Share Offer 1 Overview
SHARE OFFER 1 OVERVIEW
2 BUSINESS SEGMENTS
3 THE MARKET
4 FINANCIALS
5 THE OFFERING
6 OPPORTUNITY
2 1 OVERVIEW OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
HISTORY OF PIONEERING, ADAPTING, AND SUCCEEDING
1930 1940 1950 1960 1970 1980 1990 2000
1937 1952 1973–1981 1988–1995 2002–2006 Commercial flights Loftleiðir starts Name changed to Total renewal of all The operations were commence. Flugfélag international schedule Flugleiðir after the equipment - new downscaled after Akureyrar founded. between USA and merger of Loftleiðir Boeing aircraft. Focus 9/11. Better results, The name was later Luxemburg with a stop and Flugfélag on travel services. growth and renewal. changed to Flugfélag in Iceland. Low fares Íslands. Record oil Billions invested in Focus on the Íslands. make the company prices, inflation, aircraft, hotels, car profitability of each known as the hippie DC10 accident, job rental and subsidiary. airline. cuts and cost savings. maintenance centre.
1945 1969 1981–1987 1995–2001 First international Air Bahamas Years of total Expansion of the flights. Flugfélag acquired. A utilization. The route network (10- Íslands started flying competitor in the company used up all 15% annually). to Scotland and North-Atlantic market existing resources, Number of tourists Denmark. Loftleiðir bought and gained high load visiting Iceland began international incorporated. factors, offered low doubled in a 10 year flights in 1947. fares. period.
4 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
ICELANDAIR GROUP IS COMPRISED OF 13 SUBSIDIARIES
Icelandair Group hf.
Scheduled airline operations Global capacity solutions & Travel & tourism infrastructure aircraft trading
IG Invest
Support segment for the Group
5 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
THE OPERATIONS ARE FLEXIBLE
Structural changes made in 2001 and 2002
Revenue EBITDA EBIT
m.kr. m.kr. m.kr. 6,000 20.0% 4,500 12.0% 60,000
4,500 15.0% 45,000 3,000 9.0%
3,000 10.0% 30,000 1,500 6.0%
1,500 5.0% 15,000 0 3.0%
0 0.0% 0 -1,500 0.0% 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 EBITDA EBITDA margin EBIT EBIT margin
Source: Flugleiðir annual report 2003, FL Group annual report 2004. Individual subsidiaries replace departments Icelandair Group Holding pro forma result 2005. Resembles current Icelandair Group, but is not identical Permanent shift in passenger mix Via market down to 36% of passengers instead of ca. 50% earlier Unprofitable routes were closed in the 9/11 aftermath – trade-off between margins and growth Increase in Jet fuel price from 2002 to 2006 In 2002 multiple US airlines went bankrupt – Icelandair posted record profits
6 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
THE FLEET CONSISTS OF 60 AIRCRAFT
5 Boeing 737-300, 2 Boeing 737-400 7
21 Boeing 757-200 9 5 4 3
3 Boeing 767-300 1 2
1 Boeing 747-300 1
1 Boeing 757-300 1
6 Fokker Friendship, 2 Twinotter, 2 Dash 10
2 Airbus 320-200 2
3 Boeing 737-500 3
12 Boeing 737-800 12
Total: 60 11 5 8 7 19 10
7 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
RISK MANAGEMENT
Risks related to airlines are often specific to the industry
Fuel hedge ratio 2006-2007 Fuel volatility and fluctuations in supply and demand 100% 40-80% hedge 12-18 months in advance Fuel surcharges 75% Currency risk - $ / € fluctuations 40-90% hedge 12 months in advance 50% Interest rate volatility 40-80% hedge 25% Unhedged Seasonality - higher demand during the summer Hedged 0% Cross utilization of aircraft
Attractions during off-seasons 11.'06 12.'06 01.'07 02.'07 03.'07 04.'07 05.'07 06.'07 07.'07 08.'07 09.'07 10.'07 11.'07 12.'07 Economical effects - increased air travel during booms Extensive work on reducing fixed costs Terrorist incidents and epidemics – 9/11, SARS Rare flexibility to cope with such travesties
Icelandair Group actively manages and copes with risks it is subject to
8 2 BUSINESS SEGMENTS
Scheduled Airline Global Capacity Solutions Travel & Tourism Support segment for the Operations & Aircraft Trading Infrastructure Group
IG Invest OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM THE ROUTE NETWORK IS KEY
Unique geographical position of Iceland is the basis of the concept
Hub-and-spoke system with Iceland as the hub
Three markets served From Iceland (28% of total passengers) To Iceland (36% of total passengers) Transatlantic via Iceland (36% of total passengers) Wider variety of routes than the number of destinations implies High season: 89 routes \ 22 destinations Low season: 54 routes \ 14 destinations Via markets chosen to exploit niches Icelandair has close to 50% share on Oslo-Boston route where it offer shortest travel time No direct flight from Minneapolis to Icelandair’s Scandinavian destinations Very low market share on i.e. London-New York route where there is great competition with direct flights
Each market contributes roughly a third of revenues
10 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM FLEXIBLE NETWORK
16% capacity increase in 2007
USA KEF EUR The network is in continuous development 08:00 13:00 14:00 09:00 14:00 15:00 10:00 15:00 16:00 Experiments with new destination cities each 11:00 16:00 17:00 12:00 17:00 18:00 summer; Halifax, Bergen, Gothenburg 13:00 18:00 19:00 14:00 19:00 20:00 15:00 20:00 21:00 16:00 21:00 22:00 A new network added to the hub-and-spoke system in 17:00 22:00 23:00 18:00 23:00 00:00 the summer of 2007 19:00 00:00 01:00 The addition is a platform for further growth 20:00 01:00 02:00 21:00 02:00 03:00 22:00 03:00 04:00 23:00 04:00 05:00 00:00 05:00 06:00 01:00 06:00 07:00 02:00 07:00 08:00 03:00 08:00 09:00 04:00 09:00 10:00 05:00 10:00 11:00 06:00 11:00 12:00 07:00 12:00 13:00 The red line indicates the new addition to the route network The new network will increase the number of Icelandair passengers
11 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM AGGRESSIVE ONLINE STRATEGY
Online pioneers
Ticket sales online since 1996
17,900 visitors a day
543,000 members in Icelandair’s net-clubs, of which 70,000 are in Iceland
100,000 members in the Icelandair frequent flyer program (Vildarklúbbur)
Currently 56% of own sales originate online The target is that 70% of own sales to come through the websites
Online sales have increased by 50% YTD ’05 to ’06
12 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM THE MARKETING COMPANY OF THE YEAR
Actively markets Iceland as an exciting destination in 10 countries including Iceland
Built up the Icelandic tourism industry and laid the foundations for necessary infrastructure
Passengers will be 5 times the population of Iceland in 2006
IMARK marketing company of the year
Icelandair’s innovative marketing attracts attention
13 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM SAME CONCEPT APPLIED TO CARGO SERVICE
Flexibility to penetrate smaller markets
Icelandair Cargo offers scheduled freight to eight cargo destinations 5 own freighter aircraft Additional cargo services on 54 routes 11 cargo holds on Icelandair passenger aircraft Seasonality in cargo operations does not correlate with seasons in the passenger flights Synergies between passenger airline operations and cargo services Knowledge and expertise from passenger airline operations Shared use of resources Expansion opportunities
Demand for cargo services is increasing – both in Iceland and globally
14 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM FUTURE PROSPECTS ARE BRIGHT
Exciting years ahead
Focus on growth of the hub-and-spoke route network
New and more aggressive pricing structure, simplifying sales processes
Ongoing cost focus, e.g. crew and aircraft utilization
New seats and interior
Creating a platform for operating the new Boeing 787 “Dreamliner”
Enhanced flight experience an advantage
15 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM SYNERGIES BETWEEN PASSENGER AND CAPACITY OPERATIONS
The operation of Loftleiðir Icelandic has been growing fast in recent years
Knowledge of the airline market through decades of operations
Know-how capitalized upon by offering aircraft operation services to third parties
Diversification allows for high aircraft utilization The same aircraft can be used by Icelandair and Loftleiðir Icelandic and thus balances seasonality
Inherent seasonality of each operation is balanced by diversification
16 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM LOFTLEIÐIR AND BLUEBIRD
Strong companies in a growing market
Loftleiðir and Bluebird offer: ACMI (Aircraft, Crew, Maintenance, Insurance) Full charter solutions Majority stake in the largest charter and ACMI operator in the Baltic countries; LatCharter
Perceived as being strong partners, offering flexibility, reliability and experience
Extensive sales & marketing network
Know-how as well as strong brand recognition within this segment of the market
17 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM THE WORLD AIRCRAFT FLEET WILL DOUBLE IN THE COMING 20 YEARS
How the fleet grows Change in fleet
40,000 35,780 35,970 35,000 Regional jets Single aisle 30,000 Twin aisle 25,000 747 and larger 27,210 20,000 35,780 17,330 17,330 15,000 8,760
10,000 17,330
5,000
0 2005 fleet Retired passenger New airplane 2025 fleet 2005 fleet 2025 fleet airplanes deliveries
Source: Boeing, current market outlook 2006 Icelandair Group is in an optimal position to capitalize on the growing market
18 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM
CONSIDERABLE UNREALISED VALUE IN AIRCRAFT TRADING OPERATIONS
Icelandair has the necessary resources for aircraft trading
In-house expertise, experience, and business relationship with Boeing is the basis of the operations
Airbus’ A380 superjet misfortunes has made Boeing “Dreamliner” aircraft very valuable and in demand Only one (instead of original 25) A380 will be delivered in 2007 The aircraft market is currently very strong High demand from airlines Huge supply of equity from hedge funds The purchase price for the aircraft trading operations is 4.2 bn.kr. or the book value of investment
Market value estimated to be significantly higher
The B787-8 options are deep in the money, but are purchased at book value
19 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM PROMISING FUTURE FOR CAPACITY SOLUTIONS
The fastest growing segment
Offer wider range of services Capacity solutions for short, medium and long haul requirements More specific ACMI and Full Charter solutions Secure continuing growth Focus on the organic growth of Bluebird and Loftleiðir Continued strategic approach to external growth, e.g. LatCharter
Increase brokering activities Arranging for third party dry- and wet leases as well as aircraft brokering
Growth opportunities are ample
20 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM THE COMPANY HAS BUILT UP THE ICELANDIC TOURIST INDUSTRY
Number of foreign visitors doubled to 400,000 since 1995
800,000 visitors expected in 2020 or 5% annual increase
Infrastructure for visitors must be robust and attractions must be engaging A strategic decision to operate a coach service and car rental service because of lack of such services in Iceland. These businesses were later sold out of the group Icelandair Group operates two profitable hotel chains in Iceland with 1,500 rooms (Icelandair Hotels and Edda Hotels) Opened Nordica Hotel due to lack of luxury\conference hotels in Reykjavik
Food & Fun and Iceland Airwaves are strategic moves to balance seasonal fluctuations
21 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE CAPACITY\TRADING TRAVEL\TOURISM EXTENSIVE ROUTE NETWORK
GRÍMSEY Strong economy and industrial projects have ÞÓRSHÖFN boosted demand for domestic flights ÍSAFJÖRÐUR
The busiest destinations are to Ísafjörður, AKUREYRI VOPNAFJÖRÐUR Egilsstaðir and Akureyri
EGILSSTAÐIR Frequency to Akureyri has increased more KULUSUK than to Egilsstaðir since the constructions (Greenland) began
NERLERIT INAAT Flights to Greenland and Faroe Islands (Greenland) REYKJAVIK Aim to become the West-Nordic airline
VESTMANNAEYJAR ÞÓRSHÖFN FAROE ISLANDS
Handsome growth in coming years expected
22 3 THE MARKET OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
PASSENGERS
Total number of passengers travelling with Icelandair
International Passengers
In thousands 1.800
1.600
1.400
1.200 5.9% CAGR 1.000
800
600
400
200
0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Icelandair Group
Total passenger numbers have tripled in the last 15 years
24 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
VISITORS TO ICELAND
Total number of visitors to Iceland
Visitors to Iceland
In thousands 450
400
350
300 7.3% CAGR 250
200
150
100
50
0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Icelandic Tourist Board
The upward trend in the number of visitors to Iceland has been strong
25 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
MARKET SHARE
Icelandair does not operate in a monopoly market
Market share Market share in flights to Iceland has varied from 100 % 70% to 77% in the last three years To Iceland From Iceland 80 %
Competition in flights from Iceland is tougher, market 77 % 75 % share ranging from 46 to 50% 60 % 70 %
40 % 50 % Via market share roughly 0.8% on the most 48 % 46 % competitive airway on the globe 20 %
0 % The entry of other airlines, such as BA, SAS, and 2003 2004 2005 Iceland Express enlarged the market Source: Icelandair Group Increased the number of people travelling on the network Icelandair’s goodwill increased as people increasingly appreciated Icelandair’s services Competitors in Iceland include Iceland Express, British Airways, SAS, and various charters and travel agencies
Icelandair is in constant competition and strives for ever increasing competitiveness
26 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
MANAGING CAPACITY UTILIZATION
Available and sold seats
In thousands 300 Available seats Passengers 250
200
150
100
50
0 01.'03 04.'03 07.'03 10.'03 01.'04 04.'04 07.'04 10.'04 01.'05 04.'05 07.'05 10.'05 01.'06 04.'06 07.'06
Source: Icelandair Group
Managing seasonal fluctuations and capacity is key to success
27 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
CUSTOMER SATISFACTION
Customer satisfaction Cutting cost has been an industry 80.0% trend 76.1% 75.1% 75.3% Despite this, Icelandair customer 75.0% 73.4% 73.6% 73.8% 72.5% 71.3% satisfaction index is high
70.0% 69.4% Average industry level is 70% 70%: average industry trends 65.0% 08.'04 11.'04 02.'05 05.'05 08.'05 11.'05 02.'06 05.'06 08.'06
Would you recommend travelling with Icelandair Great majority of clients would 100% 91.9% 92.9% 91.9% 90.9% 88.7% 89.8% 89.9% 86.5% 84.5% recommend the airline 80%
60%
40%
20%
0% 08.'04 11.'04 02.'05 05.'05 08.'05 11.'05 02.'06 05.'06 08.'06 Source: Icelandair in-flight surveys
28 4 THE FINANCIALS OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
MERGER OF ICELANDAIR GROUP HOLDING & ICELANDAIR GROUP
Icelandair Group Holding an acquisition vehicle
Icelandair Group Holding founded by Langflug ehf., Ómar Benediktsson, and Naust ehf. An acquisition vehicle for the purchase of all shares of Icelandair Group Financed with 80% equity and 20% debt Purpose of acquisition vehicle was to reduce the amount of equity required for the purchase Icelandair Group Holding and Icelandair Group will be merged as of 1 November 2006 With the two companies merged before year end 2006, the statements will reflect the operations for the whole of 2006 Otherwise the statements would only have reflected the operations of the subsidiaries of Icelandair Groups since 15 October 2006, the date of Icelandair Group Holding acquisition of Icelandair Group Holding
30 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
OPERATIONAL FIGURES
2005 2006 pro forma 12M 9M Icelandair Group revenues increased Operating income significantly in the first nine months Transport revenue 29,448 27,648 of 2006 compared with the same Aircraft and aircrew lease 8,092 7,775 period of the previous year Other operating revenue 8,055 8,130 45,595 43,553 EBITDA and EBIT are considerably higher in Operating expenses absolute value than in the first nine months Salaries and other personnel expenses 15,463 13,008 of 2005 Aircraft fuel 7,315 7,389 Aircraft and aircrew lease 2,989 3,588 Financial items positive by 6 m.kr. in 2006 Aircraft servicing, handling, and communication 3,591 2,947 Favourable exchange rate Aircraft maintenance expenses 1,894 2,365 developments produced a net foreign Other operting expenses 9,390 8,536 40,642 37,833 exchange gain of 596 m.kr. One off items include Operating profit before depreciation (EBITDA) 4,953 5,720 Icelease sales profit Jan-Sep 87 m.kr. Depreciation -2,362 -1,878 Operating profit before net financial income (EBIT) 2,591 3,842 estimation for 2006 161 m.kr. 200 m.kr. net profit of Loftleiðir Net financial income NA 6 aircraft sale and lease agreements Sare of profit of associates NA 91 Cost of Share Offer, ICEX charges, and Profit before tax NA 3,939 advisory fees to manager 200 m.kr. Income tax expense NA 674 Profit for the period NA 3,265
31 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SCHEDULED AIRLINE OPERATIONS WITH 66% OF REVENUES
Icelandair with 54% of revenues
Revenues by business segment Revenues by subsidiaries 1% 3% 3% Icelandair 4% Scheduled Airline Operations 4% Loftleiðir 17% 5% Icelandair cargo
Air Iceland Global Capacity 6% 18% Solutions & ITS Aircraft Trading 54% 66% IGS 10% Bluebird Travel & Touristic Infrastructure Icelandair hotels
Iceland Travel 10% Shared services
Adjusted for intra company sales Not adjusted for intra company sales
2005 figures 2005 figures
32 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
STRONG BALANCE SHEET
35% equity ratio in third quarter 2006
Assets 9M 2006 Equity and liabilities 9M 2006 m.kr. m.kr. Operating assets 22.684 Total equity 27.110 Intangible assets 26.087 Investment in associates 1.744 Total non-current liabilities 20.211 Aircraft trading operations 11.499 Long term receivables 2.071 Credit institutions 4.102 Total non-current assets 64.085 Trade and other payables 11.858 Current maturities of non-current liabilities 11.110 Inventories 1.156 Prepaid income 4.009 Trade and other receivables 7.993 Total current liabilities 31.079 Cash and cash equivalents 5.166 Total current assets 14.315 Total liabilities 51.290
Total assets 78.400 Total equity and liabilities 78.400
Consolidated balance sheet for Icelandair Group Holding on 30 September 2006
After the merger of Icelandair Group hf. and Icelandair Equity 27,000 m.kr. Group Holding hf. Convertible bond 2,000 m.kr. Convertibility at share price 29,7 110 m.kr. of convertible bond booked as equity in the balance sheet
33 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
Capital expenditure
2006 is an unusual year
Capex overview 2003-2008 2003 m.kr. Actual2003 2006Estimation Hotel Nordica 600 m.kr. 7,000 5,974 6,000 ITS 600 m.kr. 5,000 2005 4,000 Hotel Nordica 300 m.kr. 3,000 2,377 1,793 1,979 Bluebird 2 engines 400 m.kr. 2,000 1,000 2006 YTD 0 Winglets 280 m.kr. 2003 2004 2005 2006 LatCharter 500 m.kr. ASE 250 m.kr. Two Dash 800 1,000 m.kr. Two Boeing 737-400 2,600 m.kr. 2007 Seats & entertainment system 750m.kr. Two B737-300 aircraft will be sold for approximately 1,800m.kr. Ongoing investment ca. 1,400 m.kr. The company has not been starved of investment
34 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
ENTERPRISE VALUE OF ICELANDAIR GROUP
Enterprise value is effectively the takeover price
Breakdown of Icelandair's enterprise value Book value of ATO equity 1,682 m.kr Subordinated loans 968
61,375 14,149 ATO assets 11,499
ATO debt ATO debt -9,990 Gross ATO 9,990 assets Net ATO 4,159 4,2 bn. 5,166 EV Gr oss Cash 42,060 operational ATO equity - Shares in SPC’s, each around an aircraft, debt Net debt usually 40-49% of total shares 24,385 15,060 Sub. loans - Loans to same SPC’s ATO assets - Deposits for Boeing Aircraft, most for delivery in 2007 Equity Equity ATO debt - Debt against ATO assets, refinanced outside Icelandair Group’s balance sheet when 27,000 27,000 aircraft are delivered and sold into SPC’s
Gross ATO assets booked at 4,2 bn.kr. higher than ATO debt
Market value of assets significantly higher
Cash and operational debt as per 24 October 2006 Most debt to be repaid in 2007 ATO debt and assets as per 30 September 2006
ATO – Aircraft trading operations
35 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
METHOD OF MARGIN APPROXIMATION
EU regulations limit display of pro forma accounts
Icelandair Group's P&L 2005 2006 9M Unfortunately it is illegal to present more than one pro forma account for companies applying for listing on the Icelandic m.kr. Revenues 45,595 43,534 Stock Exchange. This account has been chosen to be the statements for 2005. As a result of this limitation, some EBITDA 4,953 5,720 calculation is required to estimate operational results, for EBITDA margin 10.9% 13.1% the trailing twelve months, for Icelandair Group. EBIT 2,590 3,842 According to audited accounts for Q1-Q3 of 2006, EBIT margin 5.7% 8.8% Icelandair Group had EBITDA of 5,720 m.kr. and EBIT of 3,842 m.kr.
According to pro forma accounts for 2005, Icelandair Group If the seasonality of the five aforementioned subsidiaries was had EBITDA of 4,953 m.kr. and EBIT of 2,590 m.kr. the same as for the whole of Icelandair Group – which it is not - one could be forgiven to conclude that the Q1-Q3 The prospectus includes audited Q3 2005 accounts for five numbers for Icelandair Group would have been close to large subsidiaries of Icelandair Group (Icelandair, Icelandair 4,614 m.kr. and 2,754 m.kr. for EBITDA and EBIT Cargo, Loftleiðir Icelandic, Bluebird Cargo, and Air Iceland). respectively The other seven subsidiaries are; Icelandair Technical Services, Icelandair Ground Services, Icelease, Icelandair This in turn implies, again if seasonality is the same for the Hotels, Iceland Travel, Icelandair Shared Services, and IG five large subsidiaries as it is for the whole of Icelandair Invest. In these three quarters, these five subsidiaries Group, that EBITDA and EBIT for the 12 months ending contributed 87,5% of Icelandair’s Group EBITDA and September 30 2006 had been close to 6,058 m.kr. and 90,8% of its EBIT. EBITDA and EBIT for these five 3,679 m.kr. subsidiaries for Q1-Q3 of 2005 was 4,037 m.kr. and 2,499 m.kr. respectively
36 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
MULTIPLE COMPARISON
All listed Western-European airlines are considered
EV / EBITDA EV / EBIT To compare Icelandair Group’s latest RyanAir 11.6 14.8 operational results with its peers, some easyJet 22.0 35.9 SAS 5.6 16.6 approximations or estimations must be BA 5.3 10.5 prepared Austrian Airlines 7.2 N/A Finnair 8.9 39.3 Trailing twelve month EBITDA and EBIT Air France 3.8 9.5 can be guessed to be close to 6,058 Alitalia 10.2 N/A m.kr. and 3,679 m.kr. respectively by Lufthansa 5.2 14.2 using the five large subsidiaries as Iberia 0.9 1.3 proxies as explained on last page. Norwegian 25.4 109.5 Indications that quarter four 2006 Aer Lingus IPO 8.5 16.4 results will not be as good as in quarter Average 9.5 26.8 four 2005 Median 7.9 15.6 Icelandair Group’s EBIT goals are 5-7% Icelandair Group of total revenue, which yields Margin approximations 6.9 11.4 2,693 – 3,770 m.kr. for the trailing 5% EBIT margin N/A 15.6 twelve months 6% EBIT margin N/A 13.0 7% EBIT margin N/A 11.2 Dividing EV numbers of 42,060 with Source: Bloomberg, company accounts above EBIT and EBITDA figures
Figures based on results of the past twelve month (TTM, latest available figures as per 17 Oct 2006) results in multiples shown in the table Other European airlines not included; Air Berlin (not enough available information), Eurofly SPA (Regional low cost carrier), Gandalf SPA (Regional airline), Swissair Group (negative results), Skyeurope Holding AG (negative results)
37 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
MULTIPLE COMPARISON – ICEX 15
Icelandair Group will have the lowest value multiples on the ICEX 15
EV / EBITDA EV / EBIT EV to EBITDA multiples are published due to its common use in comparative valuations of Actavis Group hf. 11.9 17.4 companies Alfesca 10.6 16.7 Avion Group 9.3 17.4 Multiple comparison with companies on ICEX 15 is Bakkavör hf. 11.9 15.1 Marel hf. 20.0 33.6 more for informational sake than a pricing rationale Mosaic Fashions Ltd. 8.4 11.0 The companies operate in various industries and Össur hf. 18.9 29.3 geographical locations which renders direct Average 13.0 20.1 comparison doubtful Median 11.9 17.4
Icelandair Group Margin approximations 6.9 11.4 5% EBIT margin N/A 15.6 6% EBIT margin N/A 13.0 7% EBIT margin N/A 11.2 Source: Glitnir Research, 2006 earnings estimations. Icelandair Group TTM results (3Q 2005 – 3Q 2006)
38 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
RYANAIR'S TAKEOVER OFFER FOR AER LINGUS
Ryanair’s offer for Aer Lingus was 21.3x EBIT
In September 57% of Aer Lingus, the Irish flag carrier, was privatized
The offer price was €2.2 per share
In October, Ryanair, the Irish low cost airline, launched a public offer to acquire the entire issued share capital of Aer Lingus Group
The takeover offer price was €2.8 per share or 30% above IPO price
The offer was vigorously declined EV / EBITDA EV / EBIT Aer Lingus IPO 8.5 16.4 RyanAir offer 11.0 21.3
Icelandair Group Margin approximations 6.9 11.4 5% EBIT margin N/A 15.6 6% EBIT margin N/A 13.0 7% EBIT margin N/A 11.2
Source: Mergermarket
Aer Lingus 2005 results
Enterprise value calculated for the IPO equity value and the market equity value the day prior to the Ryanair offer
39 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SUMMARY OF MULTIPLE COMPARISON
Overall multiple comparison is favourable to the pricing of Icelandair Group
bn.kr.
51 bn.kr. (IPO EV/EBITDA multiple) Aer Lingus 51 - 78 78 bn.kr. (Ryanair offer EV/EBIT)
64 - 78 64 bn.kr. (Median EV/EBIT multiple) ICEX 15 78 bn.kr. (Average EV/EBITDA multiple)
48 bn.kr. (Median EV/EBITDA multiple) European 99 bn.kr. (Average EV/EBIT multiple) Airlines 48 - 99
0.0 20.0 40.0 60.0 80.0 100.0
The gray line indicates Icelandair’s enterprise value
40 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
EUROPEAN AIRLINES’ SHARE PRICE DEVELOPMENT
The stocks of most European airlines’ have fared well in the last twelve months
European airlines share price development since October 2006
200 Air France KLM Alitalia Austrian Airlines British Airways Easyjet Finnair
Lufthansa Ryanair SAS
150
100
50
0 10.'05 12.'05 02.'06 04.'06 06.'06 08.'06 10.'06
Source: Bloomberg
41 5 THE OFFERING OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
SHAREHOLDERS
Approximately 30%-35% free float
Indicative shareholder structure The offering amount is 4,995 m.kr.
18.4% Langflug 32.0% Naust Employees 945 m.kr.
5.2% Máttur Public 1,080 m.kr. Urður 6.7% Institutional 2,970 m.kr. Other Private banking 6.3% Pension funds Investment firms 5.6% 14.8% Management Mutual funds 11.1% Offering Banks Norway/Sweden Pension funds Other
Langflug and Urður have made lock-up agreements for 12 months and 75% of Naust’s investment is locked 6-12 months
Carefully constructed shareholder base
43 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
OVERVIEW OF THE SHARE OFFER
Pro rata distribution depending on requested amount
Issuer Icelandair Group Holding hf.
Size 27,000 m.kr.
Marketed to Public offer
Security type Ordinary shares
Price ISK 27.0
Offerer Glitnir
Manager Glitnir
Market maker Glitnir, Straumur
Public offer 27 Nov - 4 Dec, 2006
Allocation 5 Dec, 2006
Payment 11 Dec, 2006
Expected listing and trading 14 Dec, 2006
Exchange goals ICEX 15
44 6 OPPORTUNITY OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
INVESTMENT RATIONALE
New owners consider the company an excellent investment opportunity
Growing industry Visitors to and from Iceland are expected to continue to grow in numbers Prospects are good for cargo, leasing and trading operations Opportunities in further adding to the network Good company – well received by customers Surveys reveal that customers value the company’s services Has played a vital role in the build up of Icelandic tourism Icelandair’s route network is vital for Icelandic firms, enabling them to compete in the global arena
46 OVERVIEW SEGMENTS THE MARKET FINANCIALS THE OFFERING OPPORTUNITY
INVESTMENT RATIONALE
The business is cash generative
Cash flow business The group is consistently cash generative Operating results have been very healthy in recent years Resilience and flexibility Tight revenue management Each subsidiary pushed rigorously for profit Cross utilization of aircraft between business segments balances seasonality and increases aircraft utilization Iceland Airwaves and Food and Fun attract thousands of visitors during the off season Fair pricing Icelandair Group is fairly priced, considerable discount from peer prices
47 DISCLAIMER
The information contained in this presentation was obtained from the company and the owners of the company and other sources and has not been independently verified by Glitnir banki hf. The content of this document should be regarded as being insufficient to form an investment decision, for which further investigation analysis and consideration would be required. Glitnir banki hf. nor any of its direct or indirect holding companies, or any employees, agents, representatives or advisers make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in the presentation or otherwise made available nor as to the reasonableness of any assumption contained herein or therein and any liability therefore is expressly disclaimed. Nothing contained herein or therein is, or shall be relied upon as, a promise or representation whether as to the past or the future.
Glitnir banki hf. recommends that any prospective buyer of shares in the company thoroughly examines the Registration Document available in ICEX’s news system (news.icex.is).
48 SHARE OFFER