2018 Finnair s growth continued 25.10.2018 Pekka Vähähyyppä 1
We continued to develop our services and network New route to Los Angeles in 2019, two daily flights to Hong Kong New digital service for exploring Finnish travel experiences New high-speed wi-fi internet service installation on narrow-body fleet for European flights excellent customer feedback Customers gave us Five Stars in APEX Global Airline rating Danish Air Transport became Norra s majority shareholder 2
Growth continued Revenue Comparable operating result Passengers NPS 801 M +8.9% 108.4 M -8.8% 3.7 mill +11.5% 50-1 3 NPS = Net Promoter Score
Operating result at historically high levels M Comparable operating result, 12 months rolling 200 150 149 170 183 194 183 100 96 50 14 24 37 53 54 55 61 0-50 -48-36 -31-24 2014 Q4 2014 Q1 2015 Q2 2015 2015 Q4 2015 Q1 2016 Q2 2016 2016 Q4 2016 Q1 2017 Q2 2017 2017 Q4 2017 Q1 2018 Q2 2018 2018 % of revenue -2.1-1.6-1.4-1.1 0.6 1.1 1.6 2.3 2.3 2.4 2.6 4.0 6.0 6.6 6.9 7.1 6.5 4
Challenges in the environment Oil price continued to increase in Flight cancellations due to typhoon Jebi in Japan and typhoon Mangkhut in Hong Kong Record warm summer in Finland affected travel service demand Increased capacity in the market tightened the competition Spare engine supply has been unusually tight, causing cancellations 5
Revenue grew in all market areas Revenue, M Capacity (ASK), Mill. km Passenger Load Factor, % 400 350 300 363 327 330 310 5 502 4 987 4 005 4 789 91 90 89 87 84 80 66 64 87 85 250 200 150 100 50 0 Asia 45 52 Unallocated North- Atlantic Europe 33 34 Domestic 21 22 801 900 300 338 Asia North- Europe Domestic Atlantic Asia North- Atlantic Europe Domestic Total Asia +11.0% North-Atlantic +17.3% Europe +6.5% Domestic +1.8% Unallocated +7.9% Asia +10.3% North-Atlantic +12.4% Europe +19.6% Domestic +12.9% 2017 Asia -1.2%-p North-Atlantic -2.2%-p Europe -4.3%-p Domestic -1.5%-p Total -2.7%-p 6 2018
Asian traffic was the main driver for passenger revenue growth 2018 Passenger revenue vs. 2017, M 2018 Other revenue vs. 2017, M +54.2 +54.2 +11.7 0.7 651.8 3.8 149.3 84.9-17.5-11.0-2.2 651.8 6.2 19.7-1.5 4.6 3.2 42.0 137.7 597.7 597.7 29.1 37.4 51.6 48.7 Ancillary Cargo Travel services 54.9 52.5 PY ASK PLF (load) FX Yield, mix, other PY Asia Atlantic Europe Domestic Unallocated PY Ancillary Cargo Travel services 7
Fuel cost the most significant driver for EBIT decline compared to /2017 RASK Flights ASK, mill 65.8 Passenger 54.2 Ancillary& retail 4.6 Cargo 3.2 Travel services 3.8-10.5 7.29-4.6% 6.95 29,480 +11.7% 32,916 10,093 +14.2% 11,528 PY PY PY -38.9 PAX, 1000 Avg fare 1 PLF, % 118.9 PY EBIT Revenue Fuel -14.2 Traffic charges & Ground handling -12.9 Aircraft Tour operator EBIT Operating expenses excluding fuel +7.2% (ASKs +14.2%) -8.6 Other exp. -3.4 1.7 Other (NET) 108.4 3,274 PY +11.5% 3,652 Ancillary per PAX 183 EUR / PAX 178 EUR / PAX PY -2.2% Cargo, mill 87.2 PY -2.7pp 84.5 Cargo yield Fuel costs including hedging results and emissions trading cost +31.4% Unit cost (CASK) -1.6%, CASK ex fuel at constant currency -6.4% 11.4 EUR / PAX PY +0.8% 11.5 EUR / PAX 43.8 KG PY -2.3% 42.8 KG 1.18 EUR / KG PY +8.7% 1.28 EUR / KG 1) Avg. fare = Passenger revenue per revenue passengers. 8
Higher price of jet fuel and Finnair s growing volumes increased fuel costs in Fuel costs /17 vs. /18 Fuel hedges 30 Sept 2018 /17 hedging loss 3.4 M /18 hedging gain 27.1 M 9
Safeguard the continuation of profitable growth Focus on improvements that simultaneously increase our efficiency, increase revenue and improve our customer experience Prioritization New ways of working and tools Simplifying processes Introduction of new technologies 10
Strong balance sheet supports future investments 2 825 977 424 162 1 261 2 887 17 983 450 167 1 271 3 076 3 076 15 10 2 887 11 678 719 1 119 466 385 435 664 170 656 104 100 1 336 1 154 1 016 2 825 0 750 412 591 92 981-2,000-1,500-1,000 Adjusted interest-bearing liabilities Adjusted net debt 7x aircraft leases + currency hedges Cash -1,068 1,119 Adjusted net debt -687-637 30.9.2017 31.12.2017 30.9.2018 30.9.2018 31.12.20117 30.9.2017-500 Assets HFS Cash Other assets Other fixed assets Fleet Liabilities HFS I-B debt Tickets Other liabilities Provisions Equity 0 Equity ratio 37.5% Adjusted gearing 55.2% 11 1) HFS = Held-for-Sale. 2) I-B = Interest-bearing
Growing EBITDA supported cash flow change Change in cash flows -73.5 M Cash funds -0.6 M Operating +64.4mEUR 1,119 1,119 143.2-84.0 5.2-41.1 Investing -57.8mEUR 56.4-73.0 Financing -80.1mEUR 344 776 417 702 775.7 564 505-80.1 702.2 212 198 Cash Q2 EBITDA Working capital Other Investments Other Disposals Loan payments Cash 30 Jun 2018 30 Sep 2018 12 Commercial paper, deposits and funds > 3 months Commercial paper, deposits and funds < 3 months Cash and bank deposits Cash in cash flow
Adoption of IFRS 16 Leases standard (replaces IAS 17) Finnair will adopt the IFRS 16 -standard from 2019 onwards, and plans to apply the full retrospective method significant impacts on Finnair financial statements and key ratios. The present value of the future operating lease payments for aircraft and other lease agreements will be recognized as right-of-use -assets and interest-bearing liabilities in the balance sheet.* Lease cost is divided into depreciation of the right-of-use -asset (operating result) and interest cost for the liability (finance net). Significant impacts on following key ratios: operating result, EBITDA, cash flow from operating activities, cash flow from financing activities, interest-bearing net debt, gearing and equity ratio. INCOME STATEMENT EBIT PBT CURRENT Lease expense Finance lease depreciation Finance lease Interest expense NEW Depreciation of ALL leases Interest expense of ALL leases BALANCE SHEET ASSETS DEBT CURRENT Finance Lease Asset Finance Lease Liability NEW Right-to-use Lease Asset Lease Liability for ALL leases *Currently, future lease payments are presented in the notes as operating lease commitments at their nominal value. Based on Finnair's preliminary evaluation, service contracts that relate to the usage of airports and terminals (HEL hub) do not qualify as lease arrangements for IFRS 16 purposes. 13 OFF BS OFF-Balance sheet Operating lease commitment 13
Outlook Global airline traffic continues to grow strongly and Finnair is experiencing increased competition in its main markets. At the same time the price of jet fuel is increasing Finnair s costs. Finnair estimates that its capacity increases by more than 15 per cent in 2018. Passenger volume is expected to grow by 12-13 per cent and revenue is expected to grow by 10-11 per cent. Comparable operating profit in 2018 will be somewhat below the previous year s level (2017: 170.4 million euros). This estimate includes the positive profit impact of approximately 11 million euros from the discontinuation of the pilots long-term incentive plan, that was announced separately today. 14
THANK YOU Contact us: Finnair IR / financial communications mari.reponen@finnair.com kasper.joukama@finnair.com
16 Appendix
Revenue grew and comparable operating result remained high Revenue Comparable operating result Capacity and traffic 735 +8.9% 801 119-8.8% 108 ASK. mill. 12,000 10,000 8,000 10,093 14.2% 8,799 11,528 9,743 Pax. mill. 4,000 3,500 3,000 2,500 6,000 4,000 2,000 PLF 87.2% PLF 84.5% 2,000 1,500 1,000 500 2017 2018 2017 2018 0 2017 2018 0 17 Passenger revenue Ancillary sales Cargo Travel services Comparable operating result fell slightly short of last year's result Capacity (ASK) Traffic (RPK) Passengers
Finnair s earnings are sensitive to changes in fuel price Impact on comparable operating profit rolling 12 months Jet-fuel* price development since 2015 USD/tonne Comp. EBIT 183 Jet-fuel price change 10 % without hedging EUR 70 million taking hedging into account EUR 32 million 800 700 600 500 400 300 200 100 284 $ 0 2015 2016 2017 2018 754 $ Fuel sensitivities rolling 12 months from date of financial statements Hedging ratio for the next 12 months is 66% *Jet-fuel Price/ Weekly Averages, Platts Jet Fuel CIF NWE 18
Millions Growth from all product categories 700 600 +9.1% 500 400 300 200 100 0 Passenger revenue Ancillary and retail revenue +12.4% +6,3% +7.8% Cargo Travel services Revenue 801 milj. 81.4% 5.2% 6.8% 6.5% Passenger revenue Ancillary and retail revenue Cargo Travel services 2017 2018 The warm summer in Finland had a negative impact on Finns willingness to travel abroad, which was reflected in lower than expected growth in passenger revenue and travel services Ancillary and retail revenue improved more than other product categories The phased ramp-up of the Cool Cargo Terminal has progressed well Ready for the peak season 19
Revenue and comparable operating result development Revenue Comparable operating result 900 120 800 100 700 80 600 500 400 300 200 100 521 536 554 635 544 570 633 715 622 641 735 801 568 570 645 60 40 20 0-20 -28-15 -9 4-13 3 38 48 64 66 119 108 1 2 23 0 Q1 Q4-40 Q1 Q4 2015 2016 2017 2018 2015 2017 2016 2018 20
Income statement in mill. EUR 2018 2017 Change % Q1-2018 Q1-2017 2017 LTM Revenue 801.2 735.4 8.9 2 151.5 1 923.1 2 568.4 2 796.9 Other operating income 17.5 18.2-3.8 55.1 57.2 77.0 74.9 Operating expenses Staff costs -109.1-112.9-3.4-331.1-310.3-423.3-444.1 Fuel costs -162.7-123.8 31.4-435.6-349.8-472.2-557.9 Other rents -39.2-36.5 7.2-114.0-119.5-157.9-152.4 Aircraft materials and overhaul -46.9-39.7 18.1-122.0-125.0-165.7-162.8 Traffic charges -83.3-72.8 14.3-226.5-199.5-266.5-293.4 Ground handling and catering expenses -64.5-62.8 2.6-191.5-189.6-252.2-254.1 Expenses for tour operations -29.8-26.4 13.0-85.6-72.8-100.5-113.3 Sales and marketing expenses -22.0-20.9 4.9-67.2-60.3-85.8-92.7 Other expenses -77.3-68.7 12.5-247.8-211.2-285.1-321.6 Comparable EBITDAR 184.0 188.9-2.6 385.4 342.2 436.2 479.4 Lease payments for aircraft -38.1-35.2 8.2-116.5-100.5-136.6-152.6 Depreciation and impairment -37.5-34.7 8.0-108.7-94.2-129.2-143.6 Comparable operating result 108.4 118.9-8.8 160.2 147.5 170.4 183.1 21
Hedging currencies and sensitivities 30 September 2018 Fuel sensitivities 10% change 10% change. taking Hedging ratio (rolling 12 months from date of financial statements) without hedging hedging into account H1/2018 H1/2019 Fuel EUR 70 million EUR 32 million 75% 69% Currency distribution % Sales currencies 7-9 2018 7-9 2017 1-9 2018 1-9 2017 2017 Currency sensitivities USD and JPY (rolling 12 months from date of financial statements for operational cash flows) 10% change without hedging EUR 47 49 54 55 55 - - 10% change. taking hedging into account Hedging ratio for operational cash flows (rolling next 12 months) USD* 5 5 4 5 4 see below see below see below JPY 14 13 11 10 10 EUR 28m EUR 13m 64% CNY 10 10 7 7 7 - - KRW 3 4 3 4 3 - - SEK 2 3 3 3 4 - - Other 17 16 17 16 17 - - Purchase currencies EUR 53 57 56 57 57 - - USD* 39 35 37 36 35 EUR 71m EUR 26m 68% Other 7 8 7 7 7 22 * Hedging ratio for USD basket. The sensitivity analysis assumes that the Chinese yuan and the Hong Kong dollar continue to correlate strongly with the US dollar.