Correction: Finnair Plc Interim report 10 August 2012 at 12.25
FINNAIR CORRECTS IN THE INTERIM REPORT PUBLISHED TODAY AT 9.30 AM THE LAST PARAGRAPH UNDER THE HEADING SEASONAL VARIATION AND SENSITIVITIES IN BUSINESS OPERATIONS ON PAGE 11 AND THE DERIVATIVES TABLE IN NOTE 5. MANAGEMENT OF FINANCIAL RISKS.
Finnair Group Interim report January 1 – June 30, 2012
Finnair Plc Interim report 10 August 2012 at 09:30
| Key figures |
4-6 2012 |
4-6 2011 |
Change % |
1-6 2012 |
1-6 2011 |
Change % |
2011 |
| Turnover and result | |||||||
| Turnover, EUR million | 594.4 | 539.4 | 10.2 | 1,186.2 | 1,073.1 | 10.5 | 2,257.7 |
| Operational result, EBIT, EUR million | 14.7 | -13.8 | >200 | -10.3 | -56.9 | 81.9 | -60.9 |
| Operational result, % of turnover | 2.5 | -2.6 | 5.1%-p | -0.9 | -5.3 | 4.4%-p | -2.7 |
| Operating result, EBIT, EUR million | -18.1 | -25.2 | 28.2 | -38.3 | -68.3 | 43.9 | -87.8 |
| EBITDAR, EUR million | 64.2 | 33.8 | 89.9 | 89.1 | 37.4 | 138.2 | 139.6 |
| Result before taxes, EUR million | -25.5 | -30.2 | 15.6 | -51.7 | -76.4 | 32.3 | -111.5 |
| Net result, EUR million | -19.8 | -23.0 | 13.9 | -40.2 | -56.8 | 29.2 | -87.5 |
| Balance sheet and cash flow | |||||||
| Equity ratio, % | 29.2 | 32.9 | -3.7%-p | 32.6 | |||
| Gearing, % | 35.5 | 24.0 | 11.5%-p | 43.3 | |||
| Adjusted gearing, % | 107.5 | 78.7 | 28.8%-p | 108.4 | |||
| Capital expenditure, CAPEX, EUR million | 2.9 | 30.9 | -90.6 | 10.3 | 61.8 | -83.3 | 203.9 |
| Return on capital employed, ROCE, 12 months rolling, % | -3.1 | -3.4 | 0.3%-p | -5.2 | |||
| Return on equity, ROE, 12 months rolling, % | -7.8 | -7.9 | 0.1%-p | -10.9 | |||
| Net cash flow from operating activities | 100.2 | 94.5 | 6.0 | 92.3 | 60.6 | 52.3 | 50.8 |
| Share | |||||||
| Share price at end of quarter, EUR | 1.75 | 3.57 | -51.0 | 1.75 | 3.57 | -51.0 | 2.30 |
| Earnings per share (EPS), EUR | -0.17 | -0.20 | 15.0 | -0.35 | -0.48 | 27.1 | -0.75 |
| Traffic data, | |||||||
| unit costs and revenue | |||||||
| Passengers, 1,000 | 2,256 | 2,040 | 10.6 | 4,332 | 3,925 | 10.4 | 8,013 |
| Available seat kilometres (ASK), million | 7,346 | 7,151 | 2.7 | 14,989 | 14,505 | 3.3 | 29,345 |
| Revenue passenger kilometres (RPK), million | 5,694 | 5,117 | 11.3 | 11,519 | 10,456 | 10.2 | 21,498 |
| Passenger load factor (PLF), % | 77.5 | 71.6 | 5.9%-p | 76.9 | 72.1 | 4.8%-p | 73.3 |
| Unit revenue per available seat kilometre, | |||||||
| (RASK), cents/ASK | 6.60 | 6.02 | 9.7 | 6.32 | 5.78 | 9.2 | 6.03 |
| Unit revenue per revenue passenger kilometre, | |||||||
| yield, cents/RPK | 7.52 | 7.36 | 2.2 | 7.22 | 7.06 | 2.2 | 7.24 |
| Unit cost per available seat kilometre, | |||||||
| (CASK), cents/ASK | 6.66 | 6.38 | 4.5 | 6.59 | 6.38 | 3.2 | 6.43 |
| CASK excluding fuel, cents/ASK | 4.64 | 4.63 | 0.2 | 4.55 | 4.66 | -2.3 | 4.67 |
| Available tonne kilometres (ATK), million | 1,130 | 1,092 | 3.5 | 2,325 | 2,224 | 4.5 | 4,571 |
| Revenue tonne kilometres (RTK), million | 740 | 668 | 10.7 | 1,494 | 1,356 | 10.2 | 2,823 |
| Cargo and mail, tonnes | 36,854 | 34,119 | 8.0 | 74,746 | 68,566 | 9.0 | 145,883 |
| Cargo traffic unit revenue per | |||||||
| revenue tonne kilometre, cents/RTK | 25.48 | 27,43 | -7.1 | 25.48 | 26.85 | -5.1 | 27.00 |
| Overall load factor, % | 65.5 | 61.2 | 4.3%-p | 64.3 | 61.0 | 3.3%-p | 61.8 |
| Flights, number | 17,820 | 20,362 | -12.5 | 36,166 | 40,864 | -11.5 | 78,916 |
| Personnel | |||||||
| Average number of employees | 7,157 | 7,519 | -4.8 | 7,467 |
* Operational result: Operating result (EBIT) 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
CEO Mika Vehviläinen:
"I am pleased to see that Finnair’s turnover grew by more than 10 per cent in the second quarter compared with the corresponding period in 2011. Our turnover reached nearly 600 million euros, thanks to increased capacity, growing demand in passenger traffic and the positive development of passenger load factors. During the second quarter, our operational result turned positive by 14.7 million euros; a result with which we are satisfied in this difficult competitive environment – particularly when taking into account the price of fuel that has remained high in the second quarter. Despite the temporary decrease in the world market price of oil, our fuel costs in the period under review were 19.9 per cent higher than in the comparison period.
The result reflects not only increased demand but also the successful progress of our structural change and cost reduction programme. We have taken definite steps forward, although the majority of cost savings are still being realised. We will continue to develop our competitiveness determinedly in line with the goals we have set by surveying new cost reduction measures and by seeking opportunities to further increase our turnover. Work to secure our future will continue.
In order to succeed, it is absolutely necessary for us to improve the efficiency of our operations substantially. This year, several European airlines have gone bankrupt, which is a clear indication of the challenges our industry is currently facing. However, we intend to overcome these challenges and emerge as a winner. Finnair is proceeding with changes accordingly.
In June, we concluded employee consultations regarding the discontinuation of Finnair's engine and component services and in July, after the period under review, we signed a multi-year service procurement agreement with the Swiss company SR Technics. The agreement will come into effect gradually in the third quarter of the current year. The sale of our catering operations to the German LSG Sky Chefs Group fell through in May, but we continued negotiations with LSG and in early August we announced a partnership agreement with them, transferring control in Finnair Catering Oy to LSG. With agreements signed with SR Technics and LSG, we have made significant progress in structural change and taken decisive steps toward becoming a company focused on aviation business. Savings resulting from these arrangements can gradually be seen in our result as of the third quarter of the current year.
During the spring and summer, we have sought means to improve the profitability of our European traffic by exploring partnership solutions. In May, we announced our plans to transfer the European flights flown on twelve Embraer 190 aircraft to be operated by Flybe. This represents about one third of our European traffic. Our intention is to execute this planned business transfer in October, and it will generate definite savings for us in the coming years. In connection with this business transfer, we signed an agreement with Finnair pilots, which will also improve the efficiency of our operations.
In addition to the Flybe partnership, we have analysed cooperation opportunities in order to solve the problems related to our European Airbus traffic. This analysis will be continued and our goal is to find solutions that would be in line with the overall interests of the company and would promote our operations as a network company.
During the second period, we opened a new route to Chongqing. The first months on this route have gone as planned. In addition, we have introduced new ancillary services. Although these services are still a minor source of income, their launch has nevertheless been promising.
I believe that our positive development will continue in the second half of the year, provided that traffic develops according to our estimates and our cost reduction program proceeds in line with its goals. Although there is a lot of economic uncertainty around the globe, in Europe in particular, we expect the operational result for the second half of the year, cyclically stronger than the first half of the year, to reflect improved profitability compared to the first half of the year.”
Business environment
The global airline industry is undergoing a similar structural change as that already faced by many other sectors. 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. The intense competition is reflected in the major structural change and cost reduction programmes implemented by several European airlines, as well as bankruptcies. Finnair’s goal is to take advantage of the opportunities presented by the changes in its industry and strengthen its position in traffic between Europe and Asia as well as within Europe.
In April–June, global air traffic grew compared with the corresponding period in 2011. The development of demand exceeded expectations particularly in Europe where conservative capacity increases and discontinued capacity on some routes, caused by changes in the competitive environment, also contributed to the good development of traffic. During the second quarter, Finnair also benefited from decreased capacity on certain routes from Helsinki to Europe. Traffic between Asia and Europe grew, thanks to economic growth in Asia. On the other hand, several European airlines opened new routes from Central Europe to China, which intensified competition.
In April–June, the price of the largest individual cost factor for airlines – jet fuel – remained at historically high level. Uncertainty in the world economy and in the eurozone was reflected in the entire industry, both as a decline in business travel and as low volumes in cargo traffic. In traffic within Europe, a decline in demand for business travel was partly compensated by increased travel in other price categories. Demand for cargo traffic weakened.
The Finnish package tour market suffered from overcapacity still in the second quarter despite the fact that tour operators slightly decreased their summer offering from the planned. In the comparison period, package tour operations were negatively influenced by the effects of the Arab Spring on leisure travel.
Progress in the structural change and cost reduction programme
During the review period, Finnair continued the implementation of its structural change and cost reduction programme, which began in August 2011. The aim of the programme is to achieve a permanent reduction in costs of 140 million euros by 2014.
In April, Finnair signed a Memorandum of Understanding according to which Finnair will source engine and component services from the Swiss company SR Technics. The final 10-year cooperation agreement was signed in July. As a result of outsourcing engine and component services, Finnair will discontinue its own engine operations and make adjustments to the component services. Finnair will keep certain parts of these operations as part of its line maintenance organisation that looks after the daily airworthiness of aircraft, in order to ensure smooth operations.
The sale of Finnair’s catering operations to LSG Sky Chefs Group fell through in May due to an investment freeze set by the Board of Directors of Lufthansa, the parent company of LSG. A Memorandum of Understanding about the deal was signed in March. After the transaction fell through, the parties continued analysing partnership opportunities and in August Finnair and LSG signed a partnership agreement.
In April-June, Finnair took several measures around the group to improve the efficiency of its operations. For example, Finnair started using automated check-in machines in the Economy class check-in at Helsinki-Vantaa Airport. The company also continued to optimise its flight schedules and route network.
Upon realisation, the Flybe Memorandum of Understanding related to European traffic that was announced during the period under review is also expected to contribute to cost reductions.
Finnair estimates that the biggest savings in the cost reduction programme will be achieved in personnel and maintenance costs, which both account for approximately a quarter of the overall target of 140 million euros. The share of sales and distribution costs is approximately 15 per cent and the combined share of IT, fleet and ground handling costs is approximately 30 per cent of the total reduction target. The programme progresses as planned and Finnair expects to achieve savings of 80 million euros by the end of this year. The aim is to achieve the remaining 60 million euros of the overall cost savings target in 2013.
Financial performance
Financial performance in April–June 2012
As a result of increased capacity and growing demand in passenger traffic, Finnair’s turnover in April–June grew by 10.2 per cent year-on-year, totalling 594.4 million euros (539.4).
During the period under review, the progress of the structural change and cost reduction programme could be seen as costs increased at a slower pace than capacity. In the second quarter, operational costs excluding fuel increased by 0.6 per cent year-on-year while capacity increased by 2.7 per cent. Fuel costs, including hedging and costs caused by emissions trading, rose by 19.9 per cent year-on-year, amounting to 157.9 million euros (131.7). Personnel costs amounted to 113.9 million euros (110.4). The total euro-denominated operational costs grew by 5.2 per cent year-on-year and were 586.1 million euros (557.2). The Group’s 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, improved despite a marked increase in fuel costs and amounted to 14.7 million euros (-13.8). The strengthening of the US dollar against the euro did not affect the operational result significantly, thanks to the hedging of fuel purchases.
Finnair’s income statement 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 period under review but will fall due later. This is an unrealised valuation result based on the IFRS, where the result has no cash flow effect and 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 weakened the operating result reported for the second quarter by 20.9 million euros (-11.3). The operating result was also impaired by non-recurring items related to the structural change amounting to -11.9 million euros (0.0); consequently, the operating result showed a loss of 18.1 million euros (-25.2). The result before taxes was -25.5 million euros (-30.2) and the result after taxes -19.8 million euros (-23.0).
In the second quarter, unit revenue per available seat kilometre (RASK) rose by 9.7 per cent from the comparison period to 6.60 euro cents (6.02). Unit costs per available seat kilometre (CASK) increased by 4.5 per cent to 6.66 euro cents (6.38) mainly as a result of the increased fuel costs. Unit costs excluding fuel rose by 0.2 per cent to 4.64 euro cents (4.63) and this increase in costs results from exceptionally low traffic charges in the comparison period.
Outlook for 2012
Finnair estimates that the operational result for the second half of the year, which is stronger than the first half of the year due to seasonal variations, will reflect improved profitability compared to the first half of the year.
The outlook for the world economy is still uncertain, and Finnair will adjust its passenger traffic capacity with its current structure according to demand, if necessary. Finnair estimates that this capacity will increase on last year but less than the 5 per cent level given in the earlier estimate. The growth will mainly come from Asian traffic, where Finnair increased capacity in May by opening a new flight route to Chongqing, China.
Finnair’s fuel costs are estimated to be significantly higher in 2012 compared to the previous year due to increased capacity and high fuel prices.
Cost reductions of approximately 80 million euros out of the structural change and cost reduction programme’s total target of 140 million euros are expected 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. Finnair estimates that unit cost (CASK) excluding fuel will decrease year-on-year in the second half of the year.
Disclosure procedure
Finnair Plc. follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its interim report January 1 – June 30, 2012 enclosed to this stock exchange release. The Interim report January 1 – June 30, 2012 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
Q2 Result briefings
Finnair will hold a press conference on August 10, 2012 at 11:00 a.m. and an analyst briefing at 12:30 p.m. at Helsinki-Vantaa Airport’s World Trade Center, located at the address Lentäjäntie 3. An English-language telephone conference will begin at 3:30 p.m. Finnish time. The conference may be attended by dialling your local access number +358 923 101 514 (Toll-free UK: 08002799491, Sweden: 0200896900) and using the Participant PIN code: 255856#
FINNAIR PLC
Communications
August 10, 2012
For further information, please contact:
Chief Financial Officer
Erno Hilden
Tel. +358 9 818 8550
erno.hilden@finnair.com
Financial Communications and Investor Relations Director
Mari Reponen
Tel. +358 9 818 4054
mari.reponen@finnair.com
IRO Kati Kaksonen
Financial Communications and Investor Relations
Tel. +358 9 818 2780
kati.kaksonen@finnair.com, investor.relations@finnair.com
