AEROPLAN CANADA INC.

AEROPLAN CANADA INC.

May 09, 2008 03:00 ET

Aeroplan Income Fund Reports 2008 First Quarter Results

    MONTREAL, May 9  - 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."

    Financial Performance

    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

    Acquisitions

    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.

    Partnerships

    Turkish Airlines
    ----------------

    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 Eléctronique Inc
    --------------------------------

    Aeroplan and Groupe Dumoulin Eléctronique 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.

    Primus
    ------

    Aeroplan and Primus, the largest alternative communications carrier in
Canada, announced a multi-year 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.

    Corporate Structure

    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.

    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 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 non-operating 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 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.


    SUMMARY OF CONSOLIDATED OPERATING RESULTS AND RECONCILIATION OF ADJUSTED
                        EBITDA AND DISTRIBUTABLE CASH

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (in thousands, except miles, unit
     and per unit information)             Three months ended March 31,
                                              2008       2007(1)    % change
                                              ----       ----
    -------------------------------------------------------------------------
    Gross Billings from the sale of
     Aeroplan Miles                       $342,650     $227,977         50.3
    -------------------------------------------------------------------------
    Aeroplan Miles revenue                 337,286      228,561         47.6
    Tier management, contact centre
     management and marketing fees
     from Air Canada                         2,824        3,701        (23.7)
    Other revenue                           16,105       13,052         23.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total revenue                          356,215      245,314         45.2
    Cost of rewards                       (223,227)    (155,134)        43.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross margin                           132,988       90,180         47.5
    Selling, general and
     administrative                        (64,511)     (39,403)        63.7
    Depreciation and amortization           (4,672)      (2,704)        72.8
    -------------------------------------------------------------------------
    Operating income before
     amortization of Accumulation
     Partners' contracts and
     technology                            $63,805      $48,073         32.7
    -------------------------------------------------------------------------
    Depreciation and amortization            4,672        2,704
    Change in deferred revenue
      Gross Billings from the sale
       of Aeroplan Miles                   342,650      227,977
      Aeroplan Miles revenue              (337,286)    (228,561)
    Change in Future Redemption
     Costs(2)

    (Change in Net Aeroplan Miles
     outstanding x Average cost of
     rewards per Mile for the period)         (574)       9,787       (105.9)
    Foreign exchange gain                    4,313            -
    -------------------------------------------------------------------------
    Adjusted EBITDA                        $77,580      $59,980         29.3
    -------------------------------------------------------------------------
    Net Interest Income (Expense)           (6,725)       2,513       (367.6)
    Maintenance Capital Expenditures        (6,865)      (2,373)       189.3
    -------------------------------------------------------------------------
    Distributable Cash                     $63,990      $60,120          6.4
    -------------------------------------------------------------------------
    Standardized Distributable Cash        $17,538      $70,856        (75.2)
    -------------------------------------------------------------------------
    Weighted average number of units   199,402,619  199,539,544
    Distributable Cash per unit              $0.32        $0.30          6.7
    Standardized Distributable Cash
     per unit                                $0.09        $0.36        (75.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted net earnings(3)
     = Net earnings, in accordance
     with GAAP + amortization of
     Accumulation Partners' contracts
     and technology + income taxes         $61,780      $50,116         23.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per unit, in accordance
     with GAAP, adjusted for
     amortization of Accumulation
     Partners' contracts and
     technology and income taxes             $0.31        $0.25         24.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total monthly distributions
     declared                              $41,994      $42,000            -
    Total monthly distributions
     declared per unit                       $0.21        $0.21            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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) Adjusted net earnings is a non-GAAP measurement.


         RECONCILIATION OF CASH FLOWS FROM OPERATIONS TO STANDARDIZED
                  DISTRIBUTABLE CASH AND DISTRIBUTABLE CASH
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                Three months ended March 31,
    (in thousands)                                    2008           2007(3)
                                                      ----           ----
    -------------------------------------------------------------------------
    Cash flows from operations                     $24,403          $73,229
    Maintenance Capital Expenditures                (6,865)          (2,373)
    -------------------------------------------------------------------------
    Standardized Distributable Cash                 17,538           70,856
    Changes in non-cash working
     capital, foreign exchange and other items(1)   44,347          (21,235)
    Stock Based compensation(1)                     (1,072)            (817)
    Funding of stock-based compensation
     plans(1)                                        3,751            1,529
    Change in future redemption costs(2)              (574)           9,787
    -------------------------------------------------------------------------
    Distributable Cash                             $63,990          $60,120
    -------------------------------------------------------------------------
    Distributions declared                         $41,994          $42,000
    Payout ratio - Distributions declared /
     Standardized Distributable Cash                   239%              59%
    Payout ratio - Distributions declared /
     Distributable Cash                                 66%              70%
    Standardized Cumulative Distributable
     Cash since IPO (June 29, 2005)               $786,116
    Cumulative distributions declared since IPO   $427,194
    Cumulative payout ratio since inception             54%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The impact of the respective items is considered in the calculation
        of Standardized Distributable Cash but they are not part of the
        Distributable Cash definition in accordance with the Limited
        Partnership Agreement. This eliminates the potential impact of timing
        distortions relating to the respective items;
    (2) Changes in future redemption costs are included to reflect the
        expected change in the future redemption liability on the basis of
        the most recently experienced redemption costs;
    (3) 2007 results presented for comparative purposes are those of the
        Partnership.

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