Q4 2012/13 SAS AB Earnings Conference Call

Dec 19, 2013 AM EST
SAS.ST - SAS AB
Q4 2012/13 SAS AB Earnings Conference Call
Dec 19, 2013 / 09:00AM GMT 

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

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Conference Call Participants
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   *  Dan Togo
      Handelsbanken Capital Markets - Analyst
   *  Andrew Lobbenberg
      HSBC Global Research - Analyst
   *  Jacob Pedersen
      Sydbank - Analyst
   *  Finn Petersen
      Nordea - Analyst
   *  Lars Heindorff
      ABG Sundal Collier - Analyst

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Presentation
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Operator   [1]
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 Good day and welcome to the Q4 2013 SAS AB earnings conference call. At this time I would like to turn the conference over to Mr. Rickard Gustafson, President and CEO. Please go ahead sir.

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 Rickard Gustafson,  SAS Group - President & CEO   [2]
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 Thank you very much and welcome everyone to this conference call. I hope you find our presentation that we will go through online, and that you will be able to follow us as we go through those pages. I will try to guide you on which page we are referring to as we speak.

 If I then ask you to go to page 1 and let's get into this. We have -- our ambitious restructuring program continues to improve our overall financial performance and we do deliver on our promise. Despite an even more intense competitive environment in the fourth quarter, we deliver a positive result.

 Total operating revenue was down 3% in nominal terms, half of the decline due to negative currency development, and half of the decline from continued RASK pressure.

 Our unit cost on an FX and fuel-adjusted basis was down 3.3%. Our restructuring program has reduced our operating expenditure with approximately SEK400 million in the quarter.

 All in all we deliver a quarterly EBIT margin of 6.4%, and earnings before tax at SEK442 million, approximately SEK1 billion improvement versus fourth quarter last year.

 For the full year, November 2012 to October 2013, SAS delivered an EBIT margin of 3.3% and earnings before tax at SEK433 million, a positive full-year result for the first time in many years.

 Operating profit, earnings before tax and non-recurring items improved over SEK750 million to SEK775 million. Our critical KPIs have improved significantly during the year; operating expenditure down 7.1% with capacity up 6%; currency and fuel-adjusted unit costs down 5.9%; and aircraft utilization up 5.3%.

 It's very satisfying to see that all our hard work and efforts are having the expected impact, but we also acknowledge that our earnings are not yet at a satisfactory level. We maintain our commitment to deliver on our restructuring program to its full potential.

 Some other milestones worth highlighting in the quarter are, the Wideroe divestment that was completed in September, and our issued a SEK1.5 billion unsecured bond also in September. As part of these achievements our net debt is reduced by 30% and our financial preparedness reached 26%, somewhat ahead of our internal target.

 Moving on to the next page, we are primarily a short-haul carrier. 70% of our capacity is produced domestically within Scandinavia and Scandinavia to Europe. SAS must build a profitable and sustainable short-haul business and cannot solemnly rely on a profitable long-haul business like some other European full service carriers.

 In the fourth quarter we have seen a rapid deterioration of European market conditions, derived from increased capacity and further yield pressure. An increasing number of corporates deploy a lowest-price travel policy for their short-haul needs, pushing more passengers from our Plus cabin to our Gold cabin.

 Low-cost carriers continue to increase their presence in the Nordic market. [easyJet], they have increased their capacity in the Danish market by approximately 20% in the quarter. Ryanair increased their presence in the Norwegian market by 10% to 15%. Air Berlin has increased the capacity to/from Scandinavia with roughly 20%. Air Norwegian, of course, they continue to report strong double-digit growth but with significant yield decline throughout the quarter.

 And also, traditional network carriers redeploy capacity from Southern Europe to the Nordic region to capture growth opportunities, causing an increased competition also from secondary Scandinavian cities to European majors.

 The competitive situation is also reflected in our quarterly traffic numbers. The number of passengers are up 0.8% to 7 million. Our load factor is down 1.9 percentage points to 75.1% with yield and RASK down 4.1% and 5.8% respectively.

 However, we have defined a clear path to sustainable profitability that do deliver a positive result also in the fourth quarter, despite the challenging market conditions.

 Page -- next page, strategic priorities. Our primary objective is to be a viable and profitable and sustainable airline connecting Scandinavia and the world. Scandinavia is a region of industry, trade and travel. As a relatively remote and large geographical area with scarce population, aviation is a vital part of staying connected.

 Modern people and businesses have huge demand on their time and they expect hassle-free and time-efficient travel. SAS is the airline that cares about the efficient use of frequent travelers' time, making travel easier.

 To deliver our promise, such focus rests on three pillars. One, establishing an efficient operating platform, to be delivered through our current restructuring program; significant progress made in the last 12 months, pushing unit costs down by 5.9%.

 Two, be the natural choice for Scandinavian frequent travelers. An optimized network and significant enhancements to our value proposition have resulted in more frequent flyers. The number of EuroBonus members is up 7.3%.

 And three, we need to invest to stay competitive and we have made significant progress in modernizing and standardizing our fleet.

 Let me give you some more details on our progress in the fourth quarter on these key priorities.

 Starting with number one, the efficient platform. Currency-adjusted traffic revenues are up 3.1% for the full year, with somewhat reduced pace in the fourth quarter due to the competitive landscape.

 Capacity is up 6.7% in the quarter and 6% for the full year. Aircraft utilization continues to improve and was more than 5% in the full year, corresponding to approximately a full half hour.

 Despite the capacity growth, the full-year operating expense is down 6% causing our unit cost to continue on a positive trajectory. Key drivers being our new collective agreements, both related to compensation and new pension schemes, and reduced administration.

 75% of the total reduction of 1,000 FTEs have been completed in 2013. And we are determined and committed to the full delivery of our SEK3 billion cost reduction target. So far we have realized approximately SEK1.5 billion in savings and we expect another SEK1.2 billion in the year to come.

 Our second strategic pillar, investing in our customer offering. We are targeting frequent Scandinavian travelers. This group is defined as people doing more than five round trips per year. There are 2 million frequent Scandinavian travelers, or roughly 10% of the total population, and they account for 70% of the SEK66 billion market for air travel booked in Scandinavia.

 Frequent travelers value service components that low-cost carriers struggle to deliver such as schedule, shortest total travel time, accessible airports, punctuality, correct delivery and flexible terms.

 We have tailored our network to suit our frequent travelers' needs. We have opened more direct routes, primarily from Oslo and Stockholm. We have shifted long-haul capacity from Bangkok to San Francisco to capture more business and leisure traffic.

 We have launched a new short-haul service concept to be more relevant for our frequent passengers, called it SAS Go and SAS Plus. We have reintroduced our EuroBonus program in the Norwegian domestic market and added more partners to the overall program.

 We have significantly improved our digital capabilities, enabling customers to check in, change flights and manage their personal travel through smartphones and tablets.

 And our efforts, they do deliver strong results. We have welcomed 300,000 additional members to our frequent flyer program; that's up 7% for the full year.

 In the fourth quarter we had approximately 100,000, or 15% more EuroBonus members on board our aircraft than same quarter last year.

 And the final pillar, investing in our competitiveness. We have announced a clear fleet roadmap, both with short haul and long haul. On long haul, you know, we have ordered 12 new aircraft; 4 A330/300 enhanced, and 8 Airbus 350/900, with the first delivery in 2015. On short haul we have ordered 30 Airbus 320neo with the first delivery in 2016.

 We are rapidly replacing our older aircraft, MD-80, with Boeing 737 Next Generation in Stockholm and Oslo, and Airbus A320 in Copenhagen. During the year we have phased out 26 older aircraft and replaced them with 20 new aircraft.

 And October also marked another important milestone in the history of SAS when we conducted our last commercial MD-80 flight. We have had the MD-80-type aircraft in service for 28 years. All these years we have flown 3.1 million MD-80 flights, corresponding to 3,870 return flights to the moon.

 With that historical reflection, I would like to hand over to our CFO, Goran Jansson, to take you through the quarter result in more detail. Goran, please.

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 Goran Jansson,  SAS Group - CFO   [3]
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 Thank you, Rickard. If we then move to slide number 9.

 Increased competition, weaker demand from the business travelers and a weak Norwegian krone has put pressure on the top line. The revenues in the quarter are down with some SEK350 million compared to last year. I will be back on this.

 The restructuring program continues to deliver, and in spite the more challenging conditions we have been able to deliver on our forecast.

 The margins are impacted by lower revenues, which we haven't been able to fully absorb with lower cost.

 If you look at the next slide, number 10. If you look at the traffic revenues and start with stripping out the currency effect and the -- Wideroe numbers from last year, we see that we had traffic revenues of SEK9.2 billion last year.

 The capacity growth of 6.7% ASK has been calculated to add some SEK527 million. The lower cabin factor decreased the top line -- the lower cabin factor of 1.9% units decreased the top line with some SEK202 million and the lower yield of 1% -- 4.1% affected the revenues with some SEK403 million in the quarter.

 We also have some increase of other revenues of SEK211 million in the quarter. This gives a net growth, excluding Wideroe, of 1.4% on the top line.

 If we then move to the next slide, number 11. Doing the same exercise with the costs, stripping out the currency and Wideroe, giving the starting point of the cost base of SEK8.7 billion, the fuel costs have not moved during the period, excluding the volume increase. Volume-related cost increases added some SEK352 million and the restructuring program lowered that cost with almost SEK400 million.

 Other inflation-related cost items increased with SEK170 million. So in that sense, we can see that the 4XNG program managed to take care of the cost-related inflation increase and also a big part of the volume increase related cost, giving us a more competitive situation.

 Then move to slide number 12. The restructuring program is on track and, as I said, the labor cost savings, the CASK and the unit cost decreased with 5.9%. We have also decided to increase our scope of our lean activities to include the whole company as such, to go forward.

 On the right-hand side, we see the number of employees excluding the decline from the consolidation of Wideroe, the decline with 6.4% from 13,300 employees to 12,500.

 Go to next slide, number 13. The new agreement and the changed accounting rules for pension have significant impact on our equity. Reported a positive effect in March 2013 of SEK450 million; end of this last fiscal year 2013, the equity amounted to SEK11.1 billion.

 There are different effects related to the pension assets. We start off with the first; the new agreements will have a positive one-time effect of SEK1 billion that will be reported in the first quarter of 2014.

 The deferred taxes related to the pension will decrease with SEK1.5 billion and the Swedish pension-related payroll tax will have a positive effect to the equity of SEK1 billion. And then you see the large actuarial losses will have to be recognized at this time, which hit the equity with SEK10.3 billion, leaving SEK4.3 billion pro forma equity as of November 1 this year.

 When the [ordinary] retirement plans have been locked in 2018, the pension commitments will have decreased with 60% compared to before we started this process.

 So if we move to slide 14. Operating cash flow before change in working capital have increased with SEK573 million, with working capital negatively impacted by restructuring payments. And the asset disposals, including the sale of Wideroe, which was closed in the last fourth quarter, improved the financial preparedness and the net debt.

 SAS has now access to the capital market again and we issued a SEK1.5 billion unsecured bond in September with heavy oversubscription.

 S&P have upgraded us to B minus and Moody's have changed to a positive outlook.

 So with that I hand over to Rickard.

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 Rickard Gustafson,  SAS Group - President & CEO   [4]
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 Thank you, Goran, and I'm on the final page, outlook for the year 2013/2014.

 Again I'd like to reiterate that we are delivering on our strategic priorities and our promises.

 We've seen improved cost efficiency; unit cost is down 5.9%. We have significantly improved productivity and efficiency throughout our business. We have delivered a swift pension switchover. Moving from defined benefit to defined contributions significantly reduces the negative equity impact from new IFRS accounting standards and reducing future result variation.

 We have delivered a positive result, as promised, despite challenging market conditions in the fourth quarter, but we know there is still a lot of hard work ahead of us to deliver a sustainable and profitable business.

 Going forward we have line of sight to deliver SEK1.2 billion in cost savings from our restructuring program in 2013/2014.

 We do expect the current challenging market conditions to continue, with market capacity increasing at a higher rate than demand, putting further pressure on yields. As a consequence, we plan to slow down our own capacity growth from 6% in 2012/2013 to 3% to 4% 2013/2014.

 Due to challenging market conditions at the moment in terms of yield pressure and currency development, it's difficult to provide a reliable revenue outlook. However, our ongoing restructuring program will continue to deliver benefits throughout the year and, given no significant unforeseen events, we are targeting a positive earnings before tax number also for the full year 2013/2014.

 Given the current state of the market and the trade outlook for Europe, we are pushing our long-term financial target forward to now [be seen] under 2015/2016.

 With that we wrap up on the formal presentation and I would like to hand it back to the operator to help facilitate the Q&A session. Operator, please.



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

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 Dan Togo,  Handelsbanken Capital Markets - Analyst   [2]
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 A couple of questions. Just to get a feel for how solid the guidance is, can you elaborate a bit on the yields and what you see here? You're saying you continue to see continued yield pressure. How much change does it take on yields to push you into, for instance, a breakeven? Just to get a feeling of the sensitivity here. And what sort of remedies do you have or can you further introduce in the coming financial years in order to mitigate that? That is the first question.

 Another question is your long-term targets which you are postponing one year. Can you elaborate a bit on that? I can understand it's, of course, the market situation and increased competition that probably triggers this, but should we see this as implied that the financial year 2013/2014 will be more or less similar to 2012/2013? So the progress that you are foreseeing is postponed one year.

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 Rickard Gustafson,  SAS Group - President & CEO   [3]
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 Thanks for your those questions. I'll try to give you some reflections on your questions.

 Starting with the yield pressure. As you know we don't really guide on yield targets for the full year and I'm not going to do that today either. But what we've seen is the fact that there's been an increased capacity deployed in our part of Europe in the fourth quarter; not just from low cost carriers, but also from traditional carriers, due to the uncertain economic environment in Europe, especially in Southern Europe. And that is putting pressure on yields.

 We've also seen that the economic environment is also making further -- driving further restrictions in corporate travel, which of course also impacting us. And, on top of that, we also see a [instable] situation -- or I shouldn't say instable at least, and the situation was -- hard to predict where the currency is going. As you know, we have a big exposure to the Norwegian crown, as Norway is our single largest market. And the Norwegian crown has actually reduced its value significantly versus Swedish crown in the year and that also shows in our fourth quarter result.

 So that's the situation and that's what we anticipate, what we should expect also in the year to come. Therefore, our restructuring program is -- continues to be our mitigating action to support that, to drive that. We need to make sure that we get -- continue to drive cost efficiency further.

 We are confident that the SEK1.2 billion that we have lined up for this year we can deliver on it and, of course, we will. Every day as we walk into this business, we ask ourselves the question, how can we be more productive and how can we be more efficient? And that's not going to stop.

 For the long-term target, though, I think what I have said regarding the economic environment and market conditions, that's why we believe that we probably need more time to reach our long-term target than anticipated a year ago. But I think that's how we should read that. And I can't really comment more than what we've done, than we're saying that we believe that the forecast for the full year will be a positive earnings before tax, but we can't be more specific than that.

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 Dan Togo,  Handelsbanken Capital Markets - Analyst   [4]
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 One follow-up question. You're saying that capacity is moving north. How do you see access to airports, et cetera? Is it easy to obtain attractive slots, et cetera, in the Scandinavian market or Nordic markets?

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 Rickard Gustafson,  SAS Group - President & CEO   [5]
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 So far yes, so far yes. I don't think it's a very restricted situation. We start to see some of that in some areas and -- that's for sure. And then, of course, in some of the European majors such as Heathrow and Frankfurt and so forth, of course that's a different situation. But up in our part of the world it's still capacity available for carriers to grab, also at the airport side.

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 Dan Togo,  Handelsbanken Capital Markets - Analyst   [6]
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 Thank you.

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Operator   [7]
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 Andrew Lobbenberg, HSBC Global Research.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [8]
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 I guess I was looking for some discussion around what you can say about the unit cost outlook for next year. We've got 5.9% for the full year but it's slowing to 3.3% in the final quarter. And you've had a lot of impact from the very major restructurings done this time last year already in the base, so I appreciate you're talking about SEK1.2 billion of restructuring program for next year.

 But how should we think about the pace of unit cost reduction going into next year and what is going to be driving that one way or the other? To what extent does the disappearance of the MD-80s help or to what extent are we hurt by the ownership cost?

 And then I'd also be keen to just understand the ground handling transaction, which is obviously a great deal more modest than you had hoped for. To what extent is that going to support your flexibility efforts, which I think is the focus of it? So, if you could talk about that, please.

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 Rickard Gustafson,  SAS Group - President & CEO   [9]
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 Right, I will ask Goran to reply to your first question and I'll come back and try to give an answer on the ground handling question.

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 Goran Jansson,  SAS Group - CFO   [10]
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 What we have said in the program of, let's say, a more long-term effect on the CASK going forward is that in the period we're supposed to, excluding fuel, to be able to take that down with 15%, then of course delivering the 5.9% as the starting point.

 We need to continue to deliver on that goal. We have part of the effect coming from the cost program in itself. Of course, towards that you have other inflation-related cost items that increases the cost. Volume by such increases the cost but we have also, of course, with larger aircraft, more seats in every aircraft to give a positive part of calculating this.

 So, we should be able to, and we have, as I said before, an ambition to -- over a period of time, more than three years, some three years, to deliver a 15% decline in our CASK. How much it will be next year we will not give a guidance on that in exact. It will be a positive number and we will work very hard to deliver on that.

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 Rickard Gustafson,  SAS Group - President & CEO   [11]
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 Right. On the ground handling, it is an important strategic decision of ours to outsource our ground handling activities. We're not doing it primarily for a significant cost reduction as such but rather to improve our flexibility, shifting fixed cost to variable cost, and that's the strategic driving force while we do this.

 As you announced -- or as you referred to, we have done a small transaction with Swissport to date where they have now taken a 10% stake in our ground handling operation. That is more likely putting a stake in the ground to demonstrate to the world and also our internal organization that we are determined to do this.

 Swissport, as you know, they are also now in the middle of another huge transaction with Servisair and they don't really have management bandwidth to do that in parallel with -- and also doing the deal with us. I respect that and for me it's more critical we do a robust and well thought-through transition to Swissport rather than pushing it, just for the sake of it. And we now have that time to do that.

 And as a positive backdrop of that, I believe that we get some more time to further drive efficiency on our own within our ground handling activities, and that will position us even better as we get into the enhanced negotiation with Swissport at the back end of 2014.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [12]
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 Okay, that makes sense. Whilst I've got the line, could I just ask on capacity as well? Because I know you presented it as saying that you're slowing your capacity from 6% this year to 3.4% next. But, as I recall, you've been at 3.4% as your plan for the coming financial year for some time. In the last few months you have not changed your capacity plans for the coming year, even though the market has deteriorated.

 What would it take to make you choose to pull the lever on your own capacity? Or is that just too scary for what that -- the consequences would be for unit cost, perhaps?

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 Rickard Gustafson,  SAS Group - President & CEO   [13]
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 I will refer -- I'll try to answer that question of yours. First and foremost, for us, we are always trying to adapt our capacity growth, that that should meet the same pace of the growth in demand. At the moment the overall capacity in the market is actually growing faster than the demand. We do see a growth in demand.

 So I can't really say it's a deteriorating market in terms of growth, number of passengers. However, though, the growth is primarily coming from leisure traffic and not corporate traffic. With our numbers, though, growing our capacity with 3% to 4% in the year, you also need to understand that we are phasing out our older aircraft and replacing them with larger aircraft.

 So, just from the fact that we get some more seats in our existing aircraft drives our ASK number north. And that's probably -- half of this is just coming from that perspective. So, that's also an important point to make.

 But then it's also for us -- we are the leading carrier in the Scandinavian market. And in many of these highly important short-haul destinations that we have a lot of frequent travelers using, we need to make sure that we have a schedule that is of the right appetite. And we always will have the best schedule on these critical destinations, and we are prepared to defend that position.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [14]
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 So you're not moving your capacity down.

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 Rickard Gustafson,  SAS Group - President & CEO   [15]
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 No, we're not. We're not taking it down. And, as I said, we have modest growth in terms of increased capacity, and a big chunk of what we have is actually derived from larger aircraft as we phase out the MD-80s and replacing them with 737NGs and Airbus A320s.

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 Andrew Lobbenberg,  HSBC Global Research - Analyst   [16]
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 Okay, lovely. Thank you.

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Operator   [17]
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 Jacob Pedersen, Sydbank.

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 Jacob Pedersen,  Sydbank - Analyst   [18]
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 Hi, gentlemen. Congratulations on a positive result for the full year. I have some questions and I have to apologize because I haven't been able to be with you on the first part of this teleconference, so I might ask something that's already been asked.

 First of all, could you give us some kind of indication on the revenue of ground handling and the effect on ground -- of you getting rid of ground handling at a later point in time on your EBIT margins? How much will that improve EBIT margin, that you get rid of ground handling?

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 Goran Jansson,  SAS Group - CFO   [19]
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 We haven't really given a specific number but, of course, the revenues from the ground handlings of other operators is in the range of -- with more than SEK1.5 billion. We haven't really anticipated having a mega improvement of the margin by getting rid of that. It's the way how we calculate and [distribute] the costs in the [annual]. We will, of course -- once it's been outsourced, that will leave our top line but we will have a cost item. Instead of personnel costs we will have other costs coming up as an invoice from Swissport.

 We have -- we don't have a guidance at this time on -- or how much that will impact margin. I don't think it will be any major number.

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 Jacob Pedersen,  Sydbank - Analyst   [20]
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 Okay, great. Also, a commercial question. You abandoned business class and expanded with SAS Go and SAS Plus. How has that affected your revenues and how has this been incorporated in the organization, and also how has customers received this more simple product?

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 Rickard Gustafson,  SAS Group - President & CEO   [21]
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 Right. When we did this shift, we did this in close interaction with a number of our more frequent customers to really get a sense of what do they expect and what type of services do they expect when they fly short haul.

 And we ended with this Go and Plus, which has significantly simplified the product structure, not just from a customer point of view where it's a more simple and hopefully clearer product offering, but also in terms of our delivery. On the back end it's also simplified our process quite significantly.

 I think you need to reflect on one thing, what's happening in the European market at the moment. We see that the European market has really -- I shouldn't say dominated, but with a clear footprint from low-cost carriers. And then the traditional full service carriers, or legacy carriers, where you call them what you like, many of them, they are now rethinking their European strategies and they are moving capacity over from their own brand to their own low-cost subsidiaries such as Germanwings, such as Up in France and so forth.

 So I think we should expect more and more of the European short-haul traffic to be more of a product offering that we now have, so I think we are in the forefront on that change rather than following everybody else.

 The reaction and feedback from our customers are primarily positive and they welcome this. I think we get the confidence that we're on the right path. But with that said, though, like everything, you constantly need to tweak and enhance your offering.

 There are a number of things on the details that I would love to change and we will change but not the overall concept. It's there to stay but that doesn't mean that we will constantly tweak and enhance our offering. So in general we are actually rather confident with this change that we put in place, Jacob.

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 Jacob Pedersen,  Sydbank - Analyst   [22]
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 Okay, I have a couple of household questions. First of all, the payment for Wideroe; have you received that already, is that in your system and in your numbers?

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 Goran Jansson,  SAS Group - CFO   [23]
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 Yes we have, at least 80% of the shares. Remember that part of the deal structure was that -- and before we had a number of aircraft held by us, the [SK/SAS]; that's now been moved over.

 So part of the -- and the debt for these aircrafts were moved over to Wideroe, so we had a decline of debt of SEK1 billion. And then of course we have had one -- almost SEK1 billion of cash coming in to the Group during the period; part of that cash has been allocated to pay down debt and others.

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 Jacob Pedersen,  Sydbank - Analyst   [24]
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 Great, great. Also I have a question on your depreciation of aircraft and the way you do that. You depreciate your aircrafts over 20 years, and then also some of your competitors are looking at depreciation terms that are a much shorter time span when looking forward.

 Have you any thoughts regarding your way of depreciating aircrafts, 20 years; do you still feel that that's prudent?

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 Goran Jansson,  SAS Group - CFO   [25]
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 Yes, we left the MD's after 28 years and they still had some residual value. So I think we are -- this is how the industry -- this is how, when talking with the aircraft manufacturers, how they see that. They don't -- an aircraft has an economic life more than 20 years, so I think that is the appropriate way.

 Then you can have other measures and other ways of depreciating it more to give another economic view on your company. But we think this is the right way and this has been reconciled with our auditors and also with aircraft manufacturers, I think.

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 Jacob Pedersen,  Sydbank - Analyst   [26]
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 Okay, next question, your CapEx expectations moving forward; any words on how you view your CapEx moving forward?

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 Goran Jansson,  SAS Group - CFO   [27]
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 Yes. Well, of course, we have a bit of an increase for this year. And it's also a bit -- not that easy to see through all the numbers since we do a lot of refinancing of aircrafts where we buy back sale/leasebacks and then sell them on and so on.

 That means that you're first making an investment and a month later sell the aircraft and that shows what I -- a bit strange from quarter to quarter on the numbers.

 But in general we typically have in the -- as we talked about before, we have somewhere around SEK500 million of continuous investments in the aircraft engines that we capitalize and have depreciation -- depreciate over the economic lifetime of this enhancement of engines.

 And then on top of that we have, of course, aircrafts investments, and they from time to time different. Now we have an upcoming two large investment areas, one being the Airbus 320neos, the other one being the long-haul aircrafts; there will start to be pre-payments on these aircrafts in the latter part of the coming year.

 That is depending also on how much we will do sale/leaseback on these aircraft, and that is something we currently reconsider and looking into and are discussing with a number of financiers and resource.

 So I will not give you a number because that will vary depending on how we do the financing of the new aircrafts.

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 Jacob Pedersen,  Sydbank - Analyst   [28]
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 Okay, okay. Thanks anyway for bringing some light to this. A couple of questions more -- two actually.

 First of all, you have upcoming negotiations with unions in this financial year. What are your thoughts in this regard? Your workers, they accepted quite a drop in their compensation back a year ago. What is your expectations moving into these negotiations? Should we expect increases in salary and costs moving up in that regard, or what?

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 Rickard Gustafson,  SAS Group - President & CEO   [29]
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 Well, Jacob, I think that our employees, they are fully aware of the competitive environment and that this Company needs to further enhance its profitability to be a sustainable and viable business that also can cope with the upcoming investments that we have related to aircraft.

 So I expect that our employees, they understand the situation and we will act accordingly.

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 Jacob Pedersen,  Sydbank - Analyst   [30]
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 Okay. My final question -- you are postponing your financial targets to 2015/2016, and you seem quite hesitant regarding the development in this financial year 2013/2014. And also you have quite limited effect from strategy -- sorry, from 4Excellence Next Generation in 2014/2015. How should we try to look at the way that you're going to improve earnings when coming into 2014/2015 and then again into 2015/2016 if it's not going to be through further savings programs?

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 Rickard Gustafson,  SAS Group - President & CEO   [31]
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 On this one, Jacob, I think we've been around it before you joined the call, but I'll do a short version of it for your benefit then.

 I think a year ago when we set our long-term targets, we had maybe more optimistic view on the pace of the European economic bounce back. That's taking longer than we anticipated, pushing further pressure on corporate travel.

 And we have also seen a more aggressive redeployment of aircraft from Southern Europe to Northern Europe from many of our competitors, putting further pressure on our yields.

 And that, I guess, means that we are a bit uncertain about where the top line will end for this current year, and we also believe that we will probably need more time to get to our long-term target. That's why we're pushing it out in the year 2015/2016.

 Moving forward then on your question, what you should expect beyond 4XNG; we are determined on delivering on this program, it will carry this Company towards a profitable platform. However, though, we are fully acknowledged that we cannot stand still and we will constantly drive further efficiency measures within our business.

 And what they are at the moment, it's a bit premature to go into detail, but you can rest assured that we will continue to drive cost efficiency and productivity because that's the name of the game in our industry.

------------------------------
 Goran Jansson,  SAS Group - CFO   [32]
------------------------------
 As I said we are currently expanding our LEAN efforts also to include the whole SAS. That means that we will have continuous improvements to a greater extent in all the -- all parts of the organization have to live up to that and be more focused on cost savings, not just as cut program but rather on a daily basis.

------------------------------
 Rickard Gustafson,  SAS Group - President & CEO   [33]
------------------------------
 And you should also not forget that as we get into those years, 2016 and beyond, we start to get new aircraft that will also drive down fuel costs, but also reduce our maintenance costs.

 So there are a number of things that also will -- of a structural change that will happen that will help.

------------------------------
 Jacob Pedersen,  Sydbank - Analyst   [34]
------------------------------
 Okay, great. Thanks for taking all my questions and, once again, congrats on a positive result for the year.

------------------------------
Operator   [35]
------------------------------
 (Operator Instructions). Finn Petersen, Nordea.

------------------------------
 Finn Petersen,  Nordea - Analyst   [36]
------------------------------
 Just two questions. The 4Excellence program; could you just remind me how much is the total effect in this year's result from that program?

------------------------------
 Goran Jansson,  SAS Group - CFO   [37]
------------------------------
 It's SEK1.5 billion.

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 Finn Petersen,  Nordea - Analyst   [38]
------------------------------
 SEK1.5 billion. And that's comparable to the SEK1.2 billion next year?

------------------------------
 Goran Jansson,  SAS Group - CFO   [39]
------------------------------
 Yes, it's part of the SEK3 billion total.

------------------------------
 Finn Petersen,  Nordea - Analyst   [40]
------------------------------
 Okay, so okay just to -- and have you -- are there any changes in your sensitivity to change in yield and load factors and --?

------------------------------
 Goran Jansson,  SAS Group - CFO   [41]
------------------------------
 How do you mean?

------------------------------
 Finn Petersen,  Nordea - Analyst   [42]
------------------------------
 A change in the -- in the change in yield of 1 percentage point. How much does that affect your result next year?

------------------------------
 Goran Jansson,  SAS Group - CFO   [43]
------------------------------
 We, of course, are [planning] on the -- but it's -- [this question is not possible, right] to have like that.

------------------------------
 Finn Petersen,  Nordea - Analyst   [44]
------------------------------
 Okay, it was just to see if there is any change relative to last year. You were talking about you were changing your costs structure to more variable cost and (multiple speakers).

------------------------------
 Goran Jansson,  SAS Group - CFO   [45]
------------------------------
 Yes, but the -- on the yield, it isn't really a matter and of course we have now a bit of a change when we had the consolidated Wideroe, so that is the change in the Group; different yield situation with Wideroe than SAS.

 When it comes to cost structure, we are moving towards more variable cost, still. We haven't done the ground handling deal yet and that is one big part that's supposed to improve the flexibility on the cost structure, that is.

 So all in all, somewhat lower -- or high level of flexibility in the cost structure, but not that much in between the years.

------------------------------
 Finn Petersen,  Nordea - Analyst   [46]
------------------------------
 Okay, so we can imagine that both yield and load factor sensitivity is almost unchanged?

------------------------------
 Goran Jansson,  SAS Group - CFO   [47]
------------------------------
 Yes. In general, yes.

------------------------------
 Finn Petersen,  Nordea - Analyst   [48]
------------------------------
 Okay, thank you very much.

------------------------------
Operator   [49]
------------------------------
 Lars Heindorff, ABG.

------------------------------
 Lars Heindorff,  ABG Sundal Collier - Analyst   [50]
------------------------------
 Also a question -- a couple of questions regarding the cost structure. Just to get it right, the SEK1.2 billion savings that you talk about for next year, is that assuming that all other things being equal, that the cost base will be SEK1.2 billion lower compared to this year?

------------------------------
 Goran Jansson,  SAS Group - CFO   [51]
------------------------------
 No, it's just lower -- if everything is the same, yes. But we don't have a fixed cost structure and some -- as I said before in the beginning of the call, we have some cost elements that are based on inflation and others are -- so the SEK1.2 billion you should see that as a lowering from the cost level, but there are other cost elements that can increase during the period.

------------------------------
 Lars Heindorff,  ABG Sundal Collier - Analyst   [52]
------------------------------
 Okay and then if you look [aside], the seasonality, because I know and also to some extent the currency, because the pace of the cost-cutting has levelled off in the past couple of quarters here. And as you mentioned yourself, you said that at least during the fourth quarter, you haven't really been able to compensate for lower-yield RASK load factors, et cetera, by taking out costs.

 If you look into the first quarter and the second quarter in the next financial year, do you see that trend will continue? Have you seen any reversal in terms of the trend in lower, decline in unit costs and also maybe an improvement in the -- in traffic conditions?

------------------------------
 Goran Jansson,  SAS Group - CFO   [53]
------------------------------
 Yes, on the -- we have said that the distribution of the costs savings or the SEK3 billion was supposed to get SEK1.5 billion first year, SEK1.2 billion, and SEK400 million, so it will level out over the period.

 We will have also effects -- since we're talking about this on a unit base, there is of course -- as we talked about before, we have increased aircraft sizes, which gives more ASKs, which give a positive effect to the ability to lower the unit cost.

 So it's -- and then in terms of we'll have more of that in the coming year than we had last year. So there is -- there are elements of this dynamic that even though it's a lower number in 2014/2015, it's -- the number of ASKs that comes out of larger aircraft are more. So that compensates a bit.

 So, I will not give a number and then a prediction on the CASK, how it will look like in next year or this coming year.

------------------------------
 Lars Heindorff,  ABG Sundal Collier - Analyst   [54]
------------------------------
 No, it was more the trend in the coming quarters here that we -- if the trend that you're not able to compensate for a yield and RASK decline by taking out costs at the same pace, if that trend -- if you believe that trend will continue into the coming quarters.

------------------------------
 Goran Jansson,  SAS Group - CFO   [55]
------------------------------
 Remember that last year was very -- quarter over quarter was quite different. In the beginning of the year, we had more of a stable situation on the revenue and the yield side.

 And it was quite a dramatic shift after the summer downwards. Then one can debate what is the [likelihood] of the continuation of that decline. I don't know. I think a lot of the macros will have quite an effect on the yield going forward.

 How it will be, going forward, we have to wait and see that. But in the first quarter, it's seasonally weak. We have said that it will be seasonally weak first quarter this year as well.

------------------------------
 Lars Heindorff,  ABG Sundal Collier - Analyst   [56]
------------------------------
 Okay. And still staying on the costs side, just to -- sort of a maybe sort of clarifying question. Again, getting back to the SEK1.2 billion that you say that you will take out next year. I know that -- that will be -- this is something which is planned and then, of course, you have other costs which are likely to increase.

 If you just assume normal inflationary pressure, then what kind of increase do you expect in -- on a growing basis on the cost base?

------------------------------
 Goran Jansson,  SAS Group - CFO   [57]
------------------------------
 If we look at what we have presented in the -- then we managed to get SEK400 million of cost decreases coming out of 4XNG, while we had other cost elements that increased with SEK170 million.

 So at least we managed to hold back the (inaudible) and the other elements are probably in the same -- in that range. It's depending on also a bit on what a -- from quarter to quarter how much maintenance you have and things like that and it's not exactly the same every quarter.

------------------------------
 Lars Heindorff,  ABG Sundal Collier - Analyst   [58]
------------------------------
 Okay, but that's still -- I assume that there must be some -- a bit of inflationary pressure on the total cost base. Also, do you expect on the salary side that you will be able to continue to reduce the cost base? Not looking into a headcount reduction, but if you look at a per-head on average.

------------------------------
 Goran Jansson,  SAS Group - CFO   [59]
------------------------------
 We will then, of course -- as Rickard just talked about before, that the upcoming negotiations with the trade unions, I think we have within the Company quite a good appreciation about the current status of the market, that this is a tough market.

 How that will end up, we don't -- we will not give a forecast on that right now, but of course, it's certainly so that there are -- everyone wants to have a higher pay check, that's for sure. But it's still -- the environment can't take everything of that.

------------------------------
 Lars Heindorff,  ABG Sundal Collier - Analyst   [60]
------------------------------
 Okay, all right, thank you.

------------------------------
Operator   [61]
------------------------------
 We have no further questions at this time.

------------------------------
 Rickard Gustafson,  SAS Group - President & CEO   [62]
------------------------------
 Right, then I think we close this call down and I would like to end by taking the opportunity of wishing you, all the participants in the call to just thank you for joining us and also wish you a Merry Christmas and a Happy New Year. Thank you very much.

------------------------------
 Goran Jansson,  SAS Group - CFO   [63]
------------------------------
 Thank you.

------------------------------
Operator   [64]
------------------------------
 That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.






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