Alrosa (MCX: ALRS) — the world leader in the size of the production of diamond products. The main mining assets of the holding company are located in the Republic of Yakutia and the Arkhangelsk region, besides, the company conducts its diamond mining activities in Africa through participation in associated organizations and solidarity enterprises.
13 On August, the company released its cash figures for the second quarter and first six months of 2021. With the global diamond market recovering, sales revenue for the first 6 months of the current year increased to a 5-year high, and pure profit increased more than in 16 times in relation to the corresponding time period of the past year. At the same time, the company's unsullied debt became negative., in other words, there are more funds in the company's accounts, than she is obliged to return to creditors.
Strong monetary performance was a natural consequence of more than doubling natural sales of diamonds compared to the first half of 2020, when the crisis reigned in the diamond market. I wrote more about Alrosa sales in January-June 2021 in the last review. Now I propose to consider the dynamics of the main monetary characteristics.
Revenue and profit
Alrosa's sales revenue in the first six months of 2021 reached 181.76 billion rubles, almost two,6 times exceeding the indicators of the corresponding time period of the past year and returning to pre-crisis levels. Such a strong dynamics was influenced by the low base of the past year, also an increase in purchasing power and prices for diamonds from the cutting sector.
I will emphasize, that the company is very dependent on external conditions. About ninety percent of all proceeds were sales of diamond products for export.
However, the cost of sales has now doubled.,6 times up to 95.4 billion rubles. Sales exceeded production volumes, and the company was selling off its inventory. Only for 6 months of this year, stocks of rough and polished diamonds decreased from 66.7 to 32.1 billion rubles. Besides, the mineral extraction tax increased by more than 2 Times, up to 11.5 billion rubles, which also had a negative impact on the cost of sales.
As a result, the operating profit of the company amounted to 66.92 billion rubles., which is almost 4 times higher than in the first half of 2020.
Alrosa's net financial expenses decreased by 71% — to RUB 4 billion due to a reduction in foreign exchange expenses from RUB 33.7 billion to RUB 9.1 billion. The fact, that in the first half of last year the company recorded significant non-cash foreign exchange expenses due to the devaluation of the ruble.
The company also increased profits from its participation in a joint venture in Angola with 1,3 to RUB 5.8 billion against the backdrop of more favorable market conditions.
As a result, Alrosa's net profit for the first half of 2021 is more than 16 times exceeded the results of the same period last year and amounted to 54.2 billion rubles.
Company financial results for the first half of the year, billion rubles
| Revenue | Operating profit | Net profit | |
|---|---|---|---|
| 2017 | 154,1 | 60,95 | 48,91 |
| 2018 | 165,61 | 78,13 | 58,26 |
| 2019 | 125,45 | 43,54 | 37,51 |
| 2020 | 70,94 | 17,64 | 3,32 |
| 2021 | 181,76 | 66,92 | 54,2 |
Debts and dividends
Dividend policy of Alrosa 10 March 2021 approves free cash flow as the basis for dividend calculation, and the share of payments depends on the level of debt load, which is calculated on the basis of the ratio "net debt / EBITDA" at the end of the reporting half year. Besides, the total amount of dividends must not be less 50% from the amount of net profit under IFRS.
According to the results of the first half of 2021, Alrosa's free cash flow reached the maximum of recent years and amounted to 64.7 billion rubles, which creates a high base for dividend payments.
Net debt, meanwhile, went into negative territory and amounted to -29.9 billion rubles. On 30 June, the company's accounts had 64.1 billion rubles and their equivalents and another 90.6 billion rubles in bank deposits. The company's financial cushion in aggregate exceeds the amount of current long-term and short-term loans and borrowings.
As a result, the net debt ratio / EBITDA» for 12 months went into the negative area, making −0.2.
According to the current dividend policy, according to the results of the first half of the year, the company must allocate at least 100% from free cash flow, which reached a record 64.7 billion rubles. Shareholders can expect to receive at least 8,78 P per share.
Free cash flow and leverage for the first half of the year, billion rubles
| free cash flow | net debt | net debt / EBITDA | |
|---|---|---|---|
| 2016 | 78,7 | 153,5 | 1,0 |
| 2017 | 50,3 | 86,0 | 0,7 |
| 2018 | 62,0 | 67,4 | 0,4 |
| 2019 | 28,3 | 79,6 | 0,7 |
| 2020 | −8,3 | 31,2 | 0,4 |
| 2021 | 64,7 | −29,9 | −0,2 |
History of dividend payments, billion rubles
| 2016 | 65,8 |
| 2017 | 38,6 |
| 2018 | 73,9 |
| 2019 | 47,7 |
| 2020 | 70,3 |
| 2021 | — |
65,8
What's the bottom line?
Alrosa showed strong financial results in the first half of the year against the backdrop of a recovery in demand and prices for diamonds in the global market. The company managed to achieve multiple growth in revenue and profit from the low base of the previous year and negative net debt.
Furthermore, free cash flow of the company has reached a record in recent years, which allows shareholders to count on generous dividends. The board of directors of the company should give its recommendations on the amount of dividends at the end of August.
But it is worth noting, that the company has not yet had time to increase production volumes following the increased demand, because of what the stocks of diamond products are being sold, which have been reduced for 6 months more than 2 Times. To meet the growing market needs, Alrosa gradually resumes production in its open pits, which was suspended last year during the crisis. Probably, this will allow to increase production in the second half of the year and will have a positive impact on financial results for the entire 2021.
