finnair q2 2017 result/media/files/f/finnair-ir/...• staff costs increase is driven by finnair...
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FINNAIR
Q2 2017
RESULT
20 JULY 2017
PEKKA VAURAMO,
CEO
PEKKA VÄHÄHYYPPÄ,
CFO
All-time best Q2 result
• We moved into accelerated growth;
A350 fleet has now 10 aircraft
• Quarterly record in the number of passengers;
strong growth in load factor
• New destinations and frequencies performed well
• Solid growth in ancillary revenue;
Alipay on all Chinese routes boosts ancillary sales
• Finnair Cargo grows
• NPS rose to 48 (Q1: 46)
• Finnair rated again as the best Northern European
airline in the Skytrax review
2
• Finnair named as the best European airline in the TTG China Travel Awards
• Finnair Kitchen: catering reclaimed by Finnair
• We expect our full-year comparable operating result to broadly double
Eleventh result improvement in a row
• Strong revenue growth in all businesses:
passenger traffic, ancillary and retail
sales, cargo and travel services.
• Number of passengers grew 10.5%;
we flew with fuller planes as load factor
improved by 6.3%
• Ancillary and retail sales per passenger
grew by 8.2% and was 11.8 euros/pax
• Q2 comparable operating result 37.5 M€
-11th consecutive y-o-y improvement (3.2
M€ Q2/16)
3
Comparable operating result,
rolling 12 months by quarter
0
20
40
60
80
-20
-40
100
37
24
FY
15
Q3
15
6155
Q3
16
FY
16
5453
Q1
17
Q2
16
Q1
16
Q2
17
-36
96
Q1
15
-24
Q2
15
14
-31
FY
14
Comparable revenue*
Comparable operating result
grew over tenfold y-o-y
Capacity and traffic
4
Q2: Growth brings results
Comparable operating result
+12%
565
Q2 2017
633
Q2 2016
Passenger revenue +11.1%
Ancillary and retail revenue +19.6%
Travel services +12.9%
Cargo +16.1%
3
Q2 2017
1,091%
Q2 2016
38
3,0
1,0
2,5
2,0
3,5
1,5
6.000
4.000
0,52.000
0,0
10.000
8.000
0
7%
6.591
Q2 2017
9.0958.513
7.616
Q2 2016
Capcity (ASK) + 6.8%
Passengers +10.5%
Traffic (RPK) +15.5%
Pax, mill.ASK, mill.
PLF
77.4%PLF
83.7%
* Excluding SMT
Revenue, M€
• Asia +20.6%
• North Atlantic +4.3%
• Europe +14.8%
• Domestic +1.4%*
Passenger load factor, %
5
Q2: Asia and Europe driving growth
• Asia +9.8% -p
• North Atlantic +6.4% -p
• Europe +2.9% -p
• Domestic -0.9% -p*
• Total +6.3% -p
Capacity (ASK), mill. km
• Asia +6.1%
• North Atlantic -3.7%
• Europe 10.5%
• Domestic +0.6%*
300
250
100
200
0
50
150
Domestic
41
Europe
288
4233
Asia
213
251
34
North
Atlantic
256
Q2 2017Q2 2016
4.0704.317
672
Asia
647
Domestic
359357
3.772
North
Atlantic
Europe
3.414
77
67
797976
84
66
828586
North
Atlantic
Asia Europe TotalDomestic
* Domestic flying restricted by runway renewal at Oulu
We develop our customer experience
• Outstanding customer satisfaction in Q2:
Net Promoter Score 48
• New leisure product: Finnair Holidays enables
easy and fast to tailor your dream holiday
• Wi-Fi now on board of the entire long-haul fleet,
installations to narrow body fleet will begin later
this year.
• The mobile application and Finnair.com growing
in popularity and increasing sales;
• Ticket sales in Finnair's digital channels grew
by 16% and ancillary and retail sales were up
23% from the comparison period.
8Mobile app and Finnair.com users in June 2017
New records in
digital channels:
Mobile app had
160,000 active users*,
(+ 79%)
Finnair.com 2.5 million
visitors / month*
(+31%)
Strategy 2018−2020
The growth plan and the four previous
focus areas were reviewed and
confirmed:
• Growth
• Customer experience
• People experience
• Transformation
• Doubling of Asian traffic in 2018
versus 2010
• Doubling of ancillary revenues in 2020
versus 2016
• New target for the number of
passengers, 20 million in 2030
7
Financial targets unchanged:
• EBIT margin 6% over cycle
• EBITDAR margin minimum of
17% over cycle
• Adjusted gearing maximum of
175%
• Return on capital employed
(ROCE) minimum of 7%
Outlook for 2017
The demand outlook for passenger and cargo traffic in
Finnair’s main markets continues to involve uncertainty.
Finnair reiterates its previous estimate that, in 2017, due to
the fleet renewal and introduction of new aircraft, its
capacity will grow 8–10 per cent, weighted strongly
towards the second half of 2017. Full-year revenue is
expected to grow approximately in line with capacity.
At current fuel prices and exchange rates, Finnair expects
its comparable operating result for 2017 to broadly double
year-on-year (2016: 55 million euro)
8
9
Finance
Q2 was 11th quarter of year-on-year profitability improvement in a row
• Capacity grew by 6.8%: More frequencies to Asian traffic (Tokyo, Hong Kong and Fukuoka) in addition to 3 new
A350’s replacing smaller aircraft. Europe increase reflecting seasonal summer route openings and four new A321
narrow-body aircraft. Own fleet capacity increased ca. +7%, whereas wet-leased decreased substantially.
• Strong growth especially in passenger revenue, with strong load factor development despite significant capacity
increase.
• Increased capacity and positive market drove increase in Cargo revenue. Decrease in Travel agency revenue is
explained by sale of SMT in 2016.
• Staff costs increase is driven by Finnair Kitchen integration and new recruitments. LSG costs were previously
booked solely in catering costs, Finnair Kitchen costs are now split between staff, catering and other expenses in
the P&L.
• Fuel costs decrease due to lower hedge-weighted price than in comparison period and increased fuel efficiency.
• Maintenance costs increase is driven by fleet growth in line with the maintenance program.
• Lease costs increased due to more leased A350 and A320 series aircraft.
• Depreciations increased due to fleet renewal from A340 to A350.
EBIT
Q2
37.5
Depreciation
-8.3
Fuel
-4.2-12.1
+34.3
Other
(NET)
11.9
LeasesStaff
Travel agency -4.4
Revenue
-13.9
63.8
-2.9
Maintenance
Travel services 4.4
Passenger 50.9
Cargo 6.9
EBIT
Q2 PY
Ancillary & retail 5.9
3.2
28,251
PY CY
+2.7%
29,001
PY
8,513
CY
9,095
+6.8%
PY
3,070
2,779
+10.5%
CY
RASK
166
EUR /
PAX
165
EUR /
PAX
PY
+0.6%
CY
+6.3pp
CY
83.7
PY
77.4
10.9
EUR /
PAX
PY CY
+8.2%
11.8
EUR /
PAX
6.96
6.69
PY
+4.1%
CY
38.0
KG
+6.0%
CY
40.3
KG
PYCY
+9.6%
1.12
EUR /
KG
1.23
EUR /
KG
PY
FLIGHTS ASK, mill
PAX, 1000 Avg. fare2 PLF, %
Ancillary REV Cargo, mill Cargo yield
2) Avg. fare = Passenger revenue per revenue passengers
Q2 2017 Passenger revenue vs. Q2 2016 Q2 2017 Other revenue items vs.
Q2 2016, excluding SMT
11
Revenue grew on the back of improved load factors and solid performance in Asian and European traffic
Total ASK (%) PLF (pp) Yield1 (%)
Δ to PY 6.8% 6.3 -3.8%
Q2 83.7%
Q2 PY 77.4%
Δ to PY FEA ATA EUR DOM
ASK (%) 6.1% -3.7% 10.5% 0.6%
PLF (pp) 9.8 6.4 2.9 -0.9
Yield1 (%) 1.5% -0.0% -1.0% 2.3%
RASK (%) 14.5% 8.1% 2.5% 1.0%
Q2Yield,
mix,
other
-11.3
509.2
FXQ2 PY
-0.3
ASK
31.1
31.5
458.3
PLF
(load)
+50.9
Q2
-15.3
Europe Unallo-
cated
27.1
1.2
Atlantic
+50.9
Domestic
458.3
509.2
0.6
37.3
AsiaQ2 PY
36.2
38.5
Travel
services
124.1
Q2
+17.2
49.4
5.9
Q2 PY
34.1
42.6
106.9
Ancillary
30.3
4.4
6.9
Cargo
Travel servicesCargoAncillary
1 Revenue per RPK
Balace Sheet: New A350 investments increased assets
12
857.0
80.7
30 Jun 2017 30 Jun 2016
Liab HFS
7.0
2,517.6
514.2
438.2
31 Dec 2016
2,528.7
580.4
744.9
348.5
732.6
25.2
717.7
30 Jun 2016
Cash
979.7
Other curr
assets
517.5
2,517.6 Other
liabilities
538.5109.2
386.3
881.6
100.3
Derivatives 65.1
1,040.2
Derivatives 22.3
2,753.5
31 Dec 2016
Unflown
tickets
518.0
Interest-
bearing debt
775.0
30 Jun 2017
Fleet
1,203.1
176.6
1,048.7
2,753.5
366.8
Assets HFS
30.8
139.3
Equity
856.7
2,528.7
797.3
Composition of adjusted net debt
0
-1.000
-1.200
-600
-1.800
-200
-1.600
-800
-400
-1.400
Adjusted
net debt
-635
7x aircraft
leases +
currency
hedges Cash
-833980
Adjusted
interest-
bearing
liabilities
-781
Strong cash flow from operating activities with improved profitability and sales growth – liquid funds grew to almost €1 billion
13
979.7
534.5
Liquid funds+182.4 M€
31 Dec 2016
328.1797.3
378.4
30 June 2017
651.6
60.0117.1
418.9
318.4
Cash in cash flow
Commercial paper, deposits and funds < 3 months
Cash and bank deposits
Commercial paper, deposits and funds > 3 months
Investing+8.6M€
Oth
er
94.7
199.3
Dis
posa
ls
651.6
Div
idend p
aid
Loan p
aym
ents
-12.8
155.6
Q1-Q
2 2
017
Inve
stm
ents
-241.7
-107.9
Oth
er
-38.4
Work
ing c
apita
l
85.8
EB
ITD
A
Change in cash flows+273.2 M€
Operating+186.1M€
Financing+78.6 M€
Cash
Q2
Loan p
roce
eds
378.4 138.6
Cash
2016
Change in cash flows+0.9 M€
119.5-12.0
Operating+162.2M€
Q2 2
017
Cash
Q1
651.6
650.8
Cash
Q2
-37.6
-199.7
Investing-136.5M€
-12.8155.2
-92.0
0.0
Financing-24.8 M€
80.3
New aircraft deliveries
• Capacity growth to accelerate in Q3 with new aircraft
deliveries:
• 10th A350 delivered in June, one more to be
delivered during 2017
• Four A321 aircraft delivered in H1, three more to
be delivered during 2017
• Aircraft returns: the last remaining A340 aircraft to
be sold back and returned to Airbus during 2017
Net investment commitments 442 M€ 2017-2019
0
50
100
150
200
250
300
350
Q3-Q4
2017
2018 2019 2020 2021 2022 2023
A350+ spare engine + other commitments Planned Investments
Net investments (divestments) SLB + other divestments
14
Capacity growth picked up in Q2 with new aircraft deliveries, growth to accelerate in Q3
*2017 new deliveries in total: 4 * A350s and 7 * A321s
Income statement
in mill. EUR Q2
2017
Q2
2016
Change
%
H1
2017
H1
2016
Change
%
2016
Revenue 633.4 569.6 11.2 1,187.7 1,106.0 7.4 2,316.8
Other operating income 18.8 17.9 5.1 39.0 40.0 -2.4 75.5
Operating expenses
Staff costs -106.9 -93.0 14.9 -197.4 -184.8 6.8 -362.5
Fuel costs -114.4 -126.4 -9.4 -226.0 -247.9 -8.9 -491.5
Other rents -38.7 -37.2 4.0 -83.0 -79.2 4.8 -167.4
Aircraft materials and overhaul -49.7 -37.6 32.1 -85.3 -74.2 14.9 -147.3
Traffic charges -68.5 -66.4 3.2 -126.7 -127.4 -0.6 -262.8
Ground handling and catering
expenses -59.8 -62.3 -3.9 -126.7 -127.4 -0.5 -258.9
Expenses for tour operations -17.9 -15.6 14.7 -46.4 -42.4 9.5 -87.8
Sales and marketing expenses -21.9 -20.1 9.0 -39.4 -38.2 3.2 -76.9
Other expenses -71.3 -72.8 -2.1 -142.5 -131.6 8.2 -266.6
Comparable EBITDAR 103.2 56.3 83.3 153.3 92.7 65.4 270.4
Lease payments for aircraft -35.2 -26.9 31.0 -65.3 -55.7 17.2 -109.5
Depreciation and impairment -30.4 -26.2 15.9 -59.5 -49.1 21.1 -105.8
Comparable operating result 37.5 3.2 > 200 % 28.5 -12.2 > 200 % 55.216
Revenue Comparable operating result
17
Revenue and comparable operating result development
0
600550
650
150
50
350
250
400
200
100
500
300
450
Q4
544
Q2
570622
570633
521554536
Q3
568641
Q1
2016 20172015
10
40
50
-20
20
0
70
30
60
-10
-30
21
6664
Q4Q3
-9
Q2
-13
3
-15
Q1
-28
38
20162015 2017
• Q2/16 hedging loss 33 M€
• Q2/17 hedging loss 1.7 M€
18
Fuel costs decreased despite spot price increaseImproved fuel efficiency with fleet renewal and aircraft up gauging
126115
5
-31
122
0
20
40
60
80
100
120
140
160
2016Q2 Volume Price Currency Hedging
deviation
2017Q2
mEUR
% share of operating costs (1,198 Mill. € in H1) Fuel hedges as at 30 June 2017
19
Fuel the single largest cost item in H1
18,9 %
17,5 %
16,5 %11,9 %
10,6 %
10,6 %
6,9 %3,9 %
3,3 %Fuel
Leasing, maintenance,depreciation & impairment
Staff
Other costs
Groundhandling & catering
Traffic charges
Other rents
Tour operations
Sales & marketing
Hedging, currencies and sensitivities
Fuel sensitivities 10% change Hedging ratio
(rolling 12 months from date
of financial statements)
without
hedgingwith hedging H2/2017 H1/2018
FuelEUR 42
million
EUR 20
million76 % 61 %
Currency distribution Q2 H1 Currency sensitivities Hedging ratio for
operational cash
flows % 2017 2017 2016 USD and JPY
(rolling 12 months from date of financial
statements for operational cash flows)
(rolling 12 months from
date of financial
statements)
Sales currencies10% change without
hedging
10% change with
hedging
EUR 54 58 56 - -
USD* 4 4 4 see below see below see below
JPY 10 8 9 EUR 19 mill. EUR 9 mill. 67 %
CNY 7 6 7 - -
KRW 4 3 3 - -
SEK 4 5 5 - -
Other 17 16 16 - -
Purchase currencies
EUR 57 57 54 - -
USD* 36 36 38 EUR 51 mill. EUR 16 mill. 71 %
Other 7 7 8
20
* Hedging ratio for USD basket. The sensitivity analysis assumes that the Chinese yuan and the Hong Kong dollar continue to correlate strongly with the US dollar.