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TRANSCRIPT
Building Future FinnairInvestor presentation London, 7 September 2011
Executive Summary
– Turnover of 2 billion, ongoing growth: over 10% increase in 2011 – 7 million passengers per year– Modern, fuel efficient and streamlined fleet of 65 aircraft– Member of the Oneworld Alliance
Strategy relies on exploiting sustainable geographical advantage; providing the shortest route between Asia and Europe, via Helsinki
– Short flight times to Asia enable excellent aircraft utilisationFuel efficient, modern fleet provides competitive unit costs
– Leading European airline in customer service: Selected as the best airline in Northern Europe by World Airline Awards 2011
– Goal: Asian traffic revenue to double by 2020
Transformation plan for the company: Permanent cut of 140 Mill. Eur in cost base by the end of 2013: Building sustainable structure to enable the creation of shareholder value
– Focus on core business and partnerships– Strong balance sheet enables structural changes
Mission: The most desired airline in Asia-Europe traffic, among the three largest
European Network Airline connecting Asia and Europe:
Seoul
The modern silk road: 74 weekly departures to Asia in the summer 2011
Helsinki is on theshortest route to Asia
Europe-Asia: close to 30 mill. passengers per year, 15 mill. via passengers
Fast market growth drives high growth rates in both passenger and cargo traffic
Chongqing 2012
A natural choice if you have to change aircraft, for example from:
StockholmGothenburgOsloHamburgDüsseldorfBerlinManchesterRigaTallinn
HEL
FRA
LON
CPH
PAR
VilniusBudapestWarsawPragueBarcelonaMadridMilanZurich
Fast connections between Europe and Asia
The New Finnair
Profitability to be driven by Asian expansion
• Increasing presence in high growth markets: POS shifting more toward Asia – POS Japan largest in FEA traffic and dominant in Japanese traffic
In 2010, 70% of all passengers on Japanese routes originated from Japan– Korea and China increasing their share and growing fast
• Focus on business and corporate travel– Strong corporate sales growth in international markets during Q2;
• 26% share of passenger revenue overall• Over 50% growth outside Finland • High corporate sales share in POS China and Hong Kong
• Asian traffic to double by 2020– Finnair ambition is to become one of top three airlines in Asian transfer traffic– Chongqing route launch for summer 2012– A350 XWBs deliveries from 2014
• New revenue streams sought from ancillary sales delivering added value to customers• New strategic opportunities continuously explored in Asian traffic
Partneships and alliances - Cornerstone of our growth strategyDeepening and broadening partnerships to enable growth and improved cost efficiency
• Flybe Nordic Joint Venture in Regional Traffic: New low cost airline acquired with the vision of building Flybe Nordic into the leading regional airline of the Nordic countries and the Baltic area – Providing a cost competitive platform for Finnair's feeder traffic– Improving regional coverage
• New production platforms in cargo business: – Nordic Global Airlines Joint Venture and World Airways cooperation providing cost competitive
capacity additions
• Qantas/Jetstar connections to Australia and New Zealand• American Airlines’ Chicago route• Kingfisher connections in India• Air Berlin cooperation in Germany
Cargo offers great growth potential
• Freight traffic to triple in the next 20 years, growing streams between Asia and Europe
• Belly freight grows with the Asian expansion
• Newly established Nordic Global Airlines (NGA) offers low cost cargo capacity for further growth
• World Airways partnership offers new destinations for cargo traffic
Finnair Transformation
The planning of the restructuring and cost-savings program announced in connection with the interim report is proceeding as planned
Main focus in European traffic costs, 70 % of these are addressable
Strong Balance Sheet enables proactive restructuring, focus on lowering structural costs
Target: permanent cut of 140 million euros in the cost base by the year 2014
Focus areas for restructuring
Organisation
Addressable Costs
Sales & Distribution
Fleet & Crew
Technical Services
IT
Airport Operations
Short and medium haul cost reduction
Current status Target by 2014
Addressable costsNon addressable costs
70%
36%30%
64%
-16% cost reduction
Cost reduction target of 16% based on cost benchmarking
Major cost items to be addressed include fleet, sales & distribution, maintenance and crew
Cost efficiency to be driven by improved fleet utilisation and A32S configuration changes
Finnair short and medium haul cost competitiveness
Clear objectives established
Short Term Long Term
Return Finnair to profitability Sustainable positive financial added valueexceeding cost of capital
Building Long Term Shareholder Value
• Restructure and rationalise operations• Establish new revenue streams• Achieve cost competitiveness in all
traffic categories
• Profitable growth in Asian markets• Growth strategy based on high class
customer service, partnerships and cost-competitiveness
Fleet DevelopmentSeats Total Owned Leased
Airbus A319 105-123 11 7 4Airbus A320 111-159 12 6 6Airbus A321 136-196 6 4 2Airbus A330 271 8 4 4Airbus A340 269 7 5 2Boeing B757 227 4 0 4Embraer 170 76 5 1 4Embraer 190 100 12 7 4Total 65 34 30
Modern, streamlined and flexible fleet of 65 aircraft, average age ~7 years
Increased capacity and productivity with A319 & A320 cabin layout densification
B757 to be phased out and replaced with A321 ER’s in 2013-2014: improved cross usage & fleet utilisation
A350 XWB - The next generation of long haul aircraft
A350-900 XWB, 11 firm orders +8 options Increased capacity with 310-320 seats Improved cost efficiency and superior customer experience
Deliveries from Q4/2014:
Building The New Finnair - Summary
New Management Team
Clear Growth Strategy Goal: Asian revenue to double by 2020 Focus on strengthening Asian presence through organic growth,
partnerships and customer service excellence
Transformation Programme Underway Main focus in core business and European traffic cost competitiveness Further announcements expected in the coming months
Renewed Brand and Service Identity
Thank you
Finnair Financial Performance Appendices
Key Figures 2008-2010
Key figures
EUR mill. 2008 2009 2010Turnover 2 256 1 838 2 023Operational result, EBIT 1) 1 -171 -5Operating profit, EBIT -58 -115 -13Result before taxes -62 -125 -33Earnings per share EUR -0.36 -0.76 -0.24Equity per share EUR 5.87 6.45 6.67Gross investment 233 348 183Equity ratio % 36.9 34.2 36.2Gearing % -12 26.8 27.8Adjusted gearing % 65.1 90 79.6Return on capital employed (ROCE) % -3 -7.8 -0.4
Return on equity (ROE) % -5.3 -12.7 -2.7Average number of employees 9 595 8 797 7 578
*Excluding capital gains, changes in the fair value of derivatives, changes in the exchange rates of overhauls, and non-recurring items.
Key Figures H1 & Q2 2011Q2 2011 Q2 2010 Change % H1 2011 H1 2010 Change %
Turnover and resultTurnover EUR million 539.4 473.5 13.9 1 073.10 955 12.4Operational result, EBIT EUR million -13.8 -13.6 1.5 -56.9 -39.9 42.6
Operational result, % turnover % -2.6 -2.9 -5.3 -4.2
Operating result, EBIT EUR million -25.2 -33.3 -24.3 -68.3 -59.2 15.4EBITDAR EUR million 33.8 32.5 4 37.4 52.5 -28.8Result before taxes EUR million -30.2 -37.9 -20.3 -76.4 -67.3 13.5Net result EUR million -23 -27.8 -17.3 -56.8 -49.5 14.7Balance sheet and cash flow
Equity ratio % 32.9 32.2
Gearing % 24 36.1
Adjusted gearing % 78.7 98.1
Capital expenditure, CAPEX EUR million 30.9 74.8 -58.7 61.8 143.5 -56.9Return on capital employed, ROCE 12months rolling % -3.4 -7.8
Return on equity, ROE , % -7.9 -13.712 mohths rolling
Net cash flow from operating activities EUR million 90.1 19.5 52.1 1.6
Traffic Region Development Q2 2011 vs. Q2 2010
• Asia traffic share 53% of total ASK
ASK 27.0%
RPK 32.3%PLF% 3.3%-p
Traffic revenue 16.4%
North Atlantic ASK 24.3%
RPK 27.9%
PLF% 2.0%-p
Traffic revenue 18.0%
Europe ASK 27.8%
RPK 21.4%
PLF% -3.9%-p
Traffic revenue 28.0%
Asia
ASK -21.7%
RPK -21.9%
PLF% -0.3%-p
Traffic revenue -20.5%
Leisure trafficASK 41.7%
RPK 29.1%
PLF% -5.1%-p
Traffic revenue 23.7%
DomesticASK 21.0%
RPK 18.0%
PLF% -1.8%-p
Traffic revenue 18.2%
Total
ATK 48.8%
RTK 39.7%
CLF% -4.2%-p
Traffic revenue 54.8%
Cargo
Travel Services• The significant overcapacity in Finland’s package tour market attributed to a loss of
operational result of 5.6 Mill Eur
• Aurinkomatkat (Suntours) turnover grew in the second quarter 2011 by 8%, while passenger numbers grew by 17% compared with the previous year
• Integration of the leisure operations of Area and SMT into Aurinkomatkat was completed in Q2
• Aurinkomatkat renewed its visual identity and the name was abbreviated to the form ‘Aurinko’ in its new logo
• Business travel grew in Q2 and Finnair’s business travel agencies increased their market share; Travel agencies’ productivity improved and the result turned clearly into profit
RASK & CASK development Airline Business Q2 2011 vs. Q2 2010
RASK, tuotto per ASK
CASK, kustannus per ASK
CASK ilman pa.
Henkilöstökustannus
Maapalvelu- ja catering-kulut
Poistot ja leasing-maksut
Muut kulut
Polttoaine
Liikennöimismaksut
+5.2
-6.1
-12.0
Change % Q2 2011 vs. Q2 2010
Change %c ASK
-11.6
-7.6
-4.3
-9.6
-17.9
-10.8
RASK, revenue per ASK
CASK, cost per ASK
CASK excl. Fuel
Staff costs
Ground handling & catering exp.
Depreciation & lease expenses
Other expenses
Fuel
Traffic charges
Development of operating expensesFinnair Group Q2 2011 vs. Q2 2010
Toiminnalliset kulut + 61.4
Toiminnalliset kulut ilman pa. +32.8
Polttoaine +28.6
Liikennöimismaksut + 0.0
Valmismatkatuotannon kulut + 4.6
Poistot ja leasing-maksut + 1.5
Muut kulut * +4.3
Henkilöstökulut + 4.5
Maapalvelu- ja catering- kulut + 7.0
+12.4
+ 8.4
+4.2
+16.8
+20.6
+ 7.9
Change % Q2 2011 vs. Q2 2010
Change %Mill. EUR
+3.3
+27.7
Operating expenses
Operating expenses excl. Fuel
Fuel
Traffic charges
Expenses for tour operators
Depreciation & lease expenses
Other expenses
Staff costs
Ground handling & catering exp.
Cost structure Q2 2011
Fuel 24 %
Personnel 20 %
Other Costs 11 %
Traffic Charges 9 %
Depreciation and Leasing 5 %
Groundhandling and Catering 9%
Tour operator costs 5%
Other Rents 5%
Maintenance 5%
Sales and Marketing 4%
Strong balance sheet Equity ratio and adjusted gearing
%
0
20
40
60
80
100
120
2006 2007 2008 2009 2010 Q1 2011 Q2 2011
Omavaraisuusaste
Oikaistu nettovelkaantumisaste,Adjusted Gearing
Equity Ratio
Adjusted Gearing
Outlook for rest of 2011
• Result for second half of year expected to return to profit, in line with earlier profit guidance
• We aim to implement part of the cost savings target during the current year
• We expect positive result not to be achieved in 2011, due to the heavy losses in first half of the year
• Turnover expected to grow by more than 10% in the full year
DisclaimerCertain information included in this material is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.All forward-looking statements in this material are based upon information known to the company on the date. All subsequent oral or written forward-looking statements attributable to Finnair, employees or any persons acting on its behalf are expressly qualified in their entirety by the cautionary statement above. The company's operations are associated with a number of strategic, economic and operational risks. Therefore there are many factors and specific events that could cause the Company’s forward-looking statements to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy.Further information on some of the most important risks in this regard is comprehensively outlined in the 2010 Annual Review and consolidated financial statements, available at http://www.finnairgroup.com/investors/investors_9.html