SAS Group Year-end Report January-December 2007
Key ratios for the period• Operating revenue: MSEK 52,251 (50,152) (+4.2%)
• Number of passengers: 31.2 million (+2.9%)
• Spanair is reported as an operation under discontinuation
and goodwill impairment of MSEK 300 was made.
• Earnings before nonrecurring items in continuing
operations: MSEK 1,242 (727)
• EBT margin before nonrecurring items: 2.4% (1.4%)
• Net income for the period: MSEK 636 (4,740)
• Earnings per share: SEK 3.87 (28.10)
Comments by the CEO
The performance during the first three quarters was positive, with favorable demand and, consequently, a favorable traffic trend and yield. The fourth quarter was strongly affected by our withdrawal of the Q400 aircraft and replacement of these with leased capacity. Overall, capacity was greater than requirement, resulting in reduced load factors and contributing to weaker yields. However, from a customer perspective, it is important to maintain traffic to as high a degree as possible. As well as the direct Q400 effects, the end of the year was also generally weaker for Scandinavian Airlines’ short-haul companies. This is probably a result of uncertainty from customers following the Q400 problems and the strike threat relating to the structural changes discussed, particularly in SGS, but also due to increased capacity in certain markets.
As a result of a weak fourth quarter, income before nonrecurring items for the year was slightly more than SEK 1.2 billion. The direct earnings effects of the Q400 totaled approximately MSEK 700, of which about MSEK 500 was charged to the fourth quarter. The ECA agreement, which is a cooperation between SAS, Lufthansa and British Midland, was charged to our earnings in an amount of slightly more than MSEK 600 in 2007 mainly as the result of a weak earnings trend in British Midland. However, the agreement expired at the end of 2007. In addition, a number of strikes impacted earnings in a net amount of approximately MSEK 200.
For the year as a whole, our airlines, except for our intercontinental operations, improved their earnings compared with 2006. The earnings improvements were the result of favorable market conditions, improved concepts, effective control, traffic optimization and continued cost measures. The traffic trend for our intercontinental operations was better, especially in the second half of the year, but earnings were impacted by lower cargo revenue. The divestment process for Spanair is in progress and is expected to be completed during the second quarter of 2008.
Earnings in STS and SGS were strongly negative in 2007. The reasons include the main focus being on delivery quality, as well as delays and difficulties in implementing the necessary cost program. A decision was made to divest Spirit within SAS Cargo and to outsource maintenance of the Boeing 737 Classic. An internal solution was approved for SGS, providing that the company implements cost reductions of MSEK 400 and a quality-improvement program within 18 months.
We take a very serious view of the weaker trend at the end of 2007 and the economic downturn that can be foreseen. We also take a serious view of the fact that S11, particularly due to cultural problems, is delayed and is generating major future challenges. This applies to the cost program and other structural changes. In parallel with the implementation of our “Strategy 2011,” in which cultural turnaround is key, work is focusing on regaining the customers’ confidence, adapting capacity where necessary and securing compensation for the record-high fuel prices. Our assessment is that we will also have a negative earnings effect in 2008 as a result of the Q400 decision of approximately MSEK 700-800.
Unfortunately, 2007 was a year characterized by several major negative events that affected our customers, our brand and our shareholders. In 2008, the management’s focus will be on the continued implementation of Strategy 2011 and taking further measures as a result of the anticipated downturn in the economy.
President and CEO
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