Moscow, 3 March 2020 – ALROSA (MICEX-RTS: ALRS), the world’s leading diamond mining company, hosted its regular Capital Markets Day.
The Company’s management, represented by senior independent director Maria Gordon, CEO Sergey Ivanov, and CFO Alexey Philippovskiy, provided an update on the sustainability and corporate governance, discussed the industry challenges faced in 2020, and presented the 2020 financial performance, progress in strategy execution, and proposed changes to financial and dividend policies.
ESG remains ALROSA’s top priority.
· The Company plans to unveil a comprehensive ESG Strategy in 1H 2021 with targets spanning 2021–2024.
· ALROSA invests heavily in charity initiatives, local infrastructure development, healthcare and education, as well as environmental protection. The Company also works to improve people’s standards of living in the regions of its operation, so it pays a lot of attention to social projects.
· Since 2017, ALROSA has had an occupational injury and accident prevention programme in place delivered impressive results. In 2020, the number of accidents decreased by almost 25% compared to 2019. At the end of the year, the Company approved a comprehensive H&S strategy with the main target of zero fatalities by leveraging best management practices and state-of-the-art technology.
· Given the high importance ESG matters have been included in the remit of the Supervisory Board's Strategy and Sustainability Committee.
Diamond market: demand recovery, limited opportunity for global production ramp-up
With deposits depleting and a large diamond mine in Australia having closed, the medium term will see a decline in the global diamond supply to 110–120 m cts per year from its 152 m cts peak in 2017.
Diamond jewelry is still on the list of the most desirable gifts for consumers from all countries and across all generations. Following a 15% contraction in 2020, the global jewelry market is expected to recover in all key regions at single digits in developed countries and growth rates of up to 10% in the Asia-Pacific region.
ALROSA remains focused on operational efficiency which helps to improve assets productivity and profitability margins and moreover make efficiency a part of the corporate culture.
The Company is building a group-wide digital ecosystem with advanced analytics and flexible structure to allow centralised execution and monitoring of day-to-day activities as well as enable more efficient medium and long-term planning,
In its journey towards greater client centricity, ALROSA works on enhancing its sales function through the development of online sales channels and related industry-specific online sales innovations.
The Company is committed to a pragmatic capital allocation approach that is:
· focused on the Company’s core business;
· oriented on high-return investment projects;
· underpinned by a disciplined and conservative financial policy;
· geared towards free cash flow distribution in the form of dividends.
· Production targets for 2021 have been revised upwards (from 30 to 31.5 m cts) on the back of the growing diamond demand and decreasing stocks of the Company.
· Capex: expected to rise to RUB 25 bn (from the previously announced RUB 23 bn) due to payment and project deferrals in 2020.
· Financial and dividend policies: as the industry faced an unprecedented crisis last year, the management took lessons from it and proposed to the Supervisory Board to adjust current financial and dividend policies.
Financial policy: the management suggested to increase the minimum cash position from RUB 25 bn to RUB 50 bn in order to offset any potential volatility in global demand and make ALROSA more resilient to market downturns. The new expanded liquidity cushion will allow the Company:
o to maintain operational resilience and optimal utilisation rates;
o to ensure stability of funding of business development initiatives (including marketing ones) focused on long-term goals;
o to have sufficient cash fire-power to restore market balance without resorting to external emergency help.
Dividend Policy: the only proposed change is simplifying dividends calculation allocating between 70% and 100% of Free Cash Flow for a six-months period in case net leverage - net debt / 12M EBITDA falls in between 0.0x and 1.0x. The rationale for this decision is to improve targeting of net leverage, ensure stability of cash returns to shareholders, and improve flexibility in managing the debt portfolio. Both high and low leverage scenarios for dividends calculation remain unchanged.