ALROSA Reports 21% Revenue Drop, Blames Weak Demand

Moscow, 10 March 2020 – ALROSA, the world’s leader in diamond mining, announces its IFRS financial results for Q4 2019 and FY 2019.

  • Revenue in 12M declined by 21% to RUB 238 bn on the back of reduced sales by 12%. This decline is attributable to weaker demand in the rough and polished diamonds market (mainly in 1H 2019), lower average like-for-like diamond price index (down 6%), and a higher share of small-size diamonds in the sales mix. In Q4, revenue increased by 41% q-o-q (up 5% y-o-y) to RUB 65 bn driven by stronger sales and growth in average realised prices.
  • EBITDA amounted to RUB 107 bn (down 31%) on lower top line, while in Q4 2019 EBITDA increased by 40% q-o-q (up 10% y-o-y) to RUB 30 bn.
  • EBITDA margin in 12M was 45% (down 7 pp). In Q4, EBITDA margin increased by 2 pp y-o-y to 46% (flat q-o-q).
  • Free cash flow (FCF) in 12M decreased by 48% to RUB 48 bn on lower profitability as top line declined, along with a working capital build-up in 2019, which was partly offset by downscaled capex from initially planned RUB 29 bn to RUB 20 bn. Q4 FCF increased to RUB 17 bn, reflecting a 3.3x  increase in the operating cash flow along with a seasonal rise in capex (up 49% q-o-q).
  • Net profit in 12M declined by 31% to RUB 63 bn amid lower revenue partially offset by rising FX gains.  Q4 net profit stood at RUB 12 bn (down 14% q-o-q, up 47% y-o-y).
  • Net debt / LTM EBITDA1 increased to 0.7x as at the end of 2019 (vs 0.4x as at the end of 2018).
  • 2020 guidance:
    • Production – 34.2 m carats;
    • Capex – RUB 22 bn.
RUB bnQ4
2019
Q3
2019
q-o-qQ4
2018
y-o-y12М
2019
12М
2018
y-o-y
Diamond sales, m ct, incl.8.26.428%9.0(9%)33.438.1(12%)
gem-quality5.94.338%5.313%24.226.4(8%)
industrial2.22.19%3.7(40%)9.311.7(21%)
Revenue64.645.741%61.45%238.2299.6(21%)
EBITDA29.521.140%26.910%107.1156.0(31%)
EBITDA margin46%46%(0.3 pp)44%2%45%52%(7 pp)
Net profit11.713.6(14%)7.947%62.790.4(31%)
Free cash flow216.82.5572%14.318%47.692.3(48%)
Net debt379.663.026%67.418%79.667.418%
Net debt / LTM EBITDA0.7x0.6x0.4x               –0.7x0.4x              –

Alexey Philippovskiy, ALROSA’s CFO, commented on the results:

“In the first half of 2019, the diamond market was impacted by the excessive supply of polished diamonds and a decreased availability of funding for the Indian midstream segment. Diamond producers were able to adjust their sales policy by reducing supply by 20%, helping to improve the balance of demand and supply across the chain as early as by the end of 2019.  Starting from the middle of the year, the market saw prices and demand stabilisation, with monthly sales demonstrating a positive trend in August – December. In the second half of 2019, consumer activity recovered across key sales markets, above all in the US.

Still, the overall weakening of demand for diamonds in 2019 caused the diamond price index to go down by 6% vs 2018. 2019 was marked by stronger demand for small-size diamonds, reflected in a 16% reduction in average realised prices.

In 1H 2020, jewellery demand will be impacted by exogenous factors. At the same time, the diamond industry looks much healthier in 2020, with balanced stocks, both for jewellery in retail, and for cutters’ diamonds, and with the mid-stream leverage back to historical levels

ALROSA’s financials in 2019 saw expected pressure from external factors. Sales went down by 12% y-o-y to 33.4 m carats. 2019 revenue decreased by 26% to $3,273 m. In Q4, revenue picked up by 48% y-o-y to $888 m amid improved demand and destocking in the midstream and retail.

Total debt for 2019 increased by 23% to $1.9 bn.

2019 FCF stood at RUB 48 bn (down by 48%), with capex declining by 28% to RUB 20 bn. In Q4, FCF was up 6.7x q-o-q and reached RUB 16.8 bn despite seasonal capex growth (up 49% q-o-q).

Net debt / EBITDA as at the end of Q4 2019 stood at 0.7x, in line with the target leverage and higher than in Q3 2019, which is mainly explained by a 1H 2019 dividend cash payment of RUB 27.7 bn”.


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.

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