SAS Group Year-end report November 2012 - October 2013

SAS reports positive earnings despite increased price pressure

August - October 2013

• Revenue: MSEK 11,059 (11,412)
• Scandinavian Airlines traffic: up 4.0%
• Scandinavian Airlines passenger revenue adjusted for currency: down 0.3%
• Income before tax and nonrecurring items: MSEK 546 (809)
• EBIT margin: 6.4% (-2.3%)
• Income before tax: MSEK 442 (-561)
• Net income for the period: MSEK 353 (-574)
• Earnings per share: SEK 1.07 (-1.74)
• Cash flow from operating activities: MSEK 510 (1,418)
• The Board proposes that no dividend be paid for the 2012/2013 fiscal year.

November 2012 - October 2013

• Revenue: MSEK 42,182 (42,419)
• Scandinavian Airlines traffic: up 3.8%
• Scandinavian Airlines passenger revenue adjusted for currency: down 3.4%
• Income before tax and nonrecurring items: MSEK 775 (21)
• EBIT margin: 3.3% (-1.6%)
• Income before tax: MSEK 433 (-3,255)
• Net income for the period: MSEK 179 (-3,010)
• Earnings per share: SEK 0.54 (-9.15)
• Cash flow from operating activities: MSEK 1,028 (1,717)

“SAS reports a positive EBT for the fourth quarter and accumulated for the full year. This was despite intensified competition and weak economic growth in the fourth quarter. As a result of the vigorous measures implemented under the change program, the weaker income trend could be partially offset by lower costs. For the full year, the EBIT margin was 3.3%.

The results are evidence that our established strategy has started to improve our competitiveness. We have increased productivity and the unit cost, excluding jet fuel, fell 5.9% during the year. We have made substantial progress in strengthening our financial position and divested assets with a total value of about SEK 2.8 billion during the year.

Our current focus is on completing the change program to obtain a more flexible cost structure, in parallel with our continued aggressive investment in our offering to the target group – frequent flyers – through measures including the renewal of both the short and long-haul fleets as well as the launch of 43 new routes in 2014,” says Rickard Gustafson, SAS President and CEO.

The weaker conditions are expected to continue and, as usual, due to seasonality, the first quarter of 2013/2014 (November-January), will be extremely weak. Provided that market conditions, in terms of capacity, jet fuel and exchange rates, do not decline any further and that no unexpected events occur, a positive EBT is expected, excluding the positive effect from the amendments to pension terms, in the 2013/2014 fiscal year. This positive effect from the amended pension terms will impact the results for the first quarter. SAS now expects, as an additional consequence of the weaker conditions, that the financial targets expected to be reached in 2014/2015 will not now be reached until 2015/2016.

Comments by the CEO

August – October 2013

• Income before tax totaled MSEK 442 (-561)
• Lower market growth in parallel with increased competition
• Scandinavian Airlines traffic increased 4%
• The unit cost, excluding jet fuel, fell 3.3%
• Widerøe was sold on September 30
• 10% of ground handling operations was sold on October 31, 2013
• SAS issued a SEK 1.5 billion bond loan
• 43 new routes to be launched in 2014

A weak economic trend and intensified competition in the fourth quarter increased challenges for the entire industry. Despite this, SAS reported a positive EBT for the quarter and for the full year.

We can be proud of the improvement in full-year earnings. However, developments in the fourth quarter underlined the speed at which conditions change in the airline industry. Conditions worsened dramatically in the fourth quarter with a 10% increase in capacity in the Nordic market in conjunction with a continued weak macroeconomic trend. SAS has not been left unscathed, but due to the vigorous measures implemented under the change program, the weaker income trend could be partially offset by lower costs.

For the full year, the EBIT margin was 3.3%. The results are evidence that our established strategy has substantially increased our competitiveness. One of the SAS Group’s strategic objectives is to create the requisite operative preconditions, in terms of both costs and flexibility, to be able to increase productivity. During the year, Scandinavian Airlines increased capacity 6% in parallel with a decrease in operating expenses of 7.1%. Unit cost decreased 5.9% and aircraft utilization increased almost 30 minutes per day year-on-year.

In the fourth quarter, SAS took a crucial strategic step towards further increasing the Group’s operational flexibility through the sale of 10% of SAS Ground Handling to Swissport. This paves the way for complete outsourcing of SAS ground handling and forwarding services in Scandinavia in the future. Centralization of administration is continuing to plan and the majority of the streamlining measures corresponding to 1,000 full-time equivalents have been completed. Work is continuing and, next year, we will realize further positive effects from the change program.

Our financial position has been strengthened. In September, the sale of Widerøe was completed, which contributed to reducing the Group’s financial net debt by SEK 2 billion in parallel with bolstering liquidity. During the year, we have unlocked SEK 2.8 billion through the sale of assets and, in October, the Group’s financial preparedness was 26% of our fixed costs and, accordingly, exceeded the target of 20% by a healthy margin. In September, SAS successfully issued a SEK 1.5 billion bond, which underlined the market’s increased confidence in SAS.

Through these implemented measures, SAS has created the requisite conditions for aggressive development of the Group’s offering to frequent flyers and those who prioritize easier and more time-efficient travel. During the year, we completed an extensive renewal of the aircraft fleet, which comprised the phasing in and out of 46 aircraft. The fourth quarter marked the end of an epoch at SAS, when we phased out our last MD-80. At the start of 2014, the SAS Group’s aircraft fleet will be comprised, exclusively, of the new generation of aircraft. We are now entering a period of increased investment in the aircraft fleet on firm orders. In addition, we are modernizing and upgrading the passenger cabins and fully reclinable seats will be installed on our intercontinental routes next year. In addition, the route network continues to be developed with more seasonal destinations not least among these developments. SAS plans to launch 43 new routes in 2014. This has been partly enabled through a new wet lease partnership that, primarily, expands our regional network. SAS offers more destinations and more departures than any other Scandinavian airline, which is a key part of our customer promise in the strength of our business model.

The past year has been extremely intense. Through the solid commitment and hard work of all employees, SAS has now delivered, in line with targets, positive earnings for the full year.

Despite the above, we are all aware that the journey toward a long-term profitable SAS has only just begun. In the 2013/2014 fiscal year, the earnings impact from the restructuring program is expected to amount to SEK 1.2 billion. The weaker conditions are expected to continue and, as usual, due to seasonality, the first quarter of 2013/2014 (November-January), will be extremely weak. Provided that market conditions, in terms of capacity, jet fuel and exchange rates, do not decline any further and that no unexpected events occur, a positive EBT is expected, excluding the positive effect from the amendments to pension terms, in the 2013/2014 fiscal year. This positive effect from the amended pension terms will impact the results for the first quarter. SAS now expects, as an additional consequence of the weaker conditions, that the financial targets expected to be reached in 2014/2015 will not now be reached until 2015/2016.

Stockholm, December 19, 2013

Rickard Gustafson
President and CEO

  
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 December 19, at 8:00 a.m.

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