On November 28, 2019, ALROSA, the world’s leader in diamond mining, announced its IFRS financial results for the third quarter of 2019.

The core activities of Public Joint Stock company ALROSA and its subsidiaries (“the group”) are exploration and extraction of diamond reserves, as well as marketing and distribution of raw and cut diamonds. The company was registered in August 1992 in the Sakha republic (Yakutia), which is located within the Russian Federation. The group operates mining facilities in Mirny, Udachny, Aikhal, Nyurba, and Anabar in the Sakha republic, located in Eastern Siberia, as well as in the Arkhangelsk region. Licenses for the group’s major diamond deposits are valid until 2021 and 2048. The company’s management believes that the group will be able to extend the licenses’ terms after they expire as necessary.

As of September 30, 2019 and December 31, 2018, the company’s principal shareholders are the Federal Agency for State Property Management on behalf of the Russian Federation (33.0 percent of shares) and the Ministry of the property and land relations of the Sakha republic (Yakutia) on behalf of the Sakha republic (25.0 percent of shares).

The group has seasonal working capital requirements as most of a year’s supplies must be purchased in the second quarter and transported to their destination prior to the end of September as a result of the remote location and extreme climatic conditions at the group’s mining operations in the Sakha republic (Yakutia).

Revenue in the third quarter of 2019 decreased by 20 percent quarter-on-quarter to RUB46 billion on lower sales volumes (down 23 percent quarter-on-quarter), which was partially offset by higher average realized prices. A 35-percent year-on-year decline in revenue is attributable to lower sales (down five percent year-on-year) and a higher share of small-size diamonds.

The EBITDA in the third quarter of 2019 amounted to RUB21 billion (down 16 percent quarter-on-quarter, down 47 percent year-on-year) on a lower top line.

The EBITDA margin in the third quarter of 2019 increased by two p.p. (percentage points) quarter-on-quarter to 46 percent (down 11 percent year-on-year).

Free cash flow in the third quarter of 2019 increased by four percent quarter-on-quarter to RUB2.5 billion, reflecting stronger operating cash flow along with a marginal increase in capex (up two percent quarter-on-quarter).

The net profit in the third quarter of 2019 remained flat quarter-on-quarter at RUB13 billion, including as a result of other income recognition (release from liabilities under a bank guarantee in the amount of RUB1.5 billion). A 44-percent year-on-year decline is attributable to lower revenue and the EBITDA margin (down 11 p.p. year-on-year).

Net debt to LTM EBITDA (last twelve months EBITDA) increased to 0.6x as of the end of the third quarter of 2019 (versus 0.3x as of the end of the second quarter of 2019).

In 2019, ALROSA expects to produce 38.5 million carats, with sales of 32 to 33 million carats. Capex is expected at RUB23.0 billion.

Alexey Philippovskiy, ALROSA’s CFO, commented on the results as follows, “In the first nine months of 2019, the diamond market was impacted by the oversupply of polished diamonds and a challenging situation in India’s financial sector. As major producers have reduced diamond supply by a quarter since the beginning of the year and Indian cutters began to see stocks gradually winding down, the supply and demand in the diamond pipeline seem to be heading towards balance again. Since early August 2019, the prices and demand have somewhat stabilized, resulting in increased monthly sales, with total sales adding seven percent, 42 percent, and two percent month-on-month in August, September, and October, respectively.

ALROSA’s financials in the third quarter of 2019 saw expected pressure from external factors. Sales went down by 23 percent quarter-on-quarter to 6.4 million carats, and the year-on-year reduction in the first nine months of 2019 amounted to 13 percent (25.3 million carats). Rough diamond sales in the third quarter of 2019 decreased by 24 percent quarter-on-quarter to USD601 million and by 34 percent in the first nine months of 2019.

Free cash flow in the third quarter of 2019 increased by four percent quarter-on-quarter to RUB2.5 billion, despite a working capital increase of RUB11.9 billion (up 13 percent quarter-on-quarter) and minor capex growth (up two percent quarter-on-quarter).

Net debt to LTM EBITDA as of the end of the third quarter of 2019 stood at 0.6x, in line with the target leverage. The figure increased from the second quarter of 2019, mainly due to a dividend cash payment of RUB29.8 billion that was made in the second half of 2018.”

In September 2019, the extraordinary general meeting of shareholders resolved to pay dividends for the first half of 2019 in the amount of RUB3.84 per share, or RUB28.3 billion in total, which is equal to 100 percent of the free cash flow.