ALROSA presented the first financial statements since 2021

ALROSA, which fell under Western sanctions, published financial statements for the first time in a year and a half. The company managed to maintain revenues at the same level as last year in the first half of the year, but net income and free cash flow decreased by 35% on the back of increased capex and working capital. Analysts believe that the results give an opportunity to hope for the payment of dividends for the year, although prices for rough and polished diamonds in the world market are declining.

According to the results of the first half of 2023, ALROSA retained its revenue at the level of the previous year at 187.8 billion rubles, according to report companies under IFRS. In the second quarter, revenue grew in annual terms by 8%, to 92.5 billion rubles. At the same time, net profit for the half year fell by 35% to 55.57 billion rubles.

The company’s financial statements do not disclose EBITDA, free cash flow (FCF) and net debt. Separate materials for analysts say that FCF for the first half of the year fell by 35%, to 19.6 billion rubles, writes Interfax. Capital expenditures increased by 39% to RUB 24.3 billion due to technical re-equipment and maintenance of fixed assets. Working capital was the main reason for the reduction in FCF, increasing by RUB 24.4 billion, including due to an increase in ore and sand reserves, an increase in fuel costs, etc. ALROSA’s net debt fell to a negative value of 5.6 billion rubles. (the funds on the balance sheet exceed the debt).

According to analysts, the results of the company allow us to hope for dividends.

“Although the company has not paid a dividend since the end of 2021, we note the possibility of an announcement for the first half of 2023 later this year. According to our estimates, the potential dividend yield could be 4–5% for the first half of the year (8–10% for 2023),” analysts of the My Investments Telegram channel say. Interim dividends, subject to the payment of 100% FCF, can be about 3 rubles. per share, according to Sinara investment bank. “At the same time, it is possible that the board of directors may also consider the issue of unpaid dividends for 2022,” they believe. According to the dividend policy, at the current level of debt, the payout ratio should be at least 100% of free cash flow.

At the same time, analysts “My investment” note the unfavorable situation in the global diamond market. The Zimnisky Global Rough Diamond Price Index is down 16.6% over the past year. The index tracks the change in comparable prices for natural rough diamonds in dollars.

Decrease in demand and rising costs negatively affected the results of another major diamond producer, De Beers. The company’s EBITDA in the first half of 2023 fell by 63% to $347 million, while revenue decreased by 21% to $2.83 billion.

“With the diamond sector dormant in the first half of 2023, midstream inventories continued to rise, with margins under pressure from lower polished prices and rising costs,” the company explained.

The decline in diamond prices in the first half of the year is due to the presence of small, but still affecting the pricing, stocks of cutters against the backdrop of rising interest rates, which is reflected in the cost of financing, says Boris Krasnozhenov from Alfa-Bank. For diamond cutters, interest payments account for up to a third of all costs, and any increase in the rate immediately affects the profitability of their operations. Therefore, during periods of rising rates, they tend to minimize working capital and, as a result, reduce the purchase of raw materials. “According to our estimates, from September we can see a reversal in the dynamics of demand for diamonds against the backdrop of seasonal demand growth and minimization of inventory levels in the cutting segment,” the analyst says.

Fair prices for diamonds, given the current balance of supply and demand, may reach $200-230 per carat, which indicates a significant potential for ALROSA in terms of financial results and company valuation, emphasizes Boris Krasnozhenov. He recalls that diamond reserves in the world at the largest mines are declining and by 2030 the volume of production may fall to 90 million carats from 120 million carats in 2023.

Evgeny Zainullin