Alrosa · RUS:ALRS
Alrosa — Investor Day (March 2019)
54 slides from Alrosa's investor day presentation, Mar 18, 2019
Slide 1: Capital Markets Day
CAPITAL MARKETS DAY SPEAKERS: Maria Gordon, Independent Director Sergey Ivanov, Chief Executive Officer Alexey Philippovskiy, Chief Financial Officer LONDON, 18 MARCH 2019
Slide 2: Disclaimer
Disclaimer For notes: 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
Slide 3: Table of Content
Table of Content 01. Corporate governance development p.4 02. Message from CEO p.8 03. Market fundamentals and key trends p.14 04. Executing to strengthen our business p.24 05. Financial performance update p.42 06. Closing remarks from CEO
Slide 4: Corporate governance development
Corporate governance 01 development 1 Commitment to Improving Standards of Corporate Governance 2 Initiatives to Improve Alignment of Shareholder Interests 3 Board Agenda for 2019-2020
Slide 5: Commitment to Improving Standards of Corporate Governance
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 5 Commitment to Improving Standards of Corporate Governance Increased number of INEDs on the board level Increased share of INE
Slide 6: Current Board has Supported Initiatives to Improve Alignment of Shareholder Interests
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 6 Current Board has Supported Initiatives to Improve Alignment of Shareholder Interests New management team Transparency and disc
Slide 7: Board Agenda for 2019-2020
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 7 Board Agenda for 2019-2020 1 Focus on continuous business transformation to ensure long-term competitiveness and sustainable pr
Slide 8: Message from CEO
02 Message from CEO 1 HSE is Our Top Priority 2 What Was Achieved Since IPO 3 Superior TSR Compared to Global Peers 4 Journey Ahead
Slide 9: Focus on Responsible Mining
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 9 Focus on Responsible Mining • Improving industrial safety with focus on prevention • Structural reform promoting a culture of s
Slide 10: Employee Safety is Our Top Priority
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 10 Employee Safety is Our Top Priority Strong Commitment to Promote a Culture of Safety and Reduce the Number of Accidents One of
Slide 11: Strong Operating and Financial Performance Since IPO
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 11 Strong Operating and Financial Performance Since IPO Maintained Resource Base Increased FCF & Profitability Strengthened Balan
Slide 12: Superior TSR Compared to Global Peers
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 12 Superior TSR Compared to Global Peers Cumulative total USD TSR since ALROSA IPO in October 2013, % 190% +68.5% ALROSA 160% +48
Slide 13: Journey Ahead
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 13 Journey Ahead Developing Efficient Organisation... …and Taking Advantage of Strong Market Fundamentals… Focus on Core Business
Slide 14: Market fundamentals and key trends
Market fundamentals 03 and key trends 1 Strong Long Term Demand Outlook 2 Constrained Supply Outlook 3 Favorable Supply / Demand fundamentals 4 Diamond is a Unique Product
Slide 15: Strong Long Term Demand Outlook
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 15 Strong Long Term Demand Outlook ...driven by disposable income growth and middle class expansion Real disposable income growth
Slide 16: Constrained Supply Outlook
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 16 Constrained Supply Outlook Depletion of deposits will result in diamond production declines in the coming years 2018 to 2023 s
Slide 17: Favorable Supply/Demand Fundamentals
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 17 Favorable Supply/Demand Fundamentals … will drive the market into a deficit and support positive diamond price pressure Global
Slide 18: Diamonds are Different from Commodities
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 18 Diamonds are Different from Commodities Mature demand and supply discipline result in low price volatility Mature and stable c
Slide 19: Demystifying LGDs
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 19 Demystifying LGDs LGD myth #1: LGD myth #3: Case study: LGD positioning Myth: LGD and diamonds are identical Myth: Launch of L
Slide 20: LGD: the Future is History
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 20 LGD: the Future is History Similar scenario has already realised on the market for lab grown sapphires Indexed price per carat
Slide 21: Synthetic Stones: Key Marketing Messages
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 21 Synthetic Stones: Key Marketing Messages Key marketing messages of lab grown sapphires producers are similar to the ones used
Slide 22: Diamonds and Their Synthetic Substitutes Have Different Price Drivers
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 22 Diamonds and Their Synthetic Substitutes Have Different Price Drivers and Value to Consumers Natural diamonds LGD LGD is not t
Slide 23: Expanding LGD Discount Illustrates Different Market Perception
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 23 Expanding LGD Discount Illustrates Different Market Perception of LGD vs. Diamonds LGD discount to natural diamonds Price of 1
Slide 24: Executing to strengthen our business
Executing to strengthen 04 our business 1 Key Challenges for the Industry and How We Address Them 2 Superior Exploration Capabilities 3 Stable Production Outlook 4 Focus on Efficiency and Case Studies 5 Prudent Capital Allocation
Slide 25: ALROSA: the Story of the Industry Leader in 4 Charts
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 25 ALROSA: the Story of the Industry Leader in 4 Charts The largest and most profitable player in the industry Reserves1 Producti
Slide 26: Key Challenges for the Industry
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 26 Key Challenges for the Industry … and how we address them from a value creation perspective 1 Lack of new deposits, limited •
Slide 27: Superior Exploration Capabilities
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 27 Superior Exploration Capabilities … result in solid track record of resource replenishment at low finding costs Unique full-cy
Slide 28: Stable Production Outlook
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 28 Stable Production Outlook …supported by development of new projects and debottlenecking Production outlook Key drivers m ct •
Slide 29: Focus on Efficiency
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 29 Focus on Efficiency Dedicated operating efficiency program launched in 2017 Scaling up initiatives Delivering tangible results
Slide 30: Case Study: Operational Turnaround Program at Nyurba
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 30 Case Study: Operational Turnaround Program at Nyurba Nyurba’s success can be replicated and scaled up across other divisions K
Slide 31: Case study: Automotive Transport Optimization
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 31 Case study: Automotive Transport Optimization Centralization and usage-based approach provide long-term cost cutting effect Ke
Slide 32: Case Study: Working Capital Management
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 32 Case Study: Working Capital Management Reduction in rough diamond WIP inventory days Optimization levers Reduction of diamonds
Slide 33: Employee Training and Development System
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 33 Employee Training and Development System … to further improve long term competitiveness and productivity Key initiatives and p
Slide 34: Adoption of Best Practices in Digitalisation Offers Further Efficiency Potential
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 34 Adoption of Best Practicies in Digitalisation Offers Further Efficiency Potential Drill-and-blast Digital Mine Automation Big
Slide 35: Marketing Strategic Initiatives
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 35 Marketing Strategic Initiatives Generic (category) marketing Promotion of different assortment categories Participation in D
Slide 36: Capital Allocation - Key Principles and Policy Overview
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 36 Capital Allocation - Key Principles and Policy Overview Focus on Core Prudent Capital Conservative Business Allocation Financi
Slide 37: Focus on Value Accretive Capex
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 37 Focus on Value Accretive Capex Capital-intensive phase is over Capex dynamics Key projects RUB bn Mining capacity Total 2019
Slide 38: Pipeline of New Projects
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 38 Pipeline of New Projects Zaria pipe (open-pit) Maiskaya pipe (open-pit) VG deposit (Mirny) Description: construction of Zari
Slide 39: Expansion to Africa
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 39 Expansion to Africa Promising region with high exploration potential Improved financial performance at Catoca Development of L
Slide 40: Strong Balance Sheet
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 40 Strong Balance Sheet Current credit rating Net Debt evolution to investment grade credit ratings $ mn 1,9x 1,9x 1,7x 3 951 0,5
Slide 41: Dividend Policy Focused on Maximisation of Shareholder Returns
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 41 Dividend Policy Focused on Maximisation of Shareholder Returns Historical dividend payments 1 Dividend policy overview $ mn $
Slide 42: 2018 financial performance update
2018 financial performance 05 update 1 Price Dynamics 2 Sales and Inventory Update 3 Profitability Analysis 4 Free Cash Flow and Net Debt Analysis
Slide 43: Price Dynamics
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 43 Price Dynamics Highlights Price index for gem-quality diamonds In 2018 average price index gained 2.9% (following Average in
Slide 44: 2018 Sales and Inventory Update
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 44 2018 Sales and Inventory Update Highlights 2017-2018 gem-quality rough diamond revenue 2018 revenue grew by 8% driven by str
Slide 45: Profitability Analysis
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 45 Profitability Analysis Highlights 12M EBITDA – key drivers 12M EBITDA was up by 23% to RUB 156 bn driven by: RUB bn 14 (+)
Slide 46: Free Cash Flow and Net Debt Analysis
01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 46 Free Cash Flow and Net Debt Analysis Free cash flow bridge Net Debt bridge RUB bn RUB bn Net Debt / EBITDA EBITDA 156,0 Net de
Slide 47: Closing remarks from CEO
Closing remarks 06 from CEO Attractive consumer-driven industry with strong long-term fundamentals Superior margins and free cash flow generation Identified optimization initiatives paving the way for further efficiency gains Prudent financial and capital allocation policy focused on maximizing shar
Slide 48: Appendix
07 Appendix
Slide 49: Strong Financial And Operational Performance
49 Strong Financial And Operational Performance Resilient financial performance with strong margins and positive free cash flow since IPO Diamond sales Revenue and EBITDA margin m ct RUB bn 40 40 41 38 53% 317 46% 52% 45% 56% 275 300 30 207 225 Chart 176 156 94 118 127 2014 2015 2016 2017 2018 2014
Slide 50: Profit Curve of Existing Diamond Mines
50 Profit Curve of Existing Diamond Mines Margin per carat by mines Tier-1 performing mines (1st quartile, 0-25%) Tier-2 performing mines (2nd quartile, 25-50%) (Price per ct - Cash Cost per ct), $ (Price per ct - Cash Cost per ct), $ Tier-3 performing mines (3rd quartile, 50-75%) Tier-4 performing
Slide 51: Creating a clearer and sustainable environment
51 Creating a clearer and sustainable environment Latest developments Reduction of CO2 emissions1 ths tonnes Over the past two years, ALROSA has reduced CO2 emissions by c.20% 1 067 1 064 858 Already impressive share of clean electricity and heat consumption of 86% Efficient disclosure is ackn
Slide 52: FX Rate
52 FX Rate Financial metrics breakdown by currency ALROSA is an exporter with 93% of revenue denominated in USD % of metric's total Major portion (74%) of costs and capex is denominated in RUB 97% of the Company’s debt portfolio is denominated in USD to RUB create a natural hedge against FX risk
Slide 53: Glossary
53 Glossary Term Definition ct Carat : one of the four main diamond characteristics, the others being colour, cut and clarity; 1 carat=200 mg m ct Million carats CVD Chemical vapour deposition: a high-temperature, but normal-pressure process to grow lab-grown diamonds DPA Diamonds Producers Associat
Slide 54: Thank You
THANK YOU! HEAD OF CORPORATE FINANCE MOSCOW, RUSSIA 115184 M: +7 985 760 55 74 SERGEY TAKHIEV 24 OZERKOVSKAYA EMB. E: [email protected]