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29 August 2019

Aeroflot announces 6M 2019 IFRS financial results

Moscow, 29 August 2019– Aeroflot Group (“the Group”, Moscow Exchange ticker: AFLT) today publishes its condensed consolidated interim financial statements for the six months ended 30 June 2019, in accordance with International Financial Reporting Standards.Results are published in accordance with the new IFRS 16 Leases standard.

Key financial highlights for 6M2019:

  • Revenue increased by 17.2% year-on-year to RUB 311,440million; 
  • EBITDA amounted to RUB 68,296million;
  • The net loss totalled RUB 8,784million.

Andrey Chikhanchin, PJSC Aeroflot Deputy CEO for Commerce and Finance, said:

“2019 began for us with high fuel prices and currency pressure on FX-denominated cost items. This led to relatively modest results for the first quarter. At the same time, despite the continued strengthening of competitors in the Group's core markets, we were able to deliver steady improvement in our yields. 

“In the second quarter, a number of trends from the beginning of the year shifted slightly. Although fuel prices remained high when compared with historic averages, we saw the first signs of stabilisation: in June 2019, prices declined on a year-on-year basis for the first time in nearly two years. While the depreciation of the ruble against the dollar slowed from 16.2% in the first quarter to 4.5% in the second quarter, a slight strengthening of the ruble against the Euro, alongside weak yields on European routes, led to a further shortfall in revenues. The temporaryclosure of Pakistan's airspace – which increased flight time to destinations in Thailand, Vietnam and India, resulting in higher fuel expenses throughout the second quarter – put additional pressure on the Company's financial results.

“When comparing the results of the second quarter with results from the same period last year, it must be noted that the World Cup group stage was held in Russia in June 2018, the last month of the reporting period. Higher demand, primarily from overseas, and an increased load factor on the domestic route network, resulted in a high base effect for yields, which could not be further increased. The high base effect will also to some degree impact the beginning of the third quarter.

“The year's key results will be determined by the high season, the results of which are impacted on the one hand by excess capacity across the industry and the continued growth of airport tariffs, and on the other hand, by stabilisation in fuel prices. The management team remains committed to strict cost control and developing the programme to generate additional revenue streams.”

Key operating highlights

 

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Passengers carried, th PAX

15,431

13,871

     11.2% 

28,195

24,856

     13.4% 

- international

6,952

6,171

     12.6% 

12,683

11,059

     14.7% 

- domestic

8,479

7,699

     10.1% 

15,513

13,797

     12.4% 

Revenue Passenger Kilometres, mn

39,383

35,244

11.7%

72,925

63,987

14.0%

- international

22,966

20,364

     12.8% 

43,531

37,932

     14.8% 

- domestic

16,417

14,880

     10.3% 

29,393

26,055

     12.8% 

Available Seat Kilometres, mn

48,842

43,358

     12.6% 

91,885

79,982

     14.9% 

- international

29,024

25,457

     14.0% 

55,571

47,961

     15.9% 

- domestic

19,818

17,901

     10.7% 

36,314

32,020

     13.4% 

Passenger load factor, %

80.6%

81.3%

(0.7 p.p.)

79.4%

 80.0%

(0.6 p.p.)

- international

79.1%

80.0%

 (0.9 p.p.)

78.3%

79.1%

(0.8 p.p.)

- domestic

82.8%

83.1%

  (0.3 p.p.)

80.9%

81.4%

(0.4 p.p.)

 

In 6M 2019, Aeroflot Group carried 28.2 million passengers, up 13.4% year-on-year.

Keyfinancialhighlights

As per the requirements of the new IFRS 16 standard and full retrospective approach to the standard transition we recalculated comparative 6M 2018 results. 

In accordance with the IFRS 16 standard, operating lease liabilities were recognised as parts of the Company’s assets and liabilities. Given that liabilities are denominated in foreign currencies, FX-fluctuations lead to their revaluations which must be reflected in the financial statements. In order to reduce volatility from lease revaluations, the Company applied special accounting rules (so-called hedge accounting) that allow to account for exchange differences in equity and reflect only foreign exchange differences in the statements of profit and loss relating to the reporting period, which is economically viable.These rules apply only from 2019, therefore, when restating the statements for the first half of 2018, FX-differences attributable to the entire term of the leasing contracts were reflected in the Company's profit, and therefore the net loss for the first half of 2018 amounted to RUB 30,379million. The loss for the period would have been RUB 2,881million if the accounting rule had been applied at the start of 2018.

RUB million, unless stated otherwise

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Revenue

173,399  

153,880  

12.7%

311,440  

265,822  

17.2%

EBITDA

46,963  

41,431  

13.4%

68,296  

59,014  

15.7%

EBITDA margin

27.1%

26.9%

(0.2 p.p.)

21.9%

22.2%

(0.p.p.)

Operating profit

20,517  

20,649  

(0.6%)

14,618

17,453  

(16.2%)

Operating profit margin

11.8%

13.4%

(1.6 p.p.)

4.7%

6.6%

(1.9 p.p.)

Profit / (loss) for the period

6,933

(19,963)

(8,784)

(30,379)

FX revaluation related to lease liabilities

(28,944)

(27,498)

Adjusted profit / (loss) 

6,933  

8,980  

(22.8%)

(8,784)  

(2,881)  

 

Revenue

RUB million, unless stated otherwise

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Passenger traffic revenue 

152,456  

135,456  

12.6%

271,711  

232,352  

16.9%

  - scheduled passenger flights

141,330  

124,862  

13.2%

254,721  

215,969  

17.9%

  - charter passenger flights

11,126  

10,594  

5.0%

16,990  

16,383  

3.7%

Cargo flight revenue

4,559  

4,400  

3.6%

8,732  

8,178  

6.8%

Other revenue

16,384  

14,024  

16.8%

30,997  

25,292  

22.6%

Total revenue

173,399  

153,880  

12.7%

311,440  

265,822  

17.2%

In 6M 2019, Aeroflot Group’s revenue increased by 17.2% year-on-year to RUB 311,440 million.

Revenue from scheduled passenger flights increased by 17.9% year-on-year to RUB 254,721million, due to an increase in passenger traffic. Revenue growth was affected by an increase in yields primarily on domestic flights. Revenue from charter flights increased by 3.7% to RUB 16,990million.

Cargo revenue rose by 6.8% to RUB 8,732million year-on-year as cargo and mail volumes grew by 5.0%.

Other revenue increased by 22.6% year-on-year to RUB 30,997million due to a rise in FX-denominated revenues from agreements with other airlines and a rise in revenues from frequent flyer programme.

Introduction of IFRS 16 standard

InJanuary2019, theGroupmade a number of changes to its accounting policies regarding leases. The changes bring the Group’s policies into line with the new IFRS 16 Leases standard, which replaces the provisions of the IAS 17 and interpretations regarding leases. 

Thenewstandarddefines the principles of recognition, evaluation, presentation and disclosure of information in financial statements regarding leases. Allleaseagreementsgrantlessees the right to use the asset from the moment the agreement comes into force, and to obtain financing if lease payments are made over a period of time. In line with this, IFRS16 does away with the IAS 17 classification of leasing operations as either operating or financial, and instead introducesasinglelessee accountingmodel. Under thismodel,theGrouprecognisesinitsfinancial reportingallassetsandliabilitiesfor allleaseslongerthan12 months, exceptforcaseswhen the underlying object is of low value, and accounts for depreciation of recognised right-of-use assets separately from interest on the lease liability in the composition of the profit or loss for the period.

TheGrouphastakenthedecisiontouse fully retrospective restatement for the transition to the new standard when recalculating comparative measures for each accounting period.Right-of-use assets and their respective liabilities and financial assets were assessed for the purposes of the switch to IFRS 16 as though the new standards had always applied. The comparative results in the consolidated statement of financial position, the consolidated profit and loss accounts, and the total revenue and cash flow statements were calculated in accordance with the new IFRS 16 standard.  

A significant part of the Group’s aircraft lease agreements are in US dollars. In connection with the recognition of lease obligations in relation to operating lease agreements for aircraft at transition to IFRS 16, the Group updated the approach to assessing the effectiveness of hedge and defined as a hedge object the future highly probable revenue equal to the amount of cash flows under lease agreements on a discounted basis. This change has a perspective effect from 1 January 2019.

Operating costs

RUB million, unless stated otherwise

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Aircraft servicing and passenger services

32,294  

26,725  

20.8%

61,165  

48,633  

25.8%

 

Depreciation, amortisation and customs duties

26,446  

20,782  

27.3%

53,678

41,561  

29.2%

 

Staff costs

22,215 

20,080 

10.6%

44,794 

41,298 

8.5%

 

Selling, general and administrative expenses

7,534  

6,932  

8.7%

14,203  

13,092  

8.5%

 

Aircraft maintenance

7,813  

5,992  

30.4%

13,987  

10,101  

38.5%

 

Lease expenses

2,135  

1,953 

9.3%

3,309 

2,724 

21.5%

 

Other net expenses

5,437  

6,924  

(21.5%)

12,978  

13,075  

(0.7%)

 

Operating costs less aircraft fuel

103,874  

89,388  

16.2%

204,114  

170,484  

19.7%

 

Aircraft fuel

49,008  

43,843  

11.8%

92,708  

77,885  

19.0%

 

Total operating costs

152,882  

133,231  

14.7%

296,822  

248,369  

19.5%

 

In 6M 2019, Operating costs increased by 19.5% to RUB 296,822million, primarily due to an increase in operations – capacities increased by 14.9% year-on-year. 

Aircraft fuel costs increased by 19.0% year-on-year to RUB 92,708million. This was due to a 4.5% year-on-year increase in the average price of aircraft fuel in rubles amid changes in the price of oil, as well as an increase in flight volumes and flying time. 

Excluding fuel costs, operating costs increased by 19.7% year-on-year to RUB 204,114million. 

Expenses related to aircraft servicing and passenger service amounted to RUB 61,165million, a 25.8% increase year-on-year, due primarily to the growth of passenger traffic and increased airport fares in domestic airports. These expenses were also affected by an increase in services provided to Aeroflot by other organisations at Sheremetyevo airport following the transfer of domestic flights to Terminal B.

Amortisation and customs tariffs increased by 29.2% year-on-year to RUB 53,678million. TheincreasewasduetotheexpansionoftheGroup’sfleetovera12-monthperiod. Following the introduction of the IFRS 16 standard, depreciation expenses become more significant as they affect all aircraft on the Company’s balance sheet.

Staffcosts increased by 8.5% year-on-year to RUB 44,794million, due to a year-on-year increase in the number offlight crewto support the Group’s growth.

Selling, general and administrative expenses (SG&A) increased by 8.5% year-on-year to RUB 14,203 million. The Group continues to maintain strict control of non-operating expenses.

Expensesrelatedtoaircraftservicingandpassengerservice increased by 38.5% year-on-year to RUB 13,987million. These expenses were affected by an increase in aircraft servicing, which in turn was due to an increase in flight numbers and flying time, as well as ruble depreciation.

Lease expenses amounted to RUB 3,309 million. These include expenses associated with short-term leases, variable lease payments and lease of low-value assets, which under the IFRS 16 standard are not recognised as the Group’s liabilities and assets.

Other expenses remained flat year-on-year amounted to RUB 12,978million.

Asaresultofthesefactors, EBITDAtotalledRUB68,296 million, EBITDA margin – 21,9%.

Non-operating gains and losses

RUB million, unless stated otherwise

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Operating profit

20,517  

20,649  

(0.6%)

14,618

17,453  

(16.2%)

Profit from investments, net

(80)  

(108)  

(25.9%)

147  

107  

37.4%

Finance income

2,378 

2,020 

17.7%

3,246  

3 127  

3.8%

Finance costs

(13,356)  

(45,466)  

(70.6%)

(27,236)  

(54,569)  

(50.1%)

Realised hedging result

(320)  

(1,691)  

(81.1%)

(1,337)  

(2,984)  

(55.2%)

Share of results of associates

56  

45  

24.4%

96  

43  

2.2x

In 6M 2019, finance income increased by 3.8% year-on-year to RUB 3,246 million. Finance costs decreased by 50.1% year-on-year to RUB 27 236million, due to the fact that in 2018 we didn’t apply special accounting rules to liabilities related to lease, previously classified as operating lease. As a result, non-cash forex revaluation related to 9% RUB devaluation during H1 2018 was reflected un finance costs. 

The realised loss from hedging of RUB 1,337 million was attributable to a realised result related to hedging of USD-denominated revenue through USD-denominated lease obligations.Thedecreasewas due to FX swings in 6M 2019. 

Aeroflot Group’s net loss for 6M2019 amounted to RUB 8,784million.

Debt and liquidity       

RUB million, unless stated otherwise

30.06.2019

31.12.2018

Change

Loans and borrowings

3,359

3,486

(3.6%)

Lease liabilities

596,084

655,931

(9.1%)

Pension liabilities

916

908

0.9%

Total debt

600,359

660,325

(9.1%)

Cash and short-term investments

48,031

30,148

59.3%

Net debt

552,328

630,177

(12.4%)

Following theintroduction ofthe IFRS16 standard,lease liabilities increased mainly by the stated amount of liabilities that existed under lease agreements previously classified as operating leases. Previously future payments under these agreements were not classified as liabilities and were not reflected in the balance sheet, while current payments under agreements relating to comparative reporting periods were reflected in the profit and loss account. Therefore, the change in debt under the IFRS 16 standard is an accounting (“paper”) change that is not associated with a real increase in the company's liabilities or a change in its financial position. The business model of the Group and its contractual obligations have not changed.

As of 30 June 2019, totaldebtin accordance with IFRS 16 decreased by 9.1% compared to 31 December 2018, to RUB 600,359 million. The reduction was due to adjustments to the valuation of leases following the strengthening of the ruble against the dollar as of 30 June2019 compared to 31 December 2018.

Investor enquiries:

Aeroflot Investor Relations
+7 (495) 258-06-86
ir@aeroflot.ru        

Media enquiries

Aeroflot Press Service
+7 (495) 752-90-71
+7 (499) 500-73-87
+7 (495) 753-86-39
presscentr@aeroflot