1 A profitable fourth quarter in a challenging environment - - PowerPoint PPT Presentation

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1 A profitable fourth quarter in a challenging environment - - PowerPoint PPT Presentation

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1 A profitable fourth quarter in a challenging environment 15.2.2019 Topi Manner 2 Q4 2018: we continued to grow 3.2 million passengers carried RPK up by 4.4 % and ASK up by 9.0% We added capacity especially to European

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SLIDE 1

1

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SLIDE 2

2

15.2.2019 Topi Manner

A profitable fourth quarter in a challenging environment

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SLIDE 3
  • 3.2 million passengers carried
  • RPK up by 4.4 % and ASK up by 9.0%
  • We added capacity especially to European

destinations, also to Lapland

  • More flights to Japan, China and United States
  • 101 weekly flights to Asia
  • Now twelve A350 aircraft

3

Q4 2018: we continued to grow

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SLIDE 4

Passengers

4

Growth continued in Q4 – challenging market conditions reflected in our result

Revenue Comparable

  • perating result

9.2 M€

22.9 M€

3.2 mill

+6.7%

683 M€

+5.8%

NPS

46

+1

NPS = Net Promoter Score

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SLIDE 5

Comparable operating result, 12 months rolling

5

Comparable operating result close to last year’s level

  • 50

50 100 200 150

  • 48

Q2 2016 Q3 2014 169 Q1 2015 183 Q4 2018 Q4 2014 Q4 2017 Q4 2016 Q4 2015 Q2 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 194

  • 24

Q2 2017 Q3 2017 Q1 2018 Q2 2018 Q3 2018 55

  • 31
  • 36

24 37 53 183 14 61 96 149 170 54

% of revenue M€

  • 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 6.0

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SLIDE 6

Revenue, M€

  • Asia +5.8%
  • North-Atlantic +7.2%
  • Europe +3.6%
  • Domestic -0.2%
  • Unallocated +60.4%

Passenger Load Factor, %

6

  • Asia -3.5%-p
  • North-Atlantic -0.3%-p
  • Europe -3.6%-p
  • Domestic -3.1%-p
  • Total -3.4%-p

Capacity (ASK), Mill. km

  • Asia +2.3%
  • North-Atlantic +5.5%
  • Europe +19.3%
  • Domestic +12.5%

Asia North- Atlantic Europe Domestic 5 039 722 3 385 461 5 156 762 4 036 518 200 150 50 250 100 300 North- Atlantic 51 263 295 Asia Europe Domestic Un- allocated 25 279 36 39 272 51 16

Q4 2017 Q4 2018

Revenue increased in the main market areas

82 79 79 67 80 79 79 76 64 77 Europe Asia North- Atlantic Domestic Total

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SLIDE 7

2018 was a year of growth and transformation

  • The year begun in a favorable environment but got

more challenging towards the end of the year

  • We continued to grow and invest in the future
  • New passenger record 13.3 million
  • The COOL Nordic Cargo Hub
  • Wi-Fi connection on European flights
  • Five star APEX rating
  • New destinations Nanjing, Lisbon, Stuttgart and

Lyon

7

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SLIDE 8

Exploiting new technologies

  • 25 % ticket sales and over 50% of our

ancillaries are bought through Finnair’s digital channels

  • Fast Wi-Fi on our Narrow-body fleet
  • iPhones and new applications for personnel
  • Exploiting artificial intelligence

8

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SLIDE 9

Competition increased in 2018

9

+ Asian traffic remained robust + Finnair's new COOL terminal strengthened our cargo operations + Rising fuel price pressure eased during Q4

  • Competition tightened especially on European routes
  • Travel services competition increased towards end of

the year

  • Cancellations due to weather and shortage of spare

narrow-body engines

  • Currency movements unfavorable
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SLIDE 10
  • 36

24 55 170 169 2014 2015 2016 2017 2018

Revenue Passengers

10

Full year 2018: Development of key indicators reflect growth

2 284 2 255 2 317 2 568 2 835 7.7 % 10.2 % 11.7 % 17.0 % 16.8 % 2014 2015 2016 2017 2018

Revenue, M€ Comparable EBITDAR, % of revenue

9 630 10 294 10 867 11 905 13 281 2014 2015 2016 2017 2018

Comparable EBIT

1,1 % 2,4 %

  • 1,6 %

6,0 %

Comparable EBIT, % of revenue

79,8%

Passenger load factor (PLF), %

83,3% 6,6 % 81,8% 80,2% 80,4%

M€ M€

Comparable EBIT, M€ Passengers, 1 000

Financial target: Comparable EBITDAR of revenue, 17 % Financial target: Comparable EBIT of revenue, 6 %

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SLIDE 11

Capacity growth continues - new destinations and frequencies in 2019

  • Hannover, Bologna, Bordeaux, Porto
  • Los Angeles, Sapporo, Punta Cana
  • Hong Kong and Osaka

Economic, social and environmental responsibility is in our focus in all operational development We utilize the potential of technology to improve productivity and customer experience Long-term investment to develop customer experience and people experience continues

11

Aiming for sustainable profitable growth

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SLIDE 12

Outlook and dividend proposal

Global airline traffic is expected to continue growing in 2019. Finnair expects increased competition as capacity is added, particularly on routes linking Europe with Asia as well as in short-haul traffic. The slowdown in the economy of Finnair´s key markets and the continued uncertainties surrounding global trade, including from Brexit, could impact the demand for air travel and cargo. Finnair plans to increase its capacity by approximately 10 per cent in 2019, down from its 14.8 per cent capacity growth in

  • 2018. This growth is mainly focused on the Asian market.

Revenue is expected to grow at a somewhat slower pace than capacity in 2019. In line with its disclosure policy, Finnair will issue guidance on its full-year comparable operating result as part of its half-year report in July. The Board of Directors proposes to the Annual General Meeting that a dividend of 0.274 euros per share be distributed for 2018.

12

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SLIDE 13
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SLIDE 14

14

Finance

Pekka Vähähyyppä

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SLIDE 15

Fuel cost the most significant driver for EBIT decline compared to Q4/2017

15

1) Avg. fare = Passenger revenue per revenue passengers.

  • Operating expenses excluding fuel +5.2% (ASKs +9.0%)
  • Fuel costs including hedging results and emissions trading cost

+18.9%

  • Unit cost (CASK) -0.7%, CASK ex fuel at constant currency
  • 4.3%

Fuel

  • 10.2
  • 16.1

Other exp.

  • 9.3

9.2

Aircraft 10.7 Passenger39.4 Staff Other (NET) Q4 EBIT Ancillary& retail1.9 Cargo 2.8 Travel services-6.4

  • 3.5

Revenue Traffic charges & Ground handling

  • 23.1

Q4 PY EBIT

22.9

37.7

  • 13.7

28,969 Q4 PY 31,089 Q4 +7.3% 10,473 9,607 Q4 PY Q4 +9.0% Q4 2,956 Q4 PY 3,155 +6.7% 166 EUR / PAX Q4 PY 168 EUR / PAX Q4 +1.2% Q4 PY 80.3 76.9 Q4

  • 3.4pp

12.6 EUR / PAX Q4 PY 12.4 EUR / PAX Q4

  • 1.4%

6.72 6.52 Q4 PY Q4

  • 2.9%

Q4 PY 40.9 KG 44.5 KG Q4 +8.8% 1.40 EUR / KG Q4 PY 1.35 EUR / KG Q4

  • 3.6%

RASK FLIGHTS ASK, mill PAX, 1000

  • Avg. fare1

PLF, %

Ancillary REV

Cargo, mill Cargo yield

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SLIDE 16

Fuel costs Q4/17 vs. Q4/18

Q4/17 hedging gain 6.9 M€ Q4/18 hedging gain 27.7 M€

Fuel hedges 31 December 2018

16

Higher price of jet fuel and Finnair’s growing volume increased fuel costs in Q4

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SLIDE 17

2017 Ground handling Passenger 223.5 Ancillary & retail 16.2 Traffic charges Fuel Tour

  • perator
  • 45.9
  • 12.9

Other exp.

  • 108.9
  • 34.4

Staff Leases& depreciation

  • 10.2

2018

  • 10.1
  • 4.7
  • 40.2

Revenue Travel services16.9 Other (NET) Cargo 9.5

170.4

266.2

169.4

  • 1.0

114,718 2017 125,848 2018 +9,7% 2017 36,922 42,386 2018 +14.8% 2018 11,905 13,281 2017 +11.6% 169 EUR / PAX 2017 170 EUR / PAX 2018

  • 0.5%

83.3 2017 81.8 2018

  • 1.5pp

12.1 EUR / PAX 2017 12.1 EUR / PAX 2018

  • 0.3%

6.96 2017 6.69 2018

  • 3.9%

2017 157.0 KG 158.2 KG 2018 +0.7% 2017 1.26 EUR / KG 1.31 EUR / KG 2018 +4.1% 2,475 2017 2,739 2018 +10.7% 2,835 2017 2,568 2018 10.4%

Full year EBIT -1 mEUR below previous year

17

RASK FLIGHTS ASK, mill PAX, 1000

  • Avg. fare1

PLF, %

Ancillary REV

Cargo, mill Cargo yield REVENUE COSTS

1)

  • Avg. fare = Passenger revenue per revenue passengers
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SLIDE 18

18

Adjusted net debt

  • 1,000
  • 1,500
  • 2,000
  • 500

7x aircraft leases + currency hedges Adjusted net debt Adjusted interest-bearing liabilities

  • 1,085

1,073

  • 687

Cash

  • 675

1) HFS = Held-for-Sale. 2) I-B = Interest-bearing

Healthy balance sheet supports future investments

  • Equity ratio 34.7%
  • Adjusted gearing 67.2%

450 983 1 022 167 435 1 271 1 119

31.12.2017

15 170 2 947 385 1 336

30.9.2018

11 171 1 073 327 1 376

30.12.2018

669 17 10 699 664 112

31.12.2018

678 466 100 104 1 154 445 719 656 2 947 1 016

30.9.2018

2 887 3 076 3 076 2 887

31.12.2017

Other fixed assets Liabilities HFS Assets HFS Cash Fleet Other assets I-B debt Tickets Other liabilities Provisions Equity

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SLIDE 19

One new A350 aircraft and one A350 SLB main drivers for cash flow changes

19

  • 15.1

Working capital

  • 45.6

Other

  • 161.4

Investments Disposals

  • 2.3
  • 14.9
  • 15.8
  • 3.7

Purchase

  • f own

shares

655.8 Liquid funds Q3

Hybrid bond interests

114.2 Liquid funds Q4

Loan payments Other

98.2 702.2

EBITDA

Operating +37.5mEUR

Change in cash flows

  • 46.4 M€

Investing

  • 49.5mEUR

Financing

  • 34.4mEUR

475 198 656 417 181 702 505 30 Sep 2018 417 31 Dec 2018 1,119 1,073 Cash funds

  • 45.6 M€

Commercial paper, deposits and funds > 3 months Cash and bank deposits Commercial paper, deposits and funds < 3 months Liquid funds in cash flow

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SLIDE 20

IFRS 16 Leases standard replaces IAS 17

20

  • 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

20

Lease expense Depreciation of ALL leases Interest expense of ALL leases EBIT PBT

CURRENT NEW

Finance lease depreciation Finance lease Interest expense BALANCE SHEET

CURRENT NEW

Finance Lease Asset Finance Lease Liability

OFF-Balance sheet Operating lease commitment

“Right-to-use” Lease Asset Lease Liability for ALL leases ASSETS DEBT OFF BS *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.

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SLIDE 21

IFRS 16 implementation and its estimated impacts

in mill. EUR 31 Dec 2018 ASSETS Intangible assets 20.4 Tangible assets 1 526.6 Investments in associates and joint ventures 3.3 Loan and other receivables 4.3 Assets total 2 947.3 in mill. EUR 31 Dec 2018 EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital 75.4 Other equity 946.2 Equity total 1 021.7 Deferred tax liabilities 73.5 Interest-bearing liabilities 561.0 Pension obligations 17.0 Provisions 91.3 Other liabilities 4.8 Total liabilities 1 925.3

+€1.0 bn

(due to the recognition of right-of-use asset)

  • €0.1 bn

(Due to restatement of comparative information)

+€1.1 bn

(due to the recognition of lease liabilities)

  • Equity ratio is expected to decrease by more than -10%-points
  • Gearing to increase by more than 100 percentage points, to

approximately 70 per cent, which corresponds with the Adjusted Gearing used earlier

Balance sheet Key figures

+€1.0 bn

  • €0.1 bn

+€1.1 bn

Cashflow statement

  • Repayments of lease liabilities will be moved from
  • perating cash flow to financing cash flow in

accordance with IFRS 16.

  • Operating cash flow in 2018 will increase by

approximately 30%, with a corresponding negative adjustment in financing cash flow.

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SLIDE 22

IFRS 16 implementation and estimated impacts

Year 1 Year 2 Year 3 Year 4 Year 5 Interest cost associated with the liability Depreciation of the right-to-use-asset

Periodicity of interest expense and right-to-use-asset

in mill. EUR 2018 Direction Operating expenses Other rents

  • 154.9

Comparable EBITDAR 475.4 Lease payments for aircraft

  • 155.0

Depreciation and impairment

  • 151.1

Comparable operating result 169.4 Operating result 207.5 Financial expenses

  • 16.0

Result for the period 150.7

Income statement

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SLIDE 23

THANK YOU

Contact us: Finnair IR / financial communications mari.reponen@finnair.com kasper.joukama@finnair.com

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24

Appendix

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SLIDE 25

26

Finnair’s earnings are sensitive to changes in fuel price

Impact on comparable operating profit rolling 12 months Jet-fuel* price development since 2015

Comp. EBIT EUR 169 Million Jet-fuel price change 10 % without hedging EUR 59 million taking hedging into account EUR 25 million

*Jet-fuel Price/ Weekly Averages, Platts Jet Fuel CIF NWE

USD/tonne

284 $ 544 $

Fuel sensitivities rolling 12 months from date of financial statements Hedging ratio for the next 12 months is 66%

100 200 300 400 500 600 700 800 900 2015 2016 2017 2018

789 $

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SLIDE 26

Revenue Comparable operating result

29

Revenue and comparable operating result development

300 100 200 500 700 400 600 800 900

Q1

683 735

Q2

715 570

Q3

521 536 554 635 544 570 633 622 641 801 568 645

Q4

2015 2016 2017 2018

  • 40

80 60

  • 20

20 40 100 120 119

Q1

66 64 2

  • 28

Q4

  • 15
  • 9

4

  • 13

3 38

Q3

48

Q2

108 1 23 9

2018 2015 2016 2017

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SLIDE 27

Income statement

in mill. EUR Q4 2018 Q4 2017 Change % 2018 2017 Change % Revenue

683.1 645.3 5.8 2 834.6 2 568.4 10.4

Other operating income

18.6 19.8

  • 5.8

73.7 77.0

  • 4.2

Operating expenses Staff costs

  • 102.3
  • 113.0
  • 9.5
  • 433.4
  • 423.3

2.4

Fuel costs

  • 145.4
  • 122.3

18.9

  • 581.0
  • 472.2

23.1

Other rents

  • 40.9
  • 38.4

6.5

  • 154.9
  • 157.9
  • 1.9

Aircraft materials and overhaul

  • 47.1
  • 40.7

15.5

  • 169.1
  • 165.7

2.0

Traffic charges

  • 74.4
  • 67.0

11.1

  • 300.8
  • 266.5

12.9

Ground handling and catering expenses

  • 65.4
  • 62.7

4.4

  • 256.9
  • 252.2

1.9

Expenses for tour operations

  • 27.8
  • 27.7

0.4

  • 113.4
  • 100.5

12.9

Sales and marketing expenses

  • 25.2
  • 25.5
  • 1.0
  • 92.4
  • 85.8

7.7

Other expenses

  • 83.1
  • 73.9

12.6

  • 330.9
  • 285.1

16.1

Comparable EBITDAR

90.0 94.0

  • 4.2

475.4 436.2 9.0

Lease payments for aircraft

  • 38.5
  • 36.1

6.5

  • 155.0
  • 136.6

13.4

Depreciation and impairment

  • 42.4
  • 34.9

21.2

  • 151.1
  • 129.2

16.9

Comparable operating result

9.2 22.9

  • 59.9

169.4 170.4

  • 0.6

30

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SLIDE 28

Hedging currencies and sensitivities 31 December 2018

Fuel sensitivities 10% change without hedging 10% change. taking hedging into account Hedging ratio (rolling 12 months from date of financial statements) H1/2019 H2/2019 Fuel EUR 59 million EUR 25 million 75% 58% Currency distribution % 10-12 2018 10-12 2017 2018 2017 Currency sensitivities USD and JPY (rolling 12 months from date of financial statements for

  • perational cash flows)

Hedging ratio for

  • perational cash

flows (rolling next 12 months) Sales currencies 10% change without hedging 10% change. taking hedging into account EUR 56 59 55 55

  • USD*

4 3 4 4 see below see below see below JPY 10 7 10 10 EUR 32m EUR 15m 64% CNY 6 6 7 7

  • KRW

3 3 3 3

  • SEK

4 4 3 4

  • Other

18 18 17 17

  • Purchase currencies

EUR 55 58 56 57

  • USD*

38 34 37 35 EUR 85m EUR 33m 65% Other 7 8 7 7

31

* Hedging ratio for USD-basket, which consists of USD- and HKD net cash flows. The sensitivity analysis assumes that the Hong Kong dollar continues to correlate strongly with the US dollar.

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SLIDE 29

Share of operating costs %, 692,5M€

32

Fuel the single largest cost item in Q4/2018

21 % 15 % 12 % 12 % 11 % 9 % 7 % 6 % 4 % 3 % Fuel costs Staff costs Other expenses Leasing, depreciation and impairment Traffic charges Ground handling and catering expenses Aircraft materials and overhaul Other rents Expenses for tour operations Sales and marketing expenses

Operating costs Q4/2018 Q4/2017 Change % Staff costs

  • 102.3
  • 113.0
  • 9.5

Fuel costs

  • 145.4
  • 122.3

18.9

Other rents

  • 40.9
  • 38.4

6.5

Aircraft materials and overhaul

  • 47.1
  • 40.7

15.5

Traffic charges

  • 74.4
  • 67.0

11.1

Ground handling and catering expenses

  • 65.4
  • 62.7

4.4

Expenses for tour operations

  • 27.8
  • 27.7

0.4

Sales and marketing expenses

  • 25.2
  • 25.5
  • 1.0

Other expenses

  • 83.1
  • 73.9

12.6

Lease payments for aircraft

  • 38.5
  • 36.1

6.5

Depreciation and impairment

  • 42.4
  • 34.9

21.2