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SAA financial results presentation

SAA financial results presentation. July 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

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SAA financial results presentation

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  1. SAA financial results presentation July 6, 2005

  2. Agenda • Industry Overview • Strategic Overview • Financial highlights • Financial Review • Conclusion and way forward

  3. 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

  4. Creating shareholder value is a continuous challenge for airlines . . . Total return to shareholders, 1982–2004 Index, 100 = Jan 1982 S&P 500 S&P Airlines 1/1/86 1/1/86 1/1/90 1/1/94 1/1/98 1/1/02

  5. … despite increasing load factors Return on capital employed, 1970-2004, all airlines % pre-tax WAAC ROIC trend 1990 1970 1980 2000

  6. … despite increasing load factors Load factors in %, 1993 – 2003 all airlines Index 1993, 100=61,5%

  7. … despite increasing load factors Load factors in %, 1993 – 2003 all airlines Index 1993, 100=61,5%

  8. … 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 Oligopolistic suppliers and labour High operational and financial gearing Industry fragmentation High capital intensity

  9. Operating margin, % of revenues (2003) Market capitalisation(US$ bn, October, 27 2004) Market capitalisation /sales ratio 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. Operating margin, % of revenues (2003) Market capitalisation(US$ bn, October, 27 2004) Market capitalisation /sales ratio 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

  11. Operating margin, % of revenues (2003) Market capitalisation(US$ bn, October, 27 2004) Market capitalisation /sales ratio However, consistently, across regions, several new airlines are out-performing regional industry leaders (3/3) AUSTRALIA 16,0 1,32 Qantas Virgin Blue

  12. … and threatening strategic moves from competitors

  13. Agenda • Industry Overview • Strategic Overview • Financial highlights • Financial Review • Conclusion and way forward

  14. 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

  15. … 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

  16. A comprehensive change program has been set-up to build SAA´s 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

  17. 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. 1 • People

  18. VP: Customer Service 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 SAA Technical EVP Subsidiaries EVP and CFO EVP Commercial VP:Human Resource VP : Legal VP: Cargo VP:Subsidiaries VP: Operations VP:Marketing VP : Treasury VP : Finance VP:Global Sales CIO VP Alliance, Network & Revenue Management VP:Global Pax Services & OCC VP : Fleet

  19. New SAA high-level structure – 2 Company Secretary Board CEO CFO GM Business Development CRO General Counsel GM Communications / Customer GMHuman Resources COO Safety and Security General Manager Cargo CIO Head of Network, Planning and Distribution General Sales Manager Head of Marketing Head of Passenger Services Head of Technical Operations

  20. 2 • Profit 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)

  21. 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 2 • Profit

  22. 2 Alliances and network development - Highlights • 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 • 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

  23. 3 • Patronage 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

  24. 3 • Patronage Major recent achievements • VIP program • SA tourism and tour operator • Customer service training underway • Sales training completed

  25. …. and there is more to come • . . . Talent and performance management • . . . Distribution strategy • . . . Working capital optimisation

  26. Agenda • Industry Overview • Strategic Overview • Financial highlights • Financial Review • Conclusion and way forward

  27. Positive financial results support SAA’s new way forward 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% Rm

  28. Positive financial results support SAA’s new way forward Net assets employed • Net asset value improved drastically to R2 billion • SAA beginning to create value for shareholders

  29. Positive financial results support SAA’s new way forward 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 Cash generated from operations R10 billion turnaround

  30. Agenda • Industry Overview • Strategic Overview • Financial highlights • Financial Review • Conclusion and way forward

  31. Financial reviewImprovements in operating margins

  32. Financial reviewR 10 billion turnaround 1 2 3

  33. 2004 2005 Airline income – 1 Increase 6,8%

  34. Passenger revenue analysis Passenger numbers 5% Rand appreciation 14% 2004 2005

  35. Operating costs – Cost increase BELOW inflation 2

  36. Operating efficiencies – 2 • Despite > 40% in US$ oil price

  37. Net profit – SAA returns to profitability 3

  38. Balance sheetSettlement of hedge book – R 5,9 billion

  39. Cash flow statement Strict working capital management generates R749 million

  40. 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

  41. Agenda • Industry Overview • Strategic Overview • Financial highlights • Financial Review • Conclusion and way forward

  42. SAA priorities going forward – Passenger unit

  43. 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

  44. Focus Going Forward continues . . . Revenue Cost Profitability Productivity and Efficiency This will require a change in mindset and a focus on our customers

  45. Thank youAny questions?

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