F I N N A I R O Y J ANNUAL REPORT 2003 REPORT ANNUAL ANNUAL REPORT 2003 Most Experienced In Northern Skies www.fi nnair.com/2003 CONTENTS Business Review Key Figures 2003 .....................................................1 Finnair in Brief .........................................................2 Whose Wings Will Win? ...........................................3 Review by President & CEO ......................................4 Scheduled Passenger Traffi c ......................................6 Leisure Traffi c ........................................................10 Aviation Services ....................................................12 Travel Services .......................................................13 Risk Management ..................................................14 A modern fl eet in an Corporate Governance ...........................................16 expanding market Board of Directors and Auditors .............................18 Group Management ..............................................18 (Airbus A320, 1999-) Traffi c Information and Fleet ..................................19 Finnair and Society Foundation ...........................................................20 Towards new global Responsibility for Personnel ...................................21 horizons Responsibility for Environment ...............................23 (DC-8, 1969-1987) Responsibility for Tourism ......................................25 Financial Statements Board of Directors’ Report .....................................28 Fast connections Accounting Principles ............................................34 in an expanding Consolidated Income Statement .............................36 network Consolidated Balance Sheet ...................................37 (Caravelle, 1960-1982) Consolidated Cash Flow Statement ........................38 Finnair Plc Income Statement .................................39 Finnair Plc Balance Sheet .......................................40 Around Finland and Finnair Plc Cash Flow Statement .............................41 Europe in comfort Notes to the Financial Statements ..........................42 (Convair, 1953-1979) Shares and Share Capital .......................................51 Proposal on the Dividend .......................................54 Auditors’ Report ....................................................54 Financial Indicators 1999/2000-2003 .....................55 Links open to Turnover and Operating Profi t by Sector neighbouring and Business Area .................................................56 countries Calculation of Key Indicators ..................................56 (Junkers F13, 1924-1934) Information for Shareholders .....................................57 Contact Information ..................................................57 KEY FIGURES Business Review TURNOVER OPERATING PROFIT, EBIT PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES EUR Mill. EUR Mill. % of turnover EUR Mill. 1 700 120 14 140 1 650 100 12 120 1 600 80 10 100 80 1 550 60 8 60 1 500 40 6 40 1 450 20 4 20 1 400 0 2 0 1 350 -20 0 -20 1 300 -40 -2 -40 99/00 2000 2001 2002 2003 99/00 2000 2001 2002 2003 99/00 2000 2001 2002 2003 RETURN ON CAPITAL GEARING ADJUSTED GEARING EMPLOYED % % % 18 40 140 16 35 120 14 30 100 12 25 10 20 80 8 15 60 6 10 40 4 5 2 0 20 0 -5 0 99/00 2000 2001 2002 2003 99/00 2000 2001 2002 2003 99/00 2000 2001 2002 2003 REVENUE TONNE KILOMETRES NUMBER OF PASSENGERS PASSENGER LOAD FACTOR Mill. tnkm Mill. passengers % 1 600 8 75 1 400 7 70 1 200 6 1 000 5 65 800 4 600 3 60 400 2 55 200 1 0 0 50 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 I n t e r n a t i o n a l I n t e r n a t i o n a l Domestic Domestic Key figures 2003 2002 2001 2000* 1999/2000 Turnover EUR Mill. 1 558 1 665 1 631 1 658 1 593 EBITDA EUR Mill. 85 175 145 232 165 Operating profi t EUR Mill. -19 60 13 111 50 Operating profi t to turnover % -1.2 3.6 0.8 6.7 3.1 Profi t before extraordinary items and taxes EUR Mill. -22 54 9 120 57 Earnings/share Euro -0.19 0.43 0.08 0.95 0.37 Equity/share Euro 7.24 7.58 7.22 7.54 6.74 Gross capital expenditure EUR Mill. 82 102 281 247 252 Interest bearing net debt EUR Mill. -18 20 212 71 112 Equity ratio % 44.4 44.3 41.3 42.2 41.7 Net debt-to-equity (Gearing) % -2.9 3.1 34.6 11.1 19.6 Adjusted gearing % 102.7 82.0 116.6 72.7 89.2 Return on capital employed % 0.0 7.6 2.9 15.3 9.1 Average number of staff 9 981 10 476 10 847 11 051 11 462 *Proforma fi gures year 2000. 1 FINNAIR IN BRIEF Finnair’s goal is to be the leading Northern European aviation Capable partner service enterprise. Finnair is determined to be a capable and active partner that provides added value for its associates. Finnair is an expert European excellence on the Nordic dimension within the oneworld alliance. It is Finnair’s aim is to provide the most highly regarded quality of Finnair’s aim to consolidate its position by being a pioneer as travel related services, which are operationally the best in Europe well as a developer and user of new technology, as well as being Business Review and which are the most desirable choice for the customer. a benefi ciary of the synergies offered by the alliance. Market leader Preferred choice Finnair is the market leader in air transport out of and into Finnair’s aim is to be the most desirable, safe, reliable and friendly Finland as well as in gateway traffi c through Finland. choice for its customers. Finnair is systematically developing its service concepts on the basis of feedback from its customers. Values New technology enables us to provide an increasingly personal The values that guide Finnair’s operations always put the cus- and comprehensive service for our clients. tomer fi rst. Our priorities are constant development, honesty, openness, willingness to take responsibility, fairness and re- Professional personnel spect for others. A professionally skilled, motivated and committed work force is an asset that Finnair values highly. We actively work to pro- Sustainable, profitable growth mote job satisfaction as well as staff capabilities in a rapidly Finnair’s business objective is to achieve sustainable and prof- changing work environment. A management culture of reward itable growth. Geographical expectations are placed on the underpins our personnel strategy. growing Asian, Scandinavian and Baltic markets. Environmental strategy Competition strategy A responsible and open environmental policy is a permanent Finnair’s competition strategy is based on its high quality of feature of the company’s way of doing business. We pay active service, its status as one of the most punctual airlines in the attention to the most pressing environmental challenges, which industry and its comprehensive, continually expanding route are aircraft noise, engine emissions and waste management. network via its alliance partnerships. Finnair is safeguarding its strong competitive position by making effective use of various Dividend policy distribution channels and by developing its services. It is the aim of Finnair’s dividend policy to pay on average at least two thirds of the earnings per share as dividend during Capitalizing on e-business an economic cycle. Finnair will improve its competitiveness and cost effi ciency by taking advantage of the possibilities e-business offers in its Financial targets internal and external processes as well as in e-commerce and The basis for setting fi nancial targets is that the company pro- customer service. duces added economic value. The target is met if the six per cent operating profi t margin and 17 per cent EBITDAR ratio are surpassed. FINNAIR GROUP SCHEDULED LEISURE TRAFFIC AVIATION TRAVEL SERVICES PASSENGER Finnair Leisure Traffi c SERVICES Finland Travel TRAFFIC Oy Aurinkomatkat Finnair Technical Bureau Ltd (FTB) Finnair Scheduled - Suntours Ltd Ab Services A/S Estravel Ltd Passenger Traffi c Finnair Ground Area Travel Agency Ltd Aero Airlines A/S Handling Mikkelin Nordic Airlink Finnair Catering Oy Matkatoimisto Oy Finnair Cargo Oy Finncatering Oy Amadeus Finland Oy Finnair Aircraft Finnair Facilities Finance Ltd Management Oy 2 WHOSE WINGS WILL WIN? Business Review Give or take a year or two, Finnair is as old as commercial avi- In the development of e-business the key objectives are improving ation itself. Finnair today is an airline which has deep roots in operational quality, enhancing service fl uency and increasing decades of experience and a bright future ahead of it. cost-effi ciency. The digitalization of operations has had the The Wright brothers and the other pioneers of aviation effect of boosting the organization’s internal processes and changed the world. They offered their contemporaries a new improving customer service. perspective. Airborne, people could view things more clearly A programme to develop procurement activities is under and move more easily unhindered by earthly restraints. Dur- way within Finnair. The programme is one of the Group’s stra- ing the past century the world has shrunk as air travel has tegic priorities. In procurement, economies of scale have been expanded. achieved by reducing the number of subcontractors and by centralizing supply agreements. From technology to business strategy The fi rst seven decades of air travel were marked above all by the Future growth opportunities development of faster and more reliable aviation technology. Air transport has historically focused on the travel market within Commercially, air travel was within the reach of comparably and between Western Europe and North America.