Transat A.T. Inc. - Results for third quarter 2012

"Satisfactory early summer on the transatlantic market"

• Revenues of $909.1 million, compared with $937.0 million in 2011, the $27.9-million decrease stemming from a planned capacity reduction
• Net income of $9.4 million, compared with net loss of $2.8 million in 2011.
• Adjusted after-tax income³ of $10.5 million, compared with $2.8 million in 2011.

MONTREAL, Sept. 13, 2012 /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 $909.1 million for the quarter ended July 31, 2012, compared with $937.0 million in 2011, a decrease of $27.9 million, or 3.0%. The Corporation recorded a margin¹ of $22.1 million, compared with of $14.7 million in 2011, and a net income of $9.4 million ($0.25 per share on a diluted basis), compared with a net loss of $2.8 million ($0.07 per share on a diluted basis) in 2011. Before non-cash and non-operating items, Transat reported an adjusted after-tax income³ of $10.5 million ($0.28 per share on a diluted basis), compared with $2.8 million ($0.07 per share on a diluted basis) in 2011.

"We had a satisfactory early summer on the transatlantic market, where our unique offering of some 60 city-pairs is tailored to the needs of Canadian and European tourists. The improvement in margin stems from our commercialization efforts and cost reduction measures," said President and Chief Executive Officer Jean-Marc Eustache.

Third quarter highlights

The Corporation's margin in the third quarter was $22.1 million, compared with $14.7 million in 2011, despite lower revenues of $909.1 million, compared with $937.0 million in 2011. In the second half of the quarter, transatlantic market prices and load factors continued to evolve favourably, those of the France and the sun destinations markets, as well as currency exchange impact, were stable.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $15.6 million compared with the same period in 2011. The decrease is mainly attributable to the Corporation's decision to reduce capacity on the transatlantic market and sun destinations, hence a lower number of travellers. On the transatlantic market, average selling prices and load factors were up. The Corporation recorded a margin of $11.1 million, compared with an operating loss of $15.8 million in 2011.

Revenues of European business units, which are generated by sales made in Europe and in Canada, decreased by $12.3 million over 2011. The decrease is mainly attributable to a lower number of travellers and the exchange rate variance for the dollar versus the euro. European operations produced a margin of $11.0 million for the quarter, compared with $30.5 million in 2011. The decrease in margin is partially attributable to the expiration of the Corporation's contract with Thomas Cook Airways and the entire Canada-UK capacity now being operated by Air Transat. It also stems from intense competition in France, where market conditions remain very difficult for the whole industry, notably on North Africa.

First nine-month period highlights

For the first nine months, the Corporation's revenues increased by $102.5 million over 2011, from $2.8 billion to $3.0 billion. Transat recorded an operating loss of $36.0 million, compared with a margin of $9.5 million in 2011. In the first half, the Corporation has been unable to increase selling prices, while operating costs, especially for fuel (on all markets) and hotels (in the second quarter) were higher.

Financial position

The Corporation's free cash totalled $292.7 million as at July 31, 2012, compared with $ 307.6 million as at July 31, 2011. Working capital ratio stood at 0.99 compared with 1.02 and deposits from customers for future travel were $395.9 million, compared with $386.7 million. Off-balance-sheet agreements stood at $573.2 million as at July 31, 2012, compared with $598.8 million as of July 31, 2011. The decrease over the same date in 2011 stems from payments made during the 9-month period.

International Financial Reporting Standards (IFRS)

The condensed interim consolidated financial statements for the three-month period ended July 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 dates. For the three-month period ended July 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 ($0.3 million for the nine-month period). Please see the Management Discussion & Analysis for more details.

Outlook

Business conditions remain demanding, but the outlook for the fourth quarter has improved during the last three months.

The transatlantic market accounts for a very significant portion of Transat's business in the summer. For the fourth quarter, the Corporation's capacity is approximately 10% lower than the actual capacity in 2011. To date, slightly more than 85% of the seats have been sold. Load factors and prices are higher than last year.

In the sun destinations market from Canada, Transat's capacity is 17% lower than last year. Load factors and prices are slightly inferior.

In France, bookings are slightly higher, and prices are similar to last year.

The implementation of the measures contained in the Corporation's plan to return to profitability is proceeding. For the fourth quarter, Transat expects to record an increase in margin over last year.

Additional Information

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

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 2012, this translates into a $7.5-million non-cash loss ($5.3 million after income taxes) compared with a $8.3-million loss ($5.9 million after income taxes) in 2011. For the first nine months of 2012, this translates into a $1.4-million non-cash loss ($1.0 million after income taxes) compared with a $3.7-million gain ($2.7 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 third quarter of 2012, Transat recorded a $5.4-million gain ($3.8 million after income taxes) on these foreign-currency hedging instruments, compared with a $2.1-million loss ($1.5 million after income taxes) in 2011. For the first nine months, Transat recorded a $1.0-million loss ($0.7 million after income taxes) on these foreign-currency hedging instruments, compared with a $6.0-million loss ($4.5 million after income taxes) in 2011.

Commercial paper—Results for the quarter include a $1.6-million loss ($1.5 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 $0.3 million ($0.3 million after income taxes) in the third quarter. As of July 31, 2012, the total accumulated provision represented 25.1% of the notional amount of the Corporation's $34.6 million in ABCP investments.

Summary of non-cash items—Before the aforementioned non-cash and non-operating items, Transat posted an adjusted after-tax income of $10.5 million ($0.28 per share on a diluted basis) for the third quarter of 2012 compared with $2.8 million ($0.07 per share on a diluted basis) in 2011, and an adjusted after-tax loss of $44.0 million ($1.15 per share on a diluted basis) for the nine-month period, compared with $17.0 million ($0.45 per share on a diluted basis) in 2011.

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): 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 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 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

Third quarter 2012 conference call: Thursday, September 13, 2012, 10.00 a.m. Dial 1 800-708-4508. 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 21603131 pound sign, until October 13, 2012.

Non-GAAP measures

Transat prepares its financial statements in accordance with Canadian generally accepted accounting principles ("GAAP"). We will occasionally refer to non-GAAP financial measures in the news release. These non-GAAP financial measures do not have any meaning prescribed by GAAP 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 GAAP. 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, 2010, 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.