Finnair Group Financial Statement 1 January 31 December 2007
Finnair clearly above European level European network airlines grew five per cent, Finnair s scheduled traffic 18.5 per cent Finnair fastest growing Europe-Asia airline Half of the growth in Europe-Asia traffic taken by Finnair
Finnair kept its promises 2006 was a pit stop, 2007 delivered the result Profitability improved substantially in each quarter Return on capital employed hit new record Efficiency programme sharpened cost structure Record traffic growth and load factors Average price recovered late in year Unit costs clearly fell, despite high price of fuel 80 million euro efficiency programme implemented Improving trend in customer satisfaction
Improved results by efficiency programme 2007 2006 Change % Turnover mill. 2 180.5 1 989.6 9.6 EBITDAR excl. capital gains, fair values changes of derivatives and non recurring items 287.4 206.8 39.0 EBIT excl. capital gains, fair values changes of derivatives and non recurring items 96.6 11.2 - One off items/ capital gains 30.4-13.2 - Fair value changes of derivatives 14.5-8.8 - Operating profit/loss (EBIT) 141.5-10.8 - Profit before tax 138.9-14.7 -
Profit up every quarter in 2007 MEUR Change in EBIT per quarter (Excluding capital gains, fair value changes of derivatives and non recurring items) 60 50 40 30 20 10 0-10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4-20 -30-40 -50 2002 2003 2004 2005 2006 2007
Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q4 2006 Q3 2006 ROE and ROCE Rolling 12 months % 16 ROE ROCE 14 12 10 8 6 4 2 0-2 -4 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006
All business areas improved Scheduled Passenger Traffic s profitability clearly improved, even though unit revenues fell Leisure Traffic very profitable Finnair Technical Services competitiveness project is bearing fruit Cargo s average prices fell due to tighter competition, but demand is still strong Northport still loss-making; Norwegian and Swedish operations sold to Menzies Aviation
Continuous optimisation of business portfolio Horizon Travel Calypso FlyNordic Finnhandling AB Northport Norway AS Domestic stations
Unit costs decreased more than yield Change YoY 15 % Yield (EUR/RTK) Unit costs (EUR/ATK) 10 5 0-5 -10-15 -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2002 2003 2004 2005 2006 2007
Efficiency programme materialized 80 million euro efficiency programme completed Effect felt strongest in the second half of the year Profit impact for 2007 about EUR 50 million Full financial impact will begin in 2008 Jobs cut by over 600 in 2006-07 Annual recruiting for flight operations of 200
Business growing, number of staff stable Personnel 14000 Personnel on average 12000 10000 8000 6000 4000 2000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007
Unit costs dropping 2007 2006 Unit costs of flight operations* c/atk Unit costs of flight operations excl. fuel* c/atk Personnel expenses c/atk Fuel costs c/atk Traffic charges c/atk Ground handling and catering /passenger Sales and marketing /passenger Aircraft lease payments and depreciation c/atk Other costs c/atk -5.4% -7.4% -1.4% +1.0% -3.4% +8.3% +2.9% -9.7% -11.3% +1.8 % -3.5 % -4.1 % +24.1 % -3.9 % -1.0 % -7.9 % +1.9 % -3.1 % * excluding fair value changes of derivatives and restructuring items ATK = Available Tonne Kilometre
Productivity improved 590 Productivity (incl. Aero) (ATK/person) 12 m rolling sum 540 490 440 390 340 290 240 01.01 05.01 09.01 01.02 05.02 09.02 01.03 05.03 09.03 01.04 05.04 09.04 01.05 05.05 09.05 01.06 05.06 09.06 01.07 05.07 09.07 ATK 1000/person
High Jet fuel prices
Jet fuel price risk hedging (Scheduled traffic, 31.12.2007) 73% 68% 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3
Fuel costs a fifth of turnover 2003: 10.2% of turnover 2004: 12.5% of turnover 2005: 15.6% of turnover 2006: 19.4% of turnover 2007: 20,2% of turnover 2008: >22% of turnover Finnair scheduled traffic has hedged 70% of its fuel purchases for the next six months, thereafter for the following 24 months with a decreasing level.
Improved cash flow used for investments Cash flow January-December Cash flow statement (EUR mill.) Q1-Q4/2007 Q1-Q4/2006 Cash flow from operations 318 96 Investments and sale of assets Investments Change of advances and others -289-326 +37-286 -252-34 Cash flow from financing 217 66 Change in liquid funds +246-124 Liquid funds at the beginning 294 418 Liquid funds at the end with financial interest bearing assets at fair value 540 294
Strengthening balance sheet by cash flow and share issue Equity ratio and adjusted gearing % 120 Equity ratio Adjusted Gearing 100 80 60 40 20 0 2002 2003 2004 2005 2006 2007
Asia leads Finnair growth Demand grew during in 2007 by 32.6%, passenger numbers 27.1%, cargo 24.5% Passenger load factor 77.9% Business Class growing faster than average traffic 61 flights a week to Asia Non-stop flights to 10 destinations, daily to six Two new planes, totally 11 planes in Asian traffic End of year capacity will grow by over 20% Seoul new destination in June Growth in different markets in Asia diversifies risk
Capacity in Asia has grown rapidly China 2001: 3 flights/week 2007: 25 flights/week Japan 2001: 2 flights/week 2007: 15 flights/week Korea India Japan China Thailand 70 60 50 40 30 20 India 2006: 3 flights/week 2007: 13 flights/week 10 0 2001 2002 2003 2004 2005 2006 2007 2008
Long-haul network summer 2008 7 New York Helsinki Tokyo 4 Nagoya 4 Osaka 7 Soul 5 Beijing 7 Shanghai 7 Guangzhou 4 Hong Kong 7 Bangkok 7 Delhi 7 Mumbai 6
More than half of revenue from Europe-Asia Scheduled traffic passenger and cargo revenue Domestic Europe Asia US 4 % 12 % 41 % Asia-Europe gateway >50% 43 %
New planes enable future growth In 2007-14 A330/A340 fleet of maximum 15 planes in total In 2014-16 A350 fleet of maximum 15 planes in total
Most modern European fleet Average age of European fleet four years 29 Airbus A320 family aircraft A total of ten smaller Embraer 170s and six larger Embraer 190s in fleet, two larger aircraft arriving this year, two in next year New aircraft have increased flexibility and improve load factors, decrease costs and are eco-efficient
Share issue was fully subscribed 244 million euro equity financing for future investments Total investment in 2007-2010 around one billion euros over 300 million euros in 2007 around 250 million euros in 2008 over 400 million euros in 2009 Share issue proceeds invested in commercial paper and bank certificates of deposit
Operating model more complex Punctuality of European airlines fell last year by five per cent Network traffic more challenging than local traffic for Finnair, too Finnair among the best third of European airlines in punctuality No single reason for delays at turn of the year Modest standard of airports at leisure destinations a constant challenge Around one delay of more than 8 hours per 1,000 flights
We want to improve our present level of punctuality We will focus on ensuring that our fleet operates better in our new, more demanding operating model We develop production coordination Clarifies organisation of work Improving coordination of different functions in the Group Centralized control in irregularities Safety and security remains priority when developing functions This year, we will incentivise all personnel with a special punctuality bonus
Future outlook Asian demand will continue to grow Cargo demand still strong Two new A340 wide-bodied aircraft Two new Embraer 190 aircraft Leisure Traffic s outlook is relatively good Fuel costs will rise, but competitiveness will be maintained by keeping costs down Employment agreement negotiations with pilots in spring Poor visibility due to uncertain economic climate
Appendices
Improved results by efficiency programme Q4/2007 Q4/2006 Change % Turnover mill. 568.7 499.3 13.9 EBITDAR excl. capital gains, fair values changes of derivatives and non recurring items 70.6 27.9 - EBIT excl. capital gains, fair values changes of derivatives and non recurring items 24.4-24.4 - One off items/ capital gains 6.2 0.0 - Fair value changes of derivatives 0.2-1.4 - Operating profit/loss (EBIT) 30.8-25.8 - Profit before taxes 35.2-26.3 -
Average yield and costs EUR c/rtk & EUR c/atk 120 Yield (EUR/RTK) Unit costs (EUR/ATK) 100 80 60 40 20 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2002 2003 2004 2005 2006 2007
Segment results Excluding capital gains, fair value changes of Derivatives and non restructuring items MEUR Scheduled Passenger Traffic Leisure Traffic Aviation Services Travel Services Unallocated items Total 2007 Q4 20.0 9.7 3.0-0.9-7.4 24.4 2006 Q4-8.9 3.5-15.1 0.1-4.0-24.4
Investments and cash flow from operations MEUR 350 Operational net cash flow Investments 300 250 200 150 100 50 0 2002 2003 2004 2005 2006 2007
Aircraft operating lease liabilities MEUR 600 Flexibility, costs, risk management 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007 On 31 December all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments by seven, the adjusted gearing on 31 December 2007 would have been 35,1%
Finnair s vision 2017 Take further advantage of Helsinki s geographical position Via Helsinki a travel concept The airline of choice for quality and environmentally conscious air travellers in intercontinental traffic in the Northern Hemisphere A reliable and safe option in an uncertain world As large European airports become increasingly congested, Helsinki-Vantaa Airport has plenty of room for construction and possibilities for development Sustainable, profitable growth, an attractive investment
Finnair 2017 On top of the World
India opens up new opportunities Indian traffic makes it possible to open the fastest connections between North America and India Finland is situated along the shortest route Demand expected to grow significantly Russia s air traffic markets expected to open up in the future, offering opportunities to complement network
Success factors Safe Expert, professional people doing quality work Modern fleet Sound finances Trust Caring for customers and personnel Finnish Reliable, responsible, punctual, professional Creative Modern, developing, innovative Fresh Clean, stylish, refreshing, uncomplicated
Finnair Financial Targets Sustainable value creation Operating profit (EBIT) EBITDAR Economic profit Adjusted Gearing Pay out ratio EBIT margin at least 6% => over 120 mill. in the coming few years EBITDAR margin at least 17% => over 350 mill. in the coming few years To create positive value over pretax WACC of 9,5% Gearing adjusted for aircraft lease liabilities not to exceed 140 % Minimum one third of the EPS
Finnair s Financial Targets Description of targets Operating profit (EBIT) Turnover + other operating revenues operating costs EBITDAR Economic profit Adjusted Gearing Pay out ratio 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
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