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Alrosa Q4 profit drops 52% YOY; FY'18 profit up 15% on increased revenue

Despite a 52% year-over-year plunge in PJSC Alrosa's net profit in the fourth quarter of 2018, the diamond miner posted a 15% increase in full-year earnings to 90.4 billion Russian rubles as revenue grew and profitability improved considerably.

Alrosa attributed the crash in fourth-quarter net profit to the recognition of income from an insurance reimbursement of 10.5 billion rubles as other operating income for 2017, which was paid in full in 2018. Changes in the U.S. dollar-to-ruble exchange rate were another factor, accounting for 1 billion rubles.

Final-quarter net profit came in 67% lower than the previous quarter at US$7.9 billion due to a 23% fall in the average sale price of gem-quality diamonds. EBITDA in the same period was down 33% quarter over quarter at 26.9 billion rubles and was flat year over year.

Russian news agency Interfax had indicated a consensus EBITDA forecast of 27.47 billion rubles.

Lower rough-diamond sales saw fourth-quarter 2018 revenue dip 12% from the third quarter, though quarterly revenue grew 1% on a yearly basis to 61.4 billion rubles, reflecting a 5% year-over-year improvement in rough-diamond sales in terms of value.

Fourth-quarter 2018 sales costs rose 15% quarter over quarter to 34.4 billion rubles due to bonus payments and a seasonal increase in exploration costs but increased only 1% year over year.

On an annual basis, EBITDA grew 23% to 155.97 billion rubles, mainly due to a better mix of gem-quality diamonds, a higher price index and a positive foreign exchange impact of 14.4 billion rubles.

The company's EBITDA margin benefited from higher revenue, cost control measures, forex and the disposal of less profitable gas assets, gaining 6 percentage points to reach 52%.

Free cash flow was 26% higher year over year at 92.3 billion rubles in 2018, while capital expenditure came in at 27.8 billion rubles, compared to 26.94 billion in 2017.

The company also brought down its total debt by 5% to US$1.54 billion while decreasing interest expenses by 39% over the year, taking leverage to a record low, with net debt to EBITDA at 0.4x, as opposed to 0.7x a year ago, CFO Alexey Philippovskiy noted.

Moody's upgraded Alrosa to Baa2 with a stable outlook in February, while S&P Global Ratings nudged the diamond miner's rating up to investment-grade, BBB-, with a stable outlook, in mid-2018.

The diamond monopoly expects to increase production to between 37.5 million and 38.0 million carats in 2019, compared to 36.7 million carats in 2018, with average grade forecast to stabilize at 0.9 carats per tonne.

As of March 14, US$1 was equivalent to 65.49 Russian rubles.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.