Finnair Group
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Transcript of Finnair Group
Finnair GroupInterim Report 1 January – 30 June 2007
Flight travel growing, infrastructure under pressure
European airlines’ performance improved in the early part of the year by an average five per cent, Finnair growth was over 20%Asian traffic overall grew by less than five per cent, Finnair’s Asian traffic grew 30%European airlines’ growth is now directed towards South AmericaFuel prices were high and rose slightlyThe industry is expecting its first profitable year since the beginning of the millenniumIn the difficult years, system investments have fallen behind growth in traffic
Baggage chaos in Europe
Increased travel and security measures have delayed baggage at large European airports => also reflected in Finnair’s customer service.Strongly growing Asian traffic creates challenges for the service level of Helsinki-Vantaa Airport => temporary arrangements together with FinaviaPreparations made for summer challenges; sharp tightening of security regulations in UK was a surpriseLong delays, lots of problems for customersTerminal extension ready in 2009 will raise infrastructure to an excellent standard at Finnair’s home station
Finnair heading in the right direction
Strong demand in scheduled traffic continuesIn addition to Asia, European traffic is also growingFinnair’s market share growing in international traffic departing from Finland Unit revenues on last year’s levelUnit costs have fallen due to efficiency measuresProfitability of scheduled traffic has improvedFlyNordic joined Norwegian Air Shuttle, creating a strong Scandinavian airline
Finnair sold FlyNordic to Norwegian
Deal was signed at the end of JunePayment in shares, Finnair’s holding in Norwegian Air Shuttle rose over five per cent Options allow Finnair to increase its ownership up to ten per cent by the end of 2008FlyNordic’s charter traffic revenue divided 50/50 until October 2008Cooperation agreement between Finnair and Norwegian in Asian feeder traffic
Result improved as expectedQ2/2007 Q2/2006 Change %
Turnover mill. € 538.1 494.6 8.8
EBITDAR 74.0 68.2 8.5
EBIT excl. capital gains, fair values changes of derivatives and reorganization expenses 27.2 18.2 49.5
Reorganization expenses - -15.2 -
Capital gains 5.0 1.9 -
Fair value changes of derivatives 4.9 0.6 -
Operating profit/loss (EBIT) 37.1 5.5 -
Profit after financial items 34.4 3.3 -
Scheduled Passenger Traffic and Technical Services improved
Profitability of scheduled traffic has improvedUnit revenues have stabilisedUnit costs have fallenFinnair Technical Services and FlyNordic have also clearly improvedNorthport still loss-makingDue to tighter competition, average prices for cargo have fallen
Unit costs decreased more than yield Change YoY
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-15
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-5
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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
% Yield (EUR/RTK) Unit costs (EUR/ATK)
2004 2005 200620032002 2007
Efficiency programme yields concrete results
Target EUR 80 million, of which half from personnel expensesTargets specified in fullSavings weighted towards end of yearProfit impact for 2007 over EUR 40 millionFull financial impact will begin in 2008Jobs cut by around 600 in 2006-07More than 300 people recruited into Flight Operations Group
Business growing, number of staff maintains
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1999 2000 2001 2002 2003 2004 2005 2006 Q2 2007
Personnel on averagePersonnel
Key efficiency areasTechnical Services competitiveness programmeFlight personnel agreements Savings from support functionsMore efficient crew utilisation through network reformManagement of irregularity processesFeeder traffic reformMergers in travel agency network (SMT+Area)Cutting distribution costs
Unit costs decreasingQ2/2007 2006
Unit costs of flight operations* c/ATK -3,8% +1.8 %Unit costs of flight operations excl. fuel* c/ATK
-5.3% -3.5 %
Personnel expenses c/ATK -5.0% -4.1 %Fuel costs c/ATK +1.3% +24.1 %Traffic charges c/ATK -3.1% -3.9 %Ground handling and catering €/passenger +3.3% -1.0 %Sales and marketing €/passenger +7.3% -7.9 %Aircraft lease payments and depreciation c/ATK
-14.4% +1.9 %
Other costs c/ATK -2.9% -3.1 %* excluding fair value changes of derivatives ATK = Available Tonne Kilometre
Productivity improvedProductivity (incl. Aero and FlyNordic)
(ATK/ person) 12 m rolling sum
240
290
340
390
440
490
540
01/0
104
/01
07/0
110
/01
01/0
204
/02
07/0
210
/02
01/0
304
/03
07/0
310
/03
01/0
404
/04
07/0
410
/04
01/0
504
/05
07/0
510
/05
01/0
604
/06
07/0
610
/06
01/0
7
ATK1000/ person
Higher jet fuel prices
Fuel costs a fifth of turnover2003: 10.2% of turnover2004: 12.5% of turnover2005: 15.6% of turnover2006: 19.4% of turnover2007: ~20% of turnover (over 400 mill. euro)Finnair scheduled traffic has hedged 66% of its fuel purchases for the next six months, thereafter for the following 24 months with a decreasing level. Finnair leisure flights hedged 60% of summer traffic programme’s consumption.
Liquid funds used for investments
Cash flow statement (EUR mill.) Q1-Q2/2007 Q1-Q2/2006
Cash flow from operations 114 24
Investments and sale of assets -195 -113Investments -245 -119Change of advances and others +50 +6
Cash flow from financing -46 72
Change in liquid funds -35 -17
Liquid funds at the beginning 273 339
Liquid funds at the end 238 322
Cash flow January-June
Strengthening the capital structure under evaluation Equity ratio and adjusted gearing
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20
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60
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120
140
2002 2003 2004 2005 2006 Q2 2007
Equity ratio Adjusted Gearing%
Expansion to Asia continuesDemand grew during Jan-Jul07 by 30.5%, passenger numbers 24.6%, cargo 18.9%Passenger load factor 77,7%Indian traffic quadrupled in June, new destination Mumbai59 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 yearSeoul in South Korea as new destination in 2008
Most rapid growth in Asian trafficChina 2001:3 flights/week2007:22 flights/week
Japan2001:2 flights/week2007:15 flights/week
India2006:3 flights/week2007:12 flights/week Aasian fleet increased from two to nine in six years
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
45 %
37 %
4 %14 %
Asia America Domestic Europe
Scheduled traffic passenger and cargo revenues H1/2007
In 2007-14• A330/A340 fleet of maximum 15 planes in
total
In 2014-16• A350 fleet of maximum 15 planes in total
New planes enable future growth
Most modern European fleet
Average age of European fleet four years29 Airbus A320 family aircraftA total of ten smaller (E170) and four larger (E190) Embraer in fleet, six larger aircraft coming 2007-09New aircraft increase flexibility and improve load factors, decrease costs and are eco-efficient
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
Future outlookHigh degree of hedging and dollar exchange rate will stabilise fuel costs in latter part of yearRenewal of the wide-bodied fleet has begunNew route openings will put pressure on traffic load factors and price levelsUnit costs still decreasingRestructuring proceedingSix out of seven of the Finnair Group’s agreements with labour unions are due to expire in SeptemberThe operational result for the full year is expected to exceed 70 million euros
Appendices
Profitability development
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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
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
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20
40
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120
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Yield (EUR/RTK) Unit costs (EUR/ATK)
2004 2005 200620032002 2007
Segment results
2007 2006Q2 Q2
MEUR Scheduled Passenger Traffic 27.7 21.7Leisure Traffic 1.1 1.1Aviation Services 1.3 -1.3Travel Services 1.2 0.9Unallocated items -4.1 -4.2Total 27.2 18.2
Excluding capital gains, fair value changes of Derivatives and reorganization expenses
Investments and cash flowfrom operations
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50
100
150
200
250
300
2002 2003 2004 2005 2006 Q2 2007
Operational net cash flow InvestmentsMEUR
Aircraft operating lease liabilities
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100
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2002 2003 2004 2005 2006 Q2 2007
MEUR Flexibility, costs, risk management
On 30 June all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments byseven, the adjusted gearing on 30 June 2007 would have been114,6%
ROE and ROCE Rolling 12 months
-4
-2
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2
4
6
8
10
12
14
Q1 200
2
Q2 200
2
Q3 200
2
Q4 200
2
Q1 200
3
Q2 200
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Q3 200
3
Q4 200
3
Q1 200
4
Q2 200
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Q3 200
4
Q4 200
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Q1 200
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Q2 200
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Q3 200
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Q4 200
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Q1 200
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Q2 200
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Q3 200
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Q4 200
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Q1 200
7
Q2 200
7
% ROE ROCE
Emissions trading for air trafficEU 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 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% => 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 8,5%
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