Download - Finnair Group
Financial Report 1 January – 31 December 2009
Finnair Group
Sector difficulties continueThe overcapacity is still growingAircraft are underutilisedPassenger demand is showing first signs of growthPrice pressure remains highCargo demand improving, price level rising slightlyOil price has risen 30% since last summerAnnus Horribilis – IATA estimates 11 billion dollar loss for last yearDecennis Horribilis – sector losses totalled 50 billion dollars in 2000–2009 Loss forecast for current year 5.6 billion dollars
Finnair’s profitability declined
Sector troubles also burden FinnairTurnover fell last year by 20%Operational loss 180 million eurosTicket prices down by 12%, in the latter part of the year 10%, cargo prices -30% and last quarter -27%Passenger load factor remained goodCapacity adjusted to volume decline; cost level still too high compared with price levelEfficiency programme improved result by 100 million eurosPilot strike and walkout by baggage handling workers is estimated to cause company >20 million euros in lossesFinnair still has strong balance sheet and cash positionPunctuality and customer satisfaction improved despite difficulties at end of year
Very poor operational result for 20092009 2008 Change %
Turnover mill. euro 1,838 2,256 -18.5
Operational expenses mill. euro 2,038 2,278 -10.5
Adjusted EBITDAR* mill. euro 11.9 173.5 -
Adjusted EBIT* i.e. Operational result mill. euro -180.2 0.8 -
One off items/ capital gains mill. euro 0.7 -1.3 -
Fair value changes of derivatives mill. euro 55.5 -57.4 -
Operating profit/loss (EBIT) mill. euro -124.0 -57.9 -
Profit before tax mill. euro -133.7 -62.2 -
*excl. capital gains. fair values changes of derivatives and non recurring items
Loss diminished towards the end of the yearMEUR EBIT* per quarter
*excl. capital gains. fair value changes of derivatives and non recurring items
-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
MEUR
2006 2007 20082005 2009
-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
Unit costs develop in the right direction
% Yield (EUR/RTK) Unit costs (EUR/RTK)
2006 2007 20082005 2009
Change YoY
Savings materialise2009 Q4/09
Unit costs of flight operations* c/RTK -2.4% -7.0%
Unit costs of flight operations* excl. fuel c/RTK 0.8% -2.2%
Personnel expenses c/RTK -4.3% -15.4%
Fuel costs c/RTK -10.6% -19.7%
Traffic charges c/RTK +0.5% -8.2%
Ground handling and catering €/psgr. -1.7% -4.9%
Sales and marketing €/psgr. -13.7% -1.1%
Aircraft lease payments and depreciation c/RTK +15.0% +18.3%
Other costs* c/RTK +4.5% +3.3%
* excluding fair value changes of derivatives and non-recurring itemsRTK = Revenue Tonne Kilometre
200 million euro efficiency program
Savings target in personnel costs totalling 120 million eurosTargets of close to 150 mill. euro identified or agreed upon• Fuel efficiency• Structural and operational changes• Temporary lay-offs continue• Number of staff decreased by 1650• Stabilisation agreements in Technical Services, Catering and
cabin service• Reduction of unit costs agreed upon in pilots’ collective agreement
100 mill. euro impact on profitability already in 2009Structural impact of the program per annum 110 mill. euro
Headcount 1650 less than year before
0
2000
4000
6000
8000
10000
12000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Personnel on averagePersonnel
Fuel price on rise
Hedges smoothened fluctuation in 2009
24
133
558
450
-202
-63
0
200
400
600
2008 Volume Price Currency Hedging 2009
MEUR
Hedging losses decreased in Q4
19
101
142
-13
-24
-24
0
50
100
150
2008Q4 Volume Price Currency Hedging 2009Q4
MEUR
Finnair has a rolling hedging policy
0%
20%
40%
60%
80%
100%
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
hedge ratio
upper
low er
One of the most modern fleets in the world
Average age of Finnair's entire fleet is around six yearsModern fleet consumes less fuel and produces less emissionsLast Boeing MD-11 aircraft will be withdrawn from Finnair traffic on 22 February 2010Having fewer aircraft types brings commonality benefitsThree of seven Boeing 757 aircraft will be withdrawn this springTwo Embraer 170 planes leased, two for saleIn the early 2010, two new Airbus A330 aircraft, one more in late 2010
Funding securedFunding of Finnair investment programme ensuredInvestment schedule relaxedCash reserves more than 600 mill. euros• Sale and lease-back of properties and a spare engine, 90 mill. euros • European Investment Bank, 180 mill. euros• Export Credit Agencies, 1 A330 plane on financial leasing• An emitted hybrid bond of 120 mill. euros lowers gearing
Funding sources totalling 600 mill. euros• Export Credit Agencies, 2 A330 planes on financial leasing • Loan-back of TyEL pension fund reserves, 330 mill. euros remaining • Liquidity reserve unused credit facility, 200 mill. euros
In addition, 200 million euro commercial paper programme, of which 120 in use
Strengtened cash in Q4 Cash flow statement
Q4/2009 Q1-Q4/2009 Q1-Q4/2008
Cash flow from operations mill. euro -7 -121 +120
Investments and sale of assets mill. euro +10 -265 -186
Investments mill. euro -9 -348 -233Change of advances and others mill. euro +19 +83 +47
Cash flow from financing mill. euro +300 +601 -82
Liquid funds at the beginning mill. euro 304 392 540
Change in liquid funds mill. euro +303 +215 -148
Liquid funds* at the end mill. euro 607 607 392
*incl. financial interest bearing assets at fair value
Balance sheet made strongerEquity ratio and adjusted gearing
0
20
40
60
80
100
120
2004 2005 2006 2007 2008 2009
Equity ratio Adjusted Gearing%
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 leakage risk and jeopardise EU competitivenessFinnair supports sector-specific emissions trading which is global and does not distort competition
Industrial action and weather disrupted traffic at turn of the year
In December, illegal walkout by loading workers• Over 80% of baggage handled normally• flights delayed and some cancelled• further disruptions after walkout• nearly 7 million euros in losses
In January, Central European weather disrupted air traffic• turn of the year challenging due to large passenger numbers,
terminal change and problematic weather• baggage congested at all European airports
Finnair still on top in punctuality
Challenging start for the year
Slow pick-up in passenger and cargo demandBusiness travel demand growing outside Finland, but at lower price levelsPassenger traffic capacity in early 2010 will be 10% less than in 2009First quarter clearly loss-making Three new Airbus A330 long-haul aircraftFunding for investments arrangedEfficiency programme and structural change to be continuedProfitability expected to improve towards end of the year
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 efficient operationsGroup structure focused on core functions in order to achieve flexibility, partners supplement network and service provisionWorking toghether with personnel, to reach joint objectivesSustainable development creates added value for environment-conscious customers
Appendices
Weak operational result for Q4Q4/09 Q4/08 Change %
Turnover mill. euro 457.7 579.0 -20.9
Operational expenses mill. euro 504.1 600.6 -16.1
Adjusted EBITDAR* mill. euro 10.2 22.6 -
Adjusted EBIT* i.e. Operational result mill. euro -39.4 -13.7 -
One off items/ capital gains mill. euro -7.9 -3.8 -
Fair value changes of derivatives mill. euro 4.2 -43.8 -
Operating profit/loss (EBIT) mill. euro -43.1 -61.3 -
Profit before tax mill. euro -45.4 -62.0 -
*excl. capital gains. fair values changes of derivatives and non recurring items
Segment results*
Mill. euro Q4/2009 Q4/2008Airline Business -47.1 -23.0Aviation Services 9.9 5.0Travel Services 1.2 5.3Unallocated items -3.4 -1.0Total -39.4 -13.7
* Operating profit. excluding capital gains, fair value changes of derivatives and non restructuring items
Segment results*
Mill. euro Q1-Q4/2009 Q1-Q4/2008Airline Business -170.5 -19.4Aviation Services 7.3 13.8Travel Services -4.3 12.3Unallocated items -12.7 -5.9Total -180.2 0.8
* Operating profit. excluding capital gains, fair value changes of derivatives and non restructuring items
Negative trend in profitability levelled off thanks to efficiency measures
-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 Q3 Q4
MEUR
2005 2006 20072004 2008 2009
Change in EBIT* per quarter
*excl. capital gains, fair value changes of derivatives and non recurring items
ROE and ROCE Rolling 12 months
-15
-10
-5
0
5
10
15
20
Q1 200
4
Q2 200
4
Q3 200
4
Q4 200
4
Q1 200
5
Q2 200
5
Q3 200
5
Q4 200
5
Q1 200
6
Q2 200
6
Q3 200
6
Q4 200
6
Q1 200
7
Q2 200
7
Q3 200
7
Q4 200
7
Q1 200
8
Q2 200
8
Q3 200
8
Q4 200
8
Q1 200
9
Q2 200
9
Q3 200
9
Q4 200
9
% ROE ROCE
-20
-15
-10
-5
0
5
10
15
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Unit costs develop in the right direction
% Yield (EUR/RTK) Unit costs (EUR/ATK)
2006 2007 200820052004 2009
Change YoY
Unit costs by cost components2009 Q4/09
Unit costs of flight operations* c/ATK +0.8% +1.0%
Unit costs of flight operations* excl. fuel c/ATK +4.2% +6.3%
Personnel expenses c/ATK -1.0% -10.0%
Fuel costs** c/ATK -8.0% -13.1%
Traffic charges c/ATK +3.5% -0.6%
Ground handling and catering €/psgr. -1.7% -4.9%
Sales and marketing €/psgr. -13.7% -1.1%
Aircraft lease payments and depreciation c/ATK +18.5% +28.5%
Other costs* c/ATK +9.5% +13.0%
* excluding fair value changes of derivatives and non-recurring itemsATK = Available Tonne Kilometre
Investments and cash flowfrom operations
-200
-100
0
100
200
300
400
2004 2005 2006 2007 2008 2009
Operational net cash flow InvestmentsMEUR
Aircraft operating lease liabilities
0
100
200
300
400
500
600
2004 2005 2006 2007 2008 2009
MEUR Flexibility. costs. risk management
On 31 December all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments byseven, the adjusted gearing on 31 December 2009 would have been86.9%
Finnair Financial Targets”Sustainable value creation”
Operating profit (EBIT)
EBIT margin at least 6% => over 120 mill. € in the coming few years
EBITDAREBITDAR margin at least 17% => over 350 mill. € in the coming few years
Economic profit
Pay out ratio Minimum one third of the EPS
Adjusted Gearing
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
Operating profit (EBIT)
EBITDAR
Economic profit
Pay out ratio
Adjusted Gearing
Turnover + other operating revenues – operating costs
Result before depreciation. aircraft lease payments and capital gains
Operating profit EBIT – Weighted Average Cost of CapitalInterest 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