Air France KLM Reports Results for 3Q 2012

Operating result of 506 million euros (397 million euros at 30th September 2011)  Good improvement in passenger activity but deterioration in cargo

Revenues of 7.2 billion euros (+6%)

Ongoing reduction in unit costs at constant currency and fuel price

OUTLOOK
Unchanged objectives of second half operating result above last year’s level and reduction in net debt
The Board of Directors of Air France-KLM, chaired by Jean-Cyril Spinetta, met on 30th October to examine the accounts for third quarter 2012.

The group realised a satisfactory third quarter across all its businesses with the exception of cargo. In passenger, the limited capacity increase in the industry led to an improvement in unit revenues, which, for the group, were also helped by a positive foreign exchange effect due to the depreciation of the euro versus other currencies. On the other hand, the cargo business continued to deteriorate over the quarter. As previously indicated, measures undertaken in the context of the plan Transform 2015 are starting to have a significant impact on costs.

Ongoing capacity control
The group enjoyed a good Summer season in its passenger business, with traffic up by 0.9% for a rise in capacity limited to 1.0% and a high load factor of 86%. Unit revenue per available seat kilometre (RASK) progressed by 6.3% (1.8% at constant currency). Passenger revenues grew by 7.9% after a positive currency effect of 4.4% to 5.69 billion euros. The operating result stood at 453 million euros (27%) despite a rise in the fuel bill of 231 million euros.

The cargo business was further impacted by the economic slowdown and the situation of overcapacity in the industry. Traffic fell by 6.6% for capacity down by 3.7%. The load factor stood at 61.8% (-1.9 points). Unit revenue per available tonne kilometre (RATK) rose 0.7% on the back of a positive currency effect of 6.7%. Cargo revenues stood at 758 million euros (-1.9%) while the operating result was -67 million euros (-37 million euros at 30th September 2011).

Third party revenues at the maintenance business declined by 5.9% to 256 million euros. However the operating result was up strongly at 52 million euros (versus 18 million euros in Q3 2011 following 23 million euros in one-off costs).

Other activities, including Transavia, generated revenues of 476 million euros (1.7%) and an operating result of 68 million euros (versus 60 million euros at 30th September 2011). Transavia generated revenues of 368 million euros (12%) and an operating result of 69 million euros (versus 60 million euros a year earlier).

Total revenues stood at 7.18 billion euros, up 5.8% after a favourable currency effect of 4.5%. Unit revenues in equivalent available seat kilometres (EASK) rose 5.7% (+1.1% at constant currency).

Reduction in operating costs ex-currency
Operating costs totalled 6.68 billion euros, up 4.5% (+0.7% ex-fuel). On a comparable currency basis they fell 1.1%, reflecting the strict cost control measures implemented in the context of Transform 2015. Unit cost, measured in EASK, increased by 4.2%, but declined by 1.7% on a constant currency and fuel price basis, for production measured in EASK up by 0.6%.

The fuel bill increased by 254 million euros to 1.97 billion euros (+14.8%) under the effect of a decline in volume of 2%, a negative currency effect of 15% and a rise in the fuel price after hedging of 2%.

Employee costs (excluding temporary staff) amounted to 1.88 billion euros. The measures taken in the context of Transform 2015 took effect, limiting the rise to 1.2% in spite of an additional pension charge at KLM of 18 million euros.

The operating result amounted to 506 million euros and the adjusted operating result to 592 million euros, implying an adjusted operating margin of 8.2%.

In the context of the reorganisation of the French regional pole, the group has undertaken impairment tests for assets not included in this pole, leading it to depreciate goodwill in respect of VLM, a subsidiary of CityJet, for an amount of 168 million euros. Net interest charges were stable at 94 million euros. ‘Other financial income and costs’ amounted to 216 million euros (-268 million euros a year ago) of which 210 millions euros relating to the change in the fair value of derivatives.

Net income, group share, amounted to 306 million euros (14 million euros at 30th September 2011). The net result per share stood at 1.03 euros and the diluted net result per share at 0.85 euros (0.05 euros at 30th September 2011 for both results).

Nine months to 30th September 2012
In passenger business, during the first nine months of 2012, capacity increased by 0.9% and traffic by 2.8%. The load factor gained 1.5 points to 83.5%. Unit revenue per available seat kilometre (RASK) rose by 6.0% and by 3.1% at constant currency.

In cargo business, traffic declined by 6.5% for capacity down by 2.9%, leading to a 2.4 point decline in the load factor to 63.6%. Unit revenue per available tonne kilometre (RATK) declined by 1.4% and by 5.5% at constant currency.

Total revenues amounted to 19.33 billion euros (+5.4% after a positive change effect of 2.8%). Operating costs increased by 5.4%, but by only 2.0% ex-fuel.

The operating result amounted to -157 million euros (-151 million euros at 30th September 2011) while the adjusted operating result was 87 million euros. The adjusted operating margin stood at 0.5%.

The net interest charge amounted to 264 million euros, a decline of 3.3% on the previous year. ‘Other financial income and costs’ swung from -230 million euros at 30th September 2011 to 38 million euros at 30th September 2012, thanks to a less negative foreign exchange result and a 200 million euro positive change in the fair value of derivatives.

The net result, group share, was -957 million euros (-550 million euros at 30th September 2011) after 536 million euros in non-current and non-cash charges, of which 348 million euros for the voluntary departures plan, not affecting the group’s cash flow at 30th September 2012.

The result per share and fully diluted result per share stood at -3.24 euros against -1.86 euros at 30th September 2011.

Financial position
Investments amounted to 1.26 billion euros and disposals to 650 million euros (1.98 billion euros and 986 million euros respectively at 30th September 2011). Operating cash flow amounted to 712 million euros. Before changes in working capital requirement, it amounted to 716 million euros versus 308 million euros a year ago. At 30th September 2012 the group had cash of 3.4 billion euros and credit lines of 1.85 billion euros.

Shareholders’ funds amounted to 5.27 billion euros. Net debt declined relative to 31st December 2011 (6.02 billion euros versus 6.52 billion euros at 31st December 2011). However, as a consequence of the reduction in shareholders’ funds, the gearing ratio increased to 1.14 (1.07 at 31st December 2011).

Outlook
In a difficult economic environment in Europe, but with a good level of activity in the other markets, the group maintains its objectives of an operating result in the second half of 2012 above the level of the second half of 2011 (195 million euros) and a reduction of its net debt at 31st December 2012 relative to 31st December 2011.