Sunday, 1 September 2019

Aeroflot's latest results........revenue up by 17.2%

The Aeroflot Group, one of the world's most well-known airlines has published its condensed consolidated interim financial results for the first six months of this year, ending on 30 June 2019.

Revenue increased by 17.2% year-on-year to RUB 311,440million during the first 6 months of this year,  its 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 temporary closure 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.” said Andrey Chikhanchin.




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.
Key financial highlights
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, 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,theGrouprecognisesinitsfinancial reporting all assets and liabilities for allleaseslongerthan12 months, 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.  
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 the 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-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.
Staff costs increased by 8.5% year-on-year to RUB 44,794million, due to a year-on-year increase in the number of flight crew to 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. The decrease was 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 the introduction of the 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, total debt in 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.




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