Sunday, 2 June 2019

Aeroflot announces first quarter 2019 financial results


The Aeroflot Group from its headquarters in Moscow recently published its condensed consolidated interim financial statements for three months of 2019, in accordance with International Financial Reporting Standards. Results are published in accordance with the new IFRS 16 Leases standard.

Key financial highlights for 1Q 2019:

Revenue increased by 23.3% year-on-year to RUB 138,041 million; 
EBITDA amounted to RUB 21,333million;
The net loss totalled RUB 15,746 million.



Andrey Chikhanchin, PJSC Aeroflot Deputy CEO for Commerce and Finance, said: "In the first quarter of 2019 Aeroflot Group continued to develop in line with the approved strategy. The Group carried 12.8 million passengers, an increase of 16.2% year-on-year. Growth of passenger numbers and positive yield trends drove revenue higher by 23.3% to RUB 138.0 billion.
"Market factors including FX swings and fuel costs remained significant for our results in comparison with the year-ago period. As in previous quarters, the most substantial influence on costs in 1Q 2019 was higher fuel costs. The Group's total fuel costs increased by RUB 9.7 billion, or 28.4%, as prices rose by 10.2% in ruble terms compared to the first quarter of 2018. The higher cost of jet fuel in the reporting period, despite a 5.4% decrease in Brent crude prices, was due to a 16.3% depreciation of the ruble against the US dollar compared to the year-ago period. CASK increased by 6.4%, due to currency movements as well as fuel costs.   
"As a result of the new IFRS 16 Leases standard coming into effect and replacing IAS 17, in 2019 a number of metrics in our consolidated financial statements are changing. In line with the new standard, the Group has recognised in its financial statements assets and liabilities relating to all aircraft leasing agreements, including those relating to aircraft that were previously classified as aircraft on operational leases. This accounting change affects our balance sheet, including total assets and liabilities, and also a number of items in the profit and loss account and the cash flow statement. Our decision to usefully retrospective method for the transition to the new standard, and the work we have done to introduce it, are designed to minimise the effect of the transition on profitability and the volatility of profitability measures in future.
"The winter season is traditionally the toughest time of year for the industry, as airlines continue to shoulder fixed costs while demand troughs as a result of the seasonality that can clearly be seen in passenger numbers. This seasonal effect, combined with the continued impact of fuel prices and stronger currency effects, were the reasons for the net loss for the reporting period of RUB 15,746 million.
"The bulk of the year is ahead, including the high season. Our results may be significantly affected by jet fuel prices, which remain high but are also showing signs of relative stabilisation compared to previous months. Aeroflot's management team remains committed to active revenue management and strict cost control throughout the year to minimise the impact of macroeconomic factors."
Key operating highlights
 
1Q 2019
1Q 2018
Change
Passengers carried, thousand PAX
12,764
10,985
     16.2% 
- international
5,731
4,888
     17.2% 
- domestic
7,033
6,097
     15.4% 
Revenue Passenger Kilometres, million
33,542
28,743
16.7%
- international
20,565
17,568
     17.1% 
- domestic
12,976
11,175
     16.1% 
Available Seat Kilometres, million
43,043
36,624
     17.5% 
- international
26,547
22,504
     18.0% 
- domestic
16,496
14,120
     16.8% 
Passenger load factor, %
77.9
78.5
   (0.6 p.p.)
- international
77.5
78.1
  (0.6 p.p.)
- domestic
78.7
79.1
  (0.5 p.p.)

In 1Q 2019, Aeroflot Group carried 12.8 million passengers, up 16.2% year-on-year. 
Key financial highlights
RUB million, unless stated otherwise
1Q 2019
1Q 2018
Change
Revenue
138,041
111,942
23.3%
EBITDA
21,333  
17,583  
21.2%
Loss for the period
(15,746)
(10,415)
51.2%
Revenue
RUB million, unless stated otherwise
1Q 2019
1Q 2018
Change
Passenger traffic revenue 
119,255  
96,896  
23.1%
  - scheduled passenger flights
113,391  
91,107  
24.5%
  - charter passenger flights
5,864  
5,789  
1.3%
Cargo flight revenue
4,173  
3,778  
10.5%
Other revenue
14,613  
11,268  
29.7%
Total revenue
138,041  
111,942  
23.3%
In 1Q 2019, Aeroflot Group’s revenue increased by 23.3% year-on-year to RUB 138,041million.
Revenue from scheduled passenger flights increased by 24.5% year-on-year to RUB 113,391million, due to an increase in passenger traffic. Revenue growth was affected by an increase in yields on both international and domestic flights. Revenue from charter flights increased by 1.3% to RUB 5,864 million.
Cargo revenue rose by 10.5% to RUB 4,173 million year-on-year as cargo and mail volumes grew by 3.7%.
Other revenue increased by 29.7% year-on-year to RUB 14,613 million 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,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 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 introduces a single lessee accounting model. Under this model,theGrouprecognisesinitsfinancialreportingallassetsandliabilitiesfor allleaseslongerthan12months, except for cases when 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.  

Operating costs
RUB million, unless stated otherwise
1Q 2019
1Q 2018
Change
Aircraft servicing and passenger services
28,871  
21,908  
31.8%
Depreciation, amortisation and customs duties
27,232  
20,779  
31.1%
Staff costs
22,579  
21,218  
6.4%
Sales and marketing, administration and general expenses
6,669  
6,160  
8.3%
Aircraft maintenance
6,174  
4,109  
50.3%
Lease expenses
1,179  
771  
52.9%
Other net expenses
7,537  
6,151  
22.5%
Operating costs less aircraft fuel
100,240  
81,095  
23.6%
Aircraft fuel
43,700
34,042
28.4%
Total operating costs
143,940
115,138
25.0%
Operating costs increased by 25.0% to RUB 143,940million, primarily due to an increase in operations – capacities increased by 17.5% year-on-year.
In 1Q 2019, aircraft fuel costs increased by 28.4% year-on-year to RUB 43,700 million. This was due to a 10.2% 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 numbers and flying time. Excluding fuel costs, operating costs increased by 23.6% year-on-year to RUB 100,240 million. 
Expenses related to aircraft servicing and passenger service amounted to RUB 28,871 million, a 31.8% increase year-on-year, due primarily to the growth of passenger traffic and increased airport fares.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 31.1% year-on-year to RUB 27,232 million. The 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 become more significant as they affect all aircraft on the Company’s balance sheet.
Staffcosts increased by 6.4% year-on-year to RUB 22,579 million, due to a year-on-year increase in the number of employees to support the Group’s growth. 
Selling, general and administrative expenses (SG&A) increased by 8.3% year-on-year to RUB 6,669 million. The Group continues to maintain strict control of non-operating expenses.
Expensesrelatedtoaircraftservicingandpassengerservice increased by 50.3% year-on-year to RUB 6,174 million. 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 1,179 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 22.5% year-on-year to RUB 7,537million.
Asaresultofthesefactors, EBITDAtotalledRUB21,333 million.
Non-operating gains and losses
RUB million, unless stated otherwise
1Q 2019
1Q 2018
Change
Operating loss
(5,899)  
(3,196)  
84.6%
Profit from investments, net
227  
215  
5.6%
Finance income
1,506  
1,943  
(22.5%)
Finance costs
(14,547)  
(9,938)  
46.4%
Realised hedging result
(1,017)  
(1,293)  
(21.3%)
Share of results of associates
40  
(2)  
-
Loss before tax
(19,690)  
(12,271)  
60.5%
Income tax
3,944  
1,856  
2.1х
Loss for the period
(15,746)  
(10,415)  
51.2%
In 1Q 2019, finance income decreased by 22.5% year-on-year to RUB 1,506 million due to lower earnings from exchange-rate differences. Financecosts increased by 46.4% year-on-year to RUB 14,547 million, due to the expansion of the fleet. 
The realised loss from hedging of RUB 1,017 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 1Q 2019. 
Aeroflot Group’s net profit for 1Q 2019 amounted to RUB 15,746 million.
Debt and liquidity
RUB million, unless stated otherwise
31.03.2019
31.12.2018
Change
Loans and borrowings
15,071
3,486
4.3х
Lease liabilities
630,388
661,182
(4.7%)
Pension liabilities
890
908
(2.0%)
Total debt
646,349
665,576
(2.9%)
Cash and short-term investments
47,265
30,148
56.8%
Net debt
599,084
635,428
(5.7%)

Followingtheintroductionofthe IFRS16standard,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 31 March 2019, totaldebtin accordance with IFRS 16 decreased by 2.9% compared to 31 December 2018, to RUB 646,349 million. The reduction was due to adjustments to the valuation of leases following the strengthening of the ruble against the dollar as of 31 March 2019 compared to 31 December 2018.











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