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Finnair Group

Finnair Group. Financial Report 1 January – 31 December 2009. Sector difficulties continue. The overcapacity is still growing Aircraft are underutilised Passenger demand is showing first signs of growth Price pressure remains high Cargo demand improving, price level rising slightly

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Finnair Group

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  1. Finnair Group Financial Report 1 January – 31 December 2009

  2. Sector difficulties continue • The overcapacity is still growing • Aircraft are underutilised • Passenger demand is showing first signs of growth • Price pressure remains high • Cargo demand improving, price level rising slightly • Oil price has risen 30% since last summer • Annus Horribilis – IATA estimates 11 billion dollar loss for last year • Decennis Horribilis – sector losses totalled 50 billion dollars in 2000–2009 • Loss forecast for current year 5.6 billion dollars

  3. Finnair’s profitability declined • Sector troubles also burden Finnair • Turnover fell last year by 20% • Operational loss 180 million euros • Ticket prices down by 12%, in the latter part of the year 10%, cargo prices -30% and last quarter -27% • Passenger load factor remained good • Capacity adjusted to volume decline; cost level still too high compared with price level • Efficiency programme improved result by 100 million euros • Pilot strike and walkout by baggage handling workers is estimated to cause company >20 million euros in losses • Finnair still has strong balance sheet and cash position • Punctuality and customer satisfaction improved despite difficulties at end of year

  4. Very poor operational result for 2009 *excl. capital gains. fair values changes of derivatives and non recurring items

  5. MEUR 2005 2006 2007 2008 2009 Loss diminished towards the end of the year EBIT* per quarter MEUR *excl. capital gains. fair value changes of derivatives and non recurring items

  6. Unit costs develop in the right direction Change YoY Yield (EUR/RTK) Unit costs (EUR/RTK) % 2005 2006 2007 2008 2009

  7. Savings materialise * excluding fair value changes of derivatives and non-recurring items RTK = Revenue Tonne Kilometre

  8. 200 million euro efficiency program • Savings target in personnel costs totalling 120 million euros • Targets of close to 150 mill. euro identified or agreed upon • Fuel efficiency • Structural and operational changes • Temporary lay-offs continue • Number of staff decreased by 1650 • Stabilisation agreements in Technical Services, Catering and cabin service • Reduction of unit costs agreed upon in pilots’ collective agreement • 100 mill. euro impact on profitability already in 2009 • Structural impact of the program per annum 110 mill. euro

  9. Headcount 1650 less than year before Personnel Personnel on average

  10. Fuel price on rise

  11. Hedges smoothened fluctuation in 2009

  12. Hedging losses decreased in Q4

  13. Finnair has a rolling hedging policy

  14. One of the most modern fleets in the world • Average age of Finnair's entire fleet is around six years • Modern fleet consumes less fuel and produces less emissions • Last Boeing MD-11 aircraft will be withdrawn from Finnair traffic on 22 February 2010 • Having fewer aircraft types brings commonality benefits • Three of seven Boeing 757 aircraft will be withdrawn this spring • Two Embraer 170 planes leased, two for sale • In the early 2010, two new Airbus A330 aircraft, one more in late 2010

  15. Funding secured • Funding of Finnair investment programme ensured • Investment schedule relaxed • Cash reserves more than 600 mill. euros • Sale and lease-back of properties and a spare engine, 90 mill. euros • European Investment Bank, 180 mill. euros • Export Credit Agencies, 1 A330 plane on financial leasing • An emitted hybrid bond of 120 mill. euros lowers gearing • Funding sources totalling 600 mill. euros • Export Credit Agencies, 2 A330 planes on financial leasing • Loan-back of TyEL pension fund reserves, 330 mill. euros remaining • Liquidity reserve unused credit facility, 200 mill. euros • In addition, 200 million euro commercial paper programme, of which 120 in use

  16. Strengtened cash in Q4 Cash flow statement *incl. financial interest bearing assets at fair value

  17. Balance sheet made strongerEquity ratio and adjusted gearing % Equity ratio Adjusted Gearing

  18. Emissions trading raises questions • EU begins air transport emissions trading unilaterally in 2012 • Free emissions rights to be received by each airline for 2012-2020 will be based on this year’s revenue tonne kilometres • Risk of changing ground rules exists • Finnair has supplied the necessary documentation to TraFi • Current emissions trading model will increase carbon leakage risk and jeopardise EU competitiveness • Finnair supports sector-specific emissions trading which is global and does not distort competition

  19. Industrial action and weather disrupted traffic at turn of the year • In December, illegal walkout by loading workers • Over 80% of baggage handled normally • flights delayed and some cancelled • further disruptions after walkout • nearly 7 million euros in losses • In January, Central European weather disrupted air traffic • turn of the year challenging due to large passenger numbers, terminal change and problematic weather • baggage congested at all European airports

  20. Finnair still on top in punctuality

  21. Challenging start for the year • Slow pick-up in passenger and cargo demand • Business travel demand growing outside Finland, but at lower price levels • Passenger traffic capacity in early 2010 will be 10% less than in 2009 • First quarter clearly loss-making • Three new Airbus A330 long-haul aircraft • Funding for investments arranged • Efficiency programme and structural change to be continued • Profitability expected to improve towards end of the year

  22. Finnair's strategy working • Asia-Europe strategy based on Via Helsinki concept is working; geographical advantage a lasting competitive advantage • Growing affluence in Asia presents huge growth potential • Passenger numbers have grown from 0.3 million in 2001, to over 1.1 million in 2009 • Finnair's Asian traffic accounted for 3.7% of Finland's GDP growth in 2002–2007 • Created more than 4,000 jobs in Finnair alone • 8,000 new jobs by 2015 • Without Asian strategy, company would be only half of present size • Modern fleet • Indicators show operational and service quality at a high level

  23. Towards future growth • Customers of the future will increasingly come from Asia • Strategy update and supporting reforms during the spring – main strategy will not change • Competitiveness based on excellent product and efficient operations • Group structure focused on core functions in order to achieve flexibility, partners supplement network and service provision • Working toghether with personnel, to reach joint objectives • Sustainable development creates added value for environment-conscious customers

  24. Appendices

  25. Weak operational result for Q4 *excl. capital gains. fair values changes of derivatives and non recurring items

  26. Segment results* * Operating profit. excluding capital gains, fair value changes of derivatives and non restructuring items

  27. Segment results* * Operating profit. excluding capital gains, fair value changes of derivatives and non restructuring items

  28. Negative trend in profitability levelled off thanks to efficiency measures Change in EBIT* per quarter MEUR 2009 2004 2005 2008 2006 2007 *excl. capital gains, fair value changes of derivatives and non recurring items

  29. ROE and ROCERolling 12 months % ROE ROCE

  30. Unit costs develop in the right direction Change YoY Yield (EUR/RTK) Unit costs (EUR/ATK) % 2004 2005 2006 2007 2008 2009

  31. Unit costs by cost components * excluding fair value changes of derivatives and non-recurring items ATK = Available Tonne Kilometre

  32. Investments and cash flowfrom operations MEUR Operational net cash flow Investments

  33. Aircraft operating lease liabilities Flexibility. costs. risk management MEUR On 31 December all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments by seven, the adjusted gearing on 31 December 2009 would have been 86.9%

  34. Finnair Financial Targets ”Sustainable value creation” EBIT margin at least 6% => over 120 mill. € in the coming few years Operating profit (EBIT) EBITDAR margin at least 17% => over 350 mill. € in the coming few years EBITDAR To create positive value over pretax WACC of 8.25% Economic profit Gearing adjusted for aircraft lease liabilities not to exceed 140 % Adjusted Gearing Minimum one third of the EPS Pay out ratio

  35. Finnair’s Financial Targets Description of targets Operating profit (EBIT) Turnover + other operating revenues – operating costs Result before depreciation. aircraft lease payments and capital gains EBITDAR Economic profit Operating profit EBIT – Weighted Average Cost of Capital Interest bearing debt + 7*Aircraft lease payments – liquid funds) / (Equity + minority interests) Adjusted Gearing Pay out ratio Dividend per share / Earnings per share

  36. www.finnair.com/group Finnair Group Investor Relations email: investor.relations@finnair.com tel: +358-9-818 4951 fax: +358-9-818 4092

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