FINN FINNAIR AIR CAPIT CAPITAL AL MARKETS MARKETS DAY 12 - - PowerPoint PPT Presentation

12 NOVEMBER 2019

FINN FINNAIR AIR CAPIT CAPITAL AL MARKETS MARKETS DAY

Agenda

Finnair strategy update – CEO Topi Manner Network and fleet – CCO Ole Orvér

Break

Operational excellence – COO Jaakko Schildt Modern Premium Airline – SVP Customer Experience Piia Karhu and CCO Ole Orvér

Break

Creating value for shareholders – CFO Mika Stirkkinen Closing words – CEO Topi Manner

Cocktails and networking

Disclaimer

By attending Finnair Capital Markets Day 2019

• r

by reading this presentation, you acknowledge and agree that the information provided

• rally or in this presentation (i) is provided in summary form; (ii) is not intended to contain all the information that is or may be material to investors or potential investors;

(iii) may be amended and supplemented as Finnair sees fit; (iv) may not be relied upon for the purpose of entering into any transaction and should not be construed as, nor be relied on in connection with, any offer, invitation or recommendation to purchase or subscribe for, underwrite or otherwise acquire, hold or dispose of any securities

• f Finnair. Any investor or prospective investor considering the purchase, disposal or holding of any securities of Finnair should consult with its own counsel and advisers

as to all legal, tax, regulatory, financial and related aspect thereof. This presentation contains forward‐looking statements. These statements may include the words “believe”, “expect”, “anticipate”, “foresee”, “intend”, “plan”, “estimate”, “focus”, “continue”, “will”, “may”, “targeting” and similar expressions as well as statements other than statements of historical facts including, without limitation, those regarding the financial position, business strategy, development plans, objectives and targets of Finnair. Such forward‐looking statements involve known and unknown risks, uncertainties and other important factors which may affect Finnair’s ability to implement and achieve the economic and monetary policies, budgetary plans, fiscal guidelines and other development benchmarks set out in such forward‐looking statements. Risks related to Finnair’s operations are discussed in the company’s financial disclosures and on the company’s website at https://investors.finnair.com/en/governance/risk-management. Actual results, performance or achievements may be materially different from future results, performance or achievements expressed or implied by the forward‐looking statements. Such forward‐looking statements are based

• n numerous assumptions regarding Finnair’s present and future policies and plans and the environment in which Finnair will operate in the future. Furthermore, certain

forward‐looking statements are based on assumptions or future events which may not prove to be accurate, and no reliance whatsoever should be placed on any forward- looking statements in this presentation. The forward‐looking statements in this presentation speak only as of the date of this presentation, and Finnair expressly disclaims to the fullest extent permitted by law any obligation or undertaking to disseminate any updates or revisions to any forward‐looking statements contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. Nothing in the foregoing is intended to or shall exclude any liability for, or remedy in respect of, fraudulent misrepresentation. The information in this presentation has not been independently verified. No representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the presentation and the information contained herein. Information in this presentation has been obtained from various sources and Finnair does not guarantee the accuracy or completeness of such information. All projections, valuations and statistical analyses are provided for information purposes only and should not be relied upon as an accurate prediction of future performance.

FINN FINNAIR AIR STRA STRATEGY UPD TEGY UPDATE TE

Topi Manner, CEO

Capital Markets Day 2019

New phase: sustainable, profitable growth

• Potential to capture

economies of scale

• One of the most modern

long-haul fleets

• Stronger brand and

customer experience

• Improved digital

capabilities

• Modernised culture

Disruption Restructuring Renewal

2008–2010 2011–2014 2015–2017 2018

Accelerated growth

Sustainable, profitable growth

We have unique strengths and are winning market share

Successful strategy leveraging unique geographical location Unrivalled local network and attractive market for incoming tourism Strong operational performance and safety valued by

• ur customers

High customer satisfaction and people experience Solid financial situation with healthy balance sheet

Delivery on targets

We have achieved our previous targets on growth

• need to improve profitability

* IFRS16 Adjusted ** Last 12 months (2018 Q4–2019 Q3) Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019

2016

• 1.6%

2014 5.2% 2015 2018* 2.4% 2017 LTM** 1.0% 6.6% 7.7% 24 171 220 282 504 513 2018* 2014 LTM** 2015 2016 2017 EBIT Margin EBIT Net operating cash flow

Strong growth in EBIT and cash flow

mEur

Gearing well below 175% ROCE at 12.7% average last two years > 7% ASK Asia more than double 20 million passengers by 2030 ahead (13.3 2018) OP profit 6% (average 6.3% last two years)

Roadmap to sustainable, profitable growth

Growth in line with market growth Strengthened customer offer Increased efficiency Improved market position in Asia

We leverage our strong hub and focus

• n the most profitable Asian cities

Long history, strong partnerships

* Boeing commercial market outlook ** Market share on our relevant market

Most environmentally sound EU – Asia estimated growth

> 4% CAGR*

Strengthening position

> 6%**

Shortest route

24hr rotation

Focused strategy

We focus on the core; growth through transfer

Integrated business One culture

50% 30% 6% 7% 7% Transfer Passengers Local Passengers Ancillaries Travel Services Cargo

COMMITMENT TO CARE COURAGE SIMPLICITY

Revenue share

Source: Finnair Interim report for 1 January–30 September 2019 and Finnair Internal data

Opportunity to improve our productivity

OPEX has increased faster than revenues

* IFRS16 Adjusted ** Last 12 months (2018 Q4 – 2019 Q3) Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019

OPEX ex Fuel CAGR

6.1%

ASKs CAGR

8%

Revenue CAGR

5.5%

2014 2015 2016 2018* 2017 LTM** OPEX ex fuel ASK Fuel Revenue +8% +6.1%

ASK growth vs RASK development

More stable RASK development moving forward as growth moderates

Growth in ancillary revenues per passenger

There are also opportunities to improve our revenues

We are taking a step-change in retailing to improve on revenues

7.4 7.08 6.83 6.96 6.72 6.55 2016 LTM** 2014 2015 2017 2018* ASK RASK 8.22 € 10.02 € 11.55 € 12.15 € 12.11 € 11.95 € 2014 2015 2018* 2016 2017 LTM** Ancillary Revenues per passenger Cents (€) €

• 2.4%

CAGR

* IFRS16 Adjusted ** Last 12 months (2018 Q4 – 2019 Q3) Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019

+8.3% +7.8%

Fleet investments to boost efficiency and reduce carbon footprint

* Estimated investments including already announced commitments

3.5 – 4 billion

euros*

Replacement / Renewal

2/3

Growth

1/3

• Modern Premium Experience
• Carbon footprint
• Fuel efficiency
• Cost savings
• Enabling growth

Investments predominantly funded through cash flow

Sustainability is a natural part of everything we do

We want to be a frontrunner in sustainability

Biofuel

Biofuel flights since 2011

1/2

Single-use plastics (end 2022) Zero landfill waste at HEL Our detailed sustainability plan to be published in early 2020

27%

CO2/RTK since 2005

Long-term roadmap for carbon reduction

Fleet investments to reduce carbon footprint and boost efficiency Sustainable aviation fuels (Bio and Synthetic) Intermodality Operational improvements Emissions trading Voluntary and non-voluntary

• ffsetting (including CORSIA)

Our refined strategy and ambitious new targets

Continued growth

In line with market growth

Strengthened customer offer

Leading to stabilised unit revenue

Increased efficiency

Leading to continually decreasing unit cost

Improved market position in Asia

* Over the cycle (at constant fuel and f/x), 12–18 month build-up period

• Comparable EBIT > 7.5%*
• Return on Capital Employed (ROCE) > 10%*
• On-time performance (OTP) > 85%
• NPS positive development
• eNPS positive development

We have a new leadership team to drive the next stage of

• ur journey… many of whom you’ll meet here today

Topi Manner

Chief Executive Officer

Piia Karhu

SVP Customer Experience

Ole Orvér

Chief Commercial Officer

Jaakko Schildt

SVP Operations

Tomi Pienimäki

Chief Digital Officer

Nicklas Ilebrand

SVP Strategy

Johanna Karppi

SVP People & Culture

Arja Suominen

SVP Communications and Corporate Responsibility

Sami Sarelius

SVP and General Counsel

Mika Stirkkinen

Chief Financial Officer

Best customer experience in Finland (Aurinkomatkat)

Customers and employees make it happen

People are proud to work at Finnair

2,000

New employees in the past 2 years

Best Airline in Northern Europe Best European Airline Most attractive employer

NPS

38

4.25*

* 2018 WeTogether survey (1–5 scale)

NETW NETWORK ORK AND FLEE AND FLEET

Ole Orvér, CCO

Capital Markets Day 2019

Strong network leveraging Helsinki’s geographical position connecting Europe with Asia

21

destinations Over

100

destinations

8

destinations

• 14.3 million passengers in the

last 12 months*

• More than 20,000 origin-

destination city pairs in our network

* Source: Finnair Interim report for 1 January–30 September 2019

Transfer traffic between Europe and Asia is an essential part of our business

* Traffic splits by flown ticket revenue rolling 12 months (Q4/2018–Q3/2019)

62% 38%

2/3 of flown ticket revenue from transfer traffic

73% 14% 10% 3% 0%

3/4 of transfer traffic comes from Asia

Asian Intra European Atlantic Oceanic Other Transfer Local

Growth in line with market

Finnair growth, ASK billion

Source: Finnair 2018 Annual report, Finnair Interim report for 1 January–30 September 2019, SRS

31 32 47 2019 2014 2015 +3.1% CAGR +10.5% CAGR

3–5%

p.a next 3 years

PKX CTS HND PUS

Our growth is targeted towards Asia with a combination

• f new destinations and additional frequencies

New in 2019 New in 2020

• Daxing - Beijing

November 2019

• Sapporo

December 2019

• Busan

March 2020

• Haneda - Tokyo

March 2020

• Over 100 weekly frequencies to destinations

in Asia in summer 2020 Continuously strengthening our network with new destinations in Asia

SJB – 25% market share Europe Japan AJB – 20% market share Europe USA

Leveraging strong partnerships to improve network scale and reach

Strategic Joint Businesses* Norra – operations partner for regional flying Strategic partnerships

* Source: Year ending Jul 19, DDS O&D + est pax

We continue to

• perate as an

independent airline leveraging on

• ur strong

partnerships

Cargo is an integrated part of our business

The A350 is an extremely efficient cargo aircraft Finnair has the most modern air cargo terminal in Europe Digital integration enabling efficient

• perations and high-

quality delivery Strengthening our position in special products and services to improve yields

More efficient use of Helsinki hub and assets through four bank structure

Growth outside main bank – illustrative

Number of flights (Arrivals and Departures)

5:00–10:00 10:00–14:00 15:00–19:00 (main bank) 19:00–01:00 Current Future

Fleet growing, with better utilisation

• f narrow-body aircraft

12 12 37 22

Narrow-body Wide-body 2025 2019

• Approx. 70
• Approx. 30

Turboprop Other regional 83

• Approx. 100

Narrow-body / Wide-body ratio 2.8 : 1 ~2.3 : 1

Fleet age in line with peers – narrow-body fleet to be renewed

11.8 11.7 11.6 10.7 10.2 0.0 5.0 10.0 15.0 Air France-KLM Lufthansa IAG SAS Finnair

Source: Cirium fleets database

Average fleet age vs peer European network carriers

Wide-body average age of 5.2 years – significant fuel and CO2 benefits Narrow-body renewal to be initiated within the strategy period

Summary

• Well-positioned network and Europe –

Asia strategy

• Continued growth – in line with market,

3–5%

• Further improved utilisation of core

assets

• Fleet investments for growth,
• perational efficiency and sustainability

OPERA OPERATION TIONAL AL EX EXCELLENCE CELLENCE

Jaakko Schildt, COO

Capital Markets Day 2019

Best customer experience in Finland (Aurinkomatkat) Best Airline in Northern Europe Best European Airline Most attractive employer

Operational quality and safety culture are Finnair’s strengths

• Finnair has an excellent safety record
• Our punctuality and regularity are on-par

with peers

• Our customer satisfaction is high with an

NPS of 38*

* Q3 2019 figure.

4.25*

People are proud to work at Finnair

* 2018 WeTogether survey (1–5 scale)

Key initiatives to improve our unit cost performance

On-time performance Weight and fuel Automation and efficiency

* IFRS16 Adjusted ** Last 12 months (2018 Q4 – 2019 Q3) Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019

Finnair costs have grown faster than revenues

OPEX ex Fuel CAGR

6.1%

ASKs CAGR

8%

Revenue CAGR

5.5%

2014 2015 2016 2018* 2017 LTM** OPEX ex fuel ASK Fuel Revenue +8% +6.1%

On-time performance improvement offers great potential

• On-time performance contributes

to improved productivity, cost savings and customer satisfaction

• Key initiatives to improve
• Planning
• Execution
• Predictability

69% 75% 75% 78% 83% 85% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 85.0%

Finnair Lufthansa Iberia Norwegian SAS KLM

Share of on-time arrivals (≤15 min delay) from OAG, 2018

Note: Flights are considered on-time if actual departure is within 15 min of scheduled departure. Source: OAG, Finnair internal data

Target

Weight and fuel efficiency are key drivers for unit cost improvement and sustainable operations

Planning and forecasting Flight

• ptimisation

Aircraft maintenance Airport

• perations

Data analytics improves

• perational excellence

Existing decision model

• Static history average flight data
• Av100+ data points
• Human decision-making

Improved customer experience and financial performance

Planned decision model

• Real-time passenger flow

flight data

• 1,000,000+ data points
• AI based decision-making

We will drive our unit costs down

2016 2015 7.01 2014 2017 LTM** 2018* 6.53 6.67 6.49 6.21 6.21 ASK Fuel CASK ex Fuel

Continually decreasing unit cost

+8%

* IFRS16 Adjusted ** Last 12 months (2018 Q4 – 2019 Q3) Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019

MODERN MODERN PREMIUM PREMIUM AIRLINE AIRLINE

Piia Karhu, SVP Customer Experience

Capital Markets Day 2019

Ole Orvér, CCO

Taking the company to a new level

MODERN MODERN PREMIUM PREMIUM AIRLINE AIRLINE

We offer more choice and ease to customers

CHOICE EASE VALUE PERSONALISED

38

NPS

Introduction of Premium Economy to capture demand from both new and existing customers

Premium Economy Economy class

• Economy that allows

customers to choose how to travel

• Elevated economy

experience with more

• nboard space and

upgraded dining

Business class

• Extreme comfort, full-flat

seats and top-class service

New fare brands to offer more choice and drive upsell

Premium Economy

A B C

Business

A B C

Economy

A B C

Comprehensive product portfolio allowing customers to choose how they want to travel

Food, beverages & lounge Wi-Fi & entertainment Extra baggage Travel retail Destination extras

Aurinkomatkat holiday packages Finnair Holidays Seats & upgrades

Optimised pricing to maximise conversion and value

Origin – destination revenue management set-up Advanced analytics Dynamic pricing Ancillary optimiser

OPTIMISED PRICING

Total renewal of sales and distribution capabilities

Better sales to more customers

• Better product information display
• Improved sales management and

personalisation

• Distribution costs optimisation
• Ability to distribute via new marketplaces

Finnair marketplaces have been renewed and enable better selling

*June 2019 ** Comparison is done month on month in new Finnair.com in open markets. *** Average increase in selected PoC markets

68 NPS*

in mobile app

New mobile app New Finnair.com

+20%**

increase in average

• rder value

+35%***

increase in conversion rate

Value comes from more customers, stabilised unit revenue and optimal distribution spend

MORE PRODUCTS BETTER PRICING BETTER SALES BIGGER NETWORK

2015 .. 2016 2017 2018 2019 ..

RASK development Illustrative ASK growth

CREA CREATING V TING VAL ALUE UE FOR SHAREHOLDERS

Mika Stirkkinen, CFO

Capital Markets Day 2019

Cash / Sales

Source: Company filings. Data are averages as of last available company filings. Note: Cash / Sales = Cash and cash equivalents / LTM Revenue European LCCs include Ryanair, easyJet and Norwegian; European full- service carriers include Air France-KLM, IAG, Lufthansa, SAS and Turkish

• Airlines. Norwegian figures adjusted for convertible bond and equity
• ffering.

Net Debt / EBITDA

Finnair’s strong capital structure supports growth

Source: Company filings. Data are averages as of last available company filings. Note: EBITDA = LTM EBITDA. For SAS, EBITDAR used instead of EBITDA for comparability and adjusted for hybrid offering. Norwegian figures adjusted for convertible bond and equity offering. 34% 30% 18% 0% 5% 10% 15% 20% 25% 30% 35% 40% Finnair European low-cost airlines European full-service airlines 3.47 2.57 1.44 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 European low-cost airlines European full-service airlines Finnair 257% 255% 74% 0% 50% 100% 150% 200% 250% 300% European low-cost airlines European full-service airlines Finnair

Gearing

Source: Company filings. Data are averages as of last available company filings. Note: Gearing = Net Debt / Equity before minority interest. Net Debt = Total interest-bearing debt – Cash and cash equivalents. For SAS, capitalized (7 x lease payments) operating leases are added to total debt to ensure comparability; adjusted for hybrid offering. Norwegian figures adjusted for convertible bond and equity offering. Total interest-bearing debt does not include unfunded pension obligations due to data availability.

Investments support sustainability and efficiency

Future planned investments until 2025 are estimated to be

3.5–4.0 Bn€

850 M€ are current commitments 2/3 of the investments are replacement and

1/3 growth

The investments drive better cash flow and dividend payout in the future The investments will result in less CO2 emissions and support fuel efficiency

Cash flow has been strong

Strong operating cash flow can be utilised when making future investments and majority will be financed with cash.

Dividend policy remains stable

Strong cash flow enables investments, dividend policy remains intact

Finnair pays on average at least 1/3 of the EPS as dividend during an economic cycle. Earnings trend and outlook, financial situation and capital needs are, however, taken into consideration.

100 200 300 400 500 600 2015 2016 2017 2018 2018* LTM** Net operating cash flow

171 220 282 383 504 513

0.2 0.4 0.6 0.8 1 1.2 1.4 2015 2016 2017 2018 Earnings per share Dividend

0.57 0.55 1.23 1.08 0.10 0.30 0.27 mEUR EUR

* IFRS16 adjusted ** Last 12 months (2018 Q4 – 2019 Q3) Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January - 30 September 2019

Cash to sales Finnair is currently well above the minimum ratio Gearing

Target more efficient, cycle-proof balance sheet

Gearing ratio is on a healthy level

0% 10% 20% 30% 40% Q3 2019 Minimum Cash to sales ratio 0% 50% 100% 150% 200% Q3 2019 Maximum Gearing ratio

Source: Finnair Interim report for 1 January - 30 September 2019

Hybrid capital The goal is to lower the hybrid capital in the future Share of owned aircraft

Target more efficient, cycle-proof balance sheet

Strong cash position allows to increase the share of

• wned aircraft ratio

50 100 150 200 Q3 2019 Future Hybrid capital 0% 50% 100% Q3 2019 Future Share of owned aircraft

mEUR

Source: Finnair Interim report for 1 January - 30 September 2019

Long-term strategic targets

Sustainability

Strategic metric

Comparable EBIT margin ROCE Net promoter scope (NPS) On-time performance (OTP) Employee NPS Profitability Customer satisfaction Employee satisfaction

Target

Comparable EBIT: > 7.5%* NPS: increasing (currently 38) OTP: 85% (up from 78% in 2018) eNPS: Increasing (currently 19) ROCE: > 10%* To be decided during Q1 2020

* Over the cycle (at constant fuel and f/x), 12–18 month build-up period

• Passenger traffic
• Ancillaries
• Cargo
• Travel Services

Focused strategy, integrated business and one culture driving profitability

Network & fleet Modern premium airline Operational excellence One culture & ways of working Sustainability

Shareholder value with profitability and efficient balance sheet

Shareholder value

Balance sheet efficiency Balanced ASK growth

• f 3–5% CAGR

Comparable EBIT > 7.5%* Modern Premium Airline = Stable RASK Operational Excellence = Decreasing CASK ROCE > 10%*

* Over the cycle (at constant fuel and f/x), 12–18 month build-up period

CL CLOSING REMARKS OSING REMARKS

Topi Manner, CEO

Capital Markets Day 2019

• From accelerated to sustainable profitable growth, focusing
• n connecting Europe with Asian megacities
• Continuous efficiency focus to capture economies of scale
• Driving growth in retailing revenue, stabilising unit revenue
• A frontrunner in sustainability to future-proof the business
• Continued focus on customer and people experience
• Fleet investments to boost efficiency and reduce carbon

footprint

• Strong cash flow generation used to finance investments

while keeping the dividend policy intact

Value creation for shareholders – sustainable, profitable growth

Culture & ways of working

Values

Commitment to care Simplicity Courage

Ways of working Leadership principles

Organise for success Work together Transparency & follow up Clear targets Accountability Agile Lean

Base salary Short-term incentives Long-term incentives FlyShare Employee fund

Compensation model aligned with strategic targets

• Common strategic targets
• Unit performance
• Strategy financial targets (profitability,

unit revenue, unit cost)

Open to all employees – promoting ownership of Finnair shares

Our compensation model Strategy Targets

Our refined strategy and ambitious new targets

Continued growth

In line with market growth

Strengthened customer offer

Leading to stabilised unit revenue

Increased efficiency

Leading to continually decreasing unit cost

Improved market position in Asia

* Over the cycle (at constant fuel and f/x), 12–18 month build-up period

• Comparable EBIT > 7.5%*
• Return on Capital Employed (ROCE) > 10%*
• On-time performance (OTP) > 85%
• NPS positive development
• eNPS positive development