Finavia Interim Report 1 January 2010 - 30 June 2010

Summary of the key figures for January to June

Finavia Group's corresponding figures for the previous year are presented as reference data.
- Turnover dropped by 7.9 per cent to EUR 152.1 million (165.1)
- The reduction in the number of passengers compared to the previous year was 2.0%
- The operating result excluding non-recurring items was EUR 12.0 million (14.4)
- The result before taxes was EUR 23.2 million (11.5)
- Cash flow from operations was EUR 31.4 million (32.4)
- The solvency ratio* was 43.0 % (63.2)

^{*Revaluation of the balance sheet at the start of the year}

Summary of the key figures for the second quarter

Finavia Group's corresponding figures for the previous year are presented as reference data.
- Turnover dropped by 9.0 per cent to EUR 74.2 million (81.6)
- The reduction in the number of passengers compared to the previous year was 4.2%
- The operating result excluding non-recurring items was EUR 6.2 million (8.0)
- The profit before taxes was EUR 5.1 million (7.4)

Summary of the President and CEO

The start of the year has been a story of two halves for Finavia's operations. On the one hand, the sector showed cautious signs of recovery, resulting in optimism in terms of the final half of the year. On the other hand, the ash crisis in April and the reduced price level that will burden the result for the whole year are eroding profitability. The increase in the level of expenses has been halted as a result of the productivity programme launched a year ago and the operating result for the first half of the year was clearly positive.

Financial result 1 January 2010-30 June 2010

Group turnover in January-June dropped by 7.9 per cent to EUR 152.1 million (EUR 165.1 million in the previous year). The operating result excluding non-recurring items fell on the previous year and stood at EUR 12.0 million (14.4). Profit before taxes was EUR 23.2 million. The profit contains non-recurring sales revenue from assets totalling EUR 13.9 million. The revaluation of balance sheet items, which was performed at the start of the year, has an impact on the depreciable amount and reduced depreciation and amortisation expenses by EUR 8.9 million.

Cash flow from operations in January-June stood at EUR 31.4 million (32.4). Fees received from customers dropped on the previous year by EUR 19.8 million, although the charges for operations were also EUR 16 million lower. The solvency ratio was 43.0 per cent.

The adjustment to expenses that began in 2009 has halted the growth in the level of expenses. The Group's operating expenses dropped 0.3 per cent on last year during the first half of the year and stood at EUR 122.7 million (123.0). The change is mainly the result of a reduction in expenses for external services, which were 16.0 per cent lower than in the previous year. The greatest saving on the previous year was achieved in purchases for security services.

Staff costs increased by 5.7 per cent as a result of the effect of both wage increases and the refund of the State Treasury's pension contribution contained in last year's base figures, which reduced the costs for 2009 by EUR 1.1 million. Excluding this item, staff costs increased by 3.8 per cent.

Financial result 1 April 2010 - 30 June 2010

Turnover dropped in the second quarter by 9.0 per cent and stood at EUR 74.2 million (81.6). The Group's operating result excluding non-recurring items was EUR 6.2 million (8.0). Profit before taxes was EUR 5.1 million, which was a drop of EUR 2.3 million on the previous year (7.4).

Operating expenses in the second quarter were EUR 59.6 million, which is 1.0 per cent higher than in the previous year. Costs for purchases of materials and services were 11.4 per cent lower than the previous year, but staff costs increased by 6.8 per cent, which explains the overall increase in costs.

Business areas

Finavia Group's operations are divided into four business areas and other operations supporting them. The model follows the practice adopted by European airport operators. Finavia Group's management model and day-to-day financial reporting is based on the same division of responsibilities by business area.

The Airport business area comprises authorised airport services and mainly commercial services produced for passengers by Finavia or through the network of partners. Airport services is responsible for the services produced at the airports for air carriers, such as the maintenance of runways and terminals, ramp handling services, security check and passenger services. Commercial operations include the leasing of commercial spaces in terminals and parking services, as well as shops and cafés.

The Air Navigation Service is responsible for managing the use of Finnish airspace and the related route and air navigation services at Finavia's airports.

Real estate operations comprise real estate companies offering facilities services to companies operating at the airports. The most important individual company in the real estate operations is LAK Airport Real Estates Plc, which operates as an owner of buildings and also a developer of building projects. The turnover of real estate operations mainly comes from outside the Group. The airports' terminals and other production areas are owned by the parent company and are the responsibility of airport services.

The subsidiary company Airpro constitutes its own business area. It develops and provides transport, airport and travel services for logistics and tourism companies as well as directly for passengers.

The shares of the Group's common operations and centralised services as well as other minor business activities are reported in other business operations.

Eliminations of Group transactions between the business areas have been adjusted through line items.

Development of the business areas

Airport
The segment's turnover dropped 9.6 per cent cumulatively compared with the previous year and in the second quarter the reduction was 10.3 per cent. The operating result for the first half of the year is EUR 33.8 million (26.9) and in the second quarter EUR 12.1 million (14.4). Non-recurring sales revenue boosting the result totalling EUR 10.7 million has been recorded for the business area.

In spite of the further reduction in volumes due to the ash crisis, positive signs are apparent in the services produced by airport operations. The number of passengers increased in March for the first time in a year and a half. The ash crisis in April resulted in a loss of almost one third of passengers, but on the other hand the positive development in May-June continued. The number of passengers in the first half of the year was 2.0 per cent below last year's figure and as a result of the ash crisis the second quarter was 4.2 per cent below the corresponding period in the previous year. Landings were again below last year, the reduction in the first half of the year being 4.1 per cent and in the second quarter 1.5 per cent. The approximately 10 per cent overall reduction in the prices for air traffic, implemented on 1 September 2009, will impact traffic revenues for the entire year.

The extension to the airport building at Kuusamo and the renovated area were officially inaugurated in May. The new premises will enable a better level of customer service for domestic and international passengers alike. Kuusamo Airport is part of the Lapland Airports brand, which was launched at airports in the north of the country, the aim of which is to increase international awareness in particular.

Commercial operations have increased their sales during the first half of the year and profitability has also improved. Rental income from commercial premises has increased as a result of new commercial rental premises and new agreements. Advertising revenue has improved positively since the recession. Turnover from the business area's shops is increasing, which is a result of the development of shop concepts, the opening of new shops as well as the rapid reaction to changes in the customer structure. In spite of the good development in other areas, revenue from parking has been weaker than in the previous year. The cold winter and large amount of snow at the start of the year reduced the use of cars by air passengers, which reduced revenues and the impact of the ash cloud was felt in April-May, which emptied the car parks.

Air Navigation Service
Turnover in January-June of the Air Navigation Service dropped 12.1 per cent compared with the previous year. Turnover for the second quarter dropped 12.6 per cent. The operating result after the first half of the year was a loss of EUR 4.8 million (-6.1).

With the exception of the negative aspect resulting from the ash crisis, overflights, which increased by 1.1 per cent during the first half of the year and by 2.3 per cent during the second quarter, feature prominently in the services produced by the air navigation service.

The major projects of the air navigation service have progressed positively during the second quarter and over the summer. The Yty Fresh project to completely renovate airports used jointly by civil aviation and the military was brought to a conclusion, the centralisation in Tampere of the operations of the area control centre is progressing as planned and the renovation of the aerodrome control tower at Helsinki Airport has been completed. The renovation of Helsinki Airport's aerodrome control tower was one of the most important projects of the year and was completed successfully as expected.

The situation after the ash crisis seems brighter now with respect to the business operations and traffic volumes have increased healthily since April. As the cost discipline of the operations has remained stable and the agreed savings measures have been kept to, the overall situation is considerably brighter compared with the previous quarter.

Real estate operations
Turnover of real estate operations in January-June was at last year's level, standing at EUR 7.6 million. The operating result improved during the first half of the year to EUR 5.2 million (1.8). Non-recurring items of EUR 3.2 million have been entered in the result, which accrued from sales profits from trade in land undertaken by LAK Plc.

The work to expand the Hilton Hotel at Helsinki Airport has continued according to schedule and the cost estimate. The building project owned by LAK Plc aims to increase the hotel's capacity by around 80 rooms. The work will be completed in May 2011. In addition, LAK Plc launched two smaller expansion projects during the second quarter.

Airpro Oy
Airpro's turnover for the first half of the year increased by 15.8 per cent on the previous year and stood at EUR 17.4 million (15.0). The operating result rose to EUR 2.1 million from last year's EUR 1.0 million.

At the start of the year, flights managed by Airpro increased, which explains for its part the increase in turnover. In addition, the severe winter increased the need for the services produced by Airpro. Increasing the efficiency of internal processes, developing shift planning and the staff structure have been the factors that have had the greatest impact on the development of costs. Various measures over many years are starting to bear fruit.

Investments

The overall total of investments has clearly been lower than in previous years due to the completion of major investments last year and the savings measures that were also initiated last year. The investment level of the first half of the year was only around half compared with the start of the previous year.

Investments in January-June totalled EUR 21.0 million (41.0). The work to extend the Hilton Hotel at Helsinki Airport is underway. The new baggage system at Helsinki Airport was brought on stream for transfer baggage and partially for departing baggage. The renovation of the terminal at Helsinki Airport is continuing in T2 in concourses 3 and 4. A larger investment being implemented elsewhere in the airport network is the terminal expansion at Oulu Airport. The project is a co-financed project and Finavia's share is EUR 9 million. Within the air navigation service, the follow-up development project to the Eurocat FRESH system is underway. The main objective of the project, which is estimated to cost around EUR 12 million, is to update Helsinki Airport's radar display system to meet internal and external requirements for the safe, economical, environmentally friendly and customer-oriented management of traffic.

Development in air traffic

Europe's internal air traffic experienced considerable losses during the second quarter due to the volcanic ash from the volcano that erupted in Iceland. According to the statistics compiled by Airports Council International1 (ACI), the cooperation organisation for airports, the number of passengers in April collapsed compared to the previous year and dropped by 13 per cent. Since April, there has been a clear recovery and growth in June has returned to the 5 per cent level. As a result of this, the cumulative figures for development are slowly returning to the level prior to April. The ACI reported growth of 2 per cent for the first half of the year. In terms of European cargo traffic, the increase in tonnage slowed in April (+11%) but quickly returned to a level over 20 per cent. The entire period of January-June shows a solid increase in cargo (+24%).

The crisis caused by the Icelandic volcano had a major impact on the development of the airports2 in the capitals of the Nordic countries. The trend in passenger numbers in April, when the ash problem occurred, compared with the previous year was Helsinki -27%, Stockholm -23%, Oslo -23% and Copenhagen -19%. Since the end of the crisis, the figures remain far behind the growth of the first quarter. The growth in passenger numbers in January-June was fastest in Copenhagen (+6%) and Oslo (+2%). However, the figures for Stockholm and Helsinki are still negative (-1%).

The first quarter was still a period of slow growth in Finnish air traffic (+0.3%). Growth in the second quarter clearly turned negative (-4.2%). Domestic traffic suffered in particular (-14.4%), while international traffic fared surprisingly well considering the conditions (0.0%). The modest growth in traffic overall has resulted in the figures for the second quarter returning to the level of 2005.

In terms of international traffic, the number of passengers between Finland and the EU continued its modest development. Growth managed to reach 1.4% during the first quarter, although in the second quarter this turned into a drop of 2.5%. The development in traffic to Spain and Germany has been especially subdued, while traffic to Latvia and France has been very positive. Traffic to countries outside the EU increased during the first quarter by as much as 11.3% although the speed of growth in the second quarter slowed to 5.3%. Stronger demand than average was experienced with respect to the following countries: Turkey, Russia and Norway. The growth in passenger numbers in Asian traffic was still 3.5% during the first quarter, but in the second quarter growth was even 14.6%. The changes in traffic to South Korea and Japan, in particular, explain the positive growth.

Landings of commercial air traffic in Finland dropped again in the second quarter (-5.4%). The drop in domestic traffic was as high as 11.8%, whereas international traffic experienced growth of 0.3%. The average size of aircraft expressed as tonnes increased by 3.0%. This is a result of the growth in the share of Asian and European traffic at the expense of domestic traffic.

The systematic increase in overflights in Finnish airspace that have continued from one quarter to another experienced a change in the first quarter by decreasing slightly (-0.2%). The second quarter returned matters to normal with cautious growth (+2.3%). The figure for the first half of the year was therefore positive (+1.1%).

1ACI Europe represents .over 400 airports in 46 countries in Europe.
2 Stockholm Arlanda, Copenhagen, Oslo Gardermoen and Helsinki Airport.

Changes in the Group Structure

Airpro Oy, which is part of Finavia Group, acquired RTG Ground Handling Oy through a contract of sale that was signed on 23 June 2010. As a result of the company acquisition, RTG Ground Handling Oy has become a subsidiary of Airpro Oy. Both companies will continue their operations as separate companies.

The company acquisition supports Finavia Group's strategy, the aim of which is to ensure services for air traffic at all the airports in the airport network. At the same time, the sale is part of Airpro's business strategy, which aims to ensure profitable growth for the company. This will ensure the safety of services offered to customers as well as high quality and cost effectiveness also in the future.

On 30 June, Finavia Group implemented the following changes in the ownership of the joint-stock companies owning real estate located in Vantaa. The share of ownership of the joint-stock property company Lentäjäntie 1 was reduced from 51.2 per cent to 37.2 per cent and correspondingly the 60.9 per cent share of ownership of the joint-stock property company Lentäjäntie 3 was increased so that the entire share capital was transferred to Finavia Group's ownership.

Outlook for the rest of 2010

Finavia has concluded the statutory labour negotiations that were initiated in May. The number of staff will be reduced by around 100 in 2010-2011. Most of the reductions will be implemented through retirements and jointly agreed severance packages. Nevertheless, there will still be redundancies to come. The statutory labour negotiations were started for financial reasons resulting from the weak demand in the aviation sector and the restrictions to air traffic caused by the volcanic ash as well as for production reasons resulting from greater effectiveness of the operations and organisational changes. The aim of the measures is to improve Finavia's cost effectiveness over the longer term. Since the staff reductions will be spread over two years, the cost savings will only be realised in full in 2012.

Eurocontrol's Statfor Unit3 estimated in its short-term forecast (2010-2011) that was published at the end of May that Iceland's volcano crisis reduced the growth in the number of European air traffic operations4 by one percentage unit this year. Presuming that the volcanic crisis does not repeat itself again this year, it is forecast that growth in the Eurocontrol Statistical Reference Area's sector (38 countries) will be 0.8% in 2010. The corresponding growth in the EU (27 countries) would be marginally lower at 0.5%. The forecast for eastern Europe is for significantly stronger growth and the growth percentages mainly range in the region of 5%-7%. With respect to the Nordic countries, the growth in volumes is forecast to be largest in Denmark (3.2%) and lowest in Iceland (-11.0%). The growth figures for countries in between these two extremes are nearly at the same level as in Eurocontrol's February forecast: Norway (1.9%), Sweden (-0.3%) and Finland (-0.5%).

During the period from 14 April to 23 April, an estimated 3,800 flights were cancelled at Finavia's airports and a total of around 270,000 departing and arriving passengers had to find some other means of travel. The turnover of all the Group's companies is strongly linked to air traffic. The Group's loss during the above-mentioned period was around EUR 6 million.

The Group is prepared for a slow recovery in the demand for air traffic. The Group's operations will focus on developing services and making the operations more effective by taking forward the savings programme. On the basis of the current improvement in air traffic, the Group estimates that the operating result for the year will be positive.

3 Statfor, which operates under Eurocontrol, produces statistics and forecasts on air traffic in Europe and monitors and analyses trends in the aviation sector. The unit produces short-term forecasts on the development of flight operations generally four times a year.
4 IFR operations in total (including overflights).