Transat A.T. Inc. - Results for the first quarter of 2014 - Company prevented from improving its results by drop in value of Canadian dollar
- Revenues of $847.2 million, compared with $805.7 million in 2013.
- Operating loss before amortization and depreciation1 of $23.8 million, compared with $21.0 million in 2013, despite a decline in the value of the Canadian dollar which alone resulted in a $14-million increase in operating expenses.
- Adjusted after-tax loss3 of $23.3 million, compared with $21.6 million in 2013.
- Net loss of $25.6 million, compared with $15.1 million in 2013; variation attributable mainly to the impact of fuel-hedging accounting.
MONTREAL, March 13, 2014 /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 $847.2 million for the quarter ended January 31, 2014, compared with $805.7 million for the same period in 2013, an increase of $41.5 million, or 5.2%. The Corporation recorded an operating loss before amortization and depreciation1 of $23.8 million, compared with $21.0 million in 2013, and a net loss of $25.6 million ($0.67 per share on a diluted basis), compared with a net loss of $15.1 million ($0.39 per share on a diluted basis) in 2013. The decline in value of Canadian dollar alone resulted in increase in operating expenses of $14 million. Before non-operating items, Transat reported an adjusted after-tax loss3 of $23.3 million in 2014 ($0.60 per share on a diluted basis), compared with $21.6 million ($0.56 per share on a diluted basis) in 2013.
"A substantial portion of the loss over this quarter is attributable to the sudden and rapid drop in the value of the Canadian dollar," said Jean-Marc Eustache, President and Chief Executive Officer of Transat, adding: "This resulted in a significant increase in our operating expenses, which was offset only partially by higher selling prices and by our hedging program. That situation alone is what keeps us from posting improved results over last year at this time, both for the quarter and for the winter. However, our cost-control and margin-improvement program, which includes internalization of our narrow-body fleet, is unfolding as planned and delivering the expected results. We are on the right course."
First quarter highlights
The Corporation posted revenues of $847.2 million, compared with $805.7 million for the same period in 2013, and an operating loss before amortization and depreciation1 of $23.8 million, compared with $21.0 million in 2013. The increase in revenues was attributable mainly to higher average selling prices and the strengthening of the euro and the pound against the Canadian dollar. The operating loss before amortization and depreciation worsened mainly because of the recent rapid depreciation of the Canadian dollar against its U.S. counterpart.
Revenues of North American business units, which are generated by sales in Canada and abroad, rose by $31.5 million (4.6%) compared with the same period in 2013. The increase stemmed from the increase in average selling prices, while the number of travellers decreased by 0.8%. North American business operations resulted in an operating loss of $25.0 million, compared with one of $16.3 million in 2013. The higher operating loss is mainly attributable to the recent rapid depreciation of the Canadian dollar against the U.S. currency, which resulted in an increase in operating expenses. The combined effect of increased selling prices plus cost-control initiatives was not sufficient to offset the effect of those expense increases.
Revenues of European business units, which are generated by sales in Europe and in Canada, increased by $10.0 million (8.7%) over 2013, owing to the strong performances of the euro and the pound against the Canadian dollar. Measured in local currencies, those business units' revenues declined, following the Corporation's decision to reduce capacity. European operations resulted in a loss before amortization and depreciation1 of $8.6 million, compared with one of $13.7 million in 2013.
As at January 31, 2014, the Corporation's free cash totalled $359.6 million, compared with $247.9 million at the same date in 2013. The working capital ratio was 1.07, against 1.02, and deposits from customers for future travel amounted to $621.6 million, compared with $592.0 million a year earlier. Off-balance-sheet agreements stood at $657.0 million as at January 31, 2014, compared with $655.8 million as at October 31, 2013,4 the increase being attributable to the depreciation of the Canadian dollar against the U.S. dollar, partially offset by payments made during the 12-month period.
Outlook for the second quarter
On the Sun destinations market, Transat's capacity is approximately 2% lower than that commercialized last year. To date, 70% of that capacity has been sold, load factors are lower by 2%, and selling prices are higher by 4% compared with those recorded last year at the same date.
In France, where winter corresponds to low season, compared to last year at this time medium-haul bookings are higher by 16%, long-haul bookings are down by 4%, and selling prices are similar.
On the transatlantic market, also in low season, Transat's capacity is 6% lower than that commercialized last winter. To date, 67% of that capacity has been sold, load factors are lower by 5%, and selling prices are higher by 2%.
Outlook for winter - The Sun destinations market out of Canada accounts for a substantial portion of Transat's business during the winter season, and on that market, margins are particularly slim and volatile. Owing to the rapid recent decline in the value of the Canadian dollar, the Corporation expects that its second-quarter results will be inferior to those posted for the corresponding quarter last year.
Drop of Canadian dollar - The weakening dollar by itself led to an increase in operating expenses of 2.7% in the first quarter for sun destinations, and of 3.4% in the second quarter for bookings made to date. If the dollar remains at its current value, the increase in operating expenses for the second quarter overall resulting from the decline in the dollar's value compared with the previous year will be 3.7%.
Summer 2014 - With regard to summer 2014, while it is too soon to draw firm conclusions given that only 27% of seats have been sold, Transat's capacity on the transatlantic market is 1% higher than in 2013. Load factors are similar and prices are higher by 5%. The weakened Canadian dollar will mean an increase in operating expenses this summer, estimated to be 6% if the dollar remains at its current value against the US dollar, the euro and the pound.
Cost-reduction and margin-improvement Initiatives
The Corporation is continuing with implementation of the initiatives provided for in its return-to-profitability plan, including measures to reduce operating costs and changes to its systems and processes. In April 2013, Transat 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, as expected, a favourable impact of $20 million on the margin in 2012 and one 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.
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)
|Gross margin (operating loss)||(33,534)||(29,936)|
|Depreciation and amortization||9,722||8,919|
|OPERATING LOSS BEFORE DEPRECIATION AND AMORTIZATION1||(23,812)||(21,017)|
|Result before taxes||(34,367)||(20,142)|
|Impact of fuel-hedging accounting||3,218||(8,796)|
|ADJUSTED INCOME (LOSS)2||(31,149)||(28,938)|
|NET INCOME (LOSS) ATTRIBUTABLE TO SHAREHOLDERS||(25,649)||(15,137)|
|Impact of fuel-hedging accounting||2,361||(6,427)|
|ADJUSTED AFTER-TAX INCOME (LOSS)3||(23,288)||(21,564)|
|DILUTED EARNINGS (LOSS) PER SHARE||(0.67)||(0.39)|
|Impact of fuel-hedging accounting||0.06||(0.17)|
|ADJUSTED AFTER-TAX INCOME (LOSS) PER SHARE3||(0.60)||(0.56)|
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 first quarter of 2014, this translates into a $3.2 million non-cash loss ($2.4 million after income taxes), compared with a $8.8 million gain ($6.4 million after income taxes) in 2013.
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 first quarter of 2014, Transat recorded a $12.1 million gain ($8.9 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $0.9 million ($0.6 million after income taxes) for the corresponding quarter in 2013.
Summary of non-operational items - Before non-operating items, Transat posted an adjusted after-tax loss3 of $23.3 million for the first quarter of 2014 ($0.60 per share on a diluted basis) compared with one of $21.6 million in 2013 ($0.56 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)
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)||The off-balance-sheet agreements amount as at October 31, 2013, as reported in the news release for the fiscal year ended October 31, 2013, included commitments under agreements with air suppliers in the amount of $112.5 million. That amount should have been excluded from the off-balance-sheet agreements.|
First quarter 2014 conference call: Thursday, March 13, 2014, 2:30 p.m. Call 1 800 905-9496. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 558-5253, access code 21708173 until April 12, 2014.
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, 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.For further information:
Source: Transat A.T. Inc. (www.transat.com)
514 987-1616, ext. 4662
Chief Financial Officer