STOCKHOLM--(BUSINESS WIRE)--Regulatory News:
SAS (STO:SAS)(OSE:SASNOK) continues to deliver on its restructuring program in a market under continuing pressure
November 2013 – January 2014 *
· Revenue: MSEK 7,871 (9,597)
· SAS’ scheduled traffic increased 0.7%
· SAS’ passenger revenue adjusted for currency effects and Widerøe decreased 4.9%
· Unit cost (CASK) adjusted for currency and jet-fuel decreased 3.2%
· Income before tax and nonrecurring items: MSEK -1,169 (-745)
· EBIT margin: 1.7% (-5.5%)
· Income before tax: MSEK ‑146 (‑767)
· Net income for the period: MSEK ‑112 (‑588)
· Earnings per share: SEK ‑0.35 (‑1.79)
· Cash flow from operating activities: MSEK ‑908 (‑441)
* Comparative figures for the year-earlier period include Widerøe.
SAS Group has applied the amended standard for pension reporting, IAS 19 – Employee Benefits since November 1, 2013. As part of the implementation of the amended accounting standard, the reported figures for the preceding fiscal year (2012/2013) have been restated to enable comparison with fiscal year 2013/2014. The effects of the restatement of the SAS financial statements for 2012/2013 can be found at www.sasgroup.net, under Investor Relations/Reports and Presentations/Interim reports.
Comments by the President and CEO of SAS:
“As expected, this has been a weak quarter in terms of earnings, with an income before tax of MSEK ‑146. The first quarter is seasonally the weakest, but this quarter was also marked by overcapacity and lower growth, which put pressure on margins across the entire market.
Although the result is as expected, it is not satisfactory. The market trend shows quite clearly the importance of continuing at a high tempo with our three strategic priorities: to establish an efficient operating platform, to win the battle for Scandinavia´s frequent travelers and to invest in our future.
During the quarter, the unit cost declined a further 3.2% compared with the preceding year. During the quarter, the unit cost declined by a further 3.2% compared with the preceding year. With an increasingly competitive cost base, we can fight for the frequent travelers more effectively. We continue to invest in our offering to the frequent travelers. A significant upgrade of EuroBonus was launched at the beginning of the year, with the biggest changes since the SAS loyalty program was introduced in 1992, including a totally new membership level, called EuroBonus Diamond. We also presented 44 new routes to be launched during the year.
In February 2014, an issue of preference shares strengthened our equity by SEK 3.5 billion partly offsetting the effect of the amended standard for pension reporting. By issuing a new convertible bond, SAS also secured refinancing of the convertible bond that matures in 2015. These transactions are testament to the market’s confidence in SAS and proof of the effects already generated by the restructuring program,” says Rickard Gustafson, SAS President and CEO.
Comments by the CEO
· Income before tax totaled MSEK ‑146
· Lower market growth in parallel with increased competition
· SAS’ scheduled traffic increased 0.7%
· The unit cost, excluding jet fuel, fell 3.2%
· 44 new routes to be launched in 2014
· EuroBonus – significant upgrade
· SAS was recapitalized by issuing preference shares, a new convertible bond, cancelation of the revolving credit facility and entering into a new credit facility.
As expected, SAS reported a weak quarter in terms of earnings, with an income before tax of MSEK ‑146. The first quarter is seasonally weakest, but this quarter was also marked by overcapacity and lower growth, which put pressure on margins across the entire market. As communicated in connection with the full-year report for 2012/2013, the earnings were positively impacted by about SEK 1 billion from changed pension terms.
The weak macroeconomic trend in Europe had a negative impact on business travel to and from Europe. With SAS’s large share of business travel, we are affected to a greater degree. At the same time, this trend has led to other operators shifting more capacity to the Nordic region, which has intensified the competition for passengers. Despite this, the trend for SAS in the Scandinavian home markets was stable during the quarter in terms of number of passengers, and traffic on the intercontinental routes rose 2.8% year-on-year. However, the yield declined 5.6% during the quarter.
The market trend clearly illustrates the importance of continuing our transition toward lower costs and greater flexibility. Equally clear is the fact that we must continue to invest offensively in our customer offering to meet the increasing competition.
To strengthen competitiveness and provide opportunities for long-term sustainable profitability, SAS has three strategic priorities. We must secure an efficient operational platform, win the battle for Scandinavia’s frequent travelers and invest in our future.
Establish an efficient production platform
Given the measures already implemented within the framework of the restructuring program, we are now competing from a stronger position and with a much more efficient production platform. During the quarter, the unit cost declined a further 3.2% compared with the preceding year. Payroll expenses, in particular, were a major contributor to the improvement in unit cost.
We are now rolling out a comprehensive Lean Program across the entire organization, aimed at enhancing efficiency at every level. Many of our operational units have already made good progress, and we are now involving all parts of SAS.
Our measures to restore punctuality following the system updates implemented last year have brought results and we are now back where we should be, with world-class punctuality.
Natural choice for frequent travelers
With an increasingly competitive cost base, we can compete more effectively for the frequent travelers. We have already presented 44 new routes for 2014. Focusing on customers who travel frequently and who value easier and more time-efficient travel is a key component of the SAS’ strategy, and it is gratifying to note that customer satisfaction increased during the quarter. We will continue to invest in our offering to the frequent travelers. A significant upgrade of EuroBonus was launched in early 2014, with the biggest changes since the SAS loyalty program was introduced in 1992. We are introducing a totally new membership level, EuroBonus Diamond, while several new features will be added to the membership offering for gold and silver levels. Since the launch, an additional 71,000 members have joined the program.
Invest in the future
We are introducing extensive changes to the aircraft fleet as part of the Group’s investment in the future. Last year, we phased 48 aircraft in and out – the largest modernization in the history of SAS in such a short time. The SAS aircraft fleet now consists solely of “Next Generation” aircraft – with greater comfort and higher fuel efficiency. We have already ordered 30 Airbus A320 NEOs for our short-haul operations, as well as four Airbus A330Es and eight Airbus A350s for our long-haul operations, which will give us an even more modern aircraft fleet going forward.
We are also investing in our employees and are currently strengthening the organization’s leadership by introducing a new leadership and employee model that links to our Lean processes.
Future capital structure
During the quarter, we continued to take important steps to strengthen our financial position. In February 2014, an issue of preference shares strengthened our equity by SEK 3.5 billion, which partly offsets the effect of the amended standard for pension reporting and bring our equity/assets ratio back to 20%. We also issued a new convertible bond to secure refinancing of the existing convertible bond that matures in 2015. The major interest in these transactions is testament to the market’s confidence in SAS, which was further, confirmed when Moody’s upgraded the SAS Group’s credit rating.
Our forecast for the full-year remains. During the year, the expected impact on earnings from the restructuring program is SEK 1.2 billion, and bookings at the beginning of the second quarter were at the same level year-on-year. Provided that the market conditions, in terms of capacity, jet fuel and exchange rates, do not decline any further and that no unexpected events occur, potential exists to post a positive EBT, excluding the positive effect from the changed pension terms, also in the 2013/2014 fiscal year.
Stockholm, March 14, 2014
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 March 14, at 8:00 a.m.
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