Alrosa · RUS:ALRS

Alrosa — Investor Day (March 2019)

55 slides from Alrosa's investor day presentation, Mar 18, 2019

  1. 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

  2. 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

  3. Slide 3: Today's Speakers

    Today’s Speakers Maria Gordon Sergey Ivanov Alexey Philippovskiy Independent Director Chief Executive Officer Chief Financial Officer

  4. Slide 4: Table of Content

    Table of Content 01. Corporate governance development p.5 02. Message from CEO p.9 03. Market fundamentals and key trends p.15 04. Executing to strengthen our business p.25 05. Financial performance update p.43 06. Closing remarks from CEO

  5. Slide 5: 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

  6. Slide 6: 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 6 Commitment to Improving Standards of Corporate Governance Increased share of INEDs in the Board of Directors  Increased number

  7. Slide 7: Board 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 7 Current Board has Supported Initiatives to Improve Alignment of Shareholder Interests New management team Transparency and disc

  8. Slide 8: 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 8 Board Agenda for 2019-2020 1 Focus on continuous business transformation to ensure long-term competitiveness and sustainable pr

  9. Slide 9: 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

  10. Slide 10: 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 10 Focus on Responsible Mining • Improving industrial safety with focus on prevention • Structural reform promoting a culture of

  11. Slide 11: 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 11 Employee Safety is Our Top Priority Strong Commitment to Promote a Culture of Safety and Reduce the Number of Accidents One of

  12. Slide 12: 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 12 Strong Operating and Financial Performance Since IPO Maintained Resource Base Increased FCF & Profitability Strengthened Balan

  13. Slide 13: 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 13 Superior TSR Compared to Global Peers Cumulative total USD TSR since ALROSA IPO in October 2013, % 190% +68.5% ALROSA 160% +48

  14. Slide 14: 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 14 Journey Ahead Developing Efficient Organisation... …and Taking Advantage of Strong Market Fundamentals… Focus on Core Business

  15. Slide 15: 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

  16. Slide 16: 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 16 Strong Long Term Demand Outlook ...driven by disposable income growth and middle class expansion Real disposable income growth

  17. Slide 17: 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 17 Constrained Supply Outlook Depletion of deposits will result in diamond production declines in the coming years 2018 to 2023 s

  18. Slide 18: 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 18 Favorable Supply/Demand Fundamentals … will drive the market into a deficit and support positive diamond price pressure Global

  19. Slide 19: 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 19 Diamonds are Different from Commodities Mature demand and supply discipline result in low price volatility Mature and stable c

  20. Slide 20: 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 20 Demystifying LGDs LGD myth #1: LGD myth #3: Case study: LGD positioning Myth: LGD and diamonds are identical Myth: Launch of L

  21. Slide 21: 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 21 LGD: the Future is History Similar scenario has already realised on the market for lab grown sapphires Indexed price per carat

  22. Slide 22: 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 22 Synthetic Stones: Key Marketing Messages Key marketing messages of lab grown sapphires producers are similar to the ones used

  23. Slide 23: Diamonds and 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 23 Diamonds and Their Synthetic Substitutes Have Different Price Drivers and Value to Consumers Natural diamonds LGD LGD is not t

  24. Slide 24: Expanding LGD Discount vs. Diamonds

    01. Corporate governance 03. Market fundamentals and 04. Executing to strengthen 05. Financial performance development 02. Message from CEO key trends our business update 24 Expanding LGD Discount Illustrates Different Market Perception of LGD vs. Diamonds LGD discount to natural diamonds Price of 1

  25. Slide 25: 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

  26. Slide 26: 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 26 ALROSA: the Story of the Industry Leader in 4 Charts The largest and most profitable player in the industry Reserves1 Producti

  27. Slide 27: 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 27 Key Challenges for the Industry … and how we address them from a value creation perspective 1 Lack of new deposits, limited •

  28. Slide 28: 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 28 Superior Exploration Capabilities … result in solid track record of resource replenishment at low finding costs Unique full-cy

  29. Slide 29: 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 29 Stable Production Outlook …supported by development of new projects and debottlenecking Production outlook Key drivers m ct •

  30. Slide 30: 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 30 Focus on Efficiency Dedicated operating efficiency program launched in 2017 Scaling up initiatives Delivering tangible results

  31. Slide 31: 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 31 Case Study: Operational Turnaround Program at Nyurba Nyurba’s success can be replicated and scaled up across other divisions K

  32. Slide 32: 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 32 Case study: Automotive Transport Optimization Centralization and usage-based approach provide long-term cost cutting effect Ke

  33. Slide 33: 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 33 Case Study: Working Capital Management Reduction in rough diamond WIP inventory days Optimization levers Reduction of diamonds

  34. Slide 34: 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 34 Employee Training and Development System … to further improve long term competitiveness and productivity Key initiatives and p

  35. Slide 35: 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 35 Adoption of Best Practicies in Digitalisation Offers Further Efficiency Potential Drill-and-blast Digital Mine Automation Big

  36. Slide 36: 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 36 Marketing Strategic Initiatives Generic (category) marketing Promotion of different assortment categories  Participation in D

  37. Slide 37: 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 37 Capital Allocation - Key Principles and Policy Overview Focus on Core Prudent Capital Conservative Business Allocation Financi

  38. Slide 38: 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 38 Focus on Value Accretive Capex Capital-intensive phase is over Capex dynamics Key projects RUB bn Mining capacity  Total 2019

  39. Slide 39: 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 39 Pipeline of New Projects Zaria pipe (open-pit) Maiskaya pipe (open-pit) VG deposit (Mirny)  Description: construction of Zari

  40. Slide 40: 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 40 Expansion to Africa Promising region with high exploration potential Improved financial performance at Catoca Development of L

  41. Slide 41: 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 41 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

  42. Slide 42: 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 42 Dividend Policy Focused on Maximisation of Shareholder Returns Historical dividend payments 1 Dividend policy overview $ mn $

  43. Slide 43: 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

  44. Slide 44: 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 44 Price Dynamics Highlights Price index for gem-quality diamonds  In 2018 average price index gained 2.9% (following Average in

  45. Slide 45: 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 45 2018 Sales and Inventory Update Highlights 2017-2018 gem-quality rough diamond revenue  2018 revenue grew by 8% driven by str

  46. Slide 46: 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 46 Profitability Analysis Highlights 12M EBITDA – key drivers  12M EBITDA was up by 23% to RUB 156 bn driven by: RUB bn 14  (+)

  47. Slide 47: 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 47 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

  48. Slide 48: 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

  49. Slide 49: Appendix

    07 Appendix

  50. Slide 50: Strong Financial And Operational Performance

    50 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

  51. Slide 51: Profit Curve of Existing Diamond Mines

    51 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

  52. Slide 52: Creating a clearer and sustainable environment

    52 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

  53. Slide 53: FX Rate

    53 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

  54. Slide 54: Glossary

    54 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

  55. Slide 55: 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]

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