Norwegian Air Shuttle ASA controls 100% of the shares in Norwegian Long Haul AS, Norwegian Air Shuttle Sweden AB, Norwegian Air Shuttle Polska Sp.zo.o, AB Norwegian Air Shuttle Finland Ltd, Call Norwegian AS, NAS Asset Management Norway AS and NAS Asset Management Ireland Ltd. The parent company holds 20% of the shares in Norwegian Finans Holding ASA. Norwegian Air Shuttle Polska SP.zo.o is under liquidation at 31 December 2012 and NAS Asset Management Ireland Ltd was liquidated in 2012.
The Group has its headquarters in Fornebu outside Oslo, as well as other offices at Oslo Airport Gardermoen and in Tromsø. Norwegian Air Shuttle Sweden AB has offices at Stockholm Arlanda Airport, AB Norwegian Air Shuttle Finland Ltd has offices at Helsinki Airport in Finland and Norwegian Air Shuttle Polska Sp.zo.o is based at Warsaw Airport Fredric Chopin, Poland. Norwegian Long Haul AS, Call Norwegian AS, NAS Asset Management Norway AS and Norwegian Finans Holding ASA have office addresses at Fornebu.
Norwegian Air Shuttle ASA has established aircraft bases in Norway, Sweden, Denmark, Finland, Spain and the United Kingdom.
The Group has not registered any serious accidents or incidents to either passengers or crew involving aircraft operations since the Group was founded in 1993.
The Group’s flight safety office is integrated in the quality department, which reports directly to the Accountable Manager. The department’s main objective is to work proactively to promote flight safety throughout the organization. Flight safety is covered in the crew’s training programs, together with training in security related issues. The Civil Aviation Authority approves of all programs, examinations and qualification requirements.
The Group is continuously analyzing information from the Flight Data Recorders installed in Norwegian’s aircraft. The analysis is performed to ensure that the aircraft are handled and flown according to existing regulations and limitations.
Crew members, maintenance personnel and handling agents are also required to utilize a web-based reporting system in which irregularities are logged. These reports are a valuable tool for statistical analysis and trend monitoring.
The aircraft are subject to a stringent maintenance program based on the manufacturers’ recommendations and existing rules and regulations.
Organization, Working Conditions and the Environment
Norwegian has a long-term focus on creating an attractive workplace. An important success factor for Norwegian is maintaining a workforce of highly motivated and skilled employees and leaders. Our goal is to offer unique opportunities to our employees and a company culture that help us attract and retain the best people of our industry, regardless of who they are and where we do business. Creating fruitful arenas for learning and professional development of all levels of the organization is a priority in Norwegian.
At the end of 2012 the Group employed a total of 2,890 FTEs (full-time equivalents) including apprentices and hired staff. The number of employees is expected to increase in 2013 in accordance with the Group’s planned expansion in Norway and abroad. The Group has established bases in Finland, Malaga and Las Palmas (Spain) and at London Gatwick (United Kingdom) and is currently in the process of opening new bases abroad.
The apprentice program in Norway was continued in 2012 and by the end of the year consisted of 150 apprentices. The apprentices have during the training, which also contains a stay in Berlin, London and Las Palmas, had internships while working abroad in countries which Norwegian operates in. A further intake of apprentices is planned for 2013. All the candidates which graduated in 2012, successfully completed and passed their exams which were carried out in conjunction with Akershus County Council. The labor unions are also actively included in planning of the apprentices’ syllabus.
Many graduates who passed the examination in 2012 have now attained positions in the Group. Graduates of the program also visit schools and colleges, and promote the program and help recruit new apprentices. This has been a focus area in 2012 and the program now provides a steady stream of candidates to fill permanent positions.
Norwegian’s human resources policy is intended to be equitable, neutral and non-discriminatory, regardless of ethnicity and national background, gender, religion, or age.
The Group has reviewed and updated its ethical guidelines, which emphasize the Company’s personnel policies. The Group has described its Corporate Governance policies in a separate section of the Annual Report.
The important HES activities (Health, Environment and Safety) continue in compliance with the labor law and the Group’s guidelines.
Absence due to sick leaves in 2012 was 7.9%, an increase compared to 2011. Actively monitoring HES, corporate health insurances and continue to cooperate with protective services will insure that absence due to sick leaves remains a prioritized area of focus.
Norwegian Air Shuttle ASA is a member of NHO Aviation, which is a member of NHO (Confederation of Norwegian Enterprise).
The 2012 collective salary review was conducted through centralized collective bargaining with most unions. Moderate changes in wages and efficiency were achieved with these unions.
The Group’s defined benefit plan was closed 1 December 2012 and a new defined contribution plan was issued to all employees.
Flight operations are inherently dependent on fossil fuels and also generate noise. However, the Group’s current aircraft fleet operates within the levels and restrictions imposed by national and international regulations. During 2012 the Group consumed approximately 569,197 tons of Jet A-1 fuel which is equivalent to 88 grams of CO2 per passenger per kilometer or 69 grams of CO2 per seat per kilometer, a reduction of 4 % from last year.
The Group is in the process of renewing the aircraft fleet, replacing its Boeing 737-300 aircraft with Boeing 737-800s which will further reduce emissions per passenger per kilometer.
The Boeing 737-800 is among the most environmentally-friendly aircraft in production today; the 737-300s which are being replaced emit approximately 23 percent more CO2 per seat. Norwegian has a total of 100 direct buy Boeing 737-800s on firm order whereof 35 had been delivered by year-end.
Norwegian has firm orders for an additional 200 single-aisle aircraft, 100 Boeing 737 MAX8 and 100 Airbus A320neo, both of which reduce CO2 emissions by 30 percent compared to the 737-300. The order will secure Norwegian the most environmentally-friendly aircraft fleet in the World.
Norwegian also has orders for eight Boeing 787-8 Dreamliner long-haul aircraft which will be delivered from 2013. The aircraft type combines revolutionary composite material design with new engines which together reduce consumption and emissions by 20 percent compared to the most efficient comparable aircraft type in operation today.
The Group’s business model promotes high load factors and higher capacity per flight, which makes Norwegian’s operations more environmentally sustainable as emissions per passenger are lower. The Company’s emissions per passenger kilometer are well below the industry average and less than many forms of land and – sea-based transportation.
The Board believes the Group has complied with all requirements and recommendations with regard to its impact on the external environment, and that the Group takes all possible steps to minimize emissions and other negative effects on the environment.
The Group manages its maintenance operations from its technical base at Oslo Airport Gardermoen.
Line maintenance is performed at Oslo Airport Gardermoen, Stavanger Airport Sola, Bergen Airport Flesland, Trondheim Airport Værnes, Stockholm Arlanda Airport and Copenhagen Airport Kastrup.
Major airframe as well as workshop maintenance is performed by external sources subject to approval by the European Aviation Safety Agency (EASA) and by the national aviation authorities (“Luftfartstilsynet”)
Airframe maintenance is currently carried out by ATC Lasham in the U.K. and Lufthansa Technik in Budapest, Hungary. Engine and component workshop maintenance is undertaken by Lufthansa Technik, MTU and Boeing.
All maintenance, planning and follow-up activities, both internal and external, are performed in accordance with both the manufacturers’ requirements and additional internal requirements, and are in full compliance with international authority regulations. The Company carries out initial quality approval and also continuously monitors all maintenance suppliers.
All supplier contracts are subject to approval and monitoring by the national aviation authorities.
Significant Changes in Accounting Principles
There have been no changes in the adopted accounting principles. The IFRS accounting principles, as adopted by the EU, have been followed in preparing the financial statements for 2012.
Comments to the Consolidated Income Statement
The Group had a total operating revenue and income of MNOK 12,859 (10,532.2) in 2012. Compared to last year, the Group’s total growth of revenues was 22%. MNOK 11,201 (9,097) of the revenues was related to ticket revenues, MNOK 1,405 (1,225) was other passenger-related revenues, while MNOK 235 (206) was related to freight, third-party products and other income. Other income includes gains from sales of tangible assets. The increase of sales is mainly related to the 18% growth in production from 2011 to 2012. The load factor decreased by 1 p.p. compared to the same period last year. The ticket revenue per available seat kilometer (RASK) for 2012 was NOK 0.43, compared to NOK 0.41 last year, an increase of 4%. Ancillary revenues were NOK 80 per PAX (78) in 2012, an increase of 2% from 2011.
Operating costs (including leasing and excluding depreciation and write-downs) were MNOK 12,070 (9,822) in 2012. The unit cost was NOK 0.47 in 2012 compared to NOK 0.45 last year. The unit cost for fuel increased by 4 % while the unit cost excluding fuel increased by 4%. The unit cost excluding fuel was NOK 0.32 in 2012 compared to NOK 0.31 last year. Net profit before depreciation and write-downs (EBITDA) for the Group was MNOK 789 (710) in 2012, resulting in an EBITDA margin of 6.1%.
Financial items in 2012 ended up with a gain of MNOK 187, compared to a loss of MNOK 269 in 2011. MNOK 292 on net foreign exchange gain is offset by losses on financial instruments included in operating profits. In relation to accounting for the prepayments on purchase contracts with aircraft manufacturers, MNOK 73.5 (78.2) in interest costs were capitalized in 2012.
In 2007 the Group started Bank Norwegian, which is 100% owned by Norwegian Finans Holding ASA, in which the Group has a 20% stake. The Group’s share of the bank’s net profit resulted in a net gain of MNOK 32.8 (19.5) in the consolidated profit and loss.
Earnings before tax in 2012 were MNOK 623 (167) and earnings after tax were MNOK 457 (122). Earnings per share were NOK 13.08 per share (NOK 3.53).
Comments to the Consolidated Balance Sheet and Cash Flow Statement
The Group’s total assets had increased by MNOK 2,915 to MNOK 11,919 at year-end 2012. The book value of the aircraft increased by MNOK 1,711 during the year; while prepayments and capitalized interests on the Boeing purchase contract contributed MNOK 717 to the increase in assets.
At the balance sheet date, the Group had a cash balance of MNOK 1,731 (1,105).
Total borrowings increased by MNOK 1,277 to MNOK 5,527, mainly due to purchase of new aircraft.
The Group’s cash flow from operations was MNOK 2,022 (674) in 2012. The net cash flow from operating activities consists of the profits before tax of MNOK 623; add back of depreciation and other expenses without cash effects of MNOK 424 and add back of interests on borrowings MNOK 179 included in financial activity. Changes in working capital mainly due to traffic growth amounted to MNOK 795. During 2012 the Group paid MNOK 3 in taxes.
The net cash flow used for investment purposes was MNOK -2,765 (-2,190), of which the prepayments to aircraft manufacturers constituted MNOK -2,134. Purchases of new Boeing 737-800s and other tangible assets amounted to MNOK -631.
The net cash flow from financing activities in 2012 was MNOK 1,369 (1,442). Proceeds from long-term debt MNOK 1,991 are related to financing new aircraft and PDP financing.
The Group has a strong focus on liquidity planning and the Board is confident in the Group’s financial position at the beginning of 2013.
The Group’s total equity was MNOK 2,421 (1,946) at 31 December and its equity ratio 20% (22%). Equity increased by MNOK 475 due to profits for the period of MNOK 457 and a share issue of MNOK 18 related to the employees’ option programs. Other changes in equity amounted to MNOK 0.3.
All issued shares in the parent company are fully paid with a par value of 0.1 NOK per share. There is only one class of shares, and all shares have equal rights. The Group’s articles of association have no limitations regarding trading in Norwegian Air Shuttle ASA’s shares on the stock exchange.
The Group's net interest-bearing debt aggregated MNOK 3,796 at 31 December 2012, compared to MNOK 3,145 in 2011. The Group's gross interest-bearing liabilities of MNOK 5,527 (4,250) mainly consisted of financing for our aircraft of MNOK 3,992, a bond loan with a net book value of MNOK 589 and a Pre-Delivery Payment syndicated credit facility of MNOK 931. Other long-term interest-bearing liabilities including financial lease liabilities amounted to MNOK 16.
Risk management in the Group is based on the principle that risk evaluation is an integral part of all business activities. Policies and procedures have been established to manage risks. The Group's Board of Directors regularly reviews and evaluates the overall risk management systems and environment within the Group. The Group faces many risks and uncertainties within the global marketplace. We are facing challenging economic and market conditions and we may not succeed in reducing the unit cost sufficiently to compensate for weakening consumer and business confidence in our key markets. Price volatility may have a significant impact on the Group's reported and operating results. A deterioration in the Group's financial position could increase our borrowing costs and cost of capital. We face an ongoing risk of counterparty default. The Group's reported results and debts denominated in foreign currencies are influenced by developments in currency exchange rates and in particular the US dollar and Euro.
The Group's main strategy for mitigating risks related to volatility in cash flows is to maintain a solid financial position and strong credit rating.
Credit risks are managed on group basis. Credit risks arise from deposits with banks and financial institutions, as well as credit exposures to commercial customers. The Group’s policy is to maintain credit sales at a minimum level. Sales to private customers are settled by using credit card companies. The risks arising from receivables on credit card companies or credit card acquirers are monitored closely.
The management monitors rolling forecasts of the Group’s liquidity reserves, cash and cash equivalents on the basis of expected cash flows. In addition, the Group's liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to monitor balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.
Following the acquisition of aircraft with future deliveries, the Group will have ongoing financing activities. The Group’s strategy is to diversify the financing of aircraft trough sale-and-leaseback transactions and term loan financing supported by the export credit agencies in the United States and EU.
In order to protect margins against fuel price fluctuations, our expected fuel consumption is hedged to some extent. The Group also uses derivatives to reduce its overall financial and commercial risk exposures. Forward US dollar currency contracts have been used to hedge USD exposures.
Prospects for 2013
The demand for traveling with Norwegian and advance bookings have been satisfactory entering the first quarter of 2013. Norwegian will continue to take advantage of its increasing competitive power realized through continuous cost efficiency, and from introducing larger aircraft (14 new 737-800Ws will be delivered in 2013), with a lower operating cost. Going forward, the Company expects continued competitive pressure in the European market. By the start of the summer schedule, Norwegian’s short-haul operations will have three bases operational in Spain (Malaga, Alicante and Las Palmas) and a base in London.
Norwegian guides for a production growth (ASK) in excess of 25% for 2013 including long-haul production. Growth in short-haul production arises mainly from expanding the fleet by adding 737-800s and through increasing the average sector length. Norwegian may decide to adjust capacity in order to optimize the route portfolio depending on developments in the overall economy and in the market.
Assuming a fuel price of USD 950 per ton and USD/NOK 5.75 for the year 2013 (excluding hedged volumes) and with the current planned route portfolio, the Company is targeting a unit cost (CASK) in the area of NOK 0.42 – 0.43 for 2013.
The establishment of long-haul operations is developing according to plan and the organization is preparing for the first long-haul flight which will take place on 30 May 2013. The demand for tickets on the long-haul network has so far exceeded expectations. However, Boeing has informed Norwegian that the 787 delivery schedule is at risk and the Group is planning for substitute aircraft should the 787 not be delivered in time.
The Board confirms that the going concern assumption is valid and the financial statements have been prepared on a going concern basis.
Allocation of the Year’s result
The net profit for the Group was MNOK 457. The net profit for the Parent Company Norwegian Air Shuttle ASA was MNOK 434, which the Board proposes be transferred to retained earnings. The Board recommends no dividend distribution for the 2012 operating year in accordance with the Company’s corporate governance policies.
As of 31 December 2012, the Company had MNOK 1,164 of free equity.
Fornebu, 20 March 2013
Bjørn H. Kise
Chairman of the Board
Thor Espen Bråten
Board member (Employee rep.)
Board member (Employee rep.)
Board member (Employee rep.)
Chief Executive Officer