SAS Group Interim Report January-September 2011

Positive earnings, but greater challenges

Key ratios July-September 2011

• Revenue: MSEK 10,616 (10,776)
• Number of passengers: up 0.3 million (4.1%)
• Income before nonrecurring items in continuing operations: MSEK 298 (384)
• EBT margin before nonrecurring items in continuing operations: 2.8% (3.6%)
• Cash flow from operating activities: MSEK 232 (-470)
• Income before tax: MSEK 276 (-1,027)
• Net income for the period: MSEK 214 (-1,051)
• Earnings per share: SEK 0.65 (-3.19)

Key ratios January-September 2011

• Revenue: MSEK 31,248 (30,417)
• Number of passengers: up 1.7 million (9.4%)
• Income before nonrecurring items in continuing operations: MSEK 155 (‑703)
• EBT margin before nonrecurring items in continuing operations: 0.5% (‑2.3%)
• Cash flow from operating activities: MSEK 396 (63)
• Income before tax: MSEK 448 (‑2,606)
• Net income for the period: MSEK 392 (‑2,265)
• Earnings per share: SEK 1.19 (-8.40)

Important events during the quarter

• To strengthen the SAS Group’s long-term position in Finland and to enhance profitability, Blue1 implemented changes to its fleet and route network
• SAS launched its new 4Excellence strategy with the aim of achieving excellence in four core areas by 2015 – Commercial Excellence, Sales Excellence, Operational Excellence and People Excellence
• New Group Management, which will be broader and have a firm responsible for the strategy’s four excellence areas

Forecast for 2011 stands firm, but with deteriorating conditions

• While our earlier forecast for full-year 2011 stands firm, the conditions for fulfilling the forecast have deteriorated. Jet-fuel prices, additional capacity in the market, global economic developments and the uncertainty regarding Spanair result in greater challenges. Provided that no unexpected events occur, the potential remains for the SAS Group to achieve marginally positive income before tax for full-year 2011

Comments by the CEO

“Positive earnings and favorable traffic growth despite continued intense competition – however, greater challenges ahead.”

I am now into my third quarter as President and CEO of SAS. I am pleased that SAS’s customer offering has received such a positive reaction, which is confirmed by favorable growth and a record-high customer satisfaction rating – all in the face of an increasingly intense competitive situation. Although major capacity increases have been implemented in several of our principal markets, SAS succeeded in raising the number of passengers on many routes. This confirms that we have strengthened our competitiveness and that our product stands up well against the competition. Our focus on the leisure travel segment has proven to be successful and this was reflected in the record-high load factor during the summer. SAS’s customer satisfaction continued to improve and the index has already reached 72, which is the goal for full-year 2011. We continued to deliver world-class punctuality and, during the summer, SAS was ranked the world’s most punctual airline.

A number of actions are being taken to reverse the negative earnings trend in Blue1. In operational terms, these involved reducing capacity primarily on Blue1’s European routes and adapting costs by way of cost-reducing programs. Widerøe’s successes are gratifying and the business represents an important complement to the SAS Group’s broad coverage in Norway. Much work is currently under way in relation to the harmonization of the aircraft fleet. We are also looking forward to the delivery to our fleet of the market’s most efficient aircraft, the Airbus A320 neo, and both of these activities will yield enhanced cost effectiveness and lower CO2 emissions.

Overall, income before nonrecurring items amounted to MSEK 298 for the quarter, which is encouraging but not satisfactory.

Stable liquidity
SAS has good financial preparedness, which in September amounted to MSEK 10,630 or 25% of annual revenue. This comprises MSEK 5,122 in cash and cash equivalents. We recorded a positive cash flow from continuing operations during the quarter, up MSEK 333 compared with the preceding year despite being charged with a negative nonrecurring effect of MSEK 660 during the first quarter relating to the payment of SAS Cargo’s fine.

Forecast stands firm, but with deteriorating conditions
Increased pressure on yield and RASK is expected during the fourth quarter due to uncertainty regarding global economic developments. The unit cost for the quarter is on a par with the year-earlier period, but is now faced with difficult comparative figures. Jet-fuel prices remain at a high level of approximately USD 1,000 per MT.

While the assessment we made in conjunction with the report for the first quarter of 2011 remains valid, it should be noted that the risks involved with fulfilling this forecast have increased. On condition that nothing unexpected occurs, it is our opinion that there is still the potential for SAS to achieve marginally positive income before tax for full-year 2011. Against the backdrop of the difficult economic situation in the Spanish market, the risks related to the financial exposure in Spanair have increased.

New strategic focus
Core SAS has yielded cost reductions of 23% since 2008 and an entirely new platform for profitable growth has been created. During the quarter, the Group launched the new strategic focus 4Excellence, with the aim of achieving excellence in four core areas by 2015 – Commercial Excellence, Sales Excellence, Operational Excellence and People Excellence. SAS shall remain the preferred choice for business travelers at the same time as the offering for the leisure segment will be strengthened. SAS will streamline its sales model and have the market’s most attractive loyalty program. Furthermore, SAS will continue to be Europe’s most punctual airline and deliver the quality and service that gives most value in terms of time and money for all customers. The strategy has a continued strong focus on unit cost, with the goal of reducing the unit cost by 3-5% on an annual basis. This will be completed with a focus on both productivity and cost reductions. Through the 4Excellence strategy, we now want to continue our positive development and show continued leadership in the Nordic aviation industry.

Rickard Gustafson
President and CEO
 

Direct questions to Investor Relations SAS Group:
Vice President Sture Stølen, +46 8 797 14 51, e-mail: investor.relations@sas.se

SAS discloses this information pursuant to the Swedish Securities Market Act and/or the Swedish Financial Instruments Trading Act. The information was provided for publication on November 8, 2011, 8:00 a.m.

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