Transat A.T. Inc.- Results for the third quarter of 2015 - Once again, a very satisfying first half for the summer

For the third quarter: 

• Revenues of $920.1 million, compared with $941.7 million in 2014, the variance stemming from lower fuel costs and a weaker euro.
• Adjusted operating income¹ of $46.5 million, compared with $47.8 million in 2014, the variance being due to very challenging market conditions in France.
• Adjusted net income³ of $27.2 million, compared with $26.7 million in 2014.
• Net income of $13.1 million, compared with $25.8 million in 2014, the variance being attributable to the accounting of fuel hedging contracts.

For the nine-month period:

• Revenues of $2.7 billion, compared with $2.9 billion in 2014.
• Adjusted operating income¹ of $14.1 million, compared with $23.9 million in 2014, a $9.8 million decrease attributable to France.
• Adjusted net loss³ of $11.9 million, compared with $4.1 million in 2014.
• Net loss of $26.5 million, compared with $7.7 million in 2014.

MONTREAL, Sept. 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 $920.1 million for the quarter ended July 31, 2015, compared with $941.7 million in 2014, a decrease of $21.6 million, or 2.3%. The Corporation recorded an adjusted operating income¹ of $46.5 million, compared with $47.8 million in 2014; and a net income attributable to shareholders of $13.1 million ($0.34 per share, basic and diluted), compared with $25.8 million ($0.67 per share basic and $0.66 on a diluted basis) in 2014. Before non-operating items, Transat reported a quarterly adjusted net income³ of $27.2 million in 2015 ($0.71 per share), compared with $26.7 million ($0.69 per share) in 2014.

"Once again, the first half of the summer proves very satisfying, especially on the transatlantic market, which is core at this time of year. Our results are similar to last year and among the best in our history for this quarter, this despite softened demand in France, which has been impacted by a series of international crises and a weaker euro," said Jean-Marc Eustache, President and Chief Executive Officer.

Third-quarter highlights

The Corporation posted revenues of $920.1 million, compared with $941.7 million in 2014. The $21.6 million (2.3%) decrease is mainly attributable to a lower rate of conversion for revenues generated in euros, which was weaker quarter over quarter. The Corporation recorded an adjusted operating income of $46.5 million, compared with $47.8 million in 2014. During the quarter, the Corporation's capacity was down 1.6% on the transatlantic market and up 13.8% higher on sun destinations, increasing the number of travellers by 2.6% on all market segments. Average selling prices were lower than in 2014, mainly the consequence of lower fuel costs.

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $15.1 million (2.3%) during the third quarter compared with the same period in 2014. The increase stemmed mainly from the transfer of some European sales to Canada, following the introduction of a new booking platform. Capacity was down 1.6% on the transatlantic market, but the decision to increase sun destinations capacity by 13.8% and an increase in travellers to Canada resulted in a 7.0% increase in the number of travellers. On the transatlantic market, the negative variance in average selling prices was more than offset by the net impact of lower fuel costs and the lower Canadian dollar. For the quarter, the Corporation recorded an operating income of $26.3 million (3.9%) compared with $20.8 million (3.1%) in 2014.

Ocean Hotels, which is 35% owned by Transat, contributed $1.6 million to the Corporation's quarterly net income, compared with $1.0 million in 2014. During the quarter, the Corporation also received a $6.7 million dividend, and the stronger US dollar resulted in a $7.1 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 $96.5 million in assets as of July 31, 2015, compared with $94.5 million as of April 30, 2015.

Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $36.6 million (13.0%). The variance reflects a 14.1% decrease in the number of travellers, but above all the transfer of some European sales to Canada, following the introduction of a new booking platform. The decrease also reflects lower sales to North African destinations, to certain destinations in the Mediterranean Basin, as well as the decrease of tour sales to the United States attributable to the weaker euro. Average selling prices were slightly higher than those of the same period last year, in part to due to a different product mix. In local currency, revenues of European business units were down. European operations recorded an operating income of $8.6 million (3.5%) for the quarter, compared with $15.3 million (5.4%) in 2014. The decrease in operating income is mainly due to France, where very challenging market conditions caused a lower number of travellers and lower margins on tours.

Nine-month period highlights

The Corporation posted revenues of $2.7 billion, compared with $2.9 billion in 2014, and an adjusted operating income¹ of $14.1 million, compared with $23.9 million for the same period of 2014. The decrease in revenues stems mainly from the Corporation's decision to reduce winter capacity on sun destinations by 6.3%, fueling a 7.4% decrease in the global number of travellers. For the nine-month period, the Corporation posted a 4.7% decrease in the number of travellers. Average selling prices were higher on sun destinations, and lower on the transatlantic market, compared with 2014.

The decrease in operating income is attributable to a $22.0 million decrease in Europe (mainly in France, where market conditions are very challenging), partially offset by a $10.3 million improvement in America.

Financial position

As at July 31, 2015, the Corporation's free cash totalled $515.6 million, compared with $497.1 million at the same date in 2014. The working-capital ratio was 1.04, against 1.06, and deposits from customers for future travel amounted to $527.9 million, versus $485.9 million a year earlier. Off-balance-sheet agreements, excluding contracts with service providers, stood at $658.6 million as at July 31, 2015, compared with $690.3 million as at October 31, 2014, the decrease being attributable to payments made during the period, partially offset by the rise in value of the US dollar against its Canadian counterpart.

The Corporation initiated a Normal Course Issuer Bid on April 15, 2015. During the quarter, 509,200 shares were purchased for $3.8 million. As of September 4, 2015, the Corporation had purchased a total of 852,828 shares, for $6.1 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 August to October 2015, Transat's capacity is up 3% compared with the summer of 2014. To date, 83% of the capacity has been sold. Load factors are down 1.2% and selling prices of bookings taken are approximately 3.2% lower, compared with the same date in 2014. If the Canadian dollar remains at its current value against the US 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 11% than that for the previous year. To date, 77% of that capacity has been sold. Load factors are down 1.1% and selling prices are 3.0% higher. If the Canadian dollar remains at its current value against the US dollar, and if fuel prices remain stable, operating expenses will be up 5.0%.

In France, compared with last year at the same date, medium-haul bookings are ahead by 4.9%, while long-haul bookings are ahead by 2.8%. However, average selling prices are down 4.5%.

If the current trends hold, the Corporation expects its fourth quarter results to be satisfying, but slightly inferior to those of last year, which were the second-best of the company's history.

The Corporation is on track with its cost-reduction and margin-improvement plan announced in the first quarter of 2015, which calls for improvements of $45  million in 2015, $30 million in 2016 and $25 million in 2017, for a total of $100 million over three years.

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)
		Third quarter		First nine-month period
		2015	2014	2015	2014
Revenues		920,123	941,702	2,727,202	2,907,544
Operating income (loss)		34,913	36,091	(22,322)	(10,552)
	Depreciation and amortization	11,559	11,698	36,436	32,227
	Restructuring charge	—	—	—	2,226
Adjusted operating income^1		46,472	47,789	14,114	23,901
Income (loss) before taxes		18,132	36,191	(35,652)	(8,134)
	Impact of fuel-hedging accounting	19,374	1,237	20,039	2,717
	Restructuring charge	—	—	—	2,226
Adjusted pre-tax income (loss)^2		37,506	37,428	(15,613)	(3,191)
Net income (loss) attributable to shareholders		13,067	25,820	(26,543)	(7,732)
	Impact of fuel-hedging accounting	14,149	910	14,689	1,995
	Restructuring charge	—	—	—	1,626
Adjusted net income (loss)^3		27,216	26,730	(11,854)	(4,111)
Diluted earnings (loss) per share		0.34	0.66	(0.69)	(0.20)
	Impact of fuel-hedging accounting	0.37	0.02	0.38	0.05
	Restructuring charge	—	—	—	0.04
Adjusted net income (loss) per share^3		0.71	0.69	(0.31)	(0.11)

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 third quarter of 2015, this translates into a $19.4 million non-cash loss ($14.1 million after income taxes), compared with $1.2 million ($0.9 million after income taxes) in 2014. For the nine-month period, this translates into a $20.0 million non-cash loss ($14.7 million after income taxes), compared with $2.7 million ($2.0 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 third quarter of 2015, Transat recorded a $34.0 million gain ($24.9 million after income taxes) on these foreign-currency hedging instruments, compared with a gain of $0.2 million ($0.1 million after income taxes) in 2014. For the first nine months of 2015, Transat recorded an $18.6 million gain ($13.7 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $7.2 million ($5.3 million after income taxes) in 2014.

Summary of non-operational items – Before non-operating items, Transat posted an adjusted net income³ of $27.2 million for the third quarter of 2015 ($0.71 per share) compared with $26.7 million in 2014 ($0.69 per share). For the first nine months, the Corporation posted an adjusted net loss³ of $11.9 million ($0.31 per share) compared with $4.1 million in 2014 ($0.11 per share).

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 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 before 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

Third quarter 2015 conference call: Thursday, September 10, 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 21761562, until October 9, 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