Alrosa's 2018 Revenue Rises on Better Product Mix & Prices as Sales Volume Falls

Rough Market
15/03/2019 14:40

Russian diamond mining giant Alrosa has released it results for FY 2018, reporting a 6% increase in the value of diamonds sold to $4.4 billion, and a 9% rise in revenue despite an 8% decline in the volume of goods sold, totalling 38.1 million carats for the year. The miner attributes the increase in sales and revenue to stronger prices and improved mix of gem-quality diamonds. While Q4 diamond sales increased 34% q-o-q to 9.0 m carats, the main increase was from industrial quality diamonds, causing Q4 sales to decline 13% q-o-q (-7% y-o-y) to $824 million as large-size diamond sales fell. Net profit for the year grew 15% to approximately $1.38 billion (90 billion rubles).

For 2018, Alrosa noted a 2.9% gain in the average price index following a 3.4% gain in 2017, clarify!ing that In the first six months of the year the company experience a strong price uptick on healthy demand, which it took advantage of by maximizing sales, bringing their inventories to minimum in doing so. Due to a better mix in sales, the average selling price for gem-quality diamonds grew by 21%, reaching $164/ct, although it concluded the year on a serious downturn, as the Q4 average selling price for gem-quality diamonds fell by 23% q-o-q to $153/ct. For the year as a whole, the higher percentage of gem-quality diamonds in the sales mix, which increased by 12%, resulted in 89% of revenue deriving from gem-quality diamonds sales.

Alrosa's diamond production declined by 7% y-o-y to 36.7 million carats due to Mir mine closure and completion of open-pit mining at the Udachnaya pipe in 2017. Q4 diamond production was seasonally lower. Despite the production increase, Alrosa's diamond inventories fell by 6% y-o-y as they opted to maximised sales on stronger demand in H1, which resulting in 2018 sales exceeding their mining output.

"In 2018, the Company continued to consistently improve its financial position: revenue grew by 9% to RUB 300 billion (nearly $4.6 billion), while margins expanded by 6 percentatge points to 52%, almost 2x higher than the industry average. EBITDA grew by 23% to RUB 156 bn in 2018," said Alexey Philippovskiy, ALROSA's Deputy CEO. "The key financial drivers included improved market environment (recovery in prices and stronger demand for diamond jewellery in major markets) and management efforts to boost efficiency. The rise in operating cash flow and moderate capex allowed us to increase our free cash flow by 26% to RUB 92 bn ($1.4 billion)."

Commenting on the rough diamond market as a whole, Alrosa says overall production decreased by 5% y-o-y, mostly driven by declines from ALROSA and Rio Tinto. The miner says that Q4 midstream and downstream stocks increased y-o-y mainly due to higher volumes and lower demand for small stones, while 2018 global diamond sales in USD increased by 3%, mainly due to strong demand recovery and stronger prices in H1.