Alrosa · RUS:ALRS
Alrosa — Investor Day (March 2016)
40 slides from Alrosa's investor day presentation, Mar 21, 2016
Slide 1: Investor Day
Investor Day New York, 21 March 2016 London, 23 March 2016
Slide 2: Disclaimer
Disclaimer The information contained herein has been prepared for the use in this Presentation (the “Presentation”) and has not been independently verified. Such information is confidential and is being provided to you solely for your information and may not be reproduced, retransmitted, further dis
Slide 3: Presenting team
Presenting team Andrey Zharkov Igor Sobolev CEO First Vice-President – Chief Operating Officer Igor Kulichik Andrey Rodionov CFO, Vice President Advisor to CEO 3
Slide 4: Contents
Contents 1 ALROSA Today and Tomorrow 5 2 Production Overview 16 3 Financial Overview 24 4
Slide 5: ALROSA Today and Tomorrow
ALROSA Today and Tomorrow 5
Slide 6: ALROSA is a global leader in rough diamond production with a strong financial profile
ALROSA Today and Tomorrow ALROSA is a global leader in rough diamond production with a strong financial profile Financial summary Revenue, RUB bn EBITDA, RUB bn Free Cash Flow EBITDA margin, % Net debt/EBITDA • ALROSA is a public diamond mining company with 23% free-float on the Moscow Exchange 1.9x
Slide 7: Global luxury goods market continued to grow at a slower rate in 2015
ALROSA Today and Tomorrow In 2015, global luxury goods market continued to grow, albeit at a slower rate, due to lower demand in Asia-Pacific Global luxury goods market by main regions $ bn 302 World 1-2% 4% 298 288 6% 272 5% 2% 5% Other 5% 5% 9% 5% 21% (6%) 19% Asia-Pacific 21% 3% 20% 7% 8% 9% 9% J
Slide 8: Jewelry segment followed luxury goods market dynamics
ALROSA Today and Tomorrow Jewelry segment followed luxury goods market dynamics, slowing down after solid growth in 2013-2014 Global luxury goods market by main segments $ bn 1-2% 302 4% 298 World 288 6% 272 4% Other 1% 0% 4% 4% 4% 4% 20% 20% 1% Beauty 20% 2% 20% 8% 23% Jewelry and watches 24% 0% 24
Slide 9: Polished diamond sales from accumulated inventory surplus in 2015
ALROSA Today and Tomorrow In 2015, polished diamond sales from accumulated inventory surplus amounted to $2.6 bn, reducing excess inventories to a minimum level Inventories in polishing segment $ bn 19.4 16.3 17.8 17.7 18.6 0.7 1.8 2.7 14.2 3.1 3.1 0.1 14.7 17.0 16.8 16.7 13.2 14.1 2010 2011 2012 20
Slide 10: Declining demand for rough diamonds in 2015 impacted prices and volumes
ALROSA Today and Tomorrow Declining demand for rough diamonds in 2015 impacted diamond prices and sales volumes ALROSA rough diamond price index under long-term agreements and sales on spot +46% +7% (20%) 0% (15%) +21% 2010 2011 2012 2013 2014 2015 ALROSA rough diamond sales and production mln cts 2
Slide 11: Demand for diamond jewelry expected to grow ~2-4% annually in 2016-2025
ALROSA Today and Tomorrow Demand for diamond jewelry is expected to grow at ~2-4% annually in 2016-2025 Global diamond jewelry sales dynamics forecast y-o-y, CAGR 2-7% 0% ~2-4% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Luxury goods sales in 2015, Major assumptions of global di
Slide 12: Global rough diamond production has remained relatively flat
ALROSA Today and Tomorrow Despite production increases announced by mining companies in the recent years global rough diamond production has remained relatively flat Global rough diamond production historical data mln cts 176 168 169 mln cts 163 128 123 128 130 125 129 120 126 mln cts 2006 2007 2008
Slide 13: Rough diamonds market expected to be balanced mid-term; demand to exceed supply after 2019
ALROSA Today and Tomorrow Rough diamonds market is expected to be balanced in the mid-term; demand is expected to exceed supply after 2019 Major diamond mining companies accumulated inventories in 2015, which may become an additional source of supply for the diamond market in the mid-term Demand-sup
Slide 14: ALROSA diamond sales decreased 30% in 2015; market rebound in early 2016
ALROSA Today and Tomorrow While 2015 ALROSA’s diamond sales in 2015 decreased by 30%, in line with diamond market, preliminary sales results for January-February 2016 point to a market rebound ALROSA rough diamond sales $ mln +25% 4,901 4,793 3,437 1,021 776 701 620 568 527 2013 2014 January - March
Slide 15: Strategic directions for development
ALROSA Today and Tomorrow Strategic directions for development Focus on diamond mining Operational efficiency ALROSA IS Geological exploration ABOUT Marketing and brand Non-core assets divestment 15
Slide 16: Production Overview
Production Overview 16
Slide 17: ALROSA diamond production is well-diversified among divisions and mining types
Production Overview ALROSA’ diamond production is well-diversified among divisions and types of mining Geography of ALROSA’ production assets 32% Aikhal Division Aikhal pipe 12.3 Jubilee pipe mln cts Komsomolskaya pipe 20% Nyurba Division Nyurbinskaya pipe 7.5 Botuobinskaya pipe mln cts Alluvial dep
Slide 18: ALROSA intends to increase diamond production to over 41 mln cts by 2019
Production Overview ALROSA intends to increase diamond production to over 41 mln cts by 2019 Severalmaz and Udachny are the key production growth drivers ALROSA production forecast mln cts 1.03 1.05 1.00 0.97 0.94 0.91 0.90 Grade (ct/t) CAGR 15–21F 41.5 41.2 41.3 1% 39.9 39.9 39.0 38.3 4.3 4.6 17% 2
Slide 19: In 2015, ALROSA continued to develop its core growth projects
Production Overview In 2015, ALROSA continued to develop its core growth projects Udachny underground mine Severalmaz On June 27, 2014 ALROSA started to mine ore from On March 14, 2014 processing plant with annual capacity Udachny underground mine of 3 mln tons of ore was put into operation, having
Slide 20: Udachny underground mine efficiency fostered by block caving method
Production Overview Economic efficiency of Udachny underground mine will be fostered by block caving mining method Traditional cut-and-fill mining Block caving method Mir underground International Aikhal underground Udachny underground mine mine underground mine mine Production level Backfilled prod
Slide 21: ALROSA's operational results in 2015 in line with long-term strategy
Production Overview ALROSA’s operational results in 2015 are in line with its long-term strategy 21 Diamond production +6% 2015 38.3 mln cts 2014 37.1 mln t 36.2 mln cts 1.03 cpt 35.9 mln t 1.01 cpt Diamonds produced (mln cts) 10.6 11.6 9.7 8.4 9.6 8.6 7.9 8.0 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
Slide 22: Streamlining operations to focus on diamond mining
Production Overview ALROSA continues to streamline its operations to focus on diamond mining Number of subsidiaries 70 39 34 25 20 01.01.2009 01.01.2015 01.01.2016 01.01.2017 01.01.2020 Prior to 2015, ALROSA sold 31 non-core In 2015, ALROSA sold 5 non-core In 2016, ALROSA is planning to sell assets
Slide 23: Optimization of selected non-core businesses
Production Overview ALROSA continues optimization and increase in efficiency of selected non-core businesses Restructuring of airline operations 1 Reduction of losses by ~RUB300 mln as a result of transferring of 6 airports to federal ownership Restructuring of kindergarten education centres 2 Subsi
Slide 24: Financial Overview
Financial Overview 24
Slide 25: Financial results
Financial Overview Financial results 2015 RUB mln 2015 2014 vs. 2014 Operating performance Production, mln cts 38.3 36.2 6% Sales, mln cts, incl.: 30.0 39.6 (24%) gem quality diamonds sales, mln cts 19.7 27.7 (29%) industrial quality diamonds sales, mln cts 10.3 11.9 (13%) IFRS income statement of p
Slide 26: Financial results impacted by foreign exchange rate fluctuations
Financial Overview ALROSA’s financial results are impacted by foreign exchange rates fluctuations Sensitivity analysis RUB mln -10 RUB/USD 2015 +10 RUB/USD Revenue 191,716 224,524 257,332 received in USD 90% as diamond prices are set in USD (14.61%) +14.61% Cost of sales (90,330) (93,240) (96,150) 2
Slide 27: Ruble depreciation offset decreases in volumes and prices
Financial Overview Ruble depreciation offset decreases in volumes and prices, resulting in growth of gem-quality rough diamond sales in 2015 Gem-quality rough diamond revenue analysis RUB mln Gem-quality rough diamond average price, $/ct 66,523 169 171 (49,265) (1,310) +9% 185,876 169,928 Gem-qualit
Slide 28: Cost of production increase drivers
Financial Overview Cost of production increase was impacted by extraction tax, wages, salaries and other staff costs and fuel and energy costs Cost of production Cash costs by mining method RUB mln RUB/ct 2015 2014 2015 2014 vs. 2015 2014 Wages, salaries and other staff costs 40,253 34,279 17% 2,477
Slide 29: 2015 EBITDA increase primarily due to growth in gross profit
Financial Overview In 2015, EBITDA increased primarily due to growth in gross profit from diamond sales EBITDA analysis RUB mln EBITDA margin 53% 297 272 23,844 671 (443) 45% 118,498 +26% 93,857 EBITDA Increase in Increase in other Decrease in Decrease in exploration EBITDA Increase in SG&A 2014 gro
Slide 30: Long-term capital expenditure forecast
Financial Overview ALROSA’s long-term capital expenditure forecast Planned vs Actual Capex RUB bn 38.5 38.9 -2.5 35.6 0.4 0,4 -1.4 36.0 34.2 6.8 2.6 33.3 1.5 32.0 31.4 1.5 1.0 1,0 28.5 2.1 2.4 7.9 6.5 5.6 1,2 1.2 4.6 3.0 20.9 0.5 0,5 25.6 5.1 18.4 27.2 20.5 20.0 20.7 20.8 12.2 7.8 6.1 5.4 5.0 3.1 3.
Slide 31: ALROSA's debt structure
Financial Overview ALROSA’s debt structure Loans and borrowings Loans and borrowings breakdown $ mln As at 31 December 2015 Total debt/ 6.1x 2.9x 1.5x 2.0x 2.0x 2.1x 1.9x EBITDA 67% Bank loans 33% Eurobonds 3,871 4,127 3,496 3,130 3,505 2,866 3,040 100% US dollar-denominated debt 2009 2010 2011 2012
Slide 32: Track record of strong cash flows and dividends
Financial Overview ALROSA has a track record of strong cash flows and dividends Operating cash flow, capital expenditures, free cash flow and dividends Dividends per share, RUB (36,056) (38,165) (34,241) (30,050) 53,533 78,115 75,541 1.47 1.47 42,007 1.11 15,368 42,059 41,300 11,957 10,826 10,826 8,
Slide 33: Appendix
Appendix 33
Slide 34: Management team overview
Management team overview Executive Team Operational Team Andrey Zharkov Mirny division President - chief executive officer Mikhail Lopatinsky • Joined the Company in 2015 Director, Mirny mining and processing division • Joined the Company in 1992 CEO • Deputy head of Gokhran (2010–2015) • Chief comm
Slide 35: Supervisory Board overview (1/2)
Supervisory Board overview (1/2) 1 Anton Siluanov 2 3 4 Yegor Borisov Alexander Galushka Andrey Zharkov Finance Minister of the President of the Republic of Minister for the Development President (CEO) of ALROSA Russian Federation Sakha (Yakutia) of the Russian Far East Chairman of the Board of Firs
Slide 36: Supervisory Board overview (2/2)
Supervisory Board overview (2/2) 9 10 11 12 Oleg Grinko Pavel Ulyanov Valentin Nikiforov Galina Danchikova Chairman of the Board of Head of Energy Division at Head of representative office Chairwoman of the Government Directors at Sberinvest Asset RUSAL Global of Nyurbinsky district in of the Republ
Slide 37: Latest operational results
Latest operational results Cash Cash Cash Cash Ore and sands Diamond costs costs costs costs Type of Grade Grade processing production per ton per per ton per mining (ct/t) (ct/t) (‘000 t) (‘000 cts) of ore, carat, of ore, carat, (RUB) (RUB) (RUB) (RUB) 2014 2015 2014 2015 2014 2015 Aikhal Division
Slide 38: Share of underground production to increase to 34% in 2021
The share of underground production will increase from 24% in 2014 to 34% in 2021 ALROSA production forecast, by mining method mln cts 1.01 1.03 1.05 1.00 0.97 0.94 0.91 0.90 Grade (ct/t) Share in Share in production, 41.5 41.2 production, 2014 39.0 39.9 39.9 41.3 2021F 38.3 36.2 9,5 14,8 14,5 13,9
Slide 39: Detailed reserves and resources statement
Detailed reserves and resources statement Reserves Resources inclusive of Reserves Reserve Reserve Resource Resource JORC Tonnage Tonnage Deposit Grade Carats Deposit JORC Category Grade Carats Category (kt) (kt) (ct/t) (kct) (ct/t) (kct) Udachny Division Udachny Division Udachnaya Pipe, ore stockpi
Slide 40: Thank you!
Thank you! 1-st Kazachy Per., 10-12 Corporate Finance and Analytics Moscow 119017 Tel.: +7 495 745 5872 Investor Relations Russia ir@alrosa.ru