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TRANSCRIPT
Interim Report1 January – 30 June 2010
Finnair Group
Sector recoveringRecovering fastest in Asia and slowest in EuropeSector profit forecast for current year 2.5 billion dollarsAsh cloud adversely affected European airlines in particular; 30 million euros of direct losses for FinnairPassenger demand returned to growthBusiness travel picked up clearly, except in FinlandCargo demand is growing strongly, particularly in AsiaImproved price level
Finnair’s profitability clearly improvedStrong improvement in demand and average price in second quarter; turnover rose by 10.8% Operational loss 13.6 million euros, loss of 30 mill. euros caused by the ash crisis Cargo clearly profitableEfficiency programme reduced unit costs by 6.4%Unit revenues in scheduled traffic improved by 5.8%Passenger load factor is goodCash flow from operations now positiveBalance sheet and cash position remain strongService quality on a high level
Significant openings into new marketsFinnair and Air Berlin start co-operation as of November• Significant opening into the highest purchasing power
market in Europe• Air Berlin to become oneworld member in 2012
Kingfisher’s membership in oneworld opens up huge Indianmarket for FinnairCooperation between members in North Atlantic trafficapproved by the authoritiesCooperation with Japan Airlines expands to European internal flightsFlybe new partner in feeder traffic, potential for extendedco-operation
Operational result improved
--31,6-37,9mill. euroProfit before tax
-24,2-20,8mill. euroChanges in fair value of derivatives and exchange rates in fleet overhauls
--28,8-33,3mill. euroOperating profit/loss (EBIT)
--4,932,5mill. euroAdjusted EBITDAR*
-
-
2,2
10,8Change %
0,21,1mill. euroOne off items/ capital gains
-53,2-13,6mill. euroAdjusted EBIT* i.e. Operational result
485,1495,8mill. euroOperational expenses
427,4473,5mill. euroTurnoverQ2/09Q2/10
*excl. capital gains, changes in fair value of derivatives and exchange rates in fleet overhaulsand non recurring items
A better profitability trendEBIT* per quarter
*excl. capital gains. fair value changes of derivatives and non recurring items
-60
-40
-20
0
20
40
60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
MEUR
2006 2007 20082005 2009 2010
-15
-10
-5
0
5
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Positive trend in unit revenues and cost development
% Yield (EUR/RTK) Unit costs (EUR/RTK)
2006 2007 20082005 2009
Change YoY
2010
Efficiency program lowered unit costs
1,7%-1,5%c/RTKOther costs*
+25,4%-11,2%c/RTKAircraft lease payments and depreciation
-5,6%+21,6%€/psgr.Sales and marketing
-5,7%+7,5%€/psgr.Ground handling and catering
+2,5%+6,6%c/RTKTraffic charges
-6,4%-14,9%c/RTKFuel costs
-3,1%-10,6%c/RTKPersonnel expenses
+2,4%-3,3%c/RTKUnit costs of flight operations* excl. fuel
-0,1%-6,4%c/RTKUnit costs of flight operations*
Q2/09Q2/10
* excluding fair value changes of derivatives and non-recurring itemsRTK = Revenue Tonne Kilometre
Improved productivity
0
2000
4000
6000
8000
10000
12000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q22010
Personnel on averagePersonnel
Polttoaineen hinta nousussa
Finnair’s long-haul fleet grows
Harmonised Airbus long-haul fleet, average age 2.5 yearsLater this year one more A330 aircraft and at turn of year two more A340 aircraft. Next year a total of 15 long-haul Airbus aircraftFive new Airbus A321ER aircraft for leisure traffic 2013-14Last MD-11 aircraft were sold; one is used in Finnair’s cargo traffic
Strong growth in trafficJanuary-July traffic performance• Scheduled traffic +5%• Passenger load factor +4%-points• Asian traffic +12%• Business class in Asian traffic +40%• Business class share of long-haul traffic 11%• Cargo +37 %
Asian demand goodDouble-digit growth figuresFinnair’s market share in Asian traffic rose by 12%Asian revenues clearly above European revenuesNew openings next year• Daily direct flight to Singapore next spring• Weekly frequencies to Hong Kong up from 7 to 12• In spring, additional flights to present Asian
destinationsAfter planned capacity increases Finnair is flying over 70 weekly flights to AsiaEncouraging start on cargo aircraft routes to Seoul and Hong Kong
More frequencies to Asia
Finnair weekly frequencies to Asia(summer season average frequencies)
0
10
20
30
40
50
60
70
80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F
IndiaSE AsiaChinaNE Asia
Summer peak season frequencies per week
Asian traffic clearly the biggest categoryGeographical distribution of Finnair scheduled traffic
America6 %
Europe31 %
Domestic5 %
Asia58 %
Revenue passenger kilometres Jan-Jun 2010
Funding securedFunding ensured for the final part of the investment programCash reserves more than 570 mill. eurosFunding sources totalling over 500 mill. euros• 1 A330 in Q4 probably operational lease• Loan-back of TyEL pension fund reserves, 330 mill.
euros remaining • Unused credit facility of 200 mill. euros signed in June
Cash flow from operations turned to positiveIn addition, 200 million euro commercial paper programme, of which 46 in use
Cash flow improved in Q2 Cash flow statement
375523mill. euroLiquid funds at the beginning-109+46mill. euroChange in liquid funds266569mill. euroLiquid funds at the end
+108+79mill. euroCash flow from financing
+25+21mill. euroChange of advances and others
-200-74mill. euroGrossinvestments *
-175-53mill. euroInvestments and sale of assets
-42+20mill. euroCash flow from operations
Q2/2009Q2/2010
** incl. A330 aircraft lease arrangement
* incl. financial interest bearing assets at fair value
Strong balance sheet Equity ratio and adjusted gearing
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 Q2 2010
Equity ratio Adjusted Gearing%
Changes in managementLasse Heinonen continues as Deputy CEO, lineresponsibility for Aviation Services and CargoErno Hildén as CFO, also in charge of Finnair AircraftFinanceVille Iho as SVP operations, for the time being in charge of Resource MnanagementManne Tiensuu as new SVP Human ResourcesAri Kuutschin as Managing Director of Northport OyVP Sales Petri Schaaf, VP Flight Operations Markku Malmipuro and VP Cabin Service Kati Lehesmaa as wellas representation of all personnel groups
Thank You!
Prerequisites for better second halfCapacity grows by nearly five per centStrengthening of demand and average price continues as business travel increasesNew routes in August to Stockholm Bromma and StuttgartLeisure travel picking upCargo demand continues to be strongEfficiency measures continue, impact depends partly on early-autumn collective agreement solutionsPositive result expected for second half of the year
Appendices
Operational result improved
--56,4-67,3mill. euroProfit before tax
-47,6-20,4mill. euroChanges in fair value of derivatives and exchange rates in fleet overhauls
--52,9-59,2mill. euroOperating profit/loss (EBIT)
--6,252,5mill. euroAdjusted EBITDAR*
-
-
-4,3
1,3
Change %
0,01,1mill. euroOne off items/ capital gains
-100,5-39,9mill. euroAdjusted EBIT* i.e. Operational result
1052,41006,9mill. euroOperational expenses
943,1955,0mill. euroTurnover
Q1-Q2/09
Q1-Q2/10
*excl. capital gains. fair values changes of derivatives and non recurring items
Segment results*
-53,2-13,6Total
-47,4-10,6Airline Business
-2,8-3,7Unallocated items-2,8-1,6Travel Services-0,22,3Aviation Services
Q2/2009Q2/2010Mill. euro
* Operating profit. excluding capital gains, fair value changes of derivatives and non restructuring items
Segment results*
-100,5-39,9Total
-91,2-35,2Airline Business
-6,3-7,4Unallocated items-5,1-1,2Travel Services2,13,9Aviation Services
Q1-Q2/09Q1-Q2/10Mill. euro
* Operating profit. excluding capital gains, fair value changes of derivatives and non restructuring items
Trend in profitability turned
-80
-60
-40
-20
0
20
40
60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
MEUR
2006 2007 20082005 2009 2010
Change in EBIT* per quarter
*excl. capital gains, fair value changes of derivatives and non recurring items
Cash flow improved in H1 Cash flow statement
392607mill. euroLiquid funds at the beginning-126-38mill. euroChange in liquid funds266569mill. euroLiquid funds at the end
+293+37mill. euroCash flow from financing
+24+66mill. euroChange of advances and others
-328-143mill. euroGrossinvestments *
-304-77mill. euroInvestments and sale of assets
-115+2mill. euroCash flow from operations
Q1-Q209Q1-Q2/10
** incl. A330 aircraft lease arrangement
* incl. financial interest bearing assets at fair value
Finnair has a rolling hedging policy
0%
20%
40%
60%
80%
100%
2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1
hedge ratioupperlower
Fuel cost change in Q2
74
103109
-9-8
0
50
100
150
2009Q2 Volume Price Currency Hedging 2010Q2
MEUR
Fuel cost change in H1
1 16
241208
-24
-25
0
100
200
300
2009H1 Volume Price Currency Hedging 2010H1
MEUR
ROE and ROCERolling 12 months
-20
-15
-10
-5
0
5
10
15
20
Q1 20
05Q2
2005
Q3 20
05Q4
2005
Q1 20
06Q2
2006
Q3 20
06Q4
2006
Q1 20
07Q2
2007
Q3 20
07Q4
2007
Q1 20
08Q2
2008
Q3 20
08Q4
2008
Q1 20
09Q2
2009
Q3 20
09Q4
2009
Q1 20
10Q2
2010
% ROE ROCE
Investments and cash flowfrom operations
-200
-100
0
100
200
300
400
2005 2006 2007 2008 2009 Q2 2010
Operational net cash flow InvestmentsMEUR
Aircraft operating lease liabilities
0
100
200
300
400
500
600
2005 2006 2007 2008 2009 Q2 2010
MEUR Flexibility. costs. risk management
On 30 June all leases were operating leases. If capitalised usingthe common method of multiplying annual aircraft lease payments byseven, the adjusted gearing on 30 June 2010 would have been98.1%
Emissions trading raises questions
EU begins air transport emissions trading unilaterally in 2012Free emissions rights to be received by each airline for 2012-2020 will be based on this year’s revenue tonne kilometresRisk of changing ground rules existsFinnair has supplied the necessary documentation to TraFiCurrent emissions trading model will increase carbon leakagerisk and jeopardise EU competitivenessFinnair supports sector-specific emissions trading which is global and does not distort competition
Finnair's strategy working
Asia-Europe strategy based on Via Helsinki concept is working; geographical advantage a lasting competitive advantageGrowing affluence in Asia presents huge growth potentialPassenger numbers have grown from 0.3 million in 2001, to over 1.1 million in 2009 Finnair's Asian traffic accounted for 3.7% of Finland's GDP growth in 2002–2007Created more than 4,000 jobs in Finnair alone8,000 new jobs by 2015 Without Asian strategy, company would be only half of present sizeModern fleetIndicators show operational and service quality at a high level
Towards future growthCustomers of the future will increasingly come from AsiaStrategy update and supporting reforms during the spring– main strategy will not changeCompetitiveness based on excellent product and efficientoperationsGroup structure focused on core functions in order to achieve flexibility, partners supplement network and serviceprovisionWorking toghether with personnel, to reach jointobjectivesSustainable development creates added value for environment-conscious customers
Finnair Financial Targets”Sustainable value creation”
Operatingprofit (EBIT)
EBIT margin at least 6% => over 120 mill. €
EBITDAREBITDAR margin at least 17% => over 350 mill. €
Economicprofit
Pay out ratio Minimum one third of the EPS
AdjustedGearing
Gearing adjusted for aircraft lease liabilities not to exceed 140 %
To create positive value over pretax WACC of 8.25%
Finnair’s Financial Targets Description of targets
Operatingprofit (EBIT)
EBITDAR
Economicprofit
Pay out ratio
AdjustedGearing
Turnover + other operating revenues – operating costs
Result before depreciation. aircraft lease paymentsand capital gains
Operating profit EBIT – Weighted Average Cost of Capital
Interest bearing debt + 7*Aircraft lease payments– liquid funds) / (Equity + minority interests)
Dividend per share / Earnings per share
www.finnair.com/groupFinnair Group Investor Relations
email: [email protected]
tel: +358-9-818 4951fax: +358-9-818 4092