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President of Russia Vladimir Putin: Good afternoon.

Mr Andreyev, how did the company end the year, and how do things stand at present? What is the general situation on the market today? As you know, the state authorities were very active in supporting the company during the most difficult period, and overall, this helped to stabilise the situation. How did your IPO go? What are your upcoming plans?

 Alrosa CEO FEDOR ANDREYEV: Mr President, it was indeed the case after your visit to the town of Mirny in 2009 that the company received substantial support: the government purchased $1 billion worth of diamonds, which helped us to settle our loan problems and carry out our investment plans. Since 2009, the company has shown steady growth and its earnings, EBITDA and profit indicators have all been on the rise. Profits, for example, tripled between 2009 and 2013, increasing from 10 billion to 30 billion rubles. Dividend payments increased 10-fold and came to around 10 billion rubles [more than $280 million] for last year.

Overall, 2013 was a good year for the company. Production rose by 7 percent, from 34 million carats to 37 million. The company remains the absolute leader in terms output in carats. De Beers, for comparison, produced 31 million carats in 2013. 

ALROSA’s earnings rose by 11 percent, and wages were up by 14 percent in 2013, increasing from 79,000 rubles to 90,000 rubles. Overall, wages have risen 2.2-fold over the 2009–2013 period, enabling us to stabilise our workforce situation considerably. The workforce turnover issue has now been largely resolved.

Labour productivity growth slowed down a little in 2013 and came to 9 percent. I know your view on this issue, but in our defence I can say that it was the sharp drop in diamond prices at the end of the year – by 5 percent – that prevented us from keeping the balance steady. Overall though, since 2009, we have been keeping up the pace, with labour productivity growing 2.4-fold and wages 2.2-fold.

It is also important to note that we carried out an IPO in late October 2013. The Russian Federation and Yakutia [Republic of Sakha (Yakutia)] each sold a 7-percent stake, while the company management sold a 2-percent stake.

You will recall that there was a great deal of discussion about whether it made sense to privatise, and how quickly we should privatise. There was a lot of debate on the steps to follow in privatising the company.

The choice of stock market was also carefully considered. Everyone thought that if we carried out the IPO in Russia it would be doomed to fail, and said that the company should list on the London or US exchanges. But we went ahead nonetheless and floated 16 percent of shares, which raised a total of 36 billion rubles for the federal and Yakutia’s regional budgets.

You made the decision that this money would be used specifically for Yakutia’s regional development and for resettling people out of dilapidated housing. The IPO resulted in 70 investors buying shares in the company, including some of the biggest American and British funds. The fact that the IPO was carried out on the Russian stock exchange only did not draw any criticism from these funds. Following the IPO, the company’s worth, if we calculate it for the business as a whole, comes to $8 billion.

After this, acting on your instructions, an agreement was signed between the shareholders, the Federal State Property Management Agency and the Yakutia regional government, under the terms of which we will maintain joint control of the company until 2020. This was a very important decision for us and for Yakutia because we believe that privatisation is a positive event, but it should be a gradual process, because at the moment we are still in a situation where the company is spending around 8 billion rubles every year on running social facilities ranging from preschools to airports, housing and utilities infrastructure. We are taking steps to carry out reform in all of these areas, but we cannot do this quickly. It is a gradual process. 

I think that this whole reform process will take at least 10 years. Our paramount concern is to ensure that we maintain the quality of services for the local residents, because the company operates in three single-industry towns in Yakutia, and we are fully aware of our responsibilities towards the people there.

2014 will be a key year for carrying out our development strategy. We already have a production facility running in test regime. It is designed to mine 4 million tonnes of ore and 4 million carats at the Lomonosov deposit in Arkhangelsk Region. Not far from this facility and the kimberlite pipe, LUKOIL is currently in the process of launching a comparable facility and pipe into operation at the Vladimir Grib diamond deposit. This way, we will develop a new diamond producing industry in Arkhangelsk Region.

In July this year, we plan to put the world’s biggest underground mine into operation at Udachny, and this will make it possible for us to not only maintain our production level but, most importantly, to provide people with jobs.

The mine is designed to produce 4 million tonnes of ore, which corresponds to slightly more than 5 million carats. These two big projects are essentially the cornerstones of the company’s growth over the coming years. Our target is to bring production to 40 million carats by 2020.

The Board of Directors has drafted and approved our development strategy. Russia has always been known as a major diamond producer, but the company’s management and I share the view that our goal, apart from retaining our leadership in production, must be for ALROSA to become a leader in terms of marketing and influence on the market itself. I am sure that we can achieve this objective. If we do, this will also enable us to build up the company’s capitalisation. Another important indicator I omitted to mention: the company’s shares have gone up in value by 5 percent since the IPO, which highlights how successful the public offering was. 

Conservative forecasts estimate that the company’s value will grow by 30 percent over the next five years. In 2016, we will complete all of our main production investment projects, and this will give us the chance to increase dividends, including for the biggest shareholders – the Russian Federation and Yakutia. I therefore think that our plans are entirely realistic and that we will reach our goals.

Vladimir Putin: Are there any problems between the local communities, the regional authorities and the federal government? Is everyone working in harmony?

Fedor Andreyev: I think that harmony also comes out of debate. We do debate many issues and do not always share the same point of view, but we have come a long way since the economic crisis. The crisis taught us a lot, above all, not to spend carelessly on all kinds of investment projects. Previously, the company tried to invest in gas assets, iron deposits, banks, insurance companies, etc. Over these last years, we have reduced our number of subsidiary and dependent companies from 70 to 40, and we will continue this work.

I think that the agreement between the shareholders and the company’s significance as a taxpayer for the region are the economic foundation for our good relations. We will therefore try to make these relations more clear and transparent and will not undermine our economic base for the sake of fine slogans. I think that these foundations have been laid now.

Vladimir Putin: Thank you.

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