Back in Black
Erno Hildén CFO
1 Finnair Capital Market Day, 3 Dec 2012 Improved business performance in Jan – Sep 2012...
Operational EBIT build-up Jan – Sep 2012 M€ 250.0
11,0 -1,7 200.0 11,1 11,5 -18,1 -19,3 150.0 20,6 -21,1 22,7
100.0 -96,3
147,7 50.0
38,6 0.0 -29,3
-50.0
2 Finnair Capital Market Day, 3 Dec 2012 ...driven by increased traffic and unit revenue improvement • Unit revenue per available seat kilometre (RASK) up by 8.7% in Jan-Sep 2012 as both passenger load factor (PLF, +4.5%-p) and yield per revenue passenger kilometre (RPK yield, +2.2%) improved y-o-y
Q3 RASK +8.7%
PLF RPK yield +4.5%-p +2.2%
3 Finnair Capital Market Day, 3 Dec 2012 Implementation of €140 million restructuring and cost savings program ahead of target
Target €140 million Savings progress to €140 2% million target 8% 25% TOTAL 57% 43% 8% maintenance 26% 74%
9% staff 43% 57%
other 102%
10% lease 105%
24% sales 109% 14% catering 148%
maintenance staff ground handling 38% 62% other lease sales catering fuel 155% ground handling fuel 0% 100%
4 Finnair Capital Market Day, 3 Dec 2012 New €60 million savings programme will ensure reaching our target of 6% operational EBIT margin
• The aim is to achieve a permanent reduction in costs of €60 million by the end of 2014
• The new programme complements the existing €140 million structural change and cost reduction programme launched in 2011
Savings timeline for in total €200 million sustainable savings from 2010 cost level
2012 2013 2014 2015
€90 million €50 million
€60 million
5 Finnair Capital Market Day, 3 Dec 2012 Hands-on approach to drive our costs down
• Dedicated project organisation and well defined responsibilities and timelines for each savings initiative
• Regular Executive Board level monitoring of advancements
• All Executive Board members and persons responsible for initiative implementation are incentivised in achieving the targets
• 9 Program streams and over 200 savings initiatives in total
6 Finnair Capital Market Day, 3 Dec 2012 Our financial targets
• Operational profit (EBIT) margin 6% – over €120 million in the coming few years • EBITDAR margin 17% – over €350 million in the coming few years • Economic profit – To create positive value over pretax WACC of 9.5% • Adjusted gearing <140% • Dividend policy pay-out ratio minimum one third of the EPS
7 Finnair Capital Market Day, 3 Dec 2012 The path towards our profitability target
Continuous Improved Revenue New Capital unit cost productivity maximi- product efficiency reduction and quality zation offering and strong (ex. fuel) balance sheet • Fixed cost • Fleet and •New leverage network destinations optimisation through •Next growth and • Operational generation outsourcing quality top Airbus 350 class XWB
8 Finnair Capital Market Day, 3 Dec 2012 Finnair fleet and future investments
9 Finnair Capital Market Day, 3 Dec 2012 Strong financial position supports business development and future investments
Strong balance sheet Good cash position over years % M€ despite significant investments 120 750
100 600
80 450 60 300 40
150 20
0 0
-20 -150 2008 2009 2010 2011 09/2012 2008 2009 2010 2011 1-9/2012
Equity ratio Net cash flow from operations Gearing Investment, gross Adjusted gearing Short term cash and cash equivalents
10 Finnair Capital Market Day, 3 Dec 2012 Fleet renewal is key for successful strategy implementation – leads to reduced unit costs and improved fuel efficiency
• First phase in 2008-2010 – In Long haul, MD11 fleet replaced with Airbus 330/340
• Second phase in 2012 Harmonized – Reducing 9 aircraft from European fleet Airbus fleet – Embraer traffic transferred to Flybe brings asset and crew utilization • Third phase in 2013-2014 benefits – Boeing 757 fleet to be replaced with Airbus A321 ERs
• Fourth phase from H2 2015 – Airbus 350 XWB, partly to replace current A340s, partly to increase capacity
11 Finnair Capital Market Day, 3 Dec 2012 Finnair invests in new technology
Gross cash flows totalling €1.2 billion M€ 400 • 5 Airbus 321 ER and 11 Airbus 350 350 XWB aircraft 300
250 • Net effect of investments is
200 materially lower – lease expiries for current aircraft 150
100
50
0 2013 2014 2015 2016 2017
12 Finnair Capital Market Day, 3 Dec 2012 We have several funding sources available for aircraft investments secured by aircraft as collateral, loan to values 70-100% depending on the vehicle
In the long-run, owning aircraft is Asset Export the most cost- backed credit efficient way to loans finance fleet.
Finnair’s strategy is >50% (Japanese) Asset ownership of the operating backed core fleet lease bonds
13 Finnair Capital Market Day, 3 Dec 2012 We can finance investments with our increasing debt capacity
Unencumbered 9/2012 Encumbered 9/2012 Unencumbered 12/2013 Encumbered 12/2013
12 12
10 10
8 8 7 8 3 3 6 6 3
4 4 2 4 2 7 2 6 5 5 5 5 2 4 4 4 2 4 4 3 3 3 22 0 0 A-319 A-320 A-321 A-330 A-340 E170 E190 ATR-72 A-319 A-320 A-321 A-330 A-340 E170 E190 ATR-72
• Currently 26 unencumbered aircraft = 68% of the total fleet value of €1.05 billion • In 15 months 35 unencumbered aircraft
14 Finnair Capital Market Day, 3 Dec 2012 Our funding strategy is to use different funding sources to ensure the lowest total funding cost with maximum operational flexibility and continuity
• Fleet investments through secured financing, unsecured loans for refinancing and flexibility – Commercial paper programme of €200 million, €61 million outstanding. – Revolving credit facility of €200 million expires in Q2/2013. Unutilized, last time of utilisation 2002. Only facility with a covenant.
• Other potential funding sources – Non-core fleet sale and leasebacks – Asset optimization – Pension loan – Senior unsecured bond
15 Finnair Capital Market Day, 3 Dec 2012 We have a balanced loan maturity profile
Maturing loans in total €598 million M€ Guarantee facility 200 (backed by mortgaged 4*A330) to be renewed, 175 the underlying EIB loan expires in 2019 150 89
125
100
75 134 131 50 101
25 54 53 35 0 10‐12/2012 2013 2014 2015 2016 2017=>
16 Finnair Capital Market Day, 3 Dec 2012 Our actual lease liabilities are lower than reported due to expiring lease agreements
Lease commitments, in total €186 Aircraft operating lease liabilities million Lease liability based on formula M€ (7*annual rentals) 80 600 70 500 60
50 400
40 300
30 200 20 100 10
0 0
Operating leases are off-balance sheet liabilities. When capitalised using the common method of 7*annual aircraft lease payments, the adjusted gearing on 30 Sep 2012 is 90.1%. 17 Finnair Capital Market Day, 3 Dec 2012 Finnair has the strongest balance sheet in the Nordics
Key ratios as of 30 September 2012 >400% % 200
175
150
125
100
75
50
25
0 Equity ratio Gearing Adjusted gearing
Finnair SAS Norwegian
• Norwegian adjusted gearing >400% • Pension liabilities excluded from SAS adjusted gearing
18 Finnair Investor Presentation - Nov 2012 Summary
• Profitable Q3 result
• Cost savings are progressing as planned
• We have a strong balance sheet
• Finnair will be the first European airline to fly new A350s in long haul traffic
• We have a good funding position to finance future investments
19 Finnair Capital Market Day, 3 Dec 2012