Transat A.T. Inc. - Results for Fourth Quarter and Fiscal 2015

"Once again, an excellent summer" - Jean-Marc Eustache, President and CEO

For the fourth quarter:

• Revenues of $839.2 million, compared with $844.7 million in 2014.
• Adjusted operating income¹ of $86.7 million, compared with $76.0 million in 2014.
• Adjusted net income³ of $54.8 million, compared with $49.4 million in 2014.
• Net income attributable to shareholders of $69.1 million, compared with $30.6 million in 2014, the variance reflecting mainly the impact of fuel hedging contracts accounting.

For the 12-month period:

• Revenues of $3.6 billion, compared with $3.8 billion in 2014.
• Adjusted operating income¹ of $100.8 million, compared with $99.9 million in 2014.
• Adjusted net income³ of $42.9 million, compared with $45.2 million in 2014.
• Net income attributable to shareholders of $42.6 million, compared with $22.9 million in 2014.

MONTREAL, Dec. 10, 2015 /CNW Telbec/ - Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, posted revenues of 839.2 million for the quarter ended October 31, 2015, compared with $844.7 million in 2014, a decrease of $5.5 million, or 0.6%. The Corporation recorded adjusted operating income¹ of $86.7 million, compared with $76.0 million in 2014; and net income attributable to shareholders of $69.1 million ($1.82 per share basic and diluted), compared with $30.6 million ($0.79 per share basic and diluted) in 2014. Before non-operating items, Transat reported adjusted net income³ of $54.8 million for the fourth quarter of 2015 ($1.44 per share), compared with $49.4 million ($1.27 per share) in 2014.

"Our offering is increasingly distinctive and attractive to travellers. Hence, the very good results we recorded on the transatlantic market, which represents the lion's share of our business in summer," commented Jean-Marc Eustache, Transat's President and Chief Executive Officer "We also posted a profit on sun destinations in the summer. These are among the best second-half results we have ever recorded, and this at a time when global capacity was up 7% on the transatlantic market. We did better only once, in 2013. All in all, this was an excellent summer. Our efforts on all fronts, including costs, product, brand, marketing and yield management, have produced the results we expected."

Fourth-quarter highlights

The Corporation posted revenues of $839.2 million, compared with $844.7 million in 2014. The decrease of $5.5 million, or 0.6%, stems mainly from a decrease in average selling prices triggered by lower fuel costs. The Corporation recordedan adjusted operating income¹ of $86.7 million, compared with $76.0 million for the same period in 2014. During the quarter, the Corporation's capacity was up by 3.6% on the transatlantic market and by 10.8% on sun destinations, compared with 2014, contributing to a 3.9% increase in the total number of travellers.

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $17.1 million (2.9%) compared with the same period in 2014. On the transatlantic market, average selling prices were down 1.7% and the number of travellers was up 1.8%. On sun destinations, the number of travellers was up 10.7% and selling prices were up 3.5%. The increase in revenues stemmed mainly from the transfer of some European sales to Canada, following the introduction of a new booking platform. North American business units recorded an operating income of $56.2 million, compared with $42.4 million (after restructuring charges of $4.2 million) in 2014. On the transatlantic market, the Corporation's main business segment in the summer, Transat successfully managed the decrease in selling prices, in light of sharply declining fuel costs and intense competition, thanks to an offering well aligned with traveller's expectations, which contributed to improved results.

Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $22.6 million (9.2%). The decrease stemmed in part from the transfer of some European sales to Canada, following the introduction of a new booking platform. It is also attributable to a decrease in bookings to North African and certain Mediterranean basin destinations, as well as lower tour sales to the United States, in the wake of a weaker euro. The number of travellers was 13.3% lower than in 2014. Average selling prices were slightly higher compared to 2014, due in part to variances in the product mix. European operations generated an operating income of $16.1 million, compared with $15.0 million in 2014. The favourable variance is the result of supply management and cost-control efforts.

12-month period highlights

For fiscal 2015, the Corporation posted revenues of $3.6 billion, compared with $3.8 billion in 2014, and an adjusted operating income¹ of $100.8 million, compared with $99.9 million in 2014. The decrease in revenues is mainly attributable to the winter season. Compared with 2014, weaker results in the winter were offset by better results in the summer. For the year, the number of travellers was down 2.6%.

For the winter season, Transat posted revenues of $1.8 billion, versus $2.0 billion in 2014, and an adjusted operating loss¹ of $32.4 million, compared with $23.9 million in 2014. Capacity on sun destinations was down 6.3%, which largely contributed to a 7.4% decrease in the global number of travellers. On that market, average selling prices were higher, offsetting the increase in operational costs that resulted from the combined effect of a lower Canadian dollar compared to the US currency and lower fuel costs. The decrease in operating income is mainly attributable to France, where market conditions were very difficult and translated into a lower number of travellers and a decrease in margins on tours.

For the summer, Transat posted revenues of $1.8 billion, as in 2014, and an adjusted operating income¹ of $133.2 million, compared with $123.8 million in 2014. On the transatlantic market, the Corporation's main business segment in the summer, Transat successfully managed the decrease in selling prices, in light of sharply declining fuel costs and intense competition, thanks to an offering well aligned with traveller's expectations, which contributed to improved results compared to 2014.

Ocean Hotels, which is 35% owned by Transat, contributed $7.0 million to the Corporation's net income for the year, compared with $8.1 million in 2014. During 2015, the Corporation received a $6.7 million dividend, and the stronger US dollar resulted in a $13.6 million increase of the equity participation value on the balance sheet as the investment is in US dollars. Transat's equity participation in Ocean Hotels accounted for $97.9 million in assets as of October 31, 2015, compared with $83.9 million as of October 31, 2014.

Financial situation

As at October 31, 2015, the Corporation's free cash totalled $336.4 million, compared with $308.9 million at the same date in 2014. The working capital ratio was 1.09, compared to 1.12 as at October 31, 2014, and deposits from customers for future travel amounted to $489.6 million, compared with $424.5 million as at October 31, 2014. Off-balance-sheet agreements, excluding contracts with service providers, stood at $713.7 million as at October 31, 2015, compared with $690.3 million as at October 31, 2014, the increase being attributable to seasonal leasing agreements for additional Boeing 737 aircraft, and the rise of the US currency, partially offset by payments made during the year.

The Corporation initiated a Normal Course Issuer Bid on April 15, 2015. As of October 31, 2015, the Corporation has purchased 1,296,090 shares for a cash consideration of $9.4 million. As of December 4, 2015, the Corporation had purchased a total of 1,564,990 shares, for $11.3 million.

Outlook for the first half

Globally, Transat's bookings for the first half are ahead by 15% over 2014 at the same date.

On the Sun destinations market outbound from Canada, the Corporation's main market segment in the winter, Transat's capacity is approximately 7% higher than that offered last year and 45% of that capacity has been sold. Bookings are ahead by 12% and load factors are up 2.1%. The impact of the weaker Canadian dollar, net from lower fuel costs, will be a 4.0% increase in operating costs if the dollar and fuel costs stay at their current level. At this moment, margins are similar to last year at the same date.

On the transatlantic market, where it is low season, Transat's capacity is up 19% compared to that offered last winter. To date, 46% of that capacity has been sold, and bookings are ahead by 15%. Load factors are down 1.2% and selling prices are 6.0% lower. The impact of lower fuel costs will be a 3.0% decrease in operating costs if they stay at their current level.

In France, also in low season in winter, market conditions in 2015 were very difficult. Bookings are up 21% and selling prices are 1.5% higher, compared with last year at the same date.

In light of the above, operating income for the winter should improve over last year.

Cost-reduction and margin-improvement initiatives

As described in its plan announced in the first quarter of 2015, the Corporation is continuing to implement its initiatives to reduce operating costs and improve unit margins, with an objective of at least $100 million over three years. In 2015, thanks mainly to the internalization of narrow-body aircraft and the implementation of a flexible fleet, the Company reached its objective of $45 million. The targets for 2016 and 2017 are at least $30 million and $25 million.

Additional information

The results were affected by non-operating items, as summarized in the following table:

Highlights and impact of non-operating items on results
(in thousands of CAD)
		Fourth quarter		12-month period
		2015	2014	2015	2014
Revenues		839,166	844,654	3,566,368	3,752,198
Operating income		72,276	57,392	49,954	46,840
	Depreciation and amortization	14,431	14,475	50,867	46,702
	Restructuring charge	-	4,161	-	6,387
Adjusted operating income^1		86,707	76,028	100,821	99,929
Income before taxes		92,979	37,958	57,327	29,824
	Fuel-related derivatives and other derivatives	(19,511)	21,105	528	23,822
	Restructuring charge	-	4,530	-	6,756
Adjusted pre-tax income^2		73,468	63,593	57,855	60,402
Net income attributable to shareholders		69,108	30,607	42,565	22,875
	Fuel-related derivatives and other derivatives	(14,311)	15,360	378	17,355
	Restructuring charge	-	3,386	-	5,012
Adjusted net income^3		54,797	49,353	42,943	45.242
Diluted earnings per share		1.82	0.79	1.10	0.59
	Fuel-related derivatives and other derivatives	(0.38)	0.39	0.01	0.44
	Restructuring charge	-	0.09	-	0.13
Adjusted net income per share^3		1.44	1.27	1.11	1.16

Hedging – The Corporation records in the statement of income any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel-price risk, as well any gains or losses resulting from mark-to-market adjustments of certain hedging instruments used to mitigate exchange-rate exposure stemming from its expenses and/or revenues in foreign currencies. For the fourth quarter of 2015, this translates into a $19.5 million non-cash gain ($14.3 million after income taxes), compared with a non-cash loss of $21.5 million ($15.4 million after income taxes) in 2014. For the 12-month period, this represents a non-cash loss of $0.5 million ($0.4 million after income taxes), compared with $23.8 million ($17.4 million after income taxes) in 2014.

The Corporation uses hedging instruments to mitigate exchange-rate exposure stemming from its expenses and/or revenues in foreign currencies. Accordingly, under applicable accounting standards, any fluctuations resulting from mark-to-market adjustments of the effective portion of these instruments which are designated as hedging instruments are recorded in the consolidated statement of financial position and consolidated statement of comprehensive income rather than in the consolidated statement of income. For the fourth quarter of 2015, Transat recorded a $14.2 million loss ($10.4 million after income taxes) on these foreign-currency hedging instruments, compared with a $20.1 million gain ($14.7 million after income taxes) for the corresponding quarter in 2014. For the 12-month period, Transat records a gain of $4.4 million ($3.2 million after income taxes) on these foreign-currency hedging instruments, compared with $12.9 million ($9.3 million after income taxes) in 2014.

Summary of non-operating items – Before non-operating items, Transat posted an adjusted net income³ of $54.8 million ($1.44 per share) for the fourth quarter of 2015, compared with $49.4 million ($1.27 per share) in 2014. For the 12-month period, the Corporation is recording an adjusted net income³ of $42.9 million ($1.11 per share), compared with $45.2 million ($1.16 per share) in 2014.

Transat A.T. Inc. is an integrated international tour operator with more than 60 destination countries and that distributes products in over 50 countries. A holiday travel specialist, Transat operates mainly in Canada and Europe, as well as in the Caribbean, Mexico and the Mediterranean Basin. Montreal-based Transat is also active in air transportation, accommodation, destination services and distribution.

NOTES

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

(1)	Adjusted operating income (loss): Operating income (loss) before depreciation and amortization expense, restructuring charge and other significant unusual items.
(2)	Adjusted pre-tax income (loss): Income (loss) before income tax expense before change in fair value of fuel-related derivatives and other derivatives, gain on disposal of a subsidiary, restructuring charge, impairment of goodwill and other significant unusual items.
(3)	Adjusted net income: Net income attributable to shareholders before change in fair value of fuel-related derivatives and other derivatives, gain on disposal of a subsidiary, restructuring charge, impairment of goodwill and other significant unusual items, net of related taxes.

Conference call

Fourth quarter 2015 conference call: Thursday, December 10, 2015, 10:00 a.m. Dial 1-800-926-9801. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1-800-558-5253, access code 21761563, until January 9, 2016.

Non-IFRS measures

Transat prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). We will occasionally refer to non-IFRS financial measures in the news release. These non-IFRS financial measures do not have any meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They are furnished to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with IFRS. All amounts are in Canadian dollars unless otherwise indicated.

Caution regarding forward-looking statements

This press release contains certain forward-looking statements regarding the Corporation's expectation that travel reservations will follow the trends. In making these statements, the Corporation has assumed that the trends in reservations and selling prices will continue, and that fuel prices, other costs and the value of the Canadian dollar against foreign currencies will remain stable. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by the forward-looking statements contained in this press release. Factors that could lead actual results to differ include, among others, extreme weather conditions, fuel prices, war, terrorism, market and general economic conditions, disease outbreaks, demand fluctuations related to seasonality in the travel industry, ability to reduce operating costs and workforce, labour relations, collective agreements and labour conflicts, issues related to pensions, exchange rate, interest rates, future funding, evolution of legal environment, introduction of unfavourable regulations, lawsuits and legal challenges, and other risks detailed from time to time in the Corporation's continuous disclosure documents.

These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements. The Corporation considers the assumptions on which these forward-looking statements are based to be reasonable, but cautions the reader that these assumptions regarding future events, many of which are beyond its control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect the Corporation. For additional information with respect to these and other factors, see the Annual Information Form and Annual Report for the year ended October 31, 2013, filed with Canadian securities commissions. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by securities laws.

(www.transat.com)

SOURCE Transat A.T. Inc.

Media: Michel Lemay, 514 987-1616, ext. 4523; Financial analysts: Denis Pétrin, Chief Financial Officer, 514 987-1660