Transat A.T. Inc. - Results for Second Quarter 2014 - Company records slightly better results than expected

For the second quarter:

• Revenues of $1.1 billion, an increase of 1% compared with 2013.
• Adjusted operating loss¹ of $4.0 million, compared with an adjusted operating profit of $2.7 million in 2013, a decrease of $6.7 million in spite of the fact that the decline in value of the Canadian dollar alone led to an increase in operating expenses of $22.0 million.
• Adjusted net loss³ of $7.6 million, compared with $1.4 million in 2013.
• Net loss of $7.9 million, compared with $22.8 million in 2013; variance attributable in large part to the impact of fuel-hedging accounting.

For the six-month period:

• Revenues of $2.0 billion, compared with $1.9 billion in 2013.
• Adjusted operating loss¹ of $27.8 million, compared with $18.3 million in 2013, a decrease of $9.5 million in spite of the fact that the decline in value of the Canadian dollar alone led to an increase in operating expenses of $36.0 million.
• Adjusted net loss³ of $30.8 million, compared with $23.0 million in 2013.
• Net loss of $33.6 million, compared with $37.9 million in 2013.
  
  

MONTREAL, June 12, 2014 /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, 2014, an increase of 1% compared with the same period in 2013. The Corporation recorded an adjusted operating loss¹ of $4.0 million, compared with an adjusted operating profit of $2.7 million in 2013, and a net loss of $7.9 million ($0.20 per share on a diluted basis), compared with a net loss of $22.8 million ($0.59 per share on a diluted basis) in 2013. The decline in value of the Canadian dollar alone resulted in an increase in operating expenses of $22 million. Before non-operating items, Transat reported an adjusted net loss³ of $7.6 million in 2014 ($0.19 per share on a diluted basis), compared with an adjusted net loss of $1.4 million ($0.04 per share on a diluted basis) in 2013.

"Our results for the quarter and the winter are slightly better than what we anticipated in March," commented Jean-Marc Eustache, President and Chief Executive Officer, before adding: "It was a peculiar winter. In December, margins were higher year over year and we were heading toward a performance improvement. The sudden drop in value of the Canadian dollar provoked a significant increase in operating expenses that reversed the situation, as it came early in the season, when the market resists increases in selling prices."

Second-quarter highlights

The Corporation posted revenues of $1.1 billion, an increase of 1% compared with 2013, and an adjusted operating loss¹ of $4.0 million, compared with an adjusted operating profit of $2.7 million in 2013. During the quarter, Transat had reduced capacity on its Sun destination routes by 3.5%, which contributed to a 5.3% overall decrease in the number of travellers. Average selling prices were up, and the euro and pound traded higher against the Canadian dollar. The adjusted operating loss is attributable entirely to the decline in value of the Canadian dollar against the U.S. dollar.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $4.0 million (0.4%) compared with the same period in 2013. The decline in revenues stemmed from the Corporation's decision to reduce supply on its Sun destination routes by 3.5%, and on its transatlantic routes by 2.9%, leading to a decrease of 5.9% in the number of travellers, while average selling prices rose. North American business units recorded an operating loss of $15.7 million, compared with one of $7.3 million in 2013. The increase in operating loss is attributable entirely to the decline in value of the Canadian dollar versus the U.S. dollar, and the accompanying increase in operating expenses. The combined effect of increased selling prices plus cost-control initiatives was not sufficient to offset the effect of those expense increases. The operating loss for the quarter includes a $2.2-million restructuring charge, compared with $3.9 million in 2013.

Revenues of European business units, which are generated by sales in Europe and in Canada, increased by $15.8 million (9.7%) over 2013, owing to the strength of the euro and pound against the Canadian dollar. Measured in local currencies, the revenues of the France business unit increased, while those of the U.K. unit decreased following the Corporation's decision to reduce capacity. European activities resulted in an operating loss of $1.4 million, compared with $2.8 million in 2013.

First six-month period highlights

For the first six months, the Corporation posted revenues of $2.0 billion in 2014, compared with $1.9 billion in 2013, and an adjusted operating loss¹ of $27.8 million, compared with $18.3 million in 2013. During the six-month period, the Corporation reduced capacity on certain markets, resulting in a 3.6% overall decrease in the number of travellers. Capacity on Sun destination routes, meanwhile, was similar to that in 2013. Average selling prices were up, and the euro and pound traded higher against the Canadian dollar. The adjusted operating loss is attributable entirely to the decline in value of the Canadian dollar versus the U.S. dollar.

Revenues of North American business units increased by $27.5 million (1.7%) compared with the same period in 2013. For the six-month period, capacity on Sun destination routes was similar to that of 2013, while transatlantic market capacity was reduced by 6.2%. North American business units recorded an adjusted operating loss¹ of $40.7 million, compared with $23.6 million in 2013. The operating loss is attributable entirely to the Corporation's increased costs following the depreciation of the Canadian dollar against its U.S. counterpart. The operating loss for the six-month period includes a $2.2-million restructuring charge, compared with $3.9 million in 2013.

Revenues of the European business units increased by $25.8 million (9.3%) from 2013, owing to the strength of the euro and pound against the Canadian dollar. Measured in local currencies, these business units' revenues declined slightly, following the decision to reduce capacity. European activities resulted in an operating loss of $9.9 million, compared with one of $16.5 million for the first six months of 2013.

Financial position

As at April 30, 2014, the Corporation's free cash totalled $404.6 million, compared with $336.1 million at the same date in 2013. The working capital ratio was 1.04, against 0.98, and deposits from customers for future travel amounted to $540.3 million, compared with $514.7 million a year earlier. Off-balance-sheet agreements stood at $648.6 million as at April 30, 2014, compared with $655.8 million as at October 31, 2013,⁴ the decrease being attributable to payments made during the period, offset by the increase resulting from the depreciation of the Canadian dollar against the U.S. dollar.

Outlook

The transatlantic market outbound from Canada and Europe accounts for a very significant portion of Transat's business in the summer. For the period May to October 2014, Transat's capacity on that market is lower by 1% than that for summer 2013. To date, 65% of that capacity has been sold. Load factors are 2.4% lower and selling prices of bookings taken are approximately 4.3% higher, compared with the same date in 2013. If the Canadian dollar remains at its current value against the U.S. dollar, the euro and the pound, this will result in an increase in operating expenses of 4.4%.

On the Sun destinations market outbound from Canada, Transat's capacity is higher by 9% than that for the previous year. To date, 49% of that capacity has been sold, load factors are 1% lower, and selling prices are higher.

In France, compared with last year at the same date, medium-haul bookings are ahead by 24%, while long-haul bookings are at a similar level. Variations in the product mix have resulted in a lower average selling price, with no negative impact on the average margin.

To the extent the aforementioned trends hold, the Corporation expects to record satisfying results in the second half, though lower than the record results posted last year.

Cost-reduction and margin-improvement initiatives

The Corporation continues implementing its initiatives to reduce operating costs, improve margins, and make changes to its systems and processes. In April 2013, Transat announced its decision to internalize narrow-body medium-haul aircraft (Boeing 737-800s) for travel outbound from Canada, starting in May 2014. These measures had, as expected, a favourable impact of $20 million on the margin in 2012 and one of $15 million in 2013. The Corporation expects another $20 million in 2014, as well as 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 thousands of CAD)
		Second quarter		First six-month period
		2014	2013	2014	2013
Revenues		1,118,620	1 106,824	1,965,842	1,912,538
Operating margin (operating loss)		(17,047)	(10,125)	(50,581)	(40,061)
	Depreciation and amortization	10,807	8,940	20,529	17,859
	Restructuring charge	2,226	3,915	2,226	3,915
Adjusted operating profit (loss)^1		(4,014)	2,730	(27,826)	(18,287)
Result before taxes		(9,958)	(30,288)	(44,325)	(50,430)
	Impact of fuel-hedging accounting	(1,738)	25,236	1,480	16,440
	Restructuring charge	2,226	3,915	2,226	3,915
Adjusted after-tax income (loss)^2		(9,470)	(1,137)	(40,619)	(30,075)
Adjusted net income (loss) attributable to shareholders		(7,903)	(22,760)	(33,552)	(37,897)
	Impact of fuel-hedging accounting	(1,276)	18,454	1,085	12,027
	Restructuring charge	1,626	2,874	1,626	2,874
Adjusted net income (loss)^3		(7,553)	(1,432)	(30,841)	(22,996)
Diluted earnings (loss) per share		(0.20)	(0.59)	(0.87)	(0.99)
	Impact of fuel-hedging accounting	(0.03)	0.48	0.03	0.32
	Restructuring charge	0.04	0.07	0.04	0.07
Adjusted net income (loss) per share^3		(0.19)	(0.04)	(0.80)	(0.60)

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 2014, this translates into a $1.7-million non-cash gain ($1.3 million after income taxes), compared with a loss of $25.5 million ($18.5 million after income taxes) in 2013. For the six-month period, the Corporation records a non-cash loss of $1.5 million ($1.1 million after income taxes), compared with one of $16.4 million ($12.0 million after income taxes) in 2013.

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 2014, Transat recorded a $19.4-million loss ($14.3 million after income taxes) on these foreign-currency hedging instruments, compared with a $1.6-million gain ($1.1 million after income taxes) in 2013. For the six-month period, the Corporation records a non-cash loss of $7.3 million ($5.4 million after income taxes) on these foreign-currency hedging instruments, compared with a $0.6-million gain ($0.5 million after income taxes) in 2013.

Summary of non-operating items - Before non-operating items, Transat posted an adjusted net loss³ of $7.6 million ($0.19 per share on a diluted basis) for the second quarter of 2014, compared with an adjusted net loss of $1.4 million ($0.04 per share on a diluted basis) in 2013. For the six-month period, the Corporation recorded an adjusted net loss of $30.8 million ($0.80 per share on a diluted basis), compared with $23.0 million ($0.60 per share on a diluted basis) in the first six months of 2013.

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. (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)	Adjusted operating income (loss): Operating income (operating loss) before depreciation and amortization expense, restructuring charge and other significant unusual items.
(2)	Adjusted after-tax income (loss): Income (loss) before income taxes, impact of fuel hedge accounting, ABCP revaluation, gain on disposal of a subsidiary, impairment of goodwill and restructuring gains (or charges).
(3)	Adjusted net income (loss): Net income (loss) attributable to shareholders before impact of fuel hedge accounting, ABCP revaluation, gain on disposal of a subsidiary, goodwill impairment and restructuring gains (or charges), net of applicable income taxes.
(4)	The off-balance-sheet agreements amount as at October 31, 2013, as reported in the news release for the fiscal year ended October 31, 2013, included commitments under agreements with air suppliers in the amount of $112.5 million. That amount should have been excluded from the off-balance-sheet agreements.

Conference call

Second quarter 2014 conference call: Thursday, June 12, 2014, 10 a.m. Call 1 800 893-3796. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 997-6910, access code 21716790, until July 12, 2014.

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.

 

SOURCE: Transat A.T. Inc.

www.transat.com

Media:  
Debbie Cabana
514 987-1616, ext. 4662

Financial analysts: 
Denis Pétrin
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