Air France-KLM - 2012 year results

FISCAL YEAR 2012

FOURTH QUARTER
 Revenues up 4.6% to 6.30 billion euros (+2.3% ex currency)
 Unit cost down 0.9% at constant currency and fuel price
 Reduction in operating loss (-143 million euros versus -202 million euros at 31st
December 2011)

FULL YEAR
 Revenues up 5.2% to 25.63 billion euros (+2.5% ex currency)
 Increase of 890 million euros in fuel bill
 Reduction in operating loss (-300 million euros versus -353 million at 31st
December 2011)
 Net result of -1.19 billion euros after 471 million euros in restructuring charges
 Net debt reduced to 6 billion euros (6.5 billion euros a year earlier)

2013 OBJECTIVE
 Further reduction in unit cost* and net debt
The Board of Directors of Air France-KLM, chaired by Jean-Cyril Spinetta, met on 21st February 2013
to approve the accounts for full year 2012.

Jean-Cyril Spinetta made the following comments: "The year 2012 was characterized by a slowdown in global growth and recession in Europe, but nevertheless saw a sharp increase in the fuel price. Despite this very tough context, our results were in line with our expectations, with the first effects of the Transform plan enabling us to reduce the operating loss.

Most importantly, it was a year in which our fundamentals were restored, as the first, necessary step towards the recovery of our group. Our working practices have been overhauled, industrial projects have been determined for each of our businesses while reducing costs and improving our financial position.

In 2013 we will maintain strict discipline in terms of capacity management, investments and costs. 2013 will also see the full implementation of all our projects. It is therefore a crucial year for the success of the Transform plan, and the return to sustainable profitability. On behalf of the Board, I would like to thank the employees of the group for their commitment, and the work they have accomplished during the past 12 months."

Fourth Quarter 2012
Activity: Ongoing capacity control
The passenger business continued its on-going performance improvement in the fourth quarter, in contrast to the cargo business.

In the passenger activity, traffic was stable for capacity down by 0.2% and a load factor of 81.9% (0.2 points). Unit revenue per available seat kilometre (RASK) rose by 5.8% and by 3.4% ex- currency. Revenues amounted to 4.93 billion euros (5.3%) after a favourable currency effect (2.3%). The operating result of the passenger business stood at -137 million euros (-224 million euros at December 2011) after a rise of 156 million euros in the fuel bill.

In the cargo business, the decline in traffic (-5.9%) was in line with capacity (-5.6%), leading to a virtually stable load factor of 67.4% (-0.2 points). Unit revenue per available tonne kilometre (RATK) rose by 4.3% (+1.5% ex-currency). Weak volumes weighed on revenues which amounted to 791 million euros (-1.4%).The operating result stood at -25 million euros compared to break-even in 2011.

Maintenance generated revenues of 317 million euros (273 million euros a year earlier) and an operating result of 37 million euros (versus 43 million euros in Q4 2011).
The revenues of the other activities stood at 264 million euros (-1.9%) and the operating result at -18 million euros (-21 million euros a year earlier).

Total revenues for the group stood at 6.30 billion euros against 6.02 billion euros at 31st December 2011, up 4.6% after a favourable currency impact of 2.3%.

Reduction in operating loss
Operating costs were well contained, up by 3.5% after a negative currency impact of 2.2%. Ex-fuel, they rose by just 1.1%. Measured in equivalent available seat kilometre, unit costs rose by 4.1%, but were down 0.9% on a constant currency and fuel price basis, for production measured in equivalent available seat kilometre (EASK) down by 0.7%.

The main increases in costs related to those denominated in dollars, notably fuel, operating leases and aircraft maintenance, the dollar having appreciated by 5% during the quarter. The fuel bill was up by 167 million euros to 1.79 billion euros under the combined effect of a decrease in volumes of 4%, a negative currency effect of 5% and a decline in fuel cost after hedging of 1%. Employee costs rose by 1.7% to 1.89 billion euros after booking an additional pension charge at KLM of 18 million euros based on the actuarial assumptions at 31st December 2011.

The operating result amounted to -143 million euros (-202 million euros a year earlier). The adjusted operating result stood at -62 million euros. Elsewhere the group booked an additional restructuring provision of 99 million euros in non-recurring costs.

Net interest costs were down by some 10 million euros to 89 million euros. Other financial income and costs stood at 101 million euros (50 million euros at Q4 2011) of which 91 million euros in currency result.

The net result, group share stood at -235 million euros (-259 million euros at 31st December 2011). Earnings and diluted earnings per share stood at -0.79 euros (-0.52 euros before restructuring provision).

Full Year 2012
The passenger business recorded traffic and capacity up by 2.1% and 0.6% respectively. The load factor gained 1.2 points to 83.1%. Unit revenue per available seat (RASK) rose by 5.9% and by 3.2% ex-currency. In the cargo business, traffic declined sharply (-6.3%) for capacity down by 3.5% leading to a 1.9 point decline in load factor to 64.5%. Unit revenue per available tonne kilometre (RATK) was stable but down by 3.8% ex-currency.

Total revenues amounted to 25.63 billion euros (+5.2% after a favourable currency effect of 2.7%). Operating costs were up by 1.8% ex-fuel and by 4.9% with fuel and a negative currency impact of 3.0%. The main change was the fuel bill which rose by 890 million euros to 7.33 billion euros, mainly due to the appreciation of the dollar. Employee costs of 7.66 billion euros were up by 2.7% after 81 million euros in additional pension charges at KLM based on actuarial assumptions at 31st December 2011.

The operating result stood at -300 million euros (-353 million euros at 31st December 2011) and the adjusted operating result was 25 million euros.

Net interest charges declined to 353 million euros against 371 million euros a year earlier. Other financial income and costs went from -180 million euros to +139 million euros of which a positive currency result of 62 million euros (-116 million euros at 31st December 2011) and a positive change in the fair value of hedging instruments of 62 million euros (-66 million euros in 2011).

Taking account of these elements as well as the restructuring provision of 471 million euros, the net result, group share, amounted to -1.19 billion euros (-809 million euros a year earlier). Earnings and diluted earnings per share stood at -4.03 euros per share (-2.73 euros a year earlier). Excluding restructuring provision, earnings per share stood at -2.49 (-2.73 at 31st December 2011).

Reduction in net debt
Investments amounted to 1.47 billion euros and disposals to 745 million euros (2.43 billion euros and 1.17 billion euros respectively in 2011). To these investments are added 175 million euros in non- monetary transactions. Operational cash flow stood at 851 million euros. The group has cash of 3.9 billion euros and available credit lines of 1.85 billion euros. In December, the Air France-KLM holding company issued 500 million euros in bonds at a rate of 6.25%, maturing in 2018.

Shareholders’ funds amounted to 4.98 billion euros. Net debt was reduced from 6.51 billion euros at 31st December 2011 to 5.97 billion euros at 31st December 2012 thanks notably to the partial sale of Amadeus shares. However under the impact of the reduction in shareholders’ funds, the gearing ratio3 increased (1.20 versus 1.07 at 31st December 2011). On the other hand the financial cover ratios improved and the group respects all its covenants.

Application of IAS 19R
IAS19R will be applied to pensions as of 1st January 2013, backdated to 1st January 2012. In terms of the balance sheet, the suppression of the corridor leads to the booking of the actuarial differences directly to equity. At 31st December 2012, this negative impact is valued at 1.3 billion euros after tax. At the P&L level, the main impact comes from the fact that the expected return on plan assets is henceforth calculated at the discounted rate of the obligations. It should be noted that this impact is non-cash. As a result of the application of the revised norm and the reduction in the discount rate, the group should book in 2013 an increase in the pension charge of the order of 130 million euros compared with 2012 published accounts.

2013 Outlook
2013 has started amid an uncertain environment with further volatility in the fuel price and currencies. Against this backdrop, the group will maintain strict control over capacity and investments. At the same time, the ‘Transform 2015’ plan will be fully rolled out. In these conditions, the group’s objective is to reduce both unit cost at constant currency and fuel price and net debt.