Transat A.T. Inc. - Results for Second Quarter 2013 - Significant improvement in winter results, return to profitability expected this year

For the second quarter:

• Revenues of $1.1 billion, compared with $1.2 billion in 2012.
• $28.9 million improvement in margin ($2.7 million before amortization and depreciation¹ and before restructuring charges, compared with an operating loss of $26.2 million in 2012).
• Net loss of $22.8 million, compared with $13.2 million in 2012.
• Adjusted after-tax loss of $1.4 million, compared with $24.5 million in 2012.

For the six-month period:

• Revenues of $1.9 billion, compared with $2.0 billion in 2012.
• $39.7 million improvement in margin (operating loss before amortization and depreciation¹ and before restructuring charges of $18.3 million, compared with an operating loss of $58.0 million in 2012).
• Net loss of $37.9 million, compared with $42.7 million in 2012.
• Adjusted after-tax loss of $23.0 million, compared with $54.5 million in 2012.
  

MONTREAL, June 13, 2013 /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 $1.1 billion for the quarter ended April 30, 2013, compared with $1.2 billion in 2012, a decrease of $105.6 million, or 8.7%. The Corporation recorded an operating loss before amortization and depreciation¹ of $1.2 million, compared with $26.2 million in 2012 and a net loss of $22.8 million ($0.59 per share on a diluted basis), compared with $13.2 million ($0.35 per share on a diluted basis) in 2012. Before non-operating items, amortization and depreciation, and restructuring charges, Transat reported a margin of $2.7 million, compared with an operating loss³ before amortization and depreciation of $26.2 million; and an adjusted after-tax loss of $1.4 million ($0.04 per share on a diluted basis) in 2013, compared with $24.5 million ($0.64 per share on a diluted basis) in 2012.

For the quarter, the net loss includes a non-realized charge (excluding taxes) of $18.5 million that stems from the mark-to-market accounting of fuel-hedging contracts, compared with a favourable variance of $3.1 million in 2012 (see Hedging section).

"We reached our cost-reduction targets, and despite a challenging winter selling prices were higher than last year, hence the improvement in our results. The summer is looking fairly good and we expect to be back to profitability this year," said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

Second quarter highlights

The Corporation posted revenues of $1.1 billion, compared with $1.2 billion in 2012, and an operating loss before amortization and depreciation¹ of $1.2 million (margin of $2.7 million before amortization and depreciation, and restructuring charges), compared with $26.2 million in 2012 ($26.2 million before restructuring charges). The decrease in revenues is mainly attributable to the Corporation's decision to reduce capacity on its markets (Sun, transatlantic and France), hence a 13.7% reduction in the number of travellers. Across all markets, selling prices and margins were higher than in 2012.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $82.6 million (8.0%) compared with the same period in 2012. For the quarter, the capacity on Sun destinations was down 14% compared with 2012. Capacity on the transatlantic market was down 24%. North American business units recorded an operating loss before amortization and depreciation of $0.6 million, compared with $19.6 million in 2012. Before restructuring charges, Transat posted a margin before amortization and depreciation of $4.5 million, compared with an operating loss before amortization and depreciation of $19.6 million in 2012. The improvement in margin is mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

Revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $23.0 million (12.4%) over 2012, mainly due to the Corporation's decision to reduce capacity. European operations generated an operating loss before amortization and depreciation of $1.8 million, compared with $6.6 million the previous year, with the variance mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

First six-month period highlights

For the first six months of 2013, the Corporation posted revenues of $1.9 billion, compared with $2.0 billion in 2012, and an operating loss before amortization and depreciation¹ of $22.2 million ($18.3 million before amortization and depreciation, and restructuring charges), compared with $58.1 million in 2012 ($58.1 million before restructuring charges). The decrease in revenues is mainly attributable to the Corporation's decision to reduce capacity on its markets (Sun, transatlantic and France), hence a 12.0% reduction in the number of travellers. Across all markets, selling prices and margins were higher than in 2012.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $92.7 million (5.4%) compared with the same period in 2012. For the six-month period, the capacity on Sun destinations was down 13% compared with 2012. Capacity on the transatlantic market was down 21%. North American business units recorded an operating loss before amortization and depreciation of $7.7 million, compared with $38.7 million in 2012. Before restructuring charges, Transat posted a margin before amortization and depreciation of $3.8 million, compared with an operating loss before amortization and depreciation of $38.7 million in 2012. The improvement in margin is mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

Revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $36.5 million (11.6%) from 2012, mainly due to the Corporation's decision to reduce capacity. European operations generated an operating loss before amortization and depreciation of $14.5 million, compared with $19.3 million the previous year, with the variance mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

Financial situation

As at April 30, 2013, cash stood at $336.1 million, compared with $264.1 million at the same date the previous year; working capital ratio was 0.98 against 0.93 and deposits from customers for future travel were $514.7 million compared with $479.7 million. Off-balance-sheet agreements stood at $509.0 million as at April 30, 2013, compared with $595.8 million at the same date in 2012, the decrease being attributable to payments made during the 12-month period.

Outlook for the summer

The transatlantic market, outbound from Canada and Europe, accounts for a very significant portion of Transat's business in the summer. From May to October 2013, Transat's capacity on that market is 12% lower than that for the previous year. To date, 66% of that capacity has been sold, load factors are 2% lower and selling prices are approximately 5% higher compared to 2012.

On the Sun destinations market, outbound from Canada, Transat's capacity is lower by 3% than that for the previous year. To date, 46% of that capacity has been sold, load factors and selling prices are similar.

In France, compared with 2012, medium-haul bookings are slightly ahead, and long-haul bookings are slightly behind. Selling prices are slightly higher.

To the extent the aforementioned trends hold, Transat expects to record better results than last year for the second half, and an after-tax adjusted income for the year.

Cost-reduction and margin-improvement Initiatives

The implementation of the Corporation's plan to return to profitability is proceeding as expected, including measures to reduce operating costs and changes to its systems and processes. In April 2013, the Corporation also announced its decision to internalize narrow-body medium-haul aircraft (Boeing 737-800s) for its Sun destination routes outbound from Canada, starting in May 2014. The various measures (cost-reduction initiatives, additional revenues and efficiency gains) had a favourable impact of $20 million on the margin in 2012. The Corporation similarly expects a favourable contribution of $15 million in 2013, of $20 million in 2014 and of an additional $20 million in 2015, when internalization of the narrow-body fleet will produce its full benefits.

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 millions of CAD)

		Second Quarter		First six-month period
		2013	2012	2013	2012
Revenues		1,106,824	1,212,426	1,912,538	2,041,722
Margin (operating loss) before depreciation and amortization ^1		(1,185)	(26,226)	(22,202)	(58,065)
Result before taxes		(30,288)	(19,504)	(50,430)	(59,557)
	Impact of fuel-hedging accounting	25,236	(4,403)	16,440	(6,025)
	Impact of restructuring charge	3,915	—	3,915	—
	Impact of ABCP revaluation	—	(8,812)	—	(8,032)
ADJUSTED LOSS^2		(1,137)	(32,719)	(30,075)	(73,614)
NET LOSS ATTRIBUTABLE TO SHAREHOLDERS		(22,760)	(13,199)	(37,897)	(42,688)
	Impact of fuel-hedging accounting	18,454	(3,114)	12,027	(4,275)
	Impact of restructuring charge	2,874	—	2,874	—
	Impact of ABCP revaluation	—	(8,223)	—	(7,514)
ADJUSTED AFTER-TAX LOSS^3		(1,432)	(24,536)	(22,996)	(54,477)
DILUTED LOSS PER SHARE		(0.59)	(0.35)	(0.99)	(1.12)
	Impact of fuel-hedging accounting	0.48	(0.08)	0.32	(0.11)
	Impact of restructuring charge	0.07	—	0.07	—
	Impact of ABCP revaluation	—	(0.22)	—	(0.20)
ADJUSTED AFTER-TAX LOSS PER SHARE^3		(0.04)	(0.64)	(0.60)	(1.43)

Hedging—The Corporation records any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel-price risk in the statement of income. For the second quarter of 2013, this translates into a $25.2 million non-cash loss ($18.5 million after income taxes) compared with a gain of $4.4 million ($3.1 million after income taxes) in 2012. For the six-month period, the Corporation records a non-cash loss of $16.4 million ($12.0 million after income taxes), compared with a non-cash gain of $6.0 million ($4.3 million after income taxes) in 2012.

The Corporation also 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 these instruments are recorded in the balance sheet and statement of comprehensive income rather than in the statement of income. For the second quarter of 2013, Transat recorded a $1.6 million gain ($1.1 million after income taxes) on these foreign-currency hedging instruments, compared with a $6.7 million loss ($4.7 million after income taxes) in 2012. For the six-month period, the Corporation records a non-cash gain of $0.6 million ($0.5 million after income taxes), compared with a non-cash loss of $6.3 million ($4.5 million after income taxes) in 2012.

Commercial paper—On November 8, 2012, the Corporation sold the remainder of its investment in asset-backed commercial paper (ABCP) for a total compensation of $27.4 million. This resulted in no gain or loss. In 2012, the results of the second quarter included a gain on revaluation of $8.8 million ($8.2 million after taxes).

Summary of non-operational items—Before non-operating items, Transat posted an adjusted after-tax loss of $1.4 million ($0.04 per share on a diluted basis) for the quarter, compared with $24.5 million ($0.64 per share on a diluted basis) in 2012. For the six-month period, the Corporation has recorded an adjusted after-tax loss of $23.0 million ($0.60 per share on a diluted basis), compared with $54.5 million ($1.43 per share on a diluted basis) in the first six months of 2012.

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. Transat's firm commitment to sustainable development of the tourism industry is reflected in its multiple corporate responsibility initiatives. (TSX: TRZ.B, TRZ.A)

NOTES

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

(1)	MARGIN (OPERATING LOSS) BEFORE DEPRECIATION AND AMORTIZATION: Gross margin (operating loss) before depreciation and amortization expense.
(2)	ADJUSTED INCOME (LOSS): Income (loss) before income taxes, impact of fuel hedge accounting, ABCP revaluation, and restructuring charges (or gains).
(3)	ADJUSTED AFTER-TAX INCOME (LOSS): Net income (loss) attributable to shareholders before impact of fuel hedge accounting, ABCP revaluation and restructuring charges (or gains), net of related taxes.
(4)	NET CASH: Cash and cash equivalents not held in trust or otherwise reserved, less balance sheet debt.

Conference call

Second quarter 2013 conference call: Thursday, June 13, 2013, 10.00 a.m. Dial 1 800-706-9302. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 633-8625, access code 21658994, until July 13, 2013.

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, 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, 2012, 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.

SOURCE: TRANSAT A.T. INC.

Source: Transat A.T. Inc. (www.transat.com)

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