SAS Group Year-end Report January-October 2012

STOCKHOLM--()--Regulatory News:

SAS Group: (STO:SAS) (OSE:SASNOK):

Positive income before tax and nonrecurring items – New aggressive plan launched – First decisive step implemented

  • The measures launched at the beginning of the year are now making an impact

- MSEK 23 in income before tax and nonrecurring items for January-October 2012

- Passenger revenue up 5.6% (currency-adjusted for January-October 2012)

- Unit cost decreased by 4% (excluding jet-fuel and currency adjustments for January-October 2012)

  • New aggressive plan launched

- 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 for flight crews with such features as changed pension conditions in place

- The new pension terms reduce the negative impact on equity of amended reporting rules for pensions by approximately SEK 2.8 billion

- Divestment of assets with a liquidity effect of about SEK 3 billion

  • Income before tax during the period January-October 2012, was MSEK -1,245

- Previously announced restructuring costs and other nonrecurring items impacted income by MSEK 1,421, of which about SEK 1 billion pertained to 4XNG

  • Core shareholders and banks have placed credit facilities of SEK 3.5 billion at the Group’s disposal until March 2015

October 2012

  • Revenue: MSEK 3,907 (3,731)
  • Number of passengers: up 118,000 (4.6%)
  • Passenger revenue adjusted for currency: up 9.2%
  • Income before tax and nonrecurring items: MSEK 328 (-59)
  • EBT margin before nonrecurring items: 8.4% (-1.6%)
  • Income before tax: MSEK -1,052 (-67)
  • Net income for the period: MSEK -1,010 (-54)
  • Earnings per share: SEK -3.07 (-0.16)
  • Cash flow from operating activities MSEK 794 (-33)

January-October 2012

  • Revenue: MSEK 35,986 (34,979)
  • Number of passengers: up 983,000 (4.3%)
  • Passenger revenue adjusted for currency and nonrecurring items: up 5.6%
  • Income before tax and nonrecurring items: MSEK 23 (96)
  • EBT margin before nonrecurring items: 0.1% (0.3%)
  • Income before tax: MSEK -1,245 (381)
  • Net income for the period: MSEK -985 (338)
  • Earnings per share: SEK -2.99 (1.03)
  • Cash flow from operating activities MSEK 2,562 (363)

Future outlook 2012/2013

4XNG will deliver a significantly improved cost base looking forward. New collective agreements for flight crews will be implemented directly, at the same time as SAS has full focus on realization of the remaining activities. During 2012/2013, a positive impact on earnings of SEK 1.5 billion is expected from the 4XNG plan.

We continue to expect a negative trend for the RASK and yield but, given that no significant unexpected events occur in our operating environment and that jet-fuel prices remain stable at current levels, the SAS Group’s assessment is that potential exists to post a positive EBIT margin in excess of 3% and a positive EBT for full-year 2012/2013. However, due to seasonality, the first quarter of 2013 (November-January) will be extremely weak.

Comments by the CEO

Positive income before nonrecurring items. New collective agreements and full implementation of 4Excellence Next Generation create the prerequisites for growth and profitability. The implementation of the plan gives rise to extensive restructuring costs that impact earnings for the full-year 2012.

Positive underlying income before nonrecurring items of MSEK 23 is somewhat better than expectations but otherwise not satisfactory by any measure. However, we are making progress on both the income and the cost sides, which is evidenced through increased efficiency, a continued decline in unit cost and a positive trend for yield and RASK. The full-year figures (January-October 2012) show a SEK 1 billion loss, primarily attributable to the previously announced restructuring costs for the implementation of the 4Excellence Next Generation (4XNG) plan.

Furthermore, with the implementation of the 4XNG plan, we have secured our financial preparedness through a new expanded credit facility and reduced the challenge regarding the negative effect on equity under the new pension accounting rules in 2013.

SAS moving forward We presented our 4XNG plan in conjunction with the report for the third quarter. This is an aggressive plan that builds on the positive trend we have witnessed thus far in 2012 and, which addresses the fundamental challenges facing SAS.

On November 19, we took the first crucial step in the 4XNG plan through the signing of new collective agreements with our flight crew unions. The preceding week was extremely dramatic and challenging for SAS personnel, customers and suppliers as well as our union representatives. However, I am very pleased to note that we succeeded. Our unions have thus shown that they have shouldered responsibility and delivered under extraordinary circumstances. The new agreements create the necessary conditions for increased flexibility, reduced complexity and lower costs. This, in combination with the remaining components of the 4XNG plan, will enable us to efficiently compete in the growing leisure travel market while also maintaining competitiveness in what is, for us, the important business travel market. As a direct consequence of the above, we have now launched 45 new destinations in 2013.

The transfer of our defined-benefit based pension terms to defined-contribution based terms will reduce earnings volatility and significantly reduce the impairment need for equity by an estimated SEK 2.8 billion.

The agreement with our banks and core shareholders to expand the existing credit facility of SEK 3.2 billion to SEK 3.5 billion and also extend its tenor until March 31, 2015, is a prerequisite for our continued operation. The new facility provides us with the required financial preparedness while we complete our asset sales and realize the full benefit of the cost reductions in 4XNG.

We are continuing with the implementation of the remaining measures in the 4XNG plan, which mean extensive changes. These include the reduction and centralization of administration to Stockholm, which will realize a cost-saving and a reduction in full-time equivalents of about 800. In addition, outsourcing is planned for ground handling and major parts of our customer service. We will also implement comprehensive saving and streamlining measures in IT.

In addition, the process of divestment of non-core business assets has commenced and will, in combination with the effects of the 4XNG plan, reduce the Group’s long-term reliance on external lenders. These divestments are expected to have a positive impact on liquidity of about SEK 3 billion. These assets include SAS Ground Handling, Widerøe as well as properties and other assets.

This is an aggressive initiative and our primary goal with the 4XNG plan is to create profitability and growth through building on our solid foundations. We have a strong, growing customer base with continued high levels of customer satisfaction. Our product is appreciated because of its quality and, in parallel, we offer a global network through our Star Alliance partners. These are the qualities that differentiate us from traditional low-service airlines.

When we have implemented 4XNG, we will see significantly decreased unit costs and a competitive, market-adjusted cost structure. Our productivity and aircraft utilization ratio will increase while we create increased flexibility in our cost base, which makes us far more adaptable to changes in our operating environment.

Future outlook 2012/2013 4XNG will deliver a significantly improved cost base looking forward. New collective agreements for flight crews will be implemented directly, at the same time as SAS has full focus on realization of the remaining activities. During 2012/2013, a positive impact on earnings of SEK 1.5 billion is expected from the 4XNG plan.

We continue to expect a negative trend for the RASK and yield but, given that no significant unexpected negative events occur in our operating environment and that jet-fuel prices remain stable at current levels, the SAS Group’s assessment is that potential exists to post a positive EBIT margin in excess of 3% and a positive EBT for full-year 2012/2013. However, due to seasonality, the first quarter of 2013 (November-January) will be extremely weak.

Stockholm, December 11, 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 December 12, 2012, at 8:00 a.m.

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Contacts

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

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Contacts

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