2017 A year of strong growth Finnair Q4 and FY 2017 result - - PowerPoint PPT Presentation

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Finnair Q4 and FY 2017 result

16.2.2018 Pekka Vauramo

2017 – A year of strong growth

• Comparable operating result at record level,

22.9 million euro (Q4 2016: 1.6)

• Fastest growth in Finnair history, ASK +17%
• Four new long-haul routes opened
• Added capacity to Lapland
• Passenger revenue +12%, ancillary sales

+17%

• Almost 3 million passengers, up +14%
• Cargo revenue up +24%
• Travel services revenue up +14%,

Aurinkomatkat Suntours is the market leader

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A record Q4 concluded a strong year 2017

• Demand for flights between Asia and Europe increased

across the Finnair network to almost every destination. Strong demand from Japan.

• Lapland was again the #1 destination for Finnair’s Chinese

customers in the winter season.

• The air cargo market continued to grow, and cargo load

factors and yields increased.

• Severe winter and wind condictions and overtime ban by IAU

affected Finnair traffic in December.

• Industry consolidation continues in Europe.

3

Favourable market environment – also challenges towards the year end

Q4: Comparable operating result has improved for 13 consecutive quarters

Comparable operating result, 12 months rolling

4

100 180 140 60 20

• 60
• 40

80

• 20

40 120 160

• 48
• 36

Q3 2015

55 24 61

Q4 2016 Q1 2016 Q3 2017

149

Q2 2017

96

Q1 2017

53

Q3 2014

170

Q4 2017 Q3 2016 Q4 2014

54

Q4 2015 Q2 2015

14

• 24

Q1 2015

• 31

Q2 2016

37

4

Revenue 645.3 M€ +13 %

(569.9 M€*)

Comparable

• perating result

22.9 M€ >200 %

(1.6 M€*)

RASK -3.4 % CASK -6.6 %

NPS 45

(43*)

* Q4 2016. NPS = Net Promoter Score.

Comparable operating result, % 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%

Revenue, M€

• Asia +19.8%
• North-Atlantic +22.9%
• Europe +13.6%
• Domestic +6.7%

Passenger Load Factor, %

5

• Asia +1.7%-p
• North-Atlantic +2.1%-p
• Europe +2.5%-p
• Domestic -2.1%-p
• Total. +2.0%-p

Capacity (ASK), M km

• Asia +25.7%
• North-Atlantic +22.4%
• Europe +6.5%
• Domestic +11.0%

415 590 461 722 Europe 3 385 3 179 Domestic North- Atlantic 5 039 4 011 Asia 78 69 77 77 81 80 67 79 79 82 Europe Domestic Total North Atlantic Asia 250 200 150 300 100 50 36 263 North- Atlantic Asia 233 231 30 279 Europe Domestic 51 48 Q4 2017 Q4 2016

Q4 revenue and capacity increased across all areas, passenger load factor improved in total traffic

12

• 36

24 55 170 2013 2014 2015 2016 2017

Revenue growth exceeded capacity growth Record number of passengers, passenger load factor improved

6

Year 2017 was very successful for Finnair

2 400 2 284 2 255 2 317 2 568

8.8% 7.7% 10.2% 11.7% 17.0%

2013 2014 2015 2016 2017

Revenue Comparable EBITDAR, % of revenue

9 270 9 630 10 294 10 867 11 905 2013 2014 2015 2016 2017

Comparable operating result at its all-time high

1.1% 2.4%

• 1.6%

0.5%

Comparable operating result, % of revenue

Finnair restructured its operations in 2011-2014, and divestment made during this period show in the revenue development. 79.8%

Passenger load factor, %

83.3% 6.6% 79.5% 80.2% 80.4%

M€ M€

+11%

Comparable operating result, M€ Number of passengers, ASK, 1 000

+9.6 %

Major steps forward in sustainability in 2017

• A350 aircraft have reduced our CO2 emissions

considerably:

• Emissions/RTK decreased by 6.7%
• Emissions/ ASK decreased by 3.2%
• Total emissions grew clearly less (+5.4%) than ATK (+9.9%).
• Finnair published its commitment to sustainability

(Commitment 2050) and is committed to promote equality and non-discrimination in its own activities and in customer services

• We Together@Finnair survey also included the questions

about non-discrimination. The result was 3.98/5.

• Inflight videos in sign-language and more accessible booking

process.

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A great people experience builds a great customer experience

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• Employee satisfaction up year-on-year
• Investments in wellbeing are seen in

lower sickness and lower injury rates, LTIF (Lost Time Injury Frequency)

• 10 million euro training investment, a

total of 370,000 training hours

• Customer experience
• Digital competencies
• Leadership
• Finnair recruited 1,000 new employees

in 2017, and has recruited a total of 1 800 new employees since beginning of 2016

Personnel was rewarded for Finnair turnaround with up to €2,000 special reward €6.7 million to Finnair’s personnel fund

Positive developments in customer experience

• Investments into personal service
• NPS 47 for the full year 2017 (43 in

2016), high point of 52 in Q3

• 2018 updates
• Services and meals targeted at families

with children

• New menus on board
• Ancillary products, such as Seat & meal
• New elements in long-haul business class
• Wi-Fi for European Airbus fleet

9

NPS 47 in 2017

Digital developments support growth

• Digital channels generate 24% of ticket sales,

up +18% year-on-year

• 30% of ancillary sales through digital channels
• Our webstore had on average 1.8 million

monthly visitors in 2017, up +17% year-on-year

• 210,000 active users for Finnair mobile app
• New sales channels and mobile payments:
• WeChat
• Finnair flagship stores on partner platforms

(Alitrip, JD.com)

• Alipay, WeChatPay, ApplePay
• Digitools for personnel
• SkyPay
• Mobile apps in Technical Services
• iPhones and apps for Finnair personnel

10

Finnair equips all personnel with iPhones during 2018

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Goa, India Puerto Vallarta, Mexico Puerto Plata, Dominican republic Havana, Cuba

2018/2019: more flights than ever before

Nanjing three times a week as of May 2018, year-round destination 38 weekly frequencies to both China and Japan. 97 weekly flights to Asia in summer 2018 Stuttgart, Lisbon, Bergen and Tromsø Berlin, Tallinn, Moscow, Gdansk, Edinburgh, Barcelona, Madrid, Reykjavik Tokyo, Bangkok, Delhi Chicago, San Francisco Kuusamo Over 230 new flights to Lapland Non-stop flights to Lapland from Paris, London, Zürich Additional frequencies to Hongkong, Osaka, Phuket New W17/18 destinations continue

New long-haul routes W17/18 More Asian traffic Summer 2018 additions Winter 2018/2019 Summer 2018 new destinations

Share price development past 12 months

(15 Feb 2017 – 14 Feb 2018)

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Closing 14 Feb 018 8.70 euros, Market cap 1,117.35 million euros

Strategy 2018−2020

• The growth plan and the four previous

focus areas were reviewed and confirmed:

• 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

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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%

Growth Customer Experience People Experience Transfor- mation

Dividend proposal

• The Board of Directors proposes to the Annual

general Meeting that a dividend of 0.30 euros per share be distributed for 2017.

• EPS 1.23 euros in 2017 (0.55).
• Annual General Meeting 2018 will be held in

Helsinki on 20 March 2018.

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• Global airline traffic is expected to grow strongly in
• 2018. Finnair expects increased competition as existing

and new operators increase capacity, particularly on routes linking Europe with Asia and with North America.

• Finnair plans on increasing its capacity by more than

15 per cent in 2018, with most of this growth coming in the first half of the year. Passenger volume is expected to grow broadly in line with capacity while revenue growth is expected to be slightly lower.

• 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.

15

Outlook

16

Finance

CFO Pekka Vähähyyppä

Comparable revenue*

Q4 comparable operating result

• ver 10 times higher than in

2016

Capacity and traffic

17

Q4: Good performance in all areas was reflected in revenue growth and improved comparable operating result

Comparable operating result

568 Q4 2016

+13.6%

Q4 2017 645

Travel services Cargo Ancillary sales Passenger revenue

8,000 6,000 4,000 3,000 2,000 2,000 2,500 1,500 10,000 3,500 1,000 500 +17 % Q4 2017 7,718 9,607 Q4 2016 8,194 6,420

Passengers Capacity (ASK) Traffic (RPK) Pax, mill. ASK, mill. PLF 78.3% PLF 80.3% * excl. SMT

Q4 2016 Q4 2017 2

1,300%

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Q4 EBIT increased by +21 M€ year-on-year

• Passenger revenue growth was the key driver behind the improved comparable
• perating result
• Also ancillary sales, cargo revenue and travel services revenue increased
• Personnel costs include a 13-million euro extra reward to personnel (one-off) for

enabling the turn in business

• Costs in other categories increased mainly as a result of the increase in fleet size and

the increased operating volumes

• Other rents declined with lower number of wet lease agreements than in 2016

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• 22.7

Revenue Travel services 7.3 Ancillary & retail 5.5 Passenger 53.4 EBIT Q4 PY EBIT Q4 7.7 Tour

• perator

Other (NET)

• 4.5
• 6.7

Travel agency -1.7 Staff Fuel Cargo 11.0 Rents

• 7.4

75.5

22.9

Leases& depreciation Sales& Marketing

+21.3

• 1.4
• 13.3
• 5.8

Maintenance

1.6

27,148 +6.7% Q4 Q4 PY 28,969 9,607 Q4 PY +17.2% 8,194 Q4 2,599 +13.7% Q4 2,956 Q4 PY

RASK

168 EUR / PAX Q4 166 EUR / PAX Q4 PY

• 1.4%

Q4 +2.0pp Q4 PY 78.3 80.3

• 3.4%

6.95 6.72 Q4 Q4 PY Q4 40.9 KG +17.6% 34.8 KG Q4 PY Q4 1.40 EUR / KG Q4 PY +5.2% 1.33 EUR / KG

FLIGHTS ASK, mill PAX, 1000

• Avg. fare2

PLF, %

Ancillary REV

Cargo, mill Cargo yield

12.6 EUR / PAX +3.2% Q4 Q4 PY 12.2 EUR / PAX 1) Avg. fare = Passenger revenue per revenue passengers

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Adjusted net debt

• 1.600
• 400
• 1.800
• 1.400
• 600
• 200
• 1.200
• 800
• 1.000

Adjusted net debt Adjusted interest- bearing liabilities

• 710
• 956
• 737

7x aircraft leases + currency hedges Cash

983

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

348 412 750 591 1,016 2,529 2,887 2,825 718 92 520 100 656 30 Sep 2017 31 Dec 2017 385 719 11 31 Dec 2017 31 Dec 2016 857 86 981 30 Sep 2017 983 162 977 2,529 130 797 139 2,887 1,271 17 450 2,825 1,261 424 31 Dec 2016 167 1,049 413 I-B debt2 Liabilities HFS1 Equity Provisions Other liabilities Tickets Fleet Other fixed assets Assets HFS1 Cash Other assets

Increase in fleet size and improved result strengthened the balance sheet

20

664.7

Working capital Loan proceeds

• 15.8

25.8

• 59.0

Change in cash flows

• 20.7mEUR

643.9

Dividend paid

• 12.0

0.0

Hybrid bond interest paid

Investing

• 85.6mEUR

Financing

• 27.7mEUR

Operating +92.6mEUR

Cash Q4

Other Other Comparable EBITDA

0.1 57.9

Loan payments

0.0

Disposals Investments

9.0

Cash Q3

• 26.7

Cash funds increased to nearly one billion euros in 2017

31 Dec 2016 797.3 309.0 983.2 493.8 Cash funds +185.9mEUR 31 Dec 2017 339.2 378.4 69.4 418.9 643.9 150.2 Cash in cash flow Commercial paper, deposits and funds > 3 months Commercial paper, deposits and funds < 3 months Cash and bank deposits

Revenue Comparable operating result

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Revenue and comparable operating result development

100 700 800 500 400 300 600 200

735 641

Q2

633 554 570

Q1

536

Q4

645 570

Q3

521 544 622 568

2017 2016 2015

40 100 60

• 20

120 20

• 40

80

Q1

• 9
• 15

1

Q3 Q4

2 119 66 64

Q2

38 3

• 13
• 28

23

2015 2017 2016

Adoption of IFRS 16 Leases standard (replaces IAS 17)

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• 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

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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.

THANK YOU

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

Income statement

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in mill. EUR Q4 2017 Q4 2016 Change % 2017 2016 Change % Revenue 645.3 569.9 13.2 2,568.4 2,316.8 10.9 Other operating income 19.8 19.3 2.5 77.0 75.5 2.0 Operating expenses Staff costs

• 113.0
• 90.3

25.2

• 423.3
• 362.5

16.8 Fuel costs

• 122.3
• 114.9

6.5

• 472.2
• 491.5
• 3.9

Other rents

• 38.4
• 46.1
• 16.7
• 157.9
• 167.4
• 5.7

Aircraft materials and overhaul

• 40.7
• 34.0

19.8

• 165.7
• 147.3

12.5 Traffic charges

• 67.0
• 64.8

3.3

• 266.5
• 262.8

1.4 Ground handling and catering expenses

• 62.7
• 65.8
• 4.7
• 252.2
• 258.9
• 2.6

Expenses for tour operations

• 27.7
• 23.2

19.2

• 100.5
• 87.8

14.4 Sales and marketing expenses

• 25.5
• 19.7

29.5

• 85.8
• 76.9

11.7 Other expenses

• 73.9
• 71.0

4.0

• 285.1
• 266.6

6.9 Comparable EBITDAR 94.0 59.4 58.2 436.2 270.4 61.3 Lease payments for aircraft

• 36.1
• 26.8

35.0

• 136.6
• 109.5

24.8 Depreciation and impairment

• 34.9
• 31.0

12.7

• 129.2
• 105.8

22.1 Comparable operating result 22.9 1.6 > 200 % 170.4 55.2 > 200 %

Jet fuel cost Q4/16 vs. Q4/17

Q4/16 hedging loss 13.5 mEUR Q4/17 hedging profit 6.9 mEUR

Jet fuel cost 2016 vs. 2017

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Fuel costs increased in Q4 year-on-year, FY 2017 fuel costs below the 2016 level

2016 hedging loss 115.2 mEUR 2017 hedging profit 2.1 mEUR

1 1 5 1 2 2 1 3

• 2 0

2 5

• 1 0

2 0 4 0 6 0 8 0 1 0 0 1 2 0 1 4 0 1 6 0 1 8 0 2 0 1 6 Q4 Volum e Price Currency Hedging deviation 2 0 1 7 Q4 m EUR 4 9 2 4 7 2 2 4

• 1 1 7

8 2

• 9

1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 2 0 1 6 Volum e Price Currency Hedging deviation 2 0 1 7 m EUR

% share of operating costs, 2,475 M€ (2017) Fuel hedges as at 31 December 2017

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Fuel the single largest cost item in 2017

19 % 17 % 17 % 12 % 11 % 10 % 6 % 4 %4 % Fuel costs Personnel costs Leasing, maintenance, depreciation, impairment Other costs Traffic charges Ground handling and catering Other rents Tour operators Sales and marketing

0 % 1 0 % 2 0 % 3 0 % 4 0 % 5 0 % 6 0 % 7 0 % 8 0 % 9 0 % 1 0 0 % hedge ratio

Hedging, currencies and sensitivities 31 December 2017

Fuel sensitivities 10% change without hedging 10% change with hedging Hedging ratio (rolling 12 months from date of financial statements) H1/2018 H2/2018 Fuel EUR 54 million EUR 21 million 74% 53% Currency split % 10-12 2017 10-12/ 2016 2017 2016 Currency sensitivities USD and JPY (rolling 12 months from date of financial statements for operational cash flows) Hedging ratio for

• perational cash flows

(rolling 12 months from date

• f financial statements)

Sales currencies 10% change without hedging 10% change without hedging EUR 59 61 55 56

• USD*

3 4 4 4 see below See below See below JPY 7 8 10 9 EUR 19 million EUR 8 million 66% CNY 6 5 7 7

• KRW

3 2 3 3

• SEK

4 5 4 5

• Other

18 15 17 16

• Purchase currencies

EUR 58 57 57 54

• USD*

34 36 35 38 EUR 57 million EUR 21 million 67% Other 8 8 7 8

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* 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.