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Finnair GroupInterim Report 1 January – 31 March 2007
An encouraging start to the year
Scheduled Passenger Traffic demand strong, particularly from AsiaFinnair’s market share growing in international traffic from FinlandUnit costs fell Passenger traffic profitability improvedFinnair Technical Services and FlyNordic also clearly better than previous yearFuel price stable, but on a high levelFlyNordic joins Norwegian Air Shuttle, creating a strong Scandinavian airline
Finnair sold FlyNordic to Norwegian
Memorandum of Understanding in April, final deal during Q2/07Payment in shares, Finnair’s holding in Norwegian Air Shuttle rises to more than five per cent An option allows Finnair to increase its ownership to around ten per cent by end of 2008FlyNordic’s charter traffic revenue divided 50/50 until October 2008Cooperation agreement between Finnair and Norwegian in Asian feeder traffic
Efficiency programme takes shape
Target EUR 80 million, of which half is personnel expensesEfficiency areas specified in fullSavings weighted towards end of yearProfit impact for 2007 around EUR 40 millionFull financial impact will begin in 2008Personnel reductions to date ~300; total in 2007, ~600More than 200 people recruited into Flight OperationsTotal number of employees stays nearly the same
Key efficiency areas
Technical Services competitiveness programmeFlight personnel agreements Savings from support functionsMore efficient crew utilisation through network reformManagement of exceptional situation processesFeeder traffic reformMergers in travel agency network (SMT+Area)Cutting distribution costs
Fuel costs a fifth of turnover
2003: 10.2% of turnover2004: 12.5% of turnover2005: 15.6% of turnover2006: 19.4% of turnover2007: ~20% of turnover at current price level
and planned traffic growth
Finnair scheduled traffic has hedged 70% of its fuel purchases for the next six months, thereafter for the following 30 months with a decreasing level. Finnair leisure flights hedged 60% of summer traffic programme’s consumption.
Higher jet fuel prices anticipated
Passenger traffic and Technical services profitability improved
Q1/2007 Q1/2006 Change %
Turnover mill. € 528.5 480.3 10.0
EBITDAR 54.8 40.9 34.0
EBIT excl. capital gains, fair values changes of derivatives and reorganization of expenses
5.8 -5.1 -
Capital gains 1.9 0.0 -
Fair value changes of derivatives 6.0 -0.1 -
Operating profit/loss (EBIT) 13.7 -5.2 -
Profit after financial items 13.4 -5.2 -
Unit costs decreased Change YoY
-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
% Yield (EUR/RTK) Unit costs (EUR/ATK)
2004 2005 200620032002 2007
Fuel costs even outQ1/2007 2006
Unit costs of flight operations* c/ATK -2.1% +1.8 %
Unit costs of flight operations excl. fuel* c/ATK
-3.7% -3.5 %
Personnel expenses c/ATK +0.2% -4.1 %
Fuel costs c/ATK +3.6% +24.1 %
Traffic charges c/ATK +1.1% -3.9 %
Ground handling and catering €/passenger +1.7% -1.0 %
Sales and marketing €/passenger +16.0% -7.9 %
Aircraft lease payments and depreciation c/ATK
-3.9% +1.9 %
Other costs c/ATK -7.6% -3.1 %
* excluding fair value changes of derivatives ATK = Available Tonne Kilometre
Business growing, operations systematically rationalised
0
2000
4000
6000
8000
10000
12000
14000
1999 2000 2001 2002 2003 2004 2005 2006 Q1 2007
Personnel on averagePersonnel
Productivity improved
Productivity (incl. Aero and FlyNordic) (ATK/ person) 12 m rolling sum
240
290
340
390
440
490
540
01
/01
04
/01
07
/01
10
/01
01
/02
04
/02
07
/02
10
/02
01
/03
04
/03
07
/03
10
/03
01
/04
04
/04
07
/04
10
/04
01
/05
04
/05
07
/05
10
/05
01
/06
04
/06
07
/06
10
/06
01
/07
ATK1000/ person
Liquid funds used for investments
Cash flow statement (EUR mill.) Q1/2007 Q1/2006
Cash flow from operations 1 - 33
Investments and sale of assets -58 -20Investments -52 -49Change of advances and others -6 -29
Cash flow from financing -6 -6
Change in liquid funds -63 -59
Liquid funds at the beginning 273 339
Liquid funds at the end 210 280
Cash flow January-March
Strong balance sheet Equity ratio and adjusted gearing
0
20
40
60
80
100
120
140
2002 2003 2004 2005 2006 Q1 2007
Equity ratio Adjusted Gearing%
Expansion to Asia continues
Demand grew during Jan-Mar07 by 35.4%, passenger numbers 29.9%, cargo 19.7%Passenger load factor 36.8%, business class demand grew by 38.8%Asian revenues increased by over 40%This year sees Indian traffic quadrupled, new destination MumbaiThis summer 59 flights a week to AsiaNon-stop flights to 10 destinations, six out of which dailyGrowth in different markets in Asia diversifies riskCapacity will grow by over 30% this year
Long-haul network – 2001 number of weekly frequencies
7 New York
Tokyo 2
Beijing 3
Singapore 4Bangkok 4Helsinki
Long-haul network – summer 2007
7 New York
Tokyo 4Nagoya 4
Osaka 7Beijing 7Shanghai 7Guangzhou 4Hong Kong 7Bangkok 7
Delhi 7Mumbai 5
Helsinki
Share of Asian traffic growing
42%
37%
3%
18%
Asia America Domestic Europe
Scheduled traffic passenger and cargo revenues Q1/2007
Most modern European fleet
Average age of European fleet below four years29 Airbus A320 family aircraftNew Embraer 170/190 aircraft increase flexibility and load factors, decrease costs and are eco-efficientA total of ten smaller and two larger Embraer in fleet, eight larger aircraft comingA fleet of eight wide-bodied aircraftTwo new Airbus A340 aircraft annually 2007-2008
oneworld energized
oneworld a high quality and only profitable alliance. Three new members as of April 1st
• Japan Airlines, largest in Asia and the Pacific region
• Royal Jordanian, complementing our network in growing Middle-East market
• Hungary´s Malev will serve as partner in Central Europe
Appraisal of future development
High degree of hedging will stabilise fuel costs in latter part of yearRenewal of wide-bodied fleet will beginNew route openings will impose temporary pressure on Asian traffic load factorsTwo MD-11 and four ATRs will be soldUnit costs will decline furtherRestructuring will proceed, results already visibleNew collective employment agreements in autumn, negotiations already under wayPotential to exceed 2005 operational result
Appendices
Profitability is back
-50
-40
-30
-20
-10
0
10
20
30
40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
MEUR
2003 2004 20052002 2006 2007
Change in EBIT per quarter (Excluding capital gains, fair value changes of derivatives and reorganization expenses)
Average yield and costs EUR c/RTK & EUR c/ATK
0
20
40
60
80
100
120
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Yield (EUR/RTK) Unit costs (EUR/ATK)
2004 2005 200620032002 2007
Aviation Services on black
2007 2006Q1 Q1
MEUR Scheduled Passenger Traffic -0.3 -4.4Leisure Traffic 5.6 6.2Aviation Services 3.3 -3.6Travel Services 1.3 0.3Unallocated items -4.1 -3.6Total 5.8 -5.1
Excluding capital gains, fair value changes of Derivatives and reorganization expenses
Investments and cash flowfrom operations
0
50
100
150
200
250
300
2002 2003 2004 2005 2006 Q1 2007
Operational net cash flow InvestmentsMEUR
Aircraft operating lease liabilities
0
100
200
300
400
500
600
2002 2003 2004 2005 2006 Q1 2007
MEUR Flexibility, costs, risk management
On 31 March all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments byseven, the adjusted gearing on 31 March 2007 would have been116,5%
ROE and ROCE Rolling 12 months
-4
-2
0
2
4
6
8
10
12
14
Q1 200
2
Q2 200
2
Q3 200
2
Q4 200
2
Q1 200
3
Q2 200
3
Q3 200
3
Q4 200
3
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
% ROE ROCE
Emissions trading for air traffic
EU air traffic accounts for only 0.5% of all CO2 emissions in the worldFinnair in favour of emissions trading principlesEU proposal sets airlines at somewhat unequal footings depending on route network structureShould be globalCompetitively neutralInvestments already made in new technology should be taken into accountOpen emissions trading
Customers can already make environmental choices when flying
Choose an airline with a modern fleetFly in the right direction all the way, without unnecessary stopovers. Shorter flight routes result in less emissionsAvoid large, congested airports
By making these choices, fuel consumption and emissions can drop by at best 30%!
Finnair Financial Targets
”Sustainable value creation”
Operating profit (EBIT)
EBIT margin at least 6% => 110-120 mill. € in the coming few years
EBITDAREBITDAR margin at least 17% => over 300 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%
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 Capital
Interest bearing debt + 7*Aircraft lease payments – liquid funds) / (Equity + minority interests)
Dividend per share / Earnings per share
www.finnair.comFinnair Group Investor Relationsemail: [email protected]
tel: +358-9-818 4951fax: +358-9-818 4092
