Montreal, Quebec, May 9, 2008 – Aeroplan Income Fund (Fund) (TSX: AER.UN) today reported its 2008 first quarter results.
First Quarter 2008 Financial Highlights
Gross billings of $342.7 million
Operating income, excluding amortization of accumulation partners’ contracts and technology, of $63.8 million
Adjusted EBITDA of $77.6 million Distributable Cash of $64.0 million
Increase in earnings per unit of 33.4% ($0.21 vs $0.16)
“Our first quarter results reflect solid financial performance and growth in gross billings, both on the Aeroplan and LMG fronts,” said Rupert Duchesne, President and Chief Executive Officer, Aeroplan. “With the LMG and RMMEL acquisitions, we are well positioned to execute our strategy of becoming the global leader in loyalty management.”
Gross billings from the sale of miles, points and other loyalty program currencies issued by Aeroplan and its subsidiaries (Aeroplan Miles) for the three months ended March 31, 2008 amounted to $342.7 million compared to $228.0 million for the three months ended March 31, 2007, representing an increase of $114.7 million or 50.3%. Of this growth, $100.3 million is attributable to Aeroplan Miles sold by LMG and RMMEL, and $14.4 million, which represents a quarter-over-quarter increase of 6.3%, resulted from higher purchases by Aeroplan Program accumulation partners due to growth in consumer spending through credit and charge cards issued by such partners, and strength in the travel segment, slightly offset by lower activity from retail partners.
Operating income, excluding amortization of accumulation partners’ contracts and technology, amounted to $63.8 million for the quarter ended March 31, 2008 compared to $48.1 million for the quarter ended March 31, 2007, representing an increase of $15.7 million or 32.6%. This increase is mainly attributable to higher reward redemption activity, including a higher proportion of Aeroplan Miles redeemed, higher gross margins and the inclusion of LMG and RMMEL in the consolidated results.
At the end of the first quarter, the Fund had $149.7 million of cash and cash equivalents and $383.7 million of short-term investments, for a total of $533.4 million including the Aeroplan redemption reserve of $400.0 million.
Adjusted EBITDA for the quarter amounted to $77.6 million or 22.6% (as a % of Gross Billings) and Distributable Cash generated amounted to $64.0 million or 18.7% (as a % of Gross Billings), compared to $60.0 million or 26.3% (as a % of Gross Billings) and $60.1 million or 26.4% (as a % of Gross Billings), respectively for the first quarter of 2007.
First Quarter 2008 Key Operational Achievements
Rewards Management Middle East Limited (RMMEL)
On January 17, 2008, the Fund purchased an additional participation of 40% in RMMEL for a purchase price of AED 40.7 million ($11.4 million, including transaction costs). As a result of this transaction, the Fund now holds 60% of RMMEL.
The Fund will continue to pursue international expansion opportunities.
Aeroplan announced the addition of Star Alliance carrier Turkish Airlines to its roster of airline partners, bringing Aeroplan’s roster of airline partners to 30.
Groupe Dumoulin Éléctronique Inc
Aeroplan and Groupe Dumoulin Éléctronique Inc., the largest Canadian owned and operated consumer electronics retailer, announced a multi-year national partnership which will allow Aeroplan Members to accumulate miles across Dumoulin and Audiotronic’s entire range of audio, video, camera, communications and computer products.
Aeroplan and Primus, the largest alternative communications carrier in Canada, announced a multiyear national partnership which allows Aeroplan Members to accumulate miles across Primus’ entire range of consumer products and services. Members may earn three miles for every dollar spent on Primus’ suite of products and services, including home phone, long distance, wireless, and internet services, as well as Primus’ bundled offerings. Members can also earn bonus miles when they sign up for Primus services.
ACE Secondary Offering
On April 2, 2008, ACE Aviation Holdings Inc. (ACE) announced an agreement with a group of underwriters to sell an aggregate of 20.4 million units of Aeroplan Income Fund at a price of $17.50 per unit, for gross proceeds of $357 million. This secondary offering, from which the Fund did not receive any proceeds, closed on April 21, 2008. Pursuant to an agreement reached with ACE dated May 9, 2008, it no longer has any rights to appoint members of the board of directors of Aeroplan Holding GP Inc.
LMG Continues VAT Appeal
On April 3, 2008, the Fund announced that HM Revenue & Customs’ (HMRC) application for leave to appeal the decision in relation to the VAT treatment of Nectar to the House of Lords had been granted and that the case was referred to the European Court of Justice. The case will be heard at a future date to be set. LMG will continue to argue this case. The Fund remains confident that the case will be resolved to the company’s satisfaction.
On May 9, 2008, the Fund announced that it has received board approval to reorganize its income trust structure into a growth oriented, dividend paying, global loyalty management public corporation. Further information is contained in the press release issued on May 9, 2008 titled Aeroplan Income Fund to Convert to A Corporation.
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 is used in measuring compliance with debt covenants and in making decisions relating to distributions to unitholders. Management believes Adjusted EBITDA assists investors in comparing a company’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 nonoperating factors such as historical cost.
Adjusted EBITDA is a non-GAAP measurement and may not be comparable with similar measures reported by other entities, and is not considered an alternative to operating income or net income in measuring performance. For reconciliation with GAAP, please refer to the Summary of Operating Results and Reconciliation of Adjusted EBITDA and Distributable Cash. 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 repayment and other sources and uses of cash, which are disclosed in the statements of cash flows.
Refer to the Summary of Operating Results and Reconciliation of Adjusted EBITDA and Distributable Cash attached for a summary of operating results and reconciliation of Adjusted EBITDA and Distributable Cash.
Distributable cash is a non-GAAP measure generally used by Canadian open-ended trusts as an indicator of financial performance, and it should not be seen as a measurement of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. Distributable cash may differ from similar calculations as reported by other entities and, accordingly, may not be comparable to distributable cash as reported by such entities.
Refer to the attached schedule for a reconciliation of cash flows from operations to Distributable Cash and Standardized Distributable Cash.
The unaudited interim consolidated financial statements and the Investor Presentation will be accessible on the investor relations website at aeroplan.com.
Quarterly Investor Conference Call / Audio Webcast
The Fund will hold an analyst call at 13:00 – 14:00 EDT on May 9, 2008 to discuss its first quarter results and the announcement relating to the proposed reorganization to a corporation.
The call may be accessed by dialing toll free: 1-888-458-1598, or 416-883-0139 for the Toronto area, passcode 70570#. The call will be simultaneously audio webcast at http://events.onlinebroadcasting.com/aeroplan/051208/index.php
The conference call webcast and a presentation to investors and analysts will be archived on the investor relations website at www.aeroplan.com. A playback of the call will also be accessible until midnight EDT on June 9, 2008. The playback can be accessed at the same numbers above.
About Aeroplan Income Fund
Aeroplan Income Fund is an unincorporated, open-ended trust established under the laws of the Province of Ontario. Aeroplan Income Fund is the owner of Aeroplan Limited Partnership, Canada’s premier loyalty marketing company and operator of the Aeroplan loyalty program and Loyalty Management Group Limited, operator of Nectar, the United Kingdom’s leading coalition loyalty program. For more information about Aeroplan, please visit www.aeroplan.com.
Caution Concerning Forward-Looking Statements
This news release should be read in conjunction with the Fund’s 2008 first quarter unaudited interim financial statements and MD&A dated May 8, 2008, filed with Canadian securities regulatory authorities (available at www.sedar.com). Certain statements in this news release may contain forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and similar terms and phrases, including references to assumptions. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions.
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 and Nectar Points, 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, appointment rights of ACE Aviation Holdings Inc. (ACE), foreign ownership limitations and impact on mutual fund trust status and value and liquidity of units, future sales or distributions of units by ACE, income tax matters, SIFT Rules, conversion to corporate structure, as well as the other factors identified throughout the MD&A. The forward-looking statements contained in this discussion represent the Fund’s expectations as of May 8, 2008, and are subject to change after such date. However, the Fund 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.
For more information, please contact:
Michèle Meier Trish Moran