn
ALROSA’ capital intensity is decreasing
$ bn m ct
Source: Company data
Information On Assets
58
Type
- f mining
Cash costs, $/ct Price, $/ct Spread, $/ct Grade, ct/t Diamond production, ‘000 ct Expected LOM JORC reserves (1 July 2018), ‘000 ct 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2019E 2020F Aikhal Division
- n
13,011 11 11,850 9,622 175 175,561 Jubilee pipe
- pen-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
- pen-pit
174 992 239 234 65 135 0.36 0.37 370 358 371 2019 809 Zaria pipe
- pen-pit
- 2030
3,469 Mirny Division
- n
7,231 4,195 3,908 57 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
- n
3,821 3,929 6,438 164 164,462 Udachnaya pipe
- pen-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
- pen-pit
100 937 165 154 65 62 0.28 0.26 786 952 841 2035 5,350 Verkhne-Munskoe deposit
- pen-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 ba Division
- n
7,713 7,719 9,059 125 125,510 Nyurbinskaya pipe
- pen-pit
44 44 87 98 43 54 4.80 4.49 4,774 4,057 3,784 2035 29,447 Botuobinskaya pipe
- pen-pit
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 Sever eral almaz az 2,642 3,636 3,900 73 73,890 Arkhangelskaya pipe
- pen-pit
31 209 47 53 16 34 0.70 1.04 1,283 1,530 1,745 2031 47,433 Karpinskogo-1,2 pipes
- pen-pit
0.95 1.06 1,359 2,106 2,155 2028 26,458 Almazy azy Anabara ara alluvial 38 30 63 78 26 48 0.40 0.40 5,197 5,420 5,091 23 23,533 ALROS OSA 37 37 36 36 11 113 108 108 77 77 72 72 1.01 0.91 39,614 36 36,749 38 38,017 34 34,300 620 620,735 underground 37 39 134 111 97 72 4.11 2.83 10,566 8,437 9,315
- pen-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.
- 1. Increase by 7% due to diamond production decrease by 11% driven by processing lower-grade ore (down 14%). 2.
- 2. Decrease by 43% due to price factor and decrease of pipe share in Processing plant №8 costs. 3.
- 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.
- 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.
- 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%).
59
Key Investment Projects
Source: Company data
- 1. Verkhne-Munskoye deposit
- 2. Vodorazdelnye Galechniki deposit
- 3. Diamond mineral resources in accordance with the JORC Code as at 1 July 2018
Udach achny UG UG mine VM VM1 deposit it Zar aria ia pipe Mais iska kaya ya pipe VG VG2 deposit it Type of minin ing Underground Open-pit Open-pit Open-pit Alluvials Productio ction star art 2014 2018 2020 2025 2024 Ramp mp-up up 2021 2020 2021 2027 2025 T ar arget et ore e output tput pa, a, m t 4.0 3.0 1.2 0.3 1.1 T ar arget et production ction pa, , m ct ct 5.6 1.8 0.4 1.2 0.4 Tota tal l CAPEX, , RUB bn bn 63.9 22.3 8.4 5.6 2.3 Inves ested ted shar are 86% 82% 94% 4% 0% Resource ce base3, , m ct ct 207.6 40.4 7.1 12.7 4.7
1 2 3 4 5
Yakutsk sk
Mirny Aikhal Udachny Nyurba
1 2 3 4 5
Yakutia
60
Projects under Consideration
Jubilee ilee UG UG mine Mir UG UG mine Type of minin ing Underground Underground Ramp mp-up up (prelimin eliminar arily) ily) 2032 2031-32 T ar arget et ore e output tput pa, a, m t 1.8 1.3 T ar arget et production ction pa, , m ct ct 2.3 3.8 Tota tal l CAPEX, , RUB bn bn ~72 ~73 Inves ested ted, , % 0% 0% Reserve ve base1, , m ct ct ~43.2 ~68.6 Proje ject ct IRR Up to 20% 18.3%
Source: Company data
- 1. Subject to further exploration
1 2
Decision on the mines construction will be taken after the feasibility studies will be completed, all numbers are indicative and based on preliminary estimate
Yakutsk sk
Mirniy Aikhal
1 2
Yakutia
61
- 1. Long-term agreements which provide stable sales and predictable prices
during volatility on diamond market (strategy generates ~70% of ALROSA's rough diamond sales)
- 2. Largest jewellery chain stores:
- 3. Competitive sales via auction and tenders
- 4. Spot sales pursuant to one-off contract arrangers
- 5. Sales through Russian government entities – Almaziuvelirexport and Gokhran
- f Russia
ALROSA’s geography of sales based on clients legal residences
number of long-term clients as of January 2019
47% 15% 10% 12% 10% 4% 2% Belgium India Israel Russia UAE China Other
4 7 1 9 18 18 4 24 24
ALROSA’s rough diamond sales channel breakdown
18% 64% 71% ~70% 72% 17% 12% 10-20% 10% 19% 17% 10-20%
2006-2008 2012-2014 2015-2016 Long Long-term
Tenders Spot sales Long-term contracts
Sales Structure and Channels
Multichannel distribution with growing focus on long-term contracts
Overview ew of sale les s channels ls
Source: Company data and analysis
88%
- f ALROSA’s diamond sales
accounted for exports1
98% / 70%
- f ALROSA’s diamond sales / volume
generated by sales of gem-quality rough
7.3 7.3 7.5 7.5 7.8 7.8 7.0 7.0 7.5 7.5 6.7 6.7 2016 2017 2018E
Produ roduction
- n
Sal Sales
62
Expansion to Africa
Promising region with high exploration potential
Produ
- ducti
ction and sales, , m ct ct
255 255 300 300 350+ 2016 2017 2018E
Axis Title
Improve ved finan ancia ial l perfor
- rman
mance ce at Catoca ca Develop lopment nt of Luele pipe
Luale kimberlite pipe is the largest diamond discovery over the past 60 years The project is operated by Luaxe consortium
Explor
- ration
ion activi vitie ies
Kimang JV (Angola): ):
‒ 50/50% JV between ALROSA and Endiama ‒ Exploration activities in Quango area, the North of Central Angola ‒ Awaiting exploration license approval for Chisombo area
Zimbabwe:
‒ Strategic partnership with the government of Zimbabwe ‒ Selection of potential targets for exploration study
The pipe development plan to be approved by the end of 2019 Resource ce base: : 350 m ct Expected cted average grade: 0.95 ct/t EBITDA, , $ mn mn Catoca ca in numbers:
‒ T
- tal reserves ~ 120 m ct // 2 processing plants with 13 m t pa // 0.61 ct/t
Recent t corporate te governance ce improve vements: ts:
‒ Supervisory & Fiscal committees authorized to review and approve contracts ‒ Appointment of executive directors to be approved by Supervisory committee ‒ Rotation between ALROSA and Endiama in appointing CEO and CFO
Change ge in sales practi tices ces:
‒ New approach to sale channels diversification following reform in Angola’s
diamond industry has already resulted in double-digit growth of diamond prices $84/ $84/ct ct $89/ $89/ct ct $110/ct ct
Source: Company data and analysis.
1 2 3 4 5 10 10 15 15 20 20 2015 2016 2017 2018 2019
Net imports (LHS) Net exports (RHS)
400 600 800 1000 1200 1400 50 50 100 150 200 2015 2016 2017 2018 2019
Rough imported (LHS) Polished exported (RHS)
Source: GJEPC, Company’s analysis.
Monthly y volume mes s of rough imported and polish shed exported ed diamon
- nds
63
m ct
Monthly y prices s of rough imported ed and polish shed ed exported diamon
- nds
$/ct
Indian Trade Statistics
Monthly volumes and prices of imported rough and exported polished diamonds
163 187 177 176 188 189 181 154 187 208 232 175 179 175 188 206 208 203 192 177 215 228
177 131 121 139 124 124 130 128 129 186 188 141 151 151 142 131 225 126 152 146 162 2181,620 1,697 1,669 1,762 1,828 1,945 1,818 1,499 1,653 1,994 2,065 1,631 1,631 1,759 1,742 1,757 2,038 1,738 1,896 1,522 1,820 2,025
USA (RHS) China (RHS) Total (LHS)
Destocking Decelerates
64
Source: Bureau of Economic Analysis, Federation of the Swiss Watch Industry FH, GJEPC
64
(43%) (20%) (21%) (9%) (37%) (40%) (36%) (5%) (3%) (19%) (15%) (1%) (4%) (17%) (16%) (19%) (19%) (26%) (17%) (19%)
Jan Jan Feb Feb Mar Ap Apr May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct
Net imports of rough stones Net exports of polished diamonds
End-ma market ket consumers: luxury & jewelry demand to returns to historical growth rates Retailer tailers: : Inventory of unsold diamond jewelry is winding down YTD Mid-str trea eam: m: rough inventories trend down (rise in financing costs in India, FX volatility, tighter banking regulation as India is joining Basel III in 2020 – financing down from $10 bn to $8 bn);
- Polished stocks are being sold at discount to raise
cash;
- Seasonally quiet period in June-August
Miner ers: : from Jan’19 quickly shifted to “price over volume” sales strategy reducing supply to keep like-for-like prices stable (-7,5% YTD decrease vs +3% YoY in 2018)
Highlights End-demand: Swiss watch exports as a “canary in the mine”
CHF m
Net imports s of rough stones and net exports s of polish shed diamon
- nds
s in/fr from
- m India
YoY change, 2019/2018 (USD)
1.0x 5.0x 6.0x
- c. 10.0x
.0x 1970's 1980's 2000's 2010's
Case Study: LGD – the Future is History
Similar scenario has already realised on the market for lab grown sapphires
65
Indexe exed price ice per carat at of natura tural l sapphire¹
Indexed to 1975 natural sapphire price (in nominal terms)
Exper ert quotes tes
“Focus of lab-grown gemstones is cheaper per low-end d jewellery” Head of Business Development, Gemstone trading company “We need to convince people that lab- grown gemstones are not fake stones. We operate on market that is separa rate from natural gemstones” President, Leading lab-grown gemstones company “Rarity is a very important factor r for consumers, but lab-grown gemstones completely miss it” Head of Business Development, Leading gemstone mining company “Lab-grown gemstones do not affect natu tural market. Easy to disti tingu guish sh them as they are of perfect quality: too well cut, no inclusions” President, Gemstone trading company
Source: Company data and analysis, Bain data and analysis, Preciousgemstones.com. 1. Sapphire of the highest grade: clarity – LI, colour – 2.5/75 (blue), rough. 2. Price per 1 ct stones of comparable quality (fine-quality).
Gem quality lab grown sapphires first appeared in 1970s and started commercial production in 1990s Market share of lab grown sapphires stabilised in 2000’s at 15% production share End-users clearly marked the difference which is reflected in price-tag for 1 carat Synthetic produ duction
- n developm
pment does not adverse sely affect the market for natural ston
- nes
s Na Natura ral Lab Lab grown grown ~$1,50 ,500 ~$180
Price ice per carat disco count (2017)2
$/ct ~80-90% 90%
Lab ab grown wn stones es product ctio ion shar are (2017)
Natura ral 85% 85% Lab grown 15% 15%
Synthetic Stones: Key Marketing Messages
66
Key mark rketin ing messa sages s of lab-grow
- wn
n colou
- ured gemston
- nes
(incl.
- l. sapphir
ires) s) producers s in 1960-2000s
Source: Company data and analysis. Note: Coloured gem stones messages are based on vintage ads of Chatham Created Gems and Diamonds; Lab-grown messages are based on the message mentions on the websites of Diamond foundry, Chatham Created Gems and Diamonds, Lightbox, NDT, Scio Diamonds and IIA Technologies.
Key mark rketin ing messa sages s of LGD producers s today
…of lab-grown sapphires producers are similar to the ones used now by LGD producers Key messages are similar ilar, though now lab-grown diamond producers additionally explore “environmentally-” and “socially-friendly” trend
High quality Affordable Identical
Real
Value Created in America
Available
Above-ground Own design
Identical
Affordable
Guaranteed origin
Created in America
Best of millenials Conflict-free
Eco-friendly
Value
Flexible Pure Good investment
Own design Innovative
Unique
Real
Dynamic Rare
High quality
Unique
Innovative
Ethical
Price per carat ($)
Diamonds and Their Synthetic Substitutes
67
LGD is not the first st synthetic c alternat ernativ ive to diamon
- nds
Industrial product Can be produced in any volume Highly fragmented supply, low entry barriers Product of nature Rare, unique and inherently valuable Highly consolidated supply, high entry barriers Price drivers: Cost Price drivers: Rar arity ity Symbolis ism Supply ly discip iplin ine e
Natura ral l diamon
- nds
VS
LGD Moissan sanite ite White Zircon
- n
Cubic Zircon
- nia
ia LGD
Price per carat ($) $400 $400 $75 $75-100 00 $20 $20-40 40 $800 $800
Source: Company data and analysis.
Have different price drivers and value to consumers
68
Source: Company data
- 1. Excluding ALROSA Finance SA, Wargan Holdings Limited (finance entities) and ALROSA Overseas SA (holding company)
M&A: Focus on Organic Growth
5,341 652 271 463 17 30,300 3,200
2013 2014 2015 2016 2017 2018 9M'19
47 47 39 39 34 34 32 32 31 31 29 29 29 29
2013 2014 2015 2016 2017 2018 Q3'19
Growth is coming from organic growth of existing portfolio (see capex slide) Program to divest non-core assets started in 2013 includes assets in real estate, energy (gas) farming, insurance, etc. The program is planned to be completed by 2020 Number of non-core entities was down by ~40% from 2013 9M’ 19 19 proce ceed eds from dives estmen tments were RUB 3.2 bn bn: disposal of non-core assets for RUB 1.6 bn (the most significant transaction – sale of 100% stake in JSC Golubaya Volna Resort for RUB 1.2 bn disposal of property by LLC Innovation Centre Bourevestnik for RUB 1.6 bn Tota tal proceed ceeds from dives estmen tments were RUB 37 37 bn bn in in 2013 2013-201 018: 80% of total proceeds came from the sale of gas assets in Q1 2018 to NOVATEK Another significant divestment was sale by ALROSA of 51% stake in Timir, iron ore producer, to EVRAZ in 2013 for total consideration of RUB 4.95 bn
RUB m
Proceeds s from sale le of non-cor
- re asse
sets Number of ALROSA’s subsidiaries
1
As at the end of the period
69
Profit Curve of Existing Diamond Mines
Tier-2 performing mines (2nd quartile, 25-50%) Tier-4 performing mines (4th quartile, 75-100%)
(Price per ct - Cash Cost per ct), $ (Price per ct - Cash Cost per ct), $ (Price per ct - Cash Cost per ct), $
Source: Company data and analysis. Note: Assessment of 2017 production.
(Price per ct - Cash Cost per ct), $
Tier-1 performing mines (1st quartile, 0-25%) Tier-3 performing mines (3rd quartile, 50-75%)
Margin per carat by mines
FX Rate
70
Source: Company data and analysis.
Financial metrics breakdown by currency (Q3’19)
% of metric's total
91% 18% 26% 63% 96% 9% 82% 74% 37% 4%
Rev Reven enue Cost st of f sales ales Cap apex ex Cash ash an and ca cash sh eq equivalen lents (in incl.
- cl. ban
ank k dep eposits) sits) Total al deb ebt
RUB USD
ALROSA is an exporter with 91% of revenue denominated in USD Major portion (74%) of costs and capex is denominated in RUB, 96% of the Company’s debt portfolio is denominated in USD to create a natural hedge against FX risks ALROSA's financial sensitivity analysis shows that a change in the USD exchange rate by +/- 1 RUB/USD leads to the following change in metrics:
- revenue – +/-1.39%
- cost of sales – +/-0.28%
- EBITDA – +/-2.80%
- capex – +/-0.39%
71
Management Team
Committed to deliver on ALROSA’s development plans
Source: Company data.
Alexey Kovalenko Director, Mirny mining and processing division
- Joined the Company in 1996
- Over 20 years of industry experience
Roman Deniskin Director, Udachny mining and processing division
- Joined the Company in 2019
- Over 15 years of industry experience
Evgeniy Denisov Director, Aikhal mining and processing division
- Joined the Company in 2005
- Over 15 years of industry experience
Anatoliy Platonov Director, Nyurba mining and processing division
- Joined the Company in 1992
- Over 25 years of industry experience
Pavel Marinychev CEO Almazy Anabara
- Joined the Company in 2016
- First deputy Prime Minister of the Republic of Sakha (Yakutia) (2014‒2016)
- Deputy Prime Minister of the Republic of Sakha (Yakutia) (2010‒2014)
Andrey Pismenny CEO Severalmaz
- Joined the Company in 1997
- Over 20 years of industry experience
- Chief engineer of ALROSA in 2010‒2015
CEO COO CFO Sales Sergey Ivanov Chief Executive Officer
- Joined the Company in 2017
- Senior Vice President at Sberbank of Russia (2016‒2017)
- Chairman of the Management Board of SOGAZ (2011‒2016)
- Top management positions at Gazprombank (2005‒2011)
Alexey Philippovskiy Deputy CEO – Chief Financial Officer
- Joined the Company in 2017
- CFO of Siberian Generating Company (2015–2017)
- Head of Finance and Economics and then CFO of Sibur (2004–2013)
- Consultant at McKinsey & Co. (2001–2004)
Mirny Division Udachny Division Aikhal Division Nyurba Division Almazy Anabara Severalmaz
Executive ve team Operational ional team
Igor Sobolev First Deputy CEO – Chief Operating Officer
- Joined the Company in 2007
- Head of Capital construction division, mining & metallurgical
directorate at Norilsk Nickel (2000‒2007) Evgeny Agureev Deputy CEO for Sales
- Joined the Company in 2017
- Top management positions at Sberbank (2009-2017)
72
Anton Siluanov First Deputy Chairman of the Government
- f the Russian Federation
Aysen Nikolaev Head of the Republic of Sakha (Yakutia) Andrey Donets First Deputy CEO of the Far East Investment and Expert Agency Vladimir Solodov Chairman of the Government of the Republic of Sakha (Yakutia) Nominated by: the Russian Federation Nominated by: the Republic of Sakha (Yakutia) Nominated by: the Russian Federation Nominated by: the Republic of Sakha (Yakutia)
- Previously held positions include:
- 2005-2011 – Deputy Minister of Finance of the Russian
Federation
- Since 2011 – Minister of Finance of the Russian
Federation
- Since 2018 – First Deputy Chairman of the Government
- f the Russian Federation
Previously held positions include:
- 2012-2018 – Head of the urban district ”City of
Yakutsk”
- Since 2018 – Head of the Republic of Sakha (Yakutia)
Previously held positions include:
- 2012-2013 – CEO of OJSC Amur land planning and
surveying enterprise
- 2014-2015 – Deputy Mayor of Blagoveshchensk
- 2015-2018 – Deputy Chairman of the Government of
the Amur Region
- Since 2019 – First Deputy CEO of the Far East
Investment and Export Agency Previously held positions include:
- 2013-2015 – Head of department in Agency of
Strategic Initiatives
- 2015-2018 – Deputy Plenipotentiary Representative of
the President of the Russian Federation in the Far Eastern Federal District
- Since 2018 – Chairman of the Government of the
Republic of Sakha (Yakutia)
Supervisory Board Overview
Source: Company data.
Andrey Karkhu Advisor to Head of the Municipal Entity of the Republic of Sakha (Yakutia) Anabar National (Dolgan-Evenki) Ulus (District) Kirill Dmitriev CEO of Russian Direct Investment Fund Oleg Fedorov Independent director
- f the Supervisory Board, ALROSA
Maria Gordon Independent director
- f the Supervisory Board, ALROSA
Nominated by: Municipal Districts of the Republic of Sakha (Yakutia) Nominated by: the Russian Federation Nominated by: minority shareholders as an independent director Nominated by: minority shareholders as an independent director Previously held positions include:
- 1994-2014 – Chief Engineer of OJSC Almazy Anabara
- 2014-2017 – Chief Engineer of OJSC Nizhne-Lenskoe
- Since 2017 – Chief Engineer of Arctic Capital LLC
- Since 2019 – Advisor to Head of the Municipal Entity
- f the Republic of Sakha (Yakutia) Anabar National
(Dolgan-Evenki) Ulus (District) Previously held positions include:
- 2007-2011 – Development Director, President of Icon
Private Equity Limited Representative Office
- Since 2011 – CEO of Russian Direct Investment Fund
Previously held positions include:
- 2009-2012 – Head, Department of Investment and
Banking, VTB Capital
- 2012-2014 – Adviser to the Head of the Federal
Agency for State Property Management
- Since 2013 – Independent director of the Supervisory
Board of ALROSA Previously held positions include:
- 1998-2010 – Goldman Sachs, investment activity
- 2010-2014 – PIMCO, investment activity
- Since 2015 – Independent director of the Supervisory
Board of ALROSA 2 1 6 3 7 8 4 5
73
Supervisory Board Overview
Source: Company data.
Sergey Mestnikov CEO of Trust Fund for Future Generations
- f the Republic of Sakha (Yakutia)
Alexey Moiseev Deputy Minister of Finance of the Russian Federation Sergey Donskoy Member of the Supervisory Board, ALROSA Nominated by: the Republic of Sakha (Yakutia) Nominated by: the Russian Federation Nominated by: the Russian Federation Previously held positions include:
- 2010-2012 – Deputy Head, Head, Secretariat of Chairman
- f the Government of the Republic of Sakha (Yakutia)
- 2012-2016 – First Deputy Minister of Property and Land
Relations of the Republic of Sakha (Yakutia)
- Since 2016 – CEO of Trust Fund for Future Generations of
the Republic of Sakha (Yakutia) Previously held positions include:
- 2001-2010 – Senior Economist, Deputy Head of
Analytical Department of Renaissance Capital - Financial Consultant
- 2010-2012 – Deputy Head of Department, Head of
Division at VTB Capital
- Since 2012 – Deputy Minister of Finance of the Russian
Federation Previously held positions include:
- 2008-2011 – Deputy Minister of Natural Resources and
Environment of the Russian Federation
- 2011-2012 – CEO of JSC Rusgeology
- 2012-2018 – Minister of Natural Resources and
Environment of the Russian Federation
- Since 2018 – Advisor to CEO, Irkutsk Oil Company LLC
- Since 2018 – Member of the Board of Directors of JSC
INK Capital Evgenia Grigorieva Minister of Property and Land Relations of the Republic of Sakha (Yakutia) Sergey Ivanov Chief Executive Officer of ALROSA Dmitry Konov Member of the Board of Directors, Chairman of the Management Board at SIBUR Holding Galina Makarova Independent director
- f the Supervisory Board, ALROSA
Nominated by: the Republic of Sakha (Yakutia) Nominated by: the Russian Federation Nominated by: the Russian Federation as an independent director Nominated by: the Republic of Sakha (Yakutia) as an independent director Previously held positions include:
- 2007-2011 – First Deputy Minister of Property
Relations of the Republic of Sakha (Yakutia)
- Since 2011 – Minister of Property and Land Relations
- f the Republic of Sakha (Yakutia)
Previously held positions include:
- 2011-2016 – Chairman of the Management Board of
AO SOGAZ
- 2016-2017 – Senior Vice President, Head of Wealth
Management at Sberbank of Russia
- Since 2017 – CEO of ALROSA
Previously held positions include:
- 2011-2016 – CEO of SIBUR
- Since 2007 – Member of the Board of Directors, Chairman
- f the Management Board (since 2009) at SIBUR Holding
Previously held positions include:
- 2003-2007 – Ministry of Property Relations of the
Republic of Sakha (Yakutia)
- 2007-2015 – Permanent Representative of the
Republic of Sakha (Yakutia) in St. Petersburg
- Since 2018 – Independent director of the Supervisory
Board of ALROSA 10 9 11 14 13 12 15
Glossary
74
Term Defin initio ition
ARP Average realized price (sales revenue divided by sales volumes in carat terms) ct ct Carat : one of the four main diamond characteristics, the others being colour, cut and clarity; 1 carat=200 mg m m ct ct Million carats CVD Chemical vapour deposition: a high-temperature, but normal-pressure process to grow lab-grown diamonds DPA DPA Diamonds Producers Association FTC Federal Trade Commission Gem Gem-qua uali lity diamond nds Diamonds used for jewellery manufacturing HPHT High-pressure, high-temperature; a process using large presses to grow lab-grown diamonds INED ED Independent Director Lab-grown diamonds s (LGD) D) Diamonds produced in laboratories using HPHT or CVD methods; also known as synthetic diamonds m3 Cubic meter Average pric ice index Average index change of like-for-like diamonds prices (excl. +10.8 carats) Reserves Resources known to be economically feasible for extraction Resour urce ces Valuable deposits that could potentially be economically extracted at a later point RoW Rest of the world tn tn Tonnes mmt Million tonnes p.p. Percentage points
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SERGE RGEY Y TAKHI HIEV HEAD OF CORPORATE FINANCE M: +7 985 760 55 74 E: ST@ALROSA.RU RUSSIA, 115184 MOSCOW 24 OZERKOVSKAYA EMB. DMITRY TRY BYALOSH SHITSKIY SKIY CORPORATE FINANCE M: +7 915 113 32 04 E: DB@ALROSA.RU