MONTREAL — Data-driven marketing and loyalty analytics company Aimia Inc. on Wednesyda reported its financial results for the quarter ended March 31, 2017 and commented on the status of discussions with Air Canada.
This quarterly earnings release should be read in conjunction with the consolidated financial statements and the MD&A which can be accessed at: http://aimia.com/en/investors/quarterly-reports.html.
- Update provided around key partnerships, operating model and financing plans
- Recent discussions lead Aimia to the belief that Air Canada does not currently intend to renew the Aeroplan partnership expiring in June 2020; Aimia exploring post-2020 alternatives
- Continuing to take action to simplify and focus the business, with annualized savings of $70 million expected from 2019
- Early redemption of senior secured notes due January 2018 planned
- Rupert Duchesne to retire, with Interim Group Chief Executive David Johnston to assume role permanently
- Newly adopted dividend policy targets future dividend payout ratio linked to cashflow generation
- Gross Billings of $525.2 million, down 4.3% on a constant currency basis; Aeroplan up 5.0%
- Adjusted EBITDA margin of 11.2%, with strong operating cost discipline resulting in operating expenses 8% lower than the prior year
- Free Cash Flow before Dividends Paid at $(23.8) million reflects seasonal redemption patterns and lower Nectar Gross Billings
- Reconfirmed 2017 guidance; Return on Invested Capital metric introduced
- Quarterly dividend of $0.20 per common share declared
Over the last three years, Aimia has simplified and refocused the business significantly and has grown its base of financial cardholders under its contracts with TD Bank and CIBC, which run to early 2024. Recognizing that key coalition partnerships, a strongly aligned operating model and a supportive balance sheet are important to anchor the business, these continue to be areas of focus over the next two to three years.
Key coalition partnerships: Aimia’s coalitions are at the core of a cash generative business and we continue to explore the way our members accumulate and redeem. Upcoming contract renewals with Air Canada and Sainsbury’s provide an opportunity to evolve the coalition model to ensure mutually acceptable returns to both Aimia and current or future anchor partners.
Aimia and Air Canada have been engaging in discussions and the tenor of the very recent discussions leads Aimia to the belief that Air Canada does not currently intend to renew its partnership with Aeroplan on its expiry in June 2020. The existing agreement and Air Canada’s purchasing commitments to Aimia remain in place until June of 2020.
Aimia strongly believes that a renewal of the company’s long-term partnership would be the best and least disruptive option for both companies’ customers, in particular Air Canada’s frequent flyers. While Aimia remains open to further discussions with Air Canada, the company’s strategic planning had already contemplated other post-2020 alternatives in parallel with the goal of ensuring that Aeroplan members retain access to a strong redemption offering around air rewards in the future. Given the state of current discussions, we will continue to pursue these alternatives actively.
“Our partnership has proven to be both powerful and successful over the years, pairing one of the world’s best global airlines with one of the world’s leading loyalty providers,” said David Johnston, incoming Group Chief Executive, Aimia. “The proactive strategic decisions we continue to take are aimed at reinforcing our financial flexibility and ensuring the best possible outcome for our shareholders and stakeholders. Remember that we are more than a frequent flyer program – we offer value, flexibility and availability in air rewards that differentiate Aeroplan for our 5 million members.
“Members can continue to earn and redeem with Air Canada as our contract remains in effect until 2020. We will work with Air Canada to provide uninterrupted service for Aeroplan members.”
Members’ miles remain with Aeroplan. For the next three years, Aeroplan will continue buying seats from Air Canada to provide rewards to its five million members.
Aeroplan’s purchasing agreement with Air Canada guarantees capacity to Aeroplan in exchange for a substantial volume and certainty of advance ticket purchases which makes Aeroplan Air Canada’s largest single customer and generates significant cash flows to Air Canada.
Aligning our operating model: Aimia is building flexibility into its operating model and run rate to help mitigate any major contract changes, with the acceleration of the cost savings which were originally anticipated to be initiated in 2018 and 2019. Focus will remain on protecting the health, sustainability and growth of our coalitions.
The company also expects to identify additional savings as it continues to simplify the business. These actions are expected to start delivering benefits during 2018, with total annualized savings targeted at $70 million from 2019, helping to offset any changes to accumulation on Air Canada or changes to the allocation or cost of Fixed Mileage Flight Rewards, which could lead to lower Gross Billings or an increase in purchasing of higher priced flight rewards. A material reduction in capital expenditures is also planned for 2018, mainly as a result of the completion of analytics investments in the International Coalitions business.
In keeping with its desire to maximize returns to shareholders, the company is also reviewing business units and investments on the basis of their medium-term ROIC contribution and this may lead to further asset sales.
To read the full report of Aimia’s First Quarter 2017 results, click here.