Aeroflot Group Consolidated financial results (IFRS) 12M 2010 Moscow May 25, 2011 Speaker: Shamil Kurmashov Deputy General Director for Finance and Investments
Key issues of 2010 2010 is the record year in the whole Russian history of Aeroflot: - over 14 million passengers have been carried by the Aeroflot Group; - over 11 million passengers have been carried by JSC Aeroflot. For the first time in the Russian history of Aeroflot the Company finished first among domestic airlines. The Brand Finance agency valued the cost of the Aeroflot brand at over $1 billion that is 20th result among the most expensive airlines brands of the world. In 2010 the record growth of financial indicators was reached that confirms the efficiency of the strategy implemented by the management of the Company. Despite the negative influence on the air transport service made by increase of oil prices, events in Africa and Middle East, the international rating agency Fitch confirmed on the 23th of March, 2011 the Aeroflot rating as BB+, forecast Stable. 2
Table of contents 1.Introduction 2.Group s market position 3.Operating highlights 4.Financial results 5.Conclusions 6.Appendix 3
Key awards in 2010 Top 25 of the leading airlines in the world according to the leading branch magazine Air Transport World. Top 10 of the most recognized and trusted Russian brands among the population according to the research results of ROMIR holding. The most popular airline among foreign passengers flying to Russia according to the results of the Russian Public Opinion Research Center poll. The winner in the categories passenger carrier on domestic airlines and passenger carrier on regular international airlines of the prestigious award The Wings of Russia. The best transport company as for organization of the work in time of crisis according to the results of the national public award of the Russian transport industry the Golden Chariot. The Company of the year 2010 in the category Transport according to the results of the national award in the field of business. 4
Innovations in 2010 Self check-in: Aeroflot provides possibility of flight check-in though mobile phones; besides, it was the first Russian airline to offer such service abroad at London airport Heathrow. Sales office of new generation: at the address: Moscow, Arbat street, 10, the new generation central sales office has been opened. Mobile communication on board: Aeroflot was the first among the Russian airlines to provide the possibility to use mobile communication during the flights. Electronic marketplace: the new Aeroflot electronic marketplace has been brought into operation in order to carry out tenders to determine the best offers for purchasing goods and services. Payment for tickets through the processing system: Since 2010 payment for airline tickets by online-booking is carried out though the processing system of the Alfa-Bank entirely, bypassing middlemen. 5
Market capitalization in 2010 Aeroflot stock price performance vs. MICEX [+/-%] Aeroflot stock price performance vs. airline indices [+/-%] 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% + 49% + 23% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% + 49% + 28% + 22% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AFLT MICEX Aeroflot stock price BWAIRL BEUAIRL * BWAIRL world airlines index, BEUAIRL EMEA airlines index Aeroflot stock price increased in 2010 by 49% and outrun MICEX growth rate (+23%) as well as airline indices BWAIRL and BEUAIRL* (+28% and +22% respectively). According to Brand Finance, the ratio of brand cost and capitalization of the Company (40%) indicates significant undervaluation of Aeroflot. The Company should cost $5,2 billion, and the share of the brand cost should be 21% (for comparison, the highest index is demonstrated by Lufthansa 32%). 6
Table of contents 1.Introduction 2.Group s market position 3.Operating highlights 4.Financial results 5.Conclusions 6.Appendix 7
Russian air transportation market Passenger traffic of the Russian civil aviation [mln. pax.] 22,0 24,0 28,0 32,0 35,0 38,0 45,0 50,0 24,8% 24,6% 23,2% 57,0 45,1 11,6 11,1 14,1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: TCH, Ministry of Transportation RCA Aeroflot Group Group s share in RCA Market share of the Group in 2010 [% of passenger turnover] Market share of the Group in 2010 [% of passenger traffic] 26,7 28,9 23,5 24,8 28,5 21,2 Source: TCH Total IAL DAL Source: TCH Total IAL DAL 2010 was characterized by recovery in demand for air carriage, the passenger traffic of the Russian Civil Aviation increased by 26,4% and totaled 57 million people. 8
Aeroflot Group s share on the Russian air transportation market Passenger traffic [mln. pax.] Passenger turnover [bln. pkm.] 24,6% 24,8% 26,6% 26,7% +27% +31% 14,1 39,2 17,9% 11,1 11,7% 10,4% 6,6 5,9 7,8% 4,4 5,4% 3,1 29,9 26,3 8,9% 13,0 5,4% 4,2% 8,0 6,2 Aeroflot Group 2009 Aeroflot Group 2010 Transaero S7 Group UtAir GTK "Rossia" Aeroflot Group 2009 Aeroflot Group 2010 Transaero S7 Group UtAir OrenAvia Source: TCH Source: TCH Share in RCA The Aeroflot Group is the acknowledged leader among the domestic airlines. The following growth is planned by Aeroflot for 2011: increase of the passenger turnover and passenger traffic will be by 23% and 27,7% respectively. 9
Aeroflot Group compared to AEA* and RCA** Growth rates of the basic operating indicators [% to 2009] 27,2 31,0 24,3 26,3 30,8 19,3 2,8 2,7 Aeroflot Group (1,6) АЕА RCA Source: АЕА, Aeroflot estimates Passenger capacity Passenger traffic Passenger turnover * АЕА Association of European Airlines ** CIA Russian Civil Aviation In 2010 growth rates of passenger turnover and passenger traffic of the Aeroflot Group ran ahead the corresponding growth rates of AEA and Russian Civil Aviation. Despite the fact that in 2010 the Aeroflot Group increased the passenger capacity slower than the Russian Civil Aviation in whole, the Group reached a higher rate of passenger traffic growth due to increase of air carriage efficiency. 10
Table of contents 1.Introduction 2.Group s market position 3.Operating highlights 4.Financial results 5.Conclusions 6.Appendix 11
Route network Average route frequency per week 2009 2010 change Scheduled 7,4 8,3 12% Charter 0,2 0,4 100% IAL scheduled 6,8 7,4 9% DAL scheduled 8,6 10,3 20% Medium-haul 7,0 9,0 29% Long-haul 2,8 3,6 29% Average 6,1 7,7 26% During summer period of 2011 Aeroflot performs flights to 49 countries of the world and offers boarding at 102 localities: 41 in Europe, 5 in America, 4 in Africa, 6 in the Middle East, 10 in Asia, 7 in the CIS and 29 in Russia. Performing of new regular flights to new directions is planned: Minsk (14)*, Tivat (4), Nizhny Novgorod (14). Further performing of flights to new directions: Male (2), Punta Cana (2). In addition to the own flights from Sheremetyevo the performing of another 127 Code- Share routes with other airlines is planned. Transit passenger traffic of the airline increased by 71,3% up to 4,3 million passengers that is 33,8% of the total passenger traffic. Harmonization of the schedule and structure of the arrival and departure waves at the Sheremetyevo airport enabled increasing of flight frequency, number and quality of connections. * number of flights per week. 12
Aeroflot Group fleet as of 31.12.10 Manufacturer/type Aeroflot Donavia Nordavia Total Antonov An-24 2 2 * Ilyushin Il-86 2 2 Ilyushin Il-96-300 6 6 * Tupolev Tu-134 8 8 * * Tupolev Tu-154 1 3 4 Total number of aircraft owned 9 3 10 22 Airbus A-319 4 4 Airbus A-320 1 1 Airbus A-321 18 18 Boeing B-737 5 2 7 Total number of aircraft under finance lease 23 5 2 30 Airbus A-319 11 11 Airbus A-320 34 34 Airbus A-330 10 10 Antonov Аn-24 3 3 Antonov An-26 1 1 Boeing B-737 5 13 18 Boeing B-767 10 10 Ilyushin Il-86 1 1 McDonnell Douglas MD-11 3 3 Total number of aircraft under operating lease 68 6 17 91 Total number of aircraft 100 14 29 143 * As of 31.12.2010 operation of this aircraft was terminated The operated fleet consists mainly of modern fuel efficient aircraft. The Group operates 21% of air planes in operating lease, 64% in financial one. Average age of the passenger air planes used by Aeroflot is 5 years. 13
Aeroflot fleet efficiency Flight hours [ths. hours] Specific fuel consumption [gr/tnkm] +14% -9% -20% 307-7% 327 431 392 312 286 2008 2009 2010 Weighted average fuel price [$/tn] 750 700 650 600 550 500 450 400 630 635 642 546 663 651 468 474 476 482 494 2008 2009 2010 626 634 650 637 648 537 525 575 585 668 623 708 647 2009 2010 In 2010 the tendency of reduction in fuel consumption due to usage of more fuel efficient aircraft was kept. According to the result of the year 2010 the fuel consumption for 1 tkm was 312 g compared with 392 g a year before. 14
Aeroflot fleet order and disposal Fleet orders according to signed agreements Manufacturer/Type 2011 2012 2013 2014 2015 Short-haul SSJ-100 10 10 7 3 - Medium-haul A-320 8 - - - - A-321-3 5 - - Long-haul A-330 3 8 - - - B-777 - - 4 6 3 B-787 - - - 8 8 TOTAL 21 21 16 17 11 Fleet disposal schedule Manufacturer/Type 2011 Medium-haul Tu-154 1 Il-86 2 Long-haul B-767 2 TOTAL 5 It is planed that by 2015 the fleet of Aeroflot will be enlarged by 86 state-of-the-industry air planes. 15
Headcount and productivity of labor Headcount 31.12.09 31.12.10 JSC Aeroflot 13 306 14 319 JSC Donavia 1 427 1 304 CJSC Nordavia 1 498 1 257 CJSC Aeromar 1 864 2 134 JSC Terminal 544 725 CJSC Sherotel 297 286 CJSC Aerofest 527 404 Others 111 112 Total 19 574 20 541 Productivity of labor Passenger turnover/average headcount [mln RPK/headcount] +44% +33% 1,8 2,6 1,5 2,0 Passenger traffic/average headcount [thous. PAX/headcount] +50% +17% 0,9 0,6 0,6 0,7 Revenue/Average headcount [ mln $/per.] +47% 292 199 168 +34% 225 2009 2010 JSC "Aeroflot" Aeroflot Group JSC "Aeroflot" Aeroflot Group JSC "Aeroflot" Aeroflot Group The indexes of labor efficiency increased in 2010 both in JSC Aeroflot and in the Group. Staff size changing in JSC Aeroflot in 2010 was caused by increase of the size of crew staff and employees of airport subdivisions that is related to the enlarging the aircraft fleet and growth of work performed. 16
Passenger business: brand new records JSC Aeroflot passenger turnover and seat load factor performance [bln.rpk. & %] 69% 70% 70% 71% 70% 20,7 22,5 4,8 5,7 24,7 27,2 25,9 6,7 8,5 8,6 15,9 16,8 18,0 18,7 17,3 77% 34,7 11,1 23,6 JSC Aeroflot passenger traffic performance [mln.pax.] +22% +29% 11,3 9,3 8,2 8,7 4,2 7,3 6,7 3,6 2,8 3,3 2,0 2,4 7,1 4,7 4,9 5,4 5,7 5,4 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 IAL DAL Seat load factor IAL DAL According to the results of 2010 the passenger traffic of JSC Aeroflot exceeded 11 million passengers that is the record for the company since its foundation in 1994. The seat load factor in 2010 reached 77% that is sufficiently higher than that of pre-crisis period. 17
Traffic capacity Traffic capacity of the Aeroflot Group [ths.pax.] 1 500 1 506 1 519 1 300 1 100 900 1 063 941 1 005 876 1 157 1 203 1 008 992 1 199 909 1 365 1 025 1 175 1 219 1 363 1 084 1 229 996 1 055 884 1 019 926 700 740 721 750 500 634 2009 2010 2011 Throughout 2010 the monthly traffic volume exceeded the corresponding indexes of 2009. During the first 4 months in 2011 the positive trend still persists: the monthly traffic volume outreaches the corresponding indexes of the year 2010. 18
Seat load factor Seat load factor of the Aeroflot Group [%] 85,0 80,0 75,0 70,0 70,9 70,1 73,4 72,7 75,1 74,6 76,2 75,4 75,9 77,9 72,4 84,9 78,6 83,4 81,3 81,2 77,7 79,3 74,4 72,6 71,0 69,4 69,9 65,0 65,9 60,0 60,9 60,5 62,2 62,0 55,0 2009 2010 2011 The seat load level in 2010 reached its maximum since the time of formation of the Russian Civil Aviation. The average target seat load factor for 2011 was set at 75%. 19
Aeroflot operating indicators growth +39,2% America +21,8% +24,9% +11,5% +6,7% +6,9% Europe +14,0% +0,0% +28,2% Russia & CIS +19,5% +7,3% +3,0% RPK ASK SLF Yield * RPK ASK SLF Yield * RPK ASK SLF Yield * Middle East& Africa +47,0% +86,8% +62,0% +15,3% -12,1% +29,0% Asia +13,9% +0,9% RPK ASK SLF Yield * RPK ASK SLF Yield * * according to management accounting. According to the approved strategy of strengthen presence at popular touristic directions, Aeroflot has significantly increased its passenger capacity on long haul routes. The largest growth was reached at regions of the Middle East, Africa, Asia and America. The most significant growth of the passenger traffic in absolute terms was reached at domestic flights and on Asian routes. The efficiency of route network management and passenger capacity is confirmed by significant growth of seat load factor at all directions. 20
Aeroflot Group revenue structure by regions Scheduled passenger services revenue [$ mln.] Scheduled cargo services revenue [$ mln.] 2 512 184 167 47 36 385 3 331 211 12 20 0,3 36 31 286 +33% +36% 2009 Europe Asia North Others Russia 2010 America 2009 Europe Asia North Others Russia 2010 America The significant growth of revenue from regular passenger and cargo carriages is provided mainly by increasing in traffic volume of the Group at the domestic market. 21
Table of contents 1.Introduction 2.Group s market position 3.Operating highlights 4.Financial results 5.Conclusions 6.Appendix 22
Key financial figures Index Unit JSC Aeroflot Aeroflot Group 2009 2010 change 2009 2010 change Revenue $ mln. 2 849 3 848 35% 3 346 4 319 29% Operating expenses $ mln. 2 490 3 324 33% 3 068 3 820 25% EBITDAR* $ mln. 748 994 33% 747 1 065 43% EBITDA** $ mln. 516 692 34% 461 727 58% Operating income $ mln. 359 524 46% 278 499 79% Net income $ mln. 122 346 184% 86 253 194% EBITDAR margin % 26% 26% 22% 25% EBITDA margin % 18% 18% 14% 17% * EBITDAR = EBITDA + Operating lease expenses ** EBITDA = Operating income+ Amortization + Custom duties expenses In 2010 the growth rate of revenue outran expenses spree. EBITDA of JSC Aeroflot and the Group increased by 34% and 58% respectively. EBITDA margin of the Aeroflot Group indicates growth from 14% in 2009 up to 17% in 2010, EBITDA margin of JSC Aeroflot is kept at stable level of 18% that confirms the efficiency of measures performed by the management targeted at the optimization of operating activity in the context of fuel prices fast growth in the end of 2010. Net profit of JSC Aeroflot and Aeroflot Group increased by 2,8 and 2,9 times respectively. 23
Aeroflot Group financial indicators Key financial indicators of the Group [$ mln.] +29% 4 319 +25% 3 346 3 068 3 820 747 +43% 1 065 86 +194% 253 Revenue Operation expenses EBITDAR Net profit EBITDAR grew by 43%, net profit increased by 2,9 times. 2009 2010 24
JSC Aeroflot financial indicators JSC Aeroflot key financial indicators [$ mln.] +35% +33% 3 848 3 324 2 849 2 490 +33% 748 994 122 +184% 346 Revenue Operation expenses EBITDAR Net profit EBITDAR grew by 33%, net profit increased by 2,8 times. 2009 2010 25
Aeroflot Group revenue factor analysis Aeroflot Group revenue [$ mln.] Air service Air service Others capacity tariff rates 839 42 92 91 Passenger business +31% 3 414 2 607 Cargo business +36% 286 211 528 Other income +17% 619 2009 2010 Σ 3 346 Group revenue +29% Σ 4 319 The Group s revenue growth was mainly provided by traffic capacity increase. 26
JSC Aeroflot net profit factor analysis Change of the JSC Aeroflot net profit [$ mln.] 861 76 61 262 459 113 60 346 122 Growth in revenues triggered by rise in volumes of transportation exceeded the increase of operational expenditures, including fuel expenses. 27
Aeroflot Group net profit structure Elements of the Aeroflot Group net profit [$ mln.] 346 24 10 4 16 63 39 35 8 4 253 * Aeroflot s net profit includes provision for Aeroflot-Cargo. ** Renewal of provision for Aeroflot-Cargo. The loss of the subsidiary company JSC Terminal significantly impacted the Group s net profit. 28
Expenses reduction activity Source of savings [%] Saving by expense item* [$ mln.] Ground servicing 23% 37,0 Aircraft fuel 56% Fleet maintenance 13% 15,4 8,7 5,0 Others 8% Aircraft fuel Ground servicing Fleet maintenance Others * According to management accounting. Costs reduction program in 2010 was calculated at the amount of 60,8 million USD. According to the results of 2010 the program was implemented at 109% the expenses were reduced by $ 66 million. $ 37 million: reduction of expenses on paraffin oil due to carrying out tenders for fuel suppliers in Sheremetyevo and a number of other airports of the Russian Federation. $ 15,4 million: as a result of lowering the rate of the passenger charge at domestic and international flights due to the change of the conversion rate. $ 8,7 million: fleet maintenance costs reduction due to the lowering of MD-11 maintenance rates, rates review for the Pool access and repair of spare parts. 29
Operating profit of the affiliated companies Operating profit of the affiliated companies [$ mln.] JSC "Donavia" 7 0 CJSC "Nordavia" CJSC "Aeroflot- Cargo" CJSC "Aeromar" CJSC "Sherotel" JSC "Terminal" Other companies 12 12 4 6 0 (23) (25) (8) (18) (1) (14) (62) 2009 2010 In 2010 the operating losses of CJCS Aeroflot-Cargo and JSC Terminal reduced significantly. CJSC Sherotеl increased it s operating profit. 30
Debt of the Aeroflot Group Indicators unit JSC Aeroflot Aeroflot Group 31.12.09 31.12.10 change 31.12.09 31.12.10 change Borrowings $ mln. 82 402 390% 976 1 313 35% Finance lease liabilities $ mln. 702 718 2% 735 734 0% Pension liabilities $ mln. 9 14 56% 9 14 56% Custom duties $ mln. 179 89-50% 187 91-51% Total debt $ mln. 972 1 223 26% 1 907 2 152 13% Cash and short term investments $ mln. 95 668 603% 132 666 405% Net debt $ mln. 877 555-37% 1 775 1 486-16% DEBT / EBITDA NET DEBT / EBITDA 2,8 1,1 4,1 1,9 3,9 2,1 2,3 3,3 3,0 1,8 1,9 1,8 1,8 2,5 0,9 3,9 1,7 2,7 2,3 2,0 1,2 0,9 0,8 0,9 0,8 0,9 31.12.08 31.12.09 30.06.10 30.09.10 31.12.10 31.12.08 31.12.09 30.06.10 30.09.10 31.12.10 Aeroflot Group JSC Aeroflot Aeroflot Group excluding Terminal Net debt of JSC Aeroflot and Aeroflot Group decreased by 37% and 16% respectively. 31
In comparison with European airlines Indicators unit 2009 2010 change 2009 2010 change 2009 2010 change 2009 2010 change Financial indicators Revenue $ mln. 3 346 4 319 29% 31 072 36 248 17% 28 156 30 866 10% 4 537 5 592 23% EBITDA* $ mln. 423 684 62% 2 365 3 750 59% 453 2 150 375% 760 610-20% Net profit $ mln. 86 253 194% -47 1 500 3291% -1 909 313 116% 361 190-47% Total Debt** $ mln. 1 711 2 047 20% 9 873 9 749-1% 16 062 14 425-10% 2 001 2 706 35% Операционные показатели Passenger turnover bln.pkm 30 39 30% 162 187 15% 202 203 0% 40 48 20% Passenger capacity bln.skm 43 51 19% 208 236 13% 253 249-2% 57 65 14% Seat load factor % 70% 77% +7 п.п. 78% 79% +1 п.п. 80% 82% +2 п.п. 71% 74% +3 п.п. * EBITDA = Operating profit + Amortization ** Total Debt = Borrowings + Finance lease liabilities DEBT / EBITDA [x] EBITDA margin [%] 35,5 16% 13% 10% 8% 7% 17% 11% 4,0 3,0 4,2 2,6 6,7 2,6 4,4 2% Aeroflot Group Deutsche Lufthansa Air France-KLM Turkish Airlines Aeroflot Group Deutsche Lufthansa Air France-KLM Turkish Airlines 2009 2010 Operating and financial indicators of Aeroflot Group were increasing faster compared with the largest European airlines. 32
Revenue rates Yield PAX revenue / RPK [US cents / pkm.] RASK PAX revenue / ASK [US cents / skm.] Cargo yield Cargo revenue / CTK [US cents / tkm.] -1% 0% +10% +10% +63% +18% 8,7 8,7 8,6 8,7 6,6 6,7 6,0 6,1 29,3 29,7 25,2 18,0 JSC "Aeroflot" Aeroflot Group JSC "Aeroflot" Aeroflot Group JSC "Aeroflot" Aeroflot Group RASK went up by 10% due to the significant growth of the profitability by means of the seat load factor increase. Increase of the medium range flights caused slight decrease of Yield as long distance flights always have a lower average revenue rate. 33
Table of contents 1.Introduction 2.Group s market position 3.Operating highlights 4.Financial results 5.Conclusions 6.Appendix 34
Conclusions Growth of all operating indicators were observed according to the results achieved in 2010. The measures taken by management in order to optimize the route network and revenue rates management provided accelerative growth of operating and financial indicators in 2010. The historical maximums were reached on the key indicator of the operating activity efficiency - the level of seat load factor. Aeroflot and Aeroflot Group s revenue increased by 35% and 29% respectively. EBITDA increased by 34% at Aeroflot and by 58% at the Group. The net profit of the Group grew three times as much. JSC Aeroflot and Aeroflot Group reduced net debt by 37% and 16% respectively. 35
Table of contents 1.Introduction 2.Group s market position 3.Operating highlights 4.Financial results 5.Conclusions 6.Appendix 36
Operating indicators Indicator unit JSC Aeroflot Aeroflot Group 2009 2010 change 2009 2010 change Passenger turnover mln.rpk 25 986 34 777 34% 29 906 39 173 31% IAL 17 346 23 632 36% 19 074 25 206 32% DAL 8 640 11 145 29% 10 832 13 966 29% Passenger capacity mln.ask 37 400 45 021 20% 42 615 50 822 19% IAL 25 770 31 061 21% 27 776 32 925 19% DAL 11 630 13 960 20% 14 839 17 897 21% Tonn kilometers mln.tkm 2 739 4 082 49% 3 529 4 488 27% IAL 1 793 2 865 60% 2 378 3 007 26% DAL 945 1 217 29% 1 152 1 481 29% Passenger traffic Ths.PAX. 8 756 11 286 29% 11 062 14 070 27% IAL 5 413 7 122 32% 6 170 7 875 28% DAL 3 343 4 164 25% 4 892 6 195 27% Cargo and Mail traffic tonne 86 762 163 404 88% 148 950 170 583 15% IAL 51 285 121 074 136% 107 451 121 448 13% DAL 35 478 42 330 19% 41 500 49 135 18% Seat load factor % 69% 77% 12% 70% 77% 10% IAL 67% 76% 13% 69% 77% 12% DAL 74% 80% 8% 73% 78% 7% Flight Hours hours 286 278 327 054 14% 363 275 405 982 12% According to the results of the year 2010 Aeroflot indicated positive dynamics on all basic operating indicators and reached the maximums of the Russian Federation Civil Aviation for the last 20 years as for passenger traffic and seat load factor. 37