FINNAIR PLC STOCK EXCHANGE RELEASE 1 AUGUST 2012 AT 9:30 EET
Finnair and LSG Sky Chefs Group (LSG) have signed a partnership agreement according to which LSG will assume full managerial and operational responsibility for the inflight and catering service provider Finnair Catering Oy. The partnership aims at further improving the quality and cost effectiveness of catering services for Finnair’s customers. The five year partnership agreement will become effective today on August 1, 2012. Despite the transfer in control over its operations, this agreement does not result in changes to the employment contracts or employment terms of Finnair Catering’s personnel. Finnair estimates that this agreement will result in sustainable annual savings of approximately 9 million euros starting from the third year of the cooperation. In addition, Finnair will book five annual payments of three million euros each, totalling 15 million euros, in its 2012 result in line with IFRS. According to the partnership agreement, LSG has the right to acquire Finnair Catering Oy's share capital for a predetermined price during the agreement period.
“We are very pleased with this partnership agreement. This enables us to offer first class catering services to our passengers, and at the same time, we will meet the targets set for the restructuring of our catering operations," says Kaisa Vikkula, Finnair Executive Board Member.
“We see many opportunities in developing Finnair's catering operations and deepening our cooperation in the years to come,” says Silvio Canettoli, LSG Sky Chefs Group's Chief Operating Officer Europe.
Finnair Catering will remain a wholly owned subsidiary of Finnair, but its name will be changed to LSG Sky Chefs Finland Oy and LSG will assume full control over its management and business operations. The partnership agreement is a part of developing Finnair's partnership network and the company’s transformation.
Pursued cost savings
LSG Sky Chefs Group is a leading global provider of airline catering services and has excellent qualifications to develop and enhance the operations of Finnair Catering. Finnair estimates that as a result of this catering arrangement it will achieve sustainable annual cost savings of approximately 9 million euros. The savings are expected to materialise in full starting from the third year of the cooperation. The savings are a part of the 140 million euro cost savings program Finnair launched in August 2011. As communicated earlier, Finnair expects to achieve 80 million euro of these savings by the end of 2012. The savings impact of the partnership agreement with LSG corresponds to the savings targeted with the sale of Finnair’s catering business, which was cancelled in May 2012.
The content of the agreement and its effects on Finnair's reporting
Finnair will source its inflight catering services from LSG, which will operate Finnair Catering's business. Based on the partnership agreement, operational responsibility for and decision making power in Finnair Catering will fully transfer to LSG as of August 1, 2012. According to IFRS, the arrangement is treated as an acquisition in accounting, and consequently, Finnair will cease to include Finnair Catering Oy's operations in its consolidated financial statements from August 1, 2012 onwards, and respectively LSG will start consolidating Finnair Catering Oy within its group accounts. During the agreement period LSG will pay Finnair three million euros annually as a compensation for the change of control, and Finnair will book these payments in full in its 2012 result in line with IFRS. Based on the partnership agreement, LSG has the right to acquire Finnair Catering Oy’s share capital for a predetermined price during the agreement period. The payments made by the date of the sale would then be deducted from the purchase price.
Following this catering partnership agreement and the earlier communicated outsourcing of Finnair's engine and component services, the Aviation Services reporting segment in Finnair's financial reporting will in future consist of the operations of Finncatering Oy and Finnair Travel Retail Oy, aircraft line maintenance, and operations of Finnair Facilities Management Oy. The changes in reporting will be visible from Q3 2012 onwards and show in full from Q4 2012 onwards.
The partnership agreement with LSG excludes Finnair's fully owned subsidiary Finncatering Oy, whose core business consists of providing take away meals, processed foods and bakery products to cafes, restaurants and grocery stores. Finncatering will remain one of the suppliers of Finnair Catering Oy. The agreement also excludes Finnair's fully owned subsidiary Finnair Travel Retail Oy, which is specialised in inflight and airport travel retail and tax free sales.
Further information:
Finnair Media Desk, tel. +358 9 818 4020, comms(at)finnair.com.
Josefine Corsten, Senior Vice President Corporate Communications & Marketing, LSG Sky Chefs
Tel. +49 6102 240-880, josefine.corsten@lsgskychefs.com
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Finnair Catering Oy
Finnair Catering Oy is Finnair's fully owned subsidiary. It provides inflight and catering services to over 9 million airline passengers yearly, which equals to over 14,000 meals daily. In addition to inflight catering services, the company is responsible for the logistics of the inflight sales assortments and beverages as well as for packing and loading of pre-ordered purchase. Finnair Catering Oy's turnover in 2012 is estimated to be 72 million euros. The company has 550 employees.
LSG Sky Chefs
The German LSG Sky Chefs is a leading global provider of airline catering services and has 194 customer service centers in 52 countries. The Group consists of 148 companies with 194 customer service centers in 52 countries. In 2011, it produced about 492 million airline meals for more than 300 airlines worldwide. LSG Sky Chefs' is a subsidiary of Lufthansa.