8 November 2018
ALROSA Q3 AND 9M 2018 IFRS FINANCIAL RESULTS
Photo: Nyurbinskaya pipe, Yakutia
IFRS FINANCIAL RESULTS 8 November 2018 Photo: Nyurbinskaya pipe, - - PowerPoint PPT Presentation
ALROSA Q3 AND 9M 2018 IFRS FINANCIAL RESULTS 8 November 2018 Photo: Nyurbinskaya pipe, Yakutia DISCLAIMER The below applies to the presentation (the Presentation) following this important notice, and you are therefore advised to read this
8 November 2018
Photo: Nyurbinskaya pipe, Yakutia
The below applies to the presentation (the “Presentation”) following this important notice, and you are therefore advised to read this important notice carefully before reading, accessing or making any other use of this Presentation. This Presentation contains statements about future events and expectations that are forward-looking statements. Any statement herein (including, without limitation, a statement regarding our financial position, strategy, management plans and future objectives) that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause ALROSA’s actual results, performance or achievements to be materially different from any future results, performance
Past performance should not be taken as an indication or guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance. The information and opinions contained in this document are provided as at the date hereof (unless indicated otherwise) and are subject to change without notice. ALROSA assumes no obligation to update, supplement or revise the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements. This Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire any securities in any jurisdiction or an inducement to enter into any investment activity. The contents hereof should not be construed as investment, legal, tax, accounting or other advice, and investors and prospective investors in securities of any issuer mentioned herein are required to make their own independent investigation and appraisal of the business and financial condition
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.
9.0 8.2 8.6 9М 2016 9М 2017 9М 2018 9 10 10 10 7 9 11 30 27 24 27 31 30 26 27 28 81 81 33 37 41 40 33 35 39 111 108 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9M 2017 9M 2018
3
mostly driven by ALROSA, elsewhere output remained flat
destocking of small stones
stronger prices Decrease in global diamond output, 9M 2018
m carats
Note: data based on results of ALROSA and other diamond producers with a market share totalling c. 74% in 2015-2017
Major producers’ diamond sales were 4% up on demand recovery
$ bn
Source: Company data
41.5 39.5 41.3 42.6 42.7 40.3 41.0 41.8 40.1 Q4 2014 Q4 2015 Q4 2016 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 +4% Other ALROSA
Note: ALROSA, De Beers, Catoca, Petra Diamonds, Mountain Province, Stornoway Diamond Note: ALROSA, De Beers, Rio Tinto, Catoca, Petra Diamonds, Dominion Diamond (Diavik), Stornoway Diamond
Low inventories of rough & polished diamonds at midstream
$ bn
5.8 5.2 3.5 6.6 5.3 4.1 3.8 14.5 13.1 2.9 3.3 3.1 2.0 2.1 7.5 5.1 1.9 5.4 2,3 5,8 7.6 8.2
8.9 10.4 10.3 10.1 7.4 8.5 10.5 29.5 26.4 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9М 2017 9М 2018 6.1 10.1 15.7 7.3 5.7 10.1 17.2 31.9 33.0 1.46 1.03 0.65 1.39 1.30 0.84 0.61 0.93 0.80 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9М 2017 9М 2018
4
Source: Company data
(up 10% y-o-y) to 17.2 m tonnes, due to a seasonal return to production at alluvial deposits (up 7.9 m tonnes)
per tonne due to a seasonal return to production at alluvial deposits.
at lower grade mines (e.g. Nyurbinskaya pipe).
to seasonal growth of production at alluvial deposits by 3.5 m carats. On top of that, the Nyurba Division’s deposits increased ore processing, and recently launched Udachny underground mine and Severalmaz gradually ramped up their production to design capacity Ore and sands processing
m tonnes
Diamond production
m carats
50% 19% 31% 36% 9% 55% Share Share
Grade, ct/t Underground Open-pit Alluvial
1,289 1,114 823 859 1,556 1,034 933 3,226 3,523 20 18 25 21 26 23 16 63 65
1,309 1,132 848 881 1,582 1,057 949 3,289 3,588 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9M 2017 9M 2018
11.0 8.0 4.9 6.2 10.1 6.3 4.7 23.9 21.1 3.0 2.2 2.7 3.3 3.2 2.7 2.0 7.8 8.0
14.1 10.2 7.5 9.4 13.4 9.0 6.7 31.8 29.1 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9M 2017 9M 2018
5
Source: Company data
Q3 2018
to a drop in sales of small-size diamonds. This factor was behind a 11% y-
9M 2018
prices and improved mix of gem-quality diamonds as sales of +10.2 and +2 carats stones grew Diamond sales
m carats
Increase in diamond sales by value, 9M 2018
$ m
Industrial quality diamonds Gem-quality diamonds Industrial quality diamonds Gem-quality diamonds
6
to 15.5 m cts, driven by a seasonal increase in production at alluvial deposits and decline in small-size diamond sales in Q3 2018
driven by index price growth and better product mix (sales of stones of +10.8 and +2 cts size grew)
demand recovery and lower stocks at the customers. ALROSA's gem-quality diamond prices and price indices
$/carat
Source: Company data
ALROSA's diamond inventories were seasonally up
m carats
14.3 17.5 18.2 12.3 11.0 15.5 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 192 192 143 165 126 169 139 164 199 1.00 0.93 0.91 0.96 0.94 0.99 0.99
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Price index for gem-quality diamonds Average selling price for gem-quality diamonds, $/ct
7
Source: Company data
Q3 2018:
decreased (down 26% q-o-q)
better mix, cost control and weaker RUB
9M 2018:
sales mix, offsetting a 9% drop in sales (incl. 12% of gem-quality)
lower production costs
Margins continue to expand
RUB bn
85 71 59 61 96 72 70 214 238 35 38 27 27 48 41 40 100 129 41% 53% 46% 44% 50% 57% 57% 47% 54% Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9М 2017 9М 2018
1.9x 1.9x 1.7x 0.5x 0.7x 0.2x
2013 2014 2015 2016 2017 30.09.2018 Revenue EBITDA EBITDA margin
Leverage trends down
Net debt / EBITDA
1.34 1.17 1.33 1.23 1.18 1.39 1.28 1.26
Q1 2017 Q2 2017 Q3 2017 Q1 2018 Q2 2018 Q3 2018 9M 2017 9M 2018
32.5 30.5 9.3 10.2 9.5 8.5 7.3 7.5 11.0 11.1 10.5 10.7 11.1 10.7 16.7 14.9 6.5 5.2
114.5 109.2
9M 2017 9M 2018
Exploration costs Mineral Extraction Tax (MET) SG&A expenses Movement of diamond inventory, ore and sands Other Services and transportation Materials costs Fuel and energy Wages, salaries and other staff costs
Note: * costs – production costs + selling, general and administrative expenses + other operating income and expenses
decreased volume of run-of-mine ore
Key drivers:
headcount
prices and mix changes (RUB1.1 bn of impact) and sale of gas assets (RUB1.2 bn of impact)
RUB1.4 bn: reduced exploration costs due to exploration restructuring (RUB0.6 bn of impact) and sale of gas assets
Division’ expenses and transfer of Almazy Anabara’ expenses to Q4 2018
RUB0.5 bn: lower SG&A expenses reflecting a reduced administrative payroll
Per unit costs
RUB '000 / cu m
8
Total operating costs
RUB bn
(5%)
Non-production costs Production costs
Source: Company data
9
Source: Company data
Q3 2018 EBITDA declined to RUB40.0 bn (down 3% q-o-q) driven by:
9M EBITDA was up by 29% to RUB129.1 bn driven by:
diamonds (down 12%)
Q3 EBITDA – key drivers
RUB bn
9M EBITDA – key drivers
RUB bn
Note: “Other” mainly includes changes in diamond and ore inventories, lower tariffs and higher electricity subsidies
41.3 40.0 9.1 1.5 (17.5) 3.7 0.3 1.5
EBITDA Q2 2018 Сhanges in sales mix Сhanges in pricing Changes in sales volume Rouble devaluation Payroll reduction Other* EBITDA Q3 2018
100.0 129.1 34.7 4.9 (21.8) 8.9 1.3 1.2
EBITDA 9М 2017 Сhanges in the sales mix Сhanges in pricing Changes in sales volume Rouble devaluation Payroll reduction Other* EBITDA 9М 2018
Note: “Other” mainly includes changes in diamond and ore inventories
10
expansion capex (up RUB1.6 bn):
capex cycle peaked in 2018 Capex
RUB bn
Capex to stabilize
RUB bn
Source: Company data
5.8 5.6 7.0 8.5 4.8 7.2 8.8 18.4 20.8 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9М 2017 9М 2018
26.5 25.6 25.7 23.4 20.5 18,1 5.1 2.6 1.5 0.2 6.6 7.9 6.5 5.1 2.7 1.7 0.5 3.3 3.7 8.3
38.2 36.1 34.2 31.8 26.9 28.3 2013 2014 2015 2016 2017 2018E Other Verkhne-Munskoye Severalmaz Udachny UG mine
85.7 106.4 129.1 (20.8) (3.3) (25.0) 5.7
40 21 18 20 46 28 32 80 106 6 6 7 9 5 7 9 18 21 35 16 12 12 41 21 24 62 86 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 9М 2017 9М 2018
11
Notes: (1) OCF – operating cash flow; (2) FCF – free cash flow is, defined as OCF net of capex in the core business
Free cash flow bridge
RUB bn EBITDA Changes in net working capital* Income tax Other Operating cash flow Capex Free cash flow
Operating cash flow and capex
RUB bn 23.6 32.4 40.0 (8.8) (0.8) (5.8) (1.0)
9M 2018 Q3 2018
OCF Capex FCF
Notes: * Changes in working capital include change in insurance reimbursement (+RUB6.3 bn in Q3 and +RUB7.6 bn in 9M) “Other” mainly includes pension plan contribution and FX Source: Company data
12
Source: Company data
dividends of RUB38.6 bn payment
year) Debt profile changes
$ m
Liquidity position
$ m
4,217 3,496 3,057 2,344 1,621 1,311 3,951 3,119 2,781 1,374 1,494 558
1.9x 1.9x 1.7x 0.5x 0.7x 0.2x 2013 2014 2015 2016 2017 30.09.2018
Debt repayment schedule
$ m
343 954 6 6 2 2018 2019 2020 2021 2022 2023 Eurobonds Bank loans
753 3,121 3,874
30.09.2018
9.8 10.6 13.1 12.5 10.4 4.2
2013 2014 2015 2016 2017 9M 2018
Changes in interest on loans and borrowings
RUB bn
Credit lines Cash and equivalents Total debt Net debt Net debt / EBITDA (RUB)
13
37 (24) 6 86 (0.3) 13 38 4 2 10 (30) (62)
Net debt bridge
RUB bn
Drivers:
proceeds from disposals (RUB30 bn) to pay-down debt
to-date (2.1% of the authorised capital)
Net debt as at 31 December 2017 Free cash flow in H1 2018 Sale of gas assets Acquisition of quasi- treasury shares Other Net debt as at 30 June 2018 Free cash flow in Q3 2018 Acquisition of quasi- treasury shares Dividends paid Purchase of shares of ALROSA-Nyurba Other Net debt as at 30 September 2018
Source: Company data
10.8 10.8 15.4 65.8 38.6 43.7 1.47 1.47 2.09 8.93 5.24 5.93 2013 2014 2015 2016 2017 6М 2018 50% 35% 50% 50% 50% 75% 70% 26% 37% 59% 52% 70% 2013 2014 2015 2016 2017 6М 2018 Minimum level of dividends based on IFRS net income (new dividend policy) Payment ratio based on IFRS net income Payment ratio based on FCF
14
Source: Company data
dividend policy:
❶ Net debt / EBITDA < 0.0 – over 100% FCF ❷ 0.0 < Net debt / EBITDA < 1.0 – 70-100% FCF ❸ 1.0 < Net debt / EBITDA < 1.5 – 50-70% FCF
cash flow) Dividend payout ratios Dividend payment
RUB bn
RUB per share
15
Market outlook
Operating performance
Udachny underground mine Verkhne-Munskoye deposit (open-pit mining) Mayskaya pipe (open-pit mining) Production start 2014 2018 2025 Expected design capacity 2020 2019 2027 Expected life of mine 2040 2042 2039 Investment start date 2002 2015 2018 Total capex, RUB bn 63.9 63.0 14.4 Total capex invested, RUB bn 52.8 (81%) 16.2 (26%) 0.03 (0.2%) Target ore output, m tonnes pa 4.0 3.0 0.3 Diamond production, m carats pa 4.9 (2019F) 1.8 (2019F) 0.8 (2027F) Average grade, carats per tonne 1.52 (2019F) 0.6 (2019F) 2.87 (2027F) Total resources, m carats 212.6 38.4 13.9
17
Source: Company data
Udachnaya pipe Verkhne-Munskoye deposit
5.2 5.4 8.1 7.5 2.8 2.7 5.9 2.8 5.7 5.5 1.9 2.6 29.5 26.4
9М 2017 9М 2018 Severalmaz Nyurba Division Mirny Division Udachny Division Aikhal Division Almazy Anabara and Nizhne-Lenskoye
18
Source: Company data
gradually ramping up
processing throughput at the Botuobinskaya pipe
Zarnitsa pipe
the Jubilee pipe coming on-stream
higher processing throughput of sands
Diamond output
m carats
+41%
+4%
19
Source: Company data
natural hedge against FX risks
exchange rate by +/- 1 RUB/USD leads to the following change in metrics:
Financial metrics breakdown by currency (9M 2018)
% of metric's total
93% 16% 14% 76% 94% 7% 84% 86% 23% 6% Revenue Cost of sales Capex Cash and cash equivalents Total debt RUB USD
20
Source: Company data
Costs structure by category
RUB bn
RUB30 bn (down 3% y-o-y) mainly due to increase of diamond inventories and lower exploration expenses
10.6 10.7 10.3 10.0 3.5 1.8 3.5 3.4 3.0 3.6 2.5 3.6 2.2 2.8 2.6 2.7 2.6 5.0 4.0 3.6 4.2 3.1 3.5 4.0 5.2 5.6 4.3 5.0 2.3 1.9 1.5 1.5
33.1 31.8 30.9 30.1
Q2 2017 Q3 2017 Q2 2018 Q3 2018 Exploration Mineral extraction tax (MET) Selling, general and administrative expenses (SG&A) Movement of diamond inventory,
Other Services and transport Materials Fuel and energy Payroll and employee benefits
M: +7 985 760 55 74 E: st@alrosa.ru Head of Corporate Finance Sergey Takhiev Moscow, Russia 115184 24 Ozerkovskaya emb.