ALROSA Q2 and 6M 2019 IFRS results

ALROSA, the world’s leader in diamond mining, announces its IFRS financial results for Q2 2019.

• Revenue in Q2 2019 went down by 19% q-o-q to RUB 57 bn driven by a 22% qoq decline in diamond sales volumes.A 21% y-o-y decline in revenue was attributable to lower sales (down 8% y-o-y) and changes in the sales mix.
• EBITDA in Q2 2019 was to RUB 25 bn (down 20% q-o-q and 39% y-o-y) on lower top line.
• EBITDA margin remained flat q-o-q at 44%.
• Free cash flow in Q2 2019 amounted to RUB 2.4 bn (vs RUB 26 bn in Q1 2019) amidst a decline in operating cash flow, seasonal capex growth and increase in working capital.
  Net profit decreased by 44% q-o-q to RUB 13 bn, mostly due to lower revenue and high base effect of one-off FX gains in Q1. A 47% y-o-y decline was attributable to lower revenue and reduced margins (down 13 pp y-o-y).
• Net debt / EBITDA stood at 0.3x as at the end of Q2 2019 (flat q-o-q).
• 2019 guidance update:
• Production is expected to reach 38.5 m carats, up from c.38 m carats previously;
  Sales are expected at 32-33 m carats;
• Capex revised to RUB 23.4 bn, down from c.RUB 28 bn previously.

Alexey Philippovskiy, ALROSA’s Deputy CEO, commented on the results:
“The diamond market continued to be affected by a number of negative factors that had first emerged as early as the second half of the previous year. These include a slowdown in jewellery sales following strong performance of 2017-2018, particularly as a result of global macroeconomic uncertainties amidst escalating trade wars. As an additional factor, mid-stream and retailers have elevated inventories, while India’s cutting and polishing business continues facing difficulties in securing affordable financing. A new trend, i.e. growing share of online jewellery sales mostly in the US, is now gaining its importance for the industry.
In this negative external environment, ALROSA’s sales in Q2 2019 went down by 22% q-o-q to 8.3 m carats, with total revenue decreasing by 19% q-o-q to RUB 57.4 bn. EBITDA declined by 20% q-o-q to RUB 25.1 bn, while EBITDA margin remained flat at 44%.
Despite a weaker operating cash flow and a concurrent seasonal rise in capex (up 17% q-o-q to RUB 4.5 bn) and working capital (up 15% q-o-q, or RUB 11.9 bn), free cash flow remained positive at RUB 2.4 bn.
Leverage remained low, with the net debt / EBITDA ratio standing at 0.3x as at the end of Q2.
According to the Dividend Policy, this enables the management to submit a proposal to the Company’s Supervisory Board to pay up to 100% of H1’19 free cash flow, or RUB 28.3 bn, in dividends for the first half of 2019.”