pjsc alrosa international accounting …...accounting standard 34, “ interim financial...

PJSC ALROSA INTERNATIONAL ACCOUNTING STANDARD No. 34 CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 31 MARCH 2020 AND REPORT ON REVIEW

PJSC ALROSA Condensed consolidated interim financial statements prepared in accordance with IFRS (unaudited) – 31 March 2020

CONTENTS REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (UNAUDITED) ....................... 1 CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (UNAUDITED) ............................................................................................................................................................... 2 CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (UNAUDITED) ....................................... 3 CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED) ........................ 4 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited) 1. ACTIVITIES ........................................................................................................................................................................... 5 2. BASIS OF PRESENTATION................................................................................................................................................ 5 3. СHANGES IN ACCOUNTING POLICIES ......................................................................................................................... 7 4. GROUP STRUCTURE AND INVESTMENTS .................................................................................................................. 7 5. BANK DEPOSITS.................................................................................................................................................................. 8 6. CASH AND CASH EQUIVALENTS................................................................................................................................... 8 7. PROPERTY, PLANT AND EQUIPMENT .......................................................................................................................... 9 8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES ..................................................................................................10 9. INVENTORIES ....................................................................................................................................................................10 10. TRADE AND OTHER RECEIVABLES............................................................................................................................10 11. SHAREHOLDERS’ EQUITY .............................................................................................................................................11 12. LONG-TERM DEBT AND OTHER FINANCIAL LIABILITIES ..................................................................................12 13. SHORT-TERM DEBT AND OTHER FINANCIAL LIABILITIES ................................................................................13 14. TRADE AND OTHER PAYABLES...................................................................................................................................13 15. INCOME TAX AND OTHER TAX ASSETS AND LIABILITIES ................................................................................14 16. PROVISION FOR PENSION OBLIGATION ...................................................................................................................14 17. REVENUE.............................................................................................................................................................................15 18. COST OF SALES .................................................................................................................................................................15 19. GENERAL AND ADMINISTRATIVE EXPENSES ........................................................................................................15 20. SELLING AND MARKETING EXPENSES .....................................................................................................................16 21. OTHER OPERATING INCOME ........................................................................................................................................16 22. OTHER OPERATING EXPENSES....................................................................................................................................16 23. FINANCE INCOME AND COSTS ....................................................................................................................................16 24. CASH GENERATED FROM OPERATING ACTIVITIES .............................................................................................17 25. CONTINGENCIES AND COMMITMENTS ....................................................................................................................17 26. RELATED PARTY TRANSACTIONS..............................................................................................................................19 27. SEGMENT INFORMATION ..............................................................................................................................................21 28. FAIR VALUE OF FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT ................................23 29. SUBSEQUENT EVENTS ....................................................................................................................................................25

AO PricewaterhouseCoopers Audit White Square Office Center 10 Butyrsky Val Moscow, Russian Federation, 125047 T: +7 (495) 967 6000, F:+7 (495) 967 6001, www.pwc.ru

Report on Review of Condensed Consolidated Interim Financial Statements

To the Shareholders and Supervisory Council of Public Joint Stock Company ALROSA: Introduction We have reviewed the accompanying condensed consolidated interim statement of financial position of Public Joint Stock Company ALROSA and its subsidiaries (together – the “Group”) as at 31 March 2020 and the related condensed consolidated interim statements of profit or loss and other comprehensive income, cash flows and changes in equity for the three-month period then ended, and the related explanatory notes. Management is responsible for the preparation and presentation of these condensed consolidated interim financial statements in accordance with International Accounting Standard 34, “Interim Financial Reporting”. Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of condensed consolidated interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, “Interim Financial Reporting”. 4 June 2020

Moscow, Russian Federation T.V. Sirotinskaya, certified auditor (licence No. 01-000527), AO PricewaterhouseCoopers Audit

Audited entity: Public Joint Stock Company ALROSA Registered by the Administration of Mirninsky district (ulus) of the Republic of Sakha (Yakutia) on 13 August 1992 under Nо. 1 Record made in the Unified State Register of Legal Entities on 17 July 2002 under State Registration Number 1021400967092 Taxpayer Identification Number 1433000147 6, Lenin Street, Mirny, 678175, Republic of Sakha (Yakutia), Russia

Independent auditor: AO PricewaterhouseCoopers Audit Registered by the Government Agency Moscow Registration Chamber on 28 February 1992 under Nо. 008.890 Record made in the Unified State Register of Legal Entities on 22 August 2002 under State Registration Number 1027700148431 Taxpayer Identification Number 7705051102 Member of Self-regulatory organization of auditors Association “Sodruzhestvo” Principal Registration Number of the Record in the Register of Auditors and Audit Organizations – 12006020338

PJSC ALROSA Condensed consolidated interim financial statements prepared in accordance with IFRS (unaudited) – 31 March 2020 (in millions of Russian roubles, unless otherwise stated)

The accompanying notes form an integral part of these condensed consolidated interim financial statements. 2

CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (UNAUDITED)

Notes Three months ended

31 March 2020 Three months ended

31 March 2019 Revenue 17 61,937 69,541 Income from government grants 809 953 Cost of sales 18 (29,861) (37,885) Royalty 15 (302) (302) Gross profit 32,583 32,307 General and administrative expenses 19 (2,883) (2,466) Selling and marketing expenses 20 (735) (631) Other operating income 21 2,627 2,014 Other operating expenses 22 (5,600) (6,747) Operating profit 25,992 24,477 Finance income / (costs), net 23 (22,212) 4,405 Share of net profit of associates and joint ventures 4 998 1,642 Profit before income tax 4,778 30,524 Income tax 15 (1,720) (6,459) Profit for the period 3,058 24,065 Other comprehensive income: Items that will not be reclassified to profit or loss: Remeasurement of post-employment benefit obligations, net of tax (376) (526) Total items that will not be reclassified to profit or loss (376) (526) Items that will be reclassified to profit or loss: Currency translation differences, net of tax 719 (101) Total items that will be reclassified to profit or loss 719 (101) Total comprehensive income / (loss) for the period 343 (627) Total comprehensive income for the period 3,401 23,438 Profit attributable to: Owners of PJSC ALROSA 2,888 23,873 Non-controlling interest 170 192 Profit for the period 3,058 24,065 Total comprehensive income / (loss) attributable to: Owners of PJSC ALROSA 3,493 23,160 Non-controlling interest (92) 278 Total comprehensive income for the period 3,401 23,438 Basic and diluted earnings per share for profit attributable to the owners of PJSC ALROSA (in Russian roubles) 11 0.40 3.31



CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (UNAUDITED)

Three months ended Notes 31 March 2020 31 March 2019

Net Cash Inflow from Operating Activities 24 24,489 29,737 Cash Flows from Investing Activities Purchase of property, plant and equipment (2,644) (3,876) Proceeds from sales of property, plant and equipment 25 1,581 Interest received 302 376 Sale of financial assets at fair value through profit or loss 105 263 Dividends received from associates and joint ventures 26 1,550 - Proceeds from disposal of subsidiaries, net of cash disposed of - 1,570 Cash transfer to deposit accounts (44,432) (44,609) Cash received from deposit accounts 14,945 3,925 Net Cash Outflow used in Investing Activities (30,149) (40,770) Cash Flows from Financing Activities Repayments of loans (2) (1,114) Loans received 17,933 3,084 Lease payments (392) (273) Interest paid (398) (426) Dividends paid - (9) Net Cash Inflow from Financing Activities 17,141 1,262 Net Increase / (Decrease) in Cash and Cash Equivalents 11,481 (9,771) Cash and cash equivalents at the beginning of the period 13,315 27,437 Effect of exchange rate changes on cash and cash equivalents 990 (1,436) Cash and Cash Equivalents at the End of the period 6 25,786 16,230



CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

Attributable to owners of PJSC ALROSA

Number of shares

outstanding Share

capital Share

premium

Treasury

shares

Other reserve

(note 11) Retained earnings Total

Non-controlling

interest Total

equity Balance at 1 January 2019 7,208,905,830 12,473 10,431 (264) (31,355) 256,331 247,616 (39) 247,577 Comprehensive income / (loss) Profit for the year - - - - - 23,873 23,873 192 24,065 Other comprehensive (loss) / income - - - - (713) - (713) 86 (627) Total comprehensive income / (loss) for the period - - - - (713) 23,873 23,160 278 23,438 Balance at 31 March 2019 7,208,905,830 12,473 10,431 (264) (32,068) 280,204 270,776 239 271,015 Balance at 1 January 2020 7,208,905,830 12,473 10,431 (264) (30,309) 261,046 253,377 589 253,966 Comprehensive income / (loss) Profit for the year - - - - - 2,888 2,888 170 3,058 Other comprehensive income / loss - - - - 605 - 605 (262) 343 Total comprehensive income / (loss) for the period - - - - 605 2,888 3,493 (92) 3,401 Balance at 31 March 2020 7,208,905,830 12,473 10,431 (264) (29,704) 263,934 256,870 497 257,367

PJSC ALROSA Notes to the condensed consolidated interim financial statements (unaudited) – 31 March 2020 (in millions of Russian roubles, unless otherwise stated)

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1. ACTIVITIES

The core activities of Public Joint Stock Company ALROSA (“the Company”) and its subsidiaries (“the Group”) are exploration and extraction of diamond reserves and marketing and distribution of rough and cut diamonds. The Company was registered on 13 August 1992 in the Republic of Sakha (Yakutia), which is located within the Russian Federation.

The Group operates mining facilities in Mirny, Udachny, Aikhal, Nyurba and Anabar of Republic of Sakha (Yakutia) (located in Eastern Siberia) and the Arkhangelsk Region. Licenses for the Group’s major diamond deposits expire between 2022 and 2048. Management believes the Group will be able to extend the licenses’ terms after they expire.

As at 31 March 2020 and 31 December 2019 the Company’s principal shareholders were: the Russian Federation (33.0 per cent of shares) represented by the Federal Agency for State Property Management and the Republic of Sakha (Yakutia) (25.0 per cent of shares) represented by the Ministry of the property and land relations of Sakha (Yakutia). Therefore the total share of the state is above 50%.

The Company is registered and has its principal operating office at 6, Lenin Street, Mirny, Mirninsky ulus, 678175, Republic of Sakha (Yakutia), Russia.

2. BASIS OF PRESENTATION

The condensed consolidated interim financial statements are prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”). These condensed consolidated interim financial statements should be read together with the consolidated financial statements for the year ended 31 December 2019 prepared in accordance with International Financial Reporting Standards (“IFRS”).

The Group companies incorporated in the Russian Federation maintain their statutory accounting records and prepare statutory financial reports in accordance with the Regulations on Accounting and Reporting of the Russian Federation (“RAR”) and their functional currency is the Russian Rouble (“RR”). The Group companies incorporated in other countries maintain their statutory accounting records in accordance with relevant legislation and in the appropriate functional currency. The Group’s condensed consolidated interim financial statements are based on the statutory accounting records, with adjustments and reclassifications for the purpose of fair presentation in accordance with IAS 34.

The preparation of condensed consolidated interim financial statements in conformity with IAS 34 requires Group’s management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The most significant estimates relate to impairment of PPE, valuation of inventories, investments, expected credit losses, useful life of property, plant and equipment, reserve estimates used to calculate depreciation, asset retirement obligation, pension and other post-retirement benefit costs. Actual results could differ from these estimates.

The official US dollar to RR exchange rates as determined by the Central Bank of the Russian Federation were 77.7325 and 61.9057 as at 31 March 2020 and 31 December 2019, respectively. The official Euro to RR exchange rates as determined by the Central bank of the Russian Federation were 85.7389 and 69.3406 as at 31 March 2020 and 31 December 2019, respectively.

(a) Financial risk management

Currency risk. The Group exports production to European and other countries and attracts a substantial amount of foreign currency denominated borrowings and is, thus, exposed to foreign exchange risk arising from various contracts, primarily with respect to the US dollar and to a lesser extent the Euro.

The Group seeks to identify and manage foreign exchange rate risk in a comprehensive manner, considering an integrated analysis of natural economic hedges, to benefit from the correlation between income and expenses. The Group attracts a significant portion of borrowings for its investing activities in the same currency as the forecasted revenue stream to economically hedge the foreign currency risk exposure. The Group chooses the currency in which to hold cash, such as the Russian rouble, US dollar or other currency for a short-term risk management purposes. From 1 January 2020 to 31 March 2020 exchange rate of RR against US Dollar declined from RR 61.91 per US$ 1 to RR 77.73 per US$ 1 with return to RR 68.34 per US$ 1 as at 4 June 2020. The weakening of the RR exchange rate as at 31 March 2020 led to an increase in the Group's debts (note 12, 13).


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2. BASIS OF PRESENTATION (CONTINUED)

Liquidity risk. Liquidity risk management includes maintaining sufficient cash balances, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group management maintains flexibility in funding by ensuring availability under committed credit lines and expected cash flows from operating activities. Management monitors a rolling forecast of the Group’s liquidity reserve (comprises undrawn borrowing facility and cash and equivalents) on the basis of expected cash flow. This is carried out at Group level monthly and annually. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet any net cash outflows and maintaining debt financing plans.

Despite the overall positive results of the first quarter of 2020, restrictions imposed worldwide to combat the new COVID-19 coronavirus infection have significantly reduced the mobility of people, led to a drop in demand for rough diamonds and diamond jewellery and minimized the trade in rough and cut diamonds on all global markets by the end of March.

In these conditions, the Group decided to offer its customers the opportunity to defer the buyout of rough diamonds from April and May to subsequent periods. In support of the Group's stated policy of prioritizing prices over volumes, it also revised the plan for diamond production in 2020 with a temporary suspension of production at the Zarya, Aikhal and Verchne-Munskoe fields. Management of the Group considered these factors as indications of potential impairment and tested all the Group’s non-current assets and goodwill for impairment (see below).

Due to the expected decline in revenue from Q1 2020, the Group is further optimizing its liquidity position, including, but not limited to, reducing costs, negotiating deferred payments with suppliers, identifying additional borrowing opportunities (see note 29), and postponing a number of planned projects, to meet the Group’s current obligations.

(b) Critical accounting estimates and judgements

According to IAS 36, Impairment of Assets, an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. The COVID-19 outbreak is one of such asset impairment indications significantly impacting the diamond industry. Therefore, the Group performed impairment tests of its non-current assets, and for this purpose it grouped the assets into cash generating units (CGU) represented by separate entities of the Group. CGU’s recoverable amount was determined by calculating its value in use by discounting future cash flows that would be generated from the activities of the CGU. Then the recoverable amount of the CGU was compared with the carrying amount of non-current assets comprising the CGU. Cash flows forecast for the purposes of this impairment test is based on the Group’s plan for sales and production adjusted for lower diamond demand and production in 2020-2021 and the following assumptions:

• the economic situation in the Russian Federation: maintaining the medium-term growth rate of economy and inflation as per the plans announced by the Government of the Russian Federation;

• significant decrease in the 2020 sales compared to 2019 and beginning of the demand recovery in Q3 2020; • long-term forecast of growth in diamond prices by 1-3% in dollar terms; • pre-crisis production and extraction plans adopted for the period after 2021 for the purposes of this forecast.

Key assumptions used to calculate the recoverable amounts are the discount rate, diamond prices and sales volume. The discount rate used was the Group's weighted average cost of capital (WACC) (pre-tax rate), which was assumed to be 15.5% per annum for the entire forecast period.

This test has not revealed any indications of impairment. Management of the Group conducted a sensitivity analysis of impairment test results to changes in the key assumptions and concluded that reasonably possible changes in the assumptions, while all other variables remain unchanged, do not result in the recognition of impairment of the Group’s non-current assets.

(c) Changes in comparative information

In accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ the Group made adjustment to the comparative information on the movement of deposits in investment activities in the condensed consolidated interim statement of cash flows.

As originally presented for three months, ended

31 March 2019 Adjustment

As adjusted for three months, ended

31 March 2019 Cash Flows from Investing Activities Cash transfer to deposit accounts (52,731) 8,122 (44,609) Cash received from deposit accounts 12,047 (8,122) 3,925


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3. СHANGES IN ACCOUNTING POLICIES

The principal accounting policies followed by the Group and the critical accounting estimates in applying accounting policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2019 with the exception of income tax expense, which is recognised based on the best estimate of the weighted average annual income tax rate expected for the full financial year.

New or Revised Standards and Interpretations:

The following amended Standards became effective for the Group from 1 January 2020, but did not have material impact on the Group:

• Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020).

• Definition of a business – Amendments to IFRS 3 (issued on 22 October 2018 and effective for acquisitions from the beginning of annual reporting period that starts on or after 1 January 2020).

• Definition of materiality – Amendments to IAS 1 and IAS 8 (issued on 31 October 2018 and effective for annual periods beginning on or after 1 January 2020).

• Interest rate benchmark reform – Amendments to IFRS 9, IAS 39 and IFRS 7 (issued on 26 September 2019 and effective for annual periods beginning on or after 1 January 2020).

New or Revised Standards and Interpretations, which were not effective as at 31 March 2020 and were not adopted early:

• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB).

• IFRS 17 “Insurance Contracts” (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2021).

• Classification of liabilities as current or non-current – Amendments to IAS 1 (issued on 23 January 2020 and effective for annual periods beginning on or after 1 January 2022).

• Annual Improvements to IFRSs 2018-2020 – amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 and narrow scope amendments to IAS 16, IAS 37 and IFRS 3 (issued on 14 May 2020 and effective for annual periods beginning on or after 1 January 2022).

The new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements.

4. GROUP STRUCTURE AND INVESTMENTS

The Company’s significant consolidated subsidiaries are as follows:

Name

Principal activity Place of business Notes

Percentage of ownership interest held

31 March

2020 31 December

2019 ALROSA Finance S.A. Financial services Luxembourg 100.0 100.0 JSC ALROSA-Gaz Gas production Russia 100.0 100.0 JSC Almazy Anabara Diamonds production Russia 100.0 100.0 JSC ALROSA Air Company Air transportation Russia 100.0 100.0 JSC Kristall Polished diamonds production Russia 100.0 100.0 PJSC Severalmaz Diamonds production Russia 99.9 99.9 JSC Viluyskaya GES-3 Electricity production Russia 99.7 99.7 PJSC ALROSA-Nyurba Diamonds production Russia 97.5 97.5 Hydroshikapa S.A.R.L Electricity production Angola 55.0 55.0

As at 31 March 2020 and 31 December 2019 the percentage of ownership interest of the Group in subsidiaries is equal to the percentage of voting interest.


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4. GROUP STRUCTURE AND INVESTMENTS (CONTINUED)

4.1. Investments in Associates and Joint Ventures

Percentage of ownership

interest held at Carrying value of

investment at Group’s share of net profit

for the 3 month ended

Name Country of incorporation

31 March 2020

31 December 2019

31 March 2020

31 December 2019

31 March 2020

31 March 2019

Catoca Mining Company Ltd. (associate) Angola 41.0 41.0 10,902 8,283 996 1,640 Other (associates and joint ventures) Russia 20-50 20-50 207 204 2 2 Total 11,109 8,487 998 1,642

As at 31 March 2020 and 31 December 2019 the percentage of ownership interest of the Group in its associates and joint ventures is equal to the percentage of voting interest.

Catoca Mining Company Ltd. (“Catoca”) is a diamond-mining venture located in Angola. Currency translation gain recognised in the condensed consolidated other comprehensive income for the three months ended 31 March 2020 in respect of investment in Catoca totalled RR’mln 1,299 net of tax. Currency translation loss recognised in the condensed consolidated other comprehensive income for the three months ended 31 March 2019 in respect of investment in Catoca totalled RR’mln 292 net of tax.

In April 2019 the Group has finalized the acquisition of 16.4% share in Catoca Mining Company Ltd. having increased the effective interest in share capital of Catoca Mining Company Ltd. by 8.2% to 41% and recognized additional 8.2% in this company amounted to RR’mln 4,175 within assets held for sale. The Group expects to sell this asset during 2020.

5. BANK DEPOSITS

31 March 2020 31 December 2019 Deposits in JSC Alfa-Bank 20,857 2,578 Deposits in PJSC Sovcombank 15,681 12,308 Deposits in PJSC Moscow Credit Bank 7,773 6,191 Deposits in PJSC Promsvyazbank 5,500 - Deposits in JSC VBRR 3,809 - Deposits in PJSC VTB Bank 2,383 1,898 Deposits in Bank GPB (JSC) 1,560 1,365 Deposits in JSC OTP Bank 1,500 - Deposits in PJSC Zenit 1,000 - Deposits in PJSC Rosbank 15 - Total bank deposits 60,078 24,340

As at 31 March 2020 the Group placed in banks deposits in roubles with maturity dates exceeding three months and interest rates ranging from 5.65% to 7.5% per annum, deposits in dollars – 0.7% to 2.3%.

As at 31 December 2019 the Group placed in banks deposits in roubles with maturity dates exceeding three months and interest rates ranging from 6.9% to 7.6% per annum, deposits in dollars – 1.3% to 2.3%.

6. CASH AND CASH EQUIVALENTS

31 March 2020 31 December 2019 Deposit accounts 8,966 10,774 Cash in banks and on hand 16,820 2,541 Total cash and cash equivalents 25,786 13,315

Deposit accounts at 31 March 2020 and 31 December 2019 are mainly held to meet short-term cash needs and have various original maturities not exceeding three months and can be withdrawn on request without restrictions.


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7. PROPERTY, PLANT AND EQUIPMENT

Operating assets Assets under construction TOTAL

As at 31 December 2018 Cost 408,075 23,826 431,901 Accumulated depreciation and impairment losses (196,964) (64) (197,028) Net book value as at 31 December 2018 211,111 23,762 234,873 Three months ended 31 March 2019 Net book value as at 31 December 2018 211,111 23,762 234,873 Foreign exchange differences – at cost (493) - (493) Foreign exchange differences – accumulated depreciation 202 - 202 Additions 1,765 3,275 5,040 Transfers 971 (971) - Disposal of subsidiaries – at cost (1,397) (26) (1,423) Disposal of subsidiaries - accumulated depreciation 430 - 430 Other disposals – at cost (685) (1) (686) Other disposals – accumulated depreciation 528 - 528 Change in estimate of provision for land recultivation (10) - (10) Impairment of property, plant and equipment (125) 35 (90) Depreciation charge for the period (6,522) - (6,522) As at 31 March 2019 205,775 26,074 231,849 Cost 408,226 26,103 434,329 Accumulated depreciation and impairment losses (202,451) (29) (202,480) Net book value as at 31 March 2019 205,775 26,074 231,849 As at 31 December 2019 Cost 422,135 20,148 442,283 Accumulated depreciation and impairment losses (215,966) (56) (216,022) Net book value as at 31 December 2019 206,169 20,092 226,261 Three months ended 31 March 2020 Net book value as at 31 December 2019 206,169 20,092 226,261 Foreign exchange differences – at cost 1,660 4 1,664 Foreign exchange differences – accumulated depreciation (726) - (726) Additions* 1,780 678 2,458 Transfers 1,100 (1,100) - Other disposals – at cost (916) (40) (956) Other disposals – accumulated depreciation 891 - 891 Change in estimate of provision for land recultivation (89) - (89) Reversal of impairment of property, plant and equipment 5 - 5 Depreciation charge for the period (6,082) - (6,082) As at 31 March 2020 203,792 19,634 223,426 Cost 425,670 19,690 445,360 Accumulated depreciation and impairment losses (221,878) (56) (221,934) Net book value as at 31 March 2020 203,792 19,634 223,426

*Additions for three months ended 31 March 2020 in the amount of RR’mln 1,780 mainly include plant and equipment RR’mln 912 and transport RR’mln 818.

Capitalised borrowing costs

During three months ended 31 March 2020 Group has capitalised borrowing costs amounting to RR’mln 6 (three months ended 31 March 2019: RR’mln 75) in construction of qualifying asset totaling RR’mln 541 (31 March 2019: RR’mln 5,122). In the condensed consolidated interim statement of cash flow the capitalized borrowing costs were included into financing activity as part of interest paid. For three months ended 31 March 2020 borrowing costs were capitalized at the weighted average rate of its general borrowing of 4.82 per cent per annum (three months ended 31 March 2019: 5.86 per cent per annum).


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8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

The Group rents various buildings, vehicles and machinery and equipment. Prior to 1 January 2019 leases of fixed assets were classified as either finance leases or operating leases. As of January 1, 2019 a lease is recognized as an asset in the form of a right-of-use with the corresponding liability reflected starting from the date on which the leased asset is available for use by the Group.

Buildings Plant and equipment Transport TOTAL At 31 December, 2019 868 50 7,450 8,368 Changes in estimation 6 (5) 601 602 Depreciation (note 18) (68) (7) (313) (388) At 31 March, 2020 806 38 7,738 8,582

Lease liabilities recognized by the Group are stated below (notes 12, 13):

31 March 2020 31 December 2019 Long-term lease liabilities 4,908 4,274 Short-term lease liabilities 1,737 1,447 Total lease liabilities 6,645 5,721

9. INVENTORIES

31 March 2020 31 December 2019 Diamonds* 71,883 73,905 Ores and sands mined 19,736 15,413 Mining and repair materials 27,945 30,075 Consumable and other supplies 2,062 1,909 Total inventories 121,626 121,302

*At 31 March 2020 diamonds include diamonds purchased from third parties (including Catoca Mining Company Ltd) in the amount of RR’mln 190 (At 31 December 2019: RR’mln 1,143).

10. TRADE AND OTHER RECEIVABLES

Long-term accounts receivable 31 March 2020 31 December 2019 Financial accounts receivable 983 963 Loans issued* 403 411 Financial asset on heavy repairs and maintenance provision 391 336 Other long-term receivables 189 216 Non-financial accounts receivable 9 19 Advances to suppliers 4 14 Long-term VAT recoverable 5 5 Total long-term accounts receivable 992 982

*The loans issued of RR’mln 400 nominal value as at 31 March 2020 (31 December 2019: RR’mln 400) to be repaid in December 2021, are collateralised by shares of JSC Pur-Navolok Otel and real estate. The management estimates that collateral taken exceeds the current value of the loans issued and the allowance for expected credit losses was not created.


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10. TRADE AND OTHER RECEIVABLES (CONTINUED)

Short-term accounts receivable 31 March 2020 31 December 2019 Financial accounts receivable 10,755 10,890 Trade receivables for supplied diamonds 7,910 6,948 Receivables from associates (note 26) 125 1,673 Loans issued 328 346 Interest on deposits 488 300 Other short-term receivables 1,904 1,623 Non-financial accounts receivable 4,834 4,271 VAT recoverable 2,865 2,810 Advances to suppliers 1,743 1,146 Prepaid taxes, other than income tax 226 315 Total short-term accounts receivable 15,589 15,161

The fair value of long-term accounts receivable is estimated by discounting the future contractual cash inflows at the market interest rates available to the recipients of funds at the end of the reporting period.

The fair value of each class of long-term and short-term trade and other financial receivable at 31 March 2020 and 31 December 2019 approximates their carrying value.

The credit loss allowance for trade and other financial receivables is presented in the amount of RR’mln 3,193 as at 31 March 2020 (31 December 2019: RR’mln 2,916).

11. SHAREHOLDERS’ EQUITY

Share capital

Company’s share capital authorised, issued and fully paid in totals RR’mln 12,473 as at 31 March 2020 and 31 December 2019 and consists of 7,364,965,630 ordinary shares at RR 0.5 par value share. In addition as at 31 March 2020 and 31 December 2019 share capital includes hyperinflation adjustment totalling RR’mln 8,790, which was calculated in accordance with requirements of IAS 29 “Financial Reporting in Hyperinflationary Economies” and relates to the reporting periods prior to 1 January 2003.

Distributable profits

The statutory accounting reports of the Company are the basis for profit distribution and other appropriations. Russian legislation identifies the basis of distribution as the net profit and retained earnings. In accordance with the dividend policy that was approved by the Supervisory Board on 6 August 2018, at least 50% of the net profit as reported in the IFRS consolidated financial statement of the Group is distributed for dividends payment. The basis for calculating dividend payment is free cash flow also determined based on IFRS consolidated financial statements. The debt ratio is taken into account when calculating the amount of dividend payment. The legislation and other statutory laws and regulations dealing with the distribution rights are open to legal interpretation, and accordingly, management of the Company believes that at present it would not be appropriate to disclose an amount for the distributable reserves in these consolidated financial statements.

Treasury shares

As at 31 March 2020 and 31 December 2019 subsidiaries of the Group held 156,059,800 ordinary shares of the Company.

Earnings per share

Earnings per share have been calculated by dividing the profit attributable to owners of the Company by the weighted average number of shares outstanding during the period, excluding the weighted average number of ordinary shares purchased by the Group and held as treasury shares. There were 7,208,905,830 weighted average shares outstanding for the three months ended 31 March 2020 and for the three months 31 March 2019. There are no dilutive financial instruments outstanding in the Group.


12

11. SHAREHOLDERS’ EQUITY (CONTINUED)

Other reserves

Currency

translation reserve

Reserve on purchase of non-controlling

interest

Accumulated actuarial

loss Total other reserves Balance as at 1 January 2019 436 (11,220) (20,571) (31,355) Remeasurement on post-employment benefit obligation (note 16) - - (526) (526) Currency translation differences (187) - - (187) Balance as at 31 March 2019 249 (11,220) (21,097) (32,068)

Currency

translation reserve

Reserve on purchase of non-controlling

interest

Accumulated actuarial

loss Total other reserves Balance as at 1 January 2020 65 (11,220) (19,154) (30,309) Remeasurement on post-employment benefit obligation (note 16) - - (376) (376) Currency translation differences 981 - - 981 Balance as at 31 March 2020 1,046 (11,220) (19,530) (29,704)

12. LONG-TERM DEBT AND OTHER FINANCIAL LIABILITIES

31 March 2020 31 December 2019 Debt to banks: US$ denominated fixed rate 73,846 46,429 EUR denominated fixed rate 9 8 RR denominated fixed rate 2,676 2,678 76,531 49,115 Eurobonds US$ denominated 77,090 61,387

153,621 110,502 Less: current portion of long-term debt (note 13) (54,090) (30,605) Total long-term debt 99,531 79,897 Lease liabilities 6,645 5,721 Less: current portion of long-term lease liabilities (note 13) (1,737) (1,447) Total long-term lease liabilities 4,908 4,274

Increase in long-term debt connected with a loan from AO “Bank Intesa”, obtained by the Group in the amount of US$ mln 200 in March 2020 and due to revaluation of US$ denominated debts (note 23).

The average effective interest rates for each class of long-term debt at the end of the reporting period were as follows:

31 March 2020 31 December 2019 Debt to banks: US$ denominated fixed rate 2.5% 3.2% RR denominated fixed rate 8.4% 8.7% Eurobonds US$ denominated 6.2% 3.7%

As at 31 March 2020 and 31 December 2019 the fair value of long-term debt, excluding Eurobonds was not materially different from their carrying value.


13

12. LONG-TERM DEBT AND OTHER FINANCIAL LIABILITIES (CONTINUED)

Eurobonds

Movements of issued Eurobonds during three months ended 31 March 2020 and 31 March 2019 were as follows:

Three months ended


31 March 2019 Balance at the beginning of the reporting period 61,387 62,133 Amortisation of discount 8 - Foreign exchange loss / (gain) 15,695 (4,235) Balance at the end of the reporting period 77,090 57,898

As at 31 March 2020 the fair value of Eurobonds comprised RR’mln 78,264 (31 December 2019: RR’mln 65,204).

13. SHORT-TERM DEBT AND OTHER FINANCIAL LIABILITIES

31 March 2020 31 December 2019 Debt to banks: RR denominated floating rate 2,954 1,054 2,954 1,054 Other RR denominated fixed rate loans 7 7 Add: current portion of long-term debt (note 12) 54,090 30,605 Total short-term debt and current portion of long-term debt 57,051 31,666 Add: current portion of lease liabilities (note 12) 1,737 1,447 Total other financial liabilities 1,737 1,447

As at 31 March 2020 and 31 December 2019 the fair value of short-term loans is approximately equal to the carrying value.

14. TRADE AND OTHER PAYABLES

31 March 2020 31 December 2019 Accrual for employee holidays and flights 8,103 7,367 Trade payables 6,945 6,394 Wages and salaries 3,741 4,550 Advances from customers 2,670 1,761 Interest payable 2,205 796 Current portion of provision for land recultivation and reimbursable repair and maintenance 333 - Current portion of provision for social obligation 54 66 Payables to associates 2 11 Other payables 167 260 Total trade and other payables 24,220 21,205

In accordance with Russian legislation, the Group entities are required to pay for the holiday entitlement, the Group also reimburses the cost of travel for employees and their family members to an agreed-upon destination and back.

The fair value of short-term trade and other payables at 31 March 2020 and 31 December 2019 approximates their carrying value.


14

15. INCOME TAX AND OTHER TAX ASSETS AND LIABILITIES

Taxes payable, other than income tax, comprise the following:

31 March 2020 31 December 2019 Payments to social funds 2,798 2,646 Value added tax 1,484 549 Extraction tax 1,276 1,883 Property tax 1,169 1,086 Personal income tax (employees) 424 654 Other taxes and accruals 237 754 Total taxes payable, other than income tax 7,388 7,572

Taxes other than income tax, extraction tax and payments to social funds included into other operating expenses comprise the following:

Three months ended


31 March 2019 Property tax 1,099 1,129 Other taxes and accruals 86 95 Total taxes other than income tax expense 1,185 1,224

In accordance with the amendment to the license agreement registered in May 2007, PJSC ALROSA-Nyurba, a subsidiary of the Group, is obliged to make annual fixed royalty payments to the Republic of Sakha (Yakutia) in the amount of RR’mln 1,209 per annum since 1st of January 2012.

Income tax expense comprises the following:

Three months ended


31 March 2019 Current tax expense 2,395 6,860 Deferred tax benefits (480) (295) Adjustments recognized in the period for current tax of prior periods (195) (106) Total income tax expense 1,720 6,459

The increase in the estimated average annual tax rate used for the three months ended 31 March 2020 compared to the three months ended 31 March 2019 is connected with the greater effect on it of non-tax income and expenses as a result of the reduction in profit before tax.

16. PROVISION FOR PENSION OBLIGATION

The amounts recognised in the condensed consolidated interim statement of financial position in respect of pension obligations associated with the defined benefit plan operated by the Group are as follows:

31 March 2020 31 December 2019 Present value of obligations 32,924 32,959 Fair value of pension plan assets (26,278) (26,551) Pension obligations for the funded plan 6,646 6,408 Present value of unfunded obligation 1,272 1,323 Net liability value 7,918 7,731


15

17. REVENUE

Three months ended


31 March 2019 Revenue from diamond sales: Export 52,708 57,173 Domestic 4,039 7,942 Revenue from diamonds for resale 1,457 836 Total revenue from diamond sales 58,204 65,951 Other revenue: Transport 1,363 1,322 Sale of energy 1,120 992 Social infrastructure 577 674 Other 673 602 Total revenue 61,937 69,541

18. COST OF SALES

Three months ended


31 March 2019 Wages, salaries and other staff costs 12,302 12,174 Depreciation 6,177 6,513 Extraction tax 4,493 5,829 Fuel and energy 4,237 4,016 Materials 2,595 2,611 Services 1,481 1,627 Cost of diamonds for resale 959 827 Transport 592 408 Other 280 248 Movement in inventory of diamonds, ores and sands (3,255) 3,632 Total cost of sales 29,861 37,885

Wages, salaries and other staff costs include payments to social funds in the amount of RR’mln 2,691 for the three months ended 31 March 2020 (for the three months ended 31 March 2019: RR’mln 2,587).

Depreciation includes depreciation of the right-of-use assets amounting to RR’mln 334 for the three months ended 31 March 2020 (for the three months ended 31 March 2019: RR’mln 205).

Depreciation totalling RR’mln 74 for the three months ended 31 March 2020 (for the three months ended 31 March 2019: RR’mln 18) and staff costs totalling RR’mln 497 (for the three months ended 31 March 2019: RR’mln 671) were incurred by the Group’s construction divisions and were capitalised into property, plant and equipment in the respective periods.

19. GENERAL AND ADMINISTRATIVE EXPENSES

Three months ended


31 March 2019 Wages, salaries and other staff costs 1,846 1,620 Services and other administrative expenses 940 885 Allowance for expected credit losses / (reversal of allowance) 97 (39) Total general and administrative expenses 2,883 2,466

Wages, salaries and other staff costs include payments to social funds in the amount of RR’mln 430 for the three months ended 31 March 2020 (for the three months ended 31 March 2019: RR’mln 343).


16

20. SELLING AND MARKETING EXPENSES

Three months ended


31 March 2019 Wages, salaries and other staff costs 465 509 Services and other selling and marketing expenses 270 122 Total selling and marketing expenses 735 631

Wages, salaries and other staff costs include payments to social funds in the amount of RR’mln 104 for the three months ended 31 March 2020 (for the three months ended 31 March 2019: RR’mln 112).

21. OTHER OPERATING INCOME

Three months ended


31 March 2019 Foreign exchange gain, net 2,303 - Reversal of loss on impairment of property, plant and equipment 5 - Gain on disposal of property, plant and equipment - 1,431 Income on disposal of subsidiaries - 177 Other 319 406 Total other operating income 2,627 2,014

22. OTHER OPERATING EXPENSES

Three months ended


31 March 2019 Exploration expenses 2,549 2,171 Taxes other than income tax, extraction tax and payments to social funds (note 15) 1,185 1,224 Social costs 767 831 Foreign exchange loss, net - 1,595 Change in fair value of financial assets at fair value through profit or loss - 223 Loss on disposal of property, plant and equipment 5 - Other 1,094 703 Total other operating expenses 5,600 6,747

Social costs consist of:

23. FINANCE INCOME AND COSTS

Three months ended


31 March 2019 Interest income 471 569 Interest expense: Eurobonds (1,070) (1,047) Bank loans (391) (407) Other financial liabilities (150) (375) Unwinding of discount of provisions (139) (106) Unwinding of discount of leases (126) - Foreign exchange (loss)/gain, net (20,807) 5,771 Total finance (costs) /income, net (22,212) 4,405

Foreign exchange loss for the three months ended 31 March 2020 in the amount of RUR 27,057 mln (loss) is related to revaluation of foreign currency debt, lease liability due to Rouble weakening in March 2020, and also to revaluation of foreign currency deposits in the amount of RUR 6,250 mln (gain).

Three months ended


31 March 2019 Maintenance of local infrastructure 371 368 Charity 287 321 Hospital expenses 20 38 Education 16 26 Other 73 78 Total social costs 767 831


17

24. CASH GENERATED FROM OPERATING ACTIVITIES

Reconciliation of profit before tax to cash flows from operating activities:

Three months ended


31 March 2019 Profit before income tax 4,778 30,524 Adjustments for: Share of net profit of associates and joint ventures (note 4) (998) (1,642) Interest income (note 23) (471) (569) Interest expense (note 23) 1,876 1,935 Loss / (income) on disposal of property, plant and equipment (note 21, 22) 5 (1,431) Income on disposal of subsidiaries (note 21) - (177) Change in provision for impairment of receivables and obsolete inventories, net 44 (29) Depreciation and amortisation (notes 7, 8, 18) 6,295 6,575 (Reversal of impairment) / impairment of of property, plant and equipment (note 7) (5) 90 Change in financial assets at fair value through profit or loss - 223 Adjustments for non-cash financing activity (47) 12 Unrealised foreign exchange effect on non-operating items 18,504 (4,175) Net operating cash flows before changes in working capital 29,981 31,336 Net (increase) / decrease in inventories (179) 6,326 Net increase in trade and other receivables, excluding dividends receivable (203) (120) Net increase / (decrease) in provisions, trade and other payables, excluding interest payable and payables for acquired property, plant and equipment 739 (1,553) Net increase / (decrease) in taxes payable other than income tax 174 (1,188) Cash inflows from operating activities 30,512 34,801 Income tax paid (6,023) (5,064) Net Cash Inflows from Operating Activities 24,489 29,737

25. CONTINGENCIES AND COMMITMENTS

(a) Operating environment of the Russian Federation

The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations. The economy is negatively impacted by ongoing political tension in the region and international sanctions against certain Russian companies and individuals.

At the end of 2019, the World Health Organization received reports of a limited number of cases of infection with the virus, called COVID-19. In the first few months of 2020 the virus had spread globally and its negative impact resulted to significant changes happened in the economic environment including but not limited:

• reduction of industrial production and activity in many sectors of the economy as a result of state restrictions related to the development of the COVID-19;

• implementation of government support measures for the population and business related to the development of the COVID-19;

• significant decrease and high volatility of world oil prices with respective decrease of the Russian Rouble against major foreign currencies and high volatility in the foreign exchange market in Russia;

• significant decrease in activity and stock market quotes; • imposed limitations on international and internal people movements.

This operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group’s operations. The Group continues to monitor the situation and implement a set of measures to minimize the impact of possible risks on the Group's operations and financial position. Future economic downturns or continued uncertainty over future market conditions, could adversely affect diamond demand and prices and any sustained decline in the market price or consumer demand for diamonds would have a material adverse impact on the Group’s business, financial condition, results of operations and prospects. Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and management’s current expectations and estimates could differ from actual results (note 2, 29).


18

25. CONTINGENCIES AND COMMITMENTS (CONTINUED)

(b) Taxes

Russian tax legislation which was enacted or substantively enacted at the end of the reporting period is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management and the formal documentation supporting the tax positions may be challenged by relevant authorities. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover earlier periods.

The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics. This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm's length.

Management believes that its pricing policy is arm's length and it has implemented internal controls to be in compliance with the transfer pricing legislation.

Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated.

As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible risk that outflow of resources will be required should such tax positions and interpretations be challenged by the relevant authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.

The Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). The profit of the CFC, with exemption under the Law, is taxed at a rate of 20%.

(c) Legal proceedings

The Group is a party to certain legal proceedings arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or other claims outstanding, which could have a material adverse effect on the results of operations or financial position of the Group as at 31 March 2020.

(d) Capital commitments

As at 31 March 2020 the Group has contractual commitments for capital expenditures of RR’mln 6,356 (31 December 2019: RR’mln 4,415).

(f) Restoration, rehabilitation and environmental costs

Under its license agreements, the Group is not responsible for any significant restoration, rehabilitation and environmental expenditures that may be incurred subsequent to the cessation of production at each mine, apart from the obligation to perform recultivation of certain disturbed lands and tailing pits in the areas of its operating activity. At 31 March 2020 the Group recognised a provision for these future expenses in the amount of RR’mln 8,681 (31 December 2019: RR’mln 8,962).

According to the Rules for the remediation and conservation of land, approved by Decree of the Government of the Russian Federation №800 dated July 10, 2018 the Group bears obligations on restoration and rehabilitation of land under seven hydraulic structures – tailings. The amount of these liabilities can be reliably estimated only after the development of project documentation on the liquidation of hydraulic structures and the restoration of disturbed lands; however, it may be significant to the financial position and/or the overall operations of the Group. The expected period of restoration of these tailings is from 2039 to 2063.


19

25. CONTINGENCIES AND COMMITMENTS (CONTINUED)

(g) Compliance with covenants

The Group is subject to certain covenants related primarily to its borrowings. Non-compliance with such covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. The Group was in compliance with covenants as at 31 March 2020 and 31 December 2019.

26. RELATED PARTY TRANSACTIONS

Parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence over the other party in making financial or operational decisions as defined by IAS 24 “Related Party Disclosures”. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions, which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and prices as transactions between unrelated parties.

The Russian Federation and the Republic of Sakha (Yakutia)

Federal Agency for State Property Management on behalf of the Russian Federation and the Ministry of the property and land relations of the Republic of Sakha (Yakutia) on behalf of the Republic of Sakha (Yakutia) are the major shareholders of the Company. As at 31 March 2020 58.0 per cent of the Company’s issued shares were directly owned by the Governments of the Russian Federation and the Republic of Sakha (Yakutia).

Also as at 31 March 2020 eight per cent of the Company’s shares were owned by administrations of 8 districts of the Republic of Sakha (Yakutia).

In accordance with the Company Charter, the Supervisory Board is elected in the amount of 15 people. Following the General Meeting of Shareholders on 26 June 2019, the 15 seats on the Supervisory Board include 6 representatives of the Russian Federation (including 1 – the Chair of the Management Board), 4 representatives of the Republic of Sakha (Yakutia), 4 independent directors (1 of them were nominated by the Government of the Russian Federation, 1- was nominated by the Government of the Republic of Sakha (Yakutia), 2 were nominated by foreign minority shareholders), and 1 representative of the districts of the Republic of Sakha (Yakutia).

As at 31 March 2020 the 15 seats on the Supervisory Board included 6 representatives of the Russian Federation (including 1 – the Chair of the Management Board), 4 representatives of the Republic of Sakha (Yakutia), 4 independent directors according to the Russian Corporate Law (1 of them were nominated by the Government of the Russian Federation, 1 – was nominated by the Government of the Republic of Sakha (Yakutia), 2 were nominated by foreign minority shareholders), and 1 representative of the districts of the Republic of Sakha (Yakutia).

Governmental economic and social policies affect the Group’s financial position, results of operations and cash flows.

Group’s tax balances are disclosed in the condensed consolidated interim statement of financial position and in notes 10 and 15. Tax transactions are disclosed in the condensed consolidated interim statement of profit or loss and other comprehensive income, consolidated statement of cash flows and in notes 10, 15, 18, 19, 20 and 24.

Parties under control or significant influence of the Government

In the normal course of business the Group enters into transactions with other entities under Governmental control or significant influence. The principal forms of such transactions are diamond sales, electricity and fuel purchases and borrowings. Prices of diamonds sales are set by reference to price lists approved by the Ministry of Finance of the Russian Federation; electricity tariffs in Russia are partially regulated by the Federal Tariffs Service.


20

26. RELATED PARTY TRANSACTIONS (CONTINUED)

The amounts of balances and transactions with related parties under control or significant influence of the Government are detailed below:

Condensed Consolidated Interim Statement of Financial Position 31 March

2020 31 December

2019 Long-term accounts receivable 25 25 Short-term accounts receivable 2,418 1,149 Short-term accounts payable 740 999 Loans received by the Group* 4,617 2,716 Cash and cash equivalents 19,588 3,884 Bank deposits 8,752 3,262

* The line includes the loans received from banks under the Government control (note 12, 13).

Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

Three months ended 31 March 2020


Sales of diamonds 78 3,246 Other sales 1,437 975 Income from grants 809 953 Electricity and heating expenses (1,291) (1,243) Other purchases (1,001) (789) Interest income 88 350 Interest expense (43) (73)

Key management compensation

The Supervisory Council of the Company consists of 15 members, including state representatives of Governments of the Russian Federation and the Republic of Sakha (Yakutia) and the minority shareholders. Сompensation for serving as members of the Supervisory Council is not paid to the Chairman and members of the Supervisory Council who have the status of government or municipal public employee - according to Russian legislation, as well as to the members of the Supervisory Council who are also the individual executive body or a member of the collegial executive body.

As at 31 March 2020 and 31 December 2019 the Management Board consisted of 6 members. As 31 March 2020 and 31 December 2019 one of the Management Board members was also a member of the Supervisory Council. Management Board members are entitled to salary, bonuses, voluntary medical insurance and other short-term employee benefits. Salary and bonus compensation paid to members of the Management Board is determined by the terms of “Remuneration Policy for the members of the Management Board of PJSC ALROSA” approved by the Company’s Supervisory Council on 24 June 2019.

According to Russian legislation, the Group makes contributions to the Pension Fund of Russian Federation for all of its employees including key management personnel. Key management personnel also could be eligible for non-state pension after retirement according to the Policy on “Non-state pension provisions of the employees of PJSC ALROSA”.

Key management received benefits for the three months ended 31 March 2020 totalling RR’mln 54 (three months ended 31 March 2019: RR’mln 70).

Share-based payments

As at 31 March 2020 within the framework of the approved Long-Term Motivation Program for the Company's management the Group recognized a liability for remuneration of employees with share-based payments in the amount of RR’mln 614 in other long-term liabilities (31 December 2019: RR’mln 714). The program is set for a period of 3 years and is tied to the indicators of shareholders profitability and applies to members of the Management Board, heads of subsidiaries, units and other employees whose professional activities have key impact on the operating and financial results of the Group. The liability is remeasured at fair value at each reporting date and all changes are recognized immediately in profit or loss statement.

Fair value of shares and share options was valued by Black-Scholes model.


21

26. RELATED PARTY TRANSACTIONS (CONTINUED)

Associates and joint ventures

Significant balances with associates and joint ventures are summarised as follows:

Current accounts receivable 31 March 2020 31 December 2019 Catoca Mining Company Ltd, dividends and other receivables 125 1,673 Total current accounts receivable 125 1,673

Significant transactions with associates are disclosed in note 4.

Other transactions with related parties

Transactions with the Group’s pension plan are disclosed in note 16, accounts payable to associates are disclosed in note 14. Social costs incurred by the Group in relation to the parties under control of the Government are presented by charity costs and make up the largest part of them. These expenses are disclosed in note 22.

27. SEGMENT INFORMATION

The Management Board of the Company has been determined as the Group’s Chief Operating Decision-Maker (CODM).

The Group’s primary activity is the extraction and sales of diamonds. The internal management reporting system is mainly based on the analysis of information relating to production and sales of diamonds, however information relating to other activities (represented by several subdivisions of the Company and separate legal entities of the Group`s all other business) is also regularly reviewed by the CODM.

The Management Board evaluates performance and makes investment and strategic decisions based upon review of operating activity results (i.e. meeting production targets and monitoring of actual expenditures against budget allocated by production and sales of diamonds and other activities) as it believes that such information is the most relevant in evaluating the results. No specific measure of profit or loss is analysed by the CODM by separate subdivisions and entities of the Group.

The following items are analysed on the Group level and are not allocated between segments for the purposes of the analysis:

• finance income; • finance costs; • share of net profit of associates and joint ventures; • income tax expense or benefit; • non-cash items other than depreciation; • total assets and liabilities; • capital expenditure.

The following reportable segments were identified by the Management Board of the Company:

• Diamonds segment – extraction and sales of diamonds, production and sale of microgrits and cut diamonds; • Transportation – airline business, transportation services and services at transportation terminals, ports and airports; • Social infrastructure ‒ includes houses, sports complexes and cultural facilities, such as cinemas and theatres and other

social infrastructure; • Other activities.

Information regarding the results of the reportable segments is presented below. In 2020, following change of reporting regularly provided to CODM, the Group has changed the format for presentation of segment information. The new format presents data for segment information based on IFRS principles in line with the Group’s consolidated financial statements and the data for CODM is also presented for administrative, selling and marketing expenses, other operating income and other operating expenses. For the comparability, prior period segment information was restated according to new principles. Main reclassifications and adjustments that were necessary for financial statements to be presented in accordance with IFRS are connected with cost of sales and include classification of exploration expenses, accrual for pension and other obligations and different treatment of extraction tax.


22

27. SEGMENT INFORMATION (CONTINUED)


Diamonds segment Transport

Social infrastructure Other activities Total

Revenue 58,204 2,043 1,162 4,170 65,579 Intersegment revenue - (680) (585) (2,377) (3,642) Sub-total: Reportable revenue 58,204 1,363 577 1,793 61,937 Cost of sales (22,463) (3,522) (1,451) (5,434) (32,870) Intersegment cost of sales 2,030 241 348 390 3,009 Royalty (302) - - - (302) Income from grants - 44 433 332 809 Gross profit/ (loss) 35,439 (1,435) 144 (932) 33,216 intersegment 2,030 (439) (237) (1,987) (633) General and administrative expenses (2,920) (198) (127) (295) (3,540) Intersegment general and administrative expenses 522 96 16 23 657 Selling and marketing expenses (667) (16) (1) (60) (744) Intersegment selling and marketing expenses 7 - - 2 9 Other operating income / (expenses), net 445 (45) (439) (3,180) (3,219) Intersegment operating income / (expenses) 94 10 18 124 246 Operating profit/ (loss) 32,297 (1,694) (423) (4,467) 25,713 intersegment 2,653 (333) (203) (1,838) 279

Three months ended 31 March 2019 (revised)

Diamonds segment Transport

Social infrastructure

Other activities Total

Revenue 65,951 1,754 1,302 4,010 73,017 Intersegment revenue - (432) (628) (2,416) (3,476) Sub-total: Reportable revenue 65,951 1,322 674 1,594 69,541 Cost of sales (29,943) (3,869) (1,964) (4,906) (40,682) Intersegment cost of sales 1,779 190 391 437 2,797 Royalty (302) - - - (302) Income from grants - 24 434 495 953 Gross profit/ (loss) 35,706 (2,091) (228) (401) 32,986 intersegment 1,779 (242) (237) (1,979) (679) General and administrative expenses (2,565) (104) (26) (222) (2,917) Intersegment general and administrative expenses 311 103 15 22 451 Selling and marketing expenses (698) (20) (1) (14) (733) Intersegment selling and marketing expenses 102 - - - 102 Other operating income / (expenses), net (4,755) 533 (126) (486) (4,834) Intersegment operating income / (expenses) 84 - 9 8 101 Operating profit/ (loss) 27,688 (1,682) (381) (1,123) 24,502 intersegment 2,276 (139) (213) (1,949) (25)

Revenue from sales and income from grants by geographical location of the customer is as follows:



Belgium 28,494 30,831 India 10,605 9,261 Russian Federation 8,320 12,261 United Arab Emirates 8,488 8,557 Israel 5,009 4,684 China 728 3,478 Switzerland 271 288 Angola 261 233 Republic of Botswana 213 254 USA 165 139 Belarus 99 306 United Kingdom 65 167 Armenia 3 32 Other countries 25 3 Total 62,746 70,494


23

27. SEGMENT INFORMATION (CONTINUED)

Non-current assets (other than financial instruments and deferred tax), including financial assets at fair value through profit or loss and investments in associates and joint ventures, by their geographical location are as follows:

31 March 2020 31 December 2019 Russian Federation 228,728 232,232 Angola 15,480 11,973 Other countries 467 560 Total non-current assets 244,675 244,765

28. FAIR VALUE OF FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date. The estimated fair values of financial instruments are determined with reference to various market information and other valuation techniques as considered appropriate.

The different levels of fair value hierarchy have been defined as follows:

• Level 1 – Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to assess at the measurement date. For the Group, Level 1 inputs include debt instruments that are actively traded on the European and Russian domestic markets.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). For the Group, Level 2 inputs include observable market value measures applied to loans and borrowings.

• Level 3 – Unobservable inputs for the asset or liability. These inputs reflect the Company‘s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Recurring fair value measurements

The levels in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows:

31 March 2020 31 December 2019 Level Level

1 2 3 Total 1 2 3 Total Financial assets at fair value through profit or loss 106 - 4 110 186 - 5 191 Total 106 - 4 110 186 - 5 191


24

28. FAIR VALUE OF FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

Assets and liabilities not measured at fair value but for which fair value is disclosed

As at 31 March 2020 the Group had the following assets and liabilities not measured at fair value but for which fair value is disclosed, classified by the levels of the fair value hierarchy:

Quoted price in an active market

(Level 1)

Valuation technique with

inputs observable in markets

(Level 2)


significant non-observable inputs

(Level 3) Total Current and non-current financial assets Bank deposits - 60,078 - 60,078 Current and non-current financial receivable - 11,007 - 11,007 Loans issued - - 731 731 Cash and cash equivalents - 25,786 - 25,786 Total financial assets - 96,871 731 97,602 Non-current financial liabilities Loans from banks - 60,871 - 60,871 Eurobonds 38,660 - - 38,660 Total non-current financial liabilities 38,660 60,871 - 99,531 Current financial liabilities Loans from banks - 18,614 7 18,621 Eurobonds 38,430 - - 38,430 Financial accounts payable - 9,319 - 9,319 Dividends payable - 213 - 213 Total current financial liabilities 38,430 28,146 7 66,583 Total financial liabilities 77,090 89,017 7 166,114

As at 31 December 2019 the Group had the following assets and liabilities not measured at fair value but for which fair value is disclosed, classified by the levels of the fair value hierarchy:

Quoted price in an active market

(Level 1)


inputs observable in markets

(Level 2)


significant non-observable inputs

(Level 3) Total Current and non-current financial assets Bank deposits - 24,340 - 24,340 Current and non-current financial receivable - 11,096 - 11,096 Loans issued - - 757 757 Cash and cash equivalents - 13,315 - 13,315 Total financial assets - 48,751 757 49,508 Non-current financial liabilities Loans from banks - 49,115 - 49,115 Eurobonds 61,387 - - 61,387 Total non-current financial liabilities 61,387 49,115 - 110,502 Current financial liabilities Loans from banks - 1,054 7 1,061 Financial accounts payable - 7,461 - 7,461 Dividends payable - 209 - 209 Total current financial liabilities - 8,724 7 8,731 Total financial liabilities 61,387 57,839 7 119,233

The fair values in Level 2 and Level 3 of fair value hierarchy were estimated using the discounted cash flows valuation technique. The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.

There were no transfers between Levels 1, 2 and 3 during the period. There were no reclassifications of available-for-sale investments' losses from other comprehensive income into the profit or loss.


25

29. SUBSEQUENT EVENTS

COVID-19

At the end of 2019, the World Health Organization received reports of a limited number of cases of infection with the virus, called COVID-19. In the first few months of 2020 the virus had spread globally and its negative impact has gained momentum. While this is still an evolving situation at the time of issuing these condensed consolidated interim financial statements, the actions, taken by the governments of several countries, as well as the encouraging results on effective proliferation control in China, give a certain degree of confidence that the situation shows tentative signs of normalization in the coming months. However, the negative impact of the crisis on the global economy, including world trade, the investment cycle and consumer confidence, should be noted.

The Group expects that the coronavirus pandemic may have an adverse effect on the Group’s financial performance for the second quarter of 2020 and, depending on the duration of restrictions imposed in connection with the pandemic, in the following periods as well.

Restrictions imposed to fight the coronavirus and a decline in the demand for diamond jewellery have minimised the trade in rough and polished diamonds across the world in April and partially in May. In April 2020, the Group sold of US$ mln 15.6 of rough and polished diamonds (April 2019: of US$ mln 318.7). Management believes that the challenges and restrictions faced by the market and affecting both operations and demand are of a temporary nature, as diamond bourses started to open up, and polishing firms gradually restart their operations.

Management is monitoring the spread of the epidemic on an ongoing basis and is taking steps to minimise the risks, particularly in order to ensure:

• normal operation of the Group, with the least possible disruptions; • execution of ongoing sale and production processes; • maintaining the Group’s liquidity and solvency.

Based on the assessment done for compliance with terms of credit facilities in foreseeable future, the Group does not expect default or breach under any of its credit facilities.

On 5 May 2020, the Group decided to temporarily suspend mining works at Aikhal underground mine and Zarya open pit. Following the suspension of operations at Zarya and Aikhal, the Group’s management took a decision to halt commercial production at the Verkhne-Munskoye deposit for the period from 1 June to 1 October 2020. These decisions were taken due to the decrease in demand and sales for diamonds, as the major consuming economies are struggling with economic headwinds caused by the global spread of COVID-2019 virus. According to preliminary management’s estimate, the measures on cutting down the production will lead 2020 diamond output to decrease to 28–31 million carats comparing to the initial plan of ca. 34 million carats.

This assessment has been prepared according to the best of the Group’s knowledge as at the date of this report, with the exact scale and impact of the pandemic impossible to determine and depending on factors which are beyond the Group’s influence and control.

Dividends for 2019

On 7 May 2020, the Supervisory Board recommended the General Meeting of Shareholders to distribute as dividends 100% of the Groups consolidated free cash flow for 2019, amounting to RR’bn 47.65 bn, or RR 6.47 per share. Taking into account the dividend paid for the six months ended 30 June 2019 (RR’bn 28.28, or RR 3.84 per share), the Supervisory Board recommend to pay RR’bn 19.37, or RR 2.63 per share for the six months ended 31 December 2019. This recommendation is subject for approval on Annual General Meeting of Shareholders to be held on 24 June 2020.

Indebtedness

On 16 April 2020, the Group took out a loan from JSC UniCredit Bank in the amount of RR’bn 6 under a credit line facility with a maturity of 18 April 2022.

On 22 May 2020 the Group placed RR-denominated exchange bonds of series BО-03, BО-04, BО-05, BО-06 and BО-07 in the total amount of RR’bn 25 with coupon of 5.75% per annum and maturity of 10 May 2030 with put option in May 2025.

On 26 May 2020 the Group took out a loan from PJSC Rosbank in the amount of US$ mln 75 under a credit line facility with a maturity of 25 May 2022.

pjsc alrosa international accounting …...accounting standard 34, “ interim financial...

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