Alrosa Reports Good Financial Results

At a time when diamonds are not at their best situation, Alrosa, the world's largest producer is improving in profitability and in efficiency.

Abel Amón. 27/10/2016

One of the main problems of the company is its excessive inventory, which aims to reduce by 5-6%. In addition after a difficult year 2014 with financial losses, the company returned to the path of profits in 2015 and in 2016 expects to increase it considerably. In fact the figures of the first 3 quarters are very positive  and show an operating profit of 1.6 billion USD, five times more than that of the same period, last year.

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The Alrosa diamond production has fallen

Alrosa reported production and sales results for the third quarter and nine months of 2016 diamond production company in the third quarter fell 5% year-on-year to 11 million carats. The company produced 27.9 million carats of diamonds in the first nine months of 2016, 6% less than a year earlier. The company sold 8.3 million carats of rough diamonds in the third quarter, including 5.8 million carats of polished diamonds at an average price of $ 165 per carat and 2.5 million carats of industrial diamonds at a price average of $ 7 per carat.

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Chinese demand for diamonds has fallen

The revenue of the company grew 30% to USD 3.5 billion in the nine months (USD 2.7 billion in the same period of 2015). This included almost US $ 976 million in the third quarter of 2016. It is an important fact at a time when the sector is struggling. The booming Chinese demand for some years has been cooling, and consumer tastes have changed so that the new generation of affluent consumers have less interest in this gemstone.

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Millennials do not feel attracted by diamonds

Changes in consumer tastes.
Diamonds are sold on the idea that they will always represent a prominent place among the luxury goods But industry executives and business owners recognize that the battle for every niche of the luxury sector is intensifying place and diamonds do have today strong competition from many alternative goods and services, from sophisticated electronic devices to expensive vacations. It seems certain that the milennials are seeking more experiences than ostentation. It is therefore necessary that the marketing strategies of the companies in the industry to focus on returning the past splendor of the meaning of buying a diamond.

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Alrosa searchs for new fields of exploration

Search for new fields of exploration.
The Russian company Alrosa is considering moving part of its production to Africa, where production costs are 14 times  lower than in Russia. «The most important region for us is Angola are negotiating to expand our presence in » Catoca « holding. Our Board of Directors will consider the issue of increasing the share of our participation in this project – said Rinat Gizatulin, vice president of the company, stressing the need to convince shareholders that investing in Angola will bring an additional benefit in the years 2017-2018. It is important to notice that Alrosa has reserves of diamonds for many years.

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Russia could privatize its stake in Alrosa

Near record highs.
Alrosa is listed on the Moscow Stock Exchange and its quotation crosses through a good moment. In fact today (87.75 RUB)  is near record high, reached with 94.30 RUB 10.07.2016. However, as we have seen, it does not seem the best time to take positions in a sector in difficulty, despite efforts to reinvent itself, as do companies like Alrosa. The Russian State owns a significant 44% of the company is seeing for some time now, the possibility of privatizing its participation.

Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text has been written freely expressing their own ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.

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