Announcing its IFRS financial results for Q4 2019 and FY 2019, ALROSA reported a drop of 21% in revenue for the full year period, to RUB 238 billion from RUB 299.6 billion in FY2018. This, the Company explained, was due to reduced sales, which saw a decrease of 12% for the 12-month period to 33.4 million carats from 38.1 million carats sold in FY2018.

“This decline is attributable to weaker demand in the rough and polished diamonds market (mainly in 1H 2019), lower average like-for-like diamond price index (down 6%), and a higher share of small-size diamonds in the sales mix,” the Company said. 
However, Q4 revenue increased by 41% q-o-q (up 5% y-o-y) to RUB 65 billion from 61.4 billion in Q4 FY2018, “driven by stronger sales and growth in average realised prices”, ALROSA noted. The Company’s revenue for Q32019 was RUB 45.7 billion.

The variation in the full year and Q4 performance was seen in other categories as well. While FY 2019 EBITDA amounted to RUB 107 billion (down 31%) on lower top line, in Q4 2019, EBITDA increased by 40% q-o-q (up 10% y-o-y) to RUB 30 bn. The EBITDA for Q4 2018 stood at 21.1 billion; and for FY2018 it was 156 bilion.
EBITDA margin for FY 2019 was 45% (down 7 pp); while in Q4, EBITDA margin increased by 2 pp y-o-y to 46% (flat q-o-q), ALROSA reported.

The Company announced a net profit of RUB 63 billion for the 12-month period, registering a decline of 31% from RUB 90.4 billion for FY2018; “amid lower revenue partially offset by rising FX gains”. Net profit for Q4 amounted to RUB 12 billion – it was down 14% q-o-q, and up 47% y-o-y.

Free cash flow (FCF) for FY2019 was lower by 48% y-o-y and stood at RUB 48 billion. This was due to “lower profitability as top line declined, along with a working capital build-up in 2019, which was partly offset by downscaled capex from initially planned RUB 29 bn to RUB 20 bn”, ALROSA said. 

FCF for Q4 increased to RUB 17 billion, “reflecting a 3.3x increase in the operating cash flow along with a seasonal rise in capex (up 49% q-o-q)”.

The Company said its net debt / LTM EBITDA  increased to 0.7x as at the end of 2019 (vs 0.4x as at the end of 2018).
For 2020 ALROSA has declared a guidance of a production of 34.2 m carats; with Capex of RUB 22 billion.

Alexey Philippovskiy, ALROSA’s CFO, commented: “In the first half of 2019, the diamond market was impacted by the excessive supply of polished diamonds and a decreased availability of funding for the Indian midstream segment. Diamond producers were able to adjust their sales policy by reducing supply by 20%, helping to improve the balance of demand and supply across the chain as early as by the end of 2019.  Starting from the middle of the year, the market saw prices and demand stabilisation, with monthly sales demonstrating a positive trend in August - December. In the second half of 2019, consumer activity recovered across key sales markets, above all in the US.”

He added: “Still, the overall weakening of demand for diamonds in 2019 caused the diamond price index to go down by 6% vs 2018. 2019 was marked by stronger demand for small-size diamonds, reflected in a 16% reduction in average realised prices.”
Looking forward, Philippovskiy said: “In 1H 2020, jewellery demand will be impacted by exogenous factors. At the same time, the diamond industry looks much healthier in 2020, with balanced stocks, both for jewellery in retail, and for cutters’ diamonds, and with the mid-stream leverage back to historical levels.”

The Company’s CFO also noted that ALROSA’s financials in 2019 saw “expected pressure from external factors”.  Total debt for 2019 increased by 23% to US$1.9 bn, he noted among other things.
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Meanwhile, at the same time, ALROSA also hosted an Analyst Briefing. “The Company’s management discussed the key industry challenges faced in 2019 and how the Company managed to navigate through them, provided an update on most recent financial performance and progress regarding the implementation of its strategic initiatives,” ALROSA elaborated in a statement.
 A combination of factors made 2019 a challenging year for the diamond industry, which resulted in weaker demand for rough diamonds. Some of these factors, ALROSA said were:

* Excessive inventory build-up at the beginning of 2019 driven by overoptimistic expectations following high demand in 2017/2018

* Weaker demand from India’s midstream due to tightening of borrowing terms for manufacturers

* Increase in share of online sales disrupting traditional marketing channels and approach to inventory management

“To address these market challenges, ALROSA introduced a number of initiatives based on “price over the volume” approach and aimed at maximisation of its free cash flow,” the Company explained. “The Company adjusted the minimum allowed contract allocation level, decreasing it from 80% to 55%, adhered to prudent supply side management by reducing production at the highest cost/low margin mines and scaled down its investment programme.”

Though the diamond industry came out of 2018/2019 crisis year “healthier, with balanced stocks, disciplined supply management across the chain, and a more financially sustainable mid-stream segment”; in the short-term, certain headwinds, which are exogenous to the industry such as COVID-19 outbreak, “could decelerate demand recovery, which started to materialise in the second half of 2019”, the Company cautioned.

In conclusion, ALROSA reaffirmed that its management’s outlook for the diamond industry “remains optimistic in the mid- to long-term”.