ALROSA : Q2 and 6M 2020 IFRS results

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MDA Q2&6M 2020 Release
MDA Q2&6M 2020 Presentation
IFRS Q2&6M 2020 Consolidated statement
IFRS Q2&6M 2020 Consolidated statement_EXCEL

Moscow, 14 August 2020 - ALROSA, a global leader in diamond mining, announces its IFRS results for Q2 and 6M 2020

• Due to the economic crisis in the key markets triggered by COVID-19 in Q2 2020, ALROSA took steps to balance supply and demand through a flexible sales strategy allowing its clients to defer contract volumes to subsequent periods of the year. These factors determined financial performance in Q2 and 6M 2020.
• In Q2, revenue decreased by 83% q-o-q (down 82% y-o-y) to RUB 10.4 bn, due to lower sales in carats which shrunk 93% q-o-q (down 92% y-o-y).
• EBITDA¹ in Q2 slipped to RUB0.1 bn (down 100% q-o-q and y-o-y) on the back of a substantial sales drop which was partially offset by optimisation initiatives.
• EBITDA margin in Q2 amounted to 1% (down 47 pp q-o-q and 43 pp y-o-y).
• Net profit in Q2 stood at RUB 0.3 bn (down by RUB 2.8 bn q-o-q and RUB 13.2 bn y-o-y), which also reflected the significant drop in revenue.
• Free Cash Flow (FCF) in Q2 slided to minusRUB 30 bn on the back of the decline in operating cash flow to minus RUB 25.6 bn (down RUB 50 bn q-o-q and RUB 33 bn y-o-y). Capex stood at RUB 4.5 bn (flat y-o-y).
• Net debt / LTM EBITDA as at the end of Q2 grew to 1.2x (Q1'20: 0.7х).
• 2020 outlook (no changes to the previously published figures):
  • Production - 28-31 m ct (vs the previous guidance of 34 m ct);
  • CAPEX - RUB 20 bn (previously: RUB 22 bn)

RUB bn	Q2 2020	Q1 2020	q-o-q	Q2 2019	y-o-y	6М 2020	6М 2019	y-o-y
Diamond sales, m ct, incl.	0.6	9.4	(93%)	8.3	(92%)	10.1	18.9	(47%)
gem-quality	0.4	7.1	(95%)	6.0	(94%)	7.4	13.9	(47%)
industrial	0.3	2.4	(88%)	2.3	(88%)	2.6	5.0	(47%)
Revenue	10.4	62.7	(83%)	57.4	(82%)	73.1	127.9	(43%)
EBITDA	0.1	30.0	(100%)	25.1	(100%)	30.1	56.5	(47%)
EBITDA margin	1%	48%	(47 pp)	44%	(43 pp)	41%	44%	(3 pp)
Net profit	0.3	3.1	(85%)	13.4	(98%)	3.3	37.5	(91%)
Free cash flow2	(30.2)	21.8	-	2.4	-	(8.3)	28.3	-
Net debt3	100.6	77.4	30%	35.4	2.8х	100.6	35.4	2.8х
Net debt / LTM EBITDA	1.2х	0.7x	-	0.3x	-	1.2х	0.3x	-

Alexey Philippovskiy, ALROSA's CFO:

'In Q2 2020, consumption of jewelry in the key markets declined drastically as a result of the steps taken by a number of governments to contain the spread of the COVID-19. Both retailers and diamond cutters had sufficient stocks accumulated previously to meet the decreased demand. Taking that into account, the key mining companies, including ALROSA, decided to support their customers by allowing them not to purchase volumes under effective contracts and to use the available stocks. This decision helped to avoid market overstocking that would only aggravate the situation and delay the industry's recovery. Due to that, our performance in Q2 was low as expected - sales revenue in this period amounted to $87 m.

The retail sector is already showing signs of recovery - in June, demand for jewelry in the US rose 1.9% y-o-y, and the consumer activity in China increased. We are also seeing the first signs of growth in diamond imports to India as exports of polished diamonds recover. For now, this growth has been met via domestic stocks of cutters, but we estimate that the cutters' purchasing activity will start to recover in September in anticipation of the seasonal growth of demand for polished diamonds in November-January. Obviously, if this scenario materialises, the demand will still be 'cautious' anyway. Besides, we cannot rule out the possibility of the 'second wave' of the virus, which may become a game changer.

The Company continues to take all necessary measures aimed at combating the pandemic and its consequences. To ensure employee safety, enhanced sanitary safety measures have been implemented at all of the Company's facilities, our administrative personnel continue to work remotely, and employees are being tested for COVID-19. We continue to support healthcare facilities located in the regions of Yakutia where the Company operates. By now, we have spent over RUB 0.5 bn on COVID-19 response and prevention measures.

In terms of operating activities, we take a number of anti-crisis steps, including decrease of production, cost optimisation, as well as revision of the Company's capex programme. These measures helped us contain the free cash flow losses in 6M 2020 at minus RUB 8 bn, despite almost zero sales in Q2. At the same time, we were active at the debt capital markets in Q2, and created a $1.7 bn liquidity cushion by the end of June, providing the Company with a stable basis for operations as well as the capabilities to meet debt and other liabilities. As a result, we managed to keep the leverage below the critical levels at 1.2x Net debt / EBITDA.

Let me remind you that on 25 June, ALROSA's shareholders decided to distribute RUB 19.4 bn as dividends for H2 2020, i.e. 100% of free cash flow for the period, which is the maximum level allowed by the dividend policy. As regards dividends for H1 2020, taking into account the negative free cash flow amounting to RUB 8.3 bn, there are no conditions for interim dividend payment, according to the dividend policy.

1 EBITDA stands for the Group's earnings or loss for the period adjusted for income tax expenses, financial income and expenses, share of net profit of associates and joint ventures, depreciation and amortisation, impairment and disposals of property, plant and equipment, gain or loss on disposal of joint ventures, revaluation of investments, and one-off items.

2FCF (free cash flow) is the operating cash flow calculated in accordance with the International Financial Reporting Standards (IFRS), net of capital expenditure (posted as Purchase of Property, Plant and Equipment on the consolidated IFRS statement of cash flows).

3Net debt is the amount of debt less cash and cash equivalents and bank deposits at each reporting date in accordance with the IFRS.

This page was last updated on 14 August 2020 at 11.03

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