KLM Reports Operating Income of NLG 457 Million for the First Half Year

AMSTELVEEN, Netherlands (PROTEXT) - The following was released today by KLM (NYSE: KLM): Result for the half year ending September 30, 1999 * KLM today reports an operating income of NLG 457 million for the half year ending September 30, 1999 compared to NLG 638 million for the same period last year. * Capacity was up 1%, while traffic saw an increase of 2.4%, mainly due to strong growth in cargo volumes. * Group operating revenues, which were flat versus last year in the first quarter, increased by 1% in the second quarter. The increase for the first six months amounted to 0.3%. Group operating expenses increased by 3%. * Company unit revenues, although 2% below last year for the period show an upward trend. The half year was exited with unit revenue growth, while the half year was entered on a downward trend. Company unit costs increased by 5%. Excluding the effect of currency exchange rates, unit cost showed an increase of 3%. * An amount of NLG 50 million is included relating to reduced pension payments(2). * Net income before extraordinary items was NLG 229 million, down from previous year's level of NLG 572 million. Last years net income included an amount of NLG 148 million of results on the sale of holdings, and NLG 29 million as a consequence of the inclusion of 100%, instead of 50% of the net results of Martinair. At the time, it reflected the anticipated completion of the acquisition of the remaining 50% of Martinair not yet owned by KLM, a transaction that did not materialize. * The result from the sale of Galileo International is recorded as an extraordinary income item of NLG 898 million. Result for the quarter ending September 30, 1999 * Group operating income for the second quarter amounts to NLG 291 million, compared to NLG 377 million for the same period last year. The relative decrease in the second quarter was substantially lower than the decrease experienced in the first quarter. * Group operating revenues increased by 1%, while group operating expenses increased by 4%. * Company unit revenues saw an increase of 1%, while company unit costs increased by 8%. Excluding currency effects, unit costs saw an increase of 6%. * Net income for the quarter was NLG 152 million, compared to NLG 361 million last year. Earnings per share(1) amounted to NLG 3.23 (EUR 1.47) compared to NLG 5.85 (EUR 2.65) last year. Traffic, Capacity, Load Factor, Break-Even Load Factor (Company) KLM has continued its deliberately prudent capacity growth strategy in view of the general over-capacity in the market. Passenger capacity growth was kept at only 1%. Passenger traffic, which was flat for the first quarter, saw an increase again in the second quarter of 1%. Business Class traffic, which was still weak in the first quarter, was especially strong (+ 5%) in the second quarter, exceeding Economy Class growth. It is encouraging to note the upward trend in passenger yield, which was down 5% versus last year in the first quarter, but was flat for the second quarter. Despite strong growth in volume, Business Class yields are stable. Cargo volumes have shown healthy growth since early 1999 following the improvement of economic conditions in the Asia Pacific region. This continuing trend is also reflected in the number for the half year, where growth amounted to 6%. Although cargo yield is still below last year's levels, the trend is also upwards. Whereas for the first quarter, yield was still 6% below last year's levels, it was down a more modest 2% for the second quarter. (1) The 1999 EPS are based on the number of outstanding common shares, presuming that the reverse share split (formally agreed by the shareholders' meeting on August 3, 1999 and realised on October 11, 1999) was completed at September 30, 1999. (2) On the basis of an agreement which is expected to become effective within the next three months Cash flow and financial position. Cash Flow and Financial Position Cash flow from operating activities amounted to NLG 915 million in the first six months of fiscal year 1999/2000 and improved NLG 170 million compared to the same period last year. The net-debt-to-equity-ratio, which stood at 82 as per March 31, 1999, decreased to 62. As per September 30, 1999 proceeds from the sale of Galileo are still reflected in the cash position, while the amount of capital of NLG 1,015 million redeemed to common and preferred shareholders in October is included under current liabilities. When accounting for this capital restructuring (which was completed on October 11, 1999) the net- debt-to equity-ratio as per September 30, 1999 would have been 83. Business Developments The early signs of the improved operating environment are reflected in improved unit revenues, which -- although still down for the half year -- showed an increase of 1% for the second quarter. The half year was exited with unit revenue growth whilst we entered the period on a downward trend. In particular, overcapacity was experienced on the North Atlantic. Although cargo traffic shows healthy growth, particularly in the Asia Pacific region, cargo yields have not yet reached previous years levels. Against this background KLM continuous to intensify its efforts to reduce controllable costs. Prospects The operating environment, although more difficult than we have seen for a long time, is improving, resulting in stronger traffic growth, especially in Business Class, and higher yields. This trend continues into the third quarter. Although excess capacity remains a factor of significance, we expect that overall unit revenues will show continued improvement during the second half of fiscal year 1999/2000. The anticipated agreement with the unions will result in a reduction of pension payments by the company of approximately NLG 100 million for the full year, NLG 50 million of which has been taken in the first half year. A NLG 25 million reduction will be reported for each of the two remaining quarters of this fiscal year. For the first half of the fiscal year 1999/2000 fuel expense was NLG 29 million below previous year, largely as a result of effective fuel hedging. Since July of this year, fuel prices have risen by more than 30%. Our hedge position in the second half year is less extensive than in the first half. We estimate that the year-on-year increase in fuel expense for the second half year will be in the order of NLG 200 million. In conclusion, we expect a significant improvement in revenues for the second half year, provided operating conditions remain stable. However, the increase in operating expenses, mainly driven by increased fuel prices, is expected to more than offset the revenue gain. On balance, we expect group operating income also for the second half year to decrease versus previous year, but, significantly less so than in the first half year. Additional targets have been set to reverse the trend of rising controllable unit costs. We continue to focus on implementing our alliance strategy that should deliver our vision of becoming one of the strongest players in the global aviation industry together with our partners. Significant achievements in the past six months have been the signing of the Settlement Agreement with Alitalia on July 30, and the regulatory approval received from the European Commission's Merger Task Force on August 11. KLM and Alitalia are set to fully integrate their network organizations, a level of integration yet unseen in the industry. On November 1, the Passenger and Cargo Joint Ventures commenced under a single, unified management structure. This report is unaudited. The Board of Managing Directors ots Original Text Service: KLM Internet: http://www.newsaktuell.de Contact: Bert Menkveld, +31-20-649-5917, or Martine Eisma, +31-20-648-9379, both of KLM Web site: http://www.klm.com Subscribers please note that material bearing the slug "PROTEXT" is not part of CTK's news service and is not to be published under the "CTK" slug. Protext is a commercial service providing distribution of press releases from clients, who are identified in the text of Protext reports and who bear full responsibility for their contents. PROTEXT