Six months dividend yield will be at around 5%. The record date is 14 October 2019.

In June 2019, ALROSA’s Supervisory Board approved a new version of the company’s Dividend Policy, with the methodology for determining the amount of dividends updated as follows: if the Net Debt / LTM EBITDA ratio as at the end of the first half of the year or as at the end of the year is within the range of 0.0 to <0.5x, the semi-annual dividend payout ratio is 100% of the FCF for the respective half of the reporting year, but not less than  50% of IFRS net profit. Further details of ALROSA’s Divided Policy can be found here.

Reference:

In accordance with the IFRS, the H1 2019 free cash flow amounted to RUB 28.3 billion, with EBITDA at RUB 56.5 billion, net debt was at RUB 35.4 billion, and net profit at RUB 37.5 billion. Net Debt / EBITDA¹ was at 0.3х.

________________________________________________________________

¹ EBITDA stands for earnings before interest, income tax, depreciation and amortization calculated for the last twelve months based on the International Financial Reporting Standards (IFRS).

According to the previously approved Russian Government decree, the value of the 100% equity interest in Kristall was determined on the basis of an independent appraiser's report at RUB 1,886 million.

ALROSA's Supervisory Board assigned the company’s Chief Executive Officer to enter into a sale and purchase agreement for Kristall's shares under the conditions proposed by Rosimushchestvo.

By the end of the year, the management is to prepare and submit an action plan to operate and develop Kristall as part of ALROSA Group to the Supervisory Board for consideration.

“Despite the fact that ALROSA is currently a key supplier of rough diamonds to Kristall, it accounts for as little as 0.5% of ALROSA’s total sales of rough diamonds. The deal value is less than 1% of ALROSA’s net assets and, according to our estimates, the purchase price will not exceed Kristall’s net assets at the date of the transaction,” says Alexey Philippovskiy, Deputy CEO of ALROSA. The sale and purchase agreement is expected to be signed by the end of September, with the deal to be closed in the first half of October. After that, we will start developing a plan to integrate Kristall into ALROSA Group.”

For reference:

Kristall
The Kristall diamond factory was founded in Smolensk in 1963. The factory is 100% owned by the state through the Federal Agency for State Property Management (Rosimushchestvo). Currently Kristall is the leading polished diamonds manufacturer in Russia and Europe. It processes over 200,000 carats of rough diamonds per year, with 90% of diamond feedstock supplied by ALROSA. Kristall’s international operations are run through its trade offices in the US, Hong Kong, and Belgium. The company’s total headcount exceeds 1,800 people.

In 2018, Kristall production and sales were 105,700 and 111,700 carats of polished diamonds, respectively. Its total revenue amounted to RUB 12.8 billion, and net profit reached RUB 40.7 million.

In 2002, Kristall launched its own jewellery production, and the retail chain of Smolensk Diamonds, its jewellery entity, now has over 50 sales points in 30 Russian cities. Kristall’s another entity, Almaz Servis, produces tooling and equipment for the diamond industry.

DIAMONDS ALROSA
ALROSA has two cutting assets: a branch of ALROSA DIAMONDS in Moscow, specialising in large-size and unique polished diamonds, and a facility in Barnaul, which processes small-sized diamonds of 2–6 grainers. In 2018, ALROSA’s sales of its own polished diamonds exceeded USD 95 million.

In total almost 1,400 samples were involved in the ALROSA DIAMOND INSPECTOR testing process, including natural I/II type diamonds, synthetic diamonds, among them samples unavailable on the market, which were grown by using the most advanced technologies, and non-diamond imitations (cubic zirconias, moissanites etc.).

Moreover, UL Verification Services, Inc. lab specialists tested over 20 devices of various manufacturers, dividing them into three groups. ALROSA DIAMOND INSPECTOR uses three optical method of identification, so that it can separate natural diamonds from synthetic diamonds and from non-diamond imitations (simulants). ALROSA DIAMOND INSPECTOR was referred to the third group of devices with the broadest functionality.

Rating accuracy
According to the results of testing, ALROSA DIAMOND INSPECTOR showed an almost one hundred percent result of detecting natural diamonds (96.4%), accurately referred synthetic diamonds (100%) and was the only device that showed one hundred percent result in detecting non-diamond imitations (simulants).

Portability
ALROSA DIAMOND INSPECTOR belongs to the category of portable devices with the dimensions of 15 * 25 * 10 cm and weight of 1.8 kg in a plastic case and 3.1 kg in a metal case.

Functionality
Testing of stones in ALROSA DIAMOND INSPECTOR is carried out manually. An analysis of one stone takes 45 seconds, after which the instrument automatically interprets the results using a complex mathematical algorithm for spectral analysis and gives a ready answer on the screen. ALROSA DIAMOND INSPECTOR can analyze both loose and mounted stones. It does not require gemological knowledge.

Stone parameters
ALROSA DIAMOND INSPECTOR can analyze natural diamonds, synthetic diamonds and non-diamond imitations (simulants) of any shape. The device analyzes stones in a size range from 0.03 to 10 carats and a color range from D to J (colorless and near colorless). It should be noted that these ranges are the most frequent in the retail jewelery.

Price
The price of ALROSA DIAMOND INSPECTOR (5,799 $) is significantly lower than the price of analogs.

Vladimir Sklyaruk, CEO of Diamond NTC LLC, the manufacturer of ALROSA DIAMOND INSPECTOR:
–ALROSA DIAMOND INSPECTOR turned out to be the only portable device among tested that uses three methods for identifying diamonds at once. It can be said with a high degree of confidence that the combination of its characteristics - comprehensive and accurate analysis, portability, ease of use and low price – makes ALROSA DIAMOND INSPECTOR an optimal tool for retail stores, pawnshops, distributors, gemological laboratories, jewelry manufacturers. Such devices can be easily installed even in small stores. Anyone is able to check the jewelry right on the spot and make sure that the diamond installed in it is not synthetic or fake, but natural. The device is a reliable tool for protecting the market of natural diamonds.

For reference
ALROSA Technology (Diamond STC, LLC) is a member of ALROSA GROUP.
ALROSA DIAMOND INSPECTOR was first demonstrated in March 2018.

www.alrosa-inspector.com

https://diamondproducers.com/assure/assure-directory/alrosa-diamond-inspector/

The Institutional Investor’s ranking is based on the survey of several hundred of analysts and portfolio managers conducted in March and April 2019 to assess CEOs, CFOs, IR professionals, as well as IR programs.

The Metals & Mining ranking covered a total of 30 companies. Following the survey, ALROSA’s IR program rated as the top three, and Sergey Ivanov, the CEO of the company, was named as the leader in the Best CEO category (up from number two in 2018).

Participants of the Institutional Investor ranking when assessing quality of the corporates were considering the following criteria: management accessibility to investment community, timely and full disclosure of the financial information, prompt and comprehensive answers, industry and business knowledge of investor relations team authorized to speak on behalf of the company, constructive conference calls, quality of the meetings during road shows, conferences, and reversed road shows, quality of the corporate literature and materials for investors, provision of the ESG/SRI information and analytics, quality of the corporate web-site, adherence to the standards of corporate governance.

For reference:
Institutional Investor is a leading international business to business publisher focused primarily on international finance. Among other things, it conducts various research studies, runs conferences and seminars, and is an important provider of business information for investors.

The study, which is based on the official reports of companies who mine precious metals and rough diamonds, covers the period from 2016 to 2018 and focuses on key aspects of sustainable development, including investments in social programs and environmental protection measures, energy and water consumption, greenhouse gas emissions, and the number of female employees.

Every year ALROSA allocates 3% of its revenue to social expenses and remains the absolute industry leader by this indicator. In 2018, the company allocated almost $168 million for social investments, including regional development programs, corporate social programs for employees and their families, as well as about 500 social and charitable projects (comparative tables for other companies in the industry are attached).

ALROSA’s expenditures on environmental activities exceeded $76 million in 2018, which amounted to 2.2% of the company’s consolidated revenue. The company strives to minimize its environmental impact and is responsible for a wide range of measures, including investments in treatment facilities, land reclamation, financing of environmental studies, monitoring and other initiatives.

In accordance with GRI reporting standards, the disclosure of information about the personnel indicates that the company supports equal opportunities. According to a PwC research, ALROSA employs the highest percentage of women – 34% of the total number of employees. In terms of the average number of hours of personnel training, the company is slightly behind other representatives of the industry; however, ALROSA has a powerful training center – about 99% of the total number of professional development courses are held at ALROSA's own site.

ALROSA is also significantly ahead of other companies in terms of the share of recycled water supply and reused water in production processes – currently this share accounts for over 90% of the total water intake.

As can be seen from the study, the company continues to reduce greenhouse gas emissions every year, and gradually upgrades its mining and passenger transport, converting it from diesel and gasoline engines to gas ones. As of 2018, 300 units of the company's transport are powered by natural gas, and greenhouse gas emissions in the CO2 equivalent have been reduced by half over the past five years.

In 2016-2018, ALROSA significantly reduced the share of carbon-intensive fuels in total energy consumption. Thus, the amount of coal consumed decreased by 80%, diesel fuel - by almost 90%, and crude oil - by half. Moreover, the share of renewable energy exceeds 90% in the total amount of energy consumption.

"ALROSA is a company of regional significance in Yakutia, with about 50,000 people living in our monotowns today. Therefore, social responsibility is our top priority and we continue to be one of the leaders in this area. We also contribute to the social and economic development of the Arkhangelsk region, where our subsidiary Severalmaz operates. Our social investments in 2018 amounted to almost $168 million. Separately, the company finances environmental projects, for which we allocated over $76 million. These results achieved by ALROSA last year were made possible thanks to the efforts of all the company's employees," said Sergey Ivanov, CEO of ALROSA.

"Owing to its city-forming roots, Alrosa has long been a leader in community engagement. In the past few years, the board and the management has strengthened the focus on embedding the best of class HSE practices across all our facilities as we see this as a non-negotiable terms of doing business," said Maria Gordon, Member of the Supervisory Board, Senior Independent Director, Chairman of the Audit Committee.

Sustainability benchmark report, 2016-2018, PwC

The key transaction terms are outlined in a decree signed earlier by the Chairman of the Government of the Russian Federation. The value of the 100% equity interest in Kristall is RUB 1.886 billion as determined by an independent appraiser.

Should the Supervisory Board approve the acquisition, by the end of the year ALROSA’s management will prepare and submit for consideration an action plan to develop and continue operating Kristall as part of ALROSA Group.

Sergey Ivanov, ALROSA’s CEO:

“On the back of the increasingly complex economic environment, Kristall has been going through some financial challenges in recent years. However, the business maintains its output volumes being Russia’s largest producer and exporter of polished diamonds, boasting rich heritage, state-of-the-art equipment, and extensive expertise in rough diamonds cutting. We are by far not a newcomer to the sector: our DIAMONDS ALROSA branch makes around 20% of polished diamonds in Russia. After consolidating Kristall, our share in the Russian market would reach as much as 70%. We are quite optimistic about the integration prospects and have already embarked on preparatory work to start joint operations in cutting and sales. We will focus our efforts on developing new sales channels, including those in the US and Chinese markets, while also improving production efficiency by leveraging the latest diamond processing technologies, automating routine operations, and creating competence hubs to bring together high-tech equipment and industry professionals. We expect that our efforts to merge our cutting facilities will help reduce production costs and, subject to a favourable market environment, take up a considerable share of the market for best in class polished diamonds.”

If approved by ALROSA’s Supervisory Board, the sale and purchase agreement is expected to be signed by the end of this month.

For reference:

Kristall
The Kristall diamond factory was founded in Smolensk in 1963. The factory is 100% owned by the state through the Federal Agency for State Property Management (Rosimushchestvo). Currently Kristall is the leading polished diamonds manufacturer in Russia and Europe. It processes over 200,000 carats of rough diamonds per year, with 90% of diamond feedstock supplied by ALROSA. Kristall’s international operations are run through its trade offices in the US, Hong Kong, and Belgium. The company’s total headcount exceeds 1,800 people.

In 2018, Kristall production and sales were 105,700 and 111,700 carats of polished diamonds, respectively. Its total revenue amounted to RUB 12.8 billion, and net profit reached RUB 40.7 million.

In 2002, Kristall launched its own jewellery production, and the retail chain of Smolensk Diamonds, its jewellery entity, now has over 50 sales points in 30 Russian cities. Kristall’s another entity, Almaz Servis, produces tooling and equipment for the diamond industry.

DIAMONDS ALROSA
ALROSA has two cutting assets: a branch of ALROSA DIAMONDS in Moscow, specialising in large-size and unique polished diamonds, and a facility in Barnaul, which processes small-sized diamonds of 2–6 grainers. In 2018, ALROSA’s sales of its own polished diamonds exceeded USD 95 million.

In the nearest future, the matter of voluntary liquidation will be submitted for consideration to the Board of Directors of ALROSA-Nyurba, and then to the company’s Extraordinary General Meeting of Shareholders, that may take place in early November.

The company will be liquidated in strict compliance with legal requirements with the process expected to be completed by the end of 2020. According to the law, upon the completion of settlements with creditors, the remaining funds of the liquidation fund of ALROSA-Nyurba will be distributed among the shareholders in proportion to their stakes in the company’s share capital.

For reference:
Today, PJSC ALROSA holds a 97.4878% stake in ALROSA-Nyurba. The remaining 2.5122% of shares belong to minority shareholders. The shares of ALROSA-Nyurba are quoted in the open market (the equities market of the Moscow Exchange). The company’s 2018 revenue amounted to RUB 44 billion, net profit – to RUB 16.6 billion.

ALROSA-Nyurba holds two subsoil licenses (Botuobinskaya and Nyurbinskaya pipes), however it is not directly engaged in any mining operations. The whole production cycle – from geological exploration, mining and rough diamond processing to sorting, presales preparation and subsequent sales – is carried out on contract terms by ALROSA’s business units. ALROSA-Nyurba currently employs 30 people, most of whom are management staff.

In August, ALROSA Group sold $181.8 million worth of rough and polished diamonds. Rough diamond sales by value amounted to $180.2 million, polished diamond sales – $1.5 million.

ALROSA’s total rough and polished diamond sales in January-August 2019 amounted to $2,163.6 million. During the eight months of 2019, rough diamonds were sold for $2,129 million, polished diamonds – for $34.6 million.

“The diamond market is still experiencing headwinds from both macroeconomic and industry specific factors, which have an adverse impact on the midstream. There is also a seasonal slowdown weighing on the summer sales, commented Evgeny Agureev, Director of the United Selling Organization ALROSA, member of the Executive Committee. – Meanwhile, for the first time since 2010, August sales were higher than in July – mainly due to the replenishment of stock by diamond cutters and polishers. Besides, a regular trade session in August started later than usual, so that some sales recognition were moved to September. It is still too early to come to firm conclusions based upon it. However, we are still expecting that after a significant decrease in rough diamond supply by major diamond producers since the beginning of the year, the excess stock in the system is decreasing. This will help to restore supply and demand balance which should not take too long.”

ALROSA Group rough and polished diamond sales in January-August 2019