1 kirill s. budaev corporate property department, director february 2004
TRANSCRIPT
1
Kirill S. BudaevKirill S. BudaevCorporate Property Department, DirectorCorporate Property Department, Director
February 2004February 2004
2
Contents
• Company overview
• Efficiency increase
• Operating results
• Financial results
Section 2
Section 3
Section 4
Section 1
3
Company Company OOverviewverview
• Founded in 1923• The biggest Russian airline:
– 5,8 mm. passengers carried in 2003– 25,6% market share in terms of overall passenger carriers.
• Operates 93 aircraft (31 foreign + 62 Russian-built)• Flies to 104 destinations in 48 countries• Financial performance in 2003*:
– USD 1.56 bn. in sales– USD 114,85 mm. in net profit
• USD 853 mm. market capitalization• 51,2% government-owned (38,9%- institutional investors, 9,9%-private
individuals)
* in compliance with the Russian Accounting Standards
4
Market environmentMarket environment
•Shortage of adequate capacity•Noise & emission restrictions introduced by European countries•Strict regulation•Still high degree of fragmentation•Low purchasing power – low yield – major constraint•Higher growth rates in the charter segment
Passengers transported by Russian airlines
29,5
26,5
20
22
24
26
28
30
2002 2003
11%
Russian airline industry growth in 2000-2002
60,56 64,7170,9
29,526,5225,07
0
10
20
30
40
50
60
70
80
2001 2002 2003
RPK bn.Pax mm.
5
Competitive positionCompetitive positionAeroflot position in Russian Civil Aviation
32,6%31,3%
27,3%25,6%
0%
5%
10%
15%
20%
25%
30%
35%
2000 2001 2002 2003
• Still an ultimate leader in the industry
• Decrease of the market share is due to:
– radical reduction of old Soviet-built aircraft capacities
– concentration of the market growth in the non-core segment
Share of Aeroflot 10M 2003 (Domestic)
2,9% 3,00%
7,4%
11,7%11,3%
7,2%
5,0%
0%
2%
4%
6%
8%
10%
12%
14%
Share of Aeroflot 10M 2003 (International)
2,8% 1,9%
9,7%11,8%
39,8%
0,5%4,8%
0%5%
10%15%20%25%30%35%40%45%
Aeroflot Sibir Pulkovo Krasair Utair Uralairlines
Domoddovoairlines
6
Stock performanceStock performance
0,240,260,280,300,320,340,360,380,400,420,440,460,480,500,520,540,560,580,600,620,640,660,680,700,72
17.01.0
3
24.01.0
3
28.01.0
3
04.02.0
3
26.02.0
3
03.03.0
3
12.03.0
3
22.04.0
3
07.05.0
3
20.05.0
3
02.06.0
3
18.08.0
3
05.09.0
3
26.09.0
3
08.10.0
3
22.10.0
3
24.10.0
3
01.12.0
3
03.12.0
3
09.12.0
3
31.12.0
3
260280300320340360380400420440460480500520540560580600620640660680700
RTS Quotation, USD MICEX Quotation, USD RTS Index
7
Corporate governance policiesThe management realizes the need to comply with corporate governance standards in order to increase the company’s capitalization. The company takes into account the interests of minority shareholders and prospective investors in particular, this means:
•Implementation of standards of Corporate
governance Code of FCSM and internal Code of Corporate Conduct
•Simple and transparent procedures for shareholders
•Liquidity support:
- RTS listing
- MICEX listing
- Frankfurt Stock exchange (GDR 1 level)
•Full transparency
-Annual audit by Deloitte&Touche
-Timely disclosure of
- operating and financial results
- major transactions
The provision of equal and timely access to Information-Regular briefings for shareholders and investors-Web – site with section Investor relations (www.aeroflot.ru)-Comprehensive annual report-Presentation and press – conferences-E-mail distribution list-Disclosure on www.skrin.ru; www.adr.db.com
The Board of Directors’ role increase
- election of General Director
- approval of deals exceeding $15 million
- extension of list of deals that need the
approval of Board of Directors
Increase of S&P Corporate Governance Score from 4,6 to 5,2
8
Strategic visionStrategic vision
Our goal is - to be a world-class airline based on the best traditions of Russian civil aviation.
To implement this vision Aeroflot will strive to:
• Strengthen leading position in the national civil aviation industry
• Fly to the most of largest cities of the world through:
- viable network
- cooperating with partner airlines
• Provide quality service, matching or surpassing competition
• Achieve level of operational and financial performance of AEA airlines
• Build a corporate culture based on effective system of employee participation
9
Major directions of activity in 2003
•Network optimization
- Company continued to develop it’s rout network according to started in the year 2000 network optimization program and impact of SARS and Iraq war.The priority was given to the routs with a high profitability.
•Raising of fleet usage effectiveness
- The Company substantially decreased usage of fuel ineffective aircrafts such as: Il 76, Il 86, Il 62
•Foreign made fleet replacement program
- Aeroflot started to realize foreign made fleet replacement program. The program envisages replacement of 27 foreign made aircrafts of the Company on the 27 new foreign made aircrafts. The program is essential for rout network development and operating costs optimization.
10
Efficiency increase in 200Efficiency increase in 20033
11
Network optimisationNetwork optimisation
Europe41%
America10%
Asia19%
Africa&Middle East4%
CIS, Baltic and Russia26%
•Concentration of capacities on high-yield routes
•Providing high yield routes with competitive planes
•Improvement of connectivity
(Network connectivity was increased from 10,% in 2002 to 14% in 2003)
•Closure of loss making / marginally profitable routes
•Because of SARS and Iraq war Aeroflot passenger turnover in Southeast Asia reduced on 7,6% and in Asia on 7,1%.
LH
AABAUA
AF
DL
AY
LO
MA
SQSN
JL
OS
SX
20022005
1999
0
40
80
120
160
0 10 20 30 40 50"Depth" (Average weekly frequency)
"W
idth
" (
Qua
ntit
y of
rou
tes) SU
3,6 6,9 10,4
Network quality
Network structure by revenue
Revenue rate and load factor
65,7 65,8 68,4 69,4
6,65,5 5,9 6,4
0
20
40
60
80
2000 2001 2002 9M 2003 E
Revenue rate per RPK Passenger load factor
12
Changes in Aeroflot passenger traffic in accordance with SARS and Iraq war (Summer 2003)
Russia
Middle East Asia
Africa
Europe
North America
РАХ +18127
РАХ+7311
РАХ-13800
РАХ-150949
РАХ-9800
South America
13
Fleet utilisationFleet utilisation
21,5
13,610,9
0
6,4
50,2
6,7
2,2 1,92,0
23,0
40,0
9,7
38,8
16,0
20,4
34,5
20,5
5,7 3,94,1
26,0
44,3
2,3
39,1
9,9
35,8
17,4
9,8
19,123
1,9
24,2
33,532,6
0
10
20
30
40
50
60
Il96 B767 B737 B777 A310 Il62 Il86 Tu154 Tu134 Il76 DC10 A-319 A-320
thou
sand
FH
2001 2002 2003 E
•In 2003 passenger aircraft flight hours increased on 1,0% beside 2002 and cargo aircrafts flight hours increased on 7,1% beside 2002.•
14
Foreign – made Foreign – made fleet restructuringfleet restructuring
B777-200ER (2)
B767-300ER (4)
A310-300 (11)
B737- 400 (10)
B767-300ER (operating leases)
А320 family (10 operating
leases, 8 finance leases)
1 tуре of LH aircraft (9)
1 tуре of MH aircraft (18)
27 aircraft 27 aircraft
Primary objectives:
•Ensure significant cost savings and increased operational efficiency through higher fleet commonality
•Incorporate high degree of fleet planning and fleet management flexibility
•Achieve high asset liquidity and broad choice of long-term financing sources
15
RussianRussian - made - made and cargo fleet restructuring and cargo fleet restructuring
Il96-300(6)
Il62 (10)
Il86 (14)
Tu154M (20)
Tu134 (15)
Medium-term target - provide further commonality of the whole fleet
Il76(10)
DC10F(2)
1 type of LH aircraft 6 Il96 + 6 on order
1 type of MH aircraft 20 Tu154M
1 type of SH aircraft 11 Tu134M
65 aircraft 52 aircraft
1 type of freighter4 DC10F
16
Operating profit and net profit dynamics Operating profit and net profit dynamics
158,8
40,182,1
7,3-6,2
-59,6
-210,9
89,3
20,18,6
-250
-200
-150
-100
-50
0
50
100
150
200
1998 1999 2000 2001 2002
USD
mln
Operating profit Net profit
107,0 106,7
69,7
89,6
0,0
20,0
40,0
60,0
80,0
100,0
120,0
9M2002 9M2003
Operating profit Net profit
USD mln
*9M2002 and 9M2003 results - non audited data
17
Operating Results 200Operating Results 20033
18
Main operating figuresMain operating figures
Passenger turnover
18939,317644,7
18202,6
14163,713828,3
15107,3
4038,93816,43832,0
02000400060008000
100001200014000160001800020000
2001 2002 2003E
RP
K m
ln
TotalIntern.Domest.
Ton-km turnover
2258,62152,5
2252,7
1805,11737,21822,1
447,6415,3436,5
0
500
1000
1500
2000
2500
2001 2002 2003E
RT
K m
ln
TotalIntern.Domest.
Mail and cargo traffic
87,093,7 95,7
14,7 16,2 18,5
101,7109,9
114,2
0
20
40
60
80
100
120
2001 2002 2003E
thou
sand
ton
s
TotalIntern.Domest.
Passenger traffic
5832,15489,6
5843,5
4129,83886,54206,6
1713,71603,11625,5
0
1000
2000
3000
4000
5000
6000
7000
2001 2002 2003E
PA
X t
hous
and
TotalIntern.Domest.
19
Load factors and fuel consumptionLoad factors and fuel consumption
Passenger load factor
64,2
67,3 67,9
72,7 72,7
74,9
65,8
68,469,4
58
60
62
64
66
68
70
72
74
76
2001 2002 2003E
%
TotalInt.Domestic
Commercial load factor
51,555,4 55,4
63,2 60,764,6
57,056,453,5
0
10
20
30
40
50
60
70
2001 2002 2003
%
TotalInt.Domestic
Specific fuel consumption
567,0
492,0479,0
420
440
460
480
500
520
540
560
580
2001 2002 2003E
gram
m/t
on-k
ilom
eter 1% of passenger load factor increase -
USD16,5 mln of additional revenue
1% of commercial load factor increase - USD27 mln of additional revenue
20
Financial Results 2002Financial Results 2002 andand
9 months 2003 results 9 months 2003 results (not – audited)(not – audited)
21
Profit and loss statementProfit and loss statement
31.12.01 (USD mln)
31.12.02 (USD mln)
9M 2002E (USD mln)
9M 2003E (USD mln)
Revenue 1 558,0 1563,0 1103,7 1176,0
Operating costs 1 517,9 1404,2 996,7 1068,3
Operating profit 40,1 158,8 107,0 106,7
Profit before taxes an minority interest
10,7 132,9 89,2 117,6
Profit after taxes 21,8 91,3 69,7 89,6
Minority interest 1,7 2,0 - -
Net profit 20,1 89,3 69,7 89,6
Net profit per share $0,018 $0,080
22
RevenueRevenuess (I)(I)
Revenue in 2000-2002
1406,9
1558,0 1563,0
1300
1350
1400
1450
1500
1550
1600
2000 2001 2002
USD
mil
lion
Traffic revenue in 9M 2002-9M 2003 Estimated
922,8
980,8
890900910920930940950960970980990
9M 2002 9M 2003
USD
mil
lion
Revenue in 9M 2002 - 9M 2003 Estimated
1103,7
1176,0
1020
1080
1140
1200
9M 2002 9M 2003
USD
mil
lion
Traffic revenue in 2000-2002
1074,0
1221,01244,3
950
1000
1050
1100
1150
1200
1250
1300
2000 2001 2002
USD
mil
lion
1,8%
6,2%
6,5%
23
Revenues (II) Revenues (II)
Passenger revenue in 2000-2002
956,4
1115,7 1120,5
850
900
950
1000
1050
1100
1150
2000 2001 2002
USD
mil
lion
Passenger revenue in 9M 2002-9M 2003 Estimated
854,2
903,6
820
830
840
850
860
870
880
890
900
910
9M 2002 9M 2003
USD
mil
lion
5,8%
0,5%
24
Passenger revenue Passenger revenue breakdown breakdown by region by region
39,341,4
11 10
22,3
19
4,1 3,7
25,723,2
0
5
10
15
20
25
30
35
40
45
2002 2003
Europe
America
Asia
Africa
CIS, Baltic and Russia
%
25
Revenue ratesRevenue ratesRevenue/passenger
205,6194,4
234,6214,9
135,3130,2
0
50
100
150
200
250
2001 2002
Pas
seng
er r
even
ue./t
raffi
c
TotalIntern.Domest.
Passenger yield
6,0
6,6
5,55,7
5,9
6,4
4,85
5,25,45,65,8
66,26,46,66,8
2001 2002
Pas
seng
er r
even
ue/R
PK
TotalIntern.Domest.
Revenue per passenger increased by 5,8% in 2002international routes - by 9,2%domestic routes - by 3,9%
Passenger yield increased by 8,5% in 2002international routes – by 10,0%domestic routes - by 3,6%.
Revenue/passenger
202,3201,8
200
201
202
203
204
205
9M 2002 E 9M 2003E
Pas
snge
r re
venu
e/tr
affic
Passenger yield
6,6
6,3
6
6,5
7
9M 2002E 9M 2003E
Pas
seng
er r
even
ue/R
PK
0,2%4,8%
26
Operating Operating profit/RTKprofit/RTK
68,9 72,667,2 65,2
1,77,4
0
10
20
30
40
50
60
70
80
2001 2002
Revene/RTK Costs/RTK Operating result
68,5 71,2
61,8 64,7
6,7 6,5
0
10
20
30
40
50
60
70
80
9M 2002E 9M 2003E
Revenue / RTK Costs / RTK Operating result
27
Operating costsOperating costs
1218,3Total
54,5Other expenses
5,6Increase in (release of) provision for bad and doubtful accounts
35,9Communication expenses
41,5Third – party passenger services
56,9Operating taxes
83,2Administration and general expenses
99,5Operating lease expenses
110,7Sales and marketing
112,5Maintenance
259,3Aircraft and traffic servicing
358,7Fuel
(USD mln)
% to 200120022001
( USD mln)
274,7
244,8
109,7
103,2
104,2
69,5
30,6
32,5
35,3
6,2
Penalties - 16,4
54,7
1081,8
76,6
94,4
97,5
93,2
104,7
83,5
53,8
78,3
98,3
110,7
-
100,4
88,8
28
Operating costs 9 months 2002 and 2003Operating costs 9 months 2002 and 2003
9M 2002 Estimated(USD million)
9M 2003 Estimated(USD million)
% to 9 months 2002
Fuel (193,9) (225,6) 116,3
Aircraft and traffic servicing (175,8) (191,1) 108,7
Operating lease expenses (71,4) (92,8) 129,9
Depreciation (84,7) (65,1) 76,9
Maintenance (86,5) (103,1) 119,2
Operating taxes (19,1) (11,1) 58,1
Long-term investments reserve changes 0,7
Doubtful receivables reserve (1,8) 0,3
Sales and Marketing (84,7) (82,1) 96,9
Staff costs (138,1) (148,7) 107,7
Communication expenses (27,2) (30,1) 110,7
Passengers servicing (51,1) (53,4) 104,5
Insurance (21,1) (22,1) 104,7
Administration and general expenses (42,0) (44,3) 105,5
Total 996,7 1069,3 107,3
29
Operating costs structureOperating costs structure
100 Total
4,5Other expenses
0,5Increase in (release of) provision for bad and doubtful accounts
2,9Communication expenses
3,4Third – party passenger services
4,7Operating taxes
6,8Administration and general expenses
8,2Operating lease expenses
9,1Sales and marketing
9,2Maintenance
21,3Aircraft and traffic servicing
29,4Fuel
20022001
25,422,6
Penalties
10,2 9,5 9,6 6,4 2,8
3,03,3
0,6
- 1,55,1
100
30
Operating costs 9 months 2002 and 2003 Operating costs 9 months 2002 and 2003 structurestructure
9M 2002 Estimated(USD million)
9M 2003 Estimated(USD million)
Fuel 19,5 21,1
Aircraft and traffic servicing 17,6 17,9
Operating lease expenses 7,2 8,7
Depreciation 8,5 6,1
Maintenance 8,7 9,6
Operating taxes 1,9 1,0
Doubtful receivables reserve 0,2 -
Sales and Marketing 8,5 7,7
Staff costs 13,8 13,9
Communication expenses 2,7 2,8
Passengers servicing 5,1 5
Insurance 2,1 2,1
Administration and general expenses 4,2 4,1
Total 100 100
31
Operating costs / RTKOperating costs / RTK
Operating costs
1324,0
1517,0
1404,2
1200
1250
1300
1350
1400
1450
1500
1550
2000 2001 2002
USD
mln
Production cost of 1 tkm
59,1
67,2
65,2
54
56
58
60
62
64
66
68
2000 2001 2002
USc
-7,4%
-3,0%
Operating costs 9 months 2002 and 2003
996,7
1069,3
900
1000
1100
9M 2002 Estimated 9M 2003 Estimated
Production cost of 1 tkm
61,8
64,7
60
61
62
63
64
65
9M 2002E 9M 2003E
7,3%
4,7%
32
Balance sheetsBalance sheets 31.12.01
(USD mln)31.12.02
(USD mln)Change to 2001
Current assets 292,6 320,4 27,8
Long – term assets 819,6 565,0 -254,6
Total assets 1 112,2 885,4 -226,8
Short – term liabilities 562,6 461,9 -100,7
Long – term liabilities 464,3 250,8 -213,5
Minority interest 7,6 7,9 0,3
Shareholders’ equity 77,7 164,8 87,1
Total liabilities andShareholders equity
1 112,2 885,4 -226,8
33
Balance sheets (Balance sheets (as for September 30, 2003)as for September 30, 2003)
30.09.02(USD,000)
30.09.03(USD,000)
Current assets 264 993 322 276
Long – term assets 690 383 391 400
Total assets 1 070,2 886,8
Short – term liabilities 443,0 398,4
Long – term liabilities 447,1 214,3
Shareholders’ equity 180,1 274,1
Total liabilities andShareholders equity
1 070,2 886,8
34
DEBTDEBT
Debt/EBITDAR
4,10
5,044,67
2,56
4,93
0
1
2
3
4
5
6
1998 1999 2000 2001 2002
Debt composition
82 773 3 3
441 435 391339
113
602 602707 700 729
65469
110131
0
100
200
300
400
500
600
700
800
1998 1999 2000 2001 2002
ST debt LT debt LT leases Off BS debt
35
Financial Financial forecastsforecasts
Op
erat
ing
inco
me
in 2
002
113
111
70142
142
31 1815
32242
Rev
enue
fro
m
incr
ease
d vo
lum
e
Incr
ease
d yi
eld
Cos
ts f
or in
crea
sed
volu
me
Cos
t gro
wth
due
to
incr
ease
d pr
ices
Fue
l cos
t sav
ings
Fli
ght c
ost s
avin
gs
Mai
nten
ance
cos
t sa
ving
s
Lea
se c
ost s
avin
gs
Op
erat
ing
inco
me
in 2
005
Aeroflot’s activities in the area of business optimization allow the company to increase its
operating income on more then USD 200 million in 2005
36
Long-term strategic focusLong-term strategic focus
• To increase market share on profitable routs
• Further improvement of operating and financial results
• To increase quality of services
• Batter brand recognition
• Leading role in Russian airline industry consolidation
• Building strategy-focused organisation
• To join one of the one of the world alliance membership
• Strategic projects:
– New terminal
– Group restructuring
37
Contacts:
www.aeroflot.ru
Tel: (7095) 258 06 86