December 16, 2019 – The Supervisory Board of ALROSA at the meeting on December 13 approved the Strategy for the development of its cutting and polishing complex for 2020-2022, as well as the plan of integration of the Smolensk diamond factory Kristall into ALROSA Group.

Today, the ALROSA Group includes several diamond cutting companies: Diamonds of ALROSA branches in Moscow and Barnaul, and Kristall diamond factory (Smolensk), which was purchased from the state in October this year. Together they account for more than 60% of diamond cutting and polishing in Russia.

The implementation of the Strategy will help to improve the operational efficiency of ALROSA’s consolidated diamond cutting sector. This will have a positive impact on the financial results of this business segment. The plan includes a set of measures aimed on the product mix efficiency improvement, production cycle optimization and a creation of a consolidated sales system for polished diamonds.

The company will redistribute the mix of rough diamonds for cutting in order to maximize production efficiency. Fancy colored and large colorless diamonds will be cut in Moscow by the high-skilled operational staff. At early stages of the integration, cutting of colorless diamonds weighing from 1 to 10 carats will be moved to Smolensk in order to reduce costs. Small-size diamonds will be cut in Barnaul and Smolensk, with an allocation based on the actual efficiency of producing one or another position. The total cutting volume will exceed 200 thousand carats of rough diamonds.

One of the Strategy’s main points is a centralization of rough diamonds allocation and polished sales in order to reduce administrative and commercial costs. Pulling together diamonds that currently go to Kristall and Diamonds of ALROSA will allow forming a more representative and stable rough diamond mix, bringing synergy effect.

Diamonds of ALROSA will be selling polished products. ALROSA plans to create a consolidated sales service for polished diamonds based at this branch. Some of the employees of Kristall's sales divisions will move to the new sales division.

“Many measures of this Strategy follow ALROSA's earlier strategy of its cutting complex development. They are based on the same principles as our efforts to improve the efficiency of our Diamonds of ALROSA branch. Largely due to those efforts, in 2019 the branch achieved a positive financial result for the first time in three years," says Sergey Ivanov, CEO of ALROSA. “We aim to improve the quality of interaction with customers, develop new sales channels, implement joint marketing programs with jewellery manufacturers, and introduce more automation and modern technologies. In our opinion, the merger of diamond cutting platforms will make it possible to reduce production costs and get a stable market share for polished diamonds with Russian origin marked by a high quality of cutting.”

Reference

The Kristall diamond factory was founded in Smolensk in 1963. Currently Kristall is the leading polished diamonds manufacturer in Russia and Europe. It processes over 200,000 carats of rough diamonds per year, with 90% of diamond feedstock supplied by ALROSA. Kristall’s international operations are run through its trade offices in the US, Hong Kong, and Belgium. The company’s total headcount exceeds 1,800 people.

In 2018, Kristall production and sales were 105,700 and 111,700 carats of polished diamonds, respectively. Its total revenue amounted to RUB 12.8 billion, and net profit reached RUB 40.7 million.

ALROSA has two cutting assets: a Diamonds of ALROSA branch in Moscow, specializing in large and unique polished diamonds, and a facility in Barnaul, which processes small-sized diamonds of 2–6 grainers. In 2018, ALROSA’s sales of its own polished diamonds exceeded USD 95 million.