Finnair Group Financial Statements Bulletin 2013

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| Source: Finnair Oyj
Finnair Plc. Financial Statement Release 11 February 2014 at 09:30

This is a summary of Finnair's Financial Statements Bulletin 2013. The Finnair
Group Financial Statements Bulletin is attached to this release in pdf format
and is also available on the company’s website at www.finnairgroup.com.

Turnover was 2,400.3 million euros and the operational result -4.8 million euros
in 2013

Key figures          10       10  Change%     2013     2012   Change%
                -12/201  -12/201
                      3        2
Turnover and
result
Turnover, EUR     560.6    612.9     -8.5  2,400.3  2,449.4      -2.0
million
Operational       -31.7      0.1              -4.8     43.2    -111.2
result, EBIT,
EUR million *
Operational        -5.7      0.0  -5.7%-p     -0.2      1.8   -2.0%-p
result, % of
turnover
Operating         -18.5     -3.5              -8.8     33.8    -126.1
result, EBIT,
EUR
million
Operational        12.8     48.8    -73.9    174.8    240.2     -27.2
EBITDAR, EUR
million
Result before     -23.8     -5.3              10.1     14.8     -32.1
taxes, EUR
million
Net result,       -13.7     -3.5              11.0     10.5       5.1
EUR million
Balance sheet
and cash flow
Equity ratio,                                 32.0     35.4   -3.4%-p
%
Gearing, %                                    19.5     18.0    1.5%-p
Adjusted                                      77.6     77.8   -0.1%-p
gearing, %
Gross              11.4     23.7    -51.9     42.0     41.4       1.5
investment,
EUR
million
Return on                                      2.3      2.8   -0.6%-p
capital
employed,
ROCE, 12
months
rolling, %
Return on                                      1.5      1.4    0.1%-p
equity, ROE,
12
months
rolling, %
Net cash flow      -1.2     17.9   -106.9    107.0    154.7     -30.8
from operating
activities
Share
Share price at                                2.77     2.38      16.4
end of
quarter, EUR
Earnings per      -0.11    -0.02              0.08     0.08       2.7
share from the
result of the
period, EUR **
Earnings per      -0.11    -0.05   -130.1     0.02     0.01      30.6
share (EPS)
Traffic data,
unit costs and
revenue
Passengers,       2,148    2,081      3.2    9,269    8,774       5.6
1,000
Available seat    7,430    7,568     -1.8   31,162   30,366       2.6
kilometres
(ASK), million
Revenue           5,602    5,693     -1.6   24,776   23,563       5.1
passenger
kilometres
(RPK), million
Passenger load     75.4     75.2   0.2%-p     79.5     77.6    1.9%-p
factor (PLF),
%
Unit revenue
per available
seat
kilometre,
(RASK),            6.05     6.37     -5.1     6.24     6.49      -3.8
cents/ASK
Unit revenue
per revenue
passenger
kilometre,
yield,             6.86     7.20     -4.8     6.86     7.30      -6.1
cents/RPK
Unit cost per
available seat
kilometre,
(CASK),            6.84     6.54      4.5     6.57     6.58      -0.1
cents/ASK
     CASK          4.73     4.47      5.7     4.46     4.50      -1.0
excluding
fuel,
cents/ASK
Available         1,131    1,135     -0.4    4,709    4,647       1.3
tonne
kilometres
(ATK), million
Revenue tonne       730      734     -0.5    3,107    3,029       2.6
kilometres
(RTK), million
Cargo and        37,983   36,047      5.4  146,654  148,132      -1.0
mail, tonnes
Cargo traffic
unit revenue
per
revenue tonne     27.29    26.49      3.0    25.14    25.45      -1.2
kilometre,
cents/RTK
Overall load       64.5     64.6  -0.1%-p     66.0     65.2    0.8%-p
factor, %
Flights,         23,648   23,355      1.3   97,360   95,097       2.4
number ***
Personnel
Average number                               5,859    6,784     -13.6
of employees

* 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.
** Before hybrid bond interest.
*** The number of flights also includes Finnair’s purchased traffic. Numbers for
the comparison periods have been changed accordingly.

The comparison figures for 2012 have been adjusted in accordance with the
amended standard IAS19 Employee Benefits.

CEO Pekka Vauramo:

“Finnair celebrated its 90th anniversary in November 2013. Thanks to our long
history, we have a lot of know-how that has helped make Finnair one of the
world’s best airlines in terms of its operations, as well as its punctuality.
Over the years the company has also accumulated old structures and practices
that we are now forced to renew and eliminate. We made good progress in our 200
-million-euro cost reduction program in 2013, and we achieved the original cost
reduction target of 140 million euros ahead of schedule midway through the year.

Financially, the final quarter of 2013 did not go according to our plans. We
cannot be satisfied with the development of our turnover, our financial result
or the progress of our cost reduction program in the fourth quarter.

Our turnover in October–December amounted to 560.6 million euros, a decrease of
8.5 per cent compared to the corresponding period in 2012. The main reason for
the decline in turnover was the depreciation of the Japanese yen from the
comparison period, which led to a decrease in our euro-denominated revenue from
the important Japanese market. The result for the fourth quarter was also
affected by a contraction in leisure traffic, as well as lost turnover arising
from strike threats. Our operational result was -31.7 million euros in the
fourth quarter and -4.8 million euros for the full year 2013.

In the collective labour agreements concluded with cabin crew, pilots and the
Finnish Aviation Union (IAU) we agreed on extending the savings negotiations
timetable till the first half of 2014. Our cost savings targets remain
unchanged.

Many of our structures associated with wages and working hours originate from
the era of closed, regulated markets. Renegotiating these structures to match
current labour market practices is challenging, but we are determined to move
forward with Finnair’s structural changes and cost reductions in cooperation
with personnel and their representatives. I hope we reach company-specific
agreements on the cost reductions necessary for Finnair and its personnel well
ahead of the deadline set for the negotiations.

However, at the same time, we must assess other options to prepare for the
contingency that, despite our best efforts, the necessary agreements on cost
reductions are not reached through negotiations. We have a strong commitment to
achieving the cost reductions that are essential for the company’s future. We
intend to make Finnair a sustainably profitable and growing company. However, we
will not be able to grow unless we improve our cost structure and
competitiveness. This is our key goal for 2014, in addition to the renewal of
Finnair’s commercial strategy that began in the last months of 2013. Finnair’s
tradition requires us to achieve renewal and build a Finnair that holds a solid
position in the consolidating European aviation industry.”

Business Environment

Global air traffic is currently undergoing a structural change, the typical
characteristics of which are market liberalisation, increasing competition,
overcapacity, consolidation, alliances and specialisation. European network
carriers, Finnair included, continued to implement structural change and cost
-reduction programs in 2013 to improve their competitiveness in the prevailing
tight competitive situation. Capacity growth in the market was conservative.
Various partnerships have increased, especially in international long-haul
traffic.

The demand for passenger traffic in Europe grew in 2013 despite many European
countries still being in recession. Combined with the conservative stance
airlines have taken towards increasing their capacity, this led to improved load
factors. The weakness of the Finnish economy was reflected in home market
demand, especially in the second half of the year. Demand grew in passenger
traffic between Asia and Europe but, at the same time, competition in this
market increased as competitors launched new routes, particularly to Southeast
Asia. Measured in passenger volume, the market for flights between Helsinki and
Finnair’s European destinations grew by 4.2 per cent, while the market between
Finnair’s Asian and European destinations grew by 1.8 per cent.* Finnair was
successful in increasing its market share in both traffic areas.* Unit revenue
was under pressure in passenger traffic.

The demand for leisure traffic developed positively in the first half of 2013 as
industry operators adjusted their package tour supply to better match demand.
However, the market took a turn in the summer as consumers’ uncertainty
regarding their own economic situation began to slow down sales and decrease
market prices. All industry operators cancelled their winter season tours to
Egypt due to unrest in the country, which was reflected in the volumes and
revenues for the fourth quarter.

Cargo traffic continued to suffer from overcapacity and weak demand in 2013,
which put average yields in traffic between Europe, the Nordic region and Asia
under substantial pressure. High fuel prices also had a negative effect on the
result for cargo traffic. However, there were early signs of a slight recovery
in demand late in the year, especially in Asia.

The price of the largest individual cost factor of airlines, i.e. jet fuel, has
stabilised at a high level, and the increase in fuel costs levelled out in 2013.
The US dollar is a significant expense currency in Finnair’s operations, while
the Japanese yen is a significant income currency. The dollar-euro exchange rate
remained fairly stable in 2013, but the yen depreciated substantially against
the euro as a result of stimulus measures implemented by the Bank of Japan.

Progress of the structural change and cost-reduction program

Finnair continued the implementation of its structural change and cost-reduction
programs in 2013. During the first half of the year, the focus was on seeking
cost reductions under the first program commenced in August 2011. The cost
-reduction target of 140 million euros set for that program was achieved by the
end of June 2013, six months ahead of schedule.

The second cost-reduction program, with a target of 60 million euros, was
announced in October 2012. In August 2013, Finnair stated that, as part of this
cost-reduction program, it aims to reduce crew costs by approximately 35 million
euros and technical services and customer service personnel costs by
approximately 8 million euros. In the autumn, Finnair continued negotiations
with personnel and their trade union representatives regarding the solutions and
schedules for achieving these cost reduction targets. During the negotiations on
new collective labour agreements, the trade unions representing Finnair’s cabin
crew, technical staff and ground handling personnel issued strike warnings. To
prepare for the potential strikes and look after customers, Finnair had to
significantly restrict its traffic in mid-November. Even if the strikes were
avoided in the final stages of negotiations, the strike threat and later the
support strike threats issued by labour unions caused uncertainty and harm to
our passengers, and  resulted in a considerable loss of turnover as well as
additional costs from, for example, the rerouting of passengers.

The strikes were cancelled on 15 November, as Finnair’s employer union the
Association of Support Service Industries (PALTA) reached an agreement with the
Finnish Cabin Crew Union (SLSY) and IAU on a new collective labour agreement in
line with the national framework agreement, known as the Finnish Employment and
Growth Pact, and also agreed on the schedule and processes of separate, company
-specific negotiations related to Finnair’s cost reductions. According to the
agreement, Finnair and SLSY will negotiate on reaching the cost reductions
necessary for Finnair by 28 April 2014. If cost reduction targets are met, cabin
personnel will be protected from layoffs for two years. Corresponding
negotiations with the IAU to reach a company-specific labour agreement for
technical staff have progressed quite far, and these negotiations will continue.
In addition, Finnair and the IAU will continue company-specific negotiations on
labour agreements for ground handling personnel.

Finnair’s objective in the negotiations is primarily to achieve a level of costs
and wages that corresponds with market wages and costs in the industry,
primarily by implementing changes to wage structures and working hours.
Achieving the targets of the cost-reduction program is essential for improving
the company’s competitiveness, as high fuel prices, cost reduction measures
taken by competitors, intensified competition and fleet investments in the
coming years require a substantial improvement in profitability. The long-term
return objective set for the company by Finnair’s Board of Directors is an
operating profit margin of six per cent.

Finnair continues to pursue savings in all of the first cost-reduction program’s
categories. As of the third quarter of 2013, Finnair has monitored the progress
of its two cost-reduction programs combined. The combined total target is to
reduce annual costs permanently by 200 million euros by the end of 2014. The
point of reference for the cost reduction target is the company’s unit cost
level in 2010.  By the end of 2013, Finnair had achieved a total cost reduction
of 155 million euros, which was reflected in decreased air traffic unit costs in
2013. At the same time, the company has been able to move a substantial share of
fixed costs to volume-based variable costs.

Financial performance in October–December 2013

Finnair’s turnover in the fourth quarter fell by 8.5 per cent year-on-year to
560.6 million euros (612.9). Capacity decreased by 1.8 per cent. The factors
contributing to the decline in turnover were lower euro-denominated revenue due
to the depreciation of the Japanese yen, a contraction in leisure traffic and
lost turnover arising from the strike threat. Operational costs excluding fuel
decreased by nearly five per cent from the comparison period, amounting to 435.0
million euros (456.7). Fuel costs, including hedging and costs incurred from
emissions trading, were largely unchanged from the corresponding period in the
previous year at 163.9 million euros (165.2). Personnel costs declined by 11.7
per cent to 94.6 million euros (107.1) due to the personnel reductions
implemented after the comparison period, but part of the costs are now seen in
the form of higher costs for outsourced catering and maintenance services. Euro
-denominated operational costs decreased to 598.9 million euros (621.9). The
company’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
-31.7 million euros (0.1).

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 IFRS, 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 amounted to 15.7 million euros (0.0). Non-recurring costs
in October–December totalled -2.5 million euros (-4.5) and the operational
result was -18.5 million euros (-3.5). The result before taxes for
October–December was -23.8 million euros (-5.3) and the result after taxes was
-13.7 million euros (-3.5).

Unit revenue per available seat kilometre (RASK) declined, primarily due to the
depreciation of the Japanese yen, by 5.1 per cent compared to the corresponding
period in 2012 and amounted to 6.05 euro cents (6.37). Excluding the effect of
exchange rate fluctuations, passenger unit revenue declined by 1.9 per cent from
the comparison period. Unit cost per available seat kilometre (CASK) rose by 4.5
per cent to 6.84 euro cents (6.54). Unit cost excluding fuel (CASK excl. fuel)
increased by 5.7 per cent and totalled 4.73 euro cents (4.47).

Outlook for 2014

The ongoing uncertain economic outlook in Europe and Asia is contributing to
weak consumer demand in some of our main markets. Air traffic is expected to
grow moderately in 2014. Finnair, however, will not be able to benefit from that
growth without progress in its cost savings program and its target cost
structure in place.

Finnair estimates its turnover to be close to previous year’s level in 2014.
Fuel costs are expected to remain high. The outcome of Finnair's ongoing cost
-saving negotiations will have a significant impact on financial performance in
2014, and therefore the company will reconsider giving guidance for its full
-year 2014 financial performance after the savings negotiations have been
concluded.

Finnair’s interim report for 1 January – 31 March 2014 will be published on
Wednesday 7 May 2014.

FINNAIR PLC
Board of Directors

Briefings

Finnair will hold a press conference on 11 February 2014 at 11:00 a.m. and an
analyst briefing at 12:30 p.m. at its office at Tietotie 9. An English-language
telephone conference for analysts will begin at 3:00 p.m. Finnish time. The
conference may be attended by dialling your local access number +358 800 770 306
and using the PIN code 255856#

Finnair Plc.
Communications
11 February 2014

* Finnair’s estimate. The estimate is based on travel agencies’ MIDT data and
Finnair’s estimates of airlines’ own sales through their own sales channels,
such as websites.

For further information, please contact:

Chief Financial Officer Erno Hilden, tel. +358 9 818 8550,
erno.hilden@finnair.com

Financial Communications and IR Director Mari Reponen, tel. +358 9 818 4054,
mari.reponen@finnair.com

IRO Kati Kaksonen, tel. +358 9 818 2780, kati.kaksonen@finnair.com
Distribution:
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