Transat A.T. Inc. - Second Quarter 2007 Results: Revenue growth following a winter impacted by strong competitive pressure



    TRZ.B; TRZ.A (TSX)

    
    - Revenues of $911.4 million for the second quarter and $1.6 billion for
      the winter season, for overall increases of 15.1% and 18.2%
      respectively compared with 2006.
    - Margins(1) of $63.2 million for the second quarter and $87.9 million
      for the winter season, compared with $68.5 million and $82.5 million
      respectively in 2006.
    - Net income of $53.9 million for the second quarter, or $1.58 per share
      fully diluted ($41.4 million, or $1.21 per share fully diluted
      excluding the impact of new hedge accounting standard) compared with
      $42.8 million and $1.24 per share in 2006.
    

    MONTREAL, June 7 /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 $911.4 million for its second quarter ended April 30, 2007,
compared with $791.6 million in 2006-an increase of 15.1%. The Corporation
recorded a margin of $63.2 million, down 7.7% from $68.5 million in 2006. Net
income for the quarter amounted to $53.9 million, or $1.58 per share on a
fully diluted basis, compared with $42.8 million ($1.24 per share on a fully
diluted basis) in 2006.
    The increase in net income was strongly impacted by two non-cash,
non-operational events.
    Firstly, the adoption of the new accounting standards related to hedge
accounting, which for the Corporation, came into effect November 1, 2006,
resulted in the recording of a non monetary gain of $18.8 million
($12.6 million after tax) during the quarter. This gain relates to the mark to
market adjustment on derivative financial instruments used by the Corporation
to manage risks related to fuel price fluctuations. Excluding this gain, the
net earnings for the quarter would have been $41.4 million, as shown in the
following table:

    
                     Impact on the Corporation's results
                         of new accounting standards

    -------------------------------------------------------------------------
    Second Quarter                   2007                   2006  Variance
                    -----------------------------------              (2007
                           As      Impact    Adjusted             adjusted
                     reported      of new                           versus
    (In thousands              accounting                            2006)
     of dollars,                standards
     except per
     share
     amounts)
    -------------------------------------------------------------------------
    Income before
     taxes and
     non-controlling
     interest in
     subsidiaries'
     results           76,456     (18,756)     57,700     62,152      (7.2%)
    Net income         53,944     (12,566)     41,378     42,845      (3.4%)
    Diluted earnings
     per share           1.58       (0.37)       1.21       1.24      (2.4%)
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    First six months                 2007                   2006  Variance
                    -----------------------------------              (2007
                           As      Impact    Adjusted             adjusted
                     reported      of new                           versus
    (In thousands              accounting                            2006)
     of dollars,                standards
     except per
     share
     amounts)
    -------------------------------------------------------------------------
    Income before
     taxes and
     non-controlling
     interest in
     subsidiaries'
     results           82,040      (9,040)     73,000     70,884      (4.2%)
    Net income         56,076      (6,057)     50,019     48,013      (4.2%)
    Diluted earnings
     per share           1.64       (0.18)        146       1.31     (11.5%)
    -------------------------------------------------------------------------

    Secondly, the results were positively affected by the foreign exchange
impact on debt which resulted in a non-cash gain of $2.1 million in 2007
compared with a non-cash gain of $1.6 million in 2006.
    "We are very satisfied with these results, which indicate that we have
been successful in increasing our market share, although this has, as
expected, impacted our margins as the travel market remains highly competitive
in Canada," stated Jean-Marc Eustache, President and Chief Executive Officer
of Transat A.T. Inc.
    During the second quarter and the six-month period, the Corporation's
revenues increased by $119.8 million and $250.6 million, respectively,
compared with the corresponding periods in 2006. The overall increase in its
revenues was driven by revenue growth in North America of 13.1% for the
quarter and 16.7% for the six-month period, and by higher revenues in Europe,
up 26.3% for the quarter and 27.8% for the six-month period. These increases
were primarily due to expanded business activity, particularly in North
America, and in part thanks to acquisitions in fiscal 2006. Compared with the
previous year, total travellers grew by 11.4% for the quarter and 13.7% for
the six-month period. In 2006, the start of the season was affected by the
aftermath of Hurricane Wilma.
    As at April 30, 2007, the Corporation had $355.9 million in cash and cash
equivalents, compared with $214.9 million at October 31, 2006. This increase
includes customer deposits of $57.0 million received from clients of Canadian
Affair. Working capital was $133.8 million, compared with $97.6 million as at
October 31, 2006. Total debt(2) stood at $362.7 million at April, 2007, a
decrease of $45.1 million compared with October 31, 2006.

    Geographic segment highlights
    -----------------------------

    In North America, revenue growth for the quarter and six-month period
resulted mainly from increases in total travellers of 10.5% and 13.2%,
respectively. Throughout the first six months of the year, competition
continued to put downward pressure on the Corporation's selling prices mainly
in Québec. As expected, the Corporation's efforts to increase its market share
in Ontario, which have been successful, resulted in higher revenues and lower
margins. Overall, margins decreased from 9.6% in 2006 to 7.6% in 2007 for the
quarter, and from 7.2% in 2006 to 6.5% in 2007 for the six-month period.
    In Europe, revenues increased compared with the corresponding quarter and
six-month period in 2006. These increases stem primarily from greater business
activity and the euro's strength against the dollar. Total travellers were up
18.1% during the quarter and 17.0% over the six-month period compared with the
corresponding periods of 2006. In terms of margins, European operations posted
a $5.7 million (3.6%) margin during the quarter compared with $4.5 million
(3.7%) margin in 2006. For the first six months of 2007, the Corporation
reported a negative margin of $1.4 million compared with a negative margin of
$2.7 million in 2006. As expected, Canadian Affair reported a negative margin
due to the seasonal nature of its business, and that most of its revenues are
generated in the summer. During the first six months, our operations in France
have generated better margins compared to 2006.

    Dividend
    --------

    On June 6, 2007, Transat's Board of Directors approved a quarterly
dividend of $0.09 payable to holders of Class B Voting Share and Class A
Variable Voting Share. The next dividend payment will be payable on July 15,
2007 to shareholders of record as at June 30, 2007.

    Other
    -----

    On May 1, 2007, the Corporation made a (euro)1.3 million ($1.9 million)
cash payment to acquire the balance of the shares (30%) of Air Consultants
B.V. (ACE) that it did not already own.
    At the beginning of the third quarter, the Corporation's subsidiary
Transat tours Canada and tour operator MyTravel, which does business in Canada
under the Sunquest Vacations brand, signed a 3-year commercial agreement which
define the terms on the sale to each other of airline seats to sun
destinations, starting on November 1st, 2007. The agreement sets the
conditions at which Sunquest Vacations could purchase approximately 120,000
seats on flights chartered by Transat Tours Canada (operating under the
Transat Holidays and Nolitours brands), and at which Transat Tours Canada
could purchase approximately 120,000 seats on flights chartered by Sunquest
Vacations, for the 2007-2008 winter season. The agreement should allow the
Corporation to optimize the utilization of its wide-body aircraft on the sun
destinations market and supplements Transat Tours Canada's agreement with
WestJet.

    Outlook
    -------

    For the next quarter, the Corporation expects demand to be higher than in
2006. However, in light of heightened competition and supply, Transat
anticipates narrower margins for the next summer season, particularly for U.K.
destinations with Canadian departures.
    In Europe, bookings for the next quarter are tracking ahead of their 2006
levels, and the Corporation expects a positive margin in the next summer
season.

    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, destination
services and distribution. (TSX: TRZ.B, TRZ.A)

    Second Quarter 2007 Conference Call: Thursday June 7, 2007, 10:00 a.m.
Dial 1-800-564-3880 or 514-868-2590. Name of conference: Transat. Webcast
www.transat.com. The archived call will be available at 1-800-408-3053 or
514-861-2272 access code 3223071 pound sign, until July 7, 2007.

    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.

    (1) Revenues less operating expenses (non-GAAP financial measure used by
        management as an indicator to evaluate ongoing and recurring
        operational performance)).
    (2) Debt plus off-balance sheet arrangements (non-GAAP financial measure
        used by management to assess the Corporation's future liquidity
        requirements).

    Caution regarding forward-looking statements

    This news release contains certain forward-looking statements regarding
the Corporation's expectation that travel reservations will continue to be
higher than the prior year, that margins will be narrowed, that the
Corporation expects the margins to be positive in Europe. In making these
statements, the Corporation has assumed that the trends in reservations will
continue throughout the remainder of the season and that margins will continue
to be impacted by the competitive environment. 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 also include general
economic conditions, competition, extreme weather conditions, disease
outbreaks, war, terrorism, 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, 2006, 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 law.
    
    %SEDAR: 00002758EF




For further information:

For further information: Information for media representatives: Pierre
Tessier, (514) 987-1616, ext. 4509; Information for financial analysts:
François Laurin, Vice-President, Finance and Administration and Chief
Financial Officer, (514) 987-1660; Source: Transat A.T. Inc., www.transat.com


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