Alrosa · RUS:ALRS
Alrosa — Investor Presentation (November 2016)
44 slides from Alrosa's investor presentation, Nov 2, 2016
Slide 1: Investor presentation
A ALROSA Investor presentation
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: Contents
Contents 1 Market Overview 4 Market Overview 4 2 Long-Term Projections 15 3 Sales ALROSAOverview Performance Overview 26 21 4 Financial Overview 31 3
Slide 4: Market Overview
Market Overview 4
Slide 5: ALROSA is a global leader in rough diamond production with a strong financial profile
ALROSA is a global leader in rough diamond production with a strong financial profile ALROSA financial results summary • ALROSA is a public diamond mining company with a Revenue, RUB bn EBITDA, RUB bn Free Cash Flow 34% free-float on the Moscow Exchange EBITDA margin, % • ALROSA’ production totaled
Slide 6: Rough diamond production is dominated by a few mining companies with the highest margins
Rough diamond production is dominated by a few mining companies with the highest margins across diamond pipeline Rough-diamond Cutting & polishing Diamond jewelry Retail sales of production of diamonds manufacturing diamond jewelry Margins 18-22% <3% 3-5% 4-11% Top-5 players control ~ Major retailer
Slide 7: Global luxury goods market growth slowed down after high single-digit growth in 2010-2013
Global luxury goods market growth slowed down after high single-digit growth in 2010-2013 Global luxury goods market (at constant exchange rates) $ bn 350 World 1% 0% 3% 7% 5% 0% 280 5% Other 9% 10% 14% 0% 13% Rest of Asia 7% 4% 7% China 210 8% (1%) 9% Japan North and South 140 34% (2%) 33% America
Slide 8: Lower than expected consumption of diamond jewelry in 2014-2015 led to inventory accumulation
Lower than expected consumption of diamond jewelry in 2014-2015 led to accumulation of inventory surplus by diamond polishers, which was almost depleted by the end of 2015 Forecasted and actual consumption of diamond jewelry in 2014-2015 $ bn 81 -11 80 75 -4 69 71 70 Unrealized demand for diamond je
Slide 9: Demand for rough diamonds in 2016 exceeds demand in 2015
Demand for rough diamonds in 2016 exceeds demand in 2015 due to lower volumes sold by major diamond producers in H2 2015 ALROSA rough diamond sales $ mln ALROSA rough diamond price index under long-term agreements and spot sales +21% +46% (20%) 0% +7% (15%) 0% +29% 4,901 4,450 4,793 4,274 3,526 3,43
Slide 10: Diamond industry grew 3-5% over the past decade
Diamond industry grew 3-5% over the past decade Global diamond jewelry sales Global polished diamond sales $ bn $ bn 5% per year 4% per year 80 30 40 15 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Global rough diamond sales ALROSA rough dia
Slide 11: Demand for diamond jewelry is expected to grow at ~2-4% annually in the next decade
Demand for diamond jewelry is expected to grow at ~2-4% annually in the next decade Key markets are driven by different macroeconomic indicators USA Europe China India personal personal number of personal number of GDP disposable GDP disposable GDP middle class disposable GDP middle class income inc
Slide 12: Global rough diamond production has remained relatively flat
Despite production increases announced by mining companies in the recent years global rough diamond production has remained relatively flat Global diamond production forecast (based on diamond producers’ plans and life of mines periods) mln ct, y-o-y CAGR ~2% 156 129 2015 2016 2017 2018 2019 2020 20
Slide 13: Diamond exploration becomes increasingly challenging
Diamond exploration becomes increasingly challenging • Approximately 15% of kimberlites discovered are diamond-bearing, with 1% of these typically becoming producing mines • Currently, the search of new kimberlite pipes is complicated due to overburden, all surface kimberlite pipes have already been
Slide 14: Rough diamonds market is expected to be balanced in the mid-term
Rough diamonds market is expected to be balanced in the mid-term; demand is expected to exceed supply after major diamond mining companies sell rough diamonds from inventories accumulated in 2015 Global demand and supply imbalance $ bn The market is balanced Imbalance emerges 20 Rough diamonds deman
Slide 15: Long-Term Projections
Long-Term Projections 15
Slide 16: ALROSA diamond production is well-diversified between divisions and types of mining
ALROSA diamond production is well-diversified between divisions and types of mining Geography of production assets 32% Aikhal Division Aikhal pipe 12.3 Jubilee pipe mln ct Komsomolskaya pipe 20% Nyurba Division Nyurbinskaya pipe 7.5 5% 95% Botuobinskaya pipe mln ct Alluvial deposits (1) Arkhangelsk
Slide 17: ALROSA diamond pipes vary by average diamond price and grade
ALROSA diamond pipes vary by average diamond price and grade with underground mines being at the top-end of revenue per ton range Range of average mined diamond value Range of average mined diamond grade 8.15 $/ct ct/t ALROSA 210 total 5.40 ALROSA 122 145 151 total 3.40 83 1.04 1.13 61 46 0.66 0.49
Slide 18: Cost of underground production per carat is close to open-pit mining
Cost of underground production per carat is close to open-pit mining due to higher grade at underground mines • Underground mining cost of production per ton of ore Grade per type of mining and underground mines is 5 times higher than open-pit mining cost of ct/t production 4.91 • Underground mining
Slide 19: ALROSA intends to increase diamond production to over 41 mln ct by 2019
ALROSA intends to increase diamond production to over 41 mln ct by 2019 Severalmaz and Udachny are the key production growth drivers ALROSA production forecast mln ct 1.03 0.99 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 38.3 37.0 4.3 4.6 17% 2.4 3.2 5.1 2.0 2.0 3.9
Slide 20: ALROSA's long-term capital expenditure forecast
ALROSA’s long-term capital expenditure forecast CAPEX breakdown by key projects RUB bn 39 40 1% 32 33 13% 31 29 5% 30 3% 8% 2% 17% 16% 4% 2% 6% 1% 21 15% 11% 20 18% 2% 6% 24% 87% 69% 10 84% 75% 63% 68% 0 2016F 2017F 2018F 2019F 2020F 2021F Other projects Severalmaz Verkhne-Munskoe Udachny division U
Slide 21: ALROSA continues developing its core growth projects
ALROSA continues developing its core growth projects Udachny underground mine On June 27, 2014 ALROSA started to mine ore from Udachny underground mine target 2014 2015 capacity Ore processed, mln t 0.1 0.3 4.0 Diamond production, mln ct 0.1 0.4 5.4 IRR 21% Severalmaz On March 14, 2014 a processing
Slide 22: Economic efficiency of Udachny underground mine will be fostered by block caving
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 production level Next pr
Slide 23: ALROSA continues to streamline its operations to focus on diamond mining
ALROSA continues to streamline its operations to focus on diamond mining Number of subsidiaries 70 39 33 25 20 01.01.2009 01.01.2015 current state 01.01.2017 01.01.2020 Prior to 2015, ALROSA sold 31 non-core In 2015, ALROSA sold 5 non-core Major non-core assets ALROSA assets with total proceeds of m
Slide 24: Optimization and increase in efficiency of selected non-core businesses
ALROSA continues optimization and increase in efficiency of selected non-core businesses 1 Restructuring of airline operations 2 Restructuring of kindergarten education centers 3 Restructuring of housing services and utilities Subsidies from Yakutian budget for housing and utilities, agriculture RUB
Slide 25: Geotransgaz is a production asset with annual production of 1.6 bn m3 of gas
Geotransgaz is a production asset with an annual production of 1.6 bn m3 of gas and 0.3 mln t of condensate. Urengoy Gas Company is a greenfield project with all the CAPEX going to geological exploration • Geotransgaz and Urengoy Gas Company completed additional geological studies of the gas assets
Slide 26: Sales Overview
Sales Overview 26
Slide 27: Gem-quality diamond sales account for 66% of volume and 97% of sales value
Gem-quality diamond sales account for 66% of total sales volume and 97% of sales value Diamond sales breakdown by sales volume by sales value Gem-quality (more than 0.03 ct or 66% more than 1.5 mm) 97% Industrial (less than 0.03 ct or less 34% than 1.5 mm) 3% 27
Slide 28: Rough diamonds are sorted into 204 boxes
Rough diamonds are sorted by size, shape, clarity and color into 204 boxes Rough diamonds are sorted by size, shape, clarity and color into 8,013 classification positions… 26 sizes 16 shapes 5 clarity categories 34 colors …which are combined to build up 204 rough diamond boxes ready for sale 5-10CT
Slide 29: ALROSA sales strategy is based on long-term contracts supported by tenders and spot sales
ALROSA sales strategy is based on long-term contracts supported by tenders and spot sales Rough diamond sales by channel Geography of sales 66% Long-term contracts 49% Belgium 17% India 19% Spot sales 15% Tenders 12% Israel 10% Russia 5% China 7% Others • ALROSA implements a three-channel distributi
Slide 30: ALROSA has increased the number of clients due to responsible client policy
ALROSA has increased the number of clients due to responsible client policy ALROSA pursues a responsible client policy, conducting a rigorous selection of clients… Appropriate legal capacity Approval of a client with the following conditions: Sustainable financial position Experience in diamond busi
Slide 31: Financial Overview
Financial Overview 31
Slide 32: H1 2016 key financial highlights
H1 2016 key financial highlights Revenue 186.7 +42% Diamond sales 21.7 +21% RUB bn mln ct H1 2015: RUB 131.9 bn H1 2015: 18.0 mln ct EBITDA 111.3 +58% Net profit 90.4 1.9x RUB bn RUB bn H1 2015: RUB 70.5 bn H1 2015: RUB 47.4 bn EBITDA margin 60% Free cash flow 78.7 2.2x RUB bn H1 2015: 53% H1 2015:
Slide 33: Increased revenue due to cancellation of 6.5% export duty on rough diamonds
ALROSA benefits from increased revenue from sales of diamonds due to cancellation of 6.5% export duty on rough diamonds since September 1st, 2016 • In accordance with WTO rules, the Russian Federation cancelled 6.5% export duty on rough diamonds on September 1st, 2016 • Price level for overseas clie
Slide 34: Financial results are impacted by foreign exchange rate fluctuations
ALROSA’s financial results are impacted by foreign exchange rates fluctuations Sensitivity analysis RUB mln -10 RUB/$ 2015 +10 RUB/$ Revenue 191,716 224,524 257,332 received in $ 90% as diamond prices are set in $ (14.61%) +14.61% Cost of sales (90,330) (93,240) (96,150) 20% are driven by $ as MET i
Slide 35: Cost of sales increased in H1 2016 y-o-y
Cost of sales increased in H1 2016 y-o-y in line with sales volumes growth Cost of sales Production costs breakdown RUB mln H1 2016 34% Wages, salaries and H1 2016 H1 2015 vs other staff costs H1 2015 18% Extraction tax Wages, salaries and other staff costs 22,002 20,910 5% Depreciation 11,693 9,459
Slide 36: ALROSA has been deleveraging for the last 5 years
ALROSA has been deleveraging for the last 5 years, keeping its loan portfolio balanced in structure and maturity profile Loans and borrowings Loans and borrowings breakdown $ mln Total debt/ 6.1x 2.9x 1.5x 2.0x 2.0x 2.1х 1.9x 1.1х EBITDA 63% Bank loans 37% Eurobonds 3,871 4,127 3,496 3,481 3,130 2,8
Slide 37: Track record of strong cash flows and dividend payouts
ALROSA has a track record of strong cash flows and dividend payouts Operating cash flow, capital expenditures, free cash flow and dividends RUB mln Dividends per share, RUB EPS, RUB 4.26 (2.44) 4.17 (36,056) (38,165) (34,241) 78,115 75,541 53,533 2.09 1.47 1.47 42,059 41,300 15,368 10,826 10,826 15,
Slide 38: Appendix
Appendix 38
Slide 39: 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 40: 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 41: Supervisory Board overview (2/2)
Supervisory Board overview (2/2) 9 10 11 12 Oleg Grinko Pavel Ulyanov Valentina Lemesheva Galina Danchikova Chairman of the Board of Head of Energy Division at Chair of the State Committee Chairwoman of the Government Directors at Sberinvest Asset RUSAL Global for Pricing Policy – Regional of the Re
Slide 42: 2015 financial results
2015 financial results 2015 RUB mln 2015 2014 vs. 2014 Operating performance Production, mln ct 38.3 36.2 6% Sales, mln ct, incl.: 30.0 39.6 (24%) gem quality diamonds sales, mln ct 19.7 27.7 (29%) industrial quality diamonds sales, mln ct 10.3 11.9 (13%) IFRS income statement of profit or loss and
Slide 43: 2015 operational results
2015 operational results Ore and Revenue Revenue Cash costs Cash costs Diamond sands Grade per ton per per ton per Type of mining production processing (ct/t) of ore, carat, of ore, carat, (‘000 ct) (‘000 t) (RUB) (RUB) (RUB) (RUB) Aikhal Division 9,141 12,322 1.35 10,246 7,601 2,487 1,845 Jubilee p
Slide 44: Thank you!
Thank you! Ozerkovskaya emb., 24/1 Corporate Finance Moscow 115184 Tel.: +7 495 745 58 72 Investor Relations Russia ir@alrosa.ru