Aeroflot presented 2017 RAS financial results

Andrey KozhokaruFebruary 06, 2018

RAS (Russian Accounting Standards) Financial statements have an unconsolidated basis and represent only the financial performance of Aeroflot. According to 2017 results, the Company’s revenue increased to 446 649mn rubles (+4.4% y/y) with the increase of the passenger traffic up to 32.8 million (+13.3% y/y). Aeroflot's revenue for 4Q2017 equaled 105 957mn rubles (+6.5% y/y), increasing at the higher pace.

The cost of sales increased by 7.7% y/y to 400 268mn rubles. General, administrative and selling expenses amounted to 47 914mn rubles (+9.8% y/y). Operating loss of the Company for 2017 amounted to 1 533mn rubles versus 12 590mn rubles of operating profit for 2016. Significant increases of expenses were shown in the articles of on-board supplies (up to 16 900mn, +21.7% y/y), labor costs (up to 37 171mn, +13.6% y/y) and advertising expenses (up to 8 848mn, +37.7% y/y). An increase in the cost of on-board supplies was associated with higher transportation volumes and with an increase in price, exceeding inflation level. The growth of advertising expenses was related to marketing campaigns aimed at international markets. The Company's net profit increased to 28 443mn rubles (+21.7% y/y). The increase in net profit was related to a decrease in tax expenses, an increase in profit from participation in other organizations and a more pronounced decrease in other expenses (by 22 518mn rubles, -49.3% y/y) relative to other income (by 13 030mn rubles, -19.8% y/y ) of the Company.  

The average price of Brent crude oil increased by 21% y/y in 2017, while ruble-denominated prices for aviation fuel increased by 7.6% y/y. According to the report, Aeroflot's total expenses for aviation fuel amounted to 84 816mn rubles (+18% y/y), increasing mainly due to the growth in operating indicators (Aeroflot’s flight hours +9.9% y/y).      

Appreciation of the ruble against EUR (+11.2% y/y) and USD (+13% y/y), put pressure on international yields. Aeroflot yields decreased by 5.5% in 2017, while the decline in 4Q2017 was only 1.5% y/y.

Our opinion:

Positive factors in the presented results are the relatively restrained growth of fuel expenses, considering a significant rise in oil prices, and the trend of weakening dynamics of declines in yields q/q. As expected, negative factors for Aeroflot are higher labor costs and advertising expenses. Due to the excess of growth rates of expenditures over the growth rate of revenue, we maintain our forecast of the decline of the EBITDA margin below 11% for 2017 (15.7% in 2016) according to IFRS results.

The net profit under RAS may significantly differ from the same indicator under IFRS. For an accurate assessment of the Group’s financial results for 2017, we expect IFRS results, which will be published on 28.02-01.03. At this stage, we maintain our Buy recommendation.