Transat A.T. Inc. - Results for fiscal 2013

Posts best fourth quarter and best summer in company history
Improves margin by $100 million and posts profitable year

Fourth quarter

• Revenues of $808.6 million, compared with $763.4 million in 2012.
• Improvement in margin¹ of $27.6 million (margin before amortization and depreciation and before restructuring charges of $80.6 million, compared with $52.9 million in 2012).
• Net income of $54.7 million, compared with $16.6 million in 2012.
• Adjusted after-tax income³ of $54.8 million, compared with $28.7 million in 2012.

 

Fiscal year ended October 31, 2013

• Revenues of $3.6 billion, compared with $3.7 billion in 2012.
• Improvement in margin¹ of $99.7 million (margin before amortization and depreciation and before restructuring charges of $116.6 million, compared with $17.0 million in 2012).
• Net profit of $58.0 million, compared with a net loss of $16.7 million in 2012.
• Net adjusted after-tax income³ of $62.6 million, compared with a net adjusted after-tax loss of $15.3 million in 2012.
   

MONTREAL, Dec. 12, 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 $808.6 million for the quarter ended October 31, 2013, compared with $763.4 million in 2012, an increase of $45.2 million, or 5.9%. The Corporation recorded a margin before amortization and depreciation¹ of $80.1 million, compared with $52.9 million in 2012, and net income of $54.7 million ($1.40 per share on a diluted basis), compared with a net profit of $16.6 million ($0.43 per share on a diluted basis) in 2012. Before non-operating items, amortization and depreciation, and restructuring charges, Transat reported a margin of $80.6 million, compared with $52.9 million in 2012, and adjusted after-tax income³ of $54.8 million in 2013 ($1.40 per share on a diluted basis), compared with $28.7 million ($0.75 per share on a diluted basis) in 2012.

For the fiscal year ended October 31, 2013, Transat posted revenues of $3.6 billion, versus $3.7 billion in 2012, a decrease of $66.1 million, or 1.8%. The Corporation recorded a margin before amortization and depreciation¹ of $110.9 million, versus $17.0 million in 2012, and a net profit of $58.0 million ($1.51 per share on a diluted basis) compared with a net loss of $16.7 million ($0.44 per share on a diluted basis) in 2012. Before non-operating items, amortization and depreciation, and restructuring charges, Transat reported a margin of $116.6 million, compared with one of $17.0 million in 2012, and net adjusted after-tax income³ of $62.6 million in 2013 ($1.63 per share on a diluted basis), versus an adjusted after-tax loss of $15.3 million ($0.40 per share on a diluted basis) in 2012.

"We achieved very good results on the transatlantic market and posted profits on the Sun destinations market as well as in France," said Jean-Marc Eustache, President and Chief Executive Officer of Transat. "As a result, we had our best fourth quarter ever as well as the best summer in our history. And for the year, we are back to profitability, with a margin improvement of $100 million. Our efforts on all fronts, including costs, product, marketing, revenue management, and so on delivered the expected results. Our cost-reduction and margin-improvement program is tracking to plan."

Fourth quarter highlights

The Corporation posted revenues of $808.6 million, compared with $763.4 million in 2012, and a margin before amortization and depreciation¹ of $80.1 million ($80.6 million before amortization and depreciation and restructuring charges), compared with $52.9 million ($52.9 million before restructuring charges) in 2012. The increase in revenues was attributable mainly to higher average selling prices, which more than offset the impact of the Corporation's decision to reduce capacity on its markets (transatlantic and France), which accounts for the 5.0% reduction in the number of travellers. Across all markets, average selling prices and margins were higher.

Revenues of North American business units, which are generated by sales in Canada and abroad, rose by $55.9 million (10.9%) compared with the same period in 2012. The increase stemmed in part from the decision to account for all sales of flights between Canada and United Kingdom in North America, whereas a significant portion of said sales was previously accounted for in Europe. For the quarter, capacity on the transatlantic market decreased by 9% compared with 2012; capacity on Sun destinations was similar. North American business units generated a margin before amortization and depreciation¹ of $68.6 million, compared with $55.9 million in 2012. Before restructuring charges, Transat posted a margin before amortization and depreciation of $69.1 million, versus $55.9 million in 2012. The improvement in margin is mainly attributable to higher selling prices as well as the Corporation's cost-reduction initiatives.

Revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $10.7 million (4.3%) over 2012, mainly due to the aforementioned change in the accounting of certain sales in different geographic areas. European operations resulted in a margin before amortization and depreciation¹ of $11.5 million, compared with an operating loss before amortization and depreciation of $3.0 millions in 2012. The improvement in the margin is mainly attributable to higher selling prices and cost-reduction initiatives.

Fiscal year highlights

For the fiscal year, the Corporation's revenues stood at $3.6 billion, compared with $3.7 billion in 2012. Transat recorded a margin before amortization and depreciation¹ of $110.9 million ($116.6 million before amortization and depreciation and restructuring charges), compared with $17.0 million in 2012 ($17.0 million before restructuring charges). Revenues were similar to those posted in 2012. The higher average selling prices offset the Corporation's decision to reduce capacity on all its markets (Sun, transatlantic and France). The improvement in margin is mainly due to higher selling prices as well as to the cost-reduction initiatives.

For the winter season, Transat posted revenues of $1.9 billion, versus $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 before restructuring charges), compared with one of $58.1 million in 2012 ($58.1 million before restructuring charges). The decrease in revenues mainly stemmed from the Corporation's decision to reduce capacity on its markets (Sun, transatlantic and France), which resulted in a 12.0% decrease in traveller numbers. Across all markets, average selling prices and margins were higher than in 2012.

For the summer season, the Corporation recorded revenues of $1.7 billion, compared with $1.7 billion in 2012, and a margin before amortization and depreciation¹ of $133.1 million ($134.9 million before amortization and depreciation and before restructuring charges), versus $75.1 million in 2012 ($75.1 million before restructuring charges). The higher average selling prices offset the Corporation's decision to reduce capacity on its markets (transatlantic and France), which had resulted in a 12.0% decrease in traveller numbers. Across all markets, average selling prices and margins were higher than in 2012.

Financial position

As at October 31, 2013, the Corporation's free cash totalled $265.8 million, compared with $198.5 million at the same date in 2012 (including the November 2012 sale of the Corporation's ABCP). The working capital ratio was 1.1, against 1.0, and deposits from customers for future travel amounted to $410.3 million, compared with $382.8 million a year earlier. Off-balance-sheet agreements stood at $768.3 million as at October 31, 2013, compared with $557.1 million as at October 31, 2012, the increase being attributable to the leasing of four Boeing B737-800 aircraft and the renewal of the leases on six Airbus A330s, offset by payments made during the 12-month period.

Outlook for the first six months

On the sun destinations market, Transat's capacity is approximately 3% higher than that marketed last year. To date, 41% of that capacity has been sold, load factors are lower by 2%, and selling prices are higher by 5% compared to those recorded last year at the same date.

In France, where winter is low season, compared with last year at this time medium-haul bookings are higher by 10%, long-haul bookings are down by 2% and selling prices are down by 2%.

On the transatlantic, also the low season, Transat's capacity is 8% lower than that marketed last winter. To date, 53% of that capacity has been sold, load factors are lower by 6%, and selling prices are higher by 8%

The Sun destinations market in Canada accounts for a substantial portion of Transat's business during the winter season, and margins are both thin and volatile. At this early stage in the season, forecasting is difficult because of the following factors: a significant portion of capacity remains to be sold, bookings are last minute, and the Canadian dollar has weakened relative to the U.S. currency. However, to the extent that the conditions do not deteriorate, the Corporation expects to record better results than period last year for the winter.

It is extremely early to comment on the transatlantic market for the summer 2014, as only 9% of the seats have been sold. Transat's capacity is 2% higher than in 2013, load factors are similar, and prices are superior.

Cost-reduction and margin-improvement Initiatives

Transat is continuing with implementation of the initiatives in its return-to-profitability plan, 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 and 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)
		Fourth quarter		Fiscal year
		2013	2012	2013	2012
REVENUES		808,616	763,441	3,648,158	3,714,219
Gross margin (operating loss)		70,096	41,731	71,838	(23,838)
	Depreciation and amortization	9,959	11,215	39,068	40,793
Margin before amortization and depreciation1		80,055	52,946	110,906	16,955
	Restructuring charges	507	-	5,740	-
Margin before amortization and depreciation and restructuring charges		80,562	52,946	110,906	16,955
Result before taxes		72,519	30,596	80,712	(16,950)
	Impact of fuel-hedging accounting	(516)	(2,131)	493	(701)
	Impact of ABCP revaluation	-	(1,525)	-	(7,936)
	Gain on disposal of a subsidiary	-	-	-	(5,655)
	Goodwill impairment	-	15,000	-	15,000
	Restructuring charges	507	-	5,740	-
ADJUSTED INCOME (LOSS)2		72,510	41,940	86,945	(16,242)
NET INCOME (LOSS) ATTRIBUTABLE TO SHAREHOLDERS		54,723	16,614	57,955	(16,669)
	Impact of fuel-hedging accounting	(364)	(1,511)	324	(526)
	Impact of ABCP revaluation	-	(1,419)	-	(7,422)
	Gain on disposal of a subsidiary	-	-	-	(5,655)
	Goodwill impairment	-	15,000	-	15,000
	Restructuring charges	445	-	4,288	-
ADJUSTED AFTER-TAX INCOME (LOSS)3		54,804	28,684	62,567	(15,272)
DILUTED EARNINGS (LOSS) PER SHARE		1.40	0.43	1.51	(0.44)
	Impact of fuel-hedging accounting	(0.01)	(0.04)	0.01	(0.01)
	Impact of ABCP revaluation	-	(0.04)	-	(0.19)
	Gain on disposal of a subsidiary	-	-	-	(0.14)
	Goodwill impairment	-	0.39	-	0.39
	Restructuring charges	0.01	-	0.11	-
ADJUSTED AFTER-TAX INCOME (LOSS) PER SHARE3		1.40	0.75	1.63	(0.40)

 

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 fourth quarter of 2013, this translates into a $0.5 million non-cash gain ($0.4 million after income taxes) compared with a $2.1 million gain ($1.5 million after income taxes) in 2012. For the fiscal year, this translates into a $0.5 million non-cash gain ($0.3 million after income taxes), compared with a $0.7 million gain ($0.5 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 fourth quarter of 2013, Transat recorded a $1.6 million gain ($1.2 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $2.4 million ($1.7 million after income taxes) for the corresponding quarter in 2012. For the fiscal year, Transat recorded a $3.8 million gain ($2.9 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $3.4 million ($2.4 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 quarterly results included a loss on revaluation of $1.6 million ($1.5 million after taxes).

Summary of non-operational items-Before non-operating items, Transat posted an adjusted after-tax gain³ of $54.8 million ($1.40 per share on a diluted basis) for the fourth quarter of 2013 compared with $28.7 million in 2012 ($0.75 per share on a diluted basis) and an adjusted after-tax gain³ of $62.6 million for the 2013 fiscal year ($1.63 per share on a diluted basis) compared with an adjusted after-tax loss³ of $15.3 million ($0.40 per share on a diluted basis) in 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. (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, gain on disposal of a subsidiary, goodwill impairment and restructuring gains (or charges).
(3)	ADJUSTED AFTER-TAX 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).
(4)	NET CASH: Cash and cash equivalents not held in trust or otherwise reserved, less balance sheet debt.

 

Conference call

Fiscal 2013 conference call: Thursday, December 12, 2013, 10:00 a.m. Call 1 800 734-8582. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 997-6910, access code 21691028, until January 11, 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 the assumptions used in the valuation of the ABCP securities will materialize, and 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, 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.