The SAS Group Annual Report 2001 & Summary of Environmental Report www.scandinavian.net The worst air disaster in the history of SAS October 8, 2001, was a tragic day for SAS. The worst disaster in the company’s history occurred when flight SK686 from Milan to Copenhagen crashed on take-off and 118 people lost their lives. We mourn the loss of our colleagues, passengers and others who perished in the accident. Our thoughts still go to the relatives and friends of whose who died. The powerlessness and dismay we feel about this disaster will affect SAS for a long time and can only fulfill a constructive purpose if efforts to improve flight safety are further increased in the industry as a whole. Jørgen Lindegaard Presenting the SAS Group Since July 6, 2001, the SAS Group has had a single share through SAS AB, listed on the stock exchanges in Copenhagen, Oslo and Stockholm. The principal owners of SAS AB are the Danish, Norwegian and Swedish states. Private interests Danish State Norwegian State Swedish State SAS AB Four business areas The SAS Group has a consolidated operating revenue of SEK 51.4 billion and a total of 31,035 employees. The Group is divided into four business areas: • SAS Airline comprises SAS’s passenger transport services with its own aircraft and under its own brand. The business area includes the production company SAS Commuter as well as the independent business units Scandinavian Ground Services and Scandinavian Technical Services. • Subsidiary & Affiliated Airlines comprises other airlines within the Group. The airline Braathens was acquired in 2001. Widerøe and Air Botnia were already SAS owned. In autumn 2001, an agreement was concluded to increase the holding in Spanair from 49% to 74%. The agreement is currently being examined by the EU Com- mission. Affiliated companies include Skyways, Cimber Air, British Midland, airBaltic and Grønlandsfly. • Airline Related Businesses includes SAS Cargo, Jetpak, SMART, SAS Trading, SAS Hosting and SAS Media – all of which make most of their sales to external customers. The business area also includes SAS Flight Academy and SAS Flight Support, which sell services to internal and external airlines, as well as Scandinavian IT Group which has most of its customers within the SAS Group. • Rezidor SAS Hospitality is the SAS Group’s hotel business and works with two hotel chains, Radisson SAS Hotels & Resorts and Malmaison. SAS Airline 74% (operating revenue MSEK 41,166)* Subsidiary & Affiliated Airlines 6% (operating revenue MSEK 3,123)* The SAS Group (operating revenue MSEK 51,433) Airline Related Businesses 14% (operating revenue MSEK 8,148)* Rezidor SAS Hospitality 6% (operating revenue * Percentages refer to share of the SAS Group’s MSEK 3,510)* operating revenue before Group eliminations. Annual Report 2001 Contents Summary of 2001 2 Important events 3 President’s comments 4 The SAS Group’s new structure 6 The SAS Group’s markets 7 The SAS Group’s business concept, mission, objectives and values 8 The SAS Group’s strategies 9 The SAS Group’s brands 10 Capital market 11 Introduction of a single share 12 Share data 13 Key data per share 1997-2001 17 Te n-year financial overview 18 The SAS Group’s investments and capital employed 20 Financing and creditworthiness 23 Financial risk management 24 The SAS Group’s strategies for increased competitiveness 26 SAS Airline 29 Earnings trend 30 Flight safety work 31 Target s 34 Strategies 35 Business environment for the airline industry 36 Macroeconomic and sensitivity analysis 38 Market and traffic trends 40 Operational key figures 43 Aircraft fleet 44 Human resources 47 Distribution channels 49 Global network – Alliances and partnerships 51 Subsidiary & Affiliated Airlines 55 Airline Related Businesses 61 Rezidor SAS Hospitality 67 Financial report 71 Report by the Board of Directors with summary statement of income – quarterly figures 72 The SAS Group statement of income with comments 76 The SAS Group balance sheet with comments 78 The SAS Group cash flow statement with comments 80 Comments and notes to the Report by the Board of Directors – Accounting and valuation principles 82 Notes 86 Parent Company, SAS AB – statement of income and balance sheet with notes 96 Proposed disposition of earnings 97 Auditors’ report 97 Board of Directors and auditors 98 Group Management 100 Summary of environmental report 101 The goals remain firm 103 Operations in 2001 105 Environment and economy 112 Environmental Report on the Internet 114 Definitions and concepts, Financial calendar 116-117 Annual Report 2001 1 Summary of 2001 • Positive market development in the first quarter was followed by gradually weak- ening demand. After September 11, demand fell sharply. Some recovery in traffic occurred towards year-end. • The SAS Group’s operating revenue increased by MSEK 3,893, or 8.2%, from MSEK 47,540 to MSEK 51,433, of which MSEK 937 was higher passenger revenue. • Earnings before depreciation, EBITDA, amounted to MSEK 743 (3,710). The gross profit margin fell from 7.8% to 1.4%. Depreciation increased by MSEK 251 mainly due to investment in aircraft. The Group’s capital gains from the sale of aircraft and buildings amounted to MSEK 673 (490). Income before tax amounted to MSEK –1,140 (2,829). • The SAS Group’s investments including prepayments amounted to MSEK 11,374 (9,911) for the year. • The SAS Group’s liquid assets at December 31, 2001, amounted to MSEK 11,662 (8,979). A number of bond loans were issued during the year for a total of MEUR 600. • Efforts to adapt operations to the lower demand affected the SAS Group during the autumn. It was decided to implement measures to reduce capacity in SAS Airline, resulting in a total redundancy of approximately 3,500 positions. Reduction of aircraft capacity and suspension of certain routes has an annual effect of MSEK 500 and other measures are expected to have an earnings improvement effect on an annual basis of MSEK 2,400. Action has also been taken to raise revenues by MSEK 2,200 on an annual basis. • Rezidor SAS Hospitality opened and/or rebranded ten hotels during the year. Like the airline industry, the hotel industry was hard hit by the economic downturn and the events in September 2001. Revenues for the full year amounted to MSEK 3,510 (3,122). • Earnings per share for the full year 2001 for the SAS Group amounted to SEK –6.58 (12.98) and equity per share amounted to SEK 96.06 (106.50). • A groupwide sustainability policy was drafted in 2001. This was approved by Group Management in February 2002 and will be introduced throughout the Group in the coming year. Financial key data Business areas** Subsidiary & Airline Related Rezidor SAS The SAS Group SAS Airline Affiliated Airlines* Businesses Hospitality 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 Operating revenue, MSEK 51,433 47,540 41,166 39,233 3,123 2,568 8,148 5,788 3,510 3,122 EBITDAR, MSEK 3,168 5,608 1 802 4 308 510 376 – – – – EBITDAR margin, % 6.2 11.8 4.4 11.0 16.3 14.6 – – – – EBITDA, MSEK 743 3,710 –430 2,529 317 257 602 519 310 441 EBITDA margin, % 1.4 7.8 –1.0 6.4 10.2 10.0 7.4 9.0 8.8 14.1 CFROI, % 8 17 5 12 – –––– – Income before tax, MSEK –1,140 2,829 –1,499 1,951 7 106 160 180 208 583 Investments, MSEK 11,374 9,911 10,227 9,093 429 129 542 381 176 308 Number of aircraft 275 – 200 203 75 – – – – – Number of daily departures (average) 1,221 1,258 915 938 306 320 – – – – Number of destinations 128 – 94 92 51 52 – – – – Average number of employees 31,035 30,943 22,364 23,777 1,530 1,495 4,038 2,540 3,103 3,131 CO2 000 tonnes – – 4,110 4,095 – – – – 0.006 – * Spanair is consolidated according to the equity method with 49%. Braathens’ results are not consolidated in the SAS Group in 2001. Braathens is included in the SAS Group’s consolidated balance sheet at December 31, 2001. ** Before Group eliminations. 2 Annual Report 2001 – Summary of 2001 Important events First quarter 2001 • The Swedish Market Court decided that EuroBonus points earned on Swedish domestic routes exposed to competi- tion may not be redeemed for bonus benefits. Second quarter 2001 • The shareholders of the three SAS parent companies were invited to exchange their shares for the same number of newly issued shares in SAS AB, the newly formed holding company for the SAS Group. • Jørgen Lindegaard took over as President and CEO on May 8, 2001. • SAS announced, in agreement with the principal owners of the Norwegian company Braathens, its intention to acquire Braathens’ airline operations, excluding Malmö Aviation. Third quarter 2001 • The first day for listing and trading with shares in SAS AB was July 6, 2001. • The European Commission fined the SAS Group and Maersk Air MEUR 39.375 and MEUR 13.125 respectively for infringement of the EU’s competition rules. • Following criticism of its handling of the SAS/Maersk affair, the Board of Directors of SAS AB decided to convene an extraordinary general meeting to elect a new Board. • The airline industry was hard hit by the events of September 11. SAS Airline reduced capacity by 12% corresponding to 16 aircraft. • The first of eleven new, larger aircraft for intercontinental traffic, an Airbus A340-300 with a high environmental performance, was delivered. Fourth quarter 2001 • The Norwegian Competition Authority approved the SAS Group’s acquisition of Braathens. • The SAS Group announced that an agreement had been concluded to increase its holding in Spanair from 49% to 74% of the shares.