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Air France-KLM Financial Year 2016: First Half results.

August 1, 2016 Financial No Comments Print Print Email Email

SECOND QUARTER

  • Revenues of 6.22 billion euros, down 5.2% and down 3.7% like-for-like[1], with clear deterioration during the quarter
  • Non fuel unit costs down 1.5% at constant currency
  • EBITDA[2] of 728 million euros, a reported increase of 171 million euros and up 211 million euros like-for-like
  • Operating result of 317 million euros, an improvement of 138 million euros and up 183 million euros like-for-like

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[1] Like-for-like: excluding currency. Same definition applies in rest of press release
[2] See definition in appendix

FIRST HALF

  • Revenues of 11.82 billion euros, down 2.6% both reported and like-for-like
  • EBITDAR of 1,522 million euros, an improvement of 486 million euros, up 597 million euros like-for-like
  • Strong operating free cash flow2 generation: 373 million euros
  • Further net debt reduction: net debt2 of 4.04 billion euros, down 265 million euros compared to 31 December 2015
  • Adjusted net debt / EBITDAR2 ratio of 2.9x, an improvement of 0.5 points compared to 31 December 2015

FULL YEAR 2016 OUTLOOK

  • High level of geopolitical and economic uncertainties, increasing pressure on unit revenues and special concern about France as a destination
  • Impact of fuel savings on P&L expected to be more than offset in the coming quarters by downward pressure on unit revenue and negative currency impacts
  • Continued progress in unit cost reduction, targeted at around 1% ex fuel in 2016
  • Free operating cash flow generation after disposals maintained between 0.6 billion euros and 1.0 billion euros in 2016
  • Further significant net debt reduction

The Board of Directors of Air France-KLM, chaired by Jean-Marc Janaillac, met on 26th July 2016 to approve the accounts for the First Half of the Financial Year 2016.

Key data

Second Quarter

First Half

2016

2015*

Change

2016

2015*

Change

Passengers (thousands)

24,385

23,579

+3.4%

44,281

42,601

+3.9%

Capacity (EASK m)

85,948

85,807

+0.2%

163,392

163,039

+0.2%

Revenues (€m)

6,215

6,558

-5.2%

11,820

12,140

-2.6%

Change like-for-like (%)

-3.7%

-2.6%

EBITDAR (€m)

991

812

+179

1,522

1,036

+486

EBITDA (€m)

728

557

+171

994

531

+463

EBITDA margin (%)

11.7%

8.5%

+3.2 pt

8.4%

4.4%

+4.0 pt

EBITDA change like-for-like (€m)

+211

+582

Operating result (€m)

317

179

+138

218

-238

+456

Operating margin (%)

5.1%

2.7%

+2.4 pt

1.8%

-2.0%

+3.8 pt

Operating result changelike-for-like (€m)

+183

+580

Net result, group share (€m)

41

-79

+120

-114

-638

+524

Restated net result, group share2(€m)

78

75

+3

-24

-431

+407

Earnings per share (€)

0.14

(0.27)

+0.41

(0.43)

(2.16)

+1.73

Diluted earnings per share (€)

0.13

(0.27)

+0.40

(0.43)

(2.16)

+1.73

Adjusted earnings per share (€)

0.24

0.24

+0

(0.12)

(1.46)

+1.34

Diluted adjusted earnings per share (€)

0.22

0.21

+0.01

(0.12)

(1.46)

+1.34

Operating free cash flow (€m)

177

311

-134

373

265

+108

Net debt at end of period (€m)

4,042

4,307

-265

* Servair reclassified as discontinued operation.

The consolidated financial statements of the Group were revised as of 1st 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.

Second Quarter 2016 total revenues stood at 6.22 billion euros versus 6.56 billion euros in Second Quarter 2015, down 5.2% as a result of increasing pressure on unit revenue and down 3.7% like-for-like.

Currencies had a negative 104 million euro impact on revenues, primarily driven by the weakening of currencies other than the US dollar against the euro, notably the BRL, GBP, CNY, CAD and ZAR. The negative effect on revenues was partly offset by the positive effect of currencies on costs, which amounted to 58 million euros. The net impact of currencies on the operating result thus amounted to a negative 46 million euros.

Total operating costs were 7.5% lower year-on-year and down 6.7% on a like-for-like basis. Ex-fuel, they increased by 0.3% and by 0.5% on a like-for-like basis. Unit cost per EASK was down 1.5%, on a constant currency, fuel price and pension-related expense basis, against stable capacity measured in EASK (+0.3%).

The fuel bill amounted to 1,167 million euros, down 29.7% and down 27.6% like-for-like. Based on the forward curve at 15 July 2016, the Full Year 2016 fuel bill is expected to reach 4.6 billion euros[1] and the Full Year 2017 fuel bill could amount to 4.4 billion euros.

Total employee costs including temporary staff were down 2.7% to 1,862 million euros. On a constant scope and pension-related expense basis, employee costs decreased by 2.9% and by 3.6% excluding the increase in the profit sharing scheme.

Over the Second Quarter 2016, 15% of the savings achieved on the fuel bill were retained, down significantly from the 55% retained during First Quarter 2016. During the Second Quarter, the positive fuel price effect of 408 million euros was largely offset by pressure on unit revenues (negative 300 million euros) and currency impacts (negative 46 million euros).

EBITDAR amounted to 991 million euros, a reported increase of 179 million euros and up 226 million euros like-for-like.

EBITDA amounted to 728 million euros, an increase of 171 million euros. Like-for-like, EBITDA increased by 211 million euros, mainly as a result of the strong Passenger network performance, which improved by 186 million euros like-for-like.

Second Quarter

First Half

EBITDA per business (€m)

2016

2015*

Change

like-for-like

2016

2015*

Change

like-for-like

Passenger network

675

518

+157

+186

952

510

+442

+541

Cargo

-61

-80

+19

+24

-103

-128

+25

+37

Maintenance

108

112

-4

-1

193

197

-4

-4

Transavia

2

-1

+3

+9

-50

-59

+9

+20

Other

4

9

-5

-7

2

11

-9

-12

Total

728

557

+171

+211

994

531

+463

+582

* Servair reclassified as discontinued operation.

Second Quarter 2016 EBITDA improved by 60 million euros like-for-like at Air France and 151 million euros like-for-like at KLM. EBITDA margins were up at both airlines, reaching 10.0% at Air France and 13.8% at KLM.

Second Quarter

First Half

EBITDA per airline (€m)

2016

2015*

Change

like-for-like

2016

2015*

Change

like-for-like

Air France

382

333

+49

+60

532

347

+185

+240

EBITDA margin

10.0%

8.2%

+1.8 pt

+2.1 pt

7.2%

4.5%

+2.7 pt

+3.4 pt

KLM

341

220

+121

+151

459

178

+281

+346

EBITDA margin

13.8%

8.6%

+5.2 pt

+6.4 pt

10.0%

3.8%

+6.1 pt

+7.6 pt

Other/ eliminations

5

4

+1

+0

3

7

-4

+4

Total

728

557

+171

+211

994

531

+463

+582

* Servair reclassified as discontinued operation.

In the First Half 2016, total revenues stood at 11.8 billion euros versus 12.1 billion euros in the first half 2015, down 2.6% reported and on a like-for-like basis. The fuel bill amounted to 2,263 million euros, a reported decrease of 28.0% and down 29.1% on a like-for-like basis.

Over the first six months, savings achieved on the fuel bill (positive 858 million euros excluding currency) were partly offset by pressure on unit revenues (negative 419 million euros excluding currency) and negative currency impacts (negative 125 million euros) resulting in 37% of the fuel savings being retained.

In the First Half 2016, EBITDA amounted to a positive 994 million euros, an increase of 463 million euros. On a like-for-like basis, EBITDA increased by 582 million euros.

At 952 million euros, the Passenger Network was the main contributor to the EBITDA, up 541 million euros like-for-like. Despite the challenging Cargo operating context, marked by structural industry overcapacity, Cargo EBITDA improved by 37 million euros like-for-like mainly as a result of restructuring efforts.

The operating result stood at 218 million euros versus negative 238 million euros in 2015, an improvement of 456 million euros. Like-for-like, the operating result increased by 580 million euros.

The net result, group share stood at negative a 114 million euros against a negative 638 million euros a year ago.

At 30 June 2016, the trailing 12 months return on capital employed (ROCE) was 11.7%, up 6.3 points compared to 30 June 2015.

Passenger network[2] business

Passenger network

Q2 2016

Q2 2015

Change

Change

like-for-like

Passengers (thousands)

20,621

20,487

+0.7%

Capacity (ASK m)

69,799

69,947

-0.2%

Traffic (RPK m)

59,104

59,453

-0.6%

Load factor

84.7%

85.0%

-0.3 pt

Total passenger revenues (€m)

4,940

5,242

-5.8%

-4.3%

Scheduled passenger revenues (€m)

4,733

5,024

-5.8%

-4.4%

Unit revenue per ASK (€ cts)

6.78

7.18

-5.6%

-4.1%

Unit revenue per RPK (€ cts)

8.01

8.45

-5.2%

-3.8%

Unit cost per ASK (€ cts)

6.30

6.88

-8.5%

-7.6%

Operating result (€m)

337

210

+127

+156

Second Quarter 2016 total passenger network revenues amounted to 4,940 million euros, down 5.8% and down 4.3% like-for-like. The Air France pilot strike negatively impacted the operating result by an estimated 40 million euros. The operating result of the passenger network business stood at 337 million euros, versus 210 million euros for the Second Quarter 2015. Like-for-like, the operating result was up 156 million euros.

The Group maintained its strict capacity discipline, keeping total passenger network capacity stable (-0.2%). Unit revenue per Available Seat Kilometer (RASK) remained volatile and was on average down by 4.1% excluding currency. The increasing pressure on unit revenue during the quarter reflected the weak supply-demand balance in the different regions of the network and increasingly soft flows to France as a destination.

Passenger network

H1 2016

H1 2015

Change

Change

like-for-like

Passengers (thousands)

38,624

37,853

+2.0%

Capacity (ASK m)

134,642

134,054

+0.4%

Traffic (RPK m)

113,910

112,370

+1.4%

Load factor

84.6%

83.8%

+0.8 pt

Total passenger revenues (€m)

9,413

9,663

-2.6%

-2.4%

Scheduled passenger revenues (€m)

9,007

9,248

-2.6%

-2.4%

Unit revenue per ASK (€ cts)

6.69

6.90

-3.0%

-2.8%

Unit revenue per RPK (€ cts)

7.91

8.23

-3.9%

-3.7%

Unit cost per ASK (€ cts)

6.45

6.98

-7.6%

-8.4%

Operating result (€m)

319

-112

+431

+531

In the First Half 2016, passenger network revenues amounted to 9,413 million euros, down 2.6% and down 2.4% on a like-for-like basis. The operating result of the passenger network business stood at319 million euros, versus a negative 112 million euros in the First Half 2015, an improvement of 431 million euros and 531 million euros like-for-like.

The capacity outlook is unchanged with an increase over the Full Year 2016 of around 1% Available Seat Kilometer (ASK) in the passenger network expected as a result.

Cargo business

Cargo

Q2 2016

Q2 2015

Change

Change

like-for-like

Tons (thousands)

282

295

-4.6%

Capacity (ATK m)

3,565

3,684

-3.2%

Traffic (RTK m)

2,087

2,193

-4.8%

Load factor

58.5%

59.5%

-1.0 pt

Total Cargo revenues (€m)

507

604

-16.1%

-14.0%

Scheduled cargo revenues (€m)

465

562

-17.3%

-15.2%

Unit revenue per ATK (€ cts)

13.0

15.3

-14.9%

-12.9%

Unit revenue per RTK (€ cts)

22.3

25.8

-13.5%

-11.4%

Unit cost per ATK (€ cts)

14.9

17.4

-14.6%

-14.0%

Operating result (€m)

-66

-78

+12

+21

The Group continued to restructure its Cargo activity to address the weak global trade and structural air cargo industry overcapacity. During Second Quarter 2016, full-freighter capacity was thus reduced by 16%, leading to a decrease in total Cargo capacity of 3.2%. Revenue per Available Ton Kilometer (ATK) was down by 12.9% like-for-like.

The operating result stood at negative 66 million euros, an improvement of 21 million euros like-for-like resulting from a strong decrease in unit costs (-14.0% like-for-like) due to the restructuring measures taken.

Cargo

H1 2016

H1 2015

Change

Change

like-for-like

Tons (thousands)

558

596

-6.5%

Capacity (ATK m)

6,999

7,418

-5.6%

Traffic (RTK m)

4,121

4,454

-7.5%

Load factor

58.9%

60.0%

-1.2 pt

Total Cargo revenues (€m)

1,036

1,229

-15.7%

-15.5%

Scheduled cargo revenues (€m)

957

1,150

-16.8%

-16.7%

Unit revenue per ATK (€ cts)

13.7

15.5

-12.0%

-11.9%

Unit revenue per RTK (€ cts)

23.2

25.9

-10.3%

-10.2%

Unit cost per ATK (€ cts)

15.3

17.4

-12.1%

-12.8%

Operating result (€m)

-116

-141

+25

+38

First Half 2016 Cargo revenues amounted to 1,036 million euros, down 15.5% like-for-like. At -116 million euros, the operating result increased by 38 million like-for-like.

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. This reduction should enable the full-freighter business to return to operating breakeven in 2017. The operating result of the Full Freighter business stood at negative 12 million euros over the first six months of 2016, an improvement of 25 million euros compared to the First Half 2015.

Maintenance business

Maintenance

Q2 2016

Q2 2015

Change

Change

like-for-like

Total revenues (€m)

1,000

999

+0.1%

Third party revenues (€m)

435

395

+9.8%

12.9%

Operating result (€m)

57

51

+6

+9

Operating margin (%)

5.7%

5.1%

+0.6 pt

+0.9 pt

Second Quarter 2016 third party maintenance revenues amounted to 435 million euros, up by 9.8% and by 12.9% like-for-like. Revenues benefited not only from the strong dollar relative to the euro but also from the contracts gained in previous years.

The operating result stood at 57 million euros, up 6 million euros year-on-year, and up 9 million euros like-for-like.

Maintenance

H1 2016

H1 2015

Change

Change

like-for-like

Total revenues (€m)

2,006

1,959

+2.1%

Third party revenues (€m)

866

775

+11.6%

9.9%

Operating result (€m)

95

86

+9

+9

Operating margin (%)

4.7%

4.4%

+0.4 pt

+0.3 pt

During the First Half 2016, third party maintenance revenues increased by 11.6% and by 9.9% like-for-like. At 95 million euros, the operating result improved by 9 million euros.

Over the period, the maintenance order book recorded a further 10% increase to reach a record high of 9.2 billion dollars, including several new A350 support contracts.

Transavia

Transavia

Q2 2016

Q2 2015

Change

Passengers (thousands)

3,764

3,092

+21.7%

Capacity (ASK m)

7,225

6,446

+12.1%

Traffic (RPK m)

6,387

5,819

+9.8%

Load factor

88.4%

90.3%

-1.9 pt

Total passenger revenues (€m)

323

304

+6.3%

Scheduled passenger revenues (€m)

322

302

+6.6%

Unit revenue per ASK (€ cts)

4.46

4.69

-4.9%

Unit revenue per RPK (€ cts)

5.04

5.19

-2.9%

Unit cost per ASK (€ cts)

4.62

4.78

-3.3%

Operating result (€m)

-12

-6

-6

In the Second Quarter 2016, Transavia capacity was up by 12.1%, reflecting the accelerated development in France (capacity up by 30%) and the opening of the Munich base on 25th March 2016. Traffic, measured in revenue passenger kilometers (RPK), rose by 9.8%. The load factor remained high (88.4%) despite the increase in capacity.

The unit revenue per ASK decreased by 4.9%, mainly due to geopolitical unrest and intensification of low cost competition. Unit costs per ASK decreased by 3.3% and by 10.0% at constant currency and stage length. The operating result stood at a negative 12 million euros, down 6 million euros but stable like-for-like.

Transavia

H1 2016

H1 2015

Change

Passengers (thousands)

5,657

4,748

+19.1%

Capacity (ASK m)

10,943

9,877

+10.8%

Traffic (RPK m)

9,650

8,836

+9.2%

Load factor

88.2%

89.5%

-1.3 pt

Total passenger revenues (€m)

483

450

+7.3%

Scheduled passenger revenues (€m)*

475

443

+7.2%

Unit revenue per ASK (€ cts)

4.34

4.50

-3.5%

Unit revenue per RPK (€ cts)

4.92

5.03

-2.1%

Unit cost per ASK (€ cts)

5.03

5.26

-4.3%

Operating result (€m)

-75

-75

+0

In the First Half 2016, Transavia revenues amounted to 483 million euros, up 7.3%. The operating result remained stable at a negative 75 million euros.

The rapid development of Transavia will continue in the Second Half of 2016, a capacity increase, measured in Available Seat Kilometer (ASK), of around 15% for the Full Year 2016, unchanged on the previous outlook.

Financial situation

In € million

H1 2016

H1 2015*

Change

Cash flow before change in WCR and Voluntary Departure Plans, continuing operations

+809

+318

+491

Cash out related to Voluntary Departure Plans

-173

-97

-76

Change in Working Capital Requirement (WCR)

+793

+853

-60

Operating cash flow

+1,429

+1,074

+355

Net investments before sale & lease-back

-1,056

-809

-247

Cash received through sale & lease-back transactions

+0

+0

+0

Net investments after sale & lease-back

-1,056

-809

-247

Operating free cash flow

+373

+265

+108

* Servair reclassified as discontinued operation.

In the First Half 2016, the increase of 463 million euros in EBITDA translated into a 491 million euro increase in cash flow before change in WCR and cash out related to Voluntary Departure Plans. The Group disbursed 173 million euros for Voluntary Departure Plans. The change in Working Capital Requirement contributed 793 million euros to operating cash flow. Net investments before sale & lease-back transactions stood at 1,056 million euros. As a result, operating free cash flow reached 373 million euros, up 108 million euros compared to the First Half of 2015.

Net debt amounted to 4.0 billion euros at 30 June 2016, versus 4.3 billion euros at 31 December 2015, an improvement of 265 million euros. Currencies had a significant negative impact of 142 million euro on net debt.

The trailing 12 months adjusted net debt/EBITDAR ratio stood at 2.9x at 30 June 2016, down 0.5 points compared to 31 December 2015, and down 1.0 points compared to 30 June 2015.

The 80 basis point fall in discount rates (for period > 20 years) during First Half 2016 led to another significant increase in the actuarial valuation of retirement obligations of more than 2.7 billion euros. The change in asset value amounted to 811 million euros during the First Half. The balance sheet pension situation thus moved from a net liability of 177 million euros at 31 December 2015 to a net liability of 1,979 million euros at 30 June 2016.

At 30 June 2016, equity, group share, amounted to negative 733 million euros, down 1,006 million euros over the First Half mainly due to the increase in the net pension liability.

The Group continues to enjoy a good level of liquidity, with net cash of 3.8 billion euros at 30 June 2016, and undrawn credit lines of 1.8 billion euros.

Outlook

The global context in 2016 remains highly uncertain regarding the geopolitical and economic environment in which we operate, fuel prices and the continuation of the overcapacity in the airline industry resulting in an increasing pressure on unit revenues and a special concern about France as a destination.

Under these conditions, the Group is expecting for Full Year 2016:

  • Free operating cash flow generation after disposals is maintained between 0.6 billion euros and 1.0 billion euros. The updated 2016 investment plan (between 1.8 billion euros and 2.0 billion euros, including buying back aircraft under operating lease) and disposals programme (between 0.3 billion euros and 0.6 billion euros) will continue to be adjusted depending on operating cashflow generation
  • Impact of fuel savings on the P&L expected to be more than offset in the coming quarters by downward pressure on unit revenue and negative currency impacts
  • Non fuel unit cost reduction target remain around 1% at constant currency
  • Further significant reduction in net debt

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