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Finnair Group First Quarter Result January 1 - March 31, 2003.

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Presentation on theme: "Finnair Group First Quarter Result January 1 - March 31, 2003."— Presentation transcript:

1 Finnair Group First Quarter Result January 1 - March 31, 2003

2 Industry hit from two sides Effects of Iraq war and SARS Economic situation remains weak Market situation continues to tighten Adjustment of capacity, total capacity clearly below 2001 level Cost cutbacks resulted in significant redundancies Loss cycle continuing and speeding up Focus on survival, cash and balance sheet

3 Finnair Q1/2003 Iraq war Profitability weakened significantly Demand weak especially in business class 160 mill. euro cost-cutting programme initiated Operational quality still top class in Europe Financial/ cash position remained strong

4 Group key figures Mill. EUR

5 Q1/2003: Operational result weakened significantly Turnover +2.4%, operating expenses +8.0% Passenger load factor dropped 1.9 percentage points Turn for worse on North American and Asian routes Unit revenues (yield) -8.7% Unit costs for flight operations decreased by -3.1% Number of personnel down -2.6%, but pension costs increased personnel expenses One MD11 aircraft sold and leased back Net debt almost nil

6 MEUR 1999 2000 EBIT per quarter 2001 2002 2003

7 MEUR 1999 2000 Change in EBIT per quarter Excluding capital gains from asset disposals 2001 2002 2003

8 Passenger load factor and yield decreased during the first quarter of 2003 Q1/20031-12/2002 Demand (RPK)+ 8.6 %+ 0.1 % Capacity (ASK)+ 11.5 %- 3.7 % Passenger load factor- 1.9 %-points+ 2.7 %-points Yield (EUR/RTK) - 8.7 %- 1.9 % Unit costs (EUR/ATK) - 3.1 %- 1.0 %

9 Business and tourist class volumes International scheduled traffic Finnair and Aero Business class: Q3/2001 -16.2% Q4/2001 -18.6 % Q1/2002 -18.7 % Q2/2002 - 6.9 % Q3/2002 - 4.1 % Q4/2002 - 0.8 % Q1/2003 - 4.3 %

10 Yield and unit costs of Flight Operations % 2002 2003

11 SARS From 40% growth to 40% plunge Affects Asian traffic and European traffic as well due to gateway travel Capacity cut on Beijing route SARS situation good in Japan, Thailand and Singapore, soon under control in Hong Kong and Toronto Foreseeable impact on result already tens of millions of euros

12 Asian traffic declined clearly due to Iraq war and SARS-epidemic

13 Iraq war and SARS epidemic have also decreased European volumes due to gateway travel through Helsinki

14 Leisure traffic Leisure Flights and Suntours Ltd Overall demand in leisure industry down Market leader Suntours (Aurinkomatkat) continues to strengthen its position Finnair Leisure Flights increased market share Increase in capacity => turnover increased 17.3% Profitability improved Unit revenues +0.7% Customer satisfaction good

15 Finnair Cargo Investment in Asian market continued, volume growth +30.8%. Cargo tonnes +4.0% Continuing decrease in cargo capacity chartered from outside Group Price competition tightens Result negative vs. zero in the previous year

16 Aviation Services Aircraft maintenance services, ground handling and catering Significant decrease in volume and price levels led to weakening of profitability Turnover -9.0 %, result negative Bankruptcy of French Air Lib airline will decrease maintenance service revenues for current year by 9 mill. euros Finnair Catering Oy has transferred its wine wholesale operations to new SkyCellar Oy of which Finnair Catering Oy owns 19.9%

17 Travel services SMT, Area, Amadeus Finland, Estravel Decline in overall demand and price level lead to 7.3% decline in turnover Result negative Service and transaction fees increasingly common Sales commission will no longer be paid to travel agents for Finnair tickets issued in Finland on September 1, 2003 or later

18 Liquidity has remained strong

19 Virtually no net debt March 31, 2003 Liquid funds € 317 mill. Loan facilities € 230 mill.

20 Strong balance sheet, good buffer Equity ratio and gearing %

21 Cost efficiency vs. competitors Competitive edge from distinct, superior product Partnerships/ alliances Growth from Asia and Baltic Sea region Sustainable, profitable growth, focus on core business and more flexibility through structural changes Strategy remains unchanged

22 Short-term savings Temporary lay-offs Recruitment frozen Investments Capacity cuts Procurement

23 Long-term savings Group unit costs -15% by 2005 160 mill. euro cost-cutting programme Permanent changes in cost and operating structure Main focus on fixed costs Share of personnel costs approx. 60 million euros. 1200 cut in manpower over two years Structural adjustments bring new flexibility and savings Increased efficiency and productivity through fleet renewal

24 Group personnel on average

25 Short-term forecast Outlook clearly deteriorating Pre-booking situation weak Q2 bad Result for entire year in the red Market situation continues to tighten Weak economic development in main market areas Number of flights for April-September down by around 7% from previous year. New destinations Osaka and Shanghai. Investments approx. 70 mill euros

26 Appendices

27 Q1/2003 in short: Operating loss excl. capital gains EUR 27.1 million Q1/2003 Q1/2002 Turnover, mill.€400,3391,1 EBITDAR18,241,5 EBIT-13,1-2,6 - EBIT excl. capital gains-27,1-3,1 Pre tax profit-14,0-4,7 Capital gains14,00,4

28 Development of Group business units Operating loss/profit, EBIT excl. capital gains

29 EBITDAR, without capital gains Mill. EUR

30 Investments financed with cash flow from operations Mill. EUR

31 Fleet strategy actively implemented By end of 2002, total of 17 A320 series aircraft In 2003, eight additional A320 series aircraft Binding orders for two A320 aircraft deliveries in 2004- 2005 DC-9 aircraft phased out by end July MD-80 aircraft operation continues for time being DC-9/MD-80 aircraft replacements being assessed


33 AEA and Finnair traffic Scheduled services AEA: Association of European Airlines

34 Jet fuel price development USD/Tonne and EUR/Tonne

35 ROE and ROCE rolling 12 months %

36 Over a third of interest bearing debt maturing in 2010 or later

37 Average number of personnel per business area

38 Superiority of product Direct to 30 destinations in the world –no time-consuming transfers at crowded airports Best schedules –morning-evening concept One of the most punctual in Europe with least cancellations Top class service in Europe oneworld - alliance with best quality and best coverage – good connections to 135 countries New aircraft in European traffic and renewed Business Class in long-haul traffic

39 Finnair Financial Targets ”Sustainable value creation” Operating profit (EBIT) EBIT margin at least 6% => 110-120 mill. € in the coming few years EBITDAR EBITDAR margin at least 17% => over 300 mill. € in the coming few years Economic profit To create positive value over pretax WACC of 10% not later than 2004 Pay out ratioMinimum one third of the EPS Gearing Net Debt to Equity max 0.6 Equity ratioEquity to Balance Sheet total more than 30% Total Shareholder Return (TSR) On average 15% annual TSR => to double the value for shareholders in five years Market CapPrice to Book minimum target 1.0

40 Finnair’s financial targets description of scorecards

41 Finnair Group Investor Relations email: tel: +358-9-818 4951 fax: +358-9-818 4092

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