aeroflot group consolidated financials (ifrs) 6m2013 · 1.introduction 2.market position of the...

Aeroflot Group

Consolidated financials (IFRS)

6M2013

Moscow

October 10, 2013

Speakers:

Shamil Kurmashov

Chief Financial Officer

Head of Network and Revenue Management

Giorgio Callegari

Deputy CEO for Strategy and Alliances

Table of contents

1.Introduction

2.Market position of the Group

3.Operating highlights

4.Financial results

5.Integration process status

6.Conclusions

7.Appendix

Aeroflot Group key events

January – September 2013

2

Aeroflot won in 3

nominations of “Wings of

Russia” Awards:

“Airline of the year

– passenger carrier

on domestic routes

in group I”,

“Airline of the year

– passenger carrier

on scheduled

international

routes”,

“Russian airline –

leader of passenger

preferences”

The Company issued

Exchange bonds

series BO-03 with 3-

year maturity period

and 8,3% annual

interest rate.

13 new aircraft were

added to Aeroflot fleet

including seven Airbus

A320, two Airbus A321,

four Boeing 777.

According to World

Airline Awards rating

Aeroflot was

recognized as The

Best Airline in

Eastern Europe

Total dividend payout

for 2012 amounted to

1 292 mln. rub.

(26% of Net Income

according to RAS) or

1,1636 rub. per

share.

Aeroflot confirmed

compliance to IOSA

standards for the fifth

time. The certificate was

extended until 14.10.2015.

According to Airline

Business rating Aeroflot

Group is among Top-5

European and Top-25

Global Airlines by

revenue in 2012

Aeroflot is an official

sponsor of XXVII

Summer Universiade in

Kazan,

Manchester United

football club and

Brooklyn Nets

basketball club.

Aeroflot celebrated 90

years anniversary in

March 2013

Aeroflot phased in first

Full-Flight Simulators for

Airbus А330 and

SSJ-100 aircraft in

Russia.

Table of contents

1.Introduction



4.Financial results


6.Conclusions

7.Appendix

Russian air transportation market

3

Passenger Traffic of Russian Civil Aviation (RCA)

[mln. pax]

Market share of the Group for 6m2013

[% of passenger turnover]

Market share of the Group for 6m2013

[% of passenger traffic]

Source: TCH, Ministry of Transportation of Russia

Source: TCH Source: TCH

• Passenger traffic of RCA in the first 6 months of 2013 amounted to 37,4 mln pax, exceeding the result of

the first six months of 2012 by 17,1%.

• Aeroflot Group Market Share in RCA in terms of passenger traffic amounted to 37,8% in the first 6 months

of 2013.

* Including passenger traffic of integrated companies from 15.11.2011 to 31.12.2011

** Aeroflot forecast, consolidated budget of Aeroflot Group for 2013.

37,2% 37,8%

39,8%

* **

Market position of the Group

in the first 6 months of 2013

4

Passenger traffic [mln.pax.] Passenger turnover [bln.pkm.]

Source: TCH Share in RCA

* АЕА – Association of European Airlines (scheduled flights data)

** AAPA – Association of Asia Pacific Airlines

• Significant increase in operating indicators of Aeroflot Group is connected to Rostec aviation assets

integration and route network optimization.

• The growth pace in operational performance of Aeroflot Group significantly exceeds the dynamics of АЕА

and AAPA growth rates.

Source: TCH, Aeroflot estimates

Growth rates of basic operating indicators

[%, 6m2013 to 6m2012]

* **

37%

15% 11% 11%

5%

39%

22%

9% 8%

5%

Table of contents

1.Introduction



4.Financial results


6.Conclusions

7.Appendix

Route network efficiency of JSC “Aeroflot”

in the first 6 months of 2013

5

• Route network continued to evolve along with higher frequencies and expanding number of destinations in

the first 6 months of 2013.

• Connectivity ratio of Aeroflot own flights in the first 6 months of 2013 increased by 16,6% to 12,07 (in the

first 6 months of 2012 – 10,35).

• Transfer passenger traffic in Company’s route network in the first 6 months of 2013 grew by 26,1%

compared to the results of the first 6 months of 2012 and amounted to 3,7 mln. passengers, 36,4% of total

passenger traffic in the first 6 months of 2013.

• In winter 2013/14 timetable the following new routes are planned to be launched from Moscow:

Karaganda (7 frequencies per week), Ulan-Ude (3 frequencies per week), Chita (four frequencies per

week), Rostov (seven frequencies per week), Tbilisi (seven frequencies per week).

• Lower average charter week frequencies per route in the first 6 months of 2013 were caused by

redirection of certain routes from charter to scheduled frequencies and restructuring of route network.

Average week frequency per route Flights dynamics by region [%]

Routes 6m2012 6m2013 Change

Scheduled 21,5 23,8 11%

Charter 0,4 0,2 -50%

International Scheduled 8,6 9,5 10%

Domestic Scheduled 17,9 19,7 10%

Medium-haul 9,2 10,1 10%

Long-haul 4,5 5 11%

Total 17,5 19,8 13%

Route network –

Summer 2013 timetable

• In Summer 2013 Aeroflot Group operates flights to 212 destinations including subsidiary companies routes

and flights executed under code-share agreements.

• The highest capacity growth rates are registered at the most promising and dynamically developing

domestic market destinations. 6

Capacity growth [ASK]

in Summer 2013 timetable vs. Summer 2012 timetable (March-October)

Capacity growth [ASK] by region

in Summer 2013 timetable vs. Summer 2012 timetable (March-October)

International Domestic International Domestic

Asia Europe Russia America Africa Middle

East

Europe Russia CIS

Summer 2012 timetable Summer 2013 timetable

JSC “Aeroflot” operating indicators

dynamics by region

[%, 6m2013 vs 6m2012]

• Following the approved strategy of strengthening positions on domestic routes and popular tourist

destinations, Aeroflot significantly increased its long-haul transportation capacities.

• Moderate pressure on operating indicators in Africa and Middle East is connected with political instability in

these regions. 7

Fleet of Aeroflot Group

as of 30.06.13

8

Type of aircraft Aeroflot Donavia Rossiya

Airlines

Orenair Vladivostok

Air

SAT Airlines Total

Ilyushin Il-96-300 6 - - - - - 6

Tupolev Tu-154 - - 5 - - - 5

Antonov An-24 - - - - - 2 2

Mil Mi-8 - - - - 3 1 4

Total number of a/c owned 6 - 5 - 3 3 17

Airbus A-319 4 - 9 - - - 13

Airbus A-320 1 - - - - - 1

Airbus A-321 21 - - - - - 21

Airbus A-330 8 - - - - - 8

Boeing 737 - 1 - - - 2 3

Boeing 777 4 - - - - - 4

Antonov An-148 - - 6 - - - 6

Tupolev Tu-204 - - - - 6 - 6

Total number of a/c under finance lease 38 1 15 - 6 2 62

SSJ 100 10 - - - - - 10

Airbus A-319 11 5 7 - - - 23

Airbus A-320 50 - 9 - 6 - 65

Airbus A-330 14 - - - - - 14

Boeing B-737 - 3 - 23 - 1 27

Boeing B-767 5 - 3 - - - 8

Boeing B-777 - - - 3 - - 3

McDonnell Douglas MD-11 3 - - - - - 3

DHC 8 Series 300 - - - - - 4 4

DHC 8 Series 200 - - - - - 2 2

Total number of a/c under operating lease 93 8 19 26 6 7 159

Total number of aircraft 137 9 39 26 15 12 238

• The Group is renewing aircraft fleet, substituting older aircraft with modern fuel-efficient aircraft.

• 67% of the Group's aircraft were under operating lease agreements, 26% – under financial lease.

* As of 30.06.2013 these aircraft are non-operational

** As of 30.06.2013 1 of these aircraft is non-operational

*

**

*

Fuel efficiency

9

Flight Hours

[ths. hrs]

Specific fuel consumption

[gr/tkm]

• During the last four years flight hours of JSC “Aeroflot” increased on average 11% annually. Cumulative flight hours of Aeroflot Group in the first 6 months of 2013 increased by 9,6% compared to the first 6 months of 2012.

• Specific fuel consumption of JSC “Aeroflot” during the last four years decreased on average by 8% annually. At Aeroflot Group level specific fuel consumption in the first 6 months of 2013 decreased by 2,4% compared to 6 months of 2012.

• Fuel efficiency of JSC “Aeroflot” and Aeroflot Group fleet consistently improves on the back of increase in flight hours.

JSC “Aeroflot” Aeroflot Group

CAGR = 11%

CAGR = -8%

+11,4%

+9,6%

-2,4% -1,5%

Order and phase off plan of JSC “Aeroflot”

as at 05.09.2013

Type of aircraft Delivered as

at 05.09.2013 2013 2014 2015 2016

Short-haul

SSJ-100* - - 8 12 -

Medium-haul

A-320 7 8 3 - -

A-321 2 5 - - -

Long-haul

B-777 4 4 6 3 3

B-787 - - - - 2

TOTAL 13 17 17 15 5

10

Type of aircraft Phased off as

at 05.09.2013 2013 2014 2015 2016

Medium-haul

A-319 - 1 3 4 -

A-320 - 4 2 - 4

А-321 - - - - 3

Long-haul

B-767 2 3 4 - -

Ilyushin Il-96 - 3 3 - -

TOTAL 2 11 12 4 7

• In 2013-2016 according to existing contracts (as at 05.09.2013) Aeroflot will increase its fleet by 54 new aircraft.

• 13 new aircraft were added to Aeroflot fleet from 01.01.2013 to 05.09.2013 including seven Airbus A320, two Airbus A321, four Boeing 777; 4 additional aircraft are planned to be delivered by the end of the year including 1 Airbus A320 and 3 Airbus А321.

• At the forthcoming Extraordinary General Meeting of Shareholders (15.10.2013) decisions on operating lease of 50 Boeing 737 aircraft and on rescheduling of the delivery of 22 Airbus A350 aircraft to 2018-2023 period would be considered.

* 10 SSJ-100 aircraft are planned to be transferred to subsidiaries in 2015

• Major operating indicators of the Group exceed prior year figures.

• Higher operating indicators in 2013 were achieved on the basis of organic growth.

Aeroflot Group

operating indicators dynamics

11

Passenger traffic

[ths.pax.]

Seat load factor

[%]

Passenger turnover

[mln.pkm.]

Passenger capacity

[mln.ask.]

* Proforma including results of integrated companies 2011 2011 proforma 2012 2013 *

• In the first 6 months of 2013 JSC “Aeroflot” and Aeroflot Group RASK remained flat, lower yields were

conditioned by higher seat load factor (+1p.p.).

• In the first 6 months of 2013 JSC “Aeroflot” and Aeroflot Group cargo yields increased.

Revenue rates

12

Yield: PAX revenue / RPK

[US cents / pkm.]

RASK: PAX revenue / ASK

[US cents / ask.]

Cargo yield: Cargo revenue / CTK

[US cents / tkm.]

+6,2% +3,8%

-2% -3%

176132

195148

ОАО "Аэрофлот" Группа Аэрофлот

Headcount and labor productivity

13 • Labor productivity of both JSC “Aeroflot” and Aeroflot Group significantly increased.

Headcount 31.12.12 30.06.13 Change

Aeroflot 16 418 17 294 5%

Aeromar 2 938 2 918 -1%

Rossiya airlines 3 493 3 515 1%

ORENAIR 2 366 2 547 8%

Vladivostok Avia 1 519 1 507 -1%

SAT Airlines 773 779 1%

Donavia 1 063 1 070 1%

Aerofirst 717 0

Sherotel 257 249 -3%

Aerofot-Finance 4 4 0%

TOTAL 29 548 29 883 1%

Labor productivity

1 5061 191

1 7271 405


529440

593506


+15% +18% +12%

+15% +11% +12%

Passenger turnover/Average

Headcount

[mln.pkm/units]

Passenger traffic/Average

headcount

[ths.pers./units]

Revenue/Average headcount

[$ ths./units]

JSC “Aeroflot” Aeroflot Group JSC “Aeroflot” Aeroflot Group JSC “Aeroflot” Aeroflot Group

Table of contents

1.Introduction



4.Financial results


6.Conclusions

7.Appendix

• Revenue of Aeroflot Group for the first 6 months of 2013 increased by 14% compared to the first 6 months

of 2012.

• Growth rates of Aeroflot Group revenue outpaced growth rates of operating costs resulting in improvement

of operating and EBITDA margins.

• Lower operating costs growth rates originate from synergy effects from maintenance and repair operations

and general and administrative functions centralization as well as favorable jet fuel market environment .

• Change in net income of Aeroflot Group in the first 6 months of 2013 in comparison with the corresponding

period of 2012 was caused by negative exchange rate differences particularly for finance lease obligations

nominated in US dollars.

Key financials

14

Index unit Aeroflot Group

6m2012 6m2013 change

Revenue $ mln. 3 614 4 133 14%

Operating costs $ mln. 3 516 3 966 13%

EBITDAR* $ mln. 516 644 25%

EBITDA** $ mln. 247 352 43%

Operating income $ mln. 98 167 70%

Net income $ mln. 7 2 -71%

EBITDAR margin % 14,3% 15,6% 1,3p.p.

EBITDA margin % 6,8% 8,5% 1,7p.p.

* EBITDAR = EBITDA + Operating lease expenses

** EBITDA = Operating income + Amortization + Customs duties

Group’s revenue factorial analysis

15

The Group’s revenue

[$ mln]

Traffic

Volumes

Air carriage

tariff Others

Σ 3 614 Σ 4 133 6m2012 6m2013

Other income +3,5%

Total revenue +14,4%

Cargo traffic -0,6%

Passenger traffic +16,7%

The substantial increase in Aeroflot Group’s revenue was caused primarily by the growing volume of carriage

due to optimization of route network.

17

Operating income of the main

companies of the Group

16

Operating income / loss of the subsidiaries

[$ mln]

6m2012 6m2013

• JSC “Donavia”, OJSC “Rossiya airlines” and JSC “Vladivostok Air” started delivering positive operating

profitability in the first 6 months of 2013.

• Aeromar and Sherotel continue to deliver positive profitability.

• JSC “ORENAIR” and JSC “SAT Airlines” registered operating losses in the first 6 months of 2013.

Operating loss of JSC “ORENAIR” was caused by redirection of certain routes from charter to scheduled

frequencies and restructuring of route network.

Donavia Rossiya

airlines

ORENAIR Vladivostok

Air

SAT Airlines Aeromar Sherotel

Structure of the Group’s net income

17

Elements of Aeroflot Group’s net income

[$ mln]

• The total loss of OJSC “Rossiya airlines”, JSC ”Vladivostok Air”, JSC “ORENAIR” and JSC “SAT Airlines”

in the first 6 months of 2013 amounted to $45 mln. which is 58% less than in the corresponding period of

2012 ($107 mln.).

• Integrated companies continue execution of centralization and cost-cutting procedures and activities.

• Donavia, Aeromar and Sherotel remain profitable.

∑= -45 mln.

** Due to the fact that Vladavia repaid it’s obligations to JSC “Aeroflot”, previously created bad debt provision was released in JSC “Aeroflot” financials, this operation is

eliminated on the Group level.

*

(8)

2

* Total amount of net assets and goodwill of Aerofirst disposed at the Group level is $7 mln., income from disposal of Aerofirst was recognized in JSC “Aeroflot” financials

in the amount of $18 mln. (sale revenue of $40 mln. – cost of investments $22 mln.). Total financial result of the deal is $11 mln.

Factorial analysis of the Group’s net

income

18

Breakdown of the Group’s net income

[$ mln]

• Substantial increase in revenue of Aeroflot Group was caused by higher traffic volumes.

• Growth rates of Aeroflot Group revenue outpaced growth rates of operating costs resulting in

improvement of operating and EBITDA margins.

• Pressure on net income of Aeroflot Group in the first 6 months of 2013 was caused by negative exchange

rate differences, which amounted to $112 mln.

∑= 518 mln

∑= -449 mln

^

^ Including passenger service costs growth by $43 mln., aircraft and traffic service growth by $102 mln., sales and marketing cost growth by $26 mln.

* Disposal of Aerofirst

** Net result for deals with derivative securities, including expiration of the SWAP deal with CITI and Alfa bank in the amount of $24 mln.

(112)

2

• Increase of Aeroflot Group total debt by 6% at the end of June 2013 comparing to the end of 2012 was

mainly caused by delivery of 4 Boeing 777 aircraft for JSC “Aeroflot” operations.

• Total debt expansion was offset by a substantial increase in cash positions, which resulted in overall net

debt decrease by 3% at the end of June 2013 comparing to the end of 2012.

• Total debt/EBITDA ratio of Aeroflot Group decreased from 3,9 to 3,6.

• Net debt/EBITDA ratio of the Group substantially decreased from 3,2 to 2,7.

TOTAL DEBT / EBITDA* [x]

Debt leverage of Aeroflot Group

19

NET DEBT / EBITDA* [x]

* EBITDA = EBIT + depreciation + custom duties depreciation

For 6 and 9 months indicators EBITDA is annualized..

Index units Aeroflot Group

31.12.12 30.06.13 change Borrowings $ mln 706 417 -41% Finance lease liabilities $ mln 1 882 2 335 24% Pension liabilities $ mln 15 22 47% Customs duties $ mln 19 12 -37% Total debt $ mln 2 621 2 787 6% Cash and short term investments $ mln 501 717 43%

Net Debt $ mln 2 121 2 069 -3%

6m2012

Aeroflot Group in comparison

with foreign competitors

20

Total Debt* / EBITDA** [x] Operating margin[%]

6m2012 6m2013 6m2013 Average for peers = 5,3

5,3

• Operating indicators of the Group rose at substantially higher growth rates than those of most of it’s

competitors.

• Moreover Aeroflot Group consistently demonstrates one of the highest operating margins and the Group’s

debt leverage is at more comfortable levels than the average.

Index ASK, bn RPK, bn SLF, % Revenue , $ mln EBITDA, $ mln

6m2012 6m2013 change 6m2012 6m2013 change 6m2012 6m2013 change 6m2012 6m2013 change 6m2012 6m2013 change

Aeroflot Group 43,8 51,5 18% 32,7 39,3 20% 75% 76% 1 p.p. 3 614 4 133 14% 248 352 43%

Peers

Air Canada 53,0 53,3 1% 43,2 43,7 1% 81% 82% 1 p.p. 5 916 5 917 0% 314 361 15%

LATAM Airlines^ 64,9 65,8 1% 50,1 52,2 4% 77% 79% 2 p.p. 6 413 6 508 1% 437 695 59%

Turkish Airlines 44,6 54,1 21% 33,5 42,7 27% 75% 79% 4 p.p. 3 708 4 538 22% 283 517 83%

China Eastern Airlines 65,2 72,9 12% 51,5 57,9 12% 79% 79% 0 p.p. 6 365 6 725 6% 1 435 1 300 -9%

Qantas Airways 69,2 68,5 -1% 55,0 53,8 -2% 79% 79% 0 p.p. 6 628 8 609 30% 852 919 8%

Source: Bloomberg, company reports * Total Debt = Borrowings + Financial lease liabilities

** EBITDA = Operating income + DD&A

^ 2012 year – pro forma accounting for joint financial result of LAN Airlines and TAM Airlines

Table of contents

1.Introduction



4.Financial results


6.Conclusions

7.Appendix

OJSC “Rossiya Airlines”:

Execution of functional strategies

Commercial

functions

Business model Regional carrier based at Pulkovo

• Optimization of network and schedule

• Optimized schedule on key Moscow-St Petersburg direction, no

more competition with Aeroflot

• Number of routes reduced from 120 to about 70 (dependent on the

season) by dropping unprofitable flights

• Optimized (closed) representative offices, functions are merged into

Aeroflot offices (Abroad and RF)

Production functions • Lower number of aircraft types (phase out of Boeing 737)

• Significantly improved operating results of An-148 and other

aircraft types

• Optimized costs of airworthiness maintenance

• Optimized staff structure

• General cost optimization

Financial functions

Key achievements Actual tasks

• Function’s hand over to Aeroflot:

• Switching from Amadeus

to Sabre

• Network planning and

revenue management

transfer

• Decreasing the number of routes

to 59

Working through possible options

regarding cancellation / change /

significant improvement of existing

leasing conditions:

• 6 х Antonov An-148 (IFC)

• 9 х Airbus А319 (VTB-leasing)

• 3 х Boeing В767 (ILFC)

21

Retention of market share in St.

Petersburg (at least 50%)

Reaching break-even point is possible only on condition of complex fleet and debt restructuring.

Integration is to be completed by 2014

JSC “Donavia”:


Regional carrier based at Rostov

• Completed adoption of unified fiscal policy, tax accounting rules

and accounting for sales

• Organization of ground handling (of passengers and aircraft) in

Mineralnye Vody

• Development of a pilot project to centralize the function of MRO,

contraction functions merger, approval of plans and schedules of

MRO, centralizing pool of spare parts, engineering, quality control

• Completed complex fleet restructuring

• Adoption of the standard product "region“

• Transfer of all commercial functions to Aeroflot

• Approval of a new code-share agreement

• Commercial unit was liquidated

Organization of permanent base for 3

Airbus A319 aircraft at Mineralnye

Vody

• Procurement centralization

• Phase off of Boeing 737 family aircraft

• Forming the fleet on the base of Airbus

A319

Commercial

functions

Business model

Production functions

Financial functions

Donavia was successfully integrated in the Group structure.


22

JSC “Avrora” (Far Eastern Company):


Commercial

functions

Business model

Production functions

Financial functions • Completed adoption of unified fiscal policy, tax accounting

rules

• Completed integration of ground handling of Aeroflot flights in

Vladivostok and Khabarovsk

• Vladavia’s Yak-40, Mi-8, А-330 phased-out

• Measures to centralize MRO development functions, centralize

pool of spare parts, engineering, quality control are executed

• Phase in of Airbus A319 aircraft;

• Further fleet optimization considering

economic efficiency;

• Commercial functions of Vladivostok Avia transferred to Aeroflot;

• Vladivostok Avia sales organized via Aeroflot representative /

sales offices;

• Route network of Vladivostok Avia was optimized;

• 100% code-sharing agreement was concluded and is currently in

force;

• Fuel procurement was centralized;

• Leasing contracts on aircraft were revised.

• Aeroflot Group development strategy execution

• Execution of plan of measures on integration of SAT Airlines and Vladivostok Avia

• Receipt of government subsidies for

interregional, regional and local

carriages

• Merger of Vladavia and SAT networks

• Transition to a unified schedule

• Centralization of main operations

control at Aeroflot / management of

regional route network at local level

Execution of Aeroflot plans on the Far Eastern Company creation is possible on condition of

government subsidies receipt and fleet restructuring.


23

Integration is successfully completed, it is necessary to mitigate the risk of dependence on a

single customer.

• Extension of long-haul fleet

JSC “ORENAIR”:


Commercial and

production

functions

Business model Touristic carriages from Russian cities from bases in

Turkey/Egypt/Thailand

• Centralizing of all charter programs of JSC “Donavia”

and JSC “Vladivostok Air” in Southern and Far

Eastern Federal Districts

• Ongoing transfer of charter flights program by

Rossiya Airlines to/from St Petersburg

• Efficiency of operating and financial indicators

Mitigating the risk of dependence on a single

customer

Financial functions Completed adoption of unified fiscal policy, tax

accounting rules


24

R: 182

G: 196

B: 204

R: 135

G: 157

B: 179

R: 59

G: 100

B: 135

Цвета заливки графиков и фигур

R: 22

G: 44

B: 66

R: 178

G: 178

B: 178

Цвет контура

R: 0

G: 176

B: 80

R: 0

G: 112

B: 192

R: 255

G: 255

B: 255

R: 0

G: 0

B: 0

R: 255

G: 0

B: 0

R: 1

G: 40

B: 120

R: 0

G: 128

B: 0

Цвет текста

Minimizing risks that might arise due to

possible development of new low-cost

carrier on Russian market

Aeroflot is developing new low cost carrier with consideration of previous market practices.

New carrier will perform its first flight next year.

Low cost carrier development

25

Wining market share from

competitors, by providing a more

affordable alternative for the customers,

with out harming Aeroflot

Penetrating into new market segment,

due to focusing on price-sensitive

passengers

Protective

strategy (minimizing risk of

losing market)

Strengthening

market

position (Increasing market share)

Proactive development to ensure

readiness to compete with international

low-cost carriers

1 2

4 3

Aeroflot is pursuing following goals with low-cost carrier development:

Table of contents

1.Introduction



4.Financial results


6.Conclusions

7.Appendix

Conclusions

26

• In the first 6 months of 2013 the main operating indicators of Aeroflot Group increased

compared to the corresponding period of previous year.

• Revenue of Aeroflot Group’s increased by 14% in the first six months of 2013, outpacing

growth of operating costs which resulted in improvement of operating and EBITDA margins.

• Lower operating costs growth rates originate from synergy effects from maintenance and

repair operations and general and administrative functions centralization as well as favorable

jet fuel market environment .

• Change in net income of Aeroflot Group in the first 6 months of 2013 in comparison with the

corresponding period of 2012 was caused by negative exchange rate differences.

• Total debt/EBITDA ratio of Aeroflot Group decreased from 3,9 to 3,6, Net debt/EBITDA ratio

of the Group substantially decreased from 3,2 to 2,7.

Table of contents

1.Introduction



4.Financial results


6.Conclusions

7.Appendix

Amid increased market volatility on the back of unfolding European

crisis Aeroflot follows a prudent risk management policy and hedges

its exposure to currency volatility (EUR weakening), higher fuel

prices and higher interest rates (LIBOR linked finance lease

payments).

Aeroflot entered a number of transactions, covering 53% of 2013F

open EUR position:

– According to 3-year transaction terms on EUR/RUB, Aeroflot

receives monthly compensation in case EUR exchange rate

moves lower than the level comfortable for the Company, but

Aeroflot has to pay compensation to the counterparties in case

EUR strengthens at the expiration of the contract. Possible losses

are compensated by higher converted revenue of the Company.

– According to 1-year transactions terms on EUR/USD, Aeroflot

receives monthly compensation in case lower EUR exchange rate,

in the meantime possible losses connected to stronger EUR

exchange rate are compensated by higher converted revenue of

the Company.

– Potential losses on all the transactions are limited.

In autumn 2012 Aeroflot entered a number of transactions in order to

hedge fuel price increase for the period of 3 years. In case oil prices

increase the Company receives monthly compensation, in the

meantime Aeroflot will have to pay compensation to the banks in case

of lower oil prices only at the expiration of the contract. Such losses

are compensated by lower fuel costs for the Company. Currently c19%

of annual consumption (2013F) of the Company is hedged.

Currently c30% of LIBOR linked finance lease payments are

hedged by means of converting floating rate to fixed rate.

Source: Aeroflot data, Bloomberg

Market risk management: currency,

interest rate risk, fuel price hedging

Mechanism of the long-term currency risk hedging

transaction

Launch

A

B

D

C

Aeroflot receives monthly

compensation during 3-year term

Aeroflot pays at

expiration

3 years

EUR dynamics in 2011–2013

The strategy is aimed to mitigate the high level of market

volatility of EUR

Aeroflot hedged 53% of open position in EUR (2013F), 19% of 2013F fuel consumption and 30% of LIBOR

linked finance lease payments

Aug-10 Feb-11 Sep-11 Apr-12 Oct-12 May-13

27

Hedged

revenue structure, 2012

RUB 48%

Source: Aeroflot data, Bloomberg

Currency risk management at

JSC “Aeroflot”

Costs structure, 2013F

Others

3%

RUB

40%

EUR

6%

Revenue structure, 2013F

USD.

20%

EUR

48%

RUB

32%

USD.

51%

Hedged

revenue structure, 2013F

USD 38%

EUR 26%

RUB 36%

RUB

27%

USD and

oth. 23%

EUR

50% EUR

8%

RUB

62%

USD and

oth. 30%

Costs structure, 2012 Revenue structure, 2012

Effective currency risk hedging allowed to lower the effective share of EUR in revenue structure converging it

with costs structure 28

EUR

29%

USD and

oth. 23%

Key operating indicators of

Aeroflot Group airlines

* According to IFRS

29

Indicators Period Rossiya

airlines ORENAIR

Vladivostok

Air

SAT

Airlines Donavia Total

Passenger traffic (th. pax)

Actual 6m2013 1 930 1 430 546 119 576 4 601

Actual 6m2012 1 858 1 164 540 118 466 4 146

Change % 4% 23% 1% 1% 24% 11%

Passenger turnover (mln.pkm)

Actual 6m2013 3 922 5 360 1 263 112 840 11 497

Actual 6m2012 3 774 3 881 1 611 113 685 10 064

Change % 4% 38% -22% -1% 23% 14%

Seat load factor, %

Actual 6m2013 73,0% 80,5% 64,9% 56,5% 64,5%

Actual 6m2012 73,5% 83,1% 63,8% 58,3% 64,4%

Change % -0,5 п.п. -2,6 п.п. 1,1 п.п. -1,8 п.п. 0,1 п.п.

Flight hours, hrs

Actual 6m2013 50 494 39 867 17 884 4 080 13 217 125 542

Actual 6m2012 49 992 31 800 19 358 4 535 12 482 118 167

Change % 1% 25% -8% -10% 6% 6%

Revenue*, $ mln. Actual 6m2013 456 310 192 45 138 1 141

Net profit/loss*, $ mln. Actual 6m2013 -26 -17 -1 -2 15 -31

Operating indicators

indicators units JSC “Aeroflot” Aeroflot Group

6m2012 6m2013 change 6m2012 6m2013 change

Passenger turnover mln. pkm 22 619 27 775 23% 32 682 39 272 20%

International routes 15 564 19 064 22% 21 736 26 397 21%

Domestic routes 7 055 8 711 23% 10 946 12 875 18%

Passenger capacity mln. ask 30 235 36 035 19% 43 820 51 508 18%


Domestic routes 9 053 10 941 21% 14 985 17 136 14%

Tonne-kilometers mln. tkm 2 567 3 013 17% 3 517 4 086 16%


Domestic routes 728 898 23% 1 117 1 306 17%

Passenger traffic th. pax 7 938 9 542 20% 12 083 14 142 17%


Domestic routes 3 207 3 876 21% 5 232 6 185 18%

Cargo and mail carried tonnes 91 247 91 449 0,2% 105 780 105 338 -0,4%

International routes 71 146 66 583 -6% 73 620 68 552 -7%

Domestic routes 20 101 24 866 24% 32 160 36 786 14%

Seat load factor % 75% 77% 2% 75% 76% +1,7 п.п.

International routes 73% 76% 3% 75% 77% +1,4 п.п.

Domestic routes 78% 80% 2% 73% 75% +2,1 п.п.

Flight hours hours 218 557 243 526 11% 336 724 369 068 10%

30

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aeroflot group consolidated financials (ifrs) 6m2013 · 1.introduction 2.market position of the...

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