Q1 2012/13 SAS AB Earnings Conference Call

SAS.ST - SAS AB
Q1 2012/13 SAS AB Earnings Conference Call
Mar 08, 2013 / 09:00AM GMT 

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Corporate Participants
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   *  Rickard Gustafson
      SAS AB - President & CEO
   *  Goran Jansson
      SAS AB - CFO

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Conference Call Participants
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   *  Dan Togo
      Handelsbanken - Analyst
   *  Dennis Eccles
      BH - Shareholder
   *  Paul Owens
      Avoka Capital - Analyst
   *  Jacob Pedersen
      Sydbank - Analyst

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Presentation
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Operator   [1]
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 Good day and welcome to the Q1 2013 SAS AB earnings conference call. At this time, I would like to turn the conference over to Rickard Gustafson. Please go ahead, sir.

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 Rickard Gustafson,  SAS AB - President & CEO   [2]
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 Thank you very much and good morning, everyone. Welcome to our Q1 reporting conference call.

 Before I start, I'd just like to draw your attention to the material that we will present is available online on sasgroup.net/investorrelations, so I hope you find it there.

 The structure of the call is very similar to what we usually do, i.e., I will start to give some remarks about the result and then I will hand over to our CFO, Goran Jansson, to give some more in-depth information around the numbers and then I will come back and round this up before we open up for questions.

 So, with that, I'll draw your attention to page 1, Q1 highlights. We guided for a seasonally weak first quarter and, in line with our expectations, we do deliver a negative earnings before tax of SEK823 million.

 This is, of course, far from satisfactory, but I'd like to point to a few things that make us more optimistic and confident on how our business will evolve going forward.

 Firstly, we report a solid revenue growth, with passenger revenues up by 6%, driven by capacity growth of 4.8% matched by traffic growth of 4.3% and a positive [deal] and development.

 Secondly, we successfully launched a significant restructuring program to make SAS cost competitive, less dependent on external credit facilities for its financial preparedness and less vulnerable to the new IFRS accounting standards.

 We are making progress in all three dimensions. Unit cost is down 2.7% in the quarter compared to last year and close to 7% in the month of January, when our new collective agreements have a broader impact.

 Cash injections. We have reached an agreement to sell and lease back our spare engines, generating a cash injection of approximately SEK700 million.

 On the equity side, our new pension terms mean that we have lowered our outstanding pension liabilities with SEK19 billion, and reduced the negative equity impact from the new accounting rules by more than SEK3 billion.

 This new operating platform provides a strong foundation for future profitable growth.

 If I then take you to page 3, significant restructuring plan, the plan that was launched in November last year is designed to make SAS cost competitive on market-based terms; improve flexibility and shift more fixed cost to variable cost; make SAS less dependent on external credit facilities for its financial preparedness; and secure an adequate equity base after impact of new IFRS accounting standards.

 The plan, as you may recall, is built on six main pillars. First, new agreements for flight deck, cabin crew and maintenance personnel. Agreements are in place and are being implemented.

 We have new pension schemes. Again, agreements in place and are being implemented.

 We will significantly change our administration to centralization, primarily to Stockholm. And we're targeting a reduction of 1,000 FTEs, corresponding to approximately 40% of our total administration.

 We will outsource our ground handling and our call centers. This primarily to improve flexibility and shift fixed cost to variable cost.

 We're going through a massive IT restructuring, where we do a complete overhaul of our IT structures' operating model, where we're targeting to reduce overall IT spend with around 50%.

 And finally, we also have an aggressive divestment agenda where we want to infuse new cash to ensure a strong financial preparedness and limit our dependency on external credit facilities.

 Altogether this plan will deliver roughly SEK3 billion in cost reduction, SEK3 billion in cash injections and around SEK3 billion in reduced equity impact.

 If I then take you to the next page, page 4, I'd like to share with you some progress that we accomplished in the quarter and also during February.

 You see here step by step, if you take them from the top, with the new agreements, that you probably recall that we completed in November last year. They are now being implemented and the compensation part of these new agreements, they start to take effect as of December last year, while the new schedules are now being released during March, in 2013.

 Likewise, regarding our new pension schemes, the overall agreement was reached in November last year, and is now being implemented throughout 2013.

 On administration, again we're targeting 1,000 employee reduction FTEs, and we are planning to see the majority of that completed before the year end of 2013.

 But in one area we have also already made some significant progress. We have our operating control center that was previously located at three locations, has now been centralized to Stockholm, where we see a 30% total FTE reduction, while maintained top-notch operational quality. A clear proof that the centralization strategy is ongoing, and it also will work.

 When it comes to outsourcing activities, yesterday we had two announcements into the market, that we're seeing some significant progress as well. Where we -- first of all, we extended our already ongoing agreements with Sykes, and so they will take a broader part of our remaining call center activities.

 But maybe more interesting, we also reached a letter of intent, or signed a letter of intent, with Swissport that will enable them to take over our ground handling activities.

 We will start through a joint venture, where they will own 51%, and we will own 49%, but over a very short time period the aim and objective is that we will reduce our ownership down to 0%, and where, i.e., Swissport will take over.

 We see this as the best way forward to manage the very complex situation where we have more than 5,000 employees scattered among several airports in Scandinavia. And, by doing this, we ensure a smooth transition and ensure the quality for our customers, and also a stable situation for our employees.

 In terms of IT restructuring, there are a number of activities ongoing, and we also have a tender out for IT services, and we expect that to be completed in spring 2013.

 And on divestments, you know that we still on the agenda with Wideroe. I can confirm that we have active dialog, in active dialog, with a number of potential partners, or buyers. And that that process is progressing well.

 But I can also reinforce what we announced a few weeks back, that we have completed the Engine transaction. That will give us roughly SEK700 million in cash injection.

 So, overall, you can see there is progress and tangible progress in all areas of our restructuring plan.

 Moving on to page 5, our new agreements enable us to grow through enhanced productivity. We can utilize our resources and assets much more effectively throughout the year.

 From now on, we can increase our capacity during summer, when the demand for flight services is at a peak.

 We already have a market-leading position in the business segment, derived from our superior network, timetable and operational quality. We maintain and defend this position, but our new platform also enables us to more effectively compete in the growing leisure market.

 We plan to increase capacity by approximately 5% to 6% in 2013. One key driver would be to extend our summer program. We're adding 45 new routes, many of them to lesser type destinations on a seasonal timetable.

 For example, in April we will open Copenhagen-San Francisco. We're adding 17 destinations from Norway, 11 destinations from Sweden and 9 destinations from Denmark.

 Furthermore, we're also enhancing our customer value proposition in many areas. We're announcing new partnerships and enhanced collaboration, most recently with Singapore Airlines and Thai Airways.

 We are upgrading and renewing our highly appreciated lounges and fast-track services across Scandinavia.

 We stay firm on our fleet renewal agenda. Stockholm is already a pure Boeing 737 next generation base, and Copenhagen will be a pure Airbus 320-type base by the end of 2013.

 With that, I'd like to hand you over to our CFO, Goran Jansson, to take you through our Q1 numbers in more detail. Goran, please?

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 Goran Jansson,  SAS AB - CFO   [3]
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 Thank you, Rickard. This is a seasonal weak first quarter, amplified by the new accounting year adding the weakest months together.

 So the top line has increased in accordance with our efforts. We will take a look at that in more detail.

 We can see that the cost, it looks like it take it the wrong way, lowering the EBITDA margin, but I will show you some reasons why that has happened.

 So let's flip to the next slide and have a look at the passenger revenue, which is up 6%.

 If we look at some of the numbers, in the quarter, SAS traffic was up by 4.3%, stronger than the market. The strongest growth came in the intercontinental routes. And the effect during November of the public negotiations were very limited.

 We had capacity up with 4.8%. The load factor was slightly down, to 67.6% compared to 67.9% last year.

 We saw a positive yield trend during the quarter; November down 0.1%, December up 1.4%, and January 3.7% up on the yield. One can see how our efforts to steer up towards high yield has paid its way.

 At this slide we can see how the passenger revenue growth, with 6%, so let's look at the first bar graph, where we can see SEK7.990 billion was the starting point last year.

 We had negative currencies of SEK122 million. And then, looking at the traffic growth I just mentioned, that helped us with SEK270 million. The load factor was almost the same as last year, as I said. Positive yield contributed with SEK102 million.

 We had other traffic revenues increasing SEK54 million, compared to last year, and Wideroe increased with SEK84 million, compared to last year. Giving us a currency adjusted growth of 6% in the quarter.

 So we flip to next slide, to the cost. To understand the cost increase, we have to look at the underlying items that have changed between the years.

 In last year's December, there were pension adjustments of positively SEK225 million, as a consequence of more detailed investigation before the IFRS accounting changes.

 We have introduced a completely new distribution platform that had costed more than last year, and we have increased depreciations on engines. These two items adding SEK140 million of cost in the quarter.

 Fuel cost is higher than last year, with SEK100 million, mainly due to higher volume. And we also have general cost increases, volume based, of SEK250 million.

 The thing is that we have been able to mitigate that volume cost increase, by efforts from the 4X and 4XNG programs with SEK300 million.

 So we have now mitigated much of the cost increase coming from the volume during the quarter.

 If we look at the next slide, improved productivity, we have increased capacity with 4.6% in the quarter.

 Unit cost is down 2.7%, excluding jet fuels, but it is excluding -- sorry, just looking into January, where the effects from 4XNG is more evident and the pension adjustment doesn't disturb the numbers, the unit cost is down 6.9%.

 So if we look at the productivity on personnel cost, we can see a decrease in personnel cost per ASK in the quarter of 7.9%, and adjusted for these pensions, it came down with 10%.

 If you look at the next slide, we have managed to improve our operating cash flow in this very seasonally weak first quarter, with 33%, from SEK662 million to SEK444 million (sic - see slide 11) negative this year.

 If we take a look at the financial preparedness, the 4XNG plan was initiated to take us out of the dependence of external facilities and create true cash. And in order to bridge that position, the banks and the main shareholders have provided us with a RCF as a backup in case of extra need.

 This facility has a tenure up to 2015 in amount of SEK3.5 billion. It replaces the old EUR366 million facility, and the old bilaterals have been canceled.

 This takes us up to SEK5.7 billion in facilities and cash, giving a financial preparedness of 20%. This is in accordance with our goal, and it corresponds to more than 70 days of standstill. Just a remark here, when the ash cloud happened, it stopped us for 10 days.

 This new facility is amortizing, which means that, as we generate through cash from divestments, corresponding amounts will be taken out of the facility.

 We also have, as Rickard mentioned, the new pensions, which has a dramatic improvement on our ability to go forward. As the new IAS 19 will be introduced, in our case November 1, 2013, the actuarial gains and losses needs to be written down.

 The new defined benefit plans that we have accomplished will mean that we will reduce the effect with SEK3.4 billion, and its deferred tax will be released, SEK1.5 billion, and this year's amortization of SEK700 million will also take down this amount. So the amount to write down will be SEK7.9 billion approximately.

 Totally SEK19 billion of pension obligations will leave SAS responsibility, corresponding to 60% of the outstanding SEK33 billion of obligations.

 With these measures, we assess that the equity-to-asset ratio will not fall below 20% in the next fiscal year of 2013/'14.

 With that, I hand over to Rickard to just conclude.

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 Rickard Gustafson,  SAS AB - President & CEO   [4]
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 Thank you, Goran. Again, to wrap this up and to conclude, I still want to reinforce a few points.

 Through our restructuring plan that we're now aggressively pursuing, we are taking measures to make us cost competitive and on market-based terms. We have improved our flexibility, and we shift fixed cost to variable costs, which makes us less dependent on external credit facilities, and secure an adequate equity base after the impact of IFRS accounting standards.

 The plan is progressing rapidly, and the key proof point for that, that I'd like to reinforce, will be that we have the new agreements and pension schemes that are being implemented.

 We have established one common operator control center in Stockholm with significant efficiency and productivity achieved, while maintaining our operational quality.

 We have signed a letter of intent with Swissport to outsource our ground handling services. And we have also completed the very complex sale and leaseback Engine transaction action during this period.

 Altogether we have established, and will continue to strengthen, a platform for profitable growth. We will defend our strong footprint in the business travel market, while expanding our presence in a growing leisure market.

 In summary, we reconfirm our forecast for a positive earnings before tax result for the full year 2012/2013, subject, though, to no unforeseen events, i.e., subject to that jet fuel price does not go completely out of where it is today at the very high level, and that European economy does not collapse further.

 With that, I'd like to end this formal presentation and ask the operator to come back and open up for questions. Operator, please?



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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Dan Togo, Handelsbanken.

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 Dan Togo,  Handelsbanken - Analyst   [2]
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 Competition out of Scandinavia is introducing long haul routes later in 2013. How do you see that unfold? And how will you meet that competition? And does your guidance for a positive EBIT margin of around or above 3% include that you need to mitigate the competition later on in the year?

 And also, on the routes that you're introducing, for the five new routes, how much of an impact does that have on your production to 6% expansion that you are guiding for? Are these routes just seasonal, or are they there to stay?

 And finally, could you elaborate a bit on the SEK19 billion reduction in your pension obligation? How should we see that? Is that just, so to say, a bookkeeping number? And how will that materialize going forward? Thanks.

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 Rickard Gustafson,  SAS AB - President & CEO   [3]
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 I'll try to cover the first two and then, Goran, if you could then do the liability question on the balance sheet.

 Coming back, starting with your intercontinental question on that traffic, the answer is, first of all, yes, we have anticipated that into our plan that competition will increase and that we will see, especially Norwegian, entering into the market. So that is included and embedded in our forecast in our plan.

 We are confident that we have a strong product on the intercontinental traffic. I must say, though, I respect Norwegian as a competitor, as I respect all my competitors, but we also feel that we have a strong product for a number of reasons.

 First and foremost, we have the strong footprint in the corporate and the business travel market, and for them it's important to have reliable timetables. We will fly daily to North America and they, as far as I understand, they will start up with maybe twice a week or something. So that's one key thing.

 I also think on Asia we have also strengthened our proposition through some significant partnerships. We now have a joint venture with Singapore Airlines in place to ensure that we can increase, as a starting point, the frequencies on Copenhagen. But then potentially also, if the demand is there, to also expand into Stockholm.

 And recently we also launched a collaboration and co-share agreement with Thai to secure that we also have a strong proposition to offer our customers on the very attractive leisure destination in Bangkok.

 So altogether I think we have a pretty strong strategy clearly lined out how we will maintain our intercontinental position.

 Your second question regarding our expansion, how much of our ASK expansion is driven from these seasonal routes in summer, and I would say that approximately half of it comes from this.

 Other parts will come from that we have fly to longer destinations, but also that we infuse bigger aircrafts. We are still phasing out some MD-80s and replacing them with Boeings or Airbuses that have more seats. So that's also part of the equation.

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 Dan Togo,  Handelsbanken - Analyst   [4]
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 So the new routes are seasonal, that's what you're saying?

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 Rickard Gustafson,  SAS AB - President & CEO   [5]
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 Yes, that's correct.

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 Goran Jansson,  SAS AB - CFO   [6]
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 And then they also, since we are now, with the new agreements, able to actually produce more with the same equipment, making use of it more efficiently. So much of what we do now will, of course, as I said before, be taken out of existing resources, making it more efficient and more productivity wise, improve our productivity.

 But still very much of the plan is based on our ability now to produce at a lower marginal cost, and also have access to that capacity from our employees.

 If we then have a look at the pension obligations of SEK19 billion. That is obligations that will leave SAS responsibility and be picked up by the ones that we have already provided the funds with, i.e., banks and financial institutions. That will happen as we introduce the new accounting principle.

 All this will be, as we say, carried out during this year, or at least end of the calendar year of 2013.

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 Dan Togo,  Handelsbanken - Analyst   [7]
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 And how will that hit you, so to speak? What will your commitment be to this?

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 Goran Jansson,  SAS AB - CFO   [8]
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 The commitment we have as today the way you calculate for it is SEK19 billion of obligations that we have now legally in obligations to fulfill as long as these people continue to live.

 What will happen when we move out of this, these obligations will be taken over by the banks that holds these funds we have provided, the SEK33 billion of funds that have been provided. SEK19 billion of that will be taken over by existing banks and other fund holders.

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 Dan Togo,  Handelsbanken - Analyst   [9]
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 Will there be a cost involved in this for you?

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 Goran Jansson,  SAS AB - CFO   [10]
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 No.

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 Dan Togo,  Handelsbanken - Analyst   [11]
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 Okay, thank you.

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Operator   [12]
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 [Dennis Eccles, BH].

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 Dennis Eccles,  BH - Shareholder   [13]
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 Congratulations on the result. We are existing investors and one concern we have is the concentration of maturities you have in 2014 and 2015, and how you're going to address it. And the sales and the proceeds from Wideroe may deal with the 2014 maturities, but it still leaves the question about what happens to the 2015.

 And so we believe this platform, or this call, is an appropriate platform to have this discussion. We would be supportive of a solution where you would just extend the convertible bonds via an extraordinary resolution. And also if you were to potentially increase the size of the convertible to enhance your liquidity profile as well as to use the proceeds to address the 2014s.

 And I think there are quite a large number of bondholders who would actually support this proposal too. And we were just wondering if this was something the Company would entertain?

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 Rickard Gustafson,  SAS AB - President & CEO   [14]
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 Thank you for the suggestions. Sounds very attractive, though nothing in this kind has been decided on.

 What we concentrate on now is really to make this Company profitable, and to be able to generate cash that strengthens our position. Cash generation is, of course, both from the operation but also to, actually through the divestments, get access to true cash.

 With that, having done that, gave us a position, and, of course, the plan is such that we will have an ability to just repay these outstanding maturities as they come up to payments.

 Whether we decide on new instruments will be a later question. What we do now is actually to generate and deliver on the plan.

 So nothing has been decided in this area in order to extend or whatever. Right now the plan is to produce cash to be able to repay outstanding maturities.

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 Dennis Eccles,  BH - Shareholder   [15]
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 I guess the issue is a broader one. You have a plan, and that's fine. But things happen and market conditions change, and you may not be able to realize that plan. You've been in an operational turnaround situation for several years, and you still are.

 So it's all nice to say that you have a plan to pay back maturities as they come due, but you may not be able to realize that plan, and that will put creditors in a difficult situation.

 However we are being supportive, and something I think you should embrace now is given -- while the market conditions are favorable, I think you could actually get an extension of your convertible bond done now, with a five-year maturity, resetting the conversion price and a higher coupon, frankly, to reflect the fact that this is an operational turnaround situation and if you fail, then it will be a risky sort of credit.

 And if you take away the possibility that somebody like Lufthansa may buy you within the first 12 to 18 months from today, and if they don't buy you, then it probably means nobody wants to buy you, so then you have a pure-play operational story.

 However, if you take care of these capital structure issues now, by extending your convertible bond now and potentially raising additional liquidity, then I think your capital structure concern goes away and then you become a pure-play operational turnaround story. And I think that's attractive, from an investor point of view.

 I think you'll find that additional people want to invest in your equity then, because all they have to take a view on is that your ability to turnaround the business, and you, as a Company, and a potential takeover candidate.

 I think this is something we should explore further, soon, while market conditions actually permit it. Because if Italy blows up, and say the elections don't go through, and Italy is a mess, and market conditions go wider, then you won't be able to extend it. But now you can.

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 Rickard Gustafson,  SAS AB - President & CEO   [16]
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 Thank you for the, as I said, for your ideas, and it's certainly so that it's not something I don't have on my mind. I would say it is certainly on the top of my mind. It's something I think about a number of hours during the day.

 So it's not forgotten in any way. It's certainly so that we will come back. But right now, at this time, on this call, I think we want to show that we are making progress on what we have promised the market. We will certainly come back in this matter for sure, I promise you.

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 Dennis Eccles,  BH - Shareholder   [17]
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 One second, and you are delivering on what you promised. But just to clarify one thing, if you look at your prospectus, which you probably already have, to extend the maturity, at the first meeting you need 75% of the bondholders, but if you go straight to the second hearing you only need one-third.

 I'm highly confident that when you go to the second hearing you'd be able to put it through. It is easy to execute. So that would be my last point. We'd appreciate if you embrace this possibility.

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 Rickard Gustafson,  SAS AB - President & CEO   [18]
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 Absolutely. As I said, it's on top of my mind. I will come back. Thank you.

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 Dennis Eccles,  BH - Shareholder   [19]
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 Thank you.

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Operator   [20]
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 Paul Owens, Avoka Capital.

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 Paul Owens,  Avoka Capital - Analyst   [21]
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 There are two topics I want to ask about. I'm very curious with respect to the agreement with Swissport as to why you structured it in exactly that way; the 51%, 49%.

 And then if you can share with us a little bit more information about the timing. I know in the release it says that you want to complete this deal, which I assume is the 51%, 49%, completion by the end of the year. But then what's your thought process in to how you would migrate from a 49% ownership down to zero? And are there any triggers or costs that you can share with us that would be involved in that?

 And then the last part of that same issue is this involves 5,000 employees, which is a big percentage of your workforce. In this deal now, and then when you've finally finished, and when you're down to zero, what happens to the pension liabilities of those employees that are involved in the ground handling unit? That's my first question with three parts.

 My second question is just one part, and that is it looks as if your restructuring costs for the quarter were SEK1.3 billion, which is a high number, but I'd like to get a better understanding of what's in those restructuring costs, please. Thank you. Those are my questions.

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 Rickard Gustafson,  SAS AB - President & CEO   [22]
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 I'll start, and then Goran will take the later part of your questions.

 If I start with your Swissport question, and why we structured the way we did.

 I see this as a -- it's a big undertaking. It's a very complex transaction to move 5,000 employees that are scattered in the many different airports across Scandinavia into one new entity. And there's a lot of operational risk around that. We felt much more comfortable by doing this in a phased approach, where we, as an interim or a starting point, we establish a joint entity.

 And the reason why we take 49% and they 51% is because we want them to take management ownership of the company from day one, since that's the whole purpose. They are the professionals in ground handling, and they should (inaudible) the benefits of this company.

 So I think that's a critical piece to it.

 The timing for this, again I would like to stress it's a letter of intent, even though we have a strategic and common objective here to accomplish this ASAP. We'll put all resources that we can on this.

 But, again, I'd rather do a thorough due diligence and thorough deal here than I rush it just because I want to be as quick as possible. Therefore we are aiming to do this as due in 2013, and hopefully as quickly as possible within this year.

 Then our ownership. The idea is not for us to be there, have that ownership for that long. But you could argue that, after one full year of operation of this new entity, you should start to expect our ownership to rapidly reduce towards the zero point.

 So I think that's part of that idea and why we decided that this is probably the best structure for us to move forward on this large and complex outsourcing transaction.

 When it comes to pension liabilities, I think maybe, Goran, if you like to comment on those, please.

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 Goran Jansson,  SAS AB - CFO   [23]
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 Yes. So, of course, with the conversation levels that you have within majority of the employees in this part of our business, they are, in general, provided with the general -- a big part of that is provided with the general pensions systems. So what happens, in reality the only area where we have some sort of pension obligations are within Norway and that's really, really limited when it comes the ground handling employees.

 So it's not a question in our mind at all. It's such a small number so, and the obligations are for these people mainly with the official pension systems.

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 Paul Owens,  Avoka Capital - Analyst   [24]
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 So it's disproportion -- the pension obligations, because many of them are in Norway, are disproportionally small relative to the overall pension obligation number that you will have on the balance sheet.

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 Goran Jansson,  SAS AB - CFO   [25]
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 Yes and in Sweden and in Denmark they are already on defined contribution plans. And, as I said before, we are now switching over to defined contribution plans in Norway also. And that means that this is not a big number at all. It's a small number.

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 Paul Owens,  Avoka Capital - Analyst   [26]
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 Thank you.

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 Rickard Gustafson,  SAS AB - President & CEO   [27]
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 Restructuring, Goran. Will you take that as well?

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 Goran Jansson,  SAS AB - CFO   [28]
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 Yes. When it comes to restructuring costs a big part of our -- where we provided last year for big -- and then much of that is all salary and wage compensations that will come out through this year, as we have already provided in the numbers of October last year.

 Exactly if there were more specific (inaudible) on your question on how you -- so that we -- if we get more precise. I don't exactly follow how you wanted that.

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 Paul Owens,  Avoka Capital - Analyst   [29]
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 Understood. Thank you very much.

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Operator   [30]
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 Jacob Pedersen, Sydbank.

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 Jacob Pedersen,  Sydbank - Analyst   [31]
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 First of all, could you talk a bit about the currency effect on your income in this quarter? You had a negative currency effect on your top line. How's the currency effect on income in this quarter?

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 Goran Jansson,  SAS AB - CFO   [32]
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 I'd say it's very limited effect. I would say it's -- we haven't had any big movement between the three kroner. I don't have the number on top of my head, but it is certainly not a big number.

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 Jacob Pedersen,  Sydbank - Analyst   [33]
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 Okay.

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 Goran Jansson,  SAS AB - CFO   [34]
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 On revenue because -- as you know it's mainly -- yes, it's SEK122 million in the quarter.

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 Jacob Pedersen,  Sydbank - Analyst   [35]
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 Okay. Your financial targets. You are quite close to some of these targets. How are you -- is your agreement with the bank structured compared to where you are, related to these targets?

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 Rickard Gustafson,  SAS AB - President & CEO   [36]
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 There are, of course, significant head rooms between where we are right now and the covenants we have with the bank.

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 Jacob Pedersen,  Sydbank - Analyst   [37]
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 Okay, great. Also the 4Excellence Next Generation scheme, you aim to sell off for about SEK3 billion the sale of assets. If you do not reach SEK3 billion, does that have any effect on the plans and also on the agreements for the banks?

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 Rickard Gustafson,  SAS AB - President & CEO   [38]
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 Yes, of course. It's important to produce as much cash as possible but, as I said, when it comes to the banks we have a headroom. So we, of course, want to be as near as possible towards our targets and that is what we're working work towards. But when it comes to the banks that's a different question.

 And, as I said, it's also an amortizing RCF, whereby the outstanding amount will lower with these different cash items coming in.

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 Jacob Pedersen,  Sydbank - Analyst   [39]
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 Okay, okay. Last question, concerning your guidance. Is that including restructuring costs, could you remind us? And is it before a sale of Wideroe? Is it including some kind of gain from sale of some assets? Or is it included the earnings portion from Wideroe?

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 Rickard Gustafson,  SAS AB - President & CEO   [40]
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 Yes, on the guidance it's an operational number, so it's not including any capital gains from any sales. It's rather clean EBIT guidance, and an EBITD guidance. So we don't foresee to -- on having guided on any capital gains here.

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 Jacob Pedersen,  Sydbank - Analyst   [41]
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 Okay. But that would also mean that if you sell off Wideroe, and you expect Wideroe to have a positive impact on your underlying operational result, that would change your guidance for the full year.

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 Rickard Gustafson,  SAS AB - President & CEO   [42]
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 No. We have -- somewhere during the year, depending on when they go out, of course. If we announce that tomorrow morning then, of course, it's a different story. (laughter).

------------------------------
 Jacob Pedersen,  Sydbank - Analyst   [43]
------------------------------
 Great. Okay, okay. Thanks for that clarification. Okay. Thanks a lot.

------------------------------
Operator   [44]
------------------------------
 (Operator Instructions). We have no further questions at this time.

------------------------------
 Rickard Gustafson,  SAS AB - President & CEO   [45]
------------------------------
 All right, if there are no further questions then I thank you so much for spending time with us this morning. And I think we'll close the call here and now. Thank you so much.

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 Goran Jansson,  SAS AB - CFO   [46]
------------------------------
 Thank you. Goodbye.

------------------------------
Operator   [47]
------------------------------
 That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.






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