Finnair Investor Presentation February Hybrid Roadshow Presentation September 2015

Transcription

1 Finnair Investor Presentation February 2016 Hybrid Roadshow Presentation September Finnair September 2015

2 Finnair at a glance Organisation set-up and key shareholders Brief history of Finnair s long-haul expansion Others 44.2% Airline Business State of Finland % Travel Services Finnair founded on 1 November First talks of long-haul expansion to the USA 1930 s Flights from Helsinki (via Copenhagen and Amsterdam) to New York start 1969 Finnair receives its first wide-body aircraft, the DC-10 which carried 300 passengers 1975 Start of Far Eastern expansion with direct flights to Bangkok 1976 First European carrier to offer non-stop flight to Tokyo 1983 First Western European airline to operate non-stop routes between Europe and China 1988 Operating scheduled flights to 18 long-haul destinations across Asia and North America, in Today addition to over 60 European destinations Strategic focus areas Customer excellence (across 2 classes of travel 2 ) Intercontinental growth with Northeast Asia focus People and Finnair culture Digitalisation Funding and capital structure World-class operations Key revenue sources and split 1. Stake held via Prime Minister s Office Travel 8.9% 3 2. Business Class and Economy; long-haul and short-haul variations Services 3. Revenue after Group eliminations Travel agencies 4. Includes: extra baggage fees, advance seat selection, upgrade options, Economy comfort product in long-haul, Sky Bistro in short-haul economy, Wi-Fi in 2 long haul economy 5. In 2014 included: Travel Retail Store operations, Finncatering business 2,324 MM (2015) Airline Business 91.1% % 4.9% 8.7% 3.7% Passenger transportation Ancillary 4 Cargo Other 5 Tour operators

3 Finnair: The Finnish flag carrier, focussed on connecting Europe and Asia, with a compelling strategy in place to achieve its financial targets 1. Well positioned in the domestic market to benefit from stable incumbent traffic and expected growth from Asian markets 2. Favourable geographic location and modern, efficient airport (hub) infrastructure 3. All-Airbus wide-body fleet delivers strong economic benefits 4. With delivery of the new technology A350, the foundation of its strategy of highly disciplined and profitable growth 5. Cost efficient growth of feeder capacity as the average size of narrow body aircraft increases 6. Track-record of achieving cost savings, turnaround in Net cash position and demonstrated capital discipline, relatively low net capital commitments for coming years 3

4 1 Strong domestic positioning and market dynamics Key highlights Finnish flag carrier, with over 55% market share in traffic from Helsinki to Europe Supportive market dynamics, with strong growth expectations, amongst highest growth profiles of largest European airline industries Relatively small market size has limited LCC presence historically, with only Norwegian as material competitor in point-to-point traffic Leading market position 1 Others 45% Finnair 55% with limited LCC presence 3, safeguarding leadership Ryanair easyjet Norwegian Vueling germanwings in a stable and growing market 2 Finland vs 5 largest European airline industries CAGR (%) 5.3 7, , , , , , value CAGR value CAGR Market value ( MM) 1. MIDAS capacity data for Finnair s Helsinki-Europe destinations market share, excluding seasonal routes; L12M 2. MarketLine Industry Profiles: Airlines in Italy, Finland, Germany, France, United Kingdom and Spain, May 2015; value is defined as the total revenue obtained by airlines from transporting passengers from all airports (departures) within specified country (excluding transit arriving and departing on same flight code); CAGR in $ terms 3. OAG data 2015, as of September 2015: green tick indicates market share of carrier in specific market is material (3% or more)

5 1 Supported by core strategy to connect Europe and Asia Key highlights Finnair offers smooth and fast connections in the northern hemisphere, with specific focus on Asia Core Finnair strategy is to double Asian traffic by 2020, from 2010 levels Currently, Finnair serves 15 1 Asian destinations across 9 countries, to a mix of financial centres and leisure destinations Finnair also serves 3 North American destinations 2 Furthermore, as member of the oneworld alliance and the Japan-Europe / Atlantic Joint Business Agreements, Finnair benefits through partnerships with among others: Japan Airlines and British Airways for Europe / Japan traffic and American Airlines for 5 North Atlantic traffic Core strategy of connecting Europe and Asia... Over 60 European cities 1. Fukuoka and Guangzhou to be added in summer New York, Miami and Chicago in the US 13 Asian megacities... Supported by Joint Business Agreements to strengthen position and geographical reach... Atlantic (AJB) Japan-Europe (SJB)... in addition to membership in the broader oneworld alliance

6 1 Positioning Finnair well to capture growth from Asian markets Key highlights Asia has been one of the fastest growing aviation markets in recent years and is set to continue to account for a greater share of the global aviation market in the short to medium term With higher exposure to Asia than peer European network carriers, Finnair is ideally positioned to benefit from future growth in Asian aviation markets Concurrently, the diversity of Asian destinations served helps to reduce the exposure to individual country macro shocks on Finnair 6 Exposure to Asia largest amongst peer European network carriers with significant market share on Europe to Asia routes 4.6% 6.0% 8.1% 5.2% RPK contribution (%) Peers selected on basis of market share in excess of 4.0% 2 and RPK (Revenue Passenger Kilometers) split reporting 2. Midas capacity data for Europe to Asia Finnair routes only, seasonal routes not included, July 2015; IAG market share refers to BA only 3. Airbus GMF Finnair Air-France KLM Lufthansa IAG Asia Other Market share (%) 2... Positioning Finnair to benefit the most from growth in Asian aviation markets 6.7% 3.6% Others 12% Middle East 9% Europe 25% Middle East 13% Europe 21% Total RPK 2014: 6.2 Trn 3 Total RPK 2034: 15.2 Trn 3 Others 13% 20-year CAGR (%) Asia-Pacific 29% North America 25% Asia-Pacific 36% North America 17% 5.7% 2.5%

7 2 Favourable geographic location and modern, efficient airport (hub) infrastructure Key highlights Geographical advantage (proximity) to serve fastgrowing Asian markets, allowing most direct and shortest routes Only European carrier achieving 24 hr aircraft rotations on many Asian routes 1 On average over 2 hr less total travel time relative to 1-stop itineraries via European hubs and over 4 hr less total travel time relative to 1-stop itineraries via Middle- Eastern hubs 3 Benefit from Helsinki- Vantaa Airport s hub strategy, focused on competitive positioning (passenger convenience / experience and cost) in Europe Asia traffic segment 7 Helsinki advantageous geographic location... Sustainable competitive advantage based on location: Tokyo Hamburg Direct (no service) km Via Helsinki km Via Frankfurt km Via Dubai km 1. Finnair is the only EU carrier able to serve Asian routes in 24 hr rotations, with Singapore as the only current exception 2. FINAVIA airport charges comparison sample: cost calculator implying average cost per Pax for Airbus A , based on: international routes, MTOW 275 tonnes, MLW 192 tonnes, capacity 260, load factor 75% 3. Average time saved, compared to major European and Middle-Eastern hubs... Allows Finnair to be the only European carrier able to operate 24 hr aircraft rotations on all but one of its current Asian routes 1... Sustainable competitive advantage and cost benefits: Very high aircraft utilisation in long-haul traffic (highest utilisation rates of any airline in terms of block hours for A330s in operation) Less need for additional crew members Lower fuel consumption due to shorter flight times Eco smart, sustainable choice as shortest route with a stop over generates less emissions... Whilst also benefitting from Helsinki-Vantaa Airport s comparatively low costs vs selected other main airports in Europe Average cost per pax 2 ( ) HEL CPH ZRH VIE FRA

8 3 All-Airbus wide-body fleet delivers strong economic benefits Key highlights For a carrier of Finnair s size, an all-airbus fleet increases operational efficiency and flexibility by allowing centralised spare parts, more streamlined maintenance programs, and optimised crew allocation With an average fleet age of 10.1 years 1, Finnair is on the lower end of key peers The replacement of older A340s with the new A350 aircraft will further improve the average fleet age comparison with key peers (the A340 is one of the oldest aircraft types in Finnair s fleet, with an average age of 10.7 years 1 ) 8 Overview of Airbus fleet: 46 aircraft in total 1 Aircraft Type Owned 2 Leased Airbus A Airbus A Airbus A321* 4 7 Airbus A Airbus A340 (3) 5 - Airbus A350 (4) 1 2 Average fleet age vs peer European network carriers Lufthansa Air France-KLM Aer Lingus 1. Finnair fleet as of 31 Dec 2015, excluding Embraer fleet operated by Norra 2. Owned or finance lease Will be phased out by 2017, being replaced by the A Total outstanding orders: 19; 3 deliveries to date 5. Reported average fleet age for peers, as of: 31 December 2014 for Aer Lingus, IAG and Lufthansa; 31 March 2015 for Air France-KLM; and 31 July 2015 for SAS SAS IAG Finnair Years 1,

9 4 With delivery of the new technology A350, the foundation of its strategy of highly disciplined and profitable growth Key highlights Finnair was the first European carrier to receive the new Airbus A350 in October 2015, allowing: Enhanced in-flight service offering 10-20% more capacity 2 An estimated 30% cost advantage 3 The replacement of the existing A340 fleet by the new A350 (to be completed by 2017) will increase Finnair s longhaul capacity by approximately 10-20%, supporting the core strategy to increase revenues from Asia 9 Finnair was the first European carrier to receive the new generation A350 in October Which in addition to significant cost advantages 3, will provide unique capacity flexibility Front Business compartment Flex compartment 1. Long-haul capacity evolution with A350 deliveries, baseline plan 4 Aircraft 0 Convertibility allows c. 10% capacity adjustment Last deliveries in 2023 A330 A340 A Compared to Finnair s existing A Estimated 30% cost advantage per seat compared to Airbus A340, Airbus Estimate at 2014 fuel prices 4. Baseline plan, with flexibility to scale up or down based on market conditions

10 5 Preparing for long haul growth: average size of narrow body aircraft increases, more feeder capacity with new deliveries Key highlights Larger aircraft, younger fleet New deliveries, more seats Capacity balance with the current bank structure requires larger aircraft for feeder traffic Larger average aircraft size supports cost efficient capacity deployment Aircraft Type Owned 2 Leased Airbus A Airbus A Airbus A321* 4 7 Airbus A New deliveries of leased A321 s from summer 2016 onwards: Temporary leases for 2 aircraft for summer 2016 Long term leases for 6 new aircraft in More seats to Airbus narrow bodies: 6 to 13 additional seats per aircraft Airbus A Embraer fleet downsized Airbus A

11 6 Track-record of achieving cost savings Key highlights Demonstrated ability to achieve and outperform on structural cost savings programs, leading to significant reduction in unit costs since 2010 During , the cost savings program delivered annual cost reduction of c. 217 MM compared to 2010, outperforming initial 200 MM target Re-focus activities on core Airline Business between , as evidenced by outsourcing of ground handling operations, sale of catering unit to LSG in 2014 and sale of Finnair Travel Retail s shops at Helsinki-Vantaa Airport to World Duty Free also in Savings from Cost Savings Program ( ) achieved in all categories 1... Ground Operations 9% Sales & Distribution 9% Other 13% Catering 13% Fuel 5% Fleet 14% Total savings: 217 MM p.a. relative to 2010 Personnel Related 21% Maintenance 16% 1. Split of cost savings across different cost categories 2. ASK (Available Seat Kilometers ), CASK (Cost of Available Seat Kilometers)... Reducing unit costs by 13.4% from 2010 levels Bridge to 2014 CASK (excl. fuel cents / ASK) % -2.9 % -2.3 % -2.1 % -1.8 % 2.5 % -1.1 % -0.6 % 0.0 % 4.31

12 6 Turnaround year 2015: Revenue and operational result returned to growth Key highlights Revenue grew in line with new capacity And Operational result returned to profit Full-year operational profit of 23.7 M 2, Q4 was fifth consecutive quarter of result improvement Growth begun with the A350 entry into service Record number of 10.3 million passengers Good result performance from Travel Services 2,450 2,400 2,350 2,300 2, Ancillary revenue grew markedly (by 42% in Q4) and was over 100 M 2,200 2, ASK s (Available Seat Kilometers) grew by 3.1% in 2015, first A350 deliveries in Q4

13 7 Net cash position and demonstrated capital discipline Key highlights Strong cash position to reduce impact of moderate industry shocks and support continued business operations and near-term investment Strong balance sheet position with low gearing ratio Low adj.net debt / EBITDAR supported by strong cash flow, Hybrid Bond Issuance and Sale-Leasebacks 66% of fleet value unencumbered 4 Strong cash position 1 and improving conversion Adj net debt 2 composition and leverage to LTM EBITDAR 3 MM Strong balance sheet and falling gearing ratio % Net operating cash flow Divestments 448 Gross investments Liquid funds MM Adj. Net Debt/ LTM EBITDAR Cash funds calculated as: cash and cash equivalents + other financial assets 2. Calculated as: LT debt + ST debt + capitalised operational lease expenses (7x) (cash equivalents + other financial assets) 3. Earnings Before Interest Tax Depreciation Amortisation and Rent 4. Of all aircraft owned by Finnair, as at 31 December Equity ratio Gearing Adjusted gearing

14 7 Relatively low net capital commitments* for coming years Key highlights Net investment commitment of 276 M for Total capital commitments amounted to M at the end of Capital commitment for 2016 & 2017 amounted to 745 M but when decreasing committed divestments, the net commitment are 376 M in total. MM * Excluding other planned, but not yet contractual investments and divestments * Excluding other planned, but not yet contractual investments and divestments

15 Outlook for 2016 and financial targets Outlook for 2016 as announced on 10 February 2016 Despite of the demand outlook for passenger and cargo traffic in Finnair s main markets involving renewed uncertainty, Finnair estimates that, in 2016, its capacity and revenue will grow. The lower price of jet fuel supports Finnair s financial performance in In accordance with its disclosure policy, Finnair will issue guidance for its expected full-year operational result in connection with the January- June interim report. Financial targets confirmed on 7 May 2015 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% 15

16 Thank you Kiitos 16

17 Appendix 17

18 Q4 revenue increased by 6%, operational result in profit Revenue increased 5.9% to 586 M Growth in passenger traffic & Travel services Ancillary sales + 42% Revenue from Cargo decreased Operational result* turned to slight profit of 0.8 M, increased by 10 M Fuel cost -21 M, OPEX +21 M, +3.8% in total Fx impacts increased both unit revenues and costs Revenue, M Q1 Q2 Q3 Q * Operational result (EBIT), excluding non-recurring items and changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves. Finnair Q4 & FY 2015 Result, 10 February Operational result, M Q1 Q2 Q3 Q

19 Non-recurring items contributed 100 M to operating result Non recurring items included: The sale and leaseback of two new A350 aircraft Negative non-recurring items related to the phasing out of A340 aircraft The sale of certain properties at Helsinki Airport to Finavia The sale of Estravel 19 Finnair Q4 & FY 2015 Result, 10 February 2016

20 Q4: Positive trend in passenger traffic and travel services, revenue from cargo decreased M -18 % +9 % -13 % 585 M Passenger traffic ticket revenue, ancillary sales and travel services revenue grew significantly y-o-y % +8 % Q Q Cargo revenue decreased, partly reflecting the discontinuation of cargo freighter flights in Other Group External revenue decreased mainly due to sale of Travel Retail store operations in October Ticket revenues Cargo Travel Services Ancillary services Other revenue Finnair Q4 & FY 2015 Result, 10 February 2016

21 Q4: Strong development in passenger traffic North America ASK mill km % RPK, mill km % PLF% %-p Ticket revenue 46.4 % Europe ASK mill km 3, % RPK, mill km 2, % PLF% %-p Ticket revenue 8.4 % Asia ASK mill km 3, % RPK, mill km 3, % PLF% %-p Ticket revenue 4.2 % Domestic ASK mill km % RPK, mill km % Cargo* ATK mill km % RTK mill km % Total traffic ASK mill km 7, % RPK, mill km 6, % PLF% %-p Ticket revenue 21.6 % Ticket Revenue Split, M 6% 10% 44% 40% Cargo revenue % Europe Asia Domestic North America PLF% %-p Ticket revenue 9.4 % ASK: Available Seat Kilometres RPK: Revenue Passenger Kilometres PLF%: Passenger Load Factor, % ATK: Available Tonne Kilometres RTK: Revenue Tonne Kilometres Ticket revenue: passenger revenue including leisure flights Atlantic/Europe-Japan Joint Business contribution included in the figures. *Includes cargo freighter flights 21 Finnair Q4 & FY 2015 Result, 10 February 2016

22 Key figures Key figures ( MM, unless otherwise specified) Q Q Change, % Change, % 2013 Revenue and result Revenue , , ,400.3 Operational EBITDAR Operational EBITDAR, % of turnover Operational result > (36.5) > Operational result, % of turnover (1.6) 2.6 (0.5) Operating result, EBIT > (72.5) > 200 (7.9) Net result > (82.5) > Balance sheet and cash flow Equity ratio, % Gearing, % (50.0) 19.9 Adjusted gearing, % (61.7) 79.2 Gross capital expenditure > > ROCE, 12 months rolling, % 12.2 (6.5) ROE, 12 months rolling, % 14.4 (13.8) > Net cash flow from operating activities > > Debt and leverage Adjusted net debt Adjusted net debt / EBITDAR x 1.4x 3.3x 2.6x Calculated as: LT debt + ST debt + unfunded pension liabilities + capitalised operational lease expenses (7x) (cash equivalents + other financial assets)

23 Traffic key figures Key figures Q Q Change % Change % Traffic data, unit costs and revenue Passengers, 1,000 2,532 2, ,294 9, Available seat kilometres (ASK), million 7,915 7, ,836 30, Revenue passenger kilometres (RPK), million 6,192 5, ,592 24, Passenger load factor, % p p Unit revenue per available seat kilometre, (RASK), cents/ask * RASK at constant currency, cents/ask * (1.1) (1.0) Unit revenue per revenue passenger kilometre (yield), cents/rpk * Unit cost per available seat kilometre (CASK), cents/ask * (2.7) (0.2) CASK excluding fuel, cents/ask * CASK excluding fuel at constant currency, cents/ask * *Unit revenue per available seat kilometre (RASK), unit revenue per revenue passenger kilometre (yield) and unit cost per available seat kilometre (CASK) for the comparison year 2014 have been restated to better reflect the changes in the Group structure. RASK and CASK at constant currency exclude the impact of exchange rates. 23 Finnair Q4 & FY 2015 Result, 10 February 2016

24 Operational result 2014 vs. 2015, M 24 Finnair Q4 & FY 2015 Result, 10 February 2016

25 Airline Business improved y-o-y Revenue by quarter, M Operational result by quarter, M Q1 Q2 Q3 Q Q1 Q2 Q3 Q Finnair Q4 & FY 2015 Result, 10 February 2016

26 Strong result in Travel Services Revenue by quarter, M Operational result by quarter, M Q1 Q2 Q3 Q Q1 Q2 Q3 Q Finnair Q4 & FY 2015 Result, 10 February 2016

27 Appreciation of USD dampened the decrease of fuel cost throughout the year Q vs. Q vs Q hedging loss 35.9 M 2015 hedging loss M 27 Finnair Q4 & FY 2015 Result, 10 February 2016

28 Changes in Balance Sheet; Cash funds and Equity increased Assets, M Equity & Liabilities, M 28 Finnair Q4 & FY 2015 Result, 10 February 2016

29 Fuel and currency sensitivities & currency split Fuel sensitivities 10% change, Hedging ratio 10% change taking (rolling 12 months from date of financial statements) without hedging hedging into H H account Fuel EUR 32 million EUR 14 million 68% 53% Currency distribution % Currency sensitivities USD and JPY (rolling 12 months from date of financial statements) Hedging ratio (rolling 12 months from date of financial statements) Sales currencies 10% change without hedging 10% change, taking hedging into account 29 EUR USD* see below see below see below JPY EUR 18 million EUR 9 million 67% CNY KRW SEK Other Purchase currencies EUR USD* EUR 56 million EUR 10 million 81% Other Finnair Q4 & FY 2015 Result, 10 February 2016 * The sensitivity analysis assumes that the Chinese yuan and the Hong Kong dollar continue to correlate strongly with the US dollar..

30 Rolling Hedging policy Hedging positions as of 30 September 2015 Hedging ratio for H1 2016: 68% Finnair hedges jet fuel consumption 24 months ahead within the limits defined in the hedging policy. Finnair s fuel purchases are 68% hedged for H and 53% for H The company protects itself against the risks of currency, interest rate and jet fuel positions by using different derivative instruments, such as forward contracts, swaps and options. 30