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CORPORATE PRESENTATION TEMPLATE

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... a relatively small market, South Africa's airline industry remains highly competitive ... last year, but this was nowhere near the reduction in capacity ... – PowerPoint PPT presentation

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Title: CORPORATE PRESENTATION TEMPLATE


1
SAA Financial Results 2007/08Restructuring
Towards Profitability
2
Agenda
  • Industry and strategic overview CEO Khaya
    Ngqula
  • Financial overview CFO Kaushik Patel
  • Conclusion and way forward Dr Ngqula

3
Industry overview
  • For the first time since 2000, the global
    aviation industry turned a profit in 2007 of
    approximately US5,6-billion
  • However, the relentless rise of the oil price has
    wreaked havoc on carriers across the globe, with
    the oil price settling at 138 per barrel last
    night after reaching a high of 147 per barrel on
    Friday
  • Global airlines are seeking to cut costs by
    grounding aircraft, scrapping unprofitable routes
    and merging
  • Further casualties are expected in the airline
    industry if the oil price remains high, and a
    decline in industry profitability is predicted
    for 2008

4
Industry overview
  • The airline market in Africa is still highly
    regulated with restricted entry
  • Nevertheless, there remains significant
    opportunity for growth in Africa, with an
    increasing number of passengers traveling on the
    continent, particularly from Southern Africa to
    East and West Africa
  • Despite a relatively small market, South Africas
    airline industry remains highly competitive
  • Competition from low cost carriers in particular
    continues unabated

5
Strategic overview strategic direction
  • SAAs strategic vision is to be a profitable
    African airline with global reach
  • The vision goes hand-in-hand with our mission of
    delivering sustainable profits and growing our
    market share by offering world class service to
    our customers
  • SAA will thus continue to focus on its operations
    in Africa, expanding where there are
    opportunities
  • Domestically, we will continue to service our
    high density routes and internationally, the
    focus is on ensuring that our routes are
    profitable and sustainable

6
Strategic overview Restructuring 2007/08
  • SAAs deep and fundamental restructuring
    programme, launched in May 2007, had four main
    pillars simplify and rightsize the business as
    well as reskill and incentivise management and
    staff
  • The first year was largely financial in nature
    and delivered good results, coming in 3 above
    target
  • The programme has resulted in costs being reduced
    by almost R1- billion, as well as revenue growth
    of 9
  • This was achieved despite a tough operating
    environment and less capacity due to grounding
    the Boeing 747 fleet and closing Paris and Zurich

7
Key Performance Indicators
excluding restructuring costs
8
Strategic overview Restructuring 2007/08
  • Restructuring is now in its second year, where
    the focus is on improving customer service and
    operational performance while building on
    financial gains
  • New initiatives have been identified, including
  • - Establishing a customer service charter to
    achieve service excellence across the board
  • - Establishing management performance standards
    to improve employee engagement and operational
    excellence
  • - Improving the customer experience at key
    touch points from booking a ticket to arriving
    safely at a destination
  • - Improving on-time departures

9
Strategic overview Restructuring 2007/08
  • New initiatives (cont)
  • - Enhancing baggage systems via new technology
    and regular scrutiny of key problem areas
  • - Promoting the use of self service check-in
    kiosks to reduce congestion at counters
  • - In-flight entertainment on flights to be
    upgraded
  • - Voyager, the frequent flyer programme, has
    upgraded its membership relations office and
    plans to add new services such as luxury
    transport to and from the airport
  • - Business Class departure lounge at OR Tambo
    International Airport will move to a new venue
    early next year and receive a facelift

10
Strategic overview Low-cost competition
  • The high oil price has equally challenged the low
    cost industry worldwide, including in SA
  • Mango, launched in November 2006, has kept costs
    low by using aircraft efficiently and boosting
    productivity amongst employees
  • Mango carried its 2 millionth passenger in March
    2008, and is on track to achieve its business
    goals

11
Strategic overview SAA Cargo and SAA Technical
  • SAA Cargo focused on protecting and growing its
    market share, particularly in key markets such as
    Lagos, Luanda, DRC, Accra and Kinshasa
  • Two Boeing 737-300 freighters were introduced on
    domestic routes and into the rest of Africa
  • SAA Technical (SAAT) grew its client base and
    further diversified its revenue base. This
    included reaching agreement to maintain 22 of
    Comairs Boeing 737s
  • The high skills level of SAAT technicians make
    them marketable, resulting in the loss of a high
    level of staff
  • SAAT has made good progress towards restoring the
    skills base, reflected in the Federal Aviation
    Authoritys decision to renew SAATs certificate
    for 2008

12
Strategic overview
  • The rising oil price poses a huge challenge to
    SAA and is a threat to the airline achieving its
    restructuring profit target
  • When the restructuring plan was devised in
    2006/07, a profit target of 7,5 was set for
    2008/09 when oil was trading at 50 - 60 per
    barrel. The profit target was set on the
    assumption that oil would average 65 per barrel
  • Oil is trading at more than double this original
    assumption, which has placed significant pressure
    on our margins
  • However, the grounding of aircraft, focus on
    profitable routes and cost cutting has left SAA
    more streamlined and efficient

13
Agenda
  • Industry and strategic overview CEO Khaya
    Ngqula
  • Financial overview CFO Kaushik Patel
  • Conclusion and way forward Dr Ngqula

14
Financial Results 2007/08
  • SAA posted strong growth in revenue to
    R22,51-billion for 2007/08 from R20,65-billion
    previously, a 9 increase
  • SAA posted a net profit of R123-million,
    excluding restructuring costs, for 2007/08 from a
    loss of R883-million the previous year
  • Restructuring costs amounted to R1,34-billion
    against an original estimate of R3-billion
  • This is a significant turnaround, which was made
    possible due to the efforts of all SAA employees

15
SAA Group Income Statement
Note Net Profit before restructuring of R123m
compares with Corporate Plan targeted profit of
R47m
16
Revenue
  • Revenue Passenger numbers were 1.3 down on last
    year, but this was nowhere near the reduction in
    capacity with Available Seat Kilometres (ASKs)
    falling 7.9
  • Average fares increased 14.8, including currency
    benefit of R584-million
  • Cargo Mail revenue declined from R1,82-billion
    to R1,76-billion
  • Fuel levy recoveries were R414-million higher
    than previous year and increased as a of gross
    fuel cost from 22 in 2007 to 26 in 2008
  • Releases from Air Traffic liability provision
    were lower in 2008 by R317-million

17
Operating costs
  • Employees played a big role in keeping operating
    costs low which was painful and was only achieved
    through commitment and tenacity
  • Fuel uplifts in barrels were 5 less than 2007
    due to fleet and route rationalisation
  • The underlying Brent price per barrel increased
    from an average of 64.72 to 78.78. The currency
    impact on fuel costs, excluding Forex hedging,
    was an adverse R113-million
  • The labour bill was steady although savings did
    not fully materialise due to the later than
    anticipated exits of voluntary severance packages
  • Restructuring costs of R1,34 billion consisted
    mainly of provision for aircraft leases and
    impairments with associated maintenance costs in
    respect of grounded Boeing 747-400s and
    redundancy payouts

18
SAA Group Balance Sheet
19
Balance Sheet
  • In 2006/07, SAA was recapitalised by a total of
    R1,3 billion and an additional R1,56-billion was
    secured in 2007/08 to assist with restructuring
    costs
  • The funding was received in the form of a
    subordinated loan with a guarantee provided by
    our shareholder, the Public Enterprises
    Department
  • The loan has been classified as an equity
    instrument and any interest SAA elects to pay is
    classified as dividends
  • SAA paid dividends of R137-million in 2007/08
    relating to the subordinated loan which is
    classified as equity. SAA is not ideally
    capitalised and consideration is being given to
    converting the subordinated loan to equity

20
Cash cash equivalents
  • Cash flow from operating activities was much
    stronger at R1,39-billion versus previous year of
    R316-million
  • Debtor levels were in line with previous year and
    the number of days outstanding was reduced from
    70 days in 2007 to 60 days in 2008
  • Accounts payable increased by R1,47-billion with
    the bulk of the movement attributable to the
    provision of R900-million for the Boeing 747-400
    write off and accelerated year end catch up
    accruals
  • External borrowings of R1,56-billion were raised
    against a government guarantee to assist in
    recapitalisation after restructuring on top of
    the previous R1,3-billion
  • An injection of R653-million was also received
    from National Treasury to fund certain
    restructuring costs (treated as equity)

21
Key financial focus areas
  • To deliver on a sustainable restructuring and
    turnaround strategy
  • Reduce and contain operating costs
  • Margin and yield enhancement
  • Focus on ensuring SAA is profitable for 2008/09
  • Recapitalisation
  • SAA will require further recapitalisation in
    order to
  • lower its cost of capital
  • improve gearing
  • mitigate currency risks
  • position SAA for future growth and expansion

22
Agenda
  • Industry and strategic overview CEO Khaya
    Ngqula
  • Financial overview CFO Kaushik Patel
  • Conclusion and way forward Dr Ngqula

23
Conclusion and way forward
  • SAA achieved a R2-billion turnaround in 2007/08
    the oil price added more than R950-million in
    unbudgeted costs and R1-billion in costs were
    removed through restructuring
  • The focus of restructuring now is on improving
    customer service and the operational performance,
    re-engineering the business, building on our
    financial gains and reshaping SAA into a new
    corporate structure
  • Africa will remain a strong focus in terms of
    growth
  • The soaring oil price poses major challenges
    which has forced SAA to renew its focus on
    cutting cost.
  • Depending on the oil price, SA is on track to be
    profitable in 2008/09, but will not reach the
    7,5 profit target.

24
Thank you
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