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Company News

29 November 2019

Aeroflot announces 9M 2019 IFRS financial results

Moscow, 29 November 2019 – Aeroflot Group (“the Group”, Moscow Exchange ticker: AFLT) today publishes its condensed consolidated interim financial statements for the first nine months of 2019, in accordance with International Financial Reporting Standards. The results are published in accordance with the new IFRS 16 Leases standard.

Key financial highlights for 9M 2019:

  • Revenue increased by 12.4% year-on-year to RUB 523,983 million;
  • EBITDA amounted to RUB 141,675 million;
  • Net profit totalled RUB 20,305 million.

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

“The results of the third quarter – the high summer season – were positive for Aeroflot Group. The Group posted a net profit of RUB 29.1 billion for the quarter, and as a result generated a positive result of RUB 20.3 billion for the first nine months of 2019.

“These results were achieved through the development of our revenue and expense management initiatives, launching new services to improve passenger comfort and maintaining strict cost control. Along with simple decisions on the budgeting and financial control front, we implemented a number of initiatives to increase internal efficiency, including negotiations with partners to agree on more favourable financial terms. In 9M and 3Q 2019, CASK saw a slight increase of 3.0% and 1.2%, respectively.

“The 9M results should be considered in the context of external factors, including market trends during the first half of the year. The year began with consistently high fuel prices and FX pressures on the non-RUB component of our expenses, which contributed for our moderate results in the first half of 2019.

“While there have been no sharp jumps during 2019, fuel costs remained significantly above the historical average. Given passengers’ limited purchasing power, this put additional pressure on the Company’s financial results. In addition, in the second quarter, the closure of Pakistan's airspace led to additional fuel costs as flight times to destinations in Thailand, India and Vietnam increased.

“When comparing the results of the summer season with the same period last year, it is important to note that for June and July, the comparable period corresponds with the World Cup, which Russia hosted in 2018. Higher demand, primarily from overseas, and an increased load factor on the domestic route network, resulted in a high base effect in terms of yields that could not be further increased.

“Given excess capacity in the market and the continued growth of airport tariffs, management remains committed to strict cost control and the development of programmes to generate additional revenue streams.

Key operating highlights

 

 

3Q 2019

3Q 2018

Change

9M 2019

9М 2018

Change

Passengers carried, th PAX

18,533

17,393

       6.6%

46,728

42,249

     10.6%

- international

8,275

7,700

      7.5%

20,957

18,759

     11.7%

- domestic

10,258

9,693

      5.8%

25,771

23,490

      9.7%

evenue Passenger Kilometres, mn

47,340

44,441

6.5%

120,265

108,428

10.9%

- international

26,678

24,793

      7.6%

70,209

62,725

     11.9%

- domestic

20,662

19,648

      5.2%

50,056

45,703

      9.5%

Available Seat Kilometres, mn

53,497

49,411

       8.3%

145,381

129,393

     12.4%

- international

30,762

28,219

      9.0%

86,333

76,180

     13.3%

- domestic

22,734

21,192

      7.3%

59,048

53,213

     11.0%

Passenger load factor, %

88.5%

89.9%

 (1.5 p.p.)

82.7%

83.8%

 (1.1 p.p.)

- international

86.7%

87.9%

 (1.1 p.p.)

81.3%

82.3%

(1.0 p.p.)

- domestic

90.9%

92.7%

 (1.8 p.p.)

84.8%

85.9%

(1.1 p.p.)

 

In 9M 2019, Aeroflot Group carried 46.7 million passengers, up 10.6% year-on-year.

Key financial highlights

Since 2019, as per the requirements of the new IFRS 16 Leases standard, the Group’s results for the year-ago period are presented to reflect the impact of the new standard.

In accordance with the IFRS 16 standard, operating lease liabilities were recognised as part of the Company’s assets and liabilities. Given that liabilities are denominated in foreign currencies, FX fluctuations lead to revaluations that must be reflected in the financial statements. To reduce volatility from lease revaluations, the Company has applied special accounting rules that reflect only FX differences relating to the reporting period, which is economically viable. These rules apply only from 2019. Therefore, when restating the statements for 9M 2018, FX differences attributable to the entire term of the leasing contracts were reflected in the Company's profit, as a result of which the net loss for 9M 2018 amounted to RUB 17,382 million. Had the accounting rule been applied since the start of 2018, the loss for the period would have been RUB 24,941 million.

RUB million, unless stated otherwise

3Q 2019

3Q 2018

Change

9М 2019

9М 2018

Change

Revenue

 212,543

200,523

      6.0%

   523,983

   466,345

      12.4%

EBITDA

    73,379

 73,727

    (0.5%)

   141,675

   132,741

        6.7%

EBITDA margin

    34.5%

  36.8%

(2.3 p.p.)

     27.0%

     28.5%

  (1.5 p.p.)

Operating profit

    47,077

 49,514

  (4.9%)

     61,695

     66,967

(7.9%)

Operating profit margin

22.1%

24.7%

(2.6 p.p.)

11.8%

14.4%

(2.6 p.p.)

Profit / (loss) for the period

    29,089

 12,997

  2.2х

     20,305

  (17,382)

 –

FX revaluation related to lease liabilities

(14,825)

(42,323)

Adjusted profit

27,822

24,941

 

RUB million, unless stated otherwise

    3Q 2019

3Q 2018

Change

9М 2019

9М 2018

Change

Passenger traffic revenue

   190,323

177,622

 7.2%

   462,034

   409,974

12.7%

- scheduled passenger flights

   176,460

163,439

  8.0%

   431,181

   379,408

13.6%

- charter passenger flights

     13,863

  14,183

(2.3%)

     30,853

     30,566

 0.9%

Cargo flight revenue

       4,881

    4,661

   4.7%

     13,613

     12,839

 6.0%

Other revenue

     17,339

  18,240

(4.9%)

     48,336

     43,532

11.0%

Total revenue

   212,543

200,523

  6.0%

   523,983

   466,345

12.4%

               

 

In 9M 2019, Aeroflot Group’s revenue increased by 12.4% year-on-year to RUB 523,983 million.

Revenue from scheduled passenger flights increased by 13.6% year-on-year to RUB 431,181 million, due to an increase in passenger traffic and the additional impact of rising yields. Revenue from charter flights increased by 0.9% to RUB 30,853 million.

Cargo revenue rose by 6.0% to RUB 13,613 million year-on-year as cargo and mail volumes grew by 4.6%.

Other revenue increased by 11.0% year-on-year to RUB 48,336 million due to a rise in FX-denominated revenues from agreements with other airlines and a rise in revenues from the frequent flyer programme.

 

Introduction of the IFRS 16 standard

 

In January 2019, the Group made 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 IAS 17 and interpretations regarding leases.

The new standard defines the principles of recognition, evaluation, presentation and disclosure of information in financial statements regarding leases. Under this model, the Group recognises in its financial reporting all assets and liabilities for all leases longer than 12 months, except in cases when the underlying object is of low value, and accounts for the 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.

The Group has taken the decision to use 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 is in US dollars. In connection with the recognition of lease obligations relating to operating lease agreements for aircraft during the transition to IFRS 16, the Group updated its approach to assessing the effectiveness of its hedging, 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

3Q 2019

3Q 2018

Change

9М 2019

9М 2018

Change

Aircraft servicing and passenger services

    35,728

    31,648

    12.9%

    96,893

    80,281

 20.7%

Depreciation, amortisation and customs duties

  26,302

      24,213

      8.6%

      79,980

   65,774

 21.6%

Staff costs

   22,065

      19,548

    12.9%

      66,859

   60,846

 9.9%

Aircraft maintenance

    9,955

        6,457

    54.2%

      23,942

   16,558

 44.6%

Selling, general and administrative expenses

     8,278

        6,766

     22.3%

      22,481

   19,858

 13.2%

Lease expenses

     2,449

        1,508

  62.4%

        5,758

     4,232

36.1%

Other net expenses

     7,828

     6,789

    15.3%

    20,806

    19,864

   4.7%

Operating costs less aircraft fuel

  112,605

    96,929

     16.2%

  316,719

  267,413

 18.4%

Aircraft fuel

   52,861

      54,080

     (2.3%)

   145,569

  131,965

 10.3%

Total operating costs

  165,466

  151,009

      9.6%

  462,288

  399,378 

15.8%

In 9M 2019, operating costs increased by 15.8% to RUB 462,288 million, primarily due to an increase in operations supported by a growth in capacities of 12.4% year-on-year.

Aircraft fuel costs increased by 10.3% year-on-year to RUB 145,569 million. This was mainly due to the Group’s operational development and an increase in carrying capacity.

Excluding fuel costs, operating costs increased by 18.4% year-on-year to RUB 316,719 million.

Expenses related to aircraft servicing and passenger service amounted to RUB 96,893 million, a 20.7% increase year-on-year, due primarily to the growth of passenger traffic and increased airport fares in domestic airports.

Amortisation and customs tariffs increased by 21.6% year-on-year to RUB 79,980 million. This increase was due to the expansion of the Group’s fleet over a 12-month period. Following the introduction of the IFRS 16 standard, depreciation expenses have become more significant as they affect all aircraft on the Company’s balance sheet.

Staff costs increased by 9.9% year-on-year to RUB 66,859 million, mainly due to an increase in the number of flight crew to support the Group’s growth.

Expenses related to aircraft maintenance increased by 44.6% year-on-year to RUB 23,942 million. These expenses were affected by an increase in aircraft servicing, which in turn was due to an increase in flight hours and the depreciation of the ruble, as well as to maintaining product quality.

Selling, general and administrative expenses (SG&A) increased by 13.2% year-on-year to RUB 22,481 million due primarily to growth of the business. The Group continues to maintain strict control of non-operating expenses.

Lease expenses amounted to RUB 5,758 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 increased by 4.7% year-on-year and amounted to RUB 20,806 million.

As a result of these factors, EBITDA totalled RUB 141,675 million while EBITDA margin was 27.0 %.

 

Non-operating gains and losses

RUB million, unless stated otherwise

3Q 2019

3Q 2018

Change

9М 2019

9М 2018

Change

Operating profit

 47,077

 49,514

  (4.9%)

     61,695

     66,967

(7.9%)

Profit from investments, net

     211

    (110)

    –

         358

            (3)

Finance income

  1,934

   1,790

   8.0%

       5,180

       4,917

    5.3%

Finance costs

(14,295)

(32,362)

(55.8%)

 (41,531)

  (86,931)

(52.2%)

Realised hedging result

    (965)

 (1,941)

 (50.3%)

    (2,302)

    (4,925)

(53.3%)

Share of results of associates

     129

      136

   (5.1%)

         225

         179

   25.7%

In 9M 2019, finance income increased by 5.3% year-on-year to RUB 5,180 million.

Finance costs decreased by 52.2% year-on-year to RUB 41,531 million. This was due to the fact that in 2018 special accounting rules to liabilities related to leases previously classified as operating leases were not applied. As a result, non-cash FX revaluation of total lease-related liabilities was reflected in finance costs following a 13.9% appreciation of USD from the beginning of 2018 to 30 September 2018.

Given the factors noted above, Aeroflot Group’s net profit for 9M 2019 amounted to RUB 20,305 million.

Debt and liquidity

RUB million, unless stated otherwise

30.09.2019

31.12.2018

Change

Loans and borrowings

3,327

3,486

(4.6%)

Lease liabilities

593,447

655,931

(9.5%)

Pension liabilities

928

908

2.2%

Total debt

597,702

660,325

(9.5%)

Cash and short-term investments

30,314

30,148

0.6%

Net debt

567,388

630,177

(10.0%)

 

Following the introduction of the IFRS 16 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 September 2019, total debt in accordance with IFRS 16 decreased by 9.5% compared to 31 December 2018, to RUB 597,702 million. The reduction was due to adjustments to the valuation of leases following the strengthening of the ruble against the dollar as of 30 September 2019 compared to 31 December 2018, and repayment of debt in accordance with the payment schedule.

 

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.ru