Transat A.T. Inc. — Results for second quarter 2012

Results hit by decline in selling prices at end of quarter

• Revenues of $1.2 billion, compared with $1.1 billion in 2011.
• Net loss of $13.2 million, compared with net income of $8.7 million in 2011.
• Adjusted after-tax loss³ of $24.5 million, compared with $0.6 million in 2011.

MONTREAL, June 14, 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 $1.2 billion for the quarter ended April 30, 2012, compared with $1.1 billion in 2011, an increase of $111.3 million, or 10.1%. The Corporation recorded an operating loss¹ of $26.2 million, compared with a margin of $9.3 million in 2011, and a net loss of $13.2 million ($0.35 per share on a diluted basis), compared with a net income of $8.7 million ($0.23 per share on a diluted basis) in 2011. Before non-cash and non-operating items, Transat reported an adjusted after-tax loss³ of $24.5 million ($0.64 per share on a diluted basis), compared with $0.6 million ($0.02 per share on a diluted basis) in 2011.

"Selling prices of sun destination packages to Mexico and Caribbean declined sharply in the second half of the quarter, while fuel costs remained higher, with negative impact on margins. We remain focused our previously announced plan to return to profitability, which unfolds as planned," said President and Chief Executive Officer Jean-Marc Eustache.

Second quarter highlights

The Corporation's second-quarter revenues increased by $111.3 million. It recorded an operating loss of $26.2 million, compared to a margin of $9.3 million in 2011.

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $118.5 million (13.0%) compared with the same period in 2011. The increase is largely attributable to the acquisition of Vacances Tours Mont-Royal, which represented $69.5 million in revenues, as well as to an increase in the number of travellers. In the sun destinations market, selling prices were inferior to the previous year, mainly due to a sharp decline in the second half of the quarter, while fuel and hotel costs were higher. Load factors also declined, especially in the second half of the quarter. Consequently, North American operations resulted in an operating loss of $19.6 million, compared to a margin of $9.8 million in 2011.

Revenues of European business units, which are generated by sales made in Europe and in Canada, decreased by $7.2 million (3.7%) over 2011. In France, market conditions during low season were extremely difficult for the whole industry, especially on North African destinations. European operations resulted in  an operating loss of $6.6 million for the quarter, compared with $0.5 million in 2011.

First six-month period highlights

For the first six months, the Corporation's revenues increased by $130.5 million over 2011 and an operating loss of $58.1 million, compared with $5.2 million in 2011. 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, and the Canadian dollar was weaker versus the US dollar.

Revenues of North American business units increased by $143.8 million (9.1%) compared with the same period in 2011. The increase is attributable in part to the acquisition of Vacances Tours Mont-Royal, as well as to an increase in the number of travellers. For the period, North American business units recorded an operating loss of $38.7 million, compared with a margin of $3.9 million in 2011. The decrease is attributable to higher operating costs, mostly fuel and hotels, as well as intense competition.

Revenues of European business units decreased by $13.3 million over 2011. Selling prices and the number of travellers were lower. European operations resulted in an operating loss of $19.3 million for the second half, compared with $9.1 million in 2011. The increased loss stems mainly from a lower number of travellers and very difficult market conditions in France.

Financial position

The Corporation's free cash totalled $264.1 million as at April 30, 2012, compared with $ 278.2 million as at April 30, 2011. Working capital ratio stood at 0.93 compared with 1.03 and deposits from customers for future travel were $464.7 million, similar to the previous year at the same date. Off-balance-sheet agreements stood at $595.8 million as at April 30, 2012, the decrease over the same date in 2011 stemming from payments made during the period.

As at April 30, 2012, certain terms of $100.0 million credit facility agreement were not met. The lenders have waived this default so that the Corporation is in compliance with all its commitments to its lenders. On June 13, 2012, the Corporation arranged to reduce the amount of this facility. Accordingly, the Corporation now has a $50.0 million revolving term credit facility with National Bank of Canada and Bank of Nova Scotia, maturing in 2015. The agreement will be secured by a first movable hypothec on a universality of assets, present and future, of the Corporation's Canadian subsidiaries subject to certain exceptions and will be further secured by the pledging of certain marketable securities of main European subsidiaries. The terms of the agreement require the Corporation to comply with certain financial criteria and ratios.

Furthermore, early in the third quarter, the Corporation sold a portion of its asset-backed commercial paper (ABCP) with a notional amount of $80 million for $57.4 million.

International Financial Reporting Standards (IFRS)

The condensed interim consolidated financial statements for the three-month period ended April 30, 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 to previous Canadian GAAP's carrying value as at the same dates. For the three-month period ended April 30, 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 ($0.2 million for the six-month period). Please see the Management Discussion & Analysis for more details.

Outlook

Despite the current decrease in fuel costs, the net impact on margin has been negative, due to the rise of the US dollar and the decline of the euro compared to the Canadian dollar. Bookings are similar to last year at the same date, but the business environment remains challenging. Economic and political uncertainty in Europe, both a source and destination market for Transat, as well as the major impact of last minute bookings on average selling prices make any forecast for the second half very difficult.

The transatlantic market accounts for a very significant portion of Transat's business in the summer. For the period going from May to October 2012, the Corporation's capacity is approximately 4% lower than the actual capacity offered in 2011. To date, load factors and prices are slightly higher than last year.

In the sun destinations market from Canada, Transat's capacity is 13% inferior compared to last year. Load factors are similar and selling prices are inferior.

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

The implementation of the measures contained in the Corporation's plan to return to profitability is proceeding.

Additional Information

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

Highlights and impact of non-operating items on results (In millions of CAD)
		Second Quarter		First 6-month period
		2012	2011	2012	2011
Revenues		1,212,426	1,101,109	2,041,722	1,911,263
Operating margin ( loss) ^1		(26,226)	9,299	(58,065)	(5,207)
Result before taxes		(19,504)	11,305	(59,557)	(7,214)
	Impact of fuel hedging accounting	(4,403)	(8,155)	(6,025)	(11,993)
	Impact of ABCP revaluation	(8,812)	(3,504)	(8,032)	(6,637)
ADJUSTED LOSS^2		(32,719)	(354)	(73,614)	(25,784)
NET INCOME (LOSS) ATTRIBUTABLE TO SHAREHOLDERS		(13,199)	8,715	(42,688)	(4,663)
	Impact of fuel hedging accounting	(3,114)	(5,787)	(4,275)	(8,594)
	Impact of ABCP revaluation	(8,223)	(3,504)	(7,514)	(6,637)
ADJUSTED AFTER-TAX LOSS^3		(24,536)	(576)	(54,477)	(19,894)
DILUTED LOSS PER SHARE		(0.35)	0.23	(1.12)	(0.12)
	Impact of fuel hedging accounting	(0.08)	(0.15)	(0.11)	(0.23)
	Impact of ABCP revaluation	(0.22)	(0.09)	(0.20)	(0.17)
ADJUSTED AFTER-TAX LOSS PER SHARE^3		(0.64)	(0.02)	(1.43)	(0.53)

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 second quarter 2012, this translates into a $4.4 million non-cash gain ($3.1 million after income taxes) compared with a $8.2 million gain ($5.8 million after income taxes) in 2011. For the first six months of 2012, this translates into a $6.0 million non-cash gain ($4.3 million after income taxes) compared with a $12.0 million gain ($8.6 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 second quarter 2012, Transat recorded a $6.7 million loss ($4.7 million after income taxes) on these foreign-currency hedging instruments, compared with a $3.6 million loss ($2.5 million after income taxes) in 2011. For the first six months of 2012, Transat recorded a $6.3 million loss ($4.5 million after income taxes) on these foreign-currency hedging instruments, compared with a $4.0 million gain ($3.0 million after income taxes) in 2011.

Commercial paper—Results for the quarter include a $8.8 million gain ($8.2 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 $3.5 million ($3.5 million after income taxes). As of April 30, 2012, the total accumulated provision represented 25.8% of the notional amount of the Corporation's $115.0 million in ABCP investments.

Summary of non-cash items—Before the aforementioned non-cash and non-operating items, Transat posted an adjusted after-tax loss of $24.5 million for the second quarter of 2012 ($0.64 per share on a diluted basis) compared with an adjusted after-tax loss of $0.6 million ($0.02 per share on a diluted basis) in 2011, and an adjusted after-tax loss of $54.5 million ($1.43 per share on a diluted basis) for the six-month period, compared with $19.9 million ($0.53 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, 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 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

Second quarter 2012 conference call: Thursday, June 14, 2012, 10.00 a.m. Dial 1 800 763-6564. 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 21593206 pound sign, until July 14, 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. (www.transat.com)

Media:   
Debbie Cabana
514 987-1616, ext. 4662

Financial analysts :  
Denis Pétrin
Chief Financial Officer
514 987-1660