Transat A.T. Inc. - Results for the second quarter of 2015

Better than expected results; good summer start

For the quarter:

• Revenues of $1.0 billion, compared with $1.1 billion in 2014.
• Adjusted operating income¹ of $3.4 million, compared with $0.0 million in 2014, despite higher operating expenses stemming from the combined impact of the US dollar and fuel prices.
• Adjusted net loss³ of $6.6 million, compared with $7.6 million in 2014.
• Net income of $24.7 million, compared with a net loss of $7.9 million in 2014.
• Normal course buy-back of 334,000 shares at an average price of $6.53 as of May 31, 2015.

For the first six-month period:

• Revenues of $1.8 billion, compared with $2.0 billion in 2014.
• Adjusted operating loss¹ of $32.4 million, compared with $23.9 million in 2014, the $8.5 milion increase being attributable in part to higher operating expenses stemming from the combined impact of the US dollar and fuel prices.
• Adjusted net loss³ of $39.1 million, compared with $30.8 million in 2014.
• Net loss of $39.6 million, compared with a net loss of $33.6 million in 2014.

MONTREAL, June 11, 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 $1.0 billion for the quarter ended April 30, 2015, compared with $1.1 billion in 2014, a decrease of $100.1 million, or 9.0%. The Corporation recorded an adjusted operating income¹ of $3.4 million, compared with $0.0 million in 2014; and a net income attributable to shareholders of $24.7 million ($0.64 per share on a diluted basis), compared with an adjusted operating loss attributable to shareholders of $7.9 million ($0.20 per share on a diluted basis) in 2014. Before non-operating items, Transat reported a quarterly adjusted net loss³ of $6.6 million in 2015 ($0.17 per share), compared with $7.6 million ($0.19 per share) in 2014.

"These better than expected results point to an improvement of our performance on sun destinations, masked by the weak demand in France and a strong US dollar, and owe much to the implementation of our strategic plan. The internalization of narrow-body aircraft, in itself, induced a favorable variance of $22 million for the winter," said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

"For the summer, early signs on the transatlantic market are positive, as global market capacity is up 7%. Sales volumes are in line and margins are up. If the current trends hold, the Corporation expects its global summer results to be similar to those of last year, which were the second-best of the company's history," added Mr. Eustache.

Second-quarter highlights

The Corporation posted revenues of $1.0 billion, compared with $1.1 billion in 2014, a decrease of $100.1 million, or 9.0%, and an adjusted operating income¹ of $3.4 million, compared with $0.0 million for the same period of 2014. During the quarter, the Corporation's capacity on the Sun destinations market was down 6.2% from the previous year and its overall number of travellers declined by 6.9% (all market segments). Average selling prices were higher than in 2014.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $70.7 million (7.5%) during the second quarter compared with the same period in 2014. The decrease stemmed from the decision to reduce supply by 6.2% on the Sun destinations market, and by 5.9% on the transatlantic market, hence the overall 6.3% decrease in the number of travellers. Average selling prices were slightly higher. During the quarter, the Corporation recorded an operating loss of $0.9 million (0.1%), compared with one of $11.7 million (1.2%) for the same quarter last year. The favorable variance in operating loss stemmed from lower operating expenses, due to cost-control measures, and to higher selling prices. The improvement was offset in part by the depreciation of the Canadian dollar versus the US dollar, which, even in light of lower aircraft fuel prices, led to an increase in operating expenses on sun destinations, especially for packages.

Ocean Hotels, which is 35% owned by Transat, contributed $3.7 million to the Corporation's quarterly net income, compared with $4.0 million in 2014. Transat's equity participation in Ocean Hotels accounted for $94.5 million in assets as of April 30, 2015, compared with $77.5 million as of April 30, 2014.

Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $29.4 million (16.5%). Revenues also decreased in local currency. The variance is attributable to a 11.4% decrease in the number of travellers, especially to North Africa and Senegal. Average selling prices were similar to those of the same period last year. European operations recorded an operating loss of $8.8 million (5.9%) for the quarter, compared with one of $1.4 million (0.8%) in 2014. The higher operating loss stemmed mainly from the lower number of travellers, and lower margins on tours.

First six-month highlights

The Corporation posted revenues of $1.8 billion, compared with $2 billion in 2014, and an adjusted operating loss¹ of $32.4 million, compared with $23.9 million for the same period of 2014. During the period, the Corporation's capacity on the Sun destinations market was down 6.3% from the previous year and its overall number of travellers declined by 7.4% (all market segments). The unfavorable variance in operating loss was mainly attributable to a lower number of travellers and lower margins on tours in France, due to weak market conditions.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $114.0 million (6.9%) during the first six months, compared with the same period in 2014. The decrease stemmed from the decision to reduce supply by 6.3% on the Sun destinations market, and by 3.2% on the transatlantic market, hence the overall 7.4% decrease in the number of travellers. Average selling prices were slightly higher. During the first six months, the Corporation recorded an operating loss of $32.0 million (2.1%), compared with $36.7 million (2.2%) for the same period last year. The favorable variance in operating loss stemmed from lower operating expenses, due to cost-control measures, and, to a smaller extent, to higher selling prices. The improvement was offset in part by the depreciation of the Canadian dollar versus the US dollar, which, even in light of lower aircraft fuel prices, led to an increase in operating expenses.

Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $44.8 million (14.8%). Revenues also decreased in local currency. The variance is attributable to a 11.8% decrease in the number of travellers, especially to North Africa and Senegal. Average selling prices were similar to those of the same period last year. European operations recorded an operating loss of $25.3 million (9.8%) for the first six months, compared with $9.9 million (3.3%) in 2014. The higher operating loss stemmed mainly from the lower number of travellers, and lower margins on tours.

Financial position

As at April 30, 2015, the Corporation's free cash totalled $441.5 million, compared with $404.6 million at the same date in 2014. The increase was attributable to the past 12 months' earnings, and an increase in deposits from customers. The working-capital ratio was 1.01, against 1.04, and deposits from customers for future travel amounted to $578.4 million, versus $540.3 million a year earlier. Off-balance-sheet agreements, excluding contracts with service providers, stood at $656.2 million as at April 30, 2015, compared with $690.3 million as at October 31, 2014, the increase being attributable to the rise in value of the US dollar against its Canadian counterpart, partially offset by payments made during the period.

The Company initiated a Normal Course Issuer Bid on April 15, 2015. As of May 31, 2015, it had bought back 334,000 shares at an average price of $6.53, for a total value of $2.2 million.

Outlook

Summer 2015 – The transatlantic market outbound from Canada and Europe accounts for a substantial portion of Transat's business during the summer season. For the period May to October 2015, Transat's capacity and load factors on that market are similar to those of the summer 2014. To date, 65% of the capacity has been sold and selling prices of bookings taken are approximately 2.6% lower, compared with the same date in 2014. If the Canadian dollar remains at its current value against the U.S. dollar, the euro and the pound, and if fuel prices remain stable, operating expenses will be down 4.4%.

On the Sun destinations market outbound from Canada, for which summer is low season, Transat's capacity is higher by 13% than that for the previous year. To date, 44% of that capacity has been sold, load factors are 1.6% lower, and selling prices are 0.6% higher. If the Canadian dollar remains at its current value against the U.S. dollar, and if fuel prices remain stable, operating expenses will be up 2.0%.

In France, compared with last year at the same date, medium-haul bookings are ahead by 10%, while long-haul bookings are ahead by 13%. Average selling prices are down 3.6%.

If the current trends hold, the Corporation expects its global summer results to be similar to those of last year, which were the second-best of the company's history.

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
		2015	2014	2015	2014
Revenues		1,018,498	1,118,620	1,807,079	1,965,842
Operating loss		(9,744)	(13,029)	(57,235)	(46,643)
	Depreciation and amortization	13,139	10,807	24,877	20,529
	Restructuring charge	-	2,226	-	2,226
Adjusted operating profit (loss)^1		3,395	4	(32,358)	(23,888)
Result before taxes		34,090	(9,958)	(53,784)	(44,325)
	Impact of fuel-hedging accounting	(43,106)	(1,738)	665	1,480
	Restructuring charge	-	2,226	-	2,226
Adjusted after-tax loss^2		(9,016)	(9,470)	(53,119)	(40,619)
Adjusted net income (loss) attributable to shareholders		24,704	(7,903)	(39,610)	(33,552)
	Impact of fuel-hedging accounting	(31,327)	(1,276)	540	1,085
	Restructuring charge	-	1,626	-	1,626
Adjusted net loss^3		(6,623)	(7,553)	(39,070)	(30,841)
Diluted earnings (loss) per share		0.64	(0.20)	(1.02)	(0.87)
	Impact of fuel-hedging accounting	(0.81)	(0,03)	0.01	0.03
	Restructuring charge	-	0.04	-	0.04
Adjusted net loss per share^3		(0.17)	(0.19)	(1.01)	(0.80)

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 2015, this translates into a $43.1 million non-cash gain ($31.3 million after income taxes), compared with a gain of $1.7 million ($1.3 million after income taxes) in 2014. For the six-month period, this translates into a $0.7 million non-cash loss ($0.5 million after income taxes), compared with a loss of $1.5 million ($1.1 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 these 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 second quarter of 2015, Transat recorded a $73.0 million loss ($53.5 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $19.4 million ($14.3 million after income taxes) in 2014. For the first six months of 2015, Transat recorded a $15.4 million loss ($11.2 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $7.3 million ($5.4 million after income taxes) in 2014.

Summary of non-operational items – Before non-operating items, Transat posted an adjusted net loss³ of $6.6 million for the second quarter of 2015 ($0.17 per share) compared with one of $7.6 million in 2014 ($0.19 per share). For the first six months, the Corporation posted an adjusted net loss³ of $39.1 million for the second quarter of 2015 ($1.01 per share on a diluted basis) compared with $30.8 million in 2014 ($0.80 per share on a diluted basis).

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 pre-tax income (loss): Income (loss) before income tax expense, change in fair value of derivative financial instruments used for aircraft fuel purchases, gain on disposal of a subsidiary, restructuring charge, impairment of goodwill and other significant unusual items.
(3)	Adjusted net income (loss): Net income (loss) attributable to shareholders change in fair value of derivative financial instruments used for aircraft fuel purchases, gain on disposal of a subsidiary, restructuring charge, impairment of goodwill and other significant unusual items, net of related taxes.

 

Conference call

Second quarter 2015 conference call: Thursday, June 11, 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 21761561, until July 10, 2015.

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, 2014, 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), Media: Michel Lemay, 514 987-1616, ext. 4523; Financial analysts: Denis Pétrin, Chief Financial Officer, 514 987-1660