finnair second quarter result 2012 · pdf file21 finnair q2 result, 10 august 2012. outlook...

Finnair Second Quarter Result 2012

Mika Vehviläinen 10 August 2012

Content

• Market environment• Main events in Q2 2012• Business performance • Restructuring and

cost savings programme• Outlook

• Key figures

Finnair Q2 Result, 10 August 20122

Market Environment

• Initial Q2 industry profits positive, but down more than 20% y-o-y

• Several industry indicators threaten airline performance

• Crude oil prices rebounded in July

• The trend in global passenger traffic growth has lost pace to 2% annualized rate

• Worldwide airline fares continue to show weakness, signs of softening demand


Restructuring continues in the industry

• Bankruptcies and restructuring programs

• Consolidation continues

• Legacy carriers are restructuring their loss-making short haul operations


Strategy implementation

Traffic development:• Chongqing route opening in May• Good performance in European traffic

Partnership strategy• Catering and Technical services agreements• Plan to outsource EMJ traffic to Flybe• Continued search for solutions to cost challenges in short haul traffic

Smooth travel experience• Customer satisfaction continued to improve, the best Nordic Airline

Notable improvement in network efficiency:• Load factor +5.9%• RASK +9.7%


Restructuring and cost savings program in track

• Target of 140 M€ annual savings by 2014 and 80 M€ of cumulative realised savings during 2012

• To improve cost efficiency Finnair will focus on core business and continues to build a stronger partnership network around its business


Q2 Business performance


Strong traffic performance in Q2 2012

North America

ASK -2.4%

RPK 6.2%

PLF 7.2%-p

Traffic revenue* 10.1%

Leisure traffic

ASK 10.2%

RPK 13.7%

PLF 2.7%-p


Europe

ASK -2.3%

RPK 11.9%

PLF 10.0%-p


Total traffic

ASK 2.7%

RPK 11.3%

PLF 5.9%-p


Asia

ASK 7.5%

RPK 11.6%

PLF 2.8%-p


Domestic

ASK -18.1%

RPK 3.6%

PLF 13.8%-p

Traffic revenue* -10.0%

Cargo

ATK 6.8%

RTK 28.6%

OLF 13.2%-p

Traffic revenue 30.1%

Asian share 51.1% of the total capacity

* passenger revenue


Traffic structure in Q2 2012

51 %

31 %

4 %

5 %9 %

43 %

38 %

7 %

4 %8 %

Passenger revenuesAvailable seat kilometres, ASK


Turnover* grew by 10.2 % in April-June 2012

533,7 591,8

539,4594,4

607,2

577,4

0

500

1000

1500

2000

2500

2011 2012

Q1 Q2 Q3 Q4

2 257.7

€ million

+10.2%

* The comparison period was affected by the tsunami in Japan and the events of Arabic spring


Operational costs increased at a lower pace than turnover in Q2 2012

Operational costs

580,8 621,7

557,2 586,1

584,2

613,4

0

500

1000

1500

2000

2500

2011 2012

Q1 Q2 Q3 Q4

Mill. Eur

132,8 167,6131,7 157,9144,3146,4

0

500

1000

2011 2012

Q1 Q2 Q3 Q4

Mill. Eur

2.335.6

555.2

+5.2%

+19.9%

* Hedging taken into account

Fuel cost +19.9 % y-o-y*• The share of fuel cost 27 %


Cost structure Q2 2012

27 %

19 %

10 %

10 %

9 %

6 %

5 %

5 %3 %

3 %3 %

Fuel

Staff costs

Traffic charges

Other costs

Ground handling and catering

Depreciation

Fleet materials and maintenance

Other rental payments

Sales and marketing

Tour operations costs

Lease payment for aircraft

Operational costs Q2 2012, total of 586.1 Mill. Eur


Airline business: RASK & CASK development Q2 2012

9,7 %

4,5 %

0,2 %

15,7 %

7,4 %

-7,3 %

14,1 %

3,4 %

-0,8 %

-7,0 %

-7,8 %

-18% -14% -10% -6% -2% 2% 6% 10% 14% 18% 22%

RASK, unit revenue

CASK, unit cost

CASK, excl. Fuel

Fuel cost

Staff cost

Depreciation & lease costs

Traffic charges

Maintenance

Ground handling

Catering

Other expenses

Change, y-o-y, %


Restructuring and cost savings programme


Targeting permanent cost reduction of €140 million by 2014

• Appr. €10 million reached in 2011 • Targeted savings of €70 million in 2012 well on track

– Unit cost excluding fuel (CASK) is estimated to decrease in H2

Savings timeline

€10million

€70million

2011 2012

€60 million

2013


Several restructuring measures implemented in 2012 ytd

• Fleet optimisation in European traffic – discontinuation of 4 A320 series aircraft lease agreements and subleasing 5 E170 aircraft

• Improved route planning and aircraft utilisation

• Memorandum of Understanding with Flybe on European Embraer traffic• JV analysis to improve the profitability of European Airbus traffic• Agreement with SR Technics on outsourcing engine and component

services• Agreement on Catering business with LSG Sky Chefs

• Streamlining support functions • Numerous other savings measures throughout the company• Check-in automation in May 2012


Partnership strategy

To improve cost efficiency Finnair will focus on core business and continues to build a stronger partnership network around

its business


Operation Partner Status

European Airbus traffic Analysis on-going

European Embraer traffic MoU

Domestic traffic October 2011

Engine and component maintenance

July 2012

Ground handling November 2011

Catering August 2012

Partnerships an integral part of restoring profitability


The analysis of opportunities to improve efficiency of the European Airbus traffic continues

• A suitable partnership solution could not be found within our original target schedule

• Radically changing competitive environment, numerous bankruptcies and challenging market conditions have made it more difficult to find the right solution

• The company is still committed to identifying any and all means to significantly reduce the cost level of European traffic and seeks different alternatives with potential partners and its own labour groups


Catering agreement with LSG

• Finnair and LSG Sky Chefs Group (LSG) signed a partnership agreement based on which the operational responsibility for and decision making power in Finnair Catering will fully transfer to LSG.

• The agreement is estimated to result in sustainable annual savings of approximately 9 million euros starting from the third year of the cooperation.

• According to IFRS, the arrangement is treated as an acquisition in accounting, and consequently, Finnair will cease to include Finnair Catering Oy's operations in its consolidated financial statements from August 1, 2012 onwards. The changes in reporting will be visible from Q3 2012 onwards and show in full from Q4 2012 onwards.


Several steps taken for top-line growth and revenue enhancement

Asia• New route to Chongqing opened on 9 May• Corporate sales growth outside Finland 6% y-o-y in Q2 2012

Revenue enhancement • 9.7% RASK improvement y-o-y in Q2 2012 through improved load

factors and yield enhancement • Enhanced competitiveness in European traffic

– Several successful marketing campaigns and new attractive price categories – Web sales growth 27% y-o-y

– New ancillary services

Continued improvement in customer satisfaction, among the best network carriers: The best Nordic Airline, Skytrax 4 stars


Outlook for 2012

• Finnair estimates that the operational result for the second half of the year, which is stronger than the first half of the year due to seasonal variations, will reflect improved profitability compared to the first half of the year.

• The outlook for the world economy is still uncertain, and Finnair will adjust its passenger traffic capacity with its current structure according to demand, if necessary. Finnair estimates that this capacity will increase on last year but less than the 5 per cent level given in the earlier estimate. The growth will mainly come from Asian traffic, where Finnair increased capacity in May by opening a new flight route to Chongqing, China.

• Finnair’s fuel costs are estimated to be significantly higher in 2012 compared to the previous year due to increased capacity and high fuel prices.

• Cost reductions of approximately 80 million euros out of the structural change and cost reduction programme’s total target of 140 million euros are expected to be achieved by the end of 2012. The realisation of the cost reductions will mainly take place during the second half of the year. Finnair estimates that unit cost (CASK) excluding fuel will decrease year-on-year in the second half of the year.


Q2 Key figures


Key figures Q2

Key Figures Apr-Jun 2012

Apr-Jun 2011 Change % Jan-Dec

2011

Turnover and result

Turnover EUR million 594,4 539,4 10,2 2257,7

Operational result, EBIT EUR million 14,7 -13,8 > 200 % -60,9

Operational result, % turnover % 2,5 -2,6 -2,7

Operating result, EBIT EUR million -18,1 -25,2 28,2 -87,8

EBITDAR EUR million 64,2 33,8 89,9 139,6

Result before taxes EUR million -25,5 -30,2 15,6 -111,5

Net result EUR million -19,8 -23 13,9 -87,5

Balance sheet and cash flow

Equity ratio % 32,6

Gearing % 43,3

Adjusted gearing % 108,4

Capital expenditure, CAPEX EUR million 2,9 30,9 -90,6 203,9

Return on capital employed, ROCE 12 months rolling % -5,2

Return on equity, ROE , 12 months rolling % -10,9

Net cash flow from operating activities EUR million 100,2 94,5 6,0 50,8

Share

Share price at end of quarter EUR 2,30

Earnings per share EUR -0,17 -0,20 15,0 -0,75


Airline business: RASK & CASK development Q2 2012

9,7 %

4,5 %

0,2 %

15,7 %

7,4 %

-7,3 %

14,1 %

3,4 %

-0,8 %

-7,0 %

-7,8 %

-18% -14% -10% -6% -2% 2% 6% 10% 14% 18% 22%

RASK, unit revenue

CASK, unit cost

CASK, excl. Fuel

Fuel cost

Staff cost

Depreciation & lease costs

Traffic charges

Maintenance

Ground handling

Catering

Other expenses

Change, y-o-y, %


Change in operational costs Q2 2012

3,2 %

4,0 %

17,9 %

26,1 %

7,0 %

-14,9 %

-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

Staff

Leasing and depreciation

Traffic charges

Maintenance

Ground handling and catering

Other costs*

Change, y-o-y, %

*Incl. Leased capacity, sales and marketing, costs of tour operations etc.


Operational EBIT build-up in Q2 2012 (IFRS)

-13,9

14,7

5,3

1,3 1,2 -3,4

-3,5-6,5

-26,455,1

9,4

5,1

-8,9

‐20,0

‐10,0

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

Mill. EUR


Fuel, spot-price development


Fuel cost build-upQ2 2012 vs. Q2 2011

132 158

6 -6 20 6

0

50

100

150

200

Q2/2011 Volume Price Currency HedgingDeviation

Q2/2012 *)

Mill. EUR

*Incl. Hedging profit of 18 Mill. EUR *) and emission trading cost of 2 Mill. EUR


Hedging, 30.6.2012

Hedge ratio H2 2012: 76 %


Key figures H1 2012

Key Figures Jan-Jun 2012

Jan-Jun 2011 Change % Jan-Dec

2011

Turnover and result

Turnover EUR million 1186,2 1073,1 10,5 2257,7

Operational result, EBIT EUR million -10,3 -56,9 81,9 -60,9

Operational result, % turnover % -0,9 -5,3 -2,7

Operating result, EBIT EUR million -38,3 -68,3 43,9 -87,8

EBITDAR EUR million 89,1 37,4 138,2 139,6

Result before taxes EUR million -51,7 -76,4 32,3 -111,5

Net result EUR million -40,2 -56,8 29,2 -87,5

Balance sheet and cash flow

Equity ratio % 29,2 32,9 -3,7 %-p 32,6

Gearing % 35,5 24 11,5 %-p 43,3

Adjusted gearing % 107,5 78,7 28,8 %-p 108,4

Capital expenditure, CAPEX EUR million 10,3 61,8 -83,3 203,9Return on capital employed, ROCE 12 months rolling % -3,1 -3,4 0,3 %-p -5,2

Return on equity, ROE , 12 months rolling % -7,8 -7,9 0,1 %-p -10,9

Net cash flow from operating activities EUR million 92,3 60,6 52,3 50,8

Share

Share price at end of quarter EUR 1,75 3,57 -51,0 2,30

Earnings per share EUR -0,35 -0,48 27,1 -0,75


Thank you!

finnair second quarter result 2012 · pdf file21 finnair q2 result, 10 august 2012. outlook...

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