“Very good results on the transatlantic market this past summer”

 

Fourth quarter

• Revenues of $763.4 million, compared with $805.9 million in 2011.
• Margin¹ of $52.9 million, compared with $23.5 million before restructuring charge in 2011.
• Net income of $16.6 million, compared with a net loss of $7.3 million in 2011.
• Adjusted after-tax income³ of $28.7 million, compared with $7.3 million in 2011.
• Restatement of 2011 financial statements and those of prior years.

Fiscal year ended October 31, 2012

• Revenues of $3.7 billion, up 1.6% over 2011.
• Margin¹ of $17.0 million, compared with $33.0 million before restructuring charge in 2011.
• Goodwill impairment of $15 million, attributable to France operations.
• Net loss of $16.7 million, compared with $14.7 million the previous year.
• Net adjusted after-tax loss³ of $15.3 million, compared with $9.7 million in 2011.

Transat A.T. Inc., one of the world’s largest integrated tourism companies and Canada's holiday travel leader, posted revenues of $763.4 million for the quarter ended October 31, 2012, compared with $805.9 million for the same period of 2011, a decrease of $42.5 million, or 5.3%. The Corporation recorded a margin1 of $52.9 million, compared with $23.5 million before restructuring charge in 2011, and net income after goodwill impairment of $16.6 million ($0.43 per share on a diluted basis), compared with a net loss of $7.3 million ($0.19 per share on a diluted basis) in 2011. Before non-operating items, Transat reported adjusted after-tax income3 of $28.7 million in 2012 ($0.75 per share on a diluted basis), compared with $7.3 million ($0.19 per share on a diluted basis) in 2011.

For the fiscal year ended October 31, 2012, Transat posted revenues of $3.7 billion, an increase of 1.6% versus 2011. The Corporation recorded a margin of $17.0 million, compared with $33.0 million before restructuring charge in 2011, and a net loss of $16.7 million ($0.44 per share on a diluted basis), compared with $14.7 million in 2011 ($0.39 per share on a diluted basis). The net loss posted in 2012 takes into account goodwill impairment of $15 million, attributable to the France operations. Before non-operating items, Transat reported an adjusted after-tax loss3 of $15.3 million in 2012 ($0.40 per share on a diluted basis), compared with $9.7 million ($0.26 per share on a diluted basis) in 2011.

“We achieved very good results on the transatlantic market last summer, and in fact it was one of our best-ever summers. Our product, frequencies, destinations and marketing efforts helped us deliver the expected results,” said Jean-Marc Eustache, President and Chief Executive Officer.

Fourth-quarter highlights

The Corporation’s fourth-quarter margin was $52.9 million, versus $23.5 million before restructuring charge in 2011, despite a decline in revenues, which stood at $763.4 million for the quarter, compared with $805.9 million in 2011. The drop in revenues was attributable mainly to the Corporation’s decision to reduce capacity on its transatlantic and Sun destinations markets outbound from Canada and the number of travellers declined by 6.3% as a result. On the transatlantic market, which accounts for a very sizable portion of Transat’s summer-season operations, prices and load factors were superior to those of 2011.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $39.6 million (7.2%) compared with the same period in 2011. The decrease stemmed from a decision made by senior management to reduce marketed capacity. The resulting decrease in traveller numbers allowed the Corporation to raise its average sale prices. North American operations delivered a margin of $55.9 million, versus $8.9 million before restructuring charge in 2011. The improved margin is due mainly to the higher sales prices as well as load factors superior to those recorded in the last quarter of 2011.

Revenues of European business units, which are generated by sales made in Europe and in Canada, decreased by $2.8 million (1.1%) from 2011. The decline is attributable to a weakening of the euro against the dollar, since revenues of the Europe-based units, when expressed in local currencies, actually posted gains compared with 2011. During the quarter, the number of travellers was up slightly. European activities resulted in an operating loss of $3.0 million for the quarter, compared with a margin of $14.6 million before restructuring charge in 2011. The change resulted, in part, from the expiry of the Corporation’s contract with Thomas Cook Airways.

Fiscal year highlights

For the fiscal year, the Corporation’s revenues stood at $3.7 billion, an increase of $60.1 million over 2011. Transat recorded a margin of $17.0 million, compared with $33.0 million before restructuring charge in 2011.

Financial position

The Corporation’s free cash totalled $171.2 million as at October 31, 2012, compared with $181.6 million as at October 31, 2011. The working capital ratio was 1.0, versus 0.97 a year earlier, and deposits from customers for future travel amounted to $382.8 million, compared with $348.0 million on the same date the prior year. Off-balance-sheet agreements stood at $557.1 million as at October 31, 2012, compared with $653.7 million as of October 31, 2011; the decrease stems from payments made during the fiscal year.

International Financial Reporting Standards (IFRS)

The consolidated financial statements of the Corporation for the year ended October 31, 2012, were prepared in accordance with International Financial Reporting Standards (“IFRS”). The 2011 comparative figures have been restated to reflect this change. In summary, the adoption of IFRS has had a minor impact on Transat. It decreased the total equity’s carrying value by $25.4 million as at October 31, 2011, compared with the previous Canadian GAAP’s carrying value as at the same date. For the three-month period ended October 31, 2011, the consolidated net loss attributable to shareholders has been reduced by $0.1 million compared to the figures disclosed last year under Canadian GAAP ($0.4 million for the 12-month period). Please see the Management’s Discussion & Analysis for more details.

Restatement of prior-years’ financial statements

The Corporation has restated its financial statements for fiscal 2011 following discovery of a recurring accounting error starting in 2006 within its U.K. subsidiary, which was acquired that year. Amounts received from customers for services not yet rendered were not properly recorded in conformity with the Corporation’s accounting policy in current liabilities under Customer deposits and deferred income for fiscal years 2006 to 2011. Accordingly, the Corporation has reduced its retained earnings as at November 1, 2010 by $11.7 million, which is the sum of the annual variance in earnings for the years 2006 to 2010 (the negative variance is $3.1 million in 2006, $3.8 million in 2007, $1.6 million in 2008, $2.1 million in 2009 and $1.1 million in 2010). For the year ended October 31, 2011, the Corporation increased its net loss by $2.9 million or $0.08 per share, from $11.8 million to $14.7 million. On the balance sheet, income taxes receivable as at October 31, 2011 have increased by $2.3 million and customer deposits and deferred income has increased by $16.7 million.

Outlook for the first six months

The Canadian Sun destinations market accounts for a substantial portion of Transat’s business during the winter season. With regard to this market, we are early in the season and a significant number of seats remains to be sold, thus the trend toward last-minute bookings and margin volatility make forecasting difficult.

On this market, Transat’s capacity is approximately 10% lower than what was marketed last year. Load factors are similar to those recorded last year at the same date, while average selling prices are higher.

In France, where winter is low season, medium-haul bookings are 30% higher compared to last year at this time, long-haul bookings are down 8% (a reflection of the Corporation’s decision to reduce capacity), and prices are similar in both cases.

On the transatlantic market, Transat’s capacity is approximately 18% lower than that marketed last winter, load factors are similar, and selling prices are higher.

Additional information

The results were affected by non-operating items, as summarized in the following table:

Goodwill impairment – The Corporation performed an impairment test at October 31, 2012, to determine whether the carrying amounts of the cash-generating units exceeded their recoverable amount. Following the test, the Corporation recorded a goodwill impairment of $15 million, attributable to a France-based business unit that derives a significant percentage of its revenues from sales of products to destination countries in Northern Africa, including Tunisia, Morocco and Egypt. Please see the Management’s Discussion & Analysis for more.
 
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 2012, this translates into a $2.1-million non-cash gain ($1.5 million after income taxes) compared with a $4.9-million loss ($3.5 million after income taxes) in 2011. For the fiscal year, this translates into a $0.7-million non-cash gain ($0.5 million after income taxes) compared with a $1.3-million loss ($0.8 million after income taxes) in 2011.

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 2012, Transat recorded a $2.4-million loss ($1.7 million after income taxes) on these foreign-currency hedging instruments, compared with a $11.2-million gain ($7.9 million after income taxes) in 2011. For the fiscal year, Transat recorded a $3.4-million loss ($2.4 million after income taxes) on these foreign-currency hedging instruments, compared with a $5.2-million gain ($3.5 million after income taxes) in 2011.

Commercial paper—Results for the quarter include a $1.5-million gain ($1.4 million after income taxes) stemming from the revaluation of the Corporation’s investments in asset-backed commercial paper (ABCP). In 2011, Transat had recorded a revaluation gain of $1.2 million ($0.6 million after income taxes) in the fourth quarter. As at October 31, 2012, the total accumulated provision represented 20.8% of the nominal amount of the Corporation’s $34.5 million in ABCP investments. Subsequent to year-end, the Corporation sold its ABCP for a total consideration of $27.4 million.

Summary of non-operating items—Before non-operating items, Transat posted an adjusted after-tax income of $28.7 million ($0.75 per share on a diluted basis) for the fourth quarter of 2012 compared with $7.3 million ($0.19 per share on a diluted basis) in 2011, and an adjusted after-tax loss of $15.3 million ($0.40 per share on a diluted basis) for the 2012 fiscal year, compared with an adjusted after-tax loss of $9.7 million ($0.26 per share on a diluted basis) in 2011.

NOTES

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

(1) MARGIN (OPERATING LOSS): Revenues less operating expenses.
(2) ADJUSTED 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 charges (or gains).
(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, impairment of goodwill 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

Fourth quarter 2012 conference call: Wednesday, December 19, 2012, 3.00 p.m. Dial 1 800-768-8691. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 633-8625 or 416 626-4144, access code 21620717 pound sign, until January 18, 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 news 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, 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.