MDA Q2&6M 2020 Release
MDA Q2&6M 2020 Presentation
IFRS Q2&6M 2020 Consolidated statement
IFRS Q2&6M 2020 Consolidated statement_EXCEL

Moscow, 14 August 2020 – ALROSA, a global leader in diamond mining, announces its IFRS results for Q2 and 6M 2020

• Due to the economic crisis in the key markets triggered by COVID-19 in Q2 2020, ALROSA took steps to balance supply and demand through a flexible sales strategy allowing its clients to defer contract volumes to subsequent periods of the year. These factors were behind financial performance in Q2 and 6M 2020.
• In Q2, revenue decreased by 83% q-o-q (down 82% y-o-y) to RUB 10.4 bn, due to lower sales in carats which shrunk 93% q-o-q (down 92% y-o-y).
• EBITDA¹ in Q2 decreased to RUB 0.1 bn (down 100% q-o-q and y-o-y) on the back of a substantial sales drop which was partially offset by optimisation initiatives.
• EBITDA margin in Q2 amounted to 1% (down 47 pp q-o-q and 43 pp y-o-y).
• Net profit in Q2 stood at RUB 0.3 bn (down by RUB 2.8 bn q-o-q and RUB 13.2 bn y-o-y), which also reflected the significant drop in revenue.
• Free Cash Flow (FCF) in Q2 turned negative at RUB 30 bn on the back of the decline in operating cash flow to minus RUB 25.6 bn (down RUB 50 bn q-o-q and RUB 33 bn y-o-y). Capex was RUB 4.5 bn (flat y-o-y).
• Net debt / LTM EBITDA as at the end of Q2 grew to 1.2x (Q1’20: 0.7х).
• 2020 outlook (no changes to the previously published figures):
  • Production – 28–31 m ct (vs  the previous guidance of 34 m ct);
  • CAPEX – RUB 20 bn (previously: RUB 22 bn)

Alexey Philippovskiy, ALROSA’s CFO:

“In Q2 2020, consumption of jewelry in the key markets significantly declined as a result of the steps taken by a number of countries to contain the spread of the COVID-19. Both retailers and diamond cutters and polishers had sufficient stocks accumulated previously to meet the decreased demand.  Taking that into account, the key mining companies, including ALROSA, decided to support their customers by allowing them not to purchase volumes under effective contracts so that they can work down their previously accumulated stocks.  This decision helped to avoid market overstocking that would have only aggravated the situation and delayed the industry’s recovery. Due to that, our performance in Q2 was low as expected – proceeds from diamonds’ sales in this period amounted to $87 m.

The retail sector is already showing signs of recovery – in June, demand for jewelry in the US rose 1.9% y-o-y, and the consumer activity in China increased too. We are also seeing the first signs of growth in diamond imports to India as exports of polished diamonds recover. For now, this growth has been met by existing diamonds’ stocks at the mid-stream cutters, but we believe that the cutters’ purchasing activity will start to recover in September ahead of the seasonal growth in demand for polished diamonds in November–January. Obviously, if this scenario materialises, the demand will still be “cautious” anyway. Besides, we cannot rule out the possibility of the “second wave” of the virus, which can tame the nascent recovery.

The Company continues to take all necessary measures aimed at combating the pandemic and its consequences.  To ensure employee safety, enhanced sanitary safety measures have been implemented at all of the Company's facilities, our administrative personnel continue to work remotely, and employees are being tested for COVID-19. We continue to support healthcare facilities located in the regions of Yakutia where the Company operates. By now, we have spent over RUB 0.5 bn on COVID-19 response and prevention measures.

In terms of operating activities, we take a number of anti-crisis steps, including decrease of production, cost optimisation, as well as revision of the Company's capex programme.  These measures helped us contain the free cash flow losses in 6M 2020 at minus RUB 8 bn, despite almost zero sales in Q2. At the same time, we were active at the debt capital markets in Q2, and created a $1.7 bn liquidity cushion by the end of June, providing the Company with a stable basis for operations as well as the capabilities to meet debt and other liabilities.  As a result, we managed to keep the leverage below the critical levels at 1.2x Net debt / EBITDA.

Let me remind you that on 25 June, ALROSA's shareholders decided to distribute RUB 19.4 bn as dividends for H2 2019, i.e. 100% of free cash flow for the period, which is the maximum level allowed by the dividend policy. As regards dividends for H1 2020, taking into account the negative free cash flow for the first half of the year at RUB 8.3 bn, there are no conditions for interim dividend payment, according to the dividend policy”.