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SAS Group Interim report January-September 2012

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SAS launches comprehensive plan to improve profitability and secure long-term financial preparedness – new collective agreements must be reached in the near future

  • 4Excellence delivers: Income before tax and nonrecurring items of MSEK 607 for the third quarter
    -  Passenger revenue: +9%
    -  Unit cost: -6.1%
  • New aggressive plan - 4Excellence Next Generation (4XNG) – which addresses SAS’s structural and financial challenges
    -  Measures with an annual positive earnings effect of approximately SEK 3 billion; including new collective agreements with such features as changed pension conditions and a significant reduction in administration
    -  Divestment of assets with a liquidity effect of about SEK 3 billion
    -  The new pensions terms considerably reduce the negative impact of amended reporting rules for pensions.
  • Core shareholders and banks place credit facilities of SEK 3.5 billion at the Group’s disposal until March 2015, conditional on full implementation of the 4XNG plan, new collective agreements being reached and that parliamentary approval is received.
  • Accordingly, the company’s existence is subject to the new collective agreements being reached
  • The Board unanimously supports the presented plan and recommends that all employees give it their full backing. Board will meet again on Sunday November 18, 2012 to decide if conditions for the implementation of the plan exist

July-September 2012

  • Revenue: MSEK 11,096 (10,616)
  • Number of passengers: increased by 315,000 (4.5%)
  • Passenger revenue adjusted for currency and nonrecurring items: increased by 9.4%
  • Income before tax and nonrecurring items: MSEK 607 (298)
  • EBT margin before nonrecurring items: 5.5% (2.8%)
  • Income before tax: MSEK 568 (276)
  • Net income for the period: MSEK 434 (214)
  • Earnings per share: SEK 1.32 (0.65)
  • Cash flow from operating activities: MSEK -123 (232)

January-September 2012

  • Revenue: MSEK 32,079 (31,248)
  • Number of passengers: increased by 865,000 (4.2%)
  • Passenger revenue adjusted for currency and nonrecurring items: increased by 5.1%
  • Income before tax and nonrecurring items: MSEK -305 (155)
  • EBT margin before nonrecurring items: -1.0% (0.5%)
  • Income before tax: MSEK -193 (448)
  • Net income for the period: MSEK 25 (392)
  • Earnings per share: SEK 0.08 (1.19)
  • Cash flow from operating activities: MSEK 1,768 (396)


Future outlook and the Group’s continued operations

In the report for the second quarter of 2012, it was announced that SAS would not present a profitability forecast for full-year 2012 due to the uncertain economic trend, jet-fuel prices, exchange rates and intense competitive pressure. In the context of these uncertainties and to address SAS’s structural and financial limitations, the 4Excellence Next Generation (4XNG) plan will be implemented yielding an annual positive earnings effect of approximately SEK 3 billion, of which SEK 1.5 billion is anticipated in the 2012/2013 fiscal year. With only one non-accounted month remaining in the shortened 2012 fiscal year (Jan-Oct), the assessment is that the SAS Group will report slightly negative income before tax and nonrecurring items. As a consequence of the measures in 4XNG, restructuring costs and nonrecurring items will amount to approximately SEK 1.5 billion, of which approximately SEK 0.9-1.0 billion will be charged to the 2012 fiscal year. The above future outlook and the extension of the credit facilities are conditional on new collective agreements being entered into. The company’s existence is dependent on these collective agreements being reached in the near future.


Comments by the CEO

“The way is now being cleared for a new, strong and competitive SAS.”

SAS is facing major and necessary changes. 4Excellence Next Generation enables us to establish an entirely new platform for SAS’s future. It is a comprehensive plan that places significant demands on the entire organization, but which is necessary to address the conditions prevailing in the market. It is a plan that will also ensure that SAS will continue to play a key role in the lives of many millions of people in Scandinavia and enable it to achieve sustainable profitability and a healthy return. We now have the financial prerequisites necessary to implement the plan as a result of the credit facilities that were renegotiated with banks and our principal owners. However, the credit facility is conditional upon the full implementation of the plan and new collective agreements being reached in the near future.

4Excellence Next Generation (4XNG)
The new plan is highly comprehensive and involves far-reaching cost savings of about SEK 3 billion, in addition to activities already in progress in 4Excellence. The 4XNG plan is not only a savings program, but also provides opportunities for increased flexibility, reduced complexity and lower costs. This will enable us to efficiently compete in the leisure travel market while also maintaining competitiveness in what is, for us, the important business travel market.

The plan’s main areas encompass, for example, new collective agreements for flight deck and cabin personnel with salary and employment conditions on market terms, thus facilitating significant efficiency improvements when planning and setting schedules. Furthermore, new defined-contribution pension solutions will be introduced for most employees, which will reduce the negative effect on equity that will arise from application of the amended IAS19 by approximately SEK 2.8 billion. Within administration, activities will be centralized to Stockholm and further outsourcing will take place, entailing a decrease in the number of staff by about 800 full-time equivalents. In addition, plans are in place to outsource Ground Handling and other parts of customer service, in addition to savings and efficiency enhancements within IT.

The combined objective of these measures is to deliver a substantial reduction in the unit cost.

Divestment of assets corresponding to about SEK 3 billion
The plan also encompasses the divestment and financing of assets to reduce the company’s long-term dependence on credit facilities. The divestments and financing are expected to have a positive impact on liquidity of about SEK 3 billion. This includes Widerøe, SAS Ground Handling, as well as properties and other assets.

Expanded credit facility secures financial preparedness
We have reached an agreement to expand the existing credit facility of SEK 3.1 billion to SEK 3.5 billion and also extend its term until March 31, 2015. SAS’s bilateral facilities amounting to SEK 1.25 billion will be terminated as these provide limited benefit at a high level of financial expense. The new facility is conditional upon new collective agreements being reached. Together with SAS’s cash and cash equivalents, this facility provides us with the financial preparedness required while we implement our divestments and achieve an earnings effect from the cost reductions.

The credit facility is provided by seven banks, the Scandinavian states and KAW. In certain cases, the participation of the Scandinavian states is subject to a parliamentary decision.

Positive third quarter
In a very difficult and competitive market, the positive trend in the third quarter is confirmation that the implementation of the 4Excellence strategy is generating results. As a result of the execution of 4Excellence, SAS has been able to increase passenger revenue by 9% and reduce the unit cost (CASK – fuel and currency-adjusted) by 6% in the third quarter of 2012. Our income before tax and nonrecurring items for the third quarter improved by MSEK 309 to MSEK 607.

Future outlook and the Group’s continued operations
In the report for the second quarter of 2012, it was announced that SAS would not present a profitability forecast for the full-year 2012 due to the uncertain economic trend, jet-fuel prices, exchange rates and intense competitive pressure. In the context of these uncertainties and to address SAS’s structural and financial limitations, the 4XNG plan will be implemented yielding an annual positive earnings effect of approximately SEK 3 billion, of which SEK 1.5 billion is anticipated in the 2012/2013 fiscal year. With only one non-accounted month remaining in the shortened 2012 fiscal year (Jan-Oct), the assessment is that the SAS Group will report slightly negative income before tax and nonrecurring items. As a consequence of the measures in 4XNG, restructuring costs and nonrecurring items will amount to approximately SEK 1.5 billion, of which approximately SEK 0.9-1.0 billion will be charged to the 2012 fiscal year. The above future outlook and extension of credit facilities are conditional on new collective agreements being entered into. The company’s existence is dependent on these agreements being reached in the near future.

Stockholm, November 12, 2012

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 12, 2012, at 8:00 a.m.

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