FINNAIR PLC FINANCIAL STATEMENT RELEASE FEBRUARY, 9 2012 at 09:30 EET
In the fourth quarter Finnair’s turnover increased by 11.7% and the operational result was -31.6 million euros.
| Key figures |
| 10-12/ 2011 | 10-12/ 2010 | Change % |
1-12/ 2011 |
1-12/ 2010 | Change % | ||
| Turnover and result | |||||||
| Turnover | EUR mill. | 577.4 | 516.9 | 11.7 | 2 257.7 | 2 023.3 | 11.6 |
| Operational result, EBIT* | EUR mill. | -31.6 | -6.7 | - | -60.9 | -4.7 | - |
| Operational result % of turnover | per cent | -5.5 | -1.3 | -2.7 | -0.2 | ||
| Operating result, EBIT | EUR mill. | -30.1 | -4.7 | - | -87.8 | -13.3 | - |
| EBITDAR | EUR mill. | 26.4 | 38.0 | -30.5 | 139.6 | 176.6 | -21.0 |
| Result before taxes | EUR mill. | -38.2 | -9.6 | - | -111.5 | -33.0 | - |
| Net result | EUR mill. | -32.6 | -5.7 | - | -87.5 | -22.8 | - |
| Balance sheet and cash flow | |||||||
| Equity ratio | per cent | 32.6 | 36.2 | -3.6%-p | |||
| Net gearing | per cent | 43.3 | 27.8 | 15.5%-p | |||
| Adjusted gearing | per cent | 108.4 | 79.6 | 28.8%-p | |||
| Gross investment | EUR mill. | 21.1 | 27.1 | -22.1 | 203.9 | 183.5 | 11.1 |
|
Return on capital employed (ROCE) 12 months rolling |
per cent | - | -5.2 | -0.4 | -4.8%-p | ||
|
Return on equity (ROE) 12 months rolling |
per cent | - | -10.9 | -2.7 | -8.2%-p | ||
| Net cash flow from operating activities | EUR mill. | 8.5 | 16.4 | -48.2 | 50.8 | 76.0 | -33.2 |
| Share | |||||||
| Share price at end of quarter | EUR | 2.30 | 5.04 | -54.4 | 2.30 | 5.04 | -54.4 |
| Earnings per share (EPS) | EUR | -0.27 | -0.06 | - | -0.75 | -0.24 | - |
| Traffic data, unit costs and revenue | |||||||
| Passengers | thousand people | 1 913 | 1 660 | 15.2 | 8 013 | 7 139 | 12.2 |
| Available seat kilometres (ASK) | mill. | 7 288 | 6 045 | 20.6 | 29 345 | 25 127 | 16.8 |
| Revenue passenger kilometres (RPK) | mill. | 5 192 | 4 441 | 16.9 | 21 498 | 19 222 | 11.8 |
| Passenger load factor (PLF) | per cent | 71.2 | 73.5 | -2.3 %-p | 73.3 | 76.5 | -3.2 %-p |
| Unit revenue per available seat kilometre (RASK) | cents/ASK | 6.1 | 6.4 | -4.5 | 6.0 | 6.2 | -3.1 |
| Unit revenue per revenue passenger kilometre, yield | cents/RPK | 7.44 | 7.35 | 1.2 | 7.24 | 7.11 | 1.8 |
| Unit cost per available seat kilometre (CASK) | cents/ASK | 6.7 | 6.9 | -2.3 | 6.4 | 6.6 | -2.7 |
| CASK excluding fuel | cents/ASK | 4.9 | 5.3 | -7.0 | 4.7 | 5.0 | -6.1 |
| Available tonne kilometres (ATK) | mill. | 1 151 | 959 | 20.0 | 4 571 | 3 808 | 20.0 |
| Revenue tonne kilometres (RTK) | mill. | 698 | 606 | 15.2 | 2 823 | 2 471 | 14.2 |
| Cargo and mail | tonnes | 38 031 | 33 729 | 12.8 | 145 883 | 123 154 | 18.5 |
| Cargo traffic unit revenue per revenue tonne kilometre | cents/RTK | 26 | 26 | -0.8 | 27 | 26 | 3.1 |
| Overall load factor | per cent | 60.7 | 63.2 | -2.5 %-p | 61.8 | 64.9 | -3.1 %-p |
| Number of flights | Pcs. | 18 585 | 17 861 | 4.1 | 78 916 | 74 195 | 6.4 |
| Personnel | |||||||
| Average number of employees | 7 467 | 7 578 | -1.5 |
* Operational result: Operating result excluding changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves, non-recurring items and capital gains.
CEO Mika Vehviläinen on the results:
Finnair continued to grow in 2011. Our turnover increased in line with our expectations by 11.6 % year-on-year, and we also progressed in our cost savings program as anticipated. Unfortunately the increased fuel price and global uncertainties more than offset our progress in cost savings, and Finnair’s operational result was a loss of 60.9. Naturally, we cannot be satisfied with this result.
The year 2011 began with strong growth in aviation industry, which was slowed down already in March after the tsunami in Japan in March. The growth was also negatively impacted by the weakening of the global economy in the second half of the year. The capacity growth slowed down clearly towards the end of the year, and unlike in previous recessions in the Western countries, the oil price remained high due to the strong growth of developing countries and the uncertainty of the situation in the Middle East.
The seasonally strong third quarter was followed by considerably weaker fourth quarter and growing year-on-year loss. The achieved savings of the set 140 million euro reduction target were in line with the target but still moderate during 2011, and we estimate that a majority of the savings will be realised by the end of 2012
At mid-year it became obvious that the company has to carry out a significant structural change in order to end its loss-making cycle and build a Finnair for the future. In August 2011, we published an extensive restructuring and cost-reduction programme with an aim to restore the company’s vitality and enable its future growth. The changes are necessary and inevitable.
Our strategy is to focus on increasing our Asian traffic and pursue leadership in the Nordic countries in cooperation with a strong partner network. This works as a compass for us all amid the changes. The significance of the partner network will be emphasized even more because, as a small company, we can no longer do everything by ourselves. Competition in our industry has tightened so that the continuous development of both cost competitiveness and quality require specialisation and large-scale cooperation.
We began to implement the changes in maintenance operations already at the beginning of 2011, and the transformation will continue this year. We also reorganised cargo traffic operations and began to look for a partner for our catering business. In addition, we took a step forward in strengthening our position in the Nordic countries by establishing Flybe Nordic, together with British airline Flybe. The new carrier specialises in regional flying in the Nordic and Baltic countries.
In the second half of the year, we optimised our operations in many ways: Together with the aircrew, we agreed upon solutions to improve productivity, optimised our route network and the use of our fleet as well as renegotiated aircraft leasing agreements. As a result of the optimised use of the fleet, we can give up several short-haul planes. In addition to this, we have identified several other targets for cost reduction and optimisation. The optimisation efforts have also paid off; our unit costs excluding fuel decreased by 6.1 per cent during 2011.
In addition to cutting costs, we have focused on our future growth and improved the quality or our operations further. In May last year, we opened the Singapore route, and began preparations for the Chongqing route to be opened in May 2012. These steps have been taken in order to double our turnover in Asian operations by 2020.
Our aim is to strengthen our position in the Nordic markets as well. The plans that were announced today are aimed to end the loss-making cycle of European traffic and establish a cost-effective partnership company for this traffic. We are investigating the possibility of transferring the entire narrow-body fleet or a part of it to the new company. This would be a big change for Finnair. We will now begin discussions with our potential partners and staff about alternative implementation methods for this change.
During 2011, we received recognition for the excellent quality of our service. Among other honours, Finnair was named the best airline in Northern Europe. During the year, we also focused on developing a smoother travel experience. As a result, customer satisfaction, punctuality and the speed of baggage handling continued to improve, and we were among the best network carriers in these areas. This was a great achievement from our personnel, which has continued to show their full commitment in customer service even amid the transformation. Employees deserve a warm thank you for their excellent work.
The on-going structural change is demanding for the staff. Our aim is to discuss the process openly with different parties, and to facilitate difficult changes by using measures that are possible in Finnair’s current situation. However, I believe that our strategy, clear goals and strong company culture will help us surpass the difficult and painful change. Together, we are now building the Finnair of the future.
Markets and general overview
Global airline traffic has changed significantly in recent years, and similar structural change is happening in the industry as has already been faced by many other industries. Typical for this change process are market liberalisation, increasing competition, overcapacity, consolidation, alliances and specialisation. The global consolidation of the industry is predicted to continue. Finnair aims to make use of the opportunities created by this development.
The year 2011 was marked by high oil prices and increased capacity in the market. In the early 2011, the industry was getting ready for expected growth in the markets, due to which supply increased more rapidly than demand. The competitive situation thus became very tough. As the global economy weakened, the competitive situation continued to get even tighter, which affected both passenger and cargo traffic.
The impact of the cabin crew strike in December 2010 on demand was still felt at the beginning of the year. The seasonally weak start of the year was also affected by the shocking catastrophe in Japan in March, and as a result particularly the demand from Europe to Japan decreased significantly. Despite this, Finnair continued its daily flights to Japan. The demand from Japan to Europe recovered rapidly but travel from Europe to Japan during the rest of the year was weaker than in the previous year.
The strong capacity growth in air traffic stabilised in the second quarter due to high oil prices, the uncertainty in the global economy, the disaster in Japan as well as the disturbances in the Middle East and Northern Africa. However, Finnair was able to increase its market share in the traffic between Asia and Europe on the routes it operates. Business travel and the demand for business class also developed positively during the first half of the year.
The growth in demand slowed down in the second half of the year due to the uncertainty in the global economy. Increasing macro-economic instability led to a weaker than expected development of business travel and weakened the profitability of cargo traffic. Due to overcapacity in the package tours markets, the operational result of our package tours subsidiary Aurinkomatkat exceptionally showed a loss. The high price of oil and the disturbances at the start of the year also weakened the profitability of the company for the whole year, due to which Finnair’s operational result for 2011 showed a 60.9 million euro loss.
Finnair transformation and cost reduction programme
In 2011, it became obvious that Finnair would have to carry out a substantial structural change in order to meet the needs of the changing aviation landscape. The company has to break its loss-making cycle so that it can build the Finnair of the future according to its strategy. After careful strategic work and extensive industry comparison, Finnair announced in August that it aims to reduce its annual costs permanently by 140 million euros by 2014. The transformation and cost reduction programme focuses particularly on improving the profitability of short-haul flights in the tightened competitive environment. In order to improve cost competitiveness, the company focuses on its core activities and building an even stronger partnership network around itself.
According to the company’s estimates, the biggest cost reductions will be achieved in personnel and maintenance costs, as the share of both of these is approximately a quarter of the overall target. The share of sales and distribution costs is approximately 15 per cent and the share of IT, fleet and ground handling costs amounts to approximately 30 per cent of the overall reduction target.
Finnair reduced its overhead costs by streamlining administration and optimising procurement, marketing and distribution activities. The company aims to further reduce procurement costs through centralised management.
In the aviation services, the company’s baggage handling and apron services were transferred to Swissport. The company also explores options to find a cost-efficient solution for equipment and engine maintenance and investigates possible partnering opportunities and structural solutions for Catering.
In November, Finnair introduced new pricing categories for domestic and Scandinavian flights. The purpose of the new price categories is to attract new customer segments and make flying a more attractive alternative in regional traffic. For enabling the new pricing scheme, the company began to optimize the size and utilisation of its fleet. The capacity of the A32S fleet is also being increased through new cabin configurations. Moreover, Finnair announced that it is looking for alternative production platforms in order to reduce the unit costs of European and domestic traffic and to increase flexibility. New solutions that improve productivity were also agreed upon with the aircrew.
During 2011, the company developed Uraportti, a concept to help Finnair personnel find employment as quickly as possible when it is necessary to reduce staff. Significant changes in the company’s operations, deeper alliances and an increase in cost-effectiveness in all operations are required in order to achieve the planned cost reductions. These measures mean big changes to the company’s personnel, and staff cuts cannot be avoided.
In 2011, approximately 10 million euros of the set 140 million euro reduction target in annual costs by 2014 were achieved. The cost reductions that require structural changes are estimated to be implemented mainly in 2012, while the overall target is estimated to be reached by the end of 2013.
Both Finnair’s Board of Directors and the company’s management are committed to Finnair’s structural change and to the company’s development so that Finnair can face the industry’s competitive challenges.
Outlook for 2012
The continuing uncertainty in the world economy, the seasonal fluctuation in demand as well as continued high price of fuel are reflected in the operational result of first half of the year, which is estimated to be clearly loss-making.
Finnair’s passenger traffic capacity in its current structure and form is estimated to grow by around 5 per cent in 2012. The growth will come mainly from Asian traffic, where Finnair will increase capacity by opening a new route to Chongqing in May.
Finnair’s fuel costs are estimated to be significantly higher in 2012 compared to the previous year due to increased capacity and high price of fuel.
Cost reductions of 80 million euros out of the total target of 140 million euros are estimated to be achieved by the end of 2012. The realisation of the cost reductions will mainly take place during the second half of the year.
Financial result 1 October–31 December 2011
In Q4 of 2011 Finnair’s turnover increased by 11.7 per cent (12.9%) year on year and totalled 577.4 million euros (516.9). The group’s operational result, which refers to the operating result excluding non-recurring items, capital gains and changes in the fair value of derivatives and in the value of foreign currency-denominated fleet maintenance reserves, was -31.6 million euros (-6.7). The operating result was -30.1 million euros (-4.7). The result before taxes was -38.2 million euros (-9.6) and the net result -32.6 million euros (-5.7)
Finnair’s result includes the change in the fair value of derivatives and in the value of foreign currency-denominated fleet maintenance reserves that took place during the year but will fall due later. This is an unrealized valuation result based on the IFRS financial reporting standard, where the result has no cash flow effect and which is not included in the operational result. The change in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves improved the result reported for the last quarter by 4.6 million euros. A year earlier, the profit and loss effect of the corresponding item was 5.6 million euros.
The exchange rate fluctuation between the US dollar and the euro did not affect the operational result significantly in the fourth quarter. At the end of December, the degree of hedging for a dollar basket for the next 12 months was 71 per cent.
Euro-denominated operating costs amounted to 613.4 (529.9) million euros in the last quarter of 2011. Fuel costs, including price and currency hedging, rose by 37.3 per cent, amounting to 146.4 million euros.
Personnel costs were 117.8 million euros (114.0). Other rental costs were 31.4 million euros (27.0). The item includes rental payments for capacity bought from other airlines, which share has grown markedly due to the increased use of leased capacity.
Financial result 1 January–31 December 2011
In 2011, the turnover of Finnair Group was 2,257.7 million euros (2 023.3 million euros in 2010). The operational result, which refers to the operating result excluding non-recurring items, capital gains and the change in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves, totalled -60.9 million euros (-4.7). The operating result amounted to -87.8 million euros (-13.3). The result before taxes was -111.5 million euros (-33.0) and the net result was -87.5 million euros (-22.8).
Changes in the fair value of derivatives and in the value of foreign currency denominated fleet maintenance reserves impaired the reported full year by -2,4 million euros (-6.4).
The euro-denominated operational costs for the full year were 2,335.6 (2,050.7) million euros. Fuel costs, including price and currency hedging, rose by 28.6 per cent, amounting to 555.2 million euros (431.7). The euro-denominated market price of fuel has risen by nearly 50 per cent from the previous year. Personnel costs were 455.4 million euros (438.8). Other rental costs were 128 million euros (88.0). The item includes rental payments for capacity bought from other airlines, which share has grown markedly due to the increased use of leased capacity.
The net cash flow from operating activities for the full year amounted to 50.8 million euros (76.0). The return on capital employed for 12 months was -5.2 per cent (-0.4) and the return on equity was -10.9 per cent (-2.7).
Disclosure procedure
Finnair Plc. follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its Financial Statements for 2011 enclosed to this stock exchange release. Finnair’s Financial Statements for 2011 is attached to this release in pdf format and is also available on the company’s website at www.finnairgroup.com.
FINNAIR PLC
Board of Directors
Press Conference
Finnair will hold a press conference on 9 February 2012 at 11:00 a.m. and an analyst briefing at 12:30 p.m. at Helsinki Airport’s World Trade Center, located at the address Lentäjäntie 3. A phone conference on the financial statements will be held at 17 (Finnish time) in English. The telephone number for the conference is +358 (0)923 101 514, and the PIN-code is 444649#.
Finnair Plc
Communications
9 February 2012
For further information, please contact:
Chief Financial Officer
Erno Hilden
telephone +358 9 818 8550
erno.hilden@finnair.com
Investor Relations and Financial Communications Director
Mari Reponen
telephone +358 9 818 4054
mari.reponen@finnair.com
Investor Relations Officer
Kati Kaksonen
Financial Communications and Investor Relations
telephone +358 9 818 2780
kati.kaksonen@finnair.com, investor.relations@finnair.com
