Finnair Q3 2017 result 25 October 2017 CEO Pekka Vauramo 1
All-time best quarter Revenue up by 15% to record level of 735 M Aircraft flew full, passenger load factor was 87% Asian routes and San Francisco sold well Record in daily number of passengers in July, +40,000 Ancillary sales, cargo and travel services grew at double-digit rates Customer satisfaction (NPS) at record level The first-phase of extensive long-haul fleet renewal was completed Equity ratio above the industry average 2 NPS = Net Promoter Score.
Comparable operating result has improved for 12 quarters in a row Revenue 735 M +15% (640.9 M *) NPS 52% (44%*) 150 100 Comparable operating result, 12 months rolling 96 149 Comparable operating result 119 M +81% (65.7 M *) RASK +3.3% CASK -3.5% 50 0-50 -48-36 -31-24 14 24 37 53 54 55 61 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Comparable operating result, % of revenue -2.1% -1.6% -1.4% -1.1% 0.6% 1.0% 1.6% 2.3% 2.3% 2.4% 2.6% 4.0% 6.0% 3 * Q3 2016. NPS = Net Promoter Score.
Well-timed growth, right network decisions and strong passenger demand Revenue, M Capacity (ASK), M km Passenger Load Factor, % 350 300 250 327 266 269 310 4 332 4 987 4 005 3 657 87 91 89 81 83 84 84 87 68 66 200 150 100 50 0 Asia 43 45 North- Atlantic Europe 33 33 Domestic Asia 798801 North- Atlantic Europe 299300 Domestic Asia North Atlantic Europe Domestic Total 4 Asia +22.7% North-Atlantic +3.6% Europe +15.1% Domestic +1.9%* Q3 2016 Q3 2017 Asia +15.1% North-Atlantic +0.3% Europe +9.5% Domestic +0.1%* * Domestic flying restricted by runway renewal at Oulu. Asia +3.7% -p North-Atlantic +8.1% -p Europe +1.1% -p Domestic -2.8% -p* Total. +3.0% -p
Strong demand environment but with uncertainties Strong demand from Japan and China to Europe Tight competition and consolidation continue AirBerlin and Monarch bankruptcies, Alitalia LCC s exploring partnership options to expand networks SAS plans directed share issue aimed at strengthening balance sheet Passenger load factor decreasing in domestic flying Finnair acquires Norra on an interim basis 5
We continue our growth strategy We target to grow faster than our European peers in the traffic between Asia and Europe New destinations: Nanjing, Stuttgart, Lisbon, Bergen & Tromsø 2018 Additional capacity to existing destinations: 145,000+ seats to Berlin Additional frequencies to Asia and America Finnair Holidays Finland & Sweden: a new product combining the best of independent travelling and package holidays COOL cargo terminal ramp-up and implementation Recruitments continue, focusing mainly on flight crew 6
Finnair s route expansion to reach all-time high during winter season 2017/18 New long-haul destinations Goa, India 1 November Puerto Vallarta, Mexico 5 November Puerto Plata, Dominic Republic 30 November Havana, Cuba 1 December New non-stop flights to Lapland airports from London Gatwick, Paris and Zurich In total, Finnair is offering 430,000 seats to five of Lapland s airports during the winter season, over 20% increase compared to the previous winter season 7
Better customer experience Net Promoter Score (NPS) 52% Fazer selected as the new lounge partner Further development of inflight meals Investments in personal services 8
Digitalisation accelerates growth Digital channels create already 23% of total ticket sales (+16%) 180,000 active mobile app users (+88%) 2.3 million visitors/month on internet site (finnair.com) (+23%) Digital tools for personnel: SkyPay, maintenance apps Bókun co-operation to accelerate growth of Finland s travel industry 9
15-year Finnair share performance (price) 16 14 12 10 Market Cap 1,423.6 M (23 Oct 2017) 8 6 4 2 0 10
Strategy 2018 2020 The growth plan and the four previous focus areas were reviewed and confirmed: Growth Customer Experience People Experience Transformation Doubling of Asian traffic in 2018 versus 2010 (two years ahead of original schedule) Doubling of ancillary revenues in 2020 versus 2016 New target for the number of passengers, 20 million in 2030 Financial targets unchanged: EBIT margin 6% over cycle EBITDAR margin minimum of 17% over cycle Adjusted gearing maximum of 175% Return on capital employed (ROCE) minimum of 7% 11
Outlook unchanged Finnair estimates that in 2017 its capacity will grow approximately 9 per cent, weighted strongly towards the second half of the year. Full-year revenue is expected to grow approximately in line with capacity. Finnair expects its comparable operating result for 2017 to be in the range of 135-155 million euro (2016: 55 million euro), if current fuel prices and exchange rates prevail and assuming no material changes in business environment. 12
Finance Pekka Vähähyyppä 13
Profit improvement driven by traffic growth ancillary sales, cargo and travel services grew at double digit rates too Comparable revenue* Comparable operating result Capacity and traffic 637 +15.4% 735 66 +81 % 119 ASK, milj. 12.000 10.000 8.000 6.000 4.000 9.087 +11 % 7.653 PLF 84.2% 10.093 8.799 PLF 87.2% Pax, milj. 3.500 3.000 2.500 2.000 1.500 1.000 2.000 500 Q3 2016 Q3 2017 Q3 2016 Q3 2017 0 Q3 2016 Q3 2017 0 Passenger revenue Ancillary sales Cargo Travel services Comparable operating result nearly doubled year-on-year Capacity (ASK) Traffic (RPK) Passengers 14 * excl. SMT
Q3 EBIT increased by +53 M year-on-year yields and loads were above prior year level despite of the capacity growth 94.5 Passenger 81.8 Ancillary & retail 3.6 Cargo 6.2 Travel services 6.7-25.5 4.8 6.5 +53.2-4.2 5.6-4.7-17.3-6.4 118.9 RASK +3.3% 7.29 7.05 Q3 PY Q3 CY FLIGHTS +5.7% 29,480 27,878 Q3 PY Q3 CY ASK, mill +11.1% 10,093 9,087 Q3 PY Q3 CY Biggest changes in Q3 2017 vs. Q3 2016 Passenger revenue up by 16% - passenger load factor and yields increased at the same time as capacity increased 11.1%. Ancillary sales, cargo revenue and travel services revenue grew at double digit rates. Increase in staff costs is explained by an increase in the number of personnel from the comparison period, acquisition of Finnair Kitchen, extensive training of flight crew and provisions made in the third quarter for incentives and profit-based contributions in the personnel fund Tour operator costs increased as a result of growing volumes and changes in destination mix. Fleet growth and renewal increased aircraft leases and depreciations. 15 65.7 Q3 EBIT PY Travel agency -3.7 Revenue Staff Fuel Catering Tour operator Rents Other exp. Leases& depreciation Other (NET) Q3 EBIT PAX, 1000 Avg. fare 1 PLF, % 2,987 Q3 PY 11.3 EUR / PAX Q3 PY +9.6% +0.8% 3,274 Q3 CY 11.4 EUR / PAX Q3 CY 173 EUR / PAX Q3 PY 38.8 KG Q3 PY +5.7% +12.9% 183 EUR / PAX Q3 CY 43.8 KG Q3 CY 84.2 Q3 PY 1.17 EUR / KG Q3 PY +3.0pp +0.6% 87.2 Q3 CY Ancillary REV Cargo, mill Cargo yield 1.18 EUR / KG Q3 CY 1) Avg. fare = Passenger revenue per revenue passengers
Revenue increased as a result of higher passenger load factors and favourable development of Asian and European traffic Q3 2017 Passenger revenue vs. Q3 2016 Q3 2017 Other revenue vs. Q3 2016, excl. SMT +81.8 +81.8 +16.4 515.9 54.5 15.0-2.9 15.2 597.7 515.9 56.8 1.9 25.1 1.0-2.9 597.7 121.3 33.8 3.6 137.7 6.2 6.7 37.4 51.6 45.5 42.0 48.7 Q3 PY ASK PLF (load) FX Yield, mix, other Q3 CY Q3 PY Asia Europe Atlantic Domestic Unallocated Q3 CY Q3 PY Ancillary Cargo Travel services Q3 CY Total ASK (%) PLF (pp) Yield 1 (%) Δ to PY 11.1% 3.0 0.8% Q3 CY 87.2% Q3 PY 84.2% Δ to PY FEA ATA EUR DOM ASK (%) 15.1% 0.3% 9.5% 0.1% PLF (pp) 3.7 8.1 1.1-2.8 Yield 1 (%) 4.4% -4.9% 0.6% 7.4% RASK (%) 8.8% 4.6% 2.0% 3.0% Ancillary Cargo Travel services 16 1 Revenue per RPK
Balance sheets: new A350 investments increased assets Composition of adjusted net debt 2,465 141 874 335 118 998 2,529 139 797 413 130 1,049 2,825 Cash 977 424 162 Fleet 1,261 2,825 I-B debt 750 412 591 92 Equity 981 2,529 718 348 520 86 857 2,465 655 372 516 85 828-1.800-1.600-1.400-1.200-1.000-800 -600 Adjusted interestbearing liabilities -765 7x aircraft leases + currency hedges -891 Cash 977 Adjusted net debt -678 30 Sep 2016 31 Dec 2016 30 Sep 2017 30 Sep 2017 31 Dec 2016 30 Sep 2016-400 -200 17 Assets HFS 1 Cash Other assets Other fixed assets Fleet I-B debt 2 Tickets Other liabilities Provisions Equity 1) HFS = held for sale, 2) I-B = interest-bearing 0
Strong cash flow from operating activities with improved profitability and sales growth liquid funds grew to almost 1bn Operating +103.6mEUR +13.0mEUR liquid funds +180.0 M 977.3-54.8 1.5 Investing -80.5mEUR 797.3 418.9 312.6 664.7 651.6 156.9-96.7 1.2 15.0 Financing -10.0mEUR -10.0 664.7 378.4 318.4 60.0 547.1 117.6 18 Cash Q2 EBITDA Workinng capital Other Investments Disposals Other Loan proceeds Loan payments Dividend paid Cash Q3 31 Dec 2016 30 Sep 2017 Commercial paper, deposits and funds > 3 months Commercial paper, deposits and funds < 3 months Cash and bank deposits Cash in cash flow
Revenue and comparable operating result development Revenue Comparable operating result 800 700 600 500 120 100 80 60 119 400 300 200 100 521 536 554 544 570 633 622 641 735 568 570 40 20 0-20 -28-15 -9-13 3 38 64 66 1 2 0 Q1 Q2 Q3 Q4-40 Q1 Q2 Q3 Q4 2015 2016 2017 2015 2016 2017 19
Adoption of IFRS 16 Leases standard (replaces IAS 17) Finnair expects to 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. 20 OFF BS OFF-Balance sheet Operating lease commitment 20
THANK YOU Contact us: Finnair IR / financial communications mari.reponen@finnair.com
Income statement in mill. EUR 7-9 2017 7-9 2016 Change % 1-9 2017 1-9 2016 Change % 2016 Revenue 735,4 640,9 14,7 1 923,1 1 746,9 10,1 2 316,8 Other operating income 18,2 16,2 12,1 57,2 56,2 1,8 75,5 Operating expenses Staff costs -112,9-87,4 29,2-310,3-272,2 14,0-362,5 Fuel costs -123,8-128,7-3,8-349,8-376,6-7,1-491,5 Other rents -36,5-42,1-13,2-119,5-121,3-1,5-167,4 Aircraft materials and overhaul -39,7-39,1 1,6-125,0-113,3 10,3-147,3 Traffic charges -72,8-70,6 3,2-199,5-198,0 0,8-262,8 Ground handling and catering expenses -62,8-65,8-4,5-189,6-193,2-1,9-258,9 Expenses for tour operations -26,4-22,1 19,0-72,8-64,6 12,7-87,8 Sales and marketing expenses -20,9-19,0 10,2-60,3-57,2 5,5-76,9 Other expenses -68,7-64,0 7,4-211,2-195,6 8,0-266,6 Comparable EBITDAR 188,9 118,3 59,6 342,2 211,0 62,2 270,4 Lease payments for aircraft -35,2-27,0 30,4-100,5-82,7 21,5-109,5 Depreciation and impairment -34,7-25,6 35,4-94,2-74,8 26,0-105,8 Comparable operating result 118,9 65,7 81,0 147,5 53,5 175,5 55,2 22
Fuel costs decreased despite spot price increase M 160 140 120 100 80 11 10-6 -20 Improved fuel efficiency with fleet renewal and aircraft up gauging 60 129 124 40 20 0 2016Q3 Volume Price Currency Hedging deviation 2017Q3 Q3/16 hedging loss 23.6 M Q3/17 hedging loss 3.4 M 23
Fuel the single largest cost item in January September % share of operating costs, 1,833 M (1-9/2017) Fuel hedges as at 30 September 2017 Fuel costs 4 % 3 % Personnel costs 6 % 20 % Leasing, maintenance, 10 % depreciation, impairment Traffic charges Other costs 11 % 18 % Ground handling and catering Other rents 11 % 17 % Tour operators Sales and marketing 24
Hedging, currencies and sensitivities 30 Sep 2017 Fuel sensitivities 10% change 10% change with Hedging ratio without hedging (rolling 12 months from date of financial statements) hedging H2/2017 H1/2018 Fuel EUR 47 million EUR 20 million 76% 69% Currency split % Sales currencies 7 9 2017 7 9 2016 1 9/ 2017 1 9/ 2016 2016 Currency sensitivities USD and JPY (rolling 12 months from date of financial statements for operational cash flows) 10% change without hedging 10% change without hedging EUR 49 48 55 55 56 - - USD* 5 6 5 4 4 see below See below See below JPY 13 12 10 9 9 EUR 19 million EUR 8 million 67% CNY 10 10 7 7 7 - - KRW 4 4 4 3 3 - - SEK 3 4 3 5 5 - - Other 16 16 16 17 16 - - Purchase currencies EUR 57 55 57 54 54 - - USD* 35 38 36 39 38 EUR 55 million EUR 20 million 66% Other 8 7 7 7 8 Hedging ratio for operational cash flows (rolling 12 months from date of financial statements) 25 * 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.