Alrosa priorities 2024

Alrosa presents its

key strategic priorities

Alrosa, the world’s leading diamond mining company, hosted its Capital Markets Day in London. The Company’s management has shared market insights and provided an update on Alrosa’s strategic development.

1: Enhance sustainable development and safety at workplace. Focus on responsible mining: 

Safety in the workplace continues to be Alrosa’s key priority. Though its current LTIFR is well below the industry average level, the Company will continue to strive for further decrease of this indicator and target to achieve zero fatality rates.

The environmental programme of Alrosa targets to further decrease the amount of CO2 emissions. Renewals are expected to account for a significant part of the Company’s energy consumption by 2024. The Company will continue to support local communities through charitable and infrastructure development initiatives, which account for almost 90% of Alrosa’s social expenditure.

2: Focus on operational efficiency programme:

Alrosa has made a lot of progress with its operational efficiency programme launched in 2017. There are now over 200 efficiency initiatives under way across all Company’s divisions intended to further strengthen Alrosa’s position as the world-class efficiency leader.

Labor productivity has already surged by 17% in 2018 vs 2014, and is expected to grow further by 12% over the next 5 years. Per unit operating costs declined by 5% YoY in real terms in 2018 and should further go down by 2% per annum over 5-year horizon. General and administrative (G&A) expenses of company are also decreased by 10% and 2% in real terms in 2017 and 2018, respectively.

The programme spans key areas from digitalisation and business process optimisation to revision of organisational structure and promotion of operational efficiency culture among employees. The Company sees further room for efficiency gains that would help reinforce its status of the most profitable player in the industry with margins 2x higher than global industry average.

3: Maintain best-in-class resource base:

Alrosa has an excellent resource base that is ~2x the resources of the nearest peer. The Company’s superior exploration capabilities backed by modern technologies (e.g. georadar footage, radio wave geointroscopy and high-resolution seismic survey in 3D/2D) allow it to replenish resources at a low finding cost and provide a sustainable production outlook of ~38 m ct/year for up to 2030.

4: Marketing efforts:

Alrosa’s marketing programme includes a number of generic marketing initiatives implemented under the auspices of the International Diamond Manufacturers Association (DPA) and aimed at generating long-term demand for natural diamond jewellery while also drawing a distinction between the natural and synthetic diamond markets.

It also includes initiatives to market certain product categories (including fluorescent rough and polished diamonds on B2B and B2C markets) and promote polished diamonds (including unique, large and coloured gemstones), as well as digital marketing initiatives (tracing systems, digitalisation, online sales, etc).

5: Prudent capital allocation strategy focused on maximization of shareholders’ returns:

Focus on core business has become a priority of our capital allocation policy with continued divestments of non-core business units, and commitment to organic growth and brown field expansion. Alrosa has approved a 5-year RUR 40 bn investment programme with a minimum 20% IRR hurdle level for new projects.

Alrosa’s consistent and conservative financial policy has resulted in the assignment of investment grade credit rating by Moody’s and S&P in 2018. The Company intends to maintain a conservative debt profile going forward with the target Net debt/EBITDA ratio between 0.5x and 1.0х.

Sergey Ivanov, Alrosa CEO & Chairman of the Board, comments: “We are well on track to build a world-class commercially driven business with an ultimate goal to maximise returns for shareholders. In 2018, we shifted to a more transparent dividend policy by linking dividend payments to FCF (vs. net profit as it was before). The Company intends to distribute between 70% and 100% of FCF to its shareholders.

In December 2017, the Supervisory Board approved a three-year long-term incentive (LTI) programme for employees linked to a set of financial, operational and total shareholder return (TSR) targets to align management and shareholder interests.”