Finnair Oyj

Good day, ladies and gentlemen. I'm Erkka Salonen from Finner IR, and it's my pleasure to welcome you all to this Finner fourth quarter and full year 2020 earnings call. I have here with me Finner's CEO, Mr. Topi Manner, and he is joined by the CFO, Mr. Mikas Tirkkinen, for the Q&A session. I will now turn this call over to you, Topi. Please, Topi.

Thank you, Erkka, and good day, everybody. Thank you for joining this earnings call. And it is time to wrap up year 20 for Finnair. Some of you might remember that early on in the pandemic, when the lockdown started in March, we stated that we will be facing the worst crisis ever in the 100-year history of commercial aviation, at least during the peace time. And with the benefit of the hindsight, we really can say that so it has been. Yet, in this uncharted territory, we at Finnair, we have been creating a path for ourselves through the pandemic. And we have been doing that with extensive recapitalization and by resetting our cost base, which have secured a healthy financial position and cash position for ourselves. So, looking at the Q4 just very quickly, we still flew very little during the Q4, only 70 flights per day, carrying 8% of the passengers that we carried in 2019. We saw that toward the end of the quarter, end of the year, many countries, many airlines started to introduce negative COVID tests as a prerequisite of entering the aircraft. And we have been doing that as well. And that has been operationally very smooth and something the requirement is something that is well understood by our customers. And setting that requirement has not had any further negative impact to our passenger numbers. The routes domestically in Finland, especially to Lapland, continue to be among the most popular routes that we are currently operating. Cargo continues to play a significant role in our business. Currently more than 50% of our revenue comes from cargo and the cargo only flights given the current market prices per ton for air cargo are profitable on their own right. The highlight of the year and the highlight of Q4 also is that our customer satisfaction is on record high levels. So measured with net promoter score, the net promoter score is at 52 and clearly trending above the previous year. At present we still have unfortunately majority of our staff furloughed. We have aircraft parked in Prague and in southern France and we are proceeding with our cost savings initiatives and we are proceeding well according to plan on those both in terms of immediate temporary course savings as well as structural permanent course savings. So just quickly running through the Q4 numbers, our revenue landed at 102 million euros, which was approximately 13 percent of that of Q4 2019. Our comparable operating result landed at minus 163 million euros. So we have been previously stating that our daily loss is approximately 2 million euros. Now we have been able to bring that down a bit. So it's something like 1.8 million euros per day as we speak. We booked a significant positive one-off. from changes in our defined benefit pension plans, and the impact of that was 133 million euros. We also reversed or returned part of the restructuring provision that we made earlier during the fall due to the fact that the redundancies realized lower than we originally expected. due to all of this the operating result was minus 15 million euros the result for the period was minus 9 million euros and as stated heavily supported by the exceptional items but nevertheless at this point of time almost every single aspect of our business is exceptional in some ways and therefore the limited The limited result and the limited loss for the period is a welcome relief from the pandemic and of course thereby the heat to balance sheet is being minimized. So looking at year 20, we focused especially on four focus areas, taking care of our customers. And we really succeeded in that one. I stated our customer satisfaction was record high. Customers clearly appreciate the health related safety measures that we have been doing on board and they feel safe flying with Finnair. We have been putting a lot of focus and energy to securing our cash and equity position. I will go through that in more detail in a minute. And we have been adjusting basically all aspects of our operations and costs. So when we compare our cost level to 2019, we have been taking out more than 1.5 billion euros of cost. some of that has been easy when we stopped flying the jet fuel bill obviously comes down automatically but more than more than 1 billion euros of the 1.5 billion euros are from other sources than than fuel and and then that is certainly where all other cost elements come into play and as stated we have been proceeding according to plan in in in minimizing those those cost elements while doing all of this we have worked hard to ensure our long-term competitiveness we remain committed to our strategy of connecting europe and asia we want to position ourselves as a modern premium airline going forward Because we believe that after the pandemic there is willingness to pay among customers and customers will be more focused on service and quality. Perhaps even more focused on those elements than before the pandemic. We do realize that the industry is changing and there is no going back to 2019. And the marketplace after the pandemic will be very competitive. And that is why we introduced the a savings program of 140 million euros of permanent cost savings, the operative word there being permanent. And we are proceeding well with the implementation of those measures. We are actually a little bit ahead of schedule and we do believe that this will be helping us post-pandemic. So moving on to full year figures, the revenue landed at 829 million euros, more than 70% drop in terms of revenue. We carried 3.5 million passengers, also more than 70% drop on that figure. The comparable operating result was minus 595%. million euros, which of course tells basically everything about the sheer magnitude of the crisis and how it has treated aviation at large. Then we have the one-offs from the defined benefit pension plans, and in the financial income and expenses, we have the negative one-off from unwinding the jet fuel hedges that took place during Q2 and Q3. The result for the period was minus 523 million euros, which is roughly comparable with the right issue that we conducted during the early summer. And now with the benefit of hindsight, we are very happy with that right issue, with that transaction, both in terms of timing, as well as in terms of sizing. And as you would remember, we were the first airline in EMEA region during the pandemic conducting a right issue. And with this, our balance sheet and our equity ratio actually is largely stable. So in terms of the recapitalization plan that I mentioned, during the past year we raised 1.8 billion euros of new financing. This is not including the 400 million hybrid loan that we are currently preparing with the state of Finland. And there we are at finalizing stages and then we'll be communicating separately in the near future. So if we just go back a bit and look at how the recapitalization proceeded in March, we renegotiated our revolving credit facility of 175 million euros. In May, we drew 600 million euro pension premium loan. The rights issue took place in July. Then during the course of the fall, we did several sale and lease back deals. And also in September, refinanced our hybrid loan, which was also the first bond transaction for an airline in the EMEA region during the pandemic. Putting all of this together and including the hybrid loan under preparation and waiting for EU approval, we raised or we are in the progress of raising altogether 2.2 billion euros. And as stated, this... recapitalization plan has been all important in terms of stabilizing our financial situation and in us being able to say right now that our financial situation balance sheet and cash is on a healthy level. So looking at cash, we started the year with strong cash reserves with 953 million euros. Epida took its toll. The change in working capital was heavily negative, especially due to the refunds. Other operating cash flow includes the unwinding of the jet fuel hedges, and then we did the €325 million of investments. 1.8 million of funding raised is visible in the graph and then the loan repayments and the hybrid loan repayment is also there, ending with a cash balance of 824 million euros. And then when we look at that number, that is a healthy number. And even if the pandemic would be significantly prolonged, even if for next 12 months and beyond, we would be having the kind of revenue that we are currently having, we would be having enough of cash. And as stated, the 400 million hybrid loan, as well as the RCF, as well as our commercial paper program, they are not included in this figure. So in terms of customer refunds, we've processed a backlog of 464 million euros during the course of the year. We were one of the few airlines in Europe that predominantly used cash in refunds, and that has been truly appreciated by our customers, and that is something that is visible in the Net Promoter Score number. Now the backlog as you can see from the right hand side graph is processed and we have almost no refunds currently and that also means that going forward the tide will turn with respect to working capital and as we expect that the demand will start on more meaningful levels from summer onwards, then we will be getting the prepayments or the pre-sales from the tickets. And with that, we hope that we will be seeing positive working capital development going forward gradually. This is an important picture in the deck and comes back to what I stated before about the timing and sizing about our rights issue. So the equity ratio is basically unchanged, landing at 24.6%. And we haven't seen the numbers for that many airlines across Europe or the world for that matter, but I would anticipate that there are not that many airlines who would be able to show a similar similar picture in terms of their balance sheet and equity ratio during this year. Gearing obviously went up a bit on the back of net interest-bearing debt increasing, but here we will also need to remember that these figures are not including the 400 million hybrid that we are preparing with the state. One of the surprises for the year for us was that our number of shareholders more than tripled and actually has continued to grow after the end of the year. And for us, this is really an important sign that retail investors who actually represent much of the increase have strong trust in Finnair being able to survive the crisis and being able to be competitive post-pandemic. To us it also is a clear indication that investors believe that travel will come swinging back after the pandemic. And this is indeed something that we see also from our customer surveys. There clearly seems to be a strong pent up demand out there on the market. During the year, we have been turning to our shareholders in the Raiji issue. And the support from our shareholders, all of the shareholders, including our majority shareholder, State of Finland, has been critically important in us stabilizing our healthy financial situation. And that certainly is very important to acknowledge. So looking forward, we estimate that the demand will pick up in the summer. So, of course, that will be dependent on increasing vaccine coverage and the speed of the vaccinations, as well as the speed of governments lifting the travel restrictions. We do believe when we look at the numbers and also on the back of the recent Johnson & Johnson announcement for them applying for sales permit from EMA already now. We believe that the European target of being able to vaccinate 70% of the adult population during summer is a realistic target. We nevertheless prepare for different ramp up scenarios. We have three basic scenarios. The most optimistic of them basically is based on traffic coming back to more meaningful levels from start of June onwards. our base case scenario looks at the traffic coming back in August starting in July but materially in August and then the pessimistic scenario basically looks at the traffic coming back in October. We have been building agility and flexibility to our operations so that we can put in capacity to the market hand in hand with the demand and that we can react fast so that we are ready to fly when our customers are ready to travel. We have been also securing that customers can book flights for the summer with peace of mind, meaning that they can change their reservations without any cost until end of August. We have also introduced a new one-way pricing that brings flexibility to customers and especially under the pandemic circumstances where the flight plans can change. This is something that is really being welcomed by our customers and the early feedback and the early experiences are very good in this respect. When we look a bit further, there are opportunities that the recovery of the air traffic will bring to us as well as for Finland as a destination. So what is very, very important in this one throughout the Europe is that Finland as well as all the countries in Europe will be lifting travel restrictions in coordinated fashion. And what is also of utmost importance is that there will be international standards that make travel more seamless and also support the travel recovery. And vaccination passport certificates certainly will be important travel documents going forward. And then we at Fineo are getting ready to start using them as soon as possible. We think that when it comes to Finland as a destination, many of the megatrends in travel will be favoring Finland post pandemic. Finland has a reputation as a country that has been handling the pandemic well. We have fantastic nature, clean air. social and healthcare infrastructure that works functioning society and also sustainability is high on the agenda throughout the society and we have seen during the pandemic that sustainability and especially environmental sustainability has been significantly growing in importance in the minds of Asian consumers especially the Chinese consumers and therefore we will be doing destination marketing, we will be doing product development related to Finland travel and we see that as one of the opportunities going forward. So wrapping up, when we look at the outlook and guidance, I mean our guidance pretty much or our Q4 result was pretty much in accordance with the earlier guidance and then for the sake of Q1, we say that the comparable operating loss will be of a similar magnitude than it has been during the previous quarters and beyond that, given the uncertainty, given the visibility, We are not guiding any further, but we will be, of course, updating this during the course of the year when we have the quarterly results. So I'll stop at that. Thank you for listening. And now we open up for questions and comments.

Thank you, Topi. So as Topi mentioned, now would be a convenient time for any questions you may have. Please go ahead.