Financial targets and achievements

SAS’ overall goal is to create value for its shareholders. To reach this goal, SAS pursues Three strategic priorities to meet trends and industry developments, ensure competitiveness and create the prerequisites for long-term sustainable profitability, in line with previously announced financial targets.

We operate in a capital-intensive sector that requires optimization of the capital structure to create shareholder value. Therefore, two of our financial targets take SAS’s total capital structure into account. SAS’s financial targets are:

• Return on invested capital (ROIC): to exceed 12% measured over a business cycle.

• Adjusted financial net debt/EBITDAR: to be a multiple of less than three (3x).

• Financial preparedness: cash and cash equivalents and available credit facilities must exceed 25% of SAS’s annual fixed costs.

The ROIC target corresponds with the capital markets’ and SAS’s internal assessment of SAS’s weighted average cost of capital (WACC). This is also linked to SAS’s dividend policy for holders of common shares, which stipulates that dividends can be paid when value is created through SAS’s ROIC exceeding its WACC.

The gearing target — adjusted financial net debt/EBITDAR is a key ratio used by credit rating agencies and banks for assessing creditworthiness and includes the value of leased aircraft. The aim with maintaining a ratio with a multiple of less than three (3x) is aligned with SAS’s ambition of improving the financial position and credit rating, and thereby lowering financing costs.

SAS financial preparedness target was raised in June 2017 from 20% to 25% of annual fixed costs. The reason for the above is SAS’s increased production on long-haul routes and leisure routes, where the proportion of advance bookings is larger. This leads to an increase in obligations to customers for SAS, which should be reflected in the liquidity reserve.

Considerable uncertainty continues in the macro environment with regard to exchange-rate trends, jet-fuel prices and changes within the European airline industry, with intensified competition, which means that SAS is not setting a date for reaching these targets. However, the aim is to reach the targets in a medium-term horizon. The targets depend on the structural measures being fully implemented. In conjunction with the transition to IFRS 16 from 2019, SAS will review the targets to ensure their continued relevance.