ALRO ALROSA SA In Investor stor Present sentation ation 13 December mber 2018 8
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DIAMOND INDUSTRY – KEY DEMAND DRIVERS • Luxury market valued at c. € 1,200 bn is steadily growing Global luxury market breakdown in 2018E € bn • Jewelry demand comprises 7% of global luxury market, and 31% of the personal luxury (annual growth 5%) +5% % 2017-2018E growth at constant exchange rates 23 1,171 • 41 41 Most dynamic growth is concentrated in Asia incl. Japan and China 50 71 190 495 • Diamond jewelry consumption is correlated with USA GDP and disposable +6% income 260 Personal Lux Hospitality Fine Fine food Fine art Designer Jets & Total luxury cars wines furniture yachts 2018E Source: Bain’s luxury goods worldwide market study (November 2018) Diamond jewelry sales are highly correlated with US’ GDP Personal luxury market growth by region 2018E Indexed diamond jewelry sales vs indexed US’ GDP (2011 = 100) Market size 32% 31% 8% 15% 9% 5% 20% 100 Indexed jewelery sales 9% Indexed US' GDP 6% 5% 3% 0% 2011 2012 2013 2014 2015 2016 2017 Europe Americas Japan Rest of Asia China RoW Source: Company’s estimates, World Bank statistics Note: trends at constant exchange rates Source : Bain’s luxury goods worldwide market study (November 2018) 3
GLOBAL DIAMOND JEWELLERY MARKET GROWS BY 4% World diamond jewellery sales grew by 4% annually • Since 2010 diamond jewellery demand increased on average by 4% Diamond jewelry market, $ bn • … reaching a 10-year high level in 2017 at +5% yoy driven by steady N. America, Asia-Pacific demand in DM, and dynamic growth in EMs region and India ~ 80% • H1 ’ 18 diamond jewelry in key markets (N.America and Asia-Pacific) 83 81 79 79 78 76 enjoyed even stronger demand amid better consumer sentiment and a 69 62 favorable macro environment 2010 2011 2012 2013 2014 2015 2016 2017 Source: Company’s estimates • US, India and China key drivers for diamond jewellery demand in the Outlook for world diamond jewellery demand CAGR 2016-2030F long-term are: o USA (50% total market): continued real disposable income growth Base case scenario Optimistic scenario o China: economic growth and expansion of the Chinese middle class, early 7% stage of adoption of bridal rings gifts tradition o India: the ongoing expansion of bridal diamond jewellery and the middle 4% 4% 4% 4% 3% class 2% 1% 1% 1% US India China Other Total Source: AWDC Bain report “The Global Diamond Industry 2017” (December 2017) 4
MARKETING SPENDING OF THE INDUSTRY • Diamond Producers Association (DPA) formed by 7 major diamond DPA marketing campaigns by region % represents share of a region in global jewelry consumption producers in 2015 supports the development of the diamond sector through promotion of reputation of diamonds • Marketing campaigns with a tagline “Real is Rare. Real is a Diamond” N. America (USA from 2016) 6% launched in the US (2016) and in India (2017) 20% India (from 2017) 53% • DPA’s activities include: Asia Pacific ex. Japan (China from 2018) o paid advertisement on TV, internet, cinema, social networks 21% o promotion in social media by social influencers RoW o participation in industry events o work with industry and non-industry organizations Marketing budget of the industry association growth o market surveys and research $ m 60 60 • In 2018 DPA’s activities expanded into China (while continued in the US and India) • New marketing campaign addressed to women who purchase diamonds for themselves is called “From Me, To Me” , launched in mid-September 2018 10 2016 2017 2018 Source: Company’s data 5 5
ROUGH DIAMOND PRICES* Average realized price for ALROSA’s gem -quality rough diamonds • 2018 recovery in average realized prices driven by better sales mix $/ct (high share of large stones in mix), and price index (like-for-like mix) price change +60% +23% +18% 22% +11% +6% +21% growth of 5.2% YTD (2%) (10%) (2%) (1%) (12%) (9%) • 9M 2018 prices of $167/ct a recovery to its 5Y average , as negative (21%) (18%) 197 199 194 175 172 170 167 169 164 154 149 139 136 138 123 117 price drivers (demonetization reform in India, Chinese policies) were accommodated by the market 2010 2011 2012 2013 2014 2015 2016 2017 9M Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018 2017 2017 2017 2017 2018 2018 2018 Rough diamond price index is 5.2% in 9M’18 on lower stocks and ALROSA’s gem-quality rough diamond prices are correlated with US’ GDP continued demand growth Indexed ALROSA’s LFL diamond prices vs indexed US’ GDP (end of 2012 = 100) Indexed US' GDP +46% Indexed ALROSA's prices +21% +7% +3% +2% +2% +2% +2% +1% 0% 0% 100 (1%) (1%) (14%) (20%) Chinese policies effect End 2013 2014 2015 2016 2017 Q3 2010 2011 2012 2013 2014 2015 2016 2017 Q1 Q2 Q3 Q4 Q1 Q2 Q3 of 2012 2018 2017 2017 2017 2017 2018 2018 2018 Note: * ALORSA rough diamond prices and index of LFL mix Source: ALROSA’s rough diamond price index under long -term agreement and spot sales 6
GLOBAL ROUGH DIAMOND OUTPUT AND SALES Rough diamond sales demonstrates moderate recovery • Global output reached its peak levels in 2017 , with a 3% decrease in $ bn 9M 2018 on lower production from ALROSA (~3 m cts down y-o-y) ALROSA Others ~16 ~16 ~15 ~15 ~15 ~15 ~15 • Rough diamond sales follow trend of demand for diamond jewellery ~12 9.0 8.6 8.2 • 9M global diamond sales in USD increased 4% on demand recovery and stronger prices 32% 29% 28% 28% 28% 29% 31% 2011 2012 2013 2014 2015 2016 2017 2018E 9M 9M 9M 2016 2017 2018 Sources: AWDC Bain report “The Global Diamond Industry 2018” , Company’s estimates Output volumes m ct ALROSA Other 151 147 130 128 128 127 126 125 123 111 108 27 25 28% 26% 32% 31% 29% 25% 28% 28% 29% % % 2010 2011 2012 2013 2014 2015 2016 2017 2018E 9М 9М 2017 2018 Sources: AWDC Bain report “The Global Diamond Industry 2018”, Company’s estimates 7
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