Alrosa · RUS:ALRS
Alrosa — Investor Day (April 2015)
45 slides from Alrosa's investor day presentation, April 2015
Slide 1: Investor Day April 2015
ALROSA Investor Day April 2015
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: Presenting team
Presenting team Ilya Ryashchin Acting CEO, First Vice President Igor Kulichik CFO, Vice President Sergei Mezhokh Head of IR 3
Slide 4: Content
Content 1 ALROSA at a glance 5 2 Diamond Industry 7 3 Production 14 4 Marketing 20 5 Financial Performance 25 6 ALROSA Tomorrow 32 7 Appendix 40 4
Slide 5: ALROSA at a glance
ALROSA at a glance 5
Slide 6: Global leader in rough diamond production with the largest reserve base
ALROSA at a glance Global leader in rough diamond production with the largest reserve base globally and strong financial profile Financial summary Revenue, RUB bn EBITDA, RUB bn Free Cash Flow EBITDA margin, % Net debt/EBITDA • ALROSA is a public diamond mining company with 23% free-float on the Mos
Slide 7: Diamond Industry
Diamond Industry 7
Slide 8: Major global diamond deposits are located in Russia, Canada, Botswana, South Africa and Australia
Diamond Industry Major global diamond deposits are located in Russia, Canada, Botswana, South Africa and Australia Global diamond production by main countries in 2014 mln cts Canada: 12.1 ALROSA: 36.2 Yakutia (ALROSA) 5 open-pit mines 4 underground mines 14 alluvial placers Arkhangelsk region Lomono
Slide 9: Nearly half of all diamonds are produced in Russia and Botswana
Diamond Industry Nearly half of all diamonds are produced in Russia and Botswana, USA and Asian countries are the key diamond jewelry markets Diamond production Cutting and polishing 18% Botswana 12% DRC 72% India 7% China 9 8% Canada 5% Israel 8% Zimbabwe 29% Russia 4% Russia 7% Angola 12% Others 6
Slide 10: Luxury goods and diamond jewelry markets showed sustainable growth
Diamond Industry Luxury goods and diamond jewelry markets showed a sustainable growth over the last 3 years while the diamond supply stayed almost flat Demand Supply Global luxury goods market, y-o-y Diamond jewelry sales, y-o-y Global rough diamond supply, y-o-y 12% 10% 7% 8% 4% 3% 2% 2% 1% 2012 20
Slide 11: Global diamond production is expected to stay almost flat in next decade
Diamond Industry Global diamond production is expected to stay almost flat in next decade • In the medium term, global diamond production is expected to grow with 3% CAGR due to rebound of production at mines in Russia, Australia and Canada • After 2019, global diamond production is expected to decl
Slide 12: Diamond demand in USA driven by disposable income; China and India by middle class
Diamond Industry Diamond demand in USA is driven by personal disposable income, in China and India it depends on the number of middle class households US real personal disposable income $ trln 11,25 11.2 11,24 11,23 11,22 11,21 11,20 11,19 11,18 11,17 11,16 11,15 11,14 11,13 11,12 11,11 11,10 11,09
Slide 13: Diamond supply and demand expected to be balanced in the medium term
Diamond Industry Diamond supply and demand are expected to be balanced in the medium term with growing disparity in the long term. This means the historically observed price trend may continue Supply and demand balance $ bn CAGR 15-24F ~5% 35 Demand Supply 25 CAGR 15-24F ~2% 15 2014 2015F 2016F 2017
Slide 14: Production
Production 14
Slide 15: ALROSA diamond production is well-diversified between divisions and types of mining
Production ALROSA’ diamond production is well-diversified between divisions and types of mining Geography of ALROSA’ production assets 35% Aikhal Division Aikhal pipe 12.6 Jubilee pipe mln cts Komsomolskaya pipe 20% Nyurba Division Nyurbinskaya pipe 7.4 Botuobinskaya pipe mln cts Alluvial deposits (
Slide 16: ALROSA intends to increase diamond production to over 41 mln cts by 2019
Production ALROSA intends to increase diamond production to over 41 mln cts by 2019 Severalmaz and Udachny are the key production growth drivers ALROSA production forecast mln cts 1.01 1.03 1.05 1.00 0.97 0.94 0.91 0.90 Grade (ct/t) CAGR 14–21F 41.5 41.2 41.3 2% 39.9 39.0 39.1 38.2 4.3 4.6 5.1 18% 3
Slide 17: Capex will be decreasing as Severalmaz and Udachny reach designed capacity
Production Capex will be decreasing as Severalmaz and Udachny underground mine reach their designed capacity Planned Capex by mining complex RUB bn 35.6 2.0 29.0 10.2 0.4 25.4 25.8 24.1 1.0 1.2 22.7 21.8 10.9 3.0 2.4 0.5 1.5 8.6 4.6 2.1 3.7 9.9 11.9 6.7 8.0 7.8 2.5 10.9 1.4 8.8 2.3 2.8 2.2 1.6 1.3 1
Slide 18: In 2014, ALROSA launched two key investment projects
Production In 2014, ALROSA launched two key investment projects to meet production plan of 41 mln cts Udachny underground mine Severalmaz On June 27, 2014 ALROSA started to mine ore from On March 14, 2014 processing plant with annual capacity Udachny underground mine of 3 mln tons of ore was put int
Slide 19: ALROSA investment projects return is not less than current profitability
Production ALROSA investment projects return is not less than current profitability Underground • Resources: 456 mln cts mines • LOM: 40+ years NPV RUB 167 bn Nakynskoye • Resources: 152 mln cts IRR 26% ore field • LOM: 25 years ROIC 22% Verkhne- • Resources: 25 mln cts Munskoye • LOM: 20 years • Re
Slide 20: Marketing
Marketing 20
Slide 21: Sales strategy based on long-term contracts, supported by tenders and spot sales
Marketing ALROSA sales strategy is based on long-term contracts, supported by tenders and spot sales 2014 ALROSA rough diamond sales by channel Geography of ALROSA sales in 2014 64% Long-term contracts 56% Belgium 21% Spot sales 14% India 15% Tenders 11% Russia 11% Israel 3% United Arab Emirates 5%
Slide 22: Gem-quality diamond sales account for 70% of volume and 97% of value
Marketing Gem-quality diamond sales account for 70% of total sales volume and 97% of sales value 2014 rough diamond sales structure Weight 39.6 mln cts $ 4,901 mln <1% >10.8 ct 5% 11% 5% 1.8-10.8 ct 0.9-1.8 ct 15% 0.3-0.9 ct 34% 0.03-0.3 ct 45% 14% 16% Industrial (less than 30% 22% 0.03 ct or less t
Slide 23: ALROSA pricing policy and rough diamond price index
Marketing ALROSA pricing policy is based on a number of factors including macroeconomics, diamond market statistics, polished margin statistics and rough diamond auction analysis Global rough Macroeconomic Diamond trade Polished margin Rough diamond Rough diamond diamond indicators statistics statis
Slide 24: Sales strategy based on additional sales volumes from inventory
Marketing Sales strategy under lack of significant price growth in mid-term is based on additional sales volumes from inventory Current diamond inventory turnover is around 6 months Mining and processing Sorting and valuation Aggregation and sale 2-5 weeks 9 weeks 4-7 weeks • ALROSA currently has 15
Slide 25: Financial Performance
Financial Performance 25
Slide 26: Latest financial results
Financial Performance Latest financial results 2014 RUB mln 2014 2013 2012 vs. 2013 Operating performance Production, mln cts 36.2 36.9 34.4 (2%) Sales, mln cts 39.6 38.0 33.2 4% IFRS Income Statement Revenue 207,159 168,505 150,880 23% Cost of sales (98,936) (82,232) (68,467) 20% EBITDA(1) 93,857 6
Slide 27: Growth of cost of production and its drivers
Financial Performance Growth of cost of production was triggered by depreciation, extraction tax, fuel and energy costs as well as wages, salaries and other staff costs Cost of sales Production costs in 2014 RUB mln 2014 35% Wages, salaries and other 2014 2013 vs. staff costs 2013 18% Depreciation W
Slide 28: Net loss in 2014 due to revaluation of US dollar denominated debt
Financial Performance Net loss in 2014 was due to lower financial results as a consequence of revaluation of US dollar denominated debt associated with the ruble depreciation against the US dollar Net profit analysis RUB mln 24,757 629 31,837 (63,989) (16,832) (4,579) (5,487) Net profit Decrease in
Slide 29: Free cash flow increased in 2014
Financial Performance Free cash flow increased in 2014 due to growth in operating profit and Capex reduction Free cash flow analysis RUB mln 4,874 (955) 25,095 (1,664) 44,824 2.6х 17,474 Free cash flow Increase in Increase of investments in Increase in Free cash flow Decrease in Capex in 2013 operat
Slide 30: Share of long-term debt reached 90%
Financial Performance Following a number of steps to increase liquidity in December 2014, share of long-term debt reached 90% Dynamics of loans and borrowings Loans and borrowings breakdown $ mln As at 23 March 2015 Total debt/ 39% Public debt instruments 6.1x 2.9x 1.5x 2.0x 2.0x 2.1x 2.2x EBITDA 61
Slide 31: Dividend policy implies minimum 35% payout ratio of IFRS net profit
Financial Performance ALROSA’s current dividend policy implies minimum 35% payout ratio of IFRS net profit Dividends, Dividends per share(1) and Payout ratio(2) Dividends, RUB mln Payout ratio, % Dividends per share, RUB 0.30 0 0.03 0.25 1.01 1.11 1.47 10,826 0,4 35% 0,35 7,439 8,175 0,3 28% 0,25 24
Slide 32: ALROSA Tomorrow
ALROSA Tomorrow 32
Slide 33: Strategic directions for development
ALROSA Tomorrow Strategic directions for development Focus on most profitable segment in the industry Geological exploration ALROSA IS Operational efficiency ABOUT Marketing and brand Non-core assets divestment 33 33
Slide 34: ALROSA focuses on rough diamond production, the most profitable segment
ALROSA Tomorrow ALROSA focuses on the rough diamond production – the most profitable segment of the diamond pipeline Operating margin by segments, % 21-25% 4-18% 3-4% 3-5% 1-3% 2-3% Exploration and Rough diamond sales Cutting and polishing Polished diamond Diamond jewelry Diamond jewelry retail prod
Slide 35: Geological exploration strategy to maintain full reserves replenishment
ALROSA Tomorrow ALROSA’s strategy for geological exploration is to maintain full reserves replenishment ALROSA aims to sustain its level of reserves consistent ALROSA implements innovative methods of exploring with its level of production over time new deposits mln cts +3% +2% 373 180 362 176 2010 -
Slide 36: Supply and marketing strategy
ALROSA Tomorrow Supply and marketing strategy The structure of supply and marketing in ALROSA implies the following: Speedier inventories turnover for rough diamonds, reduced from 6 to 4 months due to automation of sorting process Improved sorting quality in accordance with the requirements asse
Slide 37: ALROSA is to focus on diamond mining
ALROSA Tomorrow ALROSA is to focus on diamond mining Number of subsidiaries 70 62 53 47 39 31 20 2010 2011 2012 2013 2014 2015E 2020E ALROSA continues transferring its social facilities and infrastructure to the Republic of Sakha (Yakutia) • In 2012, social assets in monocities in Yakutia, occupied
Slide 38: Management guidelines and key targets for 2015
ALROSA Tomorrow Management guidelines and key targets for 2015 are aimed at implementing the strategic development program Diamond production of 38 mln cts, maintaining global leadership. Development of Severalmaz and Udachny underground mine with production in 2015 of 1.9 and 0.8 mln cts respective
Slide 39: Thank you!
Thank you! 39
Slide 40: Appendix
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Slide 41: Overview of corporate governance
Appendix Overview of corporate governance Shareholders Supervisory Board 15 members Strategic planning HR & remuneration Audit committee committee committee 5 members 6 members 5 members Management Board 13 members 41
Slide 42: Management team overview
Appendix Management team overview Executive Team Operational Team Ilya Ryashchin Mikhail Lopatinsky First Vice-President for Finance and Economy, acting CEO Director, Mirny Mining and Processing Division Mirny and economy • Joined the Company in 2012 • Joined the Company in 1992 Finance • Head of Pl
Slide 43: Supervisory board overview (1/2)
Appendix Supervisory board overview (1/2) 1 2 3 4 Ilya Yuzhanov Sergey Mestnikov Sergey Barsukov Andrey Sharonov Dean, Moscow School of Chairman of the Board of First Deputy Minister of Director, Financial Policy Management SKOLKOVO directors, Polyus Gold Property and Land Relations Department, Mini
Slide 44: Supervisory board overview (2/2)
Appendix Supervisory board overview (2/2) 9 10 11 12 Spartak Illarionov Valentina Kondratyeva Nadezhda Kononova Nina Osipova First Deputy Head, Municipal Head, Deputy General Director, Deputy Finance Minister of the district ‘Olenyok Evenki National State Autonomous Agency OJSC Republican Investment
Slide 45: 2014 cash costs and production
Appendix 2014 cash costs and production Ore and sands Diamond Cash costs per Cash costs per Type of Grade processing production ton of ore, carat, mining (ct/t) (‘000 t) (‘000 cts) (RUB) (RUB) Aikhal Division 9,478 12,565 1.33 1,962 1,480 Jubilee pipe open-pit 8,506 9,122 1.07 1,445 1,347 Aikhal und