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					BscB(IM) 6. Semester

                                                Author: Ida Fosso Jacobsen
                                              Supervisor: Sudarshan Kumar Pillalamarri




               A Financial and Strategic Analysis of
                       Norwegian Air Shuttle ASA




                           Department of Business Studies

                             Aarhus School of Business

                                    03.05.2010
Abstract
The purpose of this thesis is to analyse Norwegian Air Shuttle ASA, and their economic
performance with help from both a financial and a strategic analysis. Norwegian will be
benchmarked against their largest competitors in the Norwegian and European market, being
SAS Scandinavian Airlines and Cimber Sterling, in order to conclude on how Norwegian
really is performing. The thesis will be based on public available information such as annual
reports in period 2005-2009, and newspaper articles.

Norwegian is the largest low cost airline company in Scandinavia, and the fourth largest in
Europe. They are operating to 85 destinations and 27 countries within Europe, Dubai and
Marrakech. From 2008 to 2009, Norwegian had a growth of 18% in passenger number which
caused an increase of 17.4% in their revenues. This is investigated further in the financial
analysis where Norwegian`s income statement, balance sheet, cash flow statement and key
ratio calculations are being analysed with the purpose of examining their economic
performance and to see if Norwegian has any liquidity problems. The fact that Norwegian in
November 2009 issued shares giving them about 250 million in new capital, and the major
investor HBK Holding (the owner is Norwegian`s CEO) sold some of their shares in the same
period, caused concerns around their financial situation. Especially, since Norwegian is
scheduled to receive 70 newly purchased and leased airplanes during 2008-2014. This is a
step towards them meeting their goal to further decrease their unit costs that will enable them
to continue to offer low prices, and still generate a profit. Both ROIC and Asset Turnover
show that Norwegian could be more effective in utilizing its assets, and the liquidity analysis
shows that Norwegian have problems paying both their current and non-current obligations,
taxes and interest rates.

The strategic analysis focuses on external factors that influence the airline industry such as oil
price and exchange rate. Both of these factors have fluctuated significantly over the last years,
not in a beneficial way. A higher oil price increases unit costs, as fuel is one of the major costs
in the budget, whereas a stronger dollar would not benefit as most of the suppliers trade in this
currency. It is also focused on the fierce competition within the airline industry, which is why
having as low unit costs as possible is important in order to be able to generate a profit.

Based on the financial and strategic analysis it can be concluded that Norwegian is a better
investment possibility than their major competitors SAS and Cimber Sterling.



                                                                                                  1
Table of contents


1: Introduction ............................................................................................................................ 5
1.1: Problem statement ............................................................................................................... 5
1.2: Limitations .......................................................................................................................... 6
1.3: Structure .............................................................................................................................. 6
1.4 About Norwegian Air Shuttle ASA ..................................................................................... 7
2: Financial Statement Analysis ................................................................................................. 8
2.1: The European Airline Market ............................................................................................. 9
2.2: Income statement .............................................................................................................. 12
       2.2.1: Operating Profit (EBIT) ......................................................................................... 13
       2.2.2: Profitability ............................................................................................................ 15
       2.2.3: Conclusion on the income statement ...................................................................... 17
2.3: Balance sheet ..................................................................................................................... 18
       2.3.1: General overview of the balance sheet ................................................................... 18
       2.3.2: Net working capital ................................................................................................ 20
       2.3.3: Liquidity analysis ................................................................................................... 21
       2.3.4: The Share ............................................................................................................... 23
       2.3.4: Conclusion on the balance sheet ............................................................................ 24
2.4: Cash Flow Statement ........................................................................................................ 25
       2.4.1: Cash Flow from operating activities ...................................................................... 25
       2.4.2: Cash Flow from investing activities ....................................................................... 26
       2.4.3: Cash Flow from financial activities ....................................................................... 27
       2.4.4: Change in cash ....................................................................................................... 27
       2.4.5: Cash flow ratios...................................................................................................... 28
       2.4.6: Conclusion on the cash flow statement .................................................................. 30
2.5: Conclusion on the Financial Statement Analysis .............................................................. 31
3: Strategic Analysis................................................................................................................. 32
3.1: PESTEL analysis ............................................................................................................... 32
       3.1.1: Political Aspects ..................................................................................................... 33
       3.1.2: Economical Aspects ............................................................................................... 33
       3.1.3: Socio-cultural Factors ............................................................................................ 34
       3.1.4: Technological Factors.............................................................................................34

                                                                                                                                             2
       3.1.5: Environmental Aspects .......................................................................................... 34
       3.1.6: Legal Aspects ......................................................................................................... 35
       3.1.7: Summary of the PESTEL analysis ......................................................................... 36
3.2 Porters 5 forces ................................................................................................................... 36
       3.2.1: The threat of potential new entrants ....................................................................... 37
       3.2.2: The bargaining power of suppliers ......................................................................... 37
       3.2.3: The bargaining power of buyers ............................................................................ 38
       3.2.4: The threat of substitutes ......................................................................................... 38
       3.2.5: The extent of competitive rivalry ........................................................................... 39
       3.2.6: Summary of Porters 5 forces analysis .................................................................... 39
3.3: Conclusion on the strategic analysis – SWOT analysis .................................................... 40
       3.3.1: Strengths ................................................................................................................. 40
       3.3.2: Weaknesses ............................................................................................................ 41
       3.3.3: Opportunities .......................................................................................................... 41
       3.3.4: Threats .................................................................................................................... 42
4: Conclusion on the Strategic and Financial Analysis of Norwegian ..................................... 43
5: Bibliography ......................................................................................................................... 45
6: Appendix .............................................................................................................................. 47
       Appendix 1: Norwegian`s route network ......................................................................... 47
       Appendix 2: Norwegian`s revenue: domestic and international ...................................... 48
       Appendix 3: Norwegians fleet 2009-2014 ....................................................................... 48
       Appendix 4: Overview oil price in period 2005-2009 ..................................................... 49
       Appendix 5: Overview exchange rate USD/NOK in period 2005-2009 .......................... 49
       Appendix 6: Overview of the share development for Norwegian in period 2005-2009 .. 50
       Appendix 7: Norwegian Air Shuttle ASA corporate structure ........................................ 50
       Appendix 8: Cimber Sterling corporate structure ............................................................ 51
       Appendix 9: Scandinavian Airline Group corporate structure 2009 ................................ 51
       Appendix 10: Norwegian: Income Statement 2005-2009 ................................................ 52
       Appendix 11: Norwegian: Balance Sheet ........................................................................ 53
       Appendix 12: Norwegian: Cash Flow Statement ............................................................. 54
       Appendix 13: Norwegian: Traffic Figures ....................................................................... 54
       Appendix 14: Norwegian: Calculations ........................................................................... 55
       Appendix 15: Norwegian: Share ..................................................................................... 55


                                                                                                                                           3
Appendix 16: Norwegian: Key ratios .............................................................................. 56
Appendix 17: SAS: Income statement 2005-2009 ........................................................... 57
Appendix 18: SAS: Balance Sheet ................................................................................... 58
Appendix 19: SAS: Cash Flow Statement ....................................................................... 59
Appendix 20: SAS: Traffic numbers ................................................................................ 59
Appendix 21: SAS: Calculations...................................................................................... 60
Appendix 22: SAS: Cash Flow ratios .............................................................................. 60
Appendix 23: SAS: Share ................................................................................................ 61
Appendix 24: Cimber Sterling: Income Statement 2004/2005-2008/2009 ...................... 61
Appendix 25: Cimber Sterling: Balance Sheet ................................................................ 62
Appendix 26: Cimber Sterling: Cash Flow Statement .................................................... 63
Appendix 27: Cimber Sterling: Calculations ................................................................... 63
Appendix 28: Cimber Sterling: Key ratios ....................................................................... 64




                                                                                                                         4
1: Introduction
The financial crisis has hit the air traffic industry hard. The International Air Traffic
Association write in their report that 2009 has been the worst year for the industry since the
second world war, with a decline in overall passenger demand of 3.5%. This will lead to a
total loss of 11 billion US Dollars for the industry (IATA, 2010).

However, the market can see a clear change in buying behaviour where people tend to be
more cost oriented. Low cost companies such as Norwegian Air Shuttle ASA, from now
referred to as Norwegian, are experiencing growth and an increase in market share compared
to companies such as SAS, known for having higher prices, which are having huge economic
problems. This can clearly be seen in Norway where SAS has lost a substantial part of their
domestic market share to Norwegian over the last years.

In November 2009, Norwegian`s board decided to issue up to 1 620 000 new shares, which
will give them around NOK 250 million kroner in new capital. At the same time, HBK
Holding AS, the major investor in Norwegian, announced that they are selling 970 000 shares
in the company. Norwegian`s CEO, Bjørn Kjos which also is the main owner of HBK
Holding AS, says that this is done because the company wants to strengthen their equity and
be prepared for new growth possibilities in the future1.

1.1: Problem statement

The purpose of this thesis is to look at the economic performance of Norwegian Air Shuttle
ASA and external factors that might influence the air shuttle industry. Norwegian and the
board’s decision on issuing new shares will be the focus of this report, to see if the company
have liquidity problems. When a company is issuing new shares and insiders within
Norwegian are selling shares at the same time, it can make potential investors nervous and be
a sign that something significant is about to happen.

This will be investigated with help from these questions:

      -    Analyse the financial situation for Norwegian Air Shuttle ASA by looking at the
           income statement, balance sheet and the cash flow statement in years 2005-2009.
      -    Calculate and analyse key ratios to look at the economic performance of Norwegian.
      -    Which external factors are affecting Norwegian?


1
    Andersen, Tor Øyvind; Brander, Anna Sandvig: http://e24.no/boers-og-finans/article3359145.ece

                                                                                                    5
1.2: Limitations

The thesis will only focus on the European air shuttle market, which is the market where
Norwegian mainly is operating. The thesis will compare Norwegian against their two largest
competitors in the Scandinavian and European market, Cimber Sterling ASA and
Scandinavian Airlines AS (SAS). It is important to be aware of that SAS is not a low cost
airline company, but are included as this is Norwegian`s biggest competitor in the
Scandinavian market.

All the information about Norwegian, SAS and Cimber Sterling has been collected from their
annual reports in years 2005-2009, and for Norwegian interim report 2009 as their annual
report for 2009 not yet has been published. Information is also collected from Norwegian
newspaper articles, since there has been no contact with the companies. No information has
been collected after April 5, 2010. In the financial analysis SAS`s numbers are in billions,
while Norwegian and Cimber Sterling`s numbers are in million.

1.3: Structure

Section 2: Financial Statement Analysis

In the economic part of the thesis, numbers from the annual report over the five past years
(2005–2009) and interim reports (2008-2009) will be used. First the income statement,
balance sheet and the cash flow will be analysed to see if there are any large changes that we
should be concerned about. Further on the most relevant key ratios for the paper will be
calculated and used when analysing Norwegian`s performance and liquid situation. Even
though the accounts look good, they may in some cases show a misleading picture of the
actual situation, and therefore analysing key ratios are important as it gives a more accurate
analysis and gives a clearer picture of the actual situation. Therefore measuring the
profitability and liquid situation of Norwegian and its competitors will be the focus in this
paper. In the profitability analysis, the DuPont method will be used to measure ratios as ROIC
and ROE. Liquidity analysis is in focus in this thesis, as it looks at if a company is able to pay
its short term debt.

A comparison between Norwegian and Cimber Sterling and SAS will be created by using key
ratios, because then we can see how Norwegian is performing compared to their competitors.




                                                                                                 6
Section 3: Strategic Analysis

The thesis will continue with a strategic analysis of the external factors influencing
Norwegian. Methods as the PESTEL analysis and Porter`s 5 Forces will be used to look at the
environment surrounding the organisation. The PESTEL analysis will be created as a list of
the political, economical, socio-cultural, technological, environmental and legal aspects of the
environment the companies are in. Porter`s 5 forces will be used to look at the competitive
environment surrounding Norwegian. The internal part of the strategic analysis is excluded as
there has been no personal contact with Norwegian, but instead strengths and weaknesses are
being included in the SWOT analysis.

1.4: About Norwegian Air Shuttle ASA

Norwegian Air Shuttle ASA was established January 22, 1993 as a company supposed to
continue “Busy Bee of Norway AS” air traffic on the west coast of Norway in cooperation
with Braathens S.A.F.E. In 2002, Norwegian decided to expand and to establish themselves as
a strong player in the domestic air travel industry within Norway, dominated at that time by
Scandinavian Airlines (SAS). Norway is an attractive market due to the large geographical
distances, and the routes between Oslo-Trondheim and Oslo-Bergen is on the list of busiest
routes within Europe. Norwegian decided to establish themselves as a low cost carrier and
started operating on the four busiest routes from Oslo to Trondheim, Bergen, Stavanger and
Tromsø with leased Boeing 737 300 airplanes. The beginning of 2000 was affected by a
recession and travellers were therefore interested in the increased competition and the lower
prices offered by Norwegian2.

Norwegian are following a low cost strategy, where they seek to offer their broad target group
of customers the lowest possible price. This is said to be their competitive advantage. Their
business idea turned out to be successful and had the perfect timing during the financial hard
times, and only after a few months their market share was between 10%-15%. In 2003 they
were listed on the Oslo Stock Exchange, and have since then expanded with both new
domestic and international routes, operating out of new places such as Warsaw in Poland,
Stockholm in Sweden and Copenhagen in Denmark. The company has also used their brand
name to start up other companies as can be seen from their corporate structure (appendix 7).
Bank Norwegian is an internet bank they own 20% of, and Call Norwegian AS that offers
cheap phone and broadband subscriptions, is 100% owned.

2
    http://www.norwegian.com/about-norwegian/facts/history/

                                                                                                 7
In 2007 they entered into an agreement with Boeing to purchase and lease total of 70 (48
owned, 22 leased) new aircrafts of type 737 800 aircraft in the period 2008 to 2014 (Appendix
3). The new planes will fit into their new strategy of a lower cost base since the new airplanes
have lower maintenance costs and fuel consumption. The plan is to deliver back the leased
airplanes when the rest of the new fleet are delivered by 2014.

Today (April 2010) Norwegian is the biggest low cost airline company in Scandinavia and the
fourth largest in Europe. Their business idea is to give everyone the possibility to travel by air
which is why they follow the low ticket prices strategy. Their goal is to establish themselves
as the preferred supplier of air travelling in selected markets (Annual report 2008; p8).
Norwegian is constantly opening new routes and by end 2009 they has 238 routes to 93
destinations across Europe, North Africa (Marrakech) and Middle East (Dubai) (Appendix 1)
with total of 10.8 million passengers in 2009, a growth of 18% from previous year.

2: Financial Statements Analysis
When analysing financial statements, historical data from the last five years are included to
get an overview of a company’s economical performance. The purpose of this is to discover
the financial value drivers that give the company economic value, and calculating key ratios
will help us find these factors. It is important to get an overview of the statements and to
calculate key ratios, because in some situations a company can make financial statements look
better than the actual situation is (Sørensen; 2009).

Financial statements are divided into income statement, balance sheet and cash flow statement
and they all give us economic information from different aspects. Calculating financial ratios
is important in order to measure the performance of a company, either how productive or how
profitable it is and their liquidity situation. Key ratios are however useless, if not
benchmarked to either a company’s performance over several years, the overall industry, or
another company within the same industry. Such data can create a useful insight of the
company’s performance and find strengths, opportunities, threats and weaknesses. Norwegian
will be compared against two of their biggest competitors, SAS and Cimber Sterling, where
numbers from past five years are used. There are many ratios that can be used to analyse a
company’s performance, and I have chosen to calculate ratios important to this company that
will explain the economic situation and answer the problem statement (Møller 1991).




                                                                                                 8
In this thesis years 2005 to 2009 will be analysed and then key ratios will be calculated.
However, in the key ratio analysis only years between 2007 and 2009 will be analysed as this
is concluded to give sufficiently accurate result. Norwegians Annual report 2009 has not yet
been published, therefore analyses of the balance sheet and cash flow statement is not done
for this year, which also affects some of the key ratios. The financial reports for Norwegian
and SAS are following IRFS, but only accounting years from 2006/2007 are IFRS for Cimber
Sterling and therefore previous years will not be analysed.

Consolidated financial statements are a common statement for the parent company and all its
subsidiaries, and are being used in this analysis because it can be seen that all the subsidiaries
within the group are more or less related to the same activities (Appendix 7, 8, 9). However
we have to be aware of that the consolidated statement often gives higher productivity for
each company and that its performance might look better than the actual situation (Schack
2002: p 245).

2.1: The European Airline Market

As stated earlier; the thesis will focus on the European airline market. This broad market
includes both business and pleasure travellers in order to identify as many strategic options as
possible (Lynch 2006: p 81).

Norwegian has had a huge increase in both passengers and revenue over the last years,
carrying close to 11 million passengers in 2009. This increase of 18% from 2008 is related to
the increase in market share in both the Norwegian domestic market and the low cost routes to
the most popular destinations in Europe. The Norwegian market is duopoly, with Norwegian
and SAS as the only operators and their market share development over the last years can be
seen in figure 1. Norwegian has increased their market share in all years, while SAS has
experienced a decrease in market share through the same period. Cimber Sterling`s traffic
numbers is not analysed.




                                                                                                 9
Figure 1: Market share development for SAS and Norwegian from 1. tertial innland og utland:
http://www.avinor.no/avinor/trafikk/20_Reisevaner

Figure 2 shows the market share development for airline travel from Norway to destinations
abroad in year 2005 and 2009. The same development as in figure 1 can be seen here. In 2005
SAS was clearly the largest operator followed by Norwegian and KLM. A change can be seen
in 2009 as Norwegian has increased their market share whereas both SAS and KLM
decreased theirs. This indicates that in the recession, low cost airline companies were choosed
over the more traditional airline companies.


                        2005                                                2009

                                         Norwegian                                            Norwegian
                                         SAS                                                  SAS
                                         KLM                                                  KLM
                                         Ryanair                                              Ryanair
                                         Lufthansa                                            Lufthansa
                                         Other                                                Other




Figure 2: Market share from airline travel between Norway and destinations abroad. Numbers are from:
http://www.avinor.no/avinor/trafikk/20_Reisevaner

In order to understand Norwegian and how they are operating compared to their competitors,
their cost base it is important to look at (Appendix 13, 20). Norwegian`s numbers of airplanes
and routes have increased over the years, as have capacity/production (Available Seat
Kilometre (ASK)). An overview of Norwegian`s and SAS` unit costs and yield can be seen in

                                                                                                          10
figure 3. Norwegian`s yield (income per passenger kilometre) for 2009 has been decreasing
compared to 2008 to 0.60, even though there has been a growth in passengers. This is caused
by the increase in fuel cost, increasing distances and massive cuts in ticket prices. SAS on the
other hand has had a stable yield at 1.22 in period 2007-2008.

Remaining successful in the highly competitive industry is all about having as low unit costs
per seat per kilometre as possible3. Unit costs are affected by external events as fuel price,
distribution costs, airport charges and internal costs as staff costs, type of airlines used and
destinations (Doganis; 2002 p 103). Norwegian`s unit costs have decreased 13% from its peak
in 2008 at 0.56 to 0.49 in 2009. The decrease in units cost has been due to the decrease in fuel
price and exchange rate in dollars and euro since 2008. Ryanair, a company Norwegian does
not see as a major competitor as they have flights to remote airports, has unit costs at 0.29.
Norwegian is expecting their unit costs to continue to decrease to a level below 0.40, when
they are replacing their fleet with all new and more environmentally friendly aircraft that will
yield higher capacity and lower pollution.

    1.4

    1.2

      1
                                                                               Norwegian unit costs
    0.8
                                                                               Norwegian yield
    0.6                                                                        SAS unit costs

    0.4                                                                        SAS yield


    0.2

      0
                  2007                 2008                  2009

Figure3: Overview of unit costs and yield for Norwegian and SAS from Annual Report 2007-2009

Figure 3 shows that Norwegian is a low cost based airline company compared to their
competitor SAS, which has both higher unit costs and yield. SAS has historically been one of
the companies with the highest unit costs, but has been forced to decrease its unit costs when
the low cost airlines were established to keep up with the competition and generate a profit.
SAS has tried to compete by offering lower prices, however, this strategy failed as SAS has a
higher cost base, and Norwegian replied by decreasing their prices even more. Therefore SAS
3
    Kaspersen, Line: http://www.dn.no/forsiden/naringsliv/article1836896.ece

                                                                                                      11
is focusing on a different strategy offering faster check in, free coffee/tea, newspapers, bonus
card and advantages from their membership in Star Alliance for their customers (SAS Annual
Report).

   70,000,000

   60,000,000

   50,000,000

   40,000,000                                                      Norwegian
                                                                   SAS
   30,000,000
                                                                   Cimber Sterling
   20,000,000

   10,000,000

             -
                  2005     2006     2007      2008     2009


Figure 4: Own creation from Annual Reports for Norwegian, SAS and Cimber Sterling in period 2005-2009.

The overview of the three companies’ revenues in period 2005-2009 (Figure 4) shows that
SAS clearly has the highest revenues of Norwegian and Cimber Sterling. However, their
revenues have been decreasing in the period compared to both Cimber Sterling`s and
Norwegian`s which has had large growth in last five years. This again indicates that low cost
companies such as Norwegian and Cimber Sterling have increased their revenues in the
recession, while the traditional airline companies with higher cost bases such as SAS have had
problems. The explanations behind this development will be analysed further in the income
statement.

2.2: Income statement

The income statement reports how shareholders` equity has increased or decreased as a result
of operating and financial activities for a specific accounting period. Operating activities are a
company’s primary activities that create value to a company, while financial activities are
activities not directly related to the area of business (Pennan: 2001, p 32). Norwegian`s
operating revenues are all included in the income statement being ticket sales, other passenger
related revenues, and other revenues (table 1).




                                                                                                         12
2.2.1: Operating Profit (EBIT)

The equation operating profit, also called earnings before interest and tax (EBIT), is a result
of revenues minus expenses:




Operating profit is analysed more closely in order to get a more accurate overview of where
Norwegian`s revenues and expenses come from.

                                              2009        2008          2007           2006             2005
  Ticket revenue                          6 389 406   5 641 533     3 956 000      2 879 400      1 931 663
  Other passenger related revenue          788 655     463 609       212 000          62 000           40 583
  Other revenue                            131 129     121 271        58 202
  Total operating revenues                7 309 189   6 226 413     4 226 202      2 941 400      1 972 246
  Operational expences                    4 318 731   4 892 727     3 171 818      2 368 636      1 504 338
  Payroll                                 1 303 299   1 076 068      622 189         412 940          298 223
  Depreciation, amortization and impairment 148 882    129 611        74 044          51 070           29 316
  Other operating expences + leasing       966 411     318 094       224 200         139 264          111 091
  Other losses/gains                                   147 767
  Total operating expences                6 737 323   6 564 267     4 092 251      2 971 910      1 942 968
  Operating profit (EBIT)                  571 866    (337 854)      133 951         (30 510)          29 278
  Profit (loss) after tax                   446 251       3 944        84 580        -21 997           27 980
Table 1: Summary of income statement Norwegian; Annual reports 2005 – 2008, Interim report 2009 Q4.

Norwegian`s revenues have had a steady increase over the years mostly connected to the
growth in passengers. In appendix 2, an overview of how their revenues are divided between
domestic and international travels can be seen. In 2009 revenues coming from domestic
travels increased 26% since 2008, compared to 12% within the same period on international
travels. The income statement to Norwegian are dividing their total operating revenues into
ticket revenues, other passenger related revenues and other revenues as it is related to fees and
third party products. Total operating expenses has also had an increase over the years. Other
operating expenses + leasing costs and depreciation are both increasing due to prepayments
and purchase of new airplanes and also the increased oil price. The growth in production
(ASK) and the acquisition of Norwegian Air Shuttle Sweden AS in 2007 are said to be the
main reasons for the increase in both expenses and revenues.

Norwegian has had a varied operating profit (EBIT) over the years, leading to negative results
in both 2006 and 2008 where expenses are exceeding revenues. These years are also giving
loss (2006) and extremely low profit (2008), which can be explained by the sudden increase
in production (ASK) and passenger traffic and therefore the need to utilize 19 airplanes the

                                                                                                         13
last quarter compared to 14 normally. Profit after tax has never been better for Norwegian
than in 2009. The huge increase from 2008 is mainly due to the increase in production and
market share in the Norwegian and the European market.

    SAS                                     2009           2008            2007           2006        2005
    Total operating revenues              44 992          53 052         50 671          60 924      62 688
    Total operating expences              48 074          53 817         49 378          59 651      61 315
    Operating profit SEK                   -3 082           -765          1 293           1 273       1 373
    Profit (loss) after tax                -2 947         -6 321            636           4 740        255
    Cimber Sterling                   2008/2009       2007/2008      2006/2007
    Total operating revenues            1 297 757      1 193 046        970 791
    Total operating expences            1 299 476      1 119 503        917 197
    Operating profit DKK                   -1 719         73 543         53 594
    Profit (loss) after tax               -58 925         56 007         25 845

Table 2: Summary of income statement: SAS Annual report 2005-2009; Cimber Sterling Annual report
2008/2009

SAS as a traditional airline company has had a decreasing development in both revenues and
expenses which lead to a negative operating profit and loss after tax in years 2008 and 2009.
Reasons behind this negative development are the decreasing ASK (production), as a result of
the increased competition and loss of market share. Because of the negative results, SAS is
dependent on new capital to survive. Therefore they managed to convince their owners in
2009 (government in Norway, Sweden, Denmark) to give new capital of 6 billion SEK, but
this didn’t help the company that again are in financial trouble. The group has again asked
their owners for SEK 5 billion in new capital. The owners will oblige, but in return are
expecting a stronger financial position next year with SAS cutting their costs drastically4.

Cimber Sterling as a low cost company has had an increase in both their revenues and
expenses over the years. In 2008/2009 expenses are exceeding revenues which cause a
negative operating profit of DKK -1 719 million and a loss after tax. This is explained by
Cimber Sterling Group AS taking over the bankrupted airline company Sterling Airlines AS
in this accounting period. In this connection the group expanded as a step towards them being
a bigger and more dominating actor in the European airline market. Investments in new
planes, new staff and marketing of the company are expenses that dominated this year. Loss
after tax this year is also explained from an increase in financial expenses, caused by the
increased exchange rate USD/DKK on their loans.




4
    Sparre, Martin Riber; Kaspersen, Line: http://www.dn.no/forsiden/borsMarked/article1834613.ece

                                                                                                        14
2.2.2: Profitability

When measuring profitability ratios we will look at if the company are earning enough in
order to generate a satisfying profit (Penman: 2001, p 366). When analysing Norwegian, the
profitability key ratios will be based on Return on Equity (ROE). This is done because it can
be further decompounded into financial leverage and Return on Invested Capital (ROIC) in
the DuPont analysis.

                                                                              Assets

                                                                            Turnover

                                                 ROIC
                                                                              Profit
                                                                              Margin
                    ROE                        Financial
                                               Leverage




Figure 5: Three step DuPont decomposition from Sørensen: 2009: p.255, adjusted by me

The DuPont model (figure 5) is used in this thesis because it is a good approach to use when
determining factors influencing Norwegians profitability. It decomposes Return on Equity
(ROE) in two components being ROIC and financial leverage, where ROIC are further being
decomposed into assets turnover and profit margin. The ratios except profit margin will need
numbers from the balance sheet (assets and equity), but are included in the DuPont analysis as
it is explaining how effective and profitable a company is. Financial leverage is a ratio that
analyses to which degree net operating assets are financed by net financial obligations or
equity, and therefore this ratio will be calculated and analysed in the liquidity analysis
(Pennan 2001: p 354) (Sørensen 2009: p 255).

Key ratio                                      2009          2008           2007            2006     2005
ROE (%)                                      35,7 %         0,6 %         22,0 %         -10,9 %   19,8 %
Return on Invested Capital (ROIC)            12,3 %         0,2 %          4,6 %          -2,6 %     0,07
Profit Margin (%)                             6,1 %         0,1 %          2,0 %          -0,7 %    1,4 %
EBIT Margin (%)                               7,8 %        -5,4 %          3,2 %          -1,0 %    1,5 %
Asset Turnover                                 1,46          1,96           1,81            2,77     2,92


Table 3: Key financial ratios Norwegian: calculations with guidelines from “Den Danske
Finansanalytikerforening” (The Danish Society of Investment Professionals)

                                                                                                      15
Return on Equity (ROE) is the first ratio to investigate in the profitability analysis. It is used
to see what profit shareholders can expect compared to other investments possibilities e.g. the
interest rate you get in the bank (around 3% - 4%). Norwegian`s ROE have been changing
over the last years, with a close to zero result in 2008 which reflects the same development as
profit/loss for the specific year. However, in the other years ROE has been high, including
2009 where it is 35.7%, giving a good payoff compared to other investments possibilities.
Even though Norwegian`s expected return in most of the accounted years is good,
shareholders need to consider the risk of losses as the airline industry are highly competitive
and therefore also risky. Normally, industries that are risky give a higher ROE, and it is
therefore important to take risk in consideration, as the money could be placed in a bank at a
interest rate that is more or less stable.

Return on Invested Capital (ROIC) measures how operational efficient a company is using its
available assets, excluding how the company is financed. This is why ROIC is such a good
ratio for comparing companies that might have different structures. ROIC are in 2008 0.2%,
and in 2009 12.3% which is a good development for the company. ROE are automatically
affected by ROIC, and therefore the bad ROIC in 2008 can explain the bad ROE the same
year. We should therefore take a deeper look at ROIC to see what could be the reason for
these negative ratios, which is why ROIC are further decomposed into profit margin and
assets turnover.

Profit margin explains how much of the revenue that creates profit and how much that are left
to cover tax, interest e.g. The table shows that Norwegian`s profit margin are at a level of
0.1% in 2008 and 6.1% in 2009. In 2008, Norwegian has had a low profit after tax that can
explain the low profit margin. Assets turnover is an activity ratio that explains how efficient
the company utilizes its assets to produce revenue; how operationally efficient the company
is. If this ratio is high, it could mean that the company is managing to use its assets efficiently
to generate sales and profits. Norwegian does not have the highest ratios and the fact that they
are decreasing over the years indicates that Norwegian is not that operationally efficient.

Since operating profit were analysed in the first part of the income statement, EBIT margin is
included in the ratio analysis. It is a good ratio to use when comparing companies within the
same industry to see how effective they are and how much they have grown over the years.
As EBIT margin is comparing revenues and expenses, this ratio is negative in 2008 as



                                                                                                     16
expenses exceeded revenues this year. In the other years it looks good and the ratio is
increasing, which shows that they have grown over the years.

SAS                           2009          2008           2007       2006           2005
ROE                        -29,4 %       -48,9 %          3,8 %     33,3 %          2,1 %
ROIC                        -7,0 %       -15,2 %          1,3 %      9,6 %          0,5 %
Profit Margin               -6,6 %       -11,9 %          1,3 %      7,8 %          0,4 %
EBIT Margin                 -6,9 %        -1,4 %          2,6 %      2,1 %          2,2 %
Asset Turnover                1,06           1,22           1,04      1,19           1,08
Cimber Sterling     2008/2009      2007/2008      2006/2007
ROE                        -32,5 %        27,7 %         12,7 %
ROIC                       -0,05 %        0,05 %         0,03 %
Profit Margin               -4,5 %         4,7 %          2,7 %
EBIT Margin                 -0,1 %         6,2 %          5,5 %
Asset Turnover                1,19           1,14           1,11

Table 4: Key ratios SAS and Cimber Sterling

Norwegian`s profitability key ratios are compared against SAS` and Cimber Sterling` to see
how well they are performing and how efficient they are. Both SAS and Cimber Sterling has
the same development as their ROE, ROIC, profit margin and EBIT margin are all negative
over the last year. This is not a positive development and it can be concluded that they are not
profitable or using its available assets as efficient, because they have not created any profit
over the last years. A potential investor will need to consider the risk as an investment has not
lead to any payoff in 2009.

2.2.3: Conclusion on the income statement

Despite the competitive market and the economic recession, Norwegian experienced 2009 as
one of their best years with a continued growth in revenues (17.4%), EBIT and profit after
tax. The growth is related to the increased in ticket sales, which was expected as the company
has continued to increase their market share both domestically within Norway and in the rest
of Europe. Due to investments in a new fleet, their expenses also increased over the last years.

The profitability analysis was made on the background of the DuPont analysis where ROE
where decomposed into ROIC as was further decomposed into profit margin and assets
turnover. Many of the key ratios for Norwegian are in 2008 low due to the decrease in profit
after tax this year. However, the ratios in 2009 are good. Return on Equity (ROE) is at a high
level in 2009, meaning that shareholders can expect higher return than from other investments
possibilities. Because of the fluctuating numbers through the years, this has to be seen in
connection with the high level of risk there is to invest in a competitive market like the airline
industry. ROIC and asset turnover analyses show how efficient Norwegian is using its assets


                                                                                                  17
to create revenue. ROIC are at a low level but show an increasing tendency compared to
previous years, whereas asset turnover is at a decreasingly low level, indicating that there are
room for improvement. Profit margin is increasing and at a high level in 2009, meaning that a
large amount of the revenue creates profit, and that there are some left to cover tax and
interest rates.

SAS and Cimber Sterling have negative ratios in ROE, ROIC, profit margin and EBIT margin
in 2009. This indicates that Norwegian has better efficiency and profitability ratios than their
competitors, being better at utilize its assets and create profit. However, further analysis with
liquidity ratios is necessary in order to come up with a final conclusion.

2.3: Balance Sheet

The balance sheet is listing a company`s assets, equity and liabilities in a given period of time,
and are used when investigating a company’s liquidity and financial leverage. Assets are
investments expected to generate future profit, equity are the claims by the owners and
liabilities are claims to the payoff from the assets by claimants other than owners. Both the
assets and liabilities are divided into current and non-current, where current are
generating/pay cash within a year and non-current are long term obligations (Pennan 2001: p
28). To sum up, the balance sheet is an overview of the company’s investments and claims on
return of these investments, and as the equation states: shareholders equity equals the
difference between assets and liabilities:




The focus of this report will be on the balance sheet and the cash flow statements financial
ratios as it is measuring liquidity, as the purpose of this thesis is to analyse Norwegian and
their financial situation.

2.3.1: General overview of the balance sheet

                             2009            2008             2007            2006               2005
Assets                  5 021 964        3 178 884       2 331 097        1 061 944         675 822
Liabilities             3 420 254        2 281 515       1 822 824          801 217         534 236
Equity                  1 601 710         897 368          508 273          260 727         141 586

Table 5: Balance sheet for Norwegian; Source: Annual Report 2005-2008, Interim report Q4 2009.

Norwegian`s assets, liabilities and equity have increased rapidly over the years (appendix 11).
In 2009 non-current assets accounted for 52% of total assets and were characterized with the
arrival and prepayments of the new airplanes that will arrive within 2014, increased book
                                                                                                        18
value of airplanes and new de-icing equipment. Cash and cash equivalent is the value of
assets that are cash or that can be converted into cash immediately, and is seen as the main
current asset. It has increased with more than MNOK 800 to NOK 1 408 475 000 in 2009.
Having this much cash available makes you wonder what Norwegian will spend it on and why
it is so large. Some theories can be that the company wants to pay out dividends, down
payment of debt or payment of tangible goods (Sørensen 2009: p 196). For Norwegian, the
third theory is most likely as they are investing in new airplanes and easy accessible cash can
be a good thing to have in case of unexpected costs (changes in currency e.g.). Trade and
other receivables have also increased over the years with a peak in 2008 when new procedures
with credit card settlements were developed. All together these are the main events that have
caused the assets to increase in 2009. Liabilities also increased in the account period and
looking at both current and non-current liabilities, the net bearing interest liabilities including
purchase and prepayment of new airplanes are the main event that has caused liabilities to
increase. Borrowing has increased over the years and it contains an unsecured bond issue with
floating interest rates.

                                         2009           2008             2007          2006          2005
    Growth in Equity (%)               78,5 %         76,6 %           94,9 %        84,1 %
    Equity ratio (%)                   31,9 %         28,2 %           21,8 %        24,6 %         21,0 %

Table 6: Growth in Equity and Equity ratio for Norwegian 2005-2009

Looking at equity it can be seen that both share capital and other paid in equity has increased
over the years, where the increase in share capital is caused by the company issuing new
shares. The growth in equity of 78.5% between 2008 and 2009 and the increasing equity ratio
are seen as a positive thing for a company, but when the cash is coming from issuing new
shares it could indicate that the company is experiencing liquidity problems. To reject this
theory Norwegian stated in a press release that the reason behind the issuing of new shares is
to strengthen their equity, secure their strong market position and to prepare the company for
continued growth possibilities. The CEO Bjørn Kjos says that now that they are becoming
more international due to the expansion over the last years, they want to attract new investors
to invest in the company5.

It is also important to say that Norwegian has not yet paid dividends. They have a rule that
this will not be done before the financial situation is more stable and they have an equity ratio
above an appropriate level (Annual report 2008: p 19). SAS have not paid out dividends in

5
    Andersen, Tor Øyvind; Brander, Anna Sandvig: http://e24.no/boers-og-finans/article3359145.ece

                                                                                                         19
period 2005-2009, and state that this will not be done before their financial situation is at a
more stable level. Cimber Sterling did pay out dividends in year 2007/2008.

SAS                                    2009           2008        2007           2006            2005
Assets                               42 495          43 364      48 770         51 164          58 016
Liabilities                          31 106          34 682      31 621         34 776          45 935
Equity                               11 389           8 682      17 149         16 388          12 081
Cimber Sterling                  2008/2009       2007/2008    2006/2007
Assets                             1 090 212      1 045 645     874 780
Liabilities                         927 834         845 212     671 810
Equity                              162 378         200 433     202 970

Table 7: Balance sheet overview: SAS and Cimber Sterling

SAS has had a decrease in assets over the last years and decrease in liabilities except from an
increase in 2008. Equity has varied over the years but is increasing again after a decrease in
2008. The decrease in assets is mainly due to a decrease in intangible assets (goodwill)
because of the sale of Air Baltic 4th quarter of 2008. The decrease in liabilities is caused by
purchase of new airplanes and income received from the sale of Air Baltic. The increase in
equity is caused by issuing new shares and it is important to mention that the company
received SEK 6 billion to cover their massive loss in 2008 (page 14). SAS`s cash and cash
equivalent is also looked at to see if they have had the same development as Norwegian. Cash
available is also large in SAS, but has a decreasing tendency compared to previous years.

As for Cimber Sterling, it can be seen that they have had the same progress as Norwegian
with an increase in both assets and liabilities. However, their equity has decreased over the
last three years. The increase in assets and liabilities is caused by them purchasing Sterling
Airlines in 2008/2009. Cimber Sterling`s cash and cash equivalent has been decreasing from
its peak in 2006/2007 to a more stable level in 2008/2009. Therefore it can be concluded that
looking at SAS and Cimber Sterling, there is nothing in the overall industry that can explain
the reason behind Norwegian having as much cash available.

2.3.2: Net working capital

Net working capital is calculated as current assets – current liabilities and tells us if the
company is able to pay its current liabilities with current assets. It is therefore important not to
include financial items that are not involved in generating sales (Pennan 2001: p 359). Cash
and cash equivalents are included in the calculation as the majority are cash in bank and short
term deposits with maturity of three months or less being easy accessible (Annual report
2008: note 24, p. 61).


                                                                                                   20
A positive net work capital indicates that the company are not having any current liquidity
problems. Norwegian net work capital has been positive in all years except from 2008 and
2009 (appendix 14). This indicates that Norwegian has not had any problems paying their
short term debt in earlier years, except over the last two years. However, it is important to
notice that if it wasn’t for the large and increasing cash and cash equivalent the net working
capital would have been negative in the other years as well. Looking at 2008 and 2009, net
working capital is negative and it seems that Norwegian in this year had problems paying
their short term liabilities with their short term assets. It could also just be an indicator
towards that Norwegian this year invested heavily and had a huge growth. Therefore further
investigation with liquidity analysis will be necessary in order to see how serious their
problems are.

2.3.3 Liquidity analysis

Norwegian`s liquid situation will be investigated with background from the balance sheet. It
is important to measure liquidity ratios to see a Norwegian’s ability to meet current
obligations with assets that can be quickly converted into cash. This because liquidity tells us
about a company’s ability to repay non-current debt, and financial leverage tells us the
relative size of financial assets.

Financial leverage (Debt to equity)          2,14        2,54          3,59         3,07          3,77
Current ratio                                0,92        0,95          1,04         1,01          1,07
Quick ratio                                  0,90        0,93          1,01         0,98          0,99
Solvency                                   46,8 %      39,3 %        27,9 %       32,5 %        26,5 %


Table 8: Norwegian: Liquidity ratios

Quick ratio looks at the company’s ability to repay current liabilities with current assets in the
short term perspective, and therefore inventory is excluded in the calculation because it will
take a longer period of time to convert this into cash. The quick ratio is only in year 2007
above its optimal level at 1, but it is close to the optimal level in the other years. The concern
is that the ratio has had a decreasing tendency since 2007. Current ratio measure Norwegian’s
ability to cover current liabilities with current assets, looking at it from a longer perspective
that the quick ratio, and therefore inventory are included. The current ratios optimal level is
around 2, and it can be seen that the ratio has not been at a satisfactory level in any of the
years and there is a decreasing tendency. Because of the decreasing tendency in both quick
and current ratio it can be said that Norwegian is experiencing payment problems in the short
and longer run. They should focus on the decreasing tendency that can indicate them having

                                                                                                    21
problems creating liquidity. The solvency ratio measures a company`s ability to meet its long
term commitments. Norwegian has had a high and increasing solvency ratio above 20%, over
the last three years indicating that they are a financially healthy company, and that there are
no sign of them failing its obligations. Because of the high degree of debt and the fact that
solvency it is calculated with equity, it does take the cash from the current share issue in
consideration. Therefore it is important to notice that this liquidity ratios might not give the
right picture of the actual situation, and it is therefore important to look at it in relation to the
cash flow ratios in the next chapter (Schack 2002: p 72).

Financial leverage ratios measures to which extent net operating assets are financed by net
financial obligations or by equity (Pennan 2001: p 339). For Norwegian, debt to equity ratio is
analysed because it measures how much of the company is leveraged in debt. If this number is
high, it could mean that the company rely on debt as a source of financing, which is the case
for Norwegian. Debt to equity ratio has been at a level above 2 in the last years, however,
there is a decreasing tendency which is good as Norwegian then rely on debt as a source of
financing in a decreasing way.

SAS                                         2009             2008        2007      2006           2005
Quick ratio                                 0,67             0,93        1,04       1,12          0,92
Current ratio                               0,71             0,89        1,09       1,18          0,97
Financial leverage (Debt to Equity)         2,73             3,99        1,84       2,12          3,80
Cimber Sterling                       2008/2009         2007/2008   2006/2007
Quick ratio                                 0,42             0,47        0,73
Current ratio                               0,60             0,63        0,88
Financial leverage (Debt to Equity)         5,71             4,22        3,31

Table 9: Liquidity ratios for SAS and Cimber Sterling

SAS has had a decrease in their current and quick ratio from 2006. The current ratio is below
the optimal level in all years, and it could be concluded that in the longer run it will be hard
for the company to repay their debt. The quick ratio, on the other hand, has been above and
close to the optimal level except from 2009. Because of the decline in both quick and current
ratio over the years it can be concluded that SAS would have problems repaying their short
term debt. The financial leverage is varying for the years in question, and had its peak in
2008, which could be due to the purchase of new airplanes that were financed by loans that
caused an increase in debt.

Cimber Sterling is in all the three years below its optimal levels in both current and quick
ratio and it is a decreasing tendency. This is not a good development for Cimber Sterling as it


                                                                                                    22
indicates that they will have problems repaying their short term debt. The financial leverage
for the period is high and constantly increasing, which can indicate that the company is using
debt to finance new assets. However, as stated earlier, this will be further investigated in the
cash flow analysis.

2.3.4: The Share

Norwegian Air Shuttle ASA became listed on Oslo Stock Exchange in 2003. Looking at
Norwegian`s share development (Appendix 6), we can see how the share price has behaved
over the last five years.

                                                  2009         2008           2007          2006          2005
    Share price close                              140          36,9           169            93            79
    Number of outstanding shares year end   34 209 858   32 359 778     20 865 526    19 669 196    18 085 696

    Market cap (NOKm)                           4 789         1 194          3 526         1 829        1 429
    EPS                                         13,04          0,12           4,05         -1,12         1,55
    P/E                                         10,73        302,76          41,69        -83,16        51,06
    Book equity per share                       46,82         27,73          24,36        13,26          7,83
    Share price/Book equity per share             2,99          1,33           6,94          7,02       10,09
Table 10: Norwegian`s share

The share price has increased over the years except from 2008 where it was historically low,
however, it ended 2009 at 140 kroner. The number of outstanding shares has also increased
over the accounting years caused by issuing of new shares in order to strengthen their strong
position in the market and letting new investors be a part of their expansion process6. Market
cap measures the market value for the company’s outstanding shares; the value of the
company. It shows that Norwegian`s market cap has been increasing except from a decrease
in 2008 expected after the historically low share price.

In 2009 earnings per share (ESP) generates profit after tax at 13.04 kroner per share, which is
good compared to previous years. This ratio is useful when comparing companies as you
should always invest in a company that gives as high EPS as possible. Looking at earnings per
share for SAS (appendix 23) shows that Norwegian will be the preferred investment as SAS
generates loss after tax at -1.19 kroner per share.

Price-Earnings (P/E) indicates a firm’s possibility to grow earnings. If this ratio is high it
means that the future earnings are expected to be higher than current earnings, but it is
important to be aware that P/E can be high because current year’s earnings have been low, as
in the case of Norwegian which has experienced lower earnings in previous years. When

6
    Andersen, Tor Øyvind; Brander, Anna Sandvig: http://e24.no/boers-og-finans/article3359145.ece

                                                                                                           23
analysing P/E we also needs to consider risk, as a high risk on future earnings will give lower
P/E (Pennan 2001: p 527). Book equity per share assesses the minimum value of a company`s
equity in a current situation as it does not look into the future. The ratio is good and it has
been increasing over the five years, and it can be seen that the book value is not above the
market value in any of the years. Share price divided by book equity per share is calculated to
see what the market is expecting. For Norwegian, all the ratios are above 1 and it can be
concluded that the market expects ROE to exceed the owners` expected return on investment
and give value to the owners.

2.3.5: Conclusion on the balance sheet

The balance sheet tells us about a company’s assets, liabilities and equity, and is used to
analyse the liquidity situation within a company with help of key ratio analysis. Norwegian`s
balance sheet, assets and equity have all been increasing over the years. The main events
causing this increase are purchase and prepayments of new airplanes, an increase in cash and
cash equivalents, and issuing of new shares. Cash and cash equivalents that is easy accessible
cash has had a huge growth over the last years. This must be them preparing for their new
investments as such a tendency cannot be seen from either SAS`s or Cimber Sterling`s
balance sheet. Norwegian`s net working capital is positive in all years except 2008 and 2009,
indicates that they have not had problems paying their current debt, except from the last two
years.

The financial ratio analysis from the balance sheet concludes that there are signs of liquidity
problems both current and non-current. This because the quick ratio is close to, but below its
optimal level, and the current ratio is far below its optimal level. However, they should be
concerned as the decreasing ratios could indicate that Norwegian has problems creating
liquidity. The financial leverage is high but showing a decreasing tendency, which indicates
that the company is at a decreasing level relying on debt as a source of financing. Their
solvency ratio, that includes equity, is at a good level indicating that they are a financial
healthy company. However, this needs to be investigated closer in the cash flow analysis.

Norwegian are performing better compared to SAS`s and Cimber Sterling`s by looking at the
key ratios. The quick and current ratio analysis concluded that SAS would have problems
repaying their debt in the short and longer run. As their debt to equity ratio is higher than
Norwegian`s, meaning that they are depending on debt as a source of financing at a higher
degree than Norwegian. Cimber Sterling has current and quick ratios far from to its optimal

                                                                                                  24
level, and the debt to equity ratio is high and increasing, indicating that they are relying on
debt as a source of financing at an increasing level.

2.4: Cash Flow statement

The cash flow statement connects the income statement with the balance sheet and explains
how the company has used and received cash over the account period. It is important to pay
increased attention towards the cash flow statements, as it focuses on cash available for
operations and investments and will help to understand how well companies can handle new
investments or potential losses. Analysing key ratios from the cash flow statement will
continue the liquidity analysis from the balance sheet, and we will get a more accurate
overview of the situation in Norwegian (appendix 12).

The Cash flow statement is divided into three groups being cash flow from operating
activities, cash flow from investing activities and cash flow from financial activities. By
adding these activities together we will see if there has been a decrease or increase in the
company’s cash flow in the accounting period (Pennan 2001: p 35):



Norwegian                                      2009         2008         2007       2006       2005
Net cash flow from operating activities     884 404      -385 551     457 932     75 562    95 356
Net cash flow from investing activities   -1 269 894     -253 475     -532 619   -245 257   -38 368
Net cash flow from financial activities    1 188 162     686 644      306 425    139 864    -14 601
Change in cash                              800 938       52 466      229 713     -29 839   42 387
SAS
Net cash flow from operating activities       -3 414       -2 651       2 866      2 102       1 507
Net cash flow from investing activities       -2 611       -2 913        -213      7 485       1 001
Net cash flow from financial activities       4 284        2 480        -4 492     -7 438     -2 457
Change in cash                                -1 741       -3 084       -1 839     2 149          51
Cimber Sterling                           2008/2009    2007/2008    2006/2007
Net cash flow from operating activities     154 329      115 539       64 529
Net cash flow from investing activities      -94 666     -250 139      -23 142
Net cash flow from financial activities      -57 195     110 850       -41 627
Change in cash                                2 468       -23 750        -240


Table 10: Norwegian, SAS and Cimber Sterling cash flow statement 2005-2009

2.4.1: Cash flow from operating activities

Net cash flow from operating activities is cash generated from selling products and net cash
used, useful to study as it gives a better overview than earnings from the income statement. A
company that have positive earnings and positive cash flow from operating activities indicates
that they will be able to pay its debt. Looking at Norwegian`s cash flow from operating
activities it can be seen that they had positive values in all years except 2008, which means
that they were generating less cash than they used this year. In 2009 they generated MNOK
                                                                                                   25
884 404, mostly due to an increase in operating revenues and a reduction in accounts
receivable. This was a huge increase after the decrease in 2008 due to the huge loss in net
profit after tax and the changes in net working capital.

Changes in working capital needs to be looked at closer, and will be analysed with use of
2008 numbers. Working capital was also investigated in the balance sheet (p.20) as current
assets minus current liabilities. It is also included in the cash flow statement because
companies normally increase or decrease their current assets or current liabilities in the
accounting period. It can be seen that there has been an increase in inventory, accounts
receivable and payable, meaning that the company has spent more money on purchasing
assets this year. Therefore the amounts need to be subtracted from the operating profit. The
same happens with the change in assets, liabilities and air traffic settlements, but since there
has been a decrease since last year, this number is added to operating profit.

Looking at SAS cash flow statement, it can be seen that cash flow from operating activities
has been decreasing since 2007. A major part of this is due to negative net income before tax
of -2 947 billions and large restructuring costs. Net cash flow from operating activities has
also increased for Cimber Sterling, meaning that they are generating more cash than they are
using, even though they delivered a loss after tax of DKK -58 925 million.

2.4.2: Cash flow from investing activities

Net cash flow from investing activities is cash spent on purchasing new assets less cash
received from selling assets. Norwegian`s investment activities have been negative over the
past five years, but in 2008 their investment activities decreased. The reason behind this
decrease was due to a gain from a sale of a USD currency hedge contract, and not because
they were spending less on new investments. As shown in the cash flow statement both
payments of inventory and tangible goods increased this period, as the investments of the first
10 Boeing airplanes have partially been financed by Pre-Delivery-Payment7 (purchase of new
airplanes). Between 2008 - 2009 we can see a huge increase in cash flow from investing
activities that again can be explained by payment of two new airplanes from Boeing and
prepayments of the rest of the airplanes. The purchase of the new airplanes is an investment
Norwegian regards as urgent to keep up with the strong competition within the industry as the
new airplanes will help the company to decrease their cost base.


7
    Aircraft manufactures often require customers to make down payments before aircrafts are delivered.

                                                                                                          26
Looking at SAS and Cimber Sterling, their cash flow from investing activities has also been
negative through the last three years. The decrease in investing activities from 2008 to 2009
for SAS are explained by prepayments and purchase of new airplanes and that the company at
the same time received payment for the sale of Air Baltic and sold and leased backs some of
their airplanes. Cimber Sterling has had a decrease in investing activities from last year
despite their purchase of Sterling AS.

2.4.3: Cash flow from financial activities

Net cash flow from financial activities is cash transactions that are claimants from equity and
debt. For Norwegian it can be seen that financing activities in all years are positive and that
there has been an increase over the five years. Their debt has also been increasing over the
years and since there has been almost no repayment of debt the financial activities consists of
issuing new shares and proceeds from long term debt. Especially the increase between 2009
and 2008 can be explained by issuing of new shares which caused their equity ratio to
increase. It also shows that in 2009 they issued MNOK 400 unsecured bonds with a maturity
date in 2012. In this connection they bought back MNOK 137 in bond issue with maturity
date 2010.

Compared to their competitors, SAS`s cash flow from financial activities has increased in
2009. This is explained by a decline in net borrowings which was financed by issuing new
shares. Cimber Sterling has negative values in financial activities in 2008/2009 due to
repayment of debt. In 2007/2008 they took a loan and at the same time paid MDKK 45 080 in
dividends which therefore explains the positive financial activities for this year.

2.4.4: Change in cash

The change in cash and cash equivalents are the operating, investing and financing activities
added together, but we also need to take the foreign exchange effect on cash in consideration.
The change in foreign exchange rate needs to be considered as Norwegian is an international
company where most of their cash comes from American dollars (USD) and Euro (EUR).
Change in cash will indicate the health for a company and the more cash available, the better.
For Norwegian the net change in cash and cash equivalents is positive and has been increasing
over the last three years, indicating that the company is doing well and is generating enough
cash for future investments and growth.



                                                                                                  27
The large increase in operating and financial activities in 2009 is the main reason why
Norwegian is having this much cash available that can be used in e.g. new investments. This
can be a sign of Norwegian being a stable and solvent company, but further investigations are
needed with help from the cash flow ratios, because if it wasn’t for the share issue, the change
in cash might not have given us this situation.

2.4.5: Cash flow ratios

Cash flow ratios measure a company’s ability to meet financial and operational commitments
and also consider the risk involved. The financial analysis of key ratios from the cash flow
statement will be used to continue the liquidity analysis from the balance sheet as it gives a
more accurate picture of Norwegian`s liquidity situation than the current and quick ratios. The
cash flow can also help managers to better understand problem areas within the company and
plan to be more efficient (The power of Cash Flow ratios: 1998).

Operating cash flow                         0,4      -0,2           0,4          0,1            0,2
Cash current debt coverage                  0,4      -0,2           0,4          0,1            0,2
Cash interest coverage                               40,1          -5,5         -5,7         -146,2
Total debt                                 0,26     -0,17          0,25         0,09           0,18


Table 11: Cash Flow ratios for Norwegian

Operating cash flow measures a company’s ability to generate cash to pay short term debt
(within a year). A company should have a ratio above 1, because then a company is
generating enough cash to pay its current commitments, and at the same time they have
margin in case of further growth in operating cash flow etc. If the ratio is below its optimal
level, a company most likely needs external help to pay its current liabilities, and the threat of
bankruptcy increases. This is the case of Norwegian which in all years has had ratios close to
zero, and in 2008 negative. This indicates that Norwegian has had problems financing their
short term debt during this period, and that the company therefore has been and still are
depending on external help in order to pay their short term debt. Cash current debt coverage
measures the same as operating cash flow but takes dividend into consideration. Since
Norwegian will not pay out dividends unless their equity ratio is more stable, cash current
debt coverage equals operating cash flow.

Funds flow coverage measures if a company can pay “unavoidable” costs as interest rates and
taxes. The purpose of this analysis is see how pressured the company is and if they can bear
new investments and further growth. Funds flow coverage is not calculated for Norwegian as


                                                                                                 28
they repayment of debt is not to be seen in the overview of financial activities since 2004.
However, it will be calculated for both SAS and Cimber Sterling.

Cash interest coverage measures if a company is able to pay interests on its debt. This ratio is
very actual, especially in these days as some companies are borrowing more than they can
afford. As it can be seen Norwegian has had negative ratios in previous years except 2008
where the ratio are positive and above an optimal level of 1, and that year the company would
not have had problems paying interests on their debt this year.

Total debt measures the company’s ability to cover future debt obligations, and it indicates
how long it will take to repay debt, assuming that all cash flow from operating activities goes
to repay debt. A low ratio indicates that a company may have problems to repay debt in the
future, which can be seen as Norwegian`s ratios are zero in most of the year, and negative in
2008. This confirms findings from the balance sheet indicating that the company will have
problems repaying debt in the future.

                                             2009            2008     2007    2006      2005
Operating cash flow (OCF)                    -0,19           -0,16     0,14    0,12      0,07
Cash current debt coverage (CDC)             -0,19           -0,16     0,14    0,12      0,07
Funds flow coverage (FFC)                    -0,34            0,17     0,50    0,32     -5,35
Cash interest coverage(CIC)                   5,05            3,81    -1,49   -0,39      0,13
Total debt                                   -0,11           -0,08     0,09    0,06      0,03

Table 12: Cash Flow ratios for SAS

Financial key ratios from the cash flow statement are also calculated for SAS and Cimber
Sterling to see how Norwegian is performing compared to their competitors. SAS`s operating
cash flow and the cash current debt coverage are the same as SAS do not pay out dividends.
The ratios are negative and close to zero in all five years meaning that SAS have problems
generating cash to pay the short term debt themselves. Funds flow coverage is positive during
the period except for 2009, meaning that this year SAS was not able to pay their unavoidable
costs as taxes. Cash interest coverage is constantly growing and is at a level of 5.05 in 2009,
indicating that SAS is able to pay interest on their debt. Their ability to pay tax and dividends
is not favourable, however, they are able to pay interest on their debt.

Operating cash flow (OCF)                             0,33            0,30     0,22
Cash current debt coverage (CDC)                      0,33            0,19     0,22
Funds flow coverage (FFC)                             1,84           -0,64     2,56
Cash interest coverage(CIC)                          -4,26           -2,88    -2,40
Total debt                                            0,17            0,14     0,10

Table 13: Cash Flow ratios for Cimber Sterling




                                                                                                29
The overview of Cimber Sterling shows that their operating cash flow and cash current debt
coverage are both below the optimal level of 1. In 2007/2008 the company decided to pay out
DKK 45 080 million in dividends, which is why cash current debt coverage is decreasing this
year. This ratio indicates that the company itself will have problems generating cash to pay
their short term debt. The funds flow coverage is good in 2006/2007 and 2008/2009,
indicating that the company can pay costs as taxes and dividends. They are not able to pay
interest on their debt seen from cash interest coverage that is negative in all years.

2.4.6: Conclusion on the Cash Flow statement

The cash flow statement is an overview of what the company has used and received in cash
during the years. From Norwegian`s cash flow statement, it can be seen that the company has
had positive values in investing activities in all years except 2008, when they spent more cash
than they generated. This can also be seen from investing activities that have negative values
in each year, meaning that Norwegian spent more cash on purchase of assets than they
received from assets sold. The cash flow statement is therefore strongly affected by
prepayments and purchase of new airplanes which were in Norwegians focus especially in
2008 and 2009. In the problem statement it is stated that the company’s liquid situation in
relation to their issuing of shares need to be investigated. The financial activities show that
issuing new shares is the main activity which causes the company to end up with positive
values in financial activities over the last four years. A positive increase in change in cash
indicates that they are generating enough cash for future investments and growth.

The analysis of liquidity ratios from the balance sheet has been continued to measure
Norwegians ability to generate cash to pay back short term debt and to pay interest. Based on
the balance sheet, we concluded that Norwegian have liquidity problems paying their short
term and future debt. In the cash flow analysis, operating cash flow concluded that Norwegian
has had and will continue on have problems generating enough cash to pay their short term
debt, which is not good as the company then rely on external help and the risk of bankruptcy
increases. However, it needs to be remembered that this ratio does not take the issuing of
share in account. Total debt ratio indicates that they will have problems in the future repaying
their debt, but the cash interest coverage concludes that Norwegian has been able to pay
interest on its debt over the last two years with good margin.

However, looking at Norwegian`s performance compared to SAS and Cimber Sterling, it does
not look bad as their ratios are better than the competitors. Their competitors have liquidity

                                                                                                  30
problems evidenced by the same ratio calculations. Both companies’ ratios are fluctuating a
lot. Overall, SAS will have problems generating cash to pay both current and non-current debt
and to pay unavoidable costs, but they should be able to pay interest on their debt. Cimber
Sterling on the other hand, is able to generate cash to repay short term debt and pay
unavoidable costs, but not able to pay interest rates on their debt.

2.5: Conclusion on the financial statement analysis

Despite the economic recession and the fact that 2009 has been the hardest year for the airline
industry since the Second World War, Norwegian delivered their best result historically. Their
revenues had a growth of 17.4% between 2008 to 2009 (appendix 16), which is good
compared to the overall market which saw a passenger decrease of 3%, and their biggest
competitors SAS and Cimber Sterling ended 2009 with a loss after tax. The growth in profit
after tax for Norwegian over the years is due to larger market shares both domestically, in
Europe, and with the decrease of unit costs. It is important for a low cost airline company like
Norwegian to have as low unit costs as possible, which enables them to offer low ticket prices
and still generate a profit. Therefore they are constantly finding new ways to decrease their
unit costs even more, and over the last years they have purchased new airplanes that will
increase their capacity and decrease fuel consumption and again decrease unit costs further.
The research question has been to look at Norwegian`s liquidity situation in connection to the
issuing of shares. This will be investigated in the key ratio analysis.

The prepayments and purchase of new airplanes has affected all the financial statements over
the last two years. From the balance sheet it can be seen that both assets and liabilities have
increased after prepayments, purchase and arrival of new airplanes, and equity increasing
after issuing shares. The cash flow statement reflects the same development as operating
activities are positive, meaning that Norwegian generated more cash than expenses mostly
due to an increased profit in 2009. Invested activities had a huge increase from 2008 to 2009,
which means they purchased more assets than they sold, also relating to the new airplanes.
However, financing activities has had increasing and positive values over the last years,
affected by the issuing of new shares.

Analysing key financial ratios are important to get a more reliable look at Norwegian`s actual
situation. The DuPont method is used to measure profitability ratios to see how efficient they
are. Both ROIC and asset turnover shows that the company is not that efficient when it comes
to using its assets to generate revenue, but ROIC is increasing which is a good development

                                                                                                  31
and therefore needs to be taken into consideration. ROE shows that the shareholder can expect
a high return in 2009. However, this number is fluctuating a lot from negative to higher
values, so the risk involved needs to be consider as Norwegian are in a strongly competitive
environment. Profit margin is increasing and at a high level meaning that a high degree of the
revenue creates profit and that there still are some cash is left to cover tax and interest rates.

The liquidity analysis was the focus of this report as we wanted to investigate if the reason to
why Norwegian is issuing shares is because of bad economic performance. It measures
Norwegian`s ability to generate cash to pay back short term debt, pay interest, tax and
dividends. Both the balance sheet and the cash flow statement indicate that Norwegian will
have problems financing their current and non-current debt, but it will be harder in the long
run as shown by total debt ratio. Their solvency ratio is good, indicating that Norwegian is
financially healthy, but we need to be aware of that in this calculation money received from
share issue are included. Their ability to pay unavoidable costs like taxes and interest rates is
good in 2008 after years with negative ratios, and the financial leverage shows that
Norwegian is at a decreasing level relying on debt as a source of financing.

3: Strategic Analysis
A strategic analysis looks at what is happening both externally and internally within an
organization today and in the future. When evaluating a company it is not only important to
look at the economic performance, but also the strategy they are following in order to see if it
has been successful (Schack 2002: p 203). The methods used in this thesis will only analyse
the external part as there has been no personal contact with Norwegian. However, in the
conclusion (SWOT analysis) some internal strengths and weaknesses found in annual reports
will be reviewed to get a better overview of Norwegian`s situation. The purpose of this
analysis is to cover the external non-financial value drivers that will have importance for the
future value creation of Norwegian (Sørensen 2009: p 18).

3.1: PESTEL analysis

When evaluating the environment, it is always useful to start with a PESTEL analysis, that
can be seen as a checklist of the political, economical, socio-cultural, technological,
environmental and legal aspects of past events. The method is used to measure the external
environment in the air travel industry, where the main propose is to identify external factors
that influence the industry. Because by understanding the environment, you can take
advantage of the opportunities and minimize the threats (Lynch 2006: p. 84). All six aspects
                                                                                                     32
are included in the thesis because they all reflect important and relevant information, but the
main focus will be on the economic and legal aspects.

3.1.1: Political aspects

As many airline companies are state owned, they are able to be financially protected by their
local government. The Norwegian, Swedish and Danish government has protected SAS over
the last years as they are their major investors. SAS have had economic problems, and in 2009
they were given 6 billion SEK in new capital by their investors. However, this did not help as
SAS again has asked for 5 billion SEK new capital in order to survive. This will be given in
return of a promise of a stronger financial position by next year, and a cost savings program
(page 14).

3.1.2: Economic aspects

Economic aspects also play an important role, as the ongoing recession has affected the airline
industry hard causing 2009 to be the worst year since the Second World War, since there is a
correlation between demand for air travel and economic growth. As mentioned earlier, it is all
about having as low unit costs as possible to be able to be a part of this highly competitive
industry. Therefore external factors as such as oil price and the exchange rate in both dollars
and Euros will be of importance for the companies and will be further investigated.

The oil price is an important external factor that affects an airline company’s unit costs, as
fuel normally is one of the largest costs. In the overview of the oil price (Appendix 4) it can
be seen that from 2005 it was more or less stable until the beginning of 2007, when increasing
prices reached their peak in mid 2008. The huge increase in oil prices can be caused by many
factors, some of them being change in demand for oil, decrease in production and geopolitical
reasons such as the Iraq war. This price increase was not good for the airline companies that
had chosen not hedge, and explains why many airline companies reported a loss after tax this
year.

The exchange rates of the national currency, dollar (USD) and Euro (EUR) are also important
factors to consider, as main costs to e.g. suppliers are being traded in American dollars or in
Euro. Norwegian is dependent on the exchange rate USD/NOK (Appendix 5) because of the
payments on the new Boeing airplanes. It can be seen that it has fluctuated over the last years
reaching its peak in end 2008 where 1 dollar = 7.2 NOK. Since the beginning of 2009 it has


                                                                                                  33
decreased, ending in 2009 at 1 dollar = 5.8 NOK. A more stable and weaker exchange rate
will benefit Norwegian as they still have to pay for their airplanes in dollars until 2014.

Norwegian does hedge both fuel and currency in order to increase predictability in their
budgets. Norwegian sais that the gains from hedging are small in periods where there are
increasing prices, but the losses of hedging is smaller in periods where prices decreases.

3.1.3: Socio-cultural factors

Consumer behaviour has changed over the last years towards people flying more and
demanding more services. The business idea for many of the traditional airline companies is
to increase people’s mobility by making it easier for their customers to travel by offering
faster check-in, ticketless travels and bonus cards. Low cost airline companies, on the other
hand, want to increase people’s mobility by offering low ticket prices, which is a major reason
why there has been an increase in passengers since the beginning of the decade.

3.1.4: Technological factors

Technological factors affect the airline industry in several ways. Due to new laws and
regulations made by EU and national governments it is important that the technology can
adapt to these situations. Boeing and Airbus as the main suppliers of airplanes have to makes
sure to be up to date, and as Boeing states on their web page; “Technology is advancing faster
than expected”8. Boeing which is a major supplier to the airline industry has developed more
environmentally friendly airplanes (Boeing 737-800). This aircraft has lower noise and
pollution level, that will help Norwegian, that are changing its fleet to only containing these
planes to lower unit costs.

3.1.5: Environmental aspects

The increasing attention towards climate has a direct affect towards the airline industry. There
are several regulations that have been created to protect the environment, and people are
encouraged to buy climate quotes when travelling. As mentioned above several airports in
Europe have different landing fees depending on the noise and emission level of each
airplane. As the industry is all about having as low unit costs as possible it is important to pay
attention the environment.



8
    http://www.boeing.com/commercial/environment/index.html

                                                                                                  34
3.1.6: Legal aspects

Legal aspects are especially important as new laws and regulations made by national
governments and the EU will automatically affect the industry. An EU regulation that has had
a huge negative influence on the traditional airline companies is the airline liberalisation
process that was finalised in April 1997. Until this point traditional airline companies that
often are state owned (e.g. SAS owned by the Norwegian, Swedish and Danish states) were
protected by their national governments. After the deregulation, member states were no longer
allowed to protect its national airline, meaning that an airline company from one member state
was now allowed to operate in another member state. This lead to increased competition and
opened up the market giving each airline company the possibility to negotiate their own route
network and set fares. This was the beginning of the low cost airlines existence, which can be
seen from an overview of the market share (Figure 1, 2).where low costs airlines are giving
hard competition to the traditional companies such as SAS.9

Different laws such as the competition law and the employment and safety law are all
important for the airline companies within this industry, because of the high degree of
competition. Especially after the terrorist attacks of September 11, 2001 there has been
increased attention on security leading to higher costs for the airline companies, but this is not
necessarily considered as a bad thing as safety often is an important factor that customers’
value highly.

There have been situations where companies have broken some regulations in order to get a
competitive advantage. At the end of March 2010 SAS was sentenced to pay MNOK 160 to
Norwegian in compensation after they misused information SAS received in 2008 through a
common booking system (Amadeus), and for using secret information about Norwegian
received in an e-mail. The accusations against SAS were that they stole customers that were
supposed to fly with Norwegian using Norwegian`s ticket price information, by lowering their
prices on these routes Norwegian planned to have campaign on10.

Another recent event is the conflict between Norwegian and Cimber Sterling, which occurred
after Norwegian established their new base in Copenhagen and started to compete
domestically within Denmark. Tickets for DKK 1 were sold at the opening of the new route


9
 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/96/950&format=HTML&aged=0&language=EN
&guiLanguage=en
10
   Becker, Cecilie Langum: http://www.dn.no/forsiden/borsMarked/article1860776.ece

                                                                                                35
between Copenhagen and Karup, but the fully booked airplane, departed almost empty.
Subsequently Norwegian discovered that employees at Cimber Sterling had bought tickets
using fake names such as Donald Duck and Queen of Denmark. The employees` name
became public in Danish newspapers, and they filed a complaint about Norwegian to the Data
Inspectorate where they claimed that Norwegian had used their names illegal referring to
Norwegian`s use of personal data. The complaint was rejected at the end of March and this
case is therefore considered settled11.

3.1.7: Summary of the PESTEL analysis

In the PEST analysis several external factors influencing Norwegian are identified
representing opportunities and threats. The increased competition in the airline industry is a
consequence of a liberalisation process in the EU. Member states are no longer allowed to
protect their own airline companies, and it is now up to each company to decide route
networks and prices. This increased the competition and gave low cost companies an
opportunity to compete with the traditional airline companies with lower ticket prices and unit
costs.

To compete in the airline industry it is important to have low unit costs. Oil prices are one of
an airline company’s largest costs affects unit costs, and the peak in oil price in 2008 hurt the
airline companies that hadn’t hedged the price. Exchange rates in dollars and Euros are also
seen as a threat to airline companies as suppliers often trade in dollars or Euro. Norwegian
which is investing in new airplanes to be paid in dollars would benefit by a more stable
exchange rate.

There has been an increased focus on environmental issues in recent years which has forced
the implementation of new airplane technology for noise reduction and lower fuel emission.
Companies investing in these new airplanes will benefit as they gives lower unit costs (lower
fuel emission and landing fees) and they can win new customers that are concerned about the
environment.

3.2 Porters 5 forces

Porters 5 forces is a framework that helps organisations investigate its strategy in order to
develop opportunities and protect themselves from competition and other threats in the
environment. It is included in this thesis to investigate the attractiveness of the airline industry

11
     Kaspersen, Line: http://www.dn.no/forsiden/naringsliv/article1861369.ece

                                                                                                 36
(Lynch 2006: p 94). According to the founder Michael Porter, managers are defining their
competitors as the already established industry rivals, but it will also be important to include
four other factors such as suppliers, customers, potential entrants and potential substitutes as
a manager will be better prepared when the interaction within an industry are known (Porter
2008: p 2).

3.2.1: The threat of potential new entrants

A market is attractive for new entrants if the profit margins are high and the barriers to enter
are low. The airline industry is an unattractive market to enter for new companies as it will
include a huge risk. The entry barriers are high due the large capital requirements need to
invest in either leased or purchased airplanes, and the companies within the industry are
already well established, which makes it unattractive. Profit margins are not the highest due to
large competition forcing prices down. Norwegian is ending with a profit after taxes, but their
competitors SAS and Cimber Sterling are both ending with a loss after taxes. By looking at
rate of return (ROE) analysed in the financial statement analysis, it can be concluded that
even though the value is fluctuating a lot, an investment in Norwegian would in many of the
years have given a high return. But it is also important to consider the huge risk involved
compared to other investment possibilities.

It can therefore be concluded that the airline industry is not an attractive market to enter for a
new airline company. However, existing airline companies can expand to offer more
segments, to increase market share as Norwegian is considering. They want to go from a
company offering low price tickets for short destinations to also offering their products in
America and Asia12.

3.2.2: The bargaining power of suppliers

The main suppliers of airplanes, personnel, repairs and equipment to the airline industry are
Boeing and Airbus and the competition between them is fierce. Boeing and Airbus are not
strong suppliers, meaning that they have low bargaining power because their performance is
depending on the overall industry performance. This is because they have the airline industry
as their main focus.

Because of the fierce competition between the suppliers they are pressured to invent new
technology that will fit into the future. In recent years there has been an increased focus on the
12
     Dagens Næringsliv: http://www.dn.no/forsiden/naringsliv/article1756103.ece

                                                                                                 37
environment, and Boeing invented new technology helping to decrease noise and emission
levels.

The employees working for the different airline companies can be said to have a high degree
of bargaining power. During the recession, many airline companies have needed to fire
employees or give a decrease in wages which has not been popular with the different interest
organisations and strikes has been the solution. SAS is a company that has had many
problems with strikes due to unpleased cabin crew.13

3.2.3: The bargaining power of buyers

The bargaining power of buyers is concluded to be at a medium level as the airline companies
are offering more or less the same product on air travel to European destinations, just with
different benefits. Factors that determine what airline company the customers choose is price,
brand reputation and extra services such as newspaper, coffee/tea, bonus cards, ticketless
travel and fast check-in. Frequent flying and flexibility is also important factors for especially
business travellers.

Prices can be considered to be the most important factor, and describes why Norwegian as a
low cost airline company has increased their market share as much as they have over the last
years. If a customer instead chooses to fly with a traditional airline company such as SAS they
will get fast check-in, ticketless travel, more frequent flying, newspapers, coffee/tea and
bonus points on the travel. This separates them from Norwegian where the only bonus you get
is a ticketless travel and low ticket price. Brand reputation is also an important factor to be
consider as customers values numbers of cancelations and delays.

3.2.4: The threat of substitutes

A substitute performs the same or similar function as the airline industry, and normally does
not replace existing products, but it can limit the potential profit in the industry. The airline
industry has several substitutes, especially people that are concerned about environment and
pollution and will choose more environmentally friendly transportation methods such as
trains. However, this will depend on the travel distance.

On short distances there is a high threat of substitutes due to car, bus, train and sailing. The
potential profit for the airline industry will suffer on short distances, and it will be important

13
     Kaspersen, Line: http://www.dn.no/forsiden/naringsliv/article1100206.ece

                                                                                                    38
to distance itself from the substitute product. This can be done by focusing on the benefits of
flying short distances as time, money and personal preferences that will be a clear advantage
for business travellers. On longer distances the threat will be at a lower level as the price on
long distances normally are lower compared to its substitutes and travellers will save time.
There are also several distances to e.g. America and Asia that will be hard to travel if it wasn’t
for the airplanes.

3.2.5: The extent of competitive rivalry

There is a high level of rivalry within the airline industry as the existing companies are
constantly trying to gain market share with different strategies, and there is high exit barriers.
A reason why the European market has as a high level of competition is because the
companies are more or less offering routes to the same geographical area.

There are different strategies the airline companies use to increase their market share.
Norwegian is following the cost leadership strategy and has a competitive advantage if we
look at the market share development. They have increased their market share in both the
domestic and the European markets. The low cost strategy they are following has been
successful for Norwegian because their low unit costs help the company generate profit even
though their ticket prices are low. If we compare their development to the more traditional
airline companies such as SAS, we see they have had the opposite development with a
decreasing market share in Norway and Europe. If they were to try to compete on the price
they would not generate the same profit as a low cost company, due to the different unit costs.
This is why budget airlines are a major competitive threat for the traditional airline
companies.

Ryanair, SAS and Cimber Sterling are all companies that can be seen as potential threats to
Norwegian. Ryanair and Cimber Sterling are both offering low tickets prices to destinations
all over Europe, but Norwegian see Cimber Sterling as a bigger threat than Ryanair, because
Ryanair often flies to remote airports which explains why their unit costs and ticket prices are
lower than Norwegian`s. SAS is seen as the major competitor within the Scandinavian
market.

3.2.6: Summary of Porters 5 forces analysis

Understanding the competition within the airline industry will help companies discover
opportunities and to decide if the industry is attractive to enter. It is clear that the airline

                                                                                                   39
industry is a though market to enter with high entry barriers due to strong competition and the
large investment needed. Even though there are high returns (ROE) in some years, there is
also high risk involved. Therefore the threat of new airline companies entering this market is
not considerable, especially not now in a difficult economical climate where most of the
airline companies are experiencing economical problems.

The bargaining power of suppliers is not high as Boeing and Airbus are the main suppliers of
airplanes in the market and there is fierce competition between them. The threat of buyers is
also considered to be at a medium level as most of the companies are offering the same
service by transporting you to final destinations. Which company the customer chooses
depend what the customer values as price, brand reputation and on extra benefits such as fast
check-in etc. Threat of substitutes is considered to be at a low level for long destinations, but
higher for short distance destinations where substitutes are bus, train, car and sailing.
Substitutes are not seen as a major threat because alternative transportation methods are
usually more time consuming and expensive.

3.3: Conclusion on the strategic analysis – SWOT analysis

The SWOT analysis will be used to sum up information from the strategic analysis,
summarizing the strengths and weaknesses internally within the organisation, and
opportunities and threats externally (Lynch 2006: p 446).

3.3.1: Strengths

Norwegian`s major strength is their successful low cost strategy, being a major reason to the
increased market share over the years. Passenger numbers will continue to grow as people
per-sue air travelling as a safe and fast way to travel. Norwegian`s traffic figures for January
2010 reports about a 28% increase in passengers compared to same period last year.
Norwegian`s brand name can also be seen as a strength, as the company has a good regularity
record for its scheduled flights at 98.93% in 2008 despite strikes. They were also recognized
as the market leader in 2009 for being able to stay in business through challenging times and
for adapting the low cost strategy to the Scandinavian market.

Norwegian`s low unit costs enables them to follow the low cost strategy, unlike more
traditional airline companies such as SAS, and they will therefore have a clear competitive
advantage. As unit costs are depending on the fuel price, landing fees and staff costs, the new



                                                                                                40
and more environmentally friendly airplanes Boeing 737-800 will help Norwegian decrease
their unit costs further, as the new planes increase capacity and decrease emission levels.

Norwegian has also invented a low price calendar on their webpage, registered as protected
design. They do not have a patent on the technical aspects, only the graphic symbols and the
web interface, but this will give the company a competitive edge as it makes it easier for
customer to search for low price tickets.

3.3.2: Weaknesses

A huge weakness for Norwegian is that they are not a market leader on punctuality. Even
though they have a high regularity rate, it has been decreasing over the years. SAS surveyed
their Eurobonus members via a research questionnaire, about the most annoying thing that
could happened when travelling by air. The outcome was clearly showed that delays were
most annoying for travellers. SAS was the most punctual airline company in 2009, and
Norwegian might lose potential customers that values punctuality high to SAS14. However,
this could be biased as it was investigated by SAS and shows that their customers were clearly
pleased with the service they get with SAS as they don’t have to pay for luggage and getting
bonus points and free seat selection was something they were pleased with15. Another
weakness is that Norwegian is not part of an alliance, as Star Alliance and they can therefore
loose potential customers.

3.3.3: Opportunities

We are looking at the airline companies’ opportunities from an external point of view. Even
though the airline industry has been hit by the recession and a decrease in passengers
travelling in 2009, the industry is again optimistic.

Companies that invest in new and more environmentally friendly airplanes (e.g. Boeing 737-
800) will benefit from this upswing as it will create lower unit costs due to lower fuel
emissions and landing fees. New planes will increase capacity, and it will be possible to
attract new customers who care for the environment. Reputation is a very important factor in
this industry, and there is a good possibility to improve reputation by improving punctuality
seen as an important factor when people choose an airline company.

14
   SAS:
http://www.sasgroup.net/SASGroup_General/popupContainer.asp?File=Most%20punctual%20airline%202009.
htm
15
   Dagens Næringsliv: http://www.dn.no/borspause/article1716252.ece

                                                                                                41
3.3.4: Threats

There are several challenges for the airline companies, and during the last years of economic
recession, higher oil prices and fluctuating exchange rates have been a problem. The oil price
increase are important as fuel is a major expense for the airline companies, and the same for
unstable dollar and Euro exchange rates, as suppliers often trade in these currencies. As stated
in the financial analysis it is all about having the lowest unit costs possible in order to offer
customers lower tickets price and still generate a profit. New regulations are also seen as a
threat, especially for the traditional airlines, just like in 1997 when the liberalisation process
started and the result was an increase in competition. The environmental issues are also
important for the airline industry and different actions are being established such as purchase
of climate quotes and landing fees depending on noise and emission levels. As a result the
main suppliers of airplanes Boeing and Airbus are constantly competing to offer the newest
technology.

Other threats are the fierce competition in the industry, because the many companies offering
travels to the same destinations. The only different is the level of service. Therefore not being
a member of an alliance can be detrimental. An alliance is working together to create different
route networks to make it possible to collect bonus points on travels, which is a benefit for
customers and simplifies travel. There is also the risk of terror attacks and accidents involving
airplanes, particularly after the terror attacks September 11, 2001 when numbers of
passengers decreased dramatically.

The threat of new entrants and more competition than already existing is considered low
because of the high barriers to enter the market considering the capital required and the high
risk involved. After the deregulation in 1997, the European airline market could see a switch
where the numbers of airline companies started to increase and the competition intensified.
Today the market is filled with companies offering all segments from low ticket price to the
more exclusive. The same is the threat of substitutes as customers on long distances will save
time and money travelling by air than car, train and sailing.




                                                                                                     42
4: Conclusion on the Strategic and Financial Analysis of Norwegian
The purpose of this thesis is to study the economic performance of Norwegian. A financial
analysis was first created where the income statement, balance sheet and the cash flow
statement were looked at, thereafter key ratios were calculated to get a more precise overview
of Norwegian`s financial position. In the second part, a strategic analysis was conducted to
see which external factors that are affecting Norwegian.

Norwegian decided in November 2009 to issue 1 620 000 new shares, which gave
approximately NOK 250 million kroner in new capital. At the same time their biggest
investor, HBK Holding that has Norwegian`s CEO as the majority holder, decided to sell
some of their shares. This raised questions about Norwegian having financial problems.
However, Norwegian stated that this was done to strengthen their equity and to prepare the
company for further growth, and as Norwegian now was an international company they
wanted to attract new and international investors.

The overall airline industry has had challenging years because of the recession, but
Norwegian regard 2009 as the best year in their history with increase in revenues, growth in
passenger number and increased profit after taxes. Their low cost strategy turned out to be
successful, as their market share has continued its growth stealing market share from other
traditional companies as SAS. Their assets and liabilities have also increased as they are
investing and making prepayment for their new fleet. This is also reflected in their cash flow
statement that shows an increase in both operational and investing activities, which is caused
by an increased operating profit and purchase and prepayment of the aircrafts. Both
Norwegians equity and financial activities have increased over the last year mostly due to the
share issue.

The profitability analysis is measuring if Norwegian is earning enough cash to generate a
profit, and the liquidity analysis measures the ability to generate cash to pay back short term
debt, pay interest, tax and dividends. Profit margin shows that a small part of Norwegian`s
revenue creates profit and that there still are some left to cover tax and interest rates. ROE
shows the shareholders expected profit. In 2009 it is 25.7%, which is high compared to
previous years and alternative investments e.g. the bank. As the numbers are fluctuating a lot,
there is important to consider the huge risk that follows this industry. ROIC and assets
turnover measure how efficient Norwegian are utilizing its assets. Due to fluctuating numbers
it can be concluded that Norwegian could be more operational efficient.

                                                                                                  43
From the liquidity ratios it can be concluded that Norwegian will have problems paying their
current and non current debt. This is on the background of the quick and current ratio analysis
and the operating cash flow and total debt ratio and the decreasing tendency which can
indicate that they have problems creating liquidity. They are therefore dependent on external
help to pay their debt as can be a reason to why Norwegian has had current issue of shares. If
this share issue are included, as to be seen from solvency ratio, it concludes that Norwegian is
a financial healthy company that will have no problems financing their non-current
obligations. This, because of the increase in equity. Their financial leverage ratio says that
Norwegian is at a decreasing level depending on debt as a source of financing. It is seen that
in 2008 had no problems paying interest rates on their debt. On the basis on the ratios it can
be said that that if it wasn’t for the issue of shares and the new capital gain as a result of this,
Norwegian would have been in bigger liquidity problems.

The liberalisation process which is said to be the start of the low cost companies` existence
increased the competition between the European airline companies, as company were allowed
to choose route network and prices themselves. Because of the fierce competition it is hard to
survive. Therefore maintaining as low unit cost as possible is important for Norwegian as they
then can lower ticket prices and still generate profit. Costs that affect unit costs are hard to
control as they depend on external factors such as oil price and landing fees, and internal
factors such as service fees and flight distance. Especially increase in oil prices is not
favourable, as fuel is one of the main costs. The same with fluctuations in exchange rates in
both dollars and Euros as many suppliers are trading in these currencies. The investment in
the new and more environmentally friendly airplanes is seen as an opportunity for Norwegian
as capacity increases and both noise and pollution levels decreases.

Norwegian was benchmarked against two of their largest competitor being SAS and Cimber
Sterling. This was done to analyse where Norwegian stands compared to the overall market.
Even though many of Norwegian`s financial ratios is not that good, they are good compared
to SAS and Cimber Sterling, as they are better in utilizing its assets and give a higher
expected profit for its shareholders. Therefore it can be concluded that Norwegian is a better
investment option compared to SAS and Cimber Sterling. But it is important to mention that
an investment is always dependent on each investor and their risk tolerance.




                                                                                                   44
5: Bibliography


Books:

Den Danske Finansanalytikerforening. (1997). Anbefalinger & Nøgletal . København .

Lynch, R. (2006). Corporate Strategy. England: Prentice Hall.

Pennman, S. (2001). Financial Statement Analysis and Security Valuation. Singapore: McGraw-Hill .

Schack, B. (2002). Regnskabsanalyse og virksomhedsbedømmelse. Jurist og økonomiforbundets
forlag.

Sørensen, O. (2009). Regnskabsanalyse og værdiansættelse - en praktisk tilgang. Gjellerup.

Internet:

Picture Airplane: Retrieved from http://www.mansd.org/mcdonough/images/airplane.jpg

Andersen, T. Ø., & Brander, A. S. (2009, November 5). Kjos selger i Norwegian. Retrieved from E24:
http://e24.no/boers-og-finans/article3359145.ece

Becker, C. L. (2010, March 16). Giganterstatning til Kjos. Retrieved from Dagens Næringsliv:
http://www.dn.no/forsiden/borsMarked/article1860776.ece

Boeing: Retrieved from http://www.boeing.com/commercial/environment/index.html

Dagens Næringsliv. (2009, August 4). Dette hater vi mest på flyreise. Retrieved from
http://www.dn.no/borspause/article1716252.ece

Dagens Næringsliv. (2009, October 7). Norwegian vil også fly langt og billig. Retrieved from
http://www.dn.no/forsiden/naringsliv/article1756103.ece

Dagens Næringsliv: Market data United States Dollar (b) vs Norwegian Krone Spot (USD/NOK).
Retrieved from
http://www.dn.no/finans/portal/graph?newt__source=feed.currencies.dn_rt_currencies&newt__item=
X%3ASEURUSD

Dagens Næringsliv: Markets data Norwegian Air Shuttle. Retrieved from
http://www.dn.no/finans/portal/graph?newt__source=feed.ose.ALL_SHARES&newt__item=NAS

Denstadli, J. M. (2009). Norwegian Air Travel Survey 2009. Retrieved from
http://www.avinor.no/avinor/trafikk/20_Reisevaner

Donagis, R. (2002). Flying off course: the economics of international airlines. Retrieved from
http://books.google.com/books?id=eR5unZWjOEUC&pg=PA102&lpg=PA102&dq=affects+unit+cost
s+airline&source=bl&ots=tDcuw8KtBG&sig=w7lgIJny1Sia8gSniS6bmpDSHRQ&hl=no&ei=leG5S6
WTCNagONHB1aEL&sa=X&oi=book_result&ct=result&resnum=9&ved=0CDMQ6AEwCA#v=one
page&q=affect




                                                                                                45
EU. (2006). Europe`s free market in air travel. Retrieved from
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/96/950&format=HTML&aged=0&langua
ge=EN&guiLanguage=en

Financial Times: Market data ICE BRENT CRUDE Future Front Month C. Retrieved from
http://markets.ft.com/tearsheets/performance.asp?s=1054972&ss=WSODIssue

International Air Transport Association. (2010, January 27). 2009: Worst Demand Decline in History -
Encouraging Year-end Improvements. Retrieved from http://iata.org/pressroom/pr/2010-01-27-01.htm

Kaspersen, L. (2010, February 11). Derfor lykkes Norwegian - mens SAS sliter. Retrieved from
Dagens Næringsliv: http://www.dn.no/forsiden/naringsliv/article1836896.ece

Kaspersen, L. (2010, March 17). Renvasker Norwegian. Retrieved from
http://www.dn.no/forsiden/naringsliv/article1861369.ece

Kaspersen, L. (2007, May 24). SAS-streik i morgen. Retrieved from
http://www.dn.no/forsiden/naringsliv/article1100206.ece

Mills, J., & Yamamura, J. (1998, October). The Power of Cash Flow Ratios. Retrieved from
http://www.journalofaccountancy.com/Issues/1998/Oct/mills.htm

Møller, C. (1991). Finans/Invest. Retrieved from Nøgletal for finansielt beredskab:
http://www.finansinvest.dk.www.baser.dk/Uploads/91_nr_6_Nøgletal_for_finansiel%20-
%20PpjFUHaBJk.pdf

Norwegian Air Shuttle ASA History. Retrieved from http://www.norwegian.com/about-
norwegian/facts/history/

Porter, M. (2008). Harvard Business Review. Retrieved from The five competitive forces that shape
strategy: http://web.ebscohost.com.www.baser.dk/ehost/pdf?vid=1&hid=11&sid=e42a47eb-6754-
455e-acb4-0fe2c56f0ebf%40sessionmgr13&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d

SAS Scandinavian Airlines: SAS was Europe`s most punctual airline in 2009. Retrieved from
http://www.sasgroup.net/SASGroup_General/popupContainer.asp?File=Most%20punctual%20airline
%202009.htm

Sparre, M. R., & Kaspersen, L. (2010, February 9). SAS henter 5 mrd. Retrieved from Dagens
Næringsliv: http://www.dn.no/forsiden/borsMarked/article1834613.ece

Annual Reports:

Cimber Sterling Group AS: Annual Reports, Interim reports. Retrieved from
http://investor.cimber.com/annuals.cfm

Norwegian Air Shuttle ASA: Annual Reports, Traffic Figures, Interim Reports. Retrieved from
http://www.norwegian.com/about-norwegian/investor-relations/reports--presentations/

SAS Scandinavian Airlines AS: Annual Reports, Interim reports. Retrieved from
http://www.sasgroup.net/SASGroup/default.asp




                                                                                                    46
6: Appendix




Appendix 1: Norwegian`s route network end 2009; interim report Q4 2009:
http://www.norwegian.no/om-norwegian/investor-relations/reports--presentations/interim-reports-
and-presentations/




                                                                                            47
Appendix 2: Norwegian`s revenue: domestic and international from presentation of results 2009 Q4




Appendix 3: Norwegian`s fleet in the next six years. From: presentation of results 2009 Q4.




                                                                                              48
Appendix 4: Overview oil price in period 2005-2009:
http://markets.ft.com/tearsheets/performance.asp?s=1054972&ss=WSODIssue




Appendix 5: Overview exchange rate USD/NOK in period 2005-2009:

http://www.dn.no/finans/portal/graph?newt__source=feed.currencies.dn_rt_currencies&newt__ite
m=X%3ASEURUSD




                                                                                          49
Appendix 6: Overview of the share development for Norwegian in period 2005-2009:

http://www.dn.no/finans/portal/graph?newt__source=feed.ose.ALL_SHARES&newt__item=NAS




Appendix 7: Norwegian Air Shuttle ASA corporate structure 2008:

http://www.norwegian.com/Global/english/aboutnorwegian/IR/doc/annualreports/Norwegian_Ann
ual_Report_2008.pdf




                                                                                       50
Appendix 8: Cimber Sterling corporate structure April 30, 2009:

http://www.cimber.dk/public/dokumenter/Diverse/Cimber%20Sterilng%20Group%20AS%20-
%20%C5rsrapport%202008_09.pdf




Appendix 9: Scandinavian Airline Group corporate structure 2009:
http://www.sasgroup.net/SASGroup/default.asp




                                                                                    51
IFRS
In NOK 1000
                                                      2009        2008         2007         2006         2005
INCOME STATEMENT
Ticket revenue                                   6 389 406   5 641 533    3 956 000    2 879 400    1 931 663
Other passenger related revenue                   788 655     463 609      212 000       62 000       40 583
Other revenue                                     131 129     121 271       58 202
Total operating revenues                         7 309 189   6 226 413    4 226 202    2 941 400    1 972 246
Operational expences                             4 318 731   4 892 727    3 171 818    2 368 636    1 504 338
Payroll                                          1 303 299   1 076 068     622 189      412 940      298 223
Depreciation, amortization and impairment         148 882     129 611       74 044       51 070       29 316
Other operating expences + leasing                966 411     318 094      224 200      139 264      111 091
Other losses/gains                                            147 767
Total operating expences                         6 737 323   6 564 267    4 092 251    2 971 910    1 942 968
Operating profit                                  571 866     (337 854)    133 951       (30 510)     29 278


Net financial items                                47 974     351 966       (29 949)      (1 196)      9 657
Share of profit (loss) from associated company      3 200       (8 773)      (1 821)
Gain on share issuance of associate                                -        10 801
Profit (loss) before tax                          623 040       5 339      112 982       (31 706)     38 935
Income tax expence                                176 789       1 395       28 402        (9 709)     10 955
Profit (loss) for the year                        446 251       3 944       84 580       (21 997)     27 980


Appendix 10: Norwegian: Income Statement 2005-2009




                                                                                                          52
Assets
Non current asset
Intangible assets                                                    198 074      232 407       33 243      31 955
Deffered tax asset                                                    59 759       61 317       96 597      86 694
Total intangible assets                                  190 700     257 833      293 724      129 840     118 649
Aircraft, parts and installations on leased aircrafts                523 676      209 820      214 419      23 223
Equipment and fixtures                                                31 014       24 313       14 025      13 597
Buildings                                                              3 933        3 933
Other tangible assets                                   2 446 814
Financial assets available for sale                                    5 628       10 004
Investment in associate                                   81 604      44 743       53 516
Hedged item - firm commitment                                             -       128 031
Prepayment Boeing contract                                           705 165      316 546
Other receivables                                                     32 403       28 506        8 819      19 388
Total non-current assets                                2 719 118   1 604 395    1 068 393     367 103     174 857


Current assets
Inventory                                                 40 825      34 214       28 000       19 341      36 764
Trade and other receivables                              829 858     914 379      491 543      443 492     200 174
Financial assets available for sale                                       -       215 758
Derivative financial instrument                           23 688      18 360        7 771          298       2 563
Hedged item - firm commitment                                             -        18 222
Cash and cash equivalents                               1 408 475    607 536      501 410      231 710     261 464
Total current assets                                    2 302 846   1 574 489    1 262 704     694 841     500 965
Total assets                                            5 021 964   3 178 884    2 331 097    1 061 944    675 822


Equity and Liabilities
Equity
Share capital                                           1 093 155      3 236        2 087        1 967       1 837
Share premium                                                        789 130      408 277
Other paid-in equity                                      508 555     38 984       32 753      273 643     157 523
Other reserves                                                         (7 633)      (4 550)
Retained earnings                                                     73 650       69 706       (14 883)   (17 746)
Owned Shares                                                                                        -          (28)
Total equity                                            1 601 710    897 368      508 273      260 727     141 586


Non-current liabilities
Pension obligation                                                    61 815       33 310       30 794      30 487
Provision for periodic maintenance                                   114 090      101 042       81 734      34 779
Deferred tax                                                           9 695       19 470
Derivative financial intrument                                            -       154 333
Borrowings                                                           440 873      297 697
Other long term liabilities                              918 638
Total non-current liabilities                            918 638     626 474      605 852      112 528      65 266


Current liabilities
Short term part of borrowings                                        257 456           -
Trade and other payables                                             694 832      644 837      395 850     250 277
Air traffic settlement liabilities                                   598 162      536 548      291 795     218 693
Derivative financial instrument                                      104 325       34 375        1 014         -
Tax payable                                                              267        1 212           30         -
Total current liabilities                               2 501 616   1 655 042    1 216 972     688 689     468 970
Total liabilities                                       3 420 254   2 281 516    1 822 824     801 217     534 236
Total equity and liabilities                            5 021 964   3 178 884    2 331 097    1 061 944    675 822


Appendix 11: Norwegian: Balance Sheet 2005-2009




                                                                                                               53
From operating activities
Operating profit                                                       (337 854)     133 951      (30 510)         29 278
Taxes paid                                                                 (787)        (738)        (163)             -
Depreciation, amortization and write down                               129 611       74 044       51 070          29 316
Pension expence without cash effect                                      28 505        2 516          307           (8 480)
Other non cash items                                                      6 196        1 963
Interest income                                                          39 427       40 901       10 047          10 305
Interest expense                                                          (9 880)    (70 849)     (11 243)           (648)
Change in inventories, accounts receivable and payable                 (324 649)      32 153        (1 887)      (121 790)
Change in air traffic settlement liabilities                             61 614      156 343       73 102         109 660
Change in other current assets and current liabilities                   22 266       87 648      (15 161)         47 715
Net cash flow from operating activities                    884 404     (385 551)     457 932       75 562          95 356
From investing activities
Payments aircraft purchase                                             (349 436)    (316 546)
Purchase of tangible assets                                            (393 433)     (56 785)    (229 930)        (21 244)
Purchase of intangible assets                                           (33 414)     (14 030)     (15 029)        (17 209)
Net cash from aquisitions                                               (20 604)     126 246
Proceeds from sales of financial assets                                 324 347           -
Proceeds from sales of investment bonds                                 219 065           -
Investments in shares and bond                                               -      (271 504)
Returns on investment in financial fixed asset                                                       (298)             85
Net cash flow from investing activities                  (1 269 894)   (253 475)    (532 619)    (245 257)        (38 368)
From financial activities
Proceeds from long term debt                                            339 864      297 000
Proceeds from issuing new shares                                        376 000        9 425      114 993           1 057
Interest on borrowings                                                  (29 220)          -
Aquisition of own shares                                                                               -          (15 658)
Proceeds from sale of own shares                                                                   24 871              -
Net cash flow from financial activities                  1 188 162      686 644      306 425      139 864         (14 601)


Foreign exchange effect on cash                              (1 734)      4 848        (2 025)             (8)
Net change in cash and cash equivalents                    800 938       52 466      229 713      (29 839)         42 387
Cash and cash equivalents at 1 January                     607 536      403 959      174 248      204 086         161 699
Cash and cash equivalents at 31 December                 1 408 474      456 425      403 961      174 247         204 086


Cash and cash equivalents in balance sheet               1 408 475      607 536      501 410      231 710         261 464
Restricted funds                                                       (151 113)      97 451       57 462          57 378
Cash in cash flow statement                              1 408 474      456 425      403 961      174 247         204 086


Appendix 12: Norwegian: Cash Flow Statement 2005-2009

Traffic figures                                                2009         2008         2007         2006            2005
Passengers                                               10 754 104    9 136 553    6 362 725    5 104 814       3 289 769
Yield                                                           0,60         0,62         0,67         0,68            0,71
ASK mill                                                     13 555       11 530        7 561        5 371           3 464
Load factor                                                    78 %         79 %         80 %         79 %            78 %
Unit cost (NOK)                                                 0,49         0,56         0,53
Unit Revenue (NOK)                                              0,47         0,49         0,52
Number of routes operated during year                            200          170          114             86              50
Number of aircrafts                                               46           40           33             19              14


Appendix 13: Norwegian: Traffic Figures 2005-2009




                                                                                                                       54
                                                                                            2009               2008          2007               2006                2005
Inventory                                                                                     40 825             34 214        28 000            19 341              36 764
Trade and other receivables                                                                  829 858            914 379       491 543           443 492             200 174
Financial assets available for sale                                                              -                  -         215 758               -                   -
Derivative financial instrument                                                               23 688             18 360         7 771               298               2 563
Hedged item - firm commitment                                                                    -                  -          18 222               -                   -
Cash and cash equivalents                                                                  1 408 475            607 536       501 410           231 710             261 464
Current assets                                                                             2 302 846          1 574 489     1 262 704           694 841             500 965

Short term part of borrowings                                                                                   257 456           -                  -                  -
Derivative financial intrument                                                                                   104 325        34 375              1 014               -
Trade and other payables                                                                                        694 832       644 837            395 850            250 277
Air traffic settlement liabilities                                                                              598 162       536 548            291 795            218 693
Tax payable                                                                                                         267         1 212                 30                -
Current liabilities                                                                       2 501 616           1 655 042     1 216 972            688 659            468 970
Net working capital                                                                        -198 770             -80 553        45 732              6 182             31 995

Current debt                                                                               2 501 616          1 655 042     1 216 972            688 689            468 970

EBIT                                                                                            571 866         -337 854      133 951             -30 510            29 278
Depreciation, amortization and impairment                                                       148 882          129 611       74 044              51 070            29 316
EBITDA                                                                                          720 748         -208 243      207 995              20 560            58 594

EBITA                                                                                           571 866         (337 854)     133 951            (30 510)            29 278
EBITA margin                                                                                        7,82            -5,43         3,17              -1,04               1,48

Interest expences                                                                                   -              -9 880     -70 849             -11 243              -648
Taxes paid                                                                                          -                -787        -738                -163               -

Appendix 14: Norwegian: Calculations

                                                                                                                                  2009         2008          2007       2006          2005
Share price close                 From annual report 2005-2009                                                                     140          36,9          169         93            79
Number of outstanding shares year end annual report 2005-2009
                                  From                                                                                      34 209 858   32 359 778    20 865 526 19 669 196    18 085 696

Market cap (NOKm)                    Numbers of outstanding shares year end*share price close    (34209858*140)/1000000         4 789         1 194         3 526      1 829        1 429

EPS                               Profit (loss) for the year/number of outstanding shares year end446251*1000)/34209858
                                                                                                 (                              13,04          0,12         4,05        -1,12         1,55
P/E                               Share price close / EPS                                        140/13,04                      10,73        302,76        41,69       -83,16        51,06
Book equity per share             Equity/ Number of outstanding shares year end                  (1601710*1000)/34209858        46,82         27,73        24,36       13,26          7,83
Share price/Book equity per share                                                                140/46,82                       2,99          1,33         6,94         7,02        10,09

Appendix 15: Norwegian: Share 2005-2009




                                                                                                                                                                         55
                                                    Key ratio                         Definition/Calculation                                          Example (2009)                  2009     2008     2007      2006     2005
                                                    ROE (%)                           Profit (Loss) for the year/Average equity                       446251/((1601710+897368)/2)   35,7 %    0,6 %   22,0 %   -10,9 %   19,8 %
                                                    Return on Invested Capital (ROIC) Profit (Loss) for the year/(total assets-cash)                  446251/(5021964-1408475)      12,3 %    0,2 %    4,6 %    -2,6 %     0,07

                                                    Profit Margin (%)                     Profit (Loss) for the year after tax / Operating revenues   446251/7309189                 6,1 %    0,1 %    2,0 %    -0,7 %    1,4 %
                                                    EBIT Margin (%)                       EBIT/ operating revenues                                    571866/7309189                 7,8 %   -5,4 %    3,2 %    -1,0 %    1,5 %

                                                    Asset Turnover                        Revenue/total assets                                        7309189/5021964                 1,46     1,96     1,81     2,77      2,92




     Appendix 16: Norwegian: Key ratios 2005-2009
                                                    Growth in revenue (%)                 (Total revenue year1-total revenue year0)/total revenue year0 (7309189-6266413)/6266413   17,4 %   47,3 %   43,7 %   49,1 %

                                                    Financial leverage (Debt to equity)   Total liabilities / Total equity                            3420254/1601719                 2,14     2,54     3,59     3,07      3,77
                                                    Current ratio                         current assets/current liabilities                          2302846/2501616                 0,92     0,95     1,04     1,01      1,07
                                                    Quick ratio                           (current assets - inventory)/current liabilities            (2302846-40825)/2501616         0,90     0,93     1,01     0,98      0,99
                                                    Solvency                              Equity/Total liabilities                                    1601719/340254                46,8 %   39,3 %   27,9 %   32,5 %    26,5 %

                                                    Growth in Equity (%)                  (Equity year1-equity year0)/equity year 0                   (1601719-897368)/1601719      78,5 %   76,6 %   94,9 %   84,1 %
                                                    Equity ratio (%)                      Equity / total assets                                       1601719/5021964               31,9 %   28,2 %   21,8 %   24,6 %    21,0 %

                                                    Operating cash flow                   Cash Flow from operating activities (CFFO)/Current liabilities 884404/2501616                0,4     -0,2      0,4      0,1       0,2
                                                    Cash current debt coverage            (CFFO - paid dividend) / current debt                       (884404-0)/2501616               0,4     -0,2      0,4      0,1       0,2
                                                    Cash interest coverage                (CFFO + interest paid + taxes paid) / Interest paid         (884404+-9880+-787)/-9880                40,1     -5,5     -5,7    -146,2
                                                    Total debt                            CFFO/Total debt                                             884404/3420254                  0,26    -0,17     0,25     0,09      0,18




56
In billion (000 000)
IFRS
INCOME STATEMENT                                          2009      2008      2007     2006     2005
Revenue                                                 44 918    53 195    50 598   60 777    61887
Income from sale of aircraft, buildings, shares            332         4        41       88      667
Share of income in affilated companies                    -258      -147        32       59      134
Total operating revenues                                44 992    53 052    50 671   60 924   62 688
Other operational expences                              25 912    31 791    28 682   36 069   35 303
Payroll                                                 17 998    18 153    16 897   18 092   20 467
Depreciation, amortization and impairment                1 845     1 591     1 457    1 964    2 412
Leasing costs for aircrafts                              2 319     2 282     2 342    3 526    3 133
Total operating expences                                48 074    53 817    49 378   59 651   61 315
Operating profit                                        -3 082      -765     1 293    1 273    1 373

Income from other holding of securities                              -           5      -47       50
Financial income                                           304       654       787      488      534
Financial expences                                        -645      -933    -1 041   -1 422   -1 539
Profit (loss) before tax                                -3 423    -1 044     1 044      292      418
Income tax expence                                         803         28     -273     -128     -163
Profit (loss) for the year from continuing operations   -2 620    -1 016       771      164      255

Income from discounted operations                         -327    -5 305     -135     4 576
Profit (loss) for the year                              -2 947    -6 321      636     4 740     255

Appendix 17: SAS: Income statement 2005-2009

Assets
Non current asset
Intangible assets                                        1 296     1 092     1 226    2 932    3 862
Aircraft, parts and installations on leased aircrafts   13 087    11 037    10 766   11 330   14 681
Spare engines and aircraft servicing equipment           1 299     1 185     1 211    1 383    1 526
Workshop and aircraft servicing equipment                  161       220       226      215      210
Other equipment and vehicles                               192       318       308      634    1 213
Buildings and Land                                         439       513       568      684    1 257
Construction in progress                                   158       232       172      378      148
Prepayments relating to tangible fixed assets              238       627       185      317      422
Equity in affiliated companies                             358       622     1 063    1 012    1 214
Long term receivables from affiliated companies                      -         170      189      228
Other holdings of securities                               234         5         5      601      214
Pension funds, net                                      10 286     9 658     9 496    8 805    8 363
Deferred tax assets                                      1 159       921       690    1 378    1 524
Other long term receivables                                729       410       577    1 331    1 577
Total non-current assets                                29 636    26 840    26 663   31 189   36 439
Current assets
Inventory and Expendable spare parts                       758       819       849      993    1 038
Payment to suppliers                                       -           1         1        3       27
Accounts receivable                                      1 581     1 851     1 951    3 918    1 620
Receivables from affilated companies                         92      479       510      357    4 568
Other receivables                                        4 780     2 661     2 637    2 767    3 892
Prepaid expences and accured income                      1 058     1 009     1 070    1 134    1 748
Short term investments                                   3 691     3 872     7 308    9 117    7 265
Assets held for sale                                       401     3 921     6 198      -
Cash and bank balances                                     498     1 911     1 583    1 686    1 419
Total current assets                                    12 859    16 524    22 107   19 975   21 577
Total assets                                            42 495    43 364    48 770   51 164   58 016




                                                                                                 57
Equity and Liabilities
Equity
Share capital                                       6 168     1 645    1 645    1 645     1 645
Share premium
Other contributed capital                             170       170      170      170       658
Other reserves                                        279      -718    1 466    1 312       918
Retained earnings                                   4 772     7 585   13 849   13 239     8 283
Minority interests                                                        19       22       577
Total equity                                       11 389     8 682   17 149   16 388    12 081

Non-current liabilities
Subordinated loans                                    919       953      693      716       771
Bond issues                                           -       2 212    2 079    7 135     7 355
Other loans                                         6 809    10 535    3 936    5 685    11 039
Deferred tax liabilities                            2 832     2 988    3 755    3 473     3 617
Other provisions                                    2 131       768      691      603       697
Other liabilities                                     378       334      120      235       129
Total non-current liabilities                      13 069    17 790   11 274   17 847    23 608

Current liabilities
Current portion of long-term loans                  5 742       872    1 615      841     3 183
Short term loans                                      907     1 189      421    2 043     3 828
Prepayments from customers                              13        7       20      181       123
Accounts payables                                   1 738     2 068    2 108    3 350     4 358
Liabilities to affiliated companies                   -         -         94      169       183
Unearned transportation revenue                     3 227     3 299    3 842    3 395     3 038
Current portion of other provisions                   852       148      190      318       273
Other liabilities                                   2 110     2 460    1 580    1 845     1 916
Accured expenses and prepaid income                 3 264     4 274    5 149    4 744     5 326
Liabilities attributable to assets held for sale      157     2 465    5 323      -
Tax payable                                             27      110        5        43       99
Total current liabilities                          18 037    16 892   20 347   16 929    22 327
Total liabilities                                  31 106    34 682   31 621   34 776    45 935
Total equity and liabilities                       42 495    43 364   48 770   51 164    58 016

Appendix 18: SAS: Balance Sheet 2005-2009




                                                                                            58
From operating activities
Income before tax                                                   -3 423      -1 044      1 044        292         418
Taxes paid                                                              -3         -19        -38        -65          16
Depreciation, amortization and write down                            1 845       1 591      1 457      1 964       2 412
Income from sale of aircraft, buildings, shares                       -332          -4        -46        -91        -717
Income bef. tax in discountinued operations excl. Capital gain        -520      -4 113       -710        411
Depreciation and impairments in discounted operations                   47       1 804        485        182
Adjustments for items not included in the cash flow                     44         -64        -15       -149        -355
Change in inventories, expendable spare parts                           69          42         11        -51        -166
Change in operating receivables                                          8         177       -397       -439          33
Change in liabilities                                               -1 149      -1 021      1 075         48        -134
Net cash flow from operating activities                             -3 414      -2 651      2 866      2 102       1 507
From investing activities
Aircraft                                                            -3 700      -2 995     -1 310       -846        -410
Spare parts                                                           -266        -127       -127        -71        -435
Buildings, equipment and other facilitaties                           -384        -599       -782     -1 139        -791
Shares and participations, intangible assets                          -230         -69       -171       -118        -173
Prepayments for flight equipment                                       -81        -665       -293       -125         -18
Aquisitions of subsidiary                                              -             7       -225                    -
Disposal of subsidiaries                                               605         103        549      5 725         622
Sale of aircraft, buildings and shares + other fixed assets            174         655        652      4 059       2 046
Income from sale and leaseback of aircraft                             872       1 166      1 387                    160
Sale of non-current assets etc.                                        399        -389        107
Net cash flow from investing activities                             -2 611      -2 913       -213      7 485       1 001
From financial activities
Proceeds issurance of borrowings                                     2 080       6 500        -
Repayment of borrowing                                              -3 060      -4 260     -4 700
Change in interest-bearing receivables and liabilities                -544         240        208        888      -1 827
Change in minority interest                                                                                          -31
Change in long term loans                                                                             -7 268        -482
Change in short term loans                                                                            -1 058        -117
Right issue including issue costs                                    5 808
Net cash flow from financial activities                              4 284      2 480      -4 492     -7 438      -2 457

Cash flow from year                                                 -1 741      -3 084     -1 839      2 149         51
Translation difference in liquid assets                                 49         -18         29        -30         38
Cash&cash equivalents reclassified from/to assets held sale             98          -6       -102        -           -
Cash and cash equivalents at 1 January                               5 783       8 891     10 803      8 684       8 595
Cash and cash equivalents at 31 December                             4 189       5 783      8 891     10 803       8 684

Appendix 19: SAS: Cash Flow Statement 2005-2009

                                                                       2009       2008       2007       2006       2005
Passengers                                                       24 898 000 25 355 000 25 403 000 38 609 000 36 312 000
Yield (SEK)                                                                        1,22       1,22       1,15       1,10
ASK (mill.)                                                          35 571     38 776     36 852     53 771     52 754
Load factor                                                          70,9 %     71,9 %     74,1 %     71,5 %     69,1 %

Appendix 20: SAS: Traffic numbers 2005-2009




                                                                                                                     59
                                                                                            2009              2008            2007          2006           2005
Current assets                                                                               12 859            16 524          22 107        19 975         21 577
Current liabilities                                                                          18 037            16 892          20 347        16 929         22 327
Net working capital                                                                           -5 178              -368           1 760         3 046           -750

Intangible assets                                                                               1 296               1 092        1 226         2 932           3 862
Tangible assets                                                                               15 017              13 053       12 853        14 031          18 677
Invested capital                                                                               16 313              14 145       14 079        16 963          22 539

Operating profit                                                                              (2 947)              (6 321)        636         4 740                255
EBITA                                                                                          -2 947               -6 321         636         4 740                255
EBITA margin                                                                                    -6,55               -11,91        1,26          7,78               0,41

Current debt                                                                                  18 037              16 892       20 347        16 929           22 327

EBIT                                                                                          -3 082                  -765      1 293         1 273               1 373
Depreciation, amortization and impairment                                                      1 845                 1 591      1 457         1 964               2 412
EBITDA                                                                                        -1 237                   826      2 750         3 237               3 785

Financial income                                                                                   304                  654       787            488               534
Income tax expense                                                                                 803                   28      -273           -128              -163

Repayment of borrowing                                                                             3060               4260       4700         8 326                599
Tax adjusted debt repayment                                                                       4 250              5 917      6 528        11 564                832

Appendix 21: SAS: Calculations

Key ratio                         Definition/Calculation                                             Example (2009)                  2009        2008     2007         2006     2005
ROE                               Profit (Loss) for the year/Average equity*100                      2947/((11389+8682)/2)        -29,4 %     -48,9 %    3,8 %       33,3 %    2,1 %
Return on Invested Capital (ROIC) Profit (Loss) for the year/(total assets-cash)                     2947/(42495-498)               -0,07       -0,15     0,01         0,10     0,00

Profit Margin                         Profit (Loss) for the year after tax / Operating revenues      2947/44992                    -6,6 %     -11,9 %     1,3 %       7,8 %    0,4 %
EBIT Margin                           EBIT/ operating revenues                                       (-3082)/44992                 -6,9 %      -1,4 %     2,6 %       2,1 %    2,2 %
Asset Turnover                        Revenue/total assets                                           44992/42495                     1,06        1,22      1,04        1,19     1,08
Growth in revenue                     (Total revenue year1-total revenue year0)/total revenue year0 (44992-53052)/53052           -15,2 %       4,7 %   -16,8 %      -2,8 %

Financial leverage (Debt to Equity)   Total liabilities / Total equity                               31106/11389                     2,73       3,99      1,84         2,12     3,80
Current ratio                         current assets/current liabilities                             12859/18037                     0,71       0,98      1,09         1,18     0,97
Quick ratio                           current assets less inventory/current liabilities              (12859-758)/18037               0,67       0,93      1,04         1,12     0,92
Solvency (%)                          Equity/Total liabilities                                       11389/31106                   36,6 %     25,0 %    54,2 %       47,1 %   26,3 %

Growth in Equity (%)                  (Equity year1-equity year0)/equity year 0                      (11389-8682)/8682             31,2 %     -49,4 %    4,6 %       35,7 %
Equity ratio (%)                      Equity / total assets                                          11389/42495                   26,8 %      20,0 %   35,2 %       32,0 %   20,8 %

Operating cash flow (OCF)             CFFO / Current debt                                            (-3414)/18037                  -0,19       -0,16      0,14        0,12     0,07
Cash current debt coverage (CDC)      (CFFO - paid dividend) / current debt                          (-3414-0)/18037                -0,19       -0,16      0,14        0,12     0,07
Funds flow coverage (FFC)             EBITDA / (intrests + skattekorrigeret afdrag på gæld)          (-1237)/(-645+4250)            -0,34        0,17      0,50        0,32    -5,35
Cash interest coverage(CIC)           (CFFO + paid interests + paid tax) / paid interests            (-3414-645+803)/-645            5,05        3,81     -1,49       -0,39     0,13
Total debt                            CFFO/Total debt                                                (-3414)/31106                  -0,11       -0,08      0,09        0,06     0,03

Appendix 22: SAS: Cash flow ratios 2005-2009




                                                                                                                                                                     60
                                                                                                                                    2009          2008        2007        2006        2005
Share Price at year end           From annual report 2005-2009                                                                       4,03          6,19      13,55       19,03       17,07
Outstanding shares year end       From annual report 2005-2009                                                             2 467 500 000 1 645 000 000 164 500 000 164 500 000 164 500 000

Market capitalization (SEKmill)   Outstanding shares year end* average share price             4,03*2467500000*1000000            9 944        10 183        2 229      3 130       2 808

EPS                               Profit (loss) for the year / average number of stocks        2947*1000000/2467500000            -1,19          -3,84       3,87       28,81        1,55
P/E                               share price at year end / EPS                                4,03/-1,19                         -3,37          -1,61       3,50        0,66       11,01
Book equity per share             Equity/number of outstanding shares year end                 11389*1000000/2467500000            4,62           5,28     104,25       99,62       73,44
                                  Share price year end/Book equity per share                   4,03/4,62                           0,87           1,17       0,13        0,19        0,23


Appendix 23: SAS: Share

                                                                                          2008/2009         2007/2008      2006/2007          2005/2006         2004/2005
INCOME STATEMENT
Ticket revenue                                                                               1 297 757        1 148 192           970 791           830 000           692 000
Other passenger related revenue
Other revenue                                                                                      -             44 854               -
Total operating revenues                                                                     1 297 757        1 193 046           970 791           830 000           692 000
Operational expences                                                                           673 504          549 151           471 021
Payroll                                                                                        401 771          356 472           288 790
Other operating expences                                                                        72 103           59 781            47 865
Operating expences                                                                           1 147 378          965 404           807 676
Operating profit before leasing and depreciation                                               150 379          227 642           163 115
Leasing costs                                                                                   58 257           69 908            63 930            64 000            51 000
Depreciation                                                                                    93 841           84 191            45 591            51 000            58 000
Total operating expences                                                                     1 299 476        1 119 503           917 197           115 000           109 000
Operating profit                                                                                -1 719           73 543            53 594           715 000           583 000

Financial income                                                                                 1 472            32 585            6 231
Financial expences                                                                              78 888            36 840           24 042
Net financial items                                                                            -77 416            -4 255          -17 811           -12 000           -12 000
Profit (loss) before tax                                                                       -79 135            69 288           35 783           703 000           571 000
Income tax expence                                                                              20 210           -13 281           -9 938             4 000            30 000
Profit (loss) for the year                                                                     -58 925            56 007           25 845             4 000           -73 000

Appendix 24: Cimber Sterling: Income Statement 2004/2005-2008/2009




                                                                                                                                                                             61
Assets                                                  2008/2009      2007/2008      2006/2007
Non current asset
Intangible assets (patents)                                  11 159          1 793         1 729
Aircraft, parts and installations on leased aircrafts       731 969        759 470       569 567
Equipment and fixtures                                       19 091         16 468         8 494
Buildings                                                    15 609         16 871        16 707
Materielle aktiver under udførelse                            9 080          2 476         1 435
Other receivables                                            20 462          8 615        16 956
Total non-current assets                                    807 370        805 693       614 888
Current assets
Inventory                                                     82 145        60 834        45 652
Receivables from sale of inventory                           123 184       137 956       138 845
Derivative financial instrument                                  -             -           1 052
Income tax receivable                                              5             93          183
Other receivables                                             50 113        33 437        16 103
Prepaid expences                                              22 985         4 752         6 264
Securities                                                       128         1 066        26 228
Cash and cash equivalents                                      4 282         1 814        25 565
Total current assets                                         282 842       239 952       259 892
Total assets                                               1 090 212     1 045 645       874 780
Equity
Share capital                                                   600            600           600
Share premium                                                30 652         30 652        30 652
Value adjustments hedging                                     8 458        -12 412         1 052
Retained earnings                                           122 668        181 593       170 666
Total equity                                                162 378        200 433       202 970
Non-current liabilities
Provision                                                       750            -          51 947
Deferred tax                                                 51 762         65 012        55 897
Creditinstitutions                                          350 837        354 762       217 681
Leasingobligations                                           31 462         38 762        45 520
Borrowings                                                   20 210          7 378         6 914
Total non-current liabilities                               455 021        465 914       377 959
Short term liabilities
Short term part of borrowings                                  1 596         1 012         1 253
Short term part of creditinstitution debt                     59 523        55 857        28 966
Driftskredit                                                  12 964        33 434        22 968
Short term part of leasing obligations                         7 300         6 758         6 256
Derivative financial instrument                                  -          16 546           -
Received prepayments                                         177 527        90 221        34 736
Air traffic liabilities                                      102 117        83 673        78 496
Other borrowings                                             106 914        91 797       121 176
Provisions                                                     4 872           -             -
Total short term liabilities                                 472 813       379 298       293 851
Total liabilities                                            927 834       845 212       671 810
Total equity and liabilities                               1 090 212     1 045 645       874 780

Appendix 25: Cimber Sterling: Balance Sheet 2006/2007-2008/2009

                                                                                                   62
From operating activities
Operating profit before tax                                      -79 135        69 288           35 783
Depreciation, amortization and write down                         93 841        84 191           45 591
Other non cash items                                               5 301        10 270              136
Provisions                                                         5 622       -51 947              -
Financial income                                                  -1 472       -32 585           -6 231
Financial expense                                                 78 888        36 840           24 042
Change in inventory                                              -21 311       -15 182           -3 460
Change in account receivables                                    -20 137       -14 935          -30 029
Change in prepayments, suppliers, other debt                     120 867        31 283           16 418
Intrest income                                                     1 111        28 048            1 061
Intrest expences                                                 -29 338       -29 793          -19 038
Taxes paid                                                            92            61              256
Net cash flow from operating activities                          154 329       115 539           64 529
From investing activities
Purchase of intangible assets                                     -10 427         -908             -550
Purchase of tangible assets                                       -79 083     -308 385          -35 501
Sale of tangible assets                                             3 390       25 956           11 062
Net cash from aquisitions                                           2 450          -                -
Change in longterm receivables                                    -11 847        8 341           -2 608
Sale of securities                                                    851       24 857            4 455
Net cash flow from investing activities                           -94 666     -250 139          -23 142
From financial activities
Change in debt to credit institutions                             -57 195      155 930          -41 627
Paid dividends to investors                                           -        -45 080              -
Net cash flow from financial activities                           -57 195      110 850          -41 627

Net change in cash and cash equivalents                             2 468       -23 750           -240
Cash and cash equivalents at 1 January                              1 814        25 565         25 805
Cash and cash equivalents at 31 December                            4 282         1 815         25 565

Appendix 26: Cimber Sterling: Cash Flow Statement 2006/2007-2008/2009

                                                 2008/2009 2007/2008 2006/2007 2005/2006        2004/2005
Current assets                                       282 842   239 952   259 892
Current liabilities                                  472 813   379 298   293 851
Net working capital                                  -189 971  -139 346   -33 959

EBIT                                                 -1 719    73 543       53 594    715 000       583 000
Depreciation, amortization and impairment            93 841    84 191       45 591     51 000        58 000
EBITDA                                               92 122   157 734       99 185    766 000       641 000

Tax adjusted debt repayment
Change in debt to credit institutions                57 195   -155 930      41 627
Tax adjusted (Change in debt/tax rate (1-0,28)       79 438   -216 569      57 815

Appendix 27: Cimber Sterling: Calculations



                                                                                                          63
Key ratio                             Definition/Calculation                                      Example (2008/2009)            2008/2009        2007/2008       2006/2007
ROE                                   Profit (Loss) for the year/Average equity                   (-58925)/((162378+200433)/2)           -32,48 %         27,77 %     12,73 %
Return on invested capital (ROIC)     Profit (Loss) for the year/(total assets-cash)              (-58925)/(1090212-4282)                   -0,05            0,05        0,03

Profit Margin (%)                     Profit (Loss) for the year after tax / Operating revenues   (-58925)/1297757                         -4,5 %           4,7 %       2,7 %
EBIT Margin (%)                       EBIT/ operating revenues                                    (-1719)/1297757                          -0,1 %           6,2 %       5,5 %
Asset Turnover                        Revenue/operating assets                                    1297757/1090212                            1,19            1,14        1,11
ROA                                   EBIT/ operating assets                                      (-1719)/1090212                          -0,002            0,07        0,06

Growth in revenue (%)                 (Total revenue year1-total revenue year0)/total revenue year0 (1297757-1193046)/1193046              8,8 %           22,9 %      17,0 %

Financial leverage (Debt to equity)   Total liabilities / Total equity                            927834/162378                             5,71             4,22        3,31
Current ratio                         current assets/current liabilities                          282842/472813                             0,60             0,63        0,88
Quick ratio                           (current assets - inventory)/current liabilities            (282842-82145)/472813                     0,42             0,47        0,73
Solvency                              Equity/Total liabilities                                    162378/927834                           17,5 %           23,7 %      30,2 %

Growth in Equity                      (Equity year1-equity year0)/equity year 0                   (162378-200433)/200433                  -19,0 %          -1,2 %
Equity ratio                          Equity / total assets                                       162378/1090212                           14,9 %          19,2 %      23,2 %

Operating cash flow (OCF)             CFFO / Current debt                                         154329/472813                              0,33            0,30        0,22
Cash current debt coverage (CDC)      (CFFO - paid dividend) / current debt                       (154329-0)/472813                          0,33            0,19        0,22
Funds flow coverage (FFC)             EBITDA / (intrests + tax adjustments on debt)               92122/(29338+79438)                        1,84           -0,64        2,56
Cash interest coverage(CIC)           (CFFO + paid intrests + paid tax) / paid intrests           (154329+29338+92)/29338                   -4,26           -2,88       -2,40
Total debt                            CFFO/Total debt                                             154329/927834                              0,17            0,14        0,10


Appendix 28: Cimber Sterling: Key ratios




                                                                                                                                                                64

				
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