On September 3, UTair released its FY 2007 financial results audited to IFRS. In the reporting period, the company's revenue grew by 45.7% y-o-y to USD 910 million. The FY 2007 operating profit rose by 24.3% y-o-y to USD 44.8 million. Net profit dropped 6.1% y-o-y to USD 21.6 million.
Table 1. UTair: IFRS Financials FY 2007
| | | 2007 | Finam forecast | 2006 | Divergence from forecast | Change |
|---|
| Revenue | USD mn | 910.0 | 905.9 | 624.7 | 0.5% | 45.7% |
| Total opex | USD mn | 865.1 | 844 | 588.7 | 2.5% | 47.0% |
| Operating profit | USD mn | 44.8 | 61.9 | 36.1 | -27.6% | 24.3% |
| Operating profit margin | % | 4.9% | 6.8% | 5.8% | | - 0.9 p.p. |
| EBITDA | USD mn | 95.3 | 113.71 | 71.1 | -16.2% | 34.0% |
| EBITDA margin | % | 10.5% | 12.6% | 11.4% | | - 0.9 p.p. |
| Profit before tax | USD mn | 16.0 | 32.2 | 26.4 | -50.2% | -39.5% |
| Profit before tax margin | % | 1.76% | 3.55% | 4.23% | | - 2.47 p.p. |
| Net profit | USD mn | 21.6 | 27.97 | 23.0 | -22.6% | -6.1% |
| Net profit margin | % | 2.38% | 3.09% | 3.69% | | -1.31 p.p. |
Source: company data, Finam forecasts and estimates
UTair's FY 2007 report was slightly below our projections. The company's revenue exceeds our forecasts by 0.5%; however, due to a rise in operating expenses, all profit indicators were 16-50% below expectations. This was primarily caused by low margin indicators: as a result, even a slight growth in expenses led to a serious downturn in profit.
In FY 2007, UTair net profit went up by 48.3%, mainly thanks to the company's domestic flight operations: this segment grew by 59.1%. The domestic helicopter services segment also showed a considerable upturn of 49.5%. At the same time, the company's income from rendering helicopter services outside Russia demonstrated a more moderate increase of 24.7%. Company revenues from charter flights advanced by 58.3%. In our opinion, the growth in the company's revenue was backed by its domestic flight development strategy.
UTair operating expenses grew faster than revenue: in 2007, the company's opex advanced by 47% y-o-y. The share of fuel expenses in the total opex structure amounted to 46.8%. However, an upturn in jet fuel prices did not have a negative impact on the company's FY 2007 financials: UTair expenses for jet fuel, petroleum and lubricants increased by 33.7% y-o-y. Labor expenses grew at a much higher pace, up 45.6%, as well as expenses for airport services, up 46.5%.
The company's net profit was higher than its profit before tax as earlier unrecognized deferred tax assets had to be taken into account.
We believe that a 50% rise in fuel prices in 2008, as compared with 2007, may impair the company's profit margins, as the company is unlikely to be able to simultaneously pass its higher fuel costs to customers because of advance ticket sales. Furthermore, the airline operates an inefficient aircraft fleet in terms of jet fuel consumption. The FAS is current working out a package of measures to stem a further rise in jet fuel prices, but we do not expect an immediate effect from these measures. The monopoly position of refueling services in airports will not contribute to lowering the prices. However, the airline's monopoly on a number of domestic routes may have a certain positive effect on the carrier's profit margins. In view of all this, we do not recommend buying UTAir shares. Our target price for the shares is now under review.
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