SAA financial results presentation

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SAA financial results presentation

• July 6, 2005

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Agenda

• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward

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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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Creating shareholder value is a continuous
challenge for airlines . . .
Total return to shareholders, 19822004 Index,
100 Jan 1982
SP 500
SP Airlines
1/1/02
1/1/98
1/1/94
1/1/90
1/1/86
1/1/86
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despite increasing load factors
Return on capital employed, 1970-2004, all
airlines pre-tax
WAAC
ROIC trend
1990
2000
1980
1970
6
despite increasing load factors
Load factors in , 1993 2003 all airlines Index
1993, 10061,5
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despite increasing load factors
Load factors in , 1993 2003 all airlines Index
1993, 10061,5
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operating in a generally difficult external
environment
Low entry barriers, high exit barriers
Strong government influence
Increasing pricing Pressure from customers
Highly cyclical
Needs to be managed
High operational and financial gearing
Oligopolistic suppliers and labour
Industry fragmentation
High capital intensity
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However, consistently, across regions, several
new airlines are out-performing regional
industry leaders (1/3)
USA
16,6
9,0
1,90
1,70
AA/UA/DL
JetBlue
South-west
10
However, consistently, across regions, several
new airlines are out-performing regional
industry leaders (2/3)
EUROPE
25,0
2,64
L/H/BA/AF
Ryanair
EasyJet
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However, consistently, across regions, several
new airlines are out-performing regional
industry leaders (3/3)
AUSTRALIA
16,0
1,32
Qantas
Virgin Blue
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and threatening strategic moves from competitors
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Agenda

• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward

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However, SAA is well positioned to capture global
growth opportunities . . .
Grow global network coverage with STAR and
bilateral partners
Offer advanced products and services to become
premium long-haul passenger airline
Become leading African network operator
Develop SAA Cargoas operator of first choice in
the sub-saharan region
Offer extended technical services to STAR
alliances and other airlines
Regain domestic market share through strong
competitive response to fast growing SA LCC
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enforced by the strategic framework of the
three pillars Profit, Patronage, and People
Develop and nurture world class talent through
enhanced training and performance management
Three pillar framework as foundation for SAA
strategic thrusts
Provide sustainable return on invested capital
to investors
Provide seamless travel experience to our
customers and deliver excellent internal support
services
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A comprehensive change program has been set-up
to build SAAs three pillars . . . (1/3)
Key Initiatives
1

• 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
1

• 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
Company Secretary
Board
Deputy CEO
CEO
VP Comms Gov Liaison
VP Western Cape Business Dev
VP CSSE
EVP Human Resources and Transformation
EVP Operations and Customer Service
EVP Subsidiaries
EVP and CFO
EVP SAA Technical
EVP Commercial
VPHuman Resource
VP Legal
VP Cargo
VPSubsidiaries
VP Operations
VPMarketing
VP Treasury
VP Finance
VPGlobal Sales
CIO
VP Alliance, Network Revenue Management
VPGlobal Pax Services OCC
VP Fleet
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New SAA high-level structure
2
Board
Company Secretary
CEO
CFO
CRO
GM Business Development
GMHuman Resources
GM Communications / Customer
General Counsel
COO
Safety and Security
CIO
General Manager Cargo
General Sales Manager
Head of Network, Planning and Distribution
Head of Passenger Services
Head of Marketing
Head of Technical Operations
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A comprehensive change program has been set-up
to build SAAs 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)

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Major recent achievements
2

• Profit

• Daily flights on routes (eg, Mumbai, Zurich,
  Paris, Sao Paulo)
• New routes to Washington, Zanzibar, Livingstone
• New code-share agreement with United, Austrian

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Alliances and network development - Highlights
2

• 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)
• MOUs 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

• Qantas relationship continued
• Review of Cathy cooperation
• Easier access to New Zealand via STAR

• Daily services to Sao Paulo (code-share with
  Varig)

• Reciprocal FFP with VA Airways

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A comprehensive change program has been set-up
to build SAAs three pillars . . . (2/3)
Key Initiatives

• Product improvement, eg
• Lie-flat to LON
• Star Alliance FFP, Lounges
• Service standards review

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Major recent achievements

• VIP program
• SA tourism and tour operator
• Customer service training underway
• Sales training completed

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. and there is more to come

• . . . Talent and performance management
• . . . Distribution strategy
• . . . Working capital optimisation

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Agenda

• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward

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Positive financial results support SAAs new way
forward
Revenues

• 6,8 increase in total revenues vs 2004 more
  passengers flown
• Average load factor grown from 67 to now 70

• 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

Rm
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Positive financial results support SAAs new way
forward
Net assets employed

• Net asset value improved drastically to R2
  billion
• SAA beginning to create value for shareholders

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Positive financial results support SAAs new way
forward
Net profit

• High positive net profit of R966m Compared to
  last years historic net loss of R8 610m

Cash generated from operations

• R1 911 million cash generated from operations.
• R1 600 million to be paid to Transnet

R10 billion turnaround
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Agenda

• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward

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Financial reviewImprovements in operating margins
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Financial reviewR 10 billion turnaround
1
2
3
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Airline income
1

• Increase
• 6,8

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Passenger revenue analysis

• Passenger numbers 5
• Rand appreciation 14

2004
2005
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Operating costs Cost increase BELOW inflation
2
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Operating efficiencies
2

• Despite 40 in US oil price

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Net profit SAA returns to profitability
3
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Balance sheetSettlement of hedge book R 5,9
billion
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Cash flow statement

• Strict working capital management generates
  R749 million

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Post-balance sheet event

• SAA Recapitalisation
• Transnets 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

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Agenda

• Industry Overview
• Strategic Overview
• Financial highlights
• Financial Review
• Conclusion and way forward

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SAA priorities going forward Passenger unit
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And . . .

• Implementation of a global Cargo strategy to
• Grow SAAs 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
  SAAs exit from Transnet
• The Team expects the SAA exit from Transnet to be
  completed by March 2006

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Focus Going Forward continues . . .

• Revenue
• Cost
• Profitability
• Productivity and Efficiency

This will require a change in mindset and a
focus on our customers
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Thank youAny questions?