Some of the highlights include:
- Tripling Q3 net profit to RUB 25 billion ($354 million), reinforced by recovering sales
- Increasing Q3 sales by 83% year on year to 9.2 million carats of diamonds
- Restoring output to 30 million carats after last year’s 22% reduction
- Recording double-digit growth in demand for diamond jewellery
- Raising 2021 production estimate by 1 million carats to 32.5 million carat
The global leader in diamond mining, Q3 and 9M 2021 IFRS results include;
- Revenue in Q3 amounted to RUB 77 bn, down 18% qoq driven by a 20% lower diamond sales volumes and changes in the sales mix. This was partially offset by a higher price index (+10% qoq). A 55% yoy growth was due to the low base of Q3 2020 (5.0 m ct in sales vs 9.2 m ct in Q3 2021). 9M revenue increased 2.1x to RUB 261 bn, mainly due to a 2.4x rise in sales volumes.
- Q3 EBITDA was RUB 35 bn, down 24% qoq mainly due to lower sales volumes. A 35% yoy increase in Q3 and 2x growth in 9M (to RUB 114 bn) was driven by sales recovery.
- EBITDA margin amounted to 45% (-4 pp qoq, -7 pp yoy). The decline was related to the sale of diamonds purchased at Gokhran’s auctions for resale with a minimum trading margin.
- Net profit stood at RUB 25 bn, down 17% qoq due to lower return on sales. 9M net profit climbed to RUB 79.2 bn (9M’20: RUB 10.9 bn) on the back of recovering sales volumes and prices.
- Q3 Free cash flow (FCF) increased 2x qoq to RUB 24 bn (+8% yoy), driven by the working capital release supported by a rise in advanced payments from customers. 9M FCF expanded to RUB 89.2 bn (9M’20: RUB 14.3 bn).
- Capex in Q3 sequentially grew to RUB 5.4 bn due to seasonality. 9M capex amounted to RUB 12.2 bn.
- Net debt / LTM EBITDA as at the end of Q3 was at 0.1x.
Alexey Philippovskiy, ALROSA’s CFO:
“In Q3’21, the demand for diamond jewelry continued to grow in double digits. In the USA, jewelry sales surpassed the 2018–2019 highs by over 50%, while in China demand for jewelry exceeded pre-crisis levels by 10%.
The strong end demand for jewelry and the corresponding demand for polished diamonds since the beginning of the year was initially met thanks to the rough diamond stocks accumulated by producers in 2019–2020. However, by the start of Q3’21, producers had run out of their stocks and began supplying “freshly” produced diamonds. In the coming years, the global diamond production will remain 20–25% below the pre-pandemic levels. On the back of the strong demand and limited supply, polished and rough diamond prices rebounded by 9% and 12%, respectively, versus the early 2019 levels.
These market trends had a significant impact on ALROSA’s performance in Q3:
- With end product stocks depleted, the Company saw its Q3 sales decline in volumes by 20% qoq to 9.2 m ct, including 0.7 m ct purchased as part of Gokhran auctions. At the same time, sales in Q3’21 hit their highest level since 2010 for that period which is traditionally considered to be the weakest period of the year.
- The price index in Q3 increased by 10% qoq and by 25% YTD, having exceeded the 2018 levels.
- Q3 revenue amounted to RUB 77 bn (down 18% qoq), which is still the highest result for the third quarter since 2010.
- The decrease in EBITDA margin from 49% in Q2 to 45% in Q3 was due to the seasonal growth in sales of lower priced diamonds and inclusion in the sales mix of diamonds purchased at Gokhran’s auctions for resale with a minimum trading margin. EBITDA went down by 24% to RUB 34.6 bn (an increase of 35% yoy).
- Our free cash flow grew to RUB 24.5 bn (up 2x qoq and 8% yoy) on the back of high margins, a relatively stable level of working capital and investments, and a significant inflow of advances from customers. In 9M 2021, the Company’s free cash flow exceeded RUB 89 bn.
- After paying out the H2 2020 dividends in the amount of RUB 70.3 bn in Q3, ALROSA’s leverage (Net Debt to LTM EBITDA) increased to 0.1x by the beginning of Q4’21 (Q2: -0.2x), remaining considerably lower than the target level of 0.5–1.0x.
- Strong cash flow and low leverage enabled the Company to approve dividends for H1 2021 at RUB 64.7 bn, or 100% of the free cash flow for the period.
- The cash amount allocated for dividend payments in 2021 totalled RUB 135 bn, which is an all-time record high level for the Company.
- Our outlook for the diamond jewelry market remains positive, which, combined with the low inventories in the cutting sector and the structural decrease in global rough diamond output starting 2021 onwards to 110–120 m ct (compared to 140–150 m ct prior to 2019), will help maintain high prices for rough diamonds in the long term.
1FCF (free cash flow) is the operating cash flow calculated in accordance with the International Financial Reporting Standards (IFRS), net of capital expenditure (posted as Purchase of Property, Plant and Equipment on the consolidated IFRS statement of cash flows).
Net debt is the amount of debt less cash and cash equivalents and bank deposits at each reporting date in accordance with the IFRS.