Standing Committee on Finance Presentation

16 November 2016

STRENGTHS CHALLENGES

Group output contributes R9bn to the countries GDP (supply chain & employees) 0.3% of the fiscus.

Weak Capital base

The airline supports 84 000 jobs in South Africa (direct and indirectly)

60% R/$ costs that are Dollar denominated creating significant pressure

Award winning and customer focussed airline Oversupply of capacity in domestic market

Strong safety record Growth of competition in the international market

World class on-time departure stats Regional markets compressed due to a decline in commodity prices

Supportive Shareholder Highly vertical integrated corporate structure

Cost Compression Program Leadership instability

Voyager program

Assessment

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THE INDUSTRY State of the airline industry

Oversupply in the domestic market

Major shifts in global air traffic

Airline market consolidation

Commoditisation of short-haul travel

African carriers face stiff competition on intercontinental routes

Global market shows improvement but Africa is lagging

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SAA power economic growth, employment, trade links, tourism.

SAA invests in skills development by

training flight deck crew, cabin crew and technicians, and procures

from local suppliers.

SAA launched the first flight on biofuels in Africa in July 2016,

thereby contributing to protecting the environment.

The airline is continuously

increasing regional frequencies and thus boosting intra-Africa

connectivity.

Overview

Cost Compression: Total of R3.3b sustainable savings (2012 - 2016) with the unit cost reduced from USD7.0 cents for 2011/12 to USD5.74 cents

New routes implemented between Accra, Ghana and Washington DC, as well as Johannesburg and

Abuja, Nigeria

The finalisation of the Airbus swap deal

Increase in Ancillary Revenue through targeted initiatives

Positive operating profit before interest, tax, depreciation and amortisation

Year Under Review Year under review

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SAA achieved a 88.63% on-time performance average

World Travel Awards™ 2015 Africa’s Leading Airline (21 consecutive years) – SAA

Africa’s leading in-flight magazine – Sawubona, SAA’s inflight magazine

Africa’s Leading Low-Cost Airline – Mango

Skytrax 4-Star rating (14 consecutive years) – SAA

Best Airline in Africa – SAA Best Airline Staff in Africa (4 consecutive years) – SAA

Best Low-Cost Airline in Africa – Mango

Aircraft Technology Engineering & Maintenance Awards

: Best Line Maintenance Provider world wide for 2015 – SAA Technical

Business Traveller Africa Awards Best African Airline’ Award – SAA (9th consecutive year)

Best African Regional Short-Haul Airline – SAA Best African Long-Haul Airline – SAA

Performance

BIGGEST HIGHLIGHT FOR 2016

Finalization of legacy aircraft transactions 7

Annual Financial Statements

Interim CFO Phumeza Nhantsi

Q2 FEATURES

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Financial Results – Income Statement

Page 10

2015-16 2014-15 Variance

Total Income 30,385 30,105 1%

Total Operating Costs (30,034) (32,546) 8% Operating profit/(loss) before interest, tax depreciation and amortisation 351 (2,441) >100%

Depreciation and amortisation (725) (819) 11%

Impairments (158) (1,894) >100%

Net loss on disposal of PPE (6) (9) 33%

Operating loss (538) (5,163) 90%

Finance Costs and Investment Income (835) (464) -80%

Loss Before Taxation (1,373) (5,627) 76%

Taxation (100) (12) >100%

Loss for the year (1,473) (5,639) 74%

Financial Results - Revenue

Page 11

2015-16 2014-15 Variance

Airline Revenue 28,827 28,513 1%

Other Income 1,558 1,592 -2%

Total Income 30,385 30,105 1%

Contributing factors to 1% increase in total income:

• revenue passenger

numbers flat

• 3% increase in load factors

• 6% decrease in ASK’s

• air fares up by 2%

Pleasing improvement in

ancillary revenue

Lower fuel price reduced fuel

levy component

22.6

25.6

28.7 28.5 28.8

1.3

1.5

1.6 1.6 1.6

0

5

10

15

20

25

30

35

2012 2013 2014 2015 2016

R' b

illi

on

Airline revenue Other income

23.9 27.1

30.3 30.1 30.4

Financial Results – Operating Cost

Page 12

2015-16 2014-15 Variance

Total Operating Costs 30,034 32,546 8%

• Approximately 60% of all operating expenses are foreign currency denominated – mainly USD

• Operating costs impacted by weakening of the ZAR against the USD - ZAR 23% weaker y-o-y

• Prior year includes R950m litigation provision • Operating costs positively impacted by :

• the results of the Cost Compression Programme (R1,1bn)

• the drop in the price of Brent crude oil – 45% decrease compared to the prior year

• positive fx translation movements

• If the effect of foreign currency is ignored, Operating costs actually decreased by 12% compared to the prior year (2% if fuel is excluded)

Financial Results – Cost Analysis

Page 13

High level analysis of operating costs: 2015/16 2014/15 Variance • Fuel cost 7,344 10,217 -28%

• Employee expense 5,822 5,687 2%

• Aircraft maintenance 4,283 3,412 26%

• Aircraft lease cost 3,149 2,840 11%

• Navigation, Landing and Parking 2,384 2,207 8%

Financial Results – Fuel Cost

Page 14

2015-16 2014-15 Variance

Fuel 7,344 10,217 28%

Decrease R2873 million (+28% )

• Average Brent crude price decreased by 45% - $90 to $49 per barrel • Average ZAR/USD exchange rate weakened by 23% - R10.96 to R13.48 • Fuel comprised 24% of total operating expenditure (2015: 32%)

Financial Results – Employee Cost

Page 15

2015-16 2014-15 Variance

Employee expenses 5,822 5,687 2%

Increase R135 million (+2% )

• Headcount reduced by 770 (7%) • No bonuses paid to SAA • ZAR /USD impact on staff abroad salaries and allowances

2015-16 2014-15 Variance

Headcount 10,706 11,476 -7%

• Results of VSPs, natural attrition and structures being reviewed

Financial Results – Maintenance Cost

Page 16

2015-16 2014-15 Variance

Aircraft Maintenance 4,283 3,412 26%

Increase R871 million (+26% )

• Maintenance cost largely contractually driven – maintenance reserves and return

conditions

• Devaluation of rand has massive impact on this line item, excluding the impact of the

weakening exchange rate, this cost only increased by 2%

Financial Results – Aircraft Lease Cost

Page 17

2015-16 2014-15 Variance

Aircraft Lease Costs 3,149 2,840 11%

Increase R309 million (+11% )

Increase attributable to the following:

• The 6 new A320’s in the fleet for the full year (entered at staggered intervals

during the prior year)

• The impact of the weakening ZAR

• Wide-body leases extended at favourable rates, full benefit to be felt in

2016/17

Financial Results – Navigation, Landing & Parking Cost

Page 18

2015-16 2014-15 Variance

Navigation, Landing & Parking 2,384 2,207 8%

Increase R177 million (+8% )

• Navigation costs contributes to the bulk of the increase in this expense line

• The weaker ZAR/USD exchange rate has had a significant impact on this expense line

Financial Results – Other Cost

Page 19

2015-16 2014-15 Variance Other Operating Costs (excluding fx movements) 7,927 8,158 3%

Decrease R231 million (3% )

3 242 4 010

1 629 1 461

435 479 1 279

1 040 657

543 685 625

0

800

1 600

2 400

3 200

4 000

4 800

5 600

6 400

7 200

8 000

8 800

2016 2015

Int Pax, freighthandling up by 10%

IT up by 21%

Acc and Refreshmentsup by 23%

Purchase of capacitydown by 9%

Distribution costs upby 11%

Sundry down by 19%

(R m

illi

on

)

• Includes legal settlements of R477m prior year included a legal provision of R950 million and there was a

R350m reduction in the legal provision in the current year, the decrease would be 8% if the effect of the legal provision is excluded

Financial Results – Hedging / Translations

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2015-16 2014-15 Variance

Translation gain: foreign assets and liabilities 818 342 >100%

Fair value gain/(loss): hedging instruments 57 (367) >100%

- Realised losses/(gains) (40) 205 >100%

- Fair value gains/(losses) 97 (572) >100%

Total fair value & translation movements 875 (25) >100%

Financial Results – Impairments

Page 21

2015-16 2014-15 Variance

(Impairment)/reversal of impairment of accounts receivable (14) 12 >100%

Impairment of PDPs 0 (121) >100%

Impairment of aircraft 0 (1,508) >100%

Write down of Inventory to NRV (144) (277) -48%

Total impairments (158) (1,894) -92%

Financial Results - Statement of Financial

Page 22

2015-16 2014-15 Variance

Capital and Reserves (12,264) (10,543) 22%

Subordinated Loan 1,300 1,300 0%

Total Capital and Reserves (10,964) (9,243) 25%

1,3 1,3 1,3 1,3 1,3 (0,9)

(2,1)

(4,8)

(10,5) (12,3)

-14-13-12-11-10-9-8-7-6-5-4-3-2-101234

2012 2013 2014 2015 2016

Capital and Reserves

Subordinated loans Capital and reserves (excluding subordinated loans)

(R b

illi

on

)

(3,5) (0,8) (9,2) (11,0) 0,4

Financial Results - Statement of Financial Position

Page 23

2015-16 2014-15 Variance

Total Non-current assets 7,017 7,311 -4%

Total Current Assets 9,650 5,693 70%

Cash and Cash Equivalents 2,315 (126) >100%

Other Current Assets 7,335 5,819 26%

Total Non-current Liabilities 9,665 6,692 44%

Long-Term Loans 6,510 3,684 77%

Other Non-current liabilities 3,155 3,008 5%

Total Current Liabilities 17,966 15,555 15%

Net Assets (10,964) (9,243) 19%

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Despite the highly challenging 2015/16 we are looking forward to working with the shareholder and the new Board in stabilizing and putting the airline on the right

trajectory.

Way forward

Questions and Answers

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