SAA financial results presentation
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Transcript of SAA financial results presentation
SAA financial results presentationJuly 6, 2005
Agenda
• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward
Key messages
• The airline industry remains a challenge for value creation
• Competitors target multiple strategic thrusts to create value
• SAA is well positioned to capture a significant number of growth opportunities
• SAA has taken off to capture these opportunities based on an optimized business system
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Total return to shareholders, 1982–2004Index, 100 = Jan 1982
Creating shareholder value is a continuous challenge for airlines . . .
1/1/021/1/981/1/941/1/901/1/861/1/86
S&P 500
S&P Airlines
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-5
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Return on capital employed, 1970-2004, all airlines % pre-tax
… despite increasing load factors
WAACROIC trend
2000199019801970
Load factors in %, 1993 – 2003 all airlinesIndex 1993, 100=61,5%
… despite increasing load factors
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100102104106
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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Load factors in %, 1993 – 2003 all airlinesIndex 1993, 100=61,5%
… despite increasing load factors
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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
… operating in a generally difficult external environment
Needs to be managed
Strong government influence
Highly cyclical
High operational andfinancial gearing
Industry fragmentation
Low entry barriers, high exit barriers
Increasing pricing Pressure from customers
Oligopolistic suppliersand labour
High capital intensity
2,91,7
0,06
8
-2,4
USA
However, consistently, across regions, several new airlines are out-performing regional industry leaders (1/3)
Operating margin, % of revenues (2003)
Market capitalisation(US$ bn, October, 27 2004)
Market capitalisation /sales ratio
AA/UA/DL South-west JetBlue
16,6
9,0
1,901,70
11,00,9
2,8
0,45 0,65
2,1 5,2
EUROPE
However, consistently, across regions, several new airlines are out-performing regional industry leaders (2/3)
L/H/BA/AF EasyJet Ryanair
25,0
2,64
Operating margin, % of revenues (2003)
Market capitalisation(US$ bn, October, 27 2004)
Market capitalisation /sales ratio
4,5 1,0
0,56
2,1
AUSTRALIA
However, consistently, across regions, several new airlines are out-performing regional industry leaders (3/3)
Qantas Virgin Blue
16,0
1,32
Operating margin, % of revenues (2003)
Market capitalisation(US$ bn, October, 27 2004)
Market capitalisation /sales ratio
Competitor landscape Examples
Low cost operators
• Rise of short-haul LCC• Creation of lower cost global networks• Redefinition of mainline business models
• Ryanair, Southwest• Emirates, Qatar• Aer Lingus, BMI
Network and fleet (r)evolution
• Increased network (re-)segmentation• A/C innovation in long-haul (e.g., A380,
B777, A350)
• Air France, SAS• Virgin Atlantic, LH,
Emirates, BA
Alliances and partnerships
• Selective cooperation (even within global alliances)
• Co-existence of bilateral agreements with alliance membership
• LH/SIA• LAN Chile
Simplification• Growing cost-effective distribution
channels / e-commerce• Easy check-in and boarding (eg,
e-ticketing, RFID, check-in kiosks)
• Easyjet, British Airways
• Delta Airlines, American Airlines
… and threatening strategic moves from competitors
Agenda
• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward
However, SAA is well positioned to capture global growth opportunities . . .
Grow global network coverage with STAR and bilateral partners
Develop SAA Cargoas operator of first choice in the sub-saharan region
Regain domestic market share through strong competitive response to fast growing SA LCC
Offer extended technical services to STAR alliances and other airlines
Become leading African network operator
Offer advanced products and services to become premium long-haul passenger airline
Provide seamless travel experience to our customers and deliver excellent internal
support services
Provide sustainable return on
invested capital to investors
Develop and nurture world class talent through
enhanced training and performance management
Three pillar framework as foundation for SAA
strategic thrusts
… enforced by the strategic framework of the three pillars Profit, Patronage, and People
A comprehensive change program has been set-up to build SAA´s three pillars . . . (1/3)
Key Initiatives
• People
• Redesign of organisational structure
• Collapsing management structures
• Focus on Risk Management
• Customer services training of all SAA
employees started
• Sales organization restructure and
sales forces trained
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Major recent achievements
• New SAA leadership group in place, based on the ff principles:– A focus on People– A focus on strengthening
Risk Management– An Aggressive focus on
Customer Service through out the organization
– A culture of excellence with profit and cost control.
• People
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SAA Structure Prior to Restructuring
VP:HumanResource
VP: CustomerService
CompanySecretary
CEO
Board
EVP Human Resources and Transformation
EVP Operations and Customer Service EVP Subsidiaries EVP Commercial EVP and CFO EVP SAA Technical
VP: Cargo
VP:Marketing
VP Alliance, Network & Revenue Management
VP:Global Sales
VP: Operations
VP:Global PaxServices & OCC
VP:Subsidiaries
VP : CSSEVP: Western Cape Business Dev
VP : Comms &Gov Liaison
Deputy CEO
VP : Finance
VP : Legal
VP : Treasury
VP : Fleet
CIO
Board
CFOGM
Human Resources
New SAA high-level structure –
Safety and Security
CEO
COO
GM Communications
/ Customer General CounselCRO
GM Business
Development
Company Secretary
CIOGeneral Sales Manager
Head of Network,
Planning and Distribution
Head of Passenger
Services
Head of Marketing
General Manager
Cargo
Head of Technical
Operations
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A comprehensive change program has been set-up to build SAA´s three pillars . . . (2/3)
Key Initiatives
Revenue• STAR alliance and bilateral agreements
• African growth strategy• Asian market entrance• Cargo business aspirations
Cost• Bambanani Program (PIP)• Zero agency commission rollout well underway• Aircraft loans and leases• Reservations system migration (Amadeus)
• Profit
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Major recent achievements
• Daily flights on routes (eg, Mumbai, Zurich, Paris, Sao Paulo)
• New routes to Washington, Zanzibar, Livingstone
• New code-share agreement with United, Austrian
• Profit
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Alliances and network development - Highlights
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• Delta relationship extended for 2y• Start code-share negotiations with
United Airlines (Washington)• Code-share discussions with
LOT, SAS, and TAP• Code-share with Austrian Airlines
effective July 2005• Daily flights FRA-CPT / ZRH-JNB
• Daily services to Mumbai• Thai International to introduce
service to SAA (code-share)• MOU´s with Jet Airways, Asiana
(code-share)• Easier access to Singapore,
Japan, South Korea and China via STAR
• 6 new/amended agreements on route rights (e.g., Mali, DRC, Gabon)
• Licences obtained for 7 African destinations (e.g., Kinshasa, Lagos, Zanzibar)
• Significant opportunities for SAA to connect African countries to RoW via via STAR
• Daily services to Sao Paulo (code-share with Varig) • Reciprocal FFP with VA Airways
• Qantas relationship continued
• Review of Cathy cooperation
• Easier access to New Zealand via STAR
A comprehensive change program has been set-up to build SAA´s three pillars . . . (2/3)
Key Initiatives
• Product improvement, eg Lie-flat to LON• Star Alliance – FFP, Lounges• Service standards review
• Patronage
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Major recent achievements
• VIP program• SA tourism and tour operator• Customer service training
underway• Sales training completed
• Patronage
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…. and there is more to come
• . . . Talent and performance management
• . . . Distribution strategy
• . . . Working capital optimisation
Agenda
• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward
Positive financial results support SAA’s new way forward
Rm
Revenues
• 6% improvement in gross profit margin despite the increase in oil price of more than 40%
• First positive impact from– Strict operating cost control– Materialisation of operating
efficiencies– 1,9% growth in costs
• 6,8% increase in total revenues vs 2004 % more passengers flown
• Average load factor grown from 67% to now 70%
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Positive financial results support SAA’s new way forward
3 884
6 028
-1 337
-2 697
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• Net asset value improved drastically to R2 billion
• SAA beginning to create value for shareholders
Net assets employed
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Positive financial results support SAA’s new way forward
Cash generated from operations
Net profit
• R1 911 million cash generated from operations.
• R1 600 million to be paid to Transnet
• High positive net profit of R966m Compared to last year’s historic net loss of R8 610m
R10 billion turnaround
Agenda
• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward
Financial reviewImprovements in operating margins
2005 % change 2004Total airline income 17 442 6,8 16 339Operating costs before ownership 14 451 4,2 13 864EBITDAR 2 991 20,8 2 475EBITDAR margin 17,1% 15,1%Depreciation, amortisation and leases 2 056 (12,2) 2 341EBIT (before impairmentsand fair value movements) 935 134EBIT margin 5,3% 0,8%
2005 % change 2004Total airline income 17 442 6,8 16 339Operating costs (16 507) 1,9 (16 205)Gross profit 935 > 100 134Impairments (141) (95,9) (3 410)Other 16 > 100 (331)Fair value movement 342 > 100 (4 470)Net interest paid (186) (65,1) (533)Net profit for the year 966 > 100 (8 610)
Financial reviewR 10 billion turnaround
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79%
9%12%
Passenger revenue Cargo Other
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Total airlineincome
Airline income –
Increase
6,8%
75%
9%16%
Passenger revenue Cargo Other
20042005
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Passenger revenue analysis
Passenger numbers 5%Rand appreciation
14%
59%16%
25%
International Regional Domestic
58%16%
26%
International Regional Domestic
20042005
Operating costs – Cost increase BELOW inflation
2005 % Change 2004Aircraft lease costs 1 585 1,9 1 556Accommodation and refreshments 442 (19,1) 546Depreciation and amortisation 471 (40) 785Distribution costs 1 766 (6,5) 1 888Electronic data costs 486 (23,2) 633Energy 3 345 18,6 2 820Labour 3 266 5,9 3 084Material 1 141 (2,2) 1 167Navigation, landing and parking fees 890 3,9 857Other operating costs 3 115 8,6 2 869
16 507 1,9 16 205
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Gross Profit Margin
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Operating efficiencies –
• Despite > 40% in US$ oil price
2005 2004Operating cost to revenue ratio 94,64% 99,18%
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Net profit – SAA returns to profitability
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2 144
-5 977
-8 610
966
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2001 2002 2003 2004 2005
Balance sheetSettlement of hedge book – R 5,9 billion
2005 2004Non-current assets 9 783 9 433Current assets 6 644 7 454Total assets 16 427 16 887Capital and reserves 2 228 (2 697)Non-current liabilities 5 858 4 789Current liabilities- Derivative liability - 5 957- Other 8 341 8 838Total equity and liabilities 16 427 16 887Return on market value of operated aircraft 6,2% < 0%
Cash flow statement
Strict working capital management generates R749 million
2005 2004Cash generated from operations 1 911 741Net interest and derivatives (6 108) (2 144)Net cash outflow (4 197) (1 403)Cash flow from investing activities (188) (4 422)Cash from financing activities 4 029 8 144Increase/(decrease) in cash (356) 2 319Cash at end of year 2 614 2 977
Cash generated from operations
169
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872741
1 911
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Post-balance sheet event
• SAA Recapitalisation– Transnet’s continued support to SAA– Amendment to terms of Compulsorily Convertible
Subordinated Loan of R 4 billion• SAA to be recapitalised by R 2,4 billion• R1,6 billion to be repaid to Transnet
– Renewal of credit facility of R1,5 billion
Agenda
• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward
SAA priorities going forward – Passenger unit
SAA priorities going forward Challenges
Low cost operators
• Review of business model for SAA short-haul network • Further declining yields
• SA LCC´s adding further routes to their network
Network and fleet (r)evolution
• Revisit of SAA long-haul fleet strategy (B747, A340, A380, B777)
• Aggressive implementation of African growth (licenses, rights)
• Declining yields on long-haul based on A380 economics
• Soccer World Cup 2010
• Bilateral negotiations
• RSA competition authority
• Airport infrastructure
Alliances & partnerships
• STAR migration
• Increase network connectivity via additional bilateral and STAR related partnerships
• IT challenges
• Balance STAR members interests with SAA priorities
Simplification• Continue existing Bambanani and line functional
initiatives to become a cost-effective and realiable airline
• Training needs
• Changes in mindset and capabilities
And . . .
• Implementation of a global Cargo strategy to– Grow SAA´s global market share on most profitable routes– Become preferred Air Cargo carrier in the sub-Saharan region
• Optimal Capital Structure– Build capital and reserves
• SAA separation from Transnet by March 2006– SAA (98% owned by Transnet) will be spun off to the
South African government– A joint team has been established to formulate SAA’s
exit from Transnet– The Team expects the SAA exit from Transnet to be
completed by March 2006
Focus Going Forward continues . . .
Revenue
Cost
Profitability
Productivity and Efficiency
This will require a changeThis will require a change
in mindset and a focusin mindset and a focus
on our customerson our customers
Thank youAny questions?