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AIR FRANCE - KLM : Third Quarter 2016 results
The Board of Directors of Air France-KLM, chaired by Jean-Marc Janaillac, met on 2 November 2016 to approve the accounts for the Third Quarter of the Financial Year 2016.
The consolidated financial statements of the Group were revised as of 1 January 2016 in order to reflect Servair as a discontinued operation. The 2015 financial statements have been restated accordingly. Details of this restatement can be found in the appendix of this press release.
total revenues stood at 6.94 billion euros versus 7.31 billion euros in Third Quarter 2015, down 5.1% and down 4.1% like-for-like as a result of increasing pressure on unit revenue.
Currencies had a negative 77 million euro impact on revenues, primarily driven by the weakening of currencies other than the US dollar against the euro, notably the GBP, BRL and CNY. The negative effect of currencies on costs amounted to 17 million euros. The net impact of currencies on the operating result thus amounted to a negative 94 million euros.
Total operating costs were 3.5% lower year-on-year and down 3.8% on a like-for-like basis. Ex-fuel, they increased by 4.4% and by 3.8% on a like-for-like basis. Unit cost per EASK was down 0.2%, on a constant currency, fuel price and pension-related expense basis, against a capacity increase measured in EASK of +1.0%. On a strike adjusted base, the unit costs per EASK decreased by 1.0%.
The fuel bill amounted to 1,244 million euros, down 25.9% and down 25.6% like-for-like. Based on the forward curve at 21 October 2016, the Full Year 2016 fuel bill is expected to reach 4.6 billion euros and the Full Year 2017 fuel bill is expected to remain stable at 4.6 billion euros .
Total employee costs including temporary staff were stable at 1,837 million euros (down 0.1%). On a constant scope and pension-related expense basis, employee costs also remained stable (up 0.1%) and decreased by 3.5% excluding the increase in the profit sharing scheme.
In the , the downward pressure on unit revenues (REASK -6.5%) and the negative currency impact (94 million euros) more than offset the fuel bill savings achieved (399 million euros), where 55% of the fuel bill savings was retained during First Quarter 2016 and 15% retained during the Second Quarter 2016.
The operating result amounted to 737 million euros, a reported decrease of 143 million euros and down 49 million euros like-for-like. The operating result was notably impacted by the seven day cabin crew strike in July and August 2016, which had a negative impact of an estimated 90 million euros.
EBITDAR amounted to 1,419 million euros, a reported decrease of 162 million euros and down 72 million euros like-for-like.
EBITDA amounted to 1,149 million euros, a decrease of 174 million euros. Like-for-like, EBITDA decreased by 84 million euros, mainly as a result of the decrease in the Passenger network performance, which declined by 78 million euros like-for-like, impacted by the strike.
Third Quarter 2016 EBITDA decreased by 122 million euros like-for-like at Air France and improved by 35 million euros like-for-like at KLM. The EBITDA margin at Air France reached 14.0%, down 1.7 points like-for-like. At KLM, the EBITDA margin stood at 19.6%, up 1.5 points like-for-like.
In the , total revenues stood at 18.8 billion euros versus 19.5 billion euros in the First Nine Months of 2015, down 3.5% on a reported basis and on down 3.1% like-for-like. The fuel bill amounted to 3,507 million euros, a reported decrease of 27.2% and down 27.9% on a like-for-like basis. The ex-fuel unit costs at constant currency and pension expense is down 0.9% on a reported base and down 1.4% corrected for the June pilot and July Cabin crew strike.
In the First Nine Months of 2016, EBITDA amounted to a 2,143 million euros, an increase of 288 million euros. On a like-for-like basis, EBITDA increased by 497 million euros.
At 1,951 million euros, the Passenger Network was the main contributor to EBITDA, up 464 million euros like-for-like. Despite the challenging Cargo operating context, marked by structural industry overcapacity, Cargo EBITDA improved by 27 million euros like-for-like mainly as a result of restructuring efforts.
The operating result stood at 955 million euros versus 643 million euros in 2015, an improvement of 312 million euros. Like-for-like, the operating result increased by 531 million euros.
The net result, group share stood at 430 million euros against a negative 158 million euros a year ago.
At 30 September 2016, the trailing 12 months return on capital employed (ROCE) was 9.9%, up 2.8 points compared to 30 September 2015.
total passenger network revenues amounted to 5,470 million euros, down 7.2% and down 6.1% like-for-like. The Air France cabin crew strike negatively impacted the operating result by an estimated 90 million euros. The operating result of the passenger network business stood at 664 million euros, versus 798 million euros for the Third Quarter 2015. Like-for-like, the operating result was down 55 million euros.
The Group maintained its strict capacity discipline, keeping total passenger network capacity stable (+0.1% and +0.6% excluding strike). Unit revenue per Available Seat Kilometer (RASK) remained volatile and was on average down by 6.5% excluding currency. The increasing pressure on unit revenue compared to the previous quarters reflected the weak supply-demand balance in the different regions of the network and weak flows to France as a destination.
In the , passenger network revenues amounted to 14,883 million euros, down 4.3% and down 3.8% on a like-for-like basis. The operating result of the passenger network business stood at 983 million euros, versus 686 million euros in the First Nine Months of 2015, an improvement of 297 million euros and 476 million euros like-for-like.
The Group continued to restructure its Cargo activity to address the weak global trade and structural air cargo industry overcapacity. During , full-freighter capacity was thus reduced by 22%, leading to a decrease in total Cargo capacity of 3.1%. Revenue per Available Ton Kilometer (ATK) was down by 14.6% like-for-like.
The operating result stood at negative 100 million euros, a decline of 19 million euros like-for-like.
Cargo revenues amounted to 1,523 million euros, down 15.7% like-for-like. At -216 million euros, the operating result increased by 23 million like-for-like resulting from a strong decrease in unit costs (-11.9% like-for-like) due to restructuring measures implemeted.
One MD11 freighter was retired during the First Quarter, and two MD11 freighters were phased out during the first week of July 2016 reducing the total number of full freighters in operation to six.
third party maintenance revenues amounted to 482 million euros, up by 29.6% and by 30.3% like-for-like. Revenues were up from the contracts gained in previous years. Over the period, the maintenance order book recorded an 8.4% increase from the beginning of the year to reach 9.1 billion dollars, including several new A350 support contracts.
The operating result stood at 77 million euros, down 4 million euros year-on-year.
During the , third party maintenance revenues increased by 17.4% and by 16.4% like-for-like. At 172 million euros, the operating result improved by 5 million euros.
In the , Transavia capacity was up by 15.2%, reflecting the accelerated development in France (capacity up by 19%) and the opening of the Munich base on 25 March 2016. Traffic, measured in revenue passenger kilometers (RPK), rose by 14.5%. The load factor remained high (91.5%) despite the increase in capacity.
The unit revenue per ASK decreased by 3.2%, mainly due to geopolitical unrest and intensification of low cost competition. Unit costs per ASK decreased by 4.9%. The operating result stood at 92 million euros, up 26 million euros like-for-like.
In the , Transavia revenues amounted to 973 million euros, up 9.1%. The operating result increased by 38 million euros like-for-like and amounted to 17 million euros.
In the First Nine Months of 2016 the increase of 288 million euros in EBITDA translated into a 354 million euro increase in cash flow before change in working capital requirement and cash out related to Voluntary Departure Plans. The Group disbursed 208 million euros for Voluntary Departure Plans. The change in Working Capital Requirement contributed 45 million euros to operating cash flow. Net investments before sale & lease-back transactions stood at 1,457 million euros. As a result, operating free cash flow reached 250 million euros, down 272 million euros compared to the First Nine Months of 2015.
Net debt amounted to 4.2 billion euros at 30 September 2016, versus 4.3 billion euros at 31 December 2015, an improvement of 144 million euros. Currencies had a significant negative impact of 130 million euro on net debt.
The trailing 12 months adjusted net debt/EBITDAR ratio stood at 3.1x at 30 September 2016, down 0.3 points compared to 31 December 2015, and down 0.5 points compared to 30 September 2015.
The 95 basis point fall in discount rates (for period > 15 years) during First Nine Months 2016 led to a significant increase in the actuarial valuation of retirement obligations of more than 3.4 billion euros. The change in asset value amounted to 1,304 million euros during the First Nine Months. The balance sheet pension situation thus moved from a net liability of 177 million euros at 31 December 2015 to a net liability of 2,180 million euros at 30 September 2016 of which 1,622 million euros accounted for by Air France and 558 million euros by KLM`s defined benefit schemes.
The current funding agreement with the KLM Flight Deck Crew Union could result in a significant additional contribution to reach required coverage ratio to be able to grant indexation. Discussions with the KLM Flight Deck Crew Union have been initiated to renegotiate the current funding agreement. In parallel, the Group has decided to terminate this funding agreement on a unilateral way. A court ruling on September 27th 2016 confirmed that KLM is entitled to cancel the agreement, however KLM aims to reach a mutual acceptable new funding agreement with the KLM Flight Deck Crew Union and the pension fund.
At 30 September 2016, equity, group share, amounted to negative 230 million euros, down 503 million euros over the first nine months mainly due to the increase in the net pension liability.
The Group continues to enjoy a good level of liquidity, with net cash of 3.9 billion euros at 30 September 2016, and undrawn credit lines of 1.8 billion euros. During the course of October 2016, the Group successfully placed a six-year bond for 400 million euros and reimbursed a 600 million euros bond which was due in October 2016.
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The Third Quarter 2016 accounts are not audited by the Statutory Auditors.
The results presentation is available at www.airfranceklm.com on November 3 2016 from 8:30 am CET.
A conference call hosted by hosted by Mr Janaillac (CEO) and Mr Riolacci (CFO) will be held on November 3 2016 at 10.30 am CET.
To connect to the conference call, please dial:
Confirmation Code: 6217261
To listen to a recording of the conference in English, please dial:
Replay Passcode: 6217261
The Group studied various scenarios to ensure the development of its subsidiary Servair and opted for the participation of another company in the share capital of Servair. In March 2016, both Servair and Air France informed the representative bodies of their employees about this process. Taken into consideration the offers received by Air France, this should lead to a loss of control of Servair by Air France-KLM Group, as defined in IFRS 10 standard. Servair currently constitutes the main cash-generating unit of the segment "Other". The above elements have triggered the accounting treatment of the Servair Group in "discontinued operations" as of March 31, 2016, as defined in IFRS 5 standard. The consolidated figures as at March 31, 2015 have consequently been restated for the purpose of comparison.
During the First Half 2016, the third party revenues amounted to 195 million euros, resulting in a reported EBITDA of 15 million euros and an operating proft of 10 million euros.
In the context of this operation, the assets and liabilities of the Servair Group have been reclassified on the lines and , for respectively €380 million and €253 million as of June 30, 2016.
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