Finnair’s restated financials 2018

Finnair Plc            Stock Exchange Release     21 March 2019 at 9.00 a.m. EET

Finnair’s restated financials 2018 resulting from new IFRS 16 standard, changes in accounting principles relating to aircraft components and renewal of Chart of Accounts

As of 1 January 2019, Finnair has adopted the new IFRS 16 Leases standard using the full retrospective method. Finnair has also changed its accounting principle relating to aircraft frame components, including cabin components and frame overhauls, and made structural changes in its financial reporting chart of accounts, including income statement, balance sheet and cash flow reporting line item changes. Finnair´s financial reporting for 2018 has been restated to account for the new reporting practices.

Key impacts of these changes

• Assets at 31.12.2018 increased by 996.3 million euros, of which 992.3 million euros was due to the adoption of the IFRS 16 standard (“IFRS 16”); 4.0 million euros was due to the change in the accounting principle of aircraft frame components (“change in accounting principle”).
•  Liabilities as of 31.12.2018 increased by 1,099.5 million euros, of which 1,091.6 million euros was due to the implementation of IFRS 16 and 7.9 million euros resulted from the change in accounting principle.
• Equity decreased 103.2 million euros, of which 99.3 million euros resulted from the implementation of IFRS 16 and 3.9 million euros due to the change in accounting principle.
• The comparable operating result 2018 improved by 49.0 million euros, of which 54.7 million euros was due to IFRS 16 and -5.7 million euros resulted from the change in accounting principle. Operating result improved by 48.8 million euros.
• The net result 2018 decreased by 49.0 million euros, of which -44.3 million euros was due to IFRS 16 and -4.7 million euros resulted from the change in accounting principle.
• The equity ratio at 31.12.2018 decreased by 11.5 points to 23.3%, of which -11.3 points was due to the implementation of IFRS 16 and -0.2 points resulted from the change in accounting principle.
• Gearing will replace adjusted gearing as a key figure. Gearing at 31.12.2018 increased by 115.5 points to 76.9%, of which 115.6 points were due to the implementation of IFRS 16 and -0.1 points resulted from the change in accounting principle.

Both IFRS 16 and the change in accounting principles related to aircraft frame components have an effect on the presentation of cash flow. Structural changes in financial reporting did not have effect on the figures, but rather the line items in income statement, balance sheet and cash flow.

Finnair evaluates the impacts of these changes on its financial targets as a part of its ongoing strategy work and will revisit them as that work progresses.

Details on the changes are specified in the text below and in the restated 2018 figures that are presented in the attached tables.

IFRS 16 Leases

The new leasing standard IFRS 16 is effective from 1.1.2019 onwards. It has replaced the previous standard (IAS 17 Leases). Finnair has adopted the standard from 1.1.2019 onwards and has applied the full retrospective method to each prior reporting period presented. Accounting principles are described in more detail in Finnair’s Financial Statements 2018.

The new standard has a significant impact on Finnair’s financial statements and key ratios. The present values of the future operating lease payments for aircraft, real estate and other qualifying operating lease arrangements are recognized as right-of-use assets (in Finnair’s balance sheet “right-of-use fleet” and “right-of-use other fixed assets”) with corresponding interest-bearing lease liabilities on the balance sheet. Previously, future lease payments for operating leases were presented in the note as operating lease commitments at their nominal value. The reported lease commitments 31.12.2018 amounted to 1,457 million euros.

Key impacts of IFRS 16:

• The change increased assets by 992.3 million euros due to the recognition of right-of-use assets, of which approximately 80% are aircraft.
• Liabilities increased in total by 1,091.6 million euros due to the recognition of the present value of qualifying operating lease liabilities.
• The comparative information was restated, and the cumulative effect of initially applying IFRS 16 was made as an adjustment to opening equity of 2018. The change decreased Finnair’s equity at 31.12.2018 by 99.3 million euros.
• Depreciation increased due to the depreciation of the right of use fleet. The qualifying operating lease payments were transferred to lease liability repayments and financial expenses, which improved comparable operating result. The effects combined increased 2018 comparable operating result by 54.7 million euros and operating result by 54.8 million euros.
• The net result decreased by 44.3 million euros due to interest expenses (related to lease liabilities) and foreign exchange losses associated with USD denominated aircraft lease payments and liabilities. The majority of the decrease in net result was derived from unrealized foreign exchange losses caused by the translation of the USD denominated liability. In the future, the effect and amount of the foreign currency exchange could be positive or negative, depending on the USD-rate at the closing date. As at January 2019, Finnair aims to mitigate the foreign exchange volatility introduced by this difference by using hedges. The annual effect in net result going forward is dependent on the size of the qualifying operating lease portfolio and the duration of the leases.
• In the cash flow statement, repayments of lease liabilities were moved from operating cash flow to financing cash flow, which improved cash flow from operating activities by 111.9 million euros and reduced cash flow from financing activities.
• The change also impacted Finnair’s 2018 key figures as described above.

Change in accounting principles of aircraft frame components and overhauls

Finnair has reviewed the accounting principles of its aircraft frame components and overhauls. Previously, only the heavy maintenance of airframes had been separated out into own maintenance components, whereas in the future, other material maintenance and cabin components, such as landing gear and business class seats, will also be accounted for as separate components. From the beginning of 2019, different components are depreciated based on their economic useful lives or during their maintenance period. Previously, overhauls have been booked as expenses when they occurred.

Finnair is also changing its accounting principle for leased aircraft, so that a provision is recognized following the same principle that Finnair applies to the maintenance of its owned aircraft.

The change will reduce the volatility of engine overhaul expenses, which improves the accuracy of forecasting future profitability and improves comparability over longer time periods.

Key impacts of the changes in accounting principles:

• The change increased assets at 31.12.2018 by 4.0 million euros. The acquisition cost of the capitalized overhauls increased the assets, and the shorter depreciation period of the cabin components compared to the old policy decreased the asset value.
• Liabilities increased by 7.9 million euros due to the recognition of provisions for maintenance events.
• The comparative information was restated, and the cumulative effect of initially applying the new accounting policy was made as an adjustment to opening equity of 2018. The change decreased Finnair’s equity at 31.12.2018 by 3.9 million euros; decreased 2018 comparable operating result by 5.7 million euros; and decreased the operating result by 6.0 million euros.
• In cash flow, the investments to owned aircraft maintenance events are now presented in investing cash flow instead of operating cash flow.
• The change further impacted Finnair’s 2018 key figures as described above.

Changes in presentation of consolidated income statement, balance sheet and cash flow statement

Finnair has renewed the presentation of its consolidated income statement, balance sheet and cash flow statement by grouping costs in the consolidated income statement to better reflect business development and operations and to include the new line items required by the IFRS 16 standard. In the new income statement structure, the volume-driven operating expenses have been transferred from other expenses to relevant line items. In all statements, the lines are named to be clearer.

FINNAIR OYJ

Jakelu:
Nasdaq Helsinki
Päämediat

Investor webcast

Finnair will hold an English-language telephone conference and webcast at 2:30 p.m. Finnish time on 21 March 2019. The conference may be attended by dialling your local access number +358 9 7479 0361 (Finland), 0200 880 389 (Sweden), 0800 358 6377 (UK) or +44 (0)330 336 9105 (all other countries). The confirmation code is 9550396. To join the live webcast, please register at: https://slideassist.webcasts.com/starthere.jsp?ei=1237905

Further information

Further information is available in the enclosed appendix. You can also contact:
Chief Financial Officer Pekka Vähähyyppä, tel. +358 9 818 8550, pekka.vahahyyppa@finnair.com
Director, Financial Communications Mari Reponen, tel. +358 9 818 2037, mari.reponen@finnair.com
IR Analyst, Kasper Joukama, tel.+358 9 8181 2004, kasper.joukama@finnair.com

Appendix

The enclosed appendix, Finnair Restatements 2018 ENG, includes the following tables:

•  Key figures, restatement effects in 2018 (specifying separately effects of the Chart of Accounts restructuring, IFRS 16 restatement and aircraft component restatement)
•  Consolidated Income Statement, restatement effects in 2018 (specifying separately effects of the Chart of Accounts restructuring, IFRS 16 restatement and aircraft component restatement)
•  Consolidated Balance Sheet, restatement effects to 2018 opening balance (specifying separately effects of the Chart of Accounts restructuring, IFRS 16 restatement and aircraft component restatement)
•  Consolidated Balance Sheet, restatement effects in 2018 (specifying separately effects of the Chart of Accounts restructuring, IFRS 16 restatement and aircraft component restatement)
•  Consolidated Cash Flow Statement, restatement effects in 2018 (specifying separately effects of the Chart of Accounts restructuring, IFRS 16 restatement and aircraft component restatement)
•  Cumulative Quarterly Key Figures 2018, reported and restated (combined effect of all three restatements)
•  Periodic Quarterly Key Figures 2018, reported and restated (combined effect of all three restatements) 
•  Cumulative Quarterly Income Statement 2018, reported and restated (combined effect of all three restatements)
•  Periodic Quarterly Income Statement 2018, reported and restated (combined effect of all three restatements)
•  Quarterly Consolidated Balance Sheet, reported and restated (combined effect of all three restatements)
•  Cumulative Quarterly Cash Flow Statement 2018, reported and restated (combined effect of all three restatements)
•  Periodic Quarterly Cash Flow Statement 2018, reported and restated (combined effect of all three restatements)

The tables are available in excel-format on Finnair’s investor relations website at https://investors.finnair.com/en  

Finnair is a network airline specialising in passenger and cargo traffic between Asia and Europe. Helsinki’s geographical location gives Finnair a competitive advantage, since the fastest connections between many European destinations and Asian megacities fly over Finland. Finnair’s vision is to offer its passengers a unique Nordic experience, and its mission is to offer the smoothest, fastest connections in the northern hemisphere via Helsinki and the best network to the world from its home markets. Finnair is the only Nordic network carrier with a 4-star Skytrax ranking and a member of the oneworld alliance. In 2018, Finnair’s revenues amounted to EUR 2,835 million and it carried 13.3 million passengers. Finnair Plc’s shares are quoted on Nasdaq Helsinki.