CONFERENCE CALL ON CONSOLIDATED RESULTS OF UAC GROUP FOR (edited and supplemented)

Transcription

1 CONFERENCE CALL ON CONSOLIDATED RESULTS OF UAC GROUP FOR 2014 Representatives of JSC UAC: (edited and supplemented) Oleg Simonov - Head of Corporate Finance and Investor Relations Department Natalia Korotash Head of IFRS Department Andrey El Sayd Corporate Economics Director Denis Sakharov Head of IR Denis Sakharov: Dear colleagues! We are glad to welcome you at our conference call. Please note that the conference call presentation materials are available on the website in section Investors and shareholders, subsection Presentations. Please pay attention to disclaimer on today s statements. The terms of liability limitations are presented on the second slide of the presentation. Today the speakers are: Head of Corporate Finance and Investor Relations Department, Oleg Simonov, and Head of IFRS Department Natalia Korotash. Oleg Simonov will be the first. Oleg Simonov: Colleagues, I m welcoming everyone, who is on air with us! Today our call is devoted to 2014 year, to the main results. In general the year was positive for us. We finally accepted strategy: the strategy was approved by the Board of Directors on October 23. The long term development program of UAC up to 2025 is also approved by the Government of the Russian Federation. The present program includes a system of key performance indicators. In fact, it is intended to implementation of our long-term strategy. Restructuring in the form of acquisition of JSC KAPO by JSC Tupolev should be pointed out as one of the most significant changes in the corporate structure. Now we have one big company JSC Tupolev. It should be mentioned, that the authority of sole executive body of repair plants was delegated to UAC. We are going to integrate 15 aircraft repair plants into the Corporation during Besides, VEB acquired a share in the capital of Company Sukhoi and expanded its share up to 30% of the authorized capital. As for transport aviation direction, it was decided to delegate the function of sole executive body of JSC Myasishchev Design Bureau to JSC Il. A new direction, new business unit of transport aviation will be created on the basis of JSC Il. And now briefly about the Corporation s consolidated results in We keep increasing the number of delivered aircraft: now the figure is 159 in comparison with 111 aircraft in We also increased the revenue to about 300 RUB bln: it was 294 RUB bln. The gross profit margin slightly decreased, but EBITDA margin rose. Total EBITDA amounts to 24 RUB bln. Unfortunately, we didn t get the net income break even the loss is 13 RUB bln. The operating activities can be characterized by sustainable delivery growth: 21% - average annual rate of growth in Correspondingly, we provided decrease in costs per unit of revenue due to aircraft production and sales growth. My colleague Natalia Korotash will give you more detailed information on our deliveries and financial results. 1

2 Natalia Korotash: Hello, dear colleagues! As of year-end 2014, the Corporation managed to increase its production run and delivery growth by 43% in comparison with the previous period. It helped us to ensure increase in revenue by 34%. Beginning from 2013 the domestic market accounts for the main share of military equipment deliveries. It s the matter of top priority to renew the aircraft fleet of the Armed Forces of the Russian Federation. Thus, during 2014 there was a group delivery of 102 aircraft to the Ministry of Defence of the Russian Federation: the Su-30, the Su-34, the Su-35S, the MiG, the Yak aircraft were exported. Regarding civil aviation, 27 Sukhoi Superjet 100s and 6 An-148s were delivered to governmental customers in accordance with the product strategy of civil aircraft production and sales growth. I would like to mention, that 9 Sukhoi Superjets were exported. As I ve already mentioned, the revenue growth by 34% in 2014 is mainly connected with the increase of revenue earned on modernization and overhaul services for the Ministry of Defence of the Russian Federation, which is conducted mainly at the aircraft repair plants having been placed into trust to the Group, as well as from sales of aircraft components and aircraft inventory for 17 bln and from R&D development for 10 bln. Gross margin fluctuations are mainly connected with the change in revenue structure. As I ve already mentioned, there was an increase in domestic supplies for the governmental customers during Production, manufacturing and sales growth during 2014 provided a gradual EBITDA improvement and continues to do so. I would like to emphasize that it was at the level of world analogues in But despite the positive dynamics, the Group unfortunately didn t manage to get the net profit area. It is mainly connected with high level of amortization as a result of implementation of investment programs for modernization and technical re-equipment, as well as with percentage allocation within credit portfolio operations. It means interest expenses were about 23 RUB bln in 2014, while net interest expenses increased by about 3 bln. It was also connected with adverse exchange differences. It is applicable not only for us, as I see. I would like to mention, that in 2014 the gross profit increased by 10% or 4.4 RUB bln. Reducing business expenses also took positive effect to the final financial results, mainly due to reducing fees to our third party suppliers and, as I ve already mentioned, due to domestic sales growth of the Group. It was also associated with other operational expenses growth, their total balance, which resulted from writedowns, change in provisions for doubtful accounts receivable, impairment of reserves and other assets. It means the change in comparison with the last period was about 5.4 RUB bln. It was also connected with increase in loss from the associated company, which is also consolidated in the financial reporting. Now I m giving the floor to Oleg Simonov, who will continue the theme of financial results, debt burden, investment programs and other financials. Thank you for your kind attention! Oleg Simonov: Of course, our overall debt burden in absolute figures rose. The Corporation has a great need in debt capital. It s mainly connected with a quite capital intensive investment program. I mean investments for MS-21 advanced project, investments associated with re-equipment of our military enterprises, with launch and reaching the design capacity production of transport aviation projects (first of all, 476 model). However, the loan debt, I mean relative indicators like Net debt/ebitda and Net debt/revenue, is getting better in comparison with 2013 figures. I'd like to make a pointed reference to the fact, that credits make 80% of total debt structure. These are credits for operational activities, which are connected with execution of aircraft delivery contracts. It would be more logical to estimate the debt load by net debt/revenue indices. This year it was 0.89 in comparison with last year s Besides, government defence orders are playing greater and greater role in the delivery structure. Fulfillment of the orders put some limitations to our free cash flow management. It often leads to loan portfolios and account balance, that s why we use not the absolute value of the loan portfolio, but the net debt as a debt loan index. As for the cash flow indices for 2014, as I ve already said, the Corporation is facing shortage of funds, it s mainly connected with investments. Our cash flow for operational activities is also negative. It s connected with aircraft production growth, active delivery expansion and necessity to increase the working capital, but prepayments are not always enough. Our 3-year investment program will account for 250 RUB bln. In fact, civil aviation is a half 2

3 of that program, including MS-21. One third of those investments refer to military aviation. Traditionally the source of investments is government support within the on-going programs the Federal Target Program "Development of the military-industrial complex of the Russian Federation and the State development program of aviation industry until One fifth of the projects refer to the Corporation s investment projects they are financed at its own expense. As on the beginning of 2015, there are 555 firm orders, 261 of them are in military aviation and 221 in civil aviation. It s mainly our core projects Superjet and MS-21. In comparison with competitors the ratio between the order portfolio and the revenue in 2014 was It s quite a good index; it determines the number of years, during which the orders and our contractual revenue are provided for. The index is higher than Bombardier s and Embraer s ones and comparable to that of the Boeing. That s all about finances, let s get to you questions. Operator: Dear Sirs and Madams! We are ready to start our question-answer session. If you want to ask a question, please press 01 on your phone. Thank you for your attention! So we ve got a question form Dmitry Markov, LMS. Go ahead! Dmitry Markov (IC LMS): Hello! Dmitry Markov, Investment Company LMS. I d like to ask two questions. The first one financial results forecast for 2015: revenue, EBITDA and profit. The second one aircraft production plan for 2015 by aviation types, I mean civil, military and transport aviation. Thank you! Oleg Simonov: We ll give you some brief information on the plans. Corporate Economics Director Andrey El Sayd will answer your question. You are welcome! Andrey El Sayd: Good afternoon! We have 170 aircraft for delivery in 2015: we are going to keep the same number of aircraft in military aviation, about 126; to keep the civil aviation at the same level and to increase the delivery set in transport aviation it s connected mainly with Il-76. The index in special-purpose aviation will be slightly higher than that of the last year. Correspondingly, the revenue will rise by not less than 25%. However, we suppose that we will not be able get the net profit area. But if to be honest, everything depends on the exchange rate. Without reference to the difference in rate we are likely to get positive results. Dmitry Markov (IC LMC): Thank you for your answer! Oleg Simonov: Thank you, Dmitry! Operator: We ve got a question from Adrey Rozhkov, Metropol. You can start please! Adrey Rozhkov (IFC Metropol): Dear Sirs and Madams, thank you for your presentation, for the results! My question refers to financial support, I mean the capital contribution, which was approved by the President. As I understand, the issue is already under way. So the question is about 100 RUB bln, which will arrive to the authorized capital. Will it be an additional emission or any other way of financial support? Oleg Simonov: Yes, Andrey, thank you for the question. Sure, 100 RUB bln will be a contribution to the UAC authorized capital. The decision was made at the meeting with the President of the Russian Federation on March 26, but it will be a contribution in the form of federal loan bonds. 3

4 Adrey Rozhkov (IFC Metropol): So, is UAC going to issue shares? Oleg Simonov: Yes, sure! UAC will issue. UAC will open an additional issue. Conference call, April 16, 2015 Adrey Rozhkov (IFC Metropol): And the price will most likely be determined depending on the nominal value of shares or will it be the price to be discussed by the Board of Directors? Did you make any decision? Oleg Simonov: Not yet. The mechanism is under consideration by the federal authorities, that s why I cannot give you any comments at the moment. Adrey Rozhkov (IFC Metropol): Regarding the purpose. Will it be for investment projects, repayment of debts or maybe restructuring? Oleg Simonov: Restructurisation of SCAC debt Adrey Rozhkov (IFC Metropol): the whole sum of 100 bln? Oleg Simonov: Yes. Adrey Rozhkov (IFC Metropol): I see. Thank you, I have no more questions. Oleg Simonov: Thank you! Operator: We ve got a question from Oleg Dushin, VTB24. You can start please! Oleg Dushin (VTB24): Thank you! Oleg Simonov: Good afternoon! Oleg Dushin (VTB24): Following up Mr. Rozhkov s question I would like to ask about the additional share issue. Do you consider the variant that the free-float of UAC shares can become lower than 5% and can make a negative effect in the market? Oleg Simonov: Certainly, it s true, but at the moment the priority issue is to stabilize SCAC financial situation. That was the main reason to this decision and that s why the question of further development of civil aviation had been raised at the level of the President of the Russian Federation. The main purpose is to stabilize the main sector of civil aviation, because the civil aviation is to be our main asset, the main revenue source, our income. It s a kind of significant driver for the Company growth. Oleg Dushin (VTB24): I have such a specific question about the expected results of You have mentioned the exchange rates, but according to RAS reporting for 2014 you had positive indices regarding exchange rates for Where did you get it or I m mistaken? 4

5 Oleg Simonov: First of all, it refers only to JSC UAC, the company itself, that s why it s not a consolidated index. As for JSC UAC, yes, we have foreign exchange holdings and the revaluation gave us a foreign exchange gain. Oleg Dushin (VTB24): Could you please tell me which assets you are talking about? Oleg Simonov: Funds for financing our intergovernmental projects. Oleg Dushin (VTB24): And one more question, but rather a political one. You cooperate with China on the issue of new aircraft production. There is a statement that it will have an American engine. Did you and the country make any steps to manufacture the engines, which comply with the international flight regulations? Oleg Simonov: We are not ready to comment on this question. I know we work with our Chinese colleagues; the form of cooperation is under discussion, as well as the format of cooperation and the strategy itself. I think it s too early to talk about the engines. Oleg Dushin (VTB24): Thank you very much! Oleg Simonov: Thank you! Operator: Dear Sirs and Madams! May we remind that if you want to ask a question, please press 01 on your phone. Thank you for your attention! We ve got a question from Anastasia Mikharskaya, VTB Capital. You can start please! Anastasia Mikharskaya (VTB Capital): Good afternoon! Thank you very much for the presentation! I d like to get back to the exchange rates and to ask, why negative exchange differences appear. Most contracts, as I understand, are rouble-denominated. So, is it connected with the production cost, with any foreign components? Thank you! Oleg Simonov: No, not only with that. It appears due to revaluation of exchange commitments. The exchange commitments mean a forced necessity to obtain foreign currency loans, as a rule caused by execution of export contracts or civil aviation contracts, which are traditionally denominated in dollars. As the terms of delivery and aircraft production present a long cycle, something about 2 years, when quarterly revaluating our passives, exchange commitments, we have to fix the negative effect with increase in the rate. Correspondingly, at the end of the year all these data are recorded in the report and sizably affect the financial results. Anastasia Mikharskaya (VTB Capital): Thank you! But, as I understand, there is also income from these contracts and it s in foreign currency. Oleg Simonov: Certainly! But taking into account the long production cycle, we have to obtain credits today, so that to manufacture the aircraft intended for delivery in 2 years. The revenue will have been obtained 2 years later and only after that the credits can be withdrawn. So such an effect takes place in case of intensive growth of deliveries and working capital. 5

6 Anastasia Mikharskaya (VTB Capital): Thank you! Could you please name the part of foreign currency loans at the year-end and the part of foreign currency revenues? Oleg Simonov: If I m not mistaken, one fourth of the loan portfolio. As a rule, the volume of foreign currency loans is approximately equal to the volume of foreign currency revenue. Thus, we try to level these exchange risks. It s something about 25%. Anastasia Mikharskaya (VTB Capital): It s the same with the foreign currency revenue, isn t it? Oleg Simonov: Yes, as I ve said, the same, because our loan portfolios and the revenue have little difference. Anastasia Mikharskaya (VTB Capital): Thank you very much! I have no more questions. Operator: Dear Sirs and Madams! May we remind that if you want to ask a question, please press 01 on your phone. Thank you for your attention! As there are no more questions, dear speakers, I m giving you the floor to sum up the results. Oleg Simonov: As we have no more questions, thank you very much for your attention and taking part in our conference call. Have a good day! Operator: Dear Sirs and Madams, our conference call is over. Thank you for your attention, goodbye! 6