ALROSA Q2&6M 2020 IFRS RESULTS MOSCOW, 14 AUGUST 2020 - - PowerPoint PPT Presentation

ALROSA

MOSCOW, 14 AUGUST 2020

Q2&6M 2020 IFRS RESULTS

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.

3

ALROSA: COVID-19 RESPONSE

Team

 Preve ventive ntive measur sures: temperature checks 2x a day, provision of PPE, sanitization, etc.  Shift approach ch for unique specialists, ensuring physica ical l dista tanci cing  WFH mode from March where applicable  Internal nal commun unica icatio tion n program m to raise awareness, trainings  Testin ting for COVID-19: up to 100%

• f the personnel screened at the

sites where virus was identified

Operations

 Cris isis is management ement commit mmittee tee  2020 outp tput cut t by 10-18% 18%

• 2021-22 scenarios are being

assessed  Capex ex revis ised ed downwards  Cost t cutt ttin ing measures  Active ctive supply ly mana nagem ement ent  Bala lance ce sheet t streng engthening ening and build ildin ing up liquid idit ity posit itio ion

Customers

 Commitm itment t to support clients nts  Contracts tracts with flexibility added:

• Option to defer 100% of

purchases from April

• Volumes to be purchased by

year end cut by ½ from Aug.  Communicati nication with clients on a daily basis (incl. with Head of sales)  Sales s channe nels ls flexibility (digital, auctions)

Communities

 Support t to the healthcar thcare syste tem: : ~RUB0.5 .5 bn bn allocat located to safety measures and medical equipment, incl. PPE, testing systems and ventilators  Screening ning: : more then 33K COVID-19 tests were made in the regions of operations  Development of telemedicine networks for the remote areas

Source: Company data. Note: (1) PPE – Personal Protective Equipment; (2) WFH – Working From Home.

9 3 2 5 13 3 39 49 69 53 65 74

2017 2018 2019

Insignificant Serious Fatalities

2 29 31

6M'20

“Systemic” changes

4

EMPLOYEE SAFETY IS UNDISPUTABLE PRIORITY

Prevention ion progra ram in action

• n

Source: Company data and analysis.

Number of accidents

• Industr

trial ial safety ety is our top-prio iority ity at at all l times mes

• 6M’20: 31 accidents, incl. 29 insignificant; no fatalities
• Furthe

ther strength engthenin ening of H&S S funct ctio ion

• Forma

malized lized H&S funct ctio ion built in 2017 with systems and functions being rolled across the Group

• Head of H&S with extens

ensive ive experien erience ce in M&M to report to COO with a wide authority (up to suspension of operations)

• Prevent

eventio ion program am promoting transparency and disclosure launched in 2017

• … delivering impressiv

ive e result lts – drop in fatalities and “serious” accidents

• … while growth in insignificant accidents increased on the

back of awar arene eness / whis istleb tleblo lowing wing programs ms / motiva tivatio ion schemes mes chan ange 87% 35% 33% 13% 65% 67%

2017 2018 2019

Potential Non-potential % by type of accident

34% 66%

6M'20

80% 80% 70% 70% 55% 55% 50% 50% 50%

Jan Jan'18 18 Sep Sep'18 18 Jul' Jul'19 19 Mar'20 Jul' Jul'20

2020 output cut down

38.5 34.2 28-31

2019 2020 (initia (initial) l) 2020 (r (revis ised)

m ct

 Output cuts at the assets with higher variable costs, and with lower vs average profitability  …thus helping reduce cash outlays and speed up w/c release once demand recovers 29 26 20 22 ~20

2019 2020

Initial Revised New

MANAGING THROUGH THE DOWNTURN

Source: Company data and analysis.

5

Responsib sibil ility ity over custome mers

 Mining majors helped industry destock by the end of 2019 and continued to support in 2020  E.g. ALROSA: from Mar’20 - minimum contracted volumes cut to 50%  …starting Apr’20 up to 100% of purchases could be deferred to buy later in 2020  From Aug’20 – obligations to buy are cut by 50%

RUB bn

Capex downscale aled

 A number

• f

small projects were rescheduled or put on hold  No impact on operational performance  2020 capex

• utlook

was revised downward from RUB 22 bn by RUB 1-2 bn

Starting Apr’20 up to 100% of min allowed wed volu lumes es could be defer erred ed

• Min. allowed contract allocation level
• 3-6 m ct

DIAMOND MARKET OVERVIEW

6

Diam amon

• nd jewelry

y demand in Q2’20 20

 After strong start in Jan’20 pandemic led to stores closure in Feb-May, retailers used their existing stocks  In June retail sales started to increase showing their first yoy gain since early in 2020

Polish sher ers s structu ctura rally lly reduced stocks ks

 Better offtake in H2’19 allowing to bring supply and demand into balance by the year-end  Mid-stream decreases almost to zero rough purchases on lock-downs/travel restrictions

Miners1 adjusted diamon

• nds

s supply

$ bn

 Major diamond producers adjusted supply to prevent stock-building at mid- stream and price decreases  Production equivalent

• f

~30%

• f

diamond capacity was closed in March- April

(9%) 11% (82%) (91%) (68%) (10%) (50%) (59%) (100%) (84%) (55%)

689 1,391 220 79 272 1,489 1,135 721

• 4

285 704

Jan Jan Feb eb Mar Apr May Ju Jun

Net import Net export

3.0 2.5 0.7

Q2' 2'19 Q1'2 '20 Q2' 2'20 20 Source: Company data and analysis, GJEPC, Bureau of Economic Analysis. 1. Data based on results of ALROSA and other diamond producers with a market share totaling c. 75% in 12M 2019.

$ m, 2020 yoy change, U.S. PCE on jewelry 3.8% 1.6% (4.2%) (25%) (51%) (27%) 1.9%

2018 2019 Q1'2 '20 Q2'2 '20 Ap Apr'2 '20 Ma May'2 '20 Ju Jun'2 '20 yoy change

• 75%

10.1 6.3 4.7 5.3 7.9 6.0 4.3 5.9 7.1 3.2 2.7 2.0 3.7 2.7 2.3 2.1 2.2 2.4 13.4 9.0 6.7 9.0 10.6 8.3 6.4 8.2 9.4 0.6

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

Gem-quality diamonds Industrial quality diamonds

ALROSA ROUGH DIAMOND SALES

7

1,556 1,034 933 802 969 780 585 877 868

26 23 16 22 18 16 16 11 13

1,582 1,057 949 824 988 796 601 888 881 74

Q1'1 '18 Q2' 2'18 Q3' 3'18 Q4'1 4'18 Q1'1 '19 Q2' 2'19 Q3' 3'19 Q4'1 4'19 Q1'2 '20 Q2' 2'20 20

Gem-quality diamonds Industrial quality diamonds

Source: Company data and analysis.

Q2’20 diamon

• nd sales

s shrank k by 93% qoq Q2’20 diamon

• nd sales

s by value slipped by 92% % qoq

$ mn m ct

 Pri Price over

• ver volume

volume strateg trategy trans transla lated ted in into to a dec decade ade lowest sale les resul ults

• Sales

es were 0.6 m ct ct

• Declin

ined by 93% qoq (92% yoy

• y)

) due to sharp drop in consumer activity since the end of February on the back of COVID-19 pandemic

• Sal

Sales es in in USD SD amounted to $74 74 m (down 92% qoq and 91% yoy)

• 92%
• 91%

Share 43% 57% Share 3% 97%

12.3 11.7 15.5 17.0 14.3 15.9 21.7 22.6 21.1 26.3

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

INVENTORIES

8

59% 82% 68% 17% 12% 19% 24% 6% 13%

15.9 21.1 26.3

Q2'1 '19 Q1'2 '20 Q2'2 '20

Other Work in progress Finished goods

Source: Company data and analysis.

• 1. Diamond inventories at mining and processing divisions.

Q2 ALROSA's s diamon

• nd inventor
• rie

ies s expanded by 25% qoq ALROSA's s diamon

• nd inventor
• rie

ies s structure

m ct, end of the period m ct, end of the period

 Q2‘20 20 diamo iamond in invent ntor

• ries

es wer were up up by by 5.2 m ct ct (+25% qoq) to to 26 26.3 m ct ct as sales drop (-92%)

• utpaced managed production cuts (-29%)

 66 66% yoy yoy growth in in inve nvent ntori

• ries

es (+ (+10 10.4 m ct ct) due to sales drop on the back of squeezed consumer activity related to lockdowns around the world

+25%

+66%

1

PRICES

9

1% 2% 0% (2%) 1% 2% 2% (2%) (3%) (2%) (3%) (2%) (1%) (1%)

(7%) 18% 22% (18%) 11% 6% 22% (23%) (19%) 5% 4% 9% (17%) 63%

117 138 169 139 154 164 199 153 123 130 135 148 123 200

Q1'1 '17 Q2'1 '17 Q3'1 '17 Q4'17 Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'19 Q1'2 '20 Q2'2 '20

LFL price index change ARP change

Source: Company data and analysis. 1. ARP (average realized prices) (sales revenue divided by sales volumes in carat terms) 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).

ARP1 for r gem-diamon amonds s saw a spike of 54% yoy

$/ct

 Q2’20 20 li like ke-fo for-li like pri rice ce index ex (LFL PI) was just 1.4% qoq lower lower as the Company continued to implement its “price-over-volume” strategy  YTD the index was down 2%  Q2’20 20 av average erage reali ealize zed pric rices es (AR ARP) for for gem em- qua uali lity diamo iamonds so soar ared by by 63 63% qoq (+ (+54 54% yo yoy) to to $200 200/ct ct due to higher share of large- size diamonds in the sales mix

3% 3% (6%) (9%) 21% (19%)

136 164 133

2017 2018 2019

Average price

2

57 63 10 25 30 0.1 13 3 0.3

44% 48% 1%

Q2'1 '19 Q1'2 '20 Q2'2 '20

Revenue EBITDA Net profit EBITDA margin

FINANCIAL HIGHLIGHTS

10

Expected ed decline of revenue for r the sake e of marke ket balan ance Free Cash Flow dropped on lower r top-lin ine

RUB bn RUB bn

 Q2‘20 20:

• Revenue

enue: RUB 10.4 bn, -83% qoq on lower sales volumes

• EBIT

ITDA: RUB 0.1 bn, -100% qoq and yoy

• Profita

fitabilit ility stood at 1%

• Net inco

come me RUB 0.3 bn

• FCF was negative RUB 31 bn
• Net debt / LTM

TM EBIT ITDA was at 1.2x (+45% qoq)

 6M‘20 20:

• Revenue

enue: RUB 73.1 bn (-43% qoq)

• EBIT

ITDA: RUB 30.1 bn (-47% qoq)

• Profita

fitabilit ility: 41%

• Net inco

come me: RUB 3.3 bn

• FCF: -RUB 8.3 bn

2.4 22 (31)

Q2'1 '19 Q1'2 '20 Q2'2 '20 Source: Company data and analysis.

128 73 56 30 38 3.3

44% 41%

6M'1 6M'19 6M'20 6M'20

28 (8)

6M'1 M'19 6M'2 M'20

56 5 2 0.6 (53) (0.01)

Q1' 1'20 Re Revenu nue Sale Sales volum lume Sale Sales m mix ix Pr Pric icing ing li like-for-li like FX FX Q2'20 Re Revenu nue

GEM-DIAMONDS REVENUE DRIVERS

11

50 5 2 0.6 (47) (0.4)

Q2'19 19 Re Revenu nue Sale Sales volum lume Sale Sales m mix ix Pr Pric icing ing li like-for-li like FX FX Q2'20 Re Revenu nue

Source: Company data and analysis.

• 1. Incl. -RUB 2.4 bn of revenue from sales of gem-quality rough diamond to Kristall group in Q2’19.

Q2’20 to Q1’20 gem-quali lity rough diamon

• nd revenue bridge

Q2’20 to Q2’19 gem-quali lity rough diamon

• nd revenue bridge

RUB bn RUB bn

 Q2‘20 20 gem em-quali uality diamo iamond rev evenu nue decreased by 91% qoq (-90% yoy) to RUB 5 bn bn driven by

• Lower volumes – 93%
• Better product mix added RUB 2 bn
• Price factor had no impact on the top line

 On a yoy basis there was a similar drivers’ impact

1

14 12 15 19 14 15 14 17 15 10 34 19 15 16 25 17 10 18 18

13.4 9.0 6.7 9.0 10.6 8.3 6.4 8.2 9.4 0.6

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

Non-production sales costs Production related sales costs Rough diamond sales, m ct

COSTS DYNAMICS

12

Source: Company data and analysis.

Q2 total l cost of sales s were slumped 69 69% % qoq

RUB bn

 Q2‘20 20 total

• tal cos

costs of

• f so

sold produc ucts sli slipped by by 69 69% qoq and yoy to RUB 10.2 bn due to:

• Production

ion-rela lated sales s costs: RUB 0.2 bn as sales volumes dropped to record low 0.6 m ct (detailed breakdown is at p. 24)

• Non-prod
• duct

ction ion sales s costs: down by 32% (-RUB 4.6 bn) mostly driven by drop of MET and exploration works (see p. 25)

T

• tal cost of sales

48 48 31 31 30 30 34 34 48 48 32 32 25 25 35 35 33 33 10 10

0.2

25 9

Q2'1 '19 EBIT BITDA DA Sales les volu lume Sales m les mix ix Pr Pricin icing like- like-fo for-like

• like

FX FX Oth Other er Q2'2 '20 EBIT BITDA DA

30 (41) 0.6 9 0.1 2 (0.04)

Q1'2 '20 EBIT BITDA DA Sales les volu lume Sales m les mix ix Pr Pricin icing like- like-fo for-like

• like

FX FX Oth Other er Q2'2 '20 EBIT BITDA DA

PROFITABILITY DRIVERS

13

Source: Company data and analysis. 1. Mainly due to movement of ore &sands inventory, and decrease of MET(+RUB 8 bn). 2. Mainly due to movement of ore &sands inventory, and decrease of MET(+RUB 9 bn).

Q2 EBITDA bridge (qoq) Q2 EBITDA bridge (yoy)

RUB bn RUB bn

 Q2‘20 20 EBITDA: RUB 0.1 bn bn  Qoq

• q drivers:
• (-) volumes slump: net impact -RUB 41 bn (revenue -RUB 54

bn, COGS up: RUB 13 bn)

• (+) sales mix: +RUB 2 bn
• (-) like-for-like prices: -RUB 0.04 bn
• (+) FX rate: RUB 0.6 bn
• (+) other factors net impact +RUB 9 bn

 Yoy drivers:

• (-) 92% reduction in sales volumes (in carats): net impact
• RUB 37 bn (revenue decline: -RUB 48 bn, COGS reduction:

+RUB 11 bn)

• (+) sales mix: +RUB 2 bn
• (-) like-for-like prices: -RUB 0.3 bn
• (+) FX rate: RUB 0.6 bn
• (+) other factors: net impact RUB 9 bn

1 2

(37) 2 (0.3) 0.6 0.1

3.3 4.8 5.9 3.2 2.4 2.8 1.6 1.7 1.6 1.2 1.0 1.6 2.1 3.6 1.2 1.5 2.5 3.4 0.8 0.6 0.6 0.7 0.8 0.2 0.4 0.3 0.6 1.9 0.3 2.8

4.8 7.2 8.8 7.0 3.9 4.5 4.6 6.9 2.6 4.5

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

Infrastructure Maintenance Mining capacity

CAPEX

14

Source: Company data and analysis.

Q2 capex soar ared 72% qoq Annual capex dynamics ics

RUB bn RUB bn

 Q2’20 20 cap capex ex grew 72% qoq to RUB 4.5 bn bn mainly due to RUB 2.5 bn payment for the new building for its sales & sorting unit  Maintenance and mining capacity capex down 28% and 24% qoq respectively as optimization program was launched  Total

• tal cap

capex ex wer ere flat lat yoy yoy although there was a shift in its structure: +RUB 2.5 bn on infrastructure projects and -RUB 1.6 bn in mining capacity:

• Zarya pipe (-RUB 0.8 bn)
• V

.Munskoye deposit (-RUB 0.3 bn)

 2020-202 2024E capex outloo

• ok remains unchanged

since its last update in June

22 29 26 22 21 20 23 19 18 17 2020E 2021E 2022E 2023E 2024E 4E Initial capex outlook Updated capex outlook 38 36 34 32 27 28 20 2013 2014 2015 2016 2017 2018 2019

$ m $ m

494 500 200 200 200 300

507 759 375 10 503 357 500

2020E 2020E 2021E 2022E 2022E 2023E 2023E 2024E 4E 2025E 2025E 2027E

Eurobonds Bank loans RUB bonds 1,653 3,267 4,920

30.06.2020

2.7 2.9 2.1 1.4 2.1 1.9 2.9 5.9% 6.3% 7.7% 5.2% 6.4% 4.25% 4.19%

2015 2016 2017 2018 2019 Q1'2 '20 Q2'2 '20

Weighted av. maturity (years) Weighted av. cost (%)

DEBT POSITION

15

3,062 2,347 1,622 1,535 1,895 3,091 2,781 1,374 1,494 971 1,286 1,438

1.7x 0.5x 0.7x 0.4x 0.7x 1.2x

2015 2016 2017 2018 2019 Q2'2 '20

Total Debt Net Debt Net Debt / EBITDA, x

Source: Company data and analysis. 1. Including lease obligation (the equivalent of USD 84 m). 2. Based on EBITDA and Net Debt denominated in rubles. 3. Excluding lease obligation (the equivalent of USD 84 m) and amortization of discount. 4. For RUB-denominated debt based on FX rate as of 30 June 2020.

Sound finan ancial cial profil ile

$ m

 Q2’20 20 Net debt +$0.4 bn qoq to $1.4 bn bn  Net debt/EBITD TDA up to 1.2x  Liquidity position ion grew 2x to $1.7 bn bn  Recent transa nsaction ions:

• April-May’20 – two 2Y bank loans
• May’20 – placed 5Y local bonds of RUB 25 bn @5.75% pa
• June’20 – placed 7Y Eurobonds of $500 m @3.1% pa

 IG IG stat status us co confirm nfirmed by by S&P S&P , Moody’s, Fi Fitch in June, Raex assign igned ed AAA AAA in May Weighted avera rage cost and maturity rity of debt

2

Liquidity y position ion Debt3 repaymen ent schedule

Cash and Equivalents (incl. deposits) Credit Lines

4 1

163.2 216.2 68.8 (0.3) (14.7) (0.8)

Q1'2 '20 Total al Deb ebt Lo Loan an receiv eceived ed Lo Loan an rep epaid id FX FX Change

• f leas

f lease liab e liabilities ilities Q2'2 '20 Total al Deb ebt

77.4 100.6 30.2 2.6 (9.2) (0.4)

Q1'2 '20 Net Net Deb Debt FCF FCF Net Net in interes est FX FX Oth Other er Q2'2 '20 Net Net Deb Debt

DEBT ANALYSIS

16

Source: Company data and analysis.

Q2 Net Debt bridge (qoq) Q2 Total l Debt bridge (qoq)

RUB bn RUB bn

 Q2‘20 20 net net debt +30 30% qoq to to RUB 100.6 bn bn mostly driven by:

• (+) increased -ve FCF (+RUB 30.2 bn)
• (+) increased net interest (+RUB 2.6 bn)
• (-) FX rate impact on strengthening RUB (-RUB 9.2 bn)

 Q2‘20 20 total debt +32 32% to to RUB 216.2 bn bn due to:

• (+) placement 5Y local bonds of RUB 25 bn, 7Y

Eurobonds of $500 m and two 2Y bank loans (+RUB 68.8 bn)

• (-) FX rate (-RUB 14.7 bn)
• (-) change of lease liabilities (-RUB 0.8 bn)

0. 0.7x 1.2x

Net Debt/ LTM EBITDA

 Q2‘20 20 FCF CF down wn to to -RUB RUB 30 30.2 bn bn from +RUB 21.8 bn in Q1‘20 due to:

• (-) Profitability drop by RUB 29.9 bn qoq on lower sales/revenue
• (-) W/C build-up of RUB 24.2 bn with the key drivers:
• -RUB 12.0 bn – growth in diamond inventories
• -RUB 8.3 bn – growth in ores&sands (a) ores from higher cost

mines (b) growth of fixed costs per unit on lower production

• -RUB 2.8 bn – seasonal growth of materials
• +RUB 2.9 bn – lower receivables incl. due to stronger RUB
• -RUB 2.5 bn – drop in payables due to decrease in advances from

customers

• +RUB 1.1 bn – lower MET payables
• (-) Income tax payment (-RUB 0.6 bn)
• (-) Other (-RUB 0.9 bn)
• -RUB 0.5 bn – contribution to non-government pension fund
• -RUB 0.4 bn – adjusted advance received for the sale of non-

government pension fund

• -RUB 0.2 bn – FX effect
• +RUB 0.2 bn – other
• (-) Capex (-RUB 4.5 bn)

FREE CASH FLOW

17

(24.2) (4.5) 30.0 0.1 (25.6) (30.2) (29.9) (0.6) (0.9)

Q1'20 EB EBITDA ITDA Cha Change ges s in pro profitabi bility Q2'20 EB EBITDA Ch Change ges s in NW NWC In Incom

• me tax

Oth Other Ope Opera rating g cash flow

• w

Ca Cape pex Q2'20 Fre ree cash sh flow

• w

Source: Company data and analysis.

Q2 ’20: EBITDA to Free cash flow bridge

RUB bn

50% 50% 50% 76% 95% 76% 78% 26% 37% 59% 52% 70% 100% 100% 100%

2014 2015 2016 2017 H1 H1'1 '18 H2' H2'18 H1 H1'1 '19 H2' H2'19 Based on IFRS net income Based on FCF

65.7

38.0 (12M’17) 29.8 (H2’18) 42.7 (H1’18) 27.7 (H1’19)

10.8 10.8 15.4 80.7 57.5

2014 2015 2016 2017 2018 2019

DIVIDENDS

18

65.8 38.6

43.7 (H1'18) 28.3 (H1'19) 30.3 (H2'18) 19.4 (H2'19)

10.8 15.4 74.0 47.7

2014 2015 2016 2017 2018 2019 Source: Company data and analysis. 1. Dividends paid less than dividends accrued due to exclusion of dividends for treasury shares.

Divide idend accru ruals als Divide idend payments1

RUB bn RUB bn

 Dividend policy adopted in 2018

• Semi-annual payments
• FCF-linked
• payout ratio depends the Net debt/LTM EBITDA ratio

 On On Ju June 24 24, sharehold lder ers decid ecided ed to to pay ay RUB RUB 19 19.4 bn bn or RUB 2.63/share as dividends for H2’19, corresponding to 100% of the company’s FCF for the period – to be fully disbursed by the end of August

Divide idend payout ratios ios

Based on accrued dividends for the period

OUTLOOK

Marke rket t outlook

• ok

 Lo Long-term erm fu fundam amentals als of

• f the industry rem

emai ain strong ng – diamond jewelry remains the product of choice for “special moments in life”, and being culturally accepted in new geographies  End-deman mand for diamon

• nds to

to gradually ally recove ver as as key economie ies are back to to “normal” life (based on China’s track record)  Ro Rough diamo iamonds dema mand to to rebou

• und as stocks at both mid- and downstream being drawn down, while H2’20 demand to

recover on seasonal activity  Supply ly of

• f the roug
• ugh diamo

iamonds co conti ntinu nues es to to decr creas ease as deposits deplete and a number of mines are put on hold with potential acceleration of squeeze

Company mpany perfor forman mance ce

 2020 production ion is expected to decrease to 28-31 m ct (see p. 21)  2020 sales volumes will depend on real market demand, consistent execution of “price-over-volume” sales strategy  2020 capex outlook was revised downward to RUB 20 bn (down RUB 1-2 bn) with no effect on operational performance  Active cost cutting program am being rolle led out:

• Suspension of Aikhal underground mine – May 15 to Sept 30, 2020; Zarya pipe – May 15 to Dec 31, 2020; V

. Munskoye – June 1 to Oct 1, 2020; Zarnitsa pipe – May 1 to Dec 31, 2020, reduced production at Severalmaz from Q2’20

• SG&A savings for payroll – cut by 20% from April
• Ongoing savings from operational efficiency programs to support profitability

Source: Company data and analysis.

19

APPENDIX

2020 PRODUCTION OUTLOOK

21

0.27 2.0 1.9 4.2 0.26 1.6 1.1 2.5 3.0

Za Zari ria Ai Aikhal V.Munsk skoe

• e

Sev Severa ralma maz Tota Total re reduction

• n

Initial outlook Updated outlook

Source: Company data and analysis.

• 1. Other includes marginal production at Komsomolskaya and Zaria pipes of Aikhal Division, Zarnitsa pipe and alluvials of Udachny Division.

2020 output reduction

• n by deposits

m ct

 Management ement response to to the downt wnturn:

• 2020 “COVID crisis”:
• ‘20 output was revised from 34.2 m ct to 28-31 m ct,

which is expected to:

• Costs down by RUB 6 bn to translate into FCF

increase

• Unit cost (RUB/ct) up by ~5%
• Scenarios for ‘21-22 output cuts are being studied

Production ion outlook

• k

m ct

Alm lmazy Anabara

V.Mu Munsk skoye Udachny ny

Severalm lmaz

Nyurbin insk skay aya Jubilee lee Aikhal al

Mirny ny Div ivis ision Other1

Botuobin inska skaya

Aikha khal Divis isio ion Udachn chny Divis isio ion Nyur urba Divis isio ion

Inter ernational al Allu luvials ls

Arkhan ange gelsk skaya ya Karpi pinsk skogo

• go-1

Allu luvials ls 5.4 5.2 3.6 4.2 1.5 5.5 6.2 4.7 2.5 3.1 0.2 1.5 4.2 3.0 2.4 2.6

28-31

9.1 7.2 1.5 1.4

36.7 38.5 34.2 Poten tential ial to produce ce up to 37 37-38 38 m m ct ct

2018 2019 2020E 2021-3

• 30E

17.9 20.1 16.1 17.0 19.7 21.6 18.0 18.5 16.2 15.0

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

ALROSA PRODUCTION (1/2)

22

5.7 10.1 17.2 7.5 6.4 10.5 17.2 7.2 5.9 7.4 1.30 0.84 0.61 1.38 1.23 0.93 0.71 1.22 1.36 0.77

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

Grade, ct/t

Source: Company data and analysis. 1. ROM – run of mine.

Q2 run-of

• f-min

ine ore was down by 8% % qoq Ore and sands processin sing went up 24% qoq

m t m m3

 Q2’20 20

• ROM1 ore down

wn 8% qoq (-31% 1% yoy) ) to to 15.0 m m3, largely due to decision to suspend project of pit deepening at the Arkhangelskaya pipe (Severalmaz) in 2020 and measures taken in line with production plan reduction

• Proce
• cessed

ed feedsto tock ck went nt up by 24% qoq (-30% % yoy)

• Avera

erage e diam amond grad ade saw a seasonal l declin line e of 43% qoq (+8% % yoy) ) to 0.77 cpt due to re-launch of production lower-grade alluvial deposits at the Mirny Division and decreased production at high-grade assets related to production plan revision

• 8%
• 31%

5.3 4.1 3.8 6.5 6.1 5.6 5.2 6.0 5.9 3.1 2.0 2.1 1.0 3.3 1.5 2.2 1.6 2.6 2.0 0.7

0.2 2.3

5.8

0.5 0.2

1.9 5.4

0.3 0.1

1.8

7.4 8.5 10.5 10.3 7.8 9.7 12.1 8.8 8.0 5.7

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

Open pit Underground Alluvials

ALROSA PRODUCTION (2/2)

23

Source: Company data and analysis.

Diam amon

• nd production

ion slump 29% % qoq

m ct

Q2’20 20  Dia Diamo mond output tput dropped ed by by 29 29% qoq an and 42 42% yo yoy to to 5.7 m ct ct, mainly following revised 2020 production plan from initial 34.2 m ct to 28-31 m ct range  Open-pit mining share decreased to 55% due to a seasonal return to production at alluvial deposits  A drop in underground mining share of 13% was associated with suspended operations at the Aikhal underground mine and halted ore processing from the Udachnaya and International underground mines  The share of alluvial deposits in total production increased to 32% compared to 19% in Q2’19 as a result of lower production volumes at other assets

Share 32% 13% 55%

• 29%
• 42%

(2,999) (4,323) (8,261) (1,022) 1,068 (11,452) 12,195 12,302 11,466 3,813 4,237 3,046 3,097 2,595 3,237 1,988 2,073 1,093 215 280 1,078

21,308 21,48 487 19,920 Other production costs Services and transportation Materials costs Fuel and energy Labor costs Movement of diamonds Movement of ore and sands

PRODUCTION COSTS DYNAMICS AND BREAKDOWN

24

19,920

Q2'2 '20 Pr Product ctio ion co costs Mo Movem emen ent in in in inven entory

• f

f ore e an and san ands Mo Movem emen ent in in in inven entory

• f

f diamon amonds Q2'2 '20 Pr Product ctio ion co costs of f sales ales

(11,452)

Direc ect production ion related costs of sales s slumped Production ion cost adjust sted for r inventor

• ry movements

RUB m RUB m

 Q2’20 20 producti ction rel elat ated ed cost of

• f sale

ales slip lipped ed by by 99 99% qoq to to RUB 0.2 bn bn driven by:

• (-) movement in inventory on increase in diamonds stock due to

sales being far below output due to COVID-19 (-RUB 12.5 bn)

• (-) movement in inventory on increase in ores & sands stock as its
• utput exceeded processing volumes (-RUB 3.9 bn)
• (-) payrol
• ll -7% as some of production assets were suspended

(-RUB 0.8 bn)

• (-) fuel & energy -28

28% % on volumes decrease (-RUB 1.2 bn)

• (+)

) materials s +25% due to seasonality (+RUB 0.6 bn)

• (-)

) services s & transpo port costs s -47% (-RUB 1.0 bn) due to decrease

• f production

 Q2’20 20 produc uctio tion related elated costs costs of

• f sales

ales we were down

• wn 99

99% yoy driven by:

• (-) negative movement in diamonds stock driven drop of sales
• ver production on the back of 92% sales decline while production

was 42% down

• (-) increase of negative movement in ores & sands stock (-RUB 10.4

bn)

• (-) optimization measures (including production cuts / employees
• n furlough)

Q2‘19 Q1‘20 20 Q2‘20 XX XX

• total direct production costs of sales

(8,261) 207

Source: Company data and analysis.

NON-PRODUCTION COSTS DYNAMICS AND BREAKDOWN

25

4.7 4.8 1.1 4.3 3.4 4.1 1.7 2.5 1.8 1.6 0.8 0.9 1.2 1.2 1.2 1.4

1.8

0.9 Q2'19 Q1'20 Q2'20 Other non-production costs Other taxes and payments Social expenses Exploration expenses SG&A Extraction tax and royalty

Source: Company data and analysis. 1. Mainly includes cost of diamonds for resale and other non-production costs.

Non-prod

• duction

ction costs s were down 32% qoq

RUB bn

 Q2‘20 20 non-producti tion co costs ts wer were down wn 32% qoq to to RUB RUB 10 10 bn bn mostly due to:

• (-) MET down by 77% (-RUB 3.7 bn) mostly driven by lower sorting

volumes as employees being furloughed due to COVID related measures

• (-) value of diamonds for resale decreased by 94% (-RUB 0.9 bn)
• (+) SG&A

&A expense ses s +17% 7% (+RUB 0.6 bn) due to payment of annual bonuses

 Q2‘20 20 non non-producti tion co costs decr ecrease eased by by 33 33% yo yoy mostly due to:

• (-) MET down by 77% (-RUB 3.6 bn) because of lower sorting volumes as

employees were furloughed due to COVID related measures

• (-) value of diamo

monds ds for resale decreased by 94% (-RUB 1.0 bn)

• (-) social expense

ses s went down 45% (-RUB 0.7 bn) as charity expenses were cut

• (-) SG&A

&A expense ses s decrease sed by 5% (-RUB 0.2 bn) as management was moved on shorter business week

• (+) other non
• n-pr

produ

• duction
• n costs

s up by 1.6x (+RUB 0.5 bn) mostly due to COVID-related expenses

1

10.0 14.5 15.0

Udach achny UG UG mine VM VM1 deposit it Mais iska kaya ya pipe VG VG2 deposit it Type of minin ing Underground Open-pit Open-pit Alluvials Productio ction star art 2014 2018 2025 2024 Ramp mp-up up 2021 2019 2027 2025 T ar arget et ore e output tput pa, a, m t 4.0 3.0 0.3 1.1 T ar arget et production ction pa, , m ct ct 5.6 1.8 1.2 0.4 Tota tal l CAPEX, , RUB bn bn 63.9 20.0 5.6 2.3 Inve veste ted share 87% 92% 7% 0% Resource ce base3, , m ct ct 207.6 40.4 12.7 4.7

KEY INVESTMENTS 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

26

1 2 3 4

Yakutsk sk

Mirny Udachny Nyurba

1 2 3 4

Yakutia

DIAMOND PRODUCTION BY ASSETS

27

1.3 0.3 0.8 0.1 1.1 0.5 3.2 2.2 2.4 1.7 0.9 8.8 5.7

Q1'20 Q2'20 Almazy Anabara Nyurba Division Aikhal Division Severalmaz Mirny Division Udachny Division

Source: Company data and analysis.

Diam amon

• nd output

m ct

 Q2‘20 20 diamo iamond produc uctio ion dropped by by 29 29% qoq

• q

mainly due to revised production plan:

• Mirn

irny Divis Division ion – down

• wn 85

85% since no ore from the International underground mine was processed following the decision to suspend operations at processing plant No. 3 from 1 Apr to 1 Sep

• Ud

Udachny achny Divi Divisio ion – down wn 73 73% due to the suspension of

• perations at processing plant No. 12 from 1 May to 1 Sep
• Severa

everalm lmaz az Divi Divisio ion – down wn 49 49% due to decision to suspend from 16 May processing and mining operations

• Aik

ikhal al Division Division – down wn 27 27% due to processing of lower- grade blocks of ore from Jubilee pipe and decreased production at Zarya pipe and Aikhal underground mine on the back of decision to suspend mining operations from 15 May to 31 Dec and 30 September respectively

 For more details please see Q2&6M’20 Trading update

(27%) (85%) (73%)

• 29%

(49%) (20%)

FX RATE

28

87% 8% 26% 96% 84% 13% 92% 74% 4% 16%

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

Source: Company data and analysis. 1. Excluding lease obligation (the equivalent of USD 84 m)

Financial cial metrics ics breakdown

• wn by curren

ency

% of metric's total, Q2’20

 ALROSA is an exporter with ca. 90% of revenue denominated in USD  Major portion of costs and capex is denominated in RUB, 84% of the Company’s debt portfolio1 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 – +/-1.27%
• cost of sales – +/-0.20%
• EBITDA – +/-2.83%
• capex – +/-0.35%

1

OPERATING CASH FLOW AND CAPEX

46 41 28 21 25 16 21 14 30 26 7 2 7 3 24 17 24 22 (26) (30) (5) (7) (9) (7) (4) (5) (5) (7) (3) (5)

Q1'1 '18 Q2'1 '18 Q3'1 '18 Q4'1 4'18 Q1'1 '19 Q2'1 '19 Q3'1 '19 Q4'1 4'19 Q1'2 '20 Q2'2 '20

OCF CAPEX FCF

2 1

Operating ating cash h flow and capex ex dynam amic ics

RUB bn

Source: Company data and analysis. 1. OCF – operating cash flow

• 2. FCF – free cash flow is defined as OCF net of capex in the core business

29

THANK YOU!

SERGE RGEY Y TAKHIE HIEV HEAD OF CORPORATE FINANCE M: +7 985 760 55 74 E: ST@ALROSA.RU RUSSIA, 115184 MOSCOW 24 OZERKOVSKAYA EMB. DMIT ITRY RY BYALOSH SHIT ITSKI SKIY CORPORATE FINANCE M: +7 915 113 32 04 E: DB@ALROSA.RU