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2012-10-26 08:30:03 CEST 2012-10-26 08:30:13 CEST REGULATED INFORMATION Finnair Oyj - Interim report (Q1 and Q3)Finnair Group interim report January 1 – September 30, 2012In July-September, turnover grew by 7.1 per cent year-on-year to 650.3 million euros and the operational result increased to 48.9 million euros Finnair Plc. interim report 26 October 2012 at 09:30 Key figures 7-9 7-9 Change 1-9 1-9 Change 2011 2012 2011 % 2012 2011 % -------------------------------------------------------------------------------- Turnover and result -------------------------------------------------------------------------------- Turnover, EUR million 650.3 607.2 7.1 1,836. 1,680. 9.3 2,257. 5 3 7 Operational result, 48.9 27.6 77.2 38.6 -29.3 >20 -60.9 EBIT, EUR million 0 Operational result, % of 7.5 4.5 3.0%-p 2.1 -1.8 3.9%-p -2.7 turnover Operating result, EBIT, 71.1 10.6 >20 32.8 -57.7 156.8 -87.8 EUR million 0 EBITDAR, EUR million 97.8 75.8 29.0 186.9 113.2 65.1 139.6 Result before taxes, EUR 67.3 3.1 >20 15.6 -73.3 121.3 -111.5 million 0 Net result, EUR million 50.8 1.9 >20 10.6 -54.9 119.3 -87.5 0 Balance sheet and cash flow -------------------------------------------------------------------------------- Equity ratio, % 33.3 33.1 0.2%-p 32.6 Gearing, % 25.9 41.9 -16.0% 43.3 -p Adjusted gearing, % 90.1 101.4 -11.3% 108.4 -p Capital expenditure, 7.4 121.0 -93.9 17.7 182.8 -90.3 203.9 CAPEX, EUR million Return on capital 1.0 -3.4 4.4%-p -5.2 employed, ROCE, 12 months, % Return on equity, ROE, -1.1 -7.5 6.4%-p -10.9 12 months rolling, % Net cash flow from 44.5 -1.2 >20 136.8 59.2 131.1 50.8 operating activities 0 Share -------------------------------------------------------------------------------- Share price at end of 2.07 2.94 -29.6 2.07 2.94 -29.6 2.30 quarter, EUR Earnings per share 0.43 0.00 0.08 -0.48 116.7 -0.75 (EPS), EUR -------------------------------------------------------------------------------- Traffic data unit costs and revenue -------------------------------------------------------------------------------- Passengers, 1,000 2,361 2,174 8.6 6,693 6,100 9.7 8,013 Available seat 7,810 7,553 3.4 22,799 22,057 3.4 29,345 kilometres (ASK), million Revenue passenger 6,352 5,849 8.6 17,871 16,305 9.6 21,498 kilometres (RPK), million Passenger load factor 81.3 77.4 3.9%-p 78.4 73.9 4.5%-p 73.3 (PLF), % Unit revenue per available seat kilometre, RASK, cents/ASK 6.93 6.43 7.8 6.52 6.00 8.7 6.03 Unit revenue per revenue passenger kilometre, yield, cents/RPK 7.54 7.38 2.3 7.33 7.17 2.2 7.24 Unit cost per available seat kilometre, (CASK), cents/ASK 6.60 6.22 6.1 6.58 6.32 4.2 6.43 CASK excluding fuel, 4.43 4.48 -1.1 4.51 4.59 -1.9 4.67 cents/ASK Available tonne 1,187 1,196 -0.7 3,511 3,420 2.7 4,571 kilometres (ATK), million Revenue tonne kilometres 801 769 4.1 2,295 2,125 8.0 2,823 (RTK), million Cargo and mail, tonnes 37,338 39,286 -5.0 112,08 107,85 3.9 145,88 4 2 3 Cargo traffic unit revenue per revenue tonne kilometre, 24.41 26.34 -7.3 25.12 26.66 -5.8 26.50 cents/RTK Overall load factor, % 67.5 64.4 3.2%-p 65.4 62.1 3.2%-p 61.8 Flights, number 17,845 19,767 -9.7 54,011 60,631 -10.9 78,916 Personnel -------------------------------------------------------------------------------- Average number of 6,966 7,514 -7.3 7,467 employees * 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:"In the third quarter, which is seasonally Finnair's strongest of the year, our operational result grew to 48.9 million euros. This is the best quarterly result in Finnair's history. This strong result is a credit to the entire Finnair team, as we have showed great determination to improve our profitability and pave the way for continued success in the future. We also managed to increase our turnover, achieve a high load factor, improve unit revenue and make significant progress in implementing our cost reduction program. The improvement in the company's result is particularly positive considering that our most significant cost item, fuel, increased by some 25 per cent year-on-year. Our more aggressive pricing and the continued optimisation of our route network have resulted in improved load factors compared to 2011. The challenging market conditions have also reduced the intensity of competition on certain routes, which has benefited Finnair somewhat. We have made solid progress in our 140 million euro structural change and cost reduction program, as we have already achieved by the end of the third quarter our target to reduce costs by 80 million euros by the end of 2012. Finnair concluded a number of structural change initiatives in the third quarter, and the transfer of our Embraer 190 fleet to be operated by Flybe proceeded according to plan. While we achieved a profitable result in the most recent quarter, Finnair is still a long way from reaching its long-term profit target of 6 per cent operating profit margin. We will face substantial investments in our fleet in the coming years and must continue to improve our profitability to finance these investments. With this in mind, we have today published a new cost reduction target: we aim to achieve a further permanent reduction in costs of 60 million euros by the end of 2014. The new cost reduction program complements the previously announced program of 140 million euros. The fourth quarter is traditionally weaker than the third in our business, and the continued uncertainty in the global economy makes the visibility for the rest of the year weak, particularly with regard to the demand for corporate travel. Due to the prevailing uncertainty, we have taken a conservative approach to increasing our capacity and are flexible to make further adjustments to our operations if necessary. Our long-term strategy remains unchanged: we believe the growing demand for Asian traffic will continue to create new business opportunities for Finnair. Despite the uncertainty over the fourth quarter, we are confident that we will post a profitable operational result for the full year for the first time since 2008." Business environment The global airline industry is undergoing a structural change typified by market liberalisation, increasing competition, overcapacity, consolidation, alliances and specialisation. The intense competition is reflected in the major structural change and cost reduction programs implemented by several European airlines, as well as bankruptcies. The capacity growth in the market is now considerably more controlled than previously, and various alliance and partnership arrangements are increasing, particularly in international long-haul traffic. Finnair's goal is to take advantage of the opportunities presented by the changes in its industry and strengthen its position in traffic between Asia and Europe as well as within Europe. In the third quarter, the price of the largest individual cost item for airlines - jet fuel - remained high, creating significant cost pressures for airlines. The high cost of fuel, on the other hand, has forced the industry to operate on a healthier basis by driving financially weakest competitors out of the market. The weakening of the euro against the US dollar increased the costs in euros of typically dollar-denominated fuel, leasing and traffic charges. At the same time, growth in demand on the global aviation market has slowed down. Despite the weak economic conditions, passenger traffic in Europe continued to grow in the third quarter. Combined with the conservative stance airlines have taken toward increasing their capacity, this led to improved load factors. Traffic between Asia and Europe also grew due to strong demand. Nevertheless, uncertain economic prospects in Europe, weaker consumer demand and slowing growth in Asia cause increased uncertainty over the expectations of fourth quarter traffic volume. The uncertainty in the global economy was reflected in demand for cargo traffic. Demand for cargo traffic is expected to remain flat year-on-year in the fourth quarter, which is traditionally the strongest quarter in cargo traffic. Unit revenues continue to be under pressure from a decline in the demand for imports in the Eurozone and overcapacity in cargo traffic. Progress in the structural change and cost reduction program Finnair continued the implementation of its structural change and cost reduction program, which began in August 2011. The aim of the program is to achieve a permanent reduction in costs of 140 million euros by 2014. During the period under review, the company concluded two significant change projects in the areas of technical maintenance and catering. In July, Finnair signed a ten-year contract for the sourcing of engine and component services from the Swiss company SR Technics. As a result of the contract, Finnair gradually discontinued its own engine operations and made significant adjustments to its component services in the third quarter. Finnair will keep certain parts of these operations as part of its line maintenance organisation that looks after the day-to-day airworthiness of aircraft in order to ensure smooth operations. Under a five-year partnership agreement concluded between Finnair and LSG Sky Chefs Group (LSG) on 1 August 2012, LSG assumed full managerial and operational responsibility for the catering service provider Finnair Catering Oy at the beginning of August. According to the partnership agreement, LSG has the right to acquire Finnair Catering Oy's share capital for a pre-determined price during the contract period. The structural change and cost reduction measures implemented by the end of September have helped Finnair achieve the cost savings target it previously set for the full year 2012. Some of the savings will be realised from the final quarter of the year. The cost reduction measures are already partly reflected in lower unit costs, excluding fuel. Finnair's new estimate of the cumulative permanent cost savings achieved by year's end 2012 is 90 million euros. At the moment Finnair estimates that the biggest savings in the cost reduction program 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 fleet costs is approximately 10 per cent, and the shares of sales and distribution costs, catering and ground handling are less than 10 per cent each. Other costs, including IT, account for approximately 15 per cent of the total reduction target. So far significant savings have been achieved especially in fleet, sales and distribution and catering costs, and there three areas represent more than 40 million euros of the total savings achieved thus far. Of the total saving achieved, 16 million euros have been materialised through improved procurement. Despite the good advancement of the structural change and cost reduction program as a whole, the company has not progressed as planned in all its savings categories. Finnair still has a long way to go to reach its long-term target operating profit margin of six per cent. In the face of high fuel prices, intensifying competition and significant fleet investments in the coming years, the company must achieve a marked improvement in profitability. With this in mind, Finnair has today published a new cost savings program with the aim of achieving a permanent reduction in costs of a further 60 million euros by the end of 2014. Financial performance Financial performance in July-September 2012 As a result of growing demand for passenger traffic and increased capacity , Finnair's turnover in July-September grew by 7.1 per cent year-on-year, totalling 650.3 million euros (607.2). During the period under review, the progress of the structural change and cost reduction program was reflected in operational costs. Operational costs excluding fuel decreased by 3.6 per cent, while capacity increased by 3.4 per cent. Fuel costs, including hedging and costs caused by emissions trading, rose by 24.5 per cent year-on-year to reach 179.6 million euros (144.3). Personnel costs decreased as a result of reductions in personnel under the structural change program, declining by 11.5 per cent to 97.7 million euros (110.4). Due to a rise in fuel costs, euro-denominated operational costs rose 3.3 per cent year-on-year to reach 603.5 million euros (584.2). 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 substantially to reach 48.9 million euros (27.6). 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 improved the operating result by 7.7 million euros (-15.3). The operating result was positively impacted by capital gains of 21.3 million euros (-1.7). Of this, 15.7 million euros related to the restructuring of catering operations: Pursuant to IFRS, Finnair recorded as income the amount to be paid to the company by LSG Sky Chefs during the 2012-2017 contract period as compensation for the transfer of control of Finnair Catering Oy. The operating result was weakened by a non-recurring expense of 6.8 million euros (0.0) related mainly to structural changes in the area of technical services. The operating result reached a record level of 71.1 million euros (10.6). The result before taxes for the July-September period was 67.3 million euros (3.1) and the result after taxes was 50.8 million euros (1.9). Unit revenue per available seat kilometre (RASK) rose by 7.8 per cent from the comparison period to reach 6.93 euro cents (6.43). Unit costs per available seat kilometre (CASK) increased by 6.1 per cent to 6.60 euro cents (6.22), mainly as a result of increased fuel costs. Unit costs excluding fuel (CASK excl. fuel) declined by 1.1 per cent to 4.43 euro cents (4.48). Outlook for 2012 Guidance on 26 October 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, leading to a profitable operational result for the full year 2012. The outlook for the world economy is still uncertain, and Finnair will adjust its passenger traffic capacity with its current structure according to demand. Finnair estimates that this capacity will increase on last year but less than 5 per cent. 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 still estimated to be significantly higher in 2012 compared to the previous year due to increased capacity and high fuel prices. Cost reductions of approximately 90 million euros out of the structural change and cost reduction program's total target of 140 million euros are expected to be achieved by the end of 2012. Finnair estimates that unit cost (CASK) excluding fuel will decrease year-on-year in the second half of the year. Previous guidance given on 10 August 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 program'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 - September 30, 2012 enclosed to this stock exchange release. The Interim report January 1 - September 30, 2012 is attached to this release in pdf format and is also available on the company's website at www.finnairgroup.com. Finnair will publish its 2012 financial statements bulletin on February 8, 2013. FINNAIR PLC Board of Directors Result briefings Finnair will hold a press conference on October 26, 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 3:00 p.m. Finnish time. You can attend the conference by dialling your local access number 0800 770 306 and using the Participant PIN code 255856# FINNAIR PLC Communications October 26, 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 |
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