ALROSA's Profit Tumbles by 41% in 2017

Finance and Trade
16/03/2018 14:17

Russia's ALROSA, the world's largest diamond producer, saw its profits tumble by 41% in FY 2017 owing to a variety of factors, including: a 13% ruble appreciation against the US dollar, a 9% decrease in the average price of gem-quality diamonds sold and fallout from the tragic Mir mine flood. The financial downturn took place against the background of increases in the volume of diamonds sold as well as production. According to ALROSA's FY 2017 financial results, net profit for FY2017 at the current exchange rate was US$1.37 billion (RUB 79b), down from $2.31 billion (RUB 133b) in 2016. Total revenue fell 13 percent to $4.78 billion (RUB 270b), while earnings before interest, tax, debt, and amortisation (EBITDA) fell 28 percent to $2.21 billion (RUB 126.9b).

The mining giant attribes its fall in profit principally to the decline in EBITDA, which was driven by a number of macroeconomic and market factors, including changes in rough diamond product mix and prices, as well as ruble appreciation against US dollar. A 6% increase in expenses was driven mainly by the cost of sales and production, their contribution to the Diamond Producers Association, exploration and losses from idle production facilities of the Mir underground mine, which cost the company an estimated $148 million, or 8.5 billion rubles in impairment costs. ALROSA calculates the losses from idle production facilities due to the accident at the Mir underground mine at around $19 million (RUB 1.10b). CAPEX declined 15% y-o-y, "mainly due to completion of active construction phase at the Udachny underground mine construction." 

On the brighter side, ALROSA recorded a 6% increase in rough diamond production to 39.6 million carats from 37.4 million carats, and a 3% overall increase in sales to 41.2 million carats from 40 million carats. They were divided into 30.1 mln cts of gem-quality diamond sales and 11.1 mln cts of industrial diamond sales. ALROSA also made an early repayment of a $250 million loan from Rosbank and a $200 million portion of the existing Raiffeisenbank loan, both raised in December 2017, reducing its debt by more than 27% to $1.17 billion. The bank loans were repaid with the cash proceeds received from the company’s auction sale of gas assets in February 2018, where PJSC NOVATEK place the winning offer of $526 million (RUB 30.3 billion) for the two companies on sale.

Sergey Ivanov, Chief Executive Officer of PJSC ALROSA, commented: “Although production and sales volumes increased, ALROSA's 2017 financial results were affected by a number of macroeconomic and market factors, especially the stronger ruble and the product mix changes. However, our efforts to enhance operational efficiency proved successful and, despite higher production and sales volumes, helped us maintain per unit costs at the 2016 level.”