Groupe Aeroplan Inc. Reports 2008 Third Quarter Results

///Groupe Aeroplan Inc. Reports 2008 Third Quarter Results
Groupe Aeroplan Inc. Reports 2008 Third Quarter Results 2017-11-15T20:59:51+00:00

14.11.2008

Results confirm strong quarter during uncertain times

MONTREAL, Nov. 14 /CNW Telbec/ – Groupe Aeroplan Inc. (the “Corporation”)
(TSX: AER), today reported its 2008 third quarter results.

Third Quarter 2008 Financial Highlights (compared to the third quarter
2007)- Increased gross billings by 50.1 % to $355.6 million
– Increased operating income, excluding amortization of accumulation
partners’ contracts and technology, by 42.3 % to $68.4 million
– Increased Adjusted EBITDA by 24.0 % to $80.0 million
– Marginally reduced Adjusted net earnings by 1.3 % to $63.2 million,
explained by the effect of income taxes as a result of the conversion
to a corporation
– Improved free cash flow by $68.3 million to $115.9 million

“The third quarter of this year reflected the strength of our business
fundamentals,” said Rupert Duchesne, President and CEO. “To date, we have not
experienced any significant impact of the slowing economy. However, the
current instability of global financial systems and the strong possibility of
the US and global economies falling into a recession, make predicting consumer
behaviour and therefore performance in the near to medium-term very
difficult.”
“We generated consolidated Adjusted EBITDA and Free Cash Flow of $80.0
million and $115.9 million for the quarter, reflecting strong financial
performance and cash flows as well as the ability to generate liquidity,”
added David Adams, Executive Vice President and Chief Financial Officer. “The
strength of our balance sheet and cash flow was formally validated last month
with the investment-grade ratings from Standard & Poor’s and DBRS, which
should enable us to access debt capital markets, once the global financial
markets stabilize.”

Financial Performance

Gross billings from the sale of miles, points and other loyalty program
units (Aeroplan Miles) issued by the Corporation’s subsidiaries for the three
months ended September 30, 2008 amounted to $355.6 million compared to $236.9
million for the three months ended September 30, 2007, representing an
increase of $118.7 million or 50.1 %. While the majority of this increase is
attributable to the inclusion of the consolidated LMG results, Aeroplan Miles
issued under the Aeroplan Program during the quarter increased by 10.3% over
the comparable period of the prior year. This increase was driven by bonus
miles issued related to the roll out of the conversion initiative to CIBC
Aerogold Visa Infinite credit cards, by growth in consumer spending through
credit and charge cards issued by Aeroplan’s accumulation partners and growth
in retail activity.
Operating income, excluding amortization of accumulation partners’
contracts and technology, amounted to $68.4 million for the quarter ended
September 30, 2008 compared to $48.1 million for the quarter ended September
30, 2007, representing an increase of $20.3 million or 42.3 %. This increase
is mainly attributable to the inclusion of the consolidated LMG results,
higher reward redemption activity, including a higher proportion of Aeroplan
Miles redeemed, and the increase in gross margins.
At the end of the third quarter, the Corporation had $174.1 million of
cash and cash equivalents and $452.9 million of short-term investments, for a
total of $627.0 million including the Aeroplan redemption reserve of $400
million.
Adjusted EBITDA for the quarter amounted to $80.0 million or 22.5 % (as a
% of Gross Billings) and Free Cash Flow generated amounted to $115.9 million
or 32.6 % (as a % of Gross Billings), compared to $64.5 million or 27.2 % (as
a % of Gross Billings) and $47.6 million or 20.1 % (as a % of Gross Billings),
respectively for the third quarter of 2007.

Recent Developments

On October 22, 2008, Groupe Aeroplan announced the appointment of Vince
Timpano as President, Aeroplan-Canada and Executive Vice President, Groupe
Aeroplan.
Mr. Timpano brings to Groupe Aeroplan critical expertise developed through
executive leadership roles within several of the most effective
consumer-focused companies in North America, most recently as President,
Coca-Cola Ltd. in Canada. Mr. Timpano will be responsible for all aspects of
the Aeroplan Program in Canada.

Partnerships

Sobeys
——

On September 16, 2008, Aeroplan announced the successful launch of its
multi-year partnership with Sobeys. Aeroplan members have been able to earn
miles on groceries when shopping at Sobeys stores in Western Canada since
September 17th and in Ontario since September 19th.

Direct Energy
————-

On November 13, 2008, Aeroplan and Direct Energy, North America’s largest
energy and energy-related services provider, announced a multi-year
partnership that will allow Aeroplan members to accumulate Aeroplan Miles with
Direct Energy’s natural gas and electricity price-protection plans. Beginning
in 2009, Aeroplan Members can earn miles when they enrol in natural gas and
electricity contracts with Direct Energy.

New Products

Nectar Music Store
——————

On August 26, 2008, Nectar launched the Nectar Music Store, a first for a
UK loyalty program. Based on the successful model of the Aeroplan Music Store,
the Nectar Music Store allows Nectar cardholders to purchase bundles of song
credits with Nectar points.

Operations

Changes to Flight Reward Fees
—————————–

Aeroplan today announced changes to the fees related to flight reward
bookings, in addition to a number of online enhancements that will be
introduced on Aeroplan.com throughout 2009.
Aeroplan is simplifying the fee structure associated with its flight
reward change and refund fees. Further information is contained in the press
release issued on November 14, 2008 entitled Aeroplan Announces Enhancements
to Online Booking Capabilities and Changes to Flight Reward Fees.

Corporate Developments

Initial credit ratings
———————-

On October 16, 2008, the Corporation announced that it had been assigned a
rating of BBB with a stable trend by DBRS and BBB- with a positive outlook by
Standard & Poor’s Rating Services.

Aeroplan Contact Centres
————————

Aeroplan announced today that, as originally contemplated upon the
spin-off of Aeroplan in 2000, and in accordance with termination provisions of
the General Services Agreement with Air Canada relating to the staffing of
Aeroplan Contact Centres, it intends to notify Air Canada during the month of
November 2008 of its plan to terminate this agreement effective June 1, 2009.
Aeroplan expects to offer all agents working in Aeroplan’s Contact Centres
in Vancouver and Montreal continued employment as of June 1, 2009, in the same
positions, unless, if eligible, they elect to return to Air Canada.

Non-GAAP Measures

In order to provide a better understanding of the results, the following
terms are used:

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
(Adjusted EBITDA)

EBITDA adjusted for certain factors particular to the business, such as
changes in deferred revenue and Future Redemption Costs (“Adjusted EBITDA”),
is used by management to evaluate performance, and to measure compliance with
debt covenants. Management believes Adjusted EBITDA assists investors in
comparing the Corporation’s performance on a consistent basis without regard
to depreciation and amortization, which are non-cash in nature and can vary
significantly depending on accounting methods and non-operating factors such
as historical cost.
Adjusted EBITDA is not a measurement based on GAAP, is not considered an
alternative to operating income or net income in measuring performance, and is
not comparable to similar measures used by other issuers. For a reconciliation
to GAAP, please refer to the SUMMARY OF CONSOLIDATED OPERATING RESULTS AND
RECONCILIATION OF EBITDA, ADJUSTED EBITDA, ADJUSTED NET EARNINGS AND FREE CASH
FLOW included in the attached schedule. Adjusted EBITDA should not be used as
an exclusive measure of cash flow because it does not account for the impact
of working capital growth, capital expenditures, debt repayments and other
sources and uses of cash, which are disclosed in the statements of cash flows.

Adjusted Net Earnings

Net earnings in accordance with GAAP adjusted for Amortization of
Accumulation Partners’ contracts and technology; Change in deferred revenue,
Change in Future Redemption Costs and the income tax effect thereon calculated
at the effective income tax rate as reflected in the statement of operations,
provides a measurement of profitability calculated on a basis consistent with
Adjusted EBITDA.
Adjusted Net Earnings is not a measurement based on GAAP, is not
considered an alternative to net earnings in measuring profitability, and is
not comparable to similar measures used by other issuers. For a reconciliation
to GAAP, please refer to the SUMMARY OF CONSOLIDATED OPERATING RESULTS AND
RECONCILIATION OF EBITDA, ADJUSTED EBITDA, ADJUSTED NET EARNINGS AND FREE CASH
FLOW included in the attached schedule.

Standardized Free Cash Flow (“Free Cash Flow”)

Free Cash Flow is a non-GAAP measure recommended by the CICA in order to
provide a consistent and comparable measurement of free cash flow across
entities of cash generated from operations and is used as an indicator of
financial strength and performance.
Free Cash Flow is defined as cash flows from operating activities, as
reported in accordance with GAAP, less adjustments for:

(a) total capital expenditures as reported in accordance with GAAP; and
(b) dividends, when stipulated, unless deducted in arriving at cash flows
from operating activities.

For reconciliation to cash flows from operations please refer to the
SUMMARY OF CONSOLIDATED OPERATING RESULTS AND RECONCILIATION OF EBITDA,
ADJUSTED EBITDA, ADJUSTED NET EARNINGS AND FREE CASH FLOW included in the
attached schedule.
EBITDA and Free Cash Flow are non-GAAP measurements prescribed by the CICA
in accordance with the draft recommendations provided in their February 2008
publication, Improved Communications with Non-GAAP Financial Measures –
General Principles and Guidance for Reporting EBITDA and Free Cash Flow.

Quarterly Investor Conference Call / Audio Webcast

Groupe Aeroplan Inc. will hold an analyst call at 8:00 a.m. ET on November
14, 2008 to discuss its third quarter results. The call may be accessed by
dialing toll free: 1-866-540-8136, or 416-641-6112 for the Toronto area. The
call will be simultaneously audio webcast at
http://events.startcast.com/events/20/B0065
The conference call webcast and a presentation to investors and analysts
will be archived on the investor relations website at www.groupeaeroplan.com.
A playback of the call will also be accessible until midnight ET on December
14, 2008. The playback can be accessed by dialing toll free: 1-800-408-3053,
or 416-695-5800 for the Toronto area, passcode 3261996.
The unaudited interim consolidated financial statements and the Investor
Presentation will be accessible on the investor relations website at
groupeaeroplan.com under Financial Results.

About Groupe Aeroplan Inc.

Groupe Aeroplan Inc. is a leading international loyalty management
corporation. Groupe Aeroplan owns the Aeroplan program, Canada’s premier
loyalty program and Nectar, the United Kingdom’s leading coalition loyalty
program. In the Gulf Region, Groupe Aeroplan owns 60 per cent of Rewards
Management Middle East, the operator of Air Miles programs in the United Arab
Emirates, Qatar and Bahrain. Groupe Aeroplan also operates Insight &
Communication, a customer-driven insight and data analytics company offering
worldwide services to retailers and their suppliers.

Caution Concerning Forward-Looking Statements

Certain statements in this news release may contain forward-looking
statements. Forward-looking statements, by their nature, are based on
assumptions and are subject to important risks and uncertainties. Any
forecasts or forward-looking predictions or statements cannot be relied upon
due to, amongst other things, changing external events and general
uncertainties of the business and its corporate structure. Results indicated
in forward-looking statements may differ materially from actual results for a
number of reasons, including without limitation, dependency on top
accumulation partners, Air Canada or travel industry disruptions, reduction in
activity, usage and accumulation of Aeroplan Miles, retail market or economic
downturn, greater than expected redemptions for rewards, industry competition,
supply and capacity costs, unfunded future redemption costs, changes to the
Aeroplan and Nectar Programs, seasonal nature of the business, regulatory
matters, VAT appeal and value and liquidity of the common shares, as well as
the other factors identified throughout the MD&A. The forward-looking
statements contained in this discussion represent the Corporation’s
expectations as of November 13, 2008, and are subject to change after such
date. However, the Corporation disclaims any intention or obligation to update
or revise any forward-looking statements whether as a result of new
information, future events or otherwise, except as required under applicable
securities regulations.

SUMMARY OF CONSOLIDATED OPERATING RESULTS AND RECONCILIATION OF EBITDA,
ADJUSTED EBITDA, ADJUSTED NET EARNINGS AND FREE CASH FLOW

————————————————————————-
————————————————————————-
(in thousands, except
share and per share Three months ended Nine months ended
information) September 30, September 30,
—————————————————
2008 2007(1) 2008 2007(1)
—- ——- —- ——-
————————————————————————-
Gross Billings from
the sale of Aeroplan
Miles $355,603 $236,877 $1,056,111 $703,785
————————————————————————-
Aeroplan Miles revenue 313,319 205,074 968,184 640,721
Other revenue 21,635 14,165 59,713 44,116
————————————————————————-
————————————————————————-
Total revenue 334,954 219,239 1,027,897 684,837
Cost of rewards (191,033) (127,205) (606,853) (410,880)
————————————————————————-
————————————————————————-
Gross margin 143,921 92,034 421,044 273,957
Selling, general and
administrative expenses (71,027) (40,713) (205,165) (121,824)
Depreciation and
amortization (4,472) (3,230) (14,142) (8,745)
————————————————————————-
Operating income
before amortization
of Accumulation
Partners’ contracts
and technology $68,422 $48,091 $201,737 $143,388
————————————————————————-
Depreciation and
amortization 4,472 3,230 14,142 8,745
Foreign exchange gain 660 – 444 –
————————————————————————-
EBITDA(3) $73,554 $51,321 $216,323 $152,133
————————————————————————-
Adjustments:
Change in deferred
revenue
Gross billings
from the sale of
Aeroplan Miles 355,603 236,877 1,056,111 703,785
Aeroplan Miles
revenue (313,319) (205,074) (968,184) (640,721)

Change in Future
Redemption Costs(2)
(Change in Net
Aeroplan Miles
outstanding x
Average Cost
of Rewards per
Mile for the
period) (35,812) (18,605) (67,744) (26,754)
————————————————————————-
————————————————————————-
Subtotal of Adjustments 6,472 13,198 20,183 36,310
————————————————————————-
Adjusted EBITDA(3) $80,026 $64,519 $236,506 $188,443
————————————————————————-
————————————————————————-
Net earnings in
accordance with
GAAP $34,956 $50,864 $108,542 $150,429
Weighted average
number of shares
(units) 199,383,818 199,500,582 199,395,277 199,513,426
Earnings per share
(unit) $0.18 $0.26 $0.54 $0.75
————————————————————————-
————————————————————————-
Net earnings in
accordance with
GAAP $34,956 $50,864 $108,542 $150,429
Amortization of
accumulation
partners’ contracts
and technology 22,636 – 68,002 –
Subtotal of
Adjustments
(from above) 6,472 13,198 20,183 36,310
Effective tax rate(4) 12.9 – 4.7 –
Tax on adjustments at
the effective rate (835) – (949) –
————————————————————————-
————————————————————————-
Adjusted net earnings(3) $63,229 $64,062 $195,778 $186,739
Adjusted earnings per
share (unit) $0.32 $0.32 $0.98 $0.94
————————————————————————-
————————————————————————-
Cash flow from
operations $141,078 $94,414 $257,669 $238,785
Maintenance Capital
Expenditures (11,212) (4,784) (24,635) (10,136)
Dividends /
distributions (13,998) (42,000) (97,986) (131,000)
————————————————————————-
Free cash flow(3) $115,868 $47,630 $135,048 $97,649
————————————————————————-
————————————————————————-
Total monthly
distributions
declared – $42,000 $83,988 $126,000
Total monthly
distributions
declared per unit – $0.21 $0.42 $0.63
————————————————————————-
————————————————————————-

————————————————————————-
————————————————————————-
(in thousands, except
share and per share % change
information)
————————
Q3 YTD
— —
————————————————————————-
Gross Billings from
the sale of Aeroplan
Miles 50.1 50.1
————————————————————————-
Aeroplan Miles revenue 52.8 51.1
Other revenue 52.7 35.4
————————————————————————-
————————————————————————-
Total revenue 52.8 50.1
Cost of rewards 50.2 47.7
————————————————————————-
————————————————————————-
Gross margin 56.4 53.7
Selling, general and
administrative expenses 74.5 68.4
Depreciation and
amortization 38.5 61.7
————————————————————————-
Operating income
before amortization
of Accumulation
Partners’ contracts
and technology 42.3 40.7
————————————————————————-
Depreciation and
amortization
Foreign exchange gain
————————————————————————-
EBITDA(3) 43.3 42.2
————————————————————————-
Adjustments:
Change in deferred
revenue
Gross billings
from the sale of
Aeroplan Miles
Aeroplan Miles
revenue

Change in Future
Redemption Costs(2)
(Change in Net
Aeroplan Miles
outstanding x
Average Cost
of Rewards per
Mile for the
period)
————————————————————————-
————————————————————————-
Subtotal of Adjustments
————————————————————————-
Adjusted EBITDA(3) 24.0 25.5
————————————————————————-
————————————————————————-
Net earnings in
accordance with
GAAP (31.3) (27.8)
Weighted average
number of shares
(units)
Earnings per share
(unit)
————————————————————————-
————————————————————————-
Net earnings in
accordance with
GAAP
Amortization of
accumulation
partners’ contracts
and technology
Subtotal of
Adjustments
(from above)
Effective tax rate(4)
Tax on adjustments at
the effective rate
————————————————————————-
————————————————————————-
Adjusted net earnings(3) (1.3) 4.8
Adjusted earnings per
share (unit)
————————————————————————-
————————————————————————-
Cash flow from
operations 49.4 7.9
Maintenance Capital
Expenditures
Dividends /
distributions
————————————————————————-
Free cash flow(3) 143.3 38.3
————————————————————————-
————————————————————————-
Total monthly
distributions
declared
Total monthly
distributions
declared per unit
————————————————————————-
————————————————————————-

(1) 2007 results presented for comparative purposes are those of the
Partnership;
(2) The per unit cost derived from this calculation is retroactively
applied to all prior periods with the effect of revaluing the
liability on the basis of the latest available average unit
cost;
(3) A non-GAAP measurement;
(4) Effective tax rate calculated as follows: income tax expense per
statement of operations / earnings before income taxes for the
period.%SEDAR: 00027127EF

For further information: Media: Michèle Meier, (514) 205-7028,
michele.meier@aeroplan.com; JoAnne Hayes, (416) 352-3706,
joanne.hayes@aeroplan.com; Analysts: Trish Moran, (416) 352-3728,
trish.moran@aeroplan.com