UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
November 12, 2015
Commission File Number 1-14728
LATAM Airlines Group S.A.
(Translation of Registrants Name Into English)
Presidente Riesco 5711, 20th floor
Las Condes
Santiago, Chile
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
LATAM AIRLINES GROUP REPORTS OPERATING INCOME OF US$121 MILLION AND OPERATING MARGIN REACHES 4.8% IN THIRD QUARTER 2015
Santiago, Chile, November 12, 2015 LATAM Airlines Group S.A. (NYSE: LFL; IPSA: LAN; BOVESPA: LATM33), the leading airline group in Latin America, announced today its consolidated financial results for the third quarter ended September 30, 2015. LATAM or the Company makes reference to the consolidated entity, which includes passenger and cargo airlines in Latin America. All figures were prepared in accordance with International Financial Reporting Standards (IFRS) and are expressed in U.S. dollars. The Brazilian real / US dollar average exchange rate for the quarter was BRL 3.54 per USD.
HIGHLIGHTS
| LATAM Airlines Group reported operating income of US$ 120.6 million for the third quarter 2015, with operating margin reaching 4.8%, an increase of 1.0 percentage point compared to the third quarter of 2014. Profitability improvements this quarter were driven by cost efficiencies as a result of lower fuel prices, as well as by the Companys ongoing cost savings initiatives. Excluding fuel, cost per ASK equivalent decreased by 13.7% as compared to third quarter 2014. |
| As a result of a weaker macroeconomic environment in South America and the significant devaluations of Latin American currencies during the period, especially the 55.5% depreciation of the Brazilian real, total revenues for the Group during the third quarter 2015 declined by 19.9% as compared to third quarter 2014. |
| LATAM reported a net loss of US$113.3 million in third quarter 2015, similar to the net loss of US$107.8 million in third quarter 2014. Non-operating results include a non-cash foreign exchange loss of US$241.1 million mostly recognized at TAM as a result of the 27.2% devaluation of the Brazilian real during the quarter. The Company has been able to mitigate this foreign exchange loss over time by reducing its balance sheet exposure to the Brazilian real. |
| Considering the challenging economic scenario in Brazil and the resulting slowdown in the airline industry, TAM reduced domestic capacity in Brazil by 5.9% in September 2015 and, as previously announced, it is reducing capacity during the fourth quarter 2015 by approximately 8% to 10% as compared to 2014. As a result, the Company has already shown improvements in revenues per ASK, which increased by 10.7% as compared to the previous quarter, and by 6.0% as compared to third quarter 2014, when measured in Brazilian reais. |
| In order to adjust to weaker expected demand conditions, LATAM Airlines Group is revising its fleet capital expenditures for the next three years. The Company has undertaken a plan to restructure its delivery schedule for 20162018, aiming to reduce fleet commitments for the period by approximately 40%, equivalent to a reduction of approximately US$3.0 billion, through deferrals and sales of both wide body and narrow body aircraft. This restructuring seeks primarily to adjust capacity to the prevailing market conditions in Latin America, and is in line with our focus on maintaining a healthy balance sheet and adequate liquidity by reducing capex and pre-delivery payments. During this year, the Company has already successfully accomplished a significant portion of this plan, achieving a reduction of approximately US$1.8 billion in fleet commitments for the period, including the deferral of certain aircraft originally scheduled for delivery in 2017 and 2018. In addition to these ongoing negotiations, the Company is planning the redelivery of 20 aircraft for 2016, including the phase out of its 10 remaining Airbus A330s. Furthermore, the Company continues to rationalize freighter capacity, having finalized the sublease of one of its four 777-200Fs to a third party. |
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| LATAM seeks to maintain an adequate level of liquidity, which we consider to be in the range of US$1.5 billion. As of September 30, 2015, the Company had US$1,542.3 million in cash and cash equivalents, which represents 14.2% of last twelve months revenue. Regarding our fleet commitments, we have completed approximately 80% of our fleet financing requirements for 2016. |
MANAGEMENT COMMENTS ON THIRD QUARTER 2015 RESULTS
LATAM Airlines Groups strong leadership position and diversified business model make it the best positioned airline group in the region to face the current context of weaker macroeconomic conditions and devalued currencies in South America, especially in Brazil. Despite the challenging market conditions, LATAMs financial results show improvements this quarter over the third quarter 2014, reflecting the resiliency and flexibility of our operations. Furthermore, the Company remains committed to maintain a healthy balance sheet and adequate liquidity, evaluating opportunities to reduce fleet and non-fleet capital expenditures, as well as reductions in capacity growth in order to face a period of expected weakness in demand.
Over the past quarters, we have made substantial adjustments to respond to the challenging macroeconomic scenario affecting South American economies. Our focus has been on implementing capacity reductions in the Brazilian domestic and international markets, deferring fleet deliveries expected during 2017 and 2018, as well as aggressively pursuing cost efficiency initiatives throughout the organization.
Towards the end of 2014, LATAM launched a cost savings plan with the objective of reducing total operating costs by approximately 5% through 2018. These savings are in addition to the cost efficiencies resulting from the restructuring of our fleet plan. Year to date, we have accumulated a total cost reduction of approximately US$240 million, above our initial estimates. These efficiencies, enhanced by the depreciation of local currencies, have driven the 12.3% decrease of LATAMs CASK-ex fuel in the last nine months.
Notwithstanding the initiatives to enhance the resiliency of the Company through capacity reviews and reduction in costs and capital expenditures, LATAM Airlines Group maintains a long term commitment to the development of air travel in Latin America and has not altered its long term strategic plans, which focus on developing the best network and the best passenger experience of any airline in Latin America.
Regarding LATAMs network development, the previously announced capacity reductions in Brazilian domestic and international markets have been offset by strengthening our main hubs in the Groups Spanish speaking markets and pursuing strategic growth opportunities. As part of LATAMs network strategy, the Company announced plans to launch new international routes between now through the end of 2016. These new destinations will strengthen the Groups connectivity in Latin America, North America, the Caribbean, Europe and Africa. Some of these new routes include LAN Perus first nonstop flight between Washington DC and Lima. In addition, TAM is awaiting approval from authorities to operate from Sao Paulo to Johannesburg, making LATAM Airlines Group the only Latin American airline group to have regularly scheduled flights to the African continent. Regarding the Northeast hub in Brazil, the Company delayed the announcement of the city to host its hub to the first half of 2016 due to the time of airport infrastructure.
In addition to the already announced reductions to the domestic network in 2015, TAM will make certain adjustments to the current Brazilian international network during 2016, namely the previously announced cancellations of the three weekly frequencies between Miami and Belo Horizonte as of March 2016, one of the five weekly frequencies between Miami and Manaus as of April 2016, and the already published cancellation of four of the 14 weekly frequencies between New York City and Sao Paulo as of April 2016.
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LATAM continues working to achieve and maintain the preference of customers by providing the best service before and during the flight. LATAM has implemented wireless in-flight entertainment on 131 narrow body aircraft and more than 3,000 short-haul flights, and expects to complete implementation of this service on all the narrow body fleet by the first quarter 2016. Additionally, LATAM has launched two new services on its website; Manage my booking and Flight Status, allowing customers to stay informed and manage their flight options throughout their trip. Furthermore, the Company continues the unification process of check-in counters between LAN and TAM, and is also testing a Self-Bag Tag service at the Guarulhos and Brasilia airports.
MANAGEMENT DISCUSSION AND ANALYSIS OF THIRD QUARTER 2015 RESULTS
Total revenues in the third quarter 2015 reached US$2,514.8 million compared to US$3,141.3 million in third quarter 2014. The decrease of 19.9% is a result of a 19.8% and 24.5% decrease in passenger and cargo revenues, respectively, as well as a 2.5% decrease in other revenues. Passenger and cargo revenues accounted for 84.0% and 12.3% of total operating revenues, respectively, in third quarter 2015.
Passenger revenues decreased 19.8% during the quarter, which reflects a 5.0% increase in capacity, offset by a 23.7% decline in consolidated passenger unit revenue (RASK), when compared to the third quarter 2014. The RASK decrease was driven by a 23.1% drop in yields, while load factors showed a small decline of 0.6 p.p. reaching 83.9%. Yield performance continues to be negatively impacted by the weak macroeconomic scenario in South America, as well as weak and volatile local currencies (especially in Brazil).
Revenues per ASK for LATAMs main passenger business units are shown in the table below.
For the three month period ended September 30 | ||||||||||||||||||||||||
RASK (US cents) |
ASK (millions) |
Load Factor
|
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3Q15 | % Change | 3Q15 | % Change | 3Q15 | % Change | |||||||||||||||||||
Bussines Unit |
||||||||||||||||||||||||
Domestic SSC |
8,1 | -11,8 | % | 5.633 | 5,6 | % | 81,4 | % | -0.1 pp | |||||||||||||||
Domestic Brazil |
5,7 | -32,2 | % * | 10.977 | -0,5 | % | 81,9 | % | 0.5 pp | |||||||||||||||
International |
6,4 | -17,1 | % | 17.913 | 8,5 | % | 86,0 | % | -1.6 pp | |||||||||||||||
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Total |
6,1 | -23,7 | % | 34.522 | 5,0 | % | 83,9 | % | -0,6 pp |
* | Domestic Brazil RASK increased 6.0% when measured in BRL. |
Note: revenues include ticket revenue, breakage, excess baggage fee, frequent flyer program revenues and other revenues.
During the third quarter 2015, demand in the airline groups Spanish speaking countries (SSC, which include Chile, Peru, Argentina, Colombia and Ecuador) continued to grow at a moderate pace, with an increase of 54% in passenger traffic as measured in RPKs. Passenger capacity as measured in ASKs grew by 5.6% during the quarter, driven by growth in Peru and Chile, while load factors marginally declined 0.1 p.p, reaching 81.4% During the quarter, RASK was impacted by a weaker pricing environment in most markets, as well as by the depreciation of local currencies, mainly the Colombian, Chilean and Peruvian peso which depreciated 53.9%, 17.2% and 13.9%, respectively. As a result, revenues per ASK in US dollars declined 11.8%, as compared to the third quarter 2014.
In the domestic Brazil passenger operations, revenues per ASK have improved significantly during the third quarter 2015 when measured in BRL, increasing 10.7% sequentially and 6.0% as compared to the third quarter 2014, driven by TAMs adjustments to its domestic network. TAM was the only operator in Brazil to reduce capacity during the quarter, decreasing ASKs by 0.5% as compared to third quarter 2014. The decrease of 0.5% is a result a 7.5% increase in capacity in July, affected by the World Cup soccer tournament which took place in Brazil last year, offset by 3.4% and 5.9% decrease in the months of August and September. Our strategy enabled TAM to maintain load factors above the industry average, reaching a healthy 81.9%, while we continue focused on leveraging the Companys strategic position and improving connectivity from our main hubs, namely Sao Paulo Guarulhos and Brasilia. Furthermore, TAM led the Top of
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Mind ranking in Brazil for the seventh year, increasing the gap with the second airline, and consolidated its leadership position in the Brazilian market in spite of the capacity reductions in its domestic network. Furthermore, TAM also continues to be the preferred airline in the corporate segment.
During the quarter, LATAMs capacity on international routes increased by 8.5% as measured in ASKs, focused on strengthening our international hubs and our routes to the Caribbean, including an increase in the frequencies from Sao Paulo to Cancun, Bogota to Cancun and Lima to Habana. However, the Company has also reduced capacity on routes with weaker demand, including certain international operations from Brazil. Traffic increased by 6.5%, while passenger load factors remain very healthy at 86.0%. Pressures on yields continued during the quarter, mainly in the operations to and from Brazil, related to weaker local demand for international travel as a result of the depreciation and volatility of the Brazilian real. LATAM and its affiliates are managing this situation by reducing capacity, as previously announced, in selected routes between Brazil and the United States, and by adjusting its point of sale mix within the region in order to focus on the markets with stronger demand. Revenues per ASK in international passenger operations decreased 17.1% as compared to the third quarter of 2014.
Cargo revenues decreased by 24.5% in the quarter, driven by a 12.2% decline in cargo traffic and a 13.6% decline in cargo yields as compared to the third quarter of 2014. During the quarter, cargo demand remained weak, especially in the Brazilian domestic and international market. In addition, connecting cargo traffic in Sao Paulo Guarulhos airport was affected by an ongoing strike in customs personnel. Pressures on cargo yields continued, mainly as a result of the competitive scenario, the depreciation of local currencies (mainly the Brazilian Real and the Euro), and a lower cargo fuel surcharge related to the drop in fuel prices. As a result, cargo revenues per ATK of the third quarter declined 24.2% as compared to the same quarter of the previous year.
The Company continues working to adjust freighter capacity, while focused on maximizing the belly utilization of the Companys passenger fleet. In the third quarter, cargo capacity, as measured in ATKs, declined 0.5%, which includes an 8.0% reduction of the freighter operation. In line with this and in addition to the sublease of three Boeing 767-300Fs announced the first quarter of this year, the Company materialized the sublease of one 777-200F to a third party for a period of two years.
Other revenues decreased by 2.5%, amounting to US$91.4 million during the third quarter 2015, as a result of 27% decline in income from Multiplus when measured in US dollars and a net loss due to the phase out of seven Dash 8-200 aircraft, partially offset by an increase in revenues related to aircraft leases to third parties.
Total operating expenses in the third quarter 2015 reached US$2,394.3 million, a 20.8% reduction as compared to the third quarter of 2014. Cost per ASK equivalent (including net financial expenses) decreased by 22.3%, including the effect of the 37.3% decrease in fuel price paid per gallon (including hedge). Furthermore, cost per ASK equivalent excluding fuel dropped 13.7%, mainly due to our ongoing cost reduction program, as well as the positive effect of local currency depreciations on our costs denominated in those currencies. Changes in operating expenses were mainly due to the following:
| Wages and benefits decreased by 16.5% mainly due to the positive impact of the depreciation of local currencies, especially the Brazilian real, during the quarter as compared to the third quarter of 2014 in wages denominated in that currency. The decrease is also explained by a 1.2% decline in average headcount, which is in line with capacity reductions in Brazil and the ongoing efficiency initiatives throughout the Company. |
| Fuel costs decreased by 37.1% mainly as a result of a decrease of 42.3% in the average fuel price per gallon (excluding hedge) as compared to the third quarter of 2014 and a decrease of 1.1% in gallons consumed per ASK equivalent compared to the same period 2014, mainly resulting from fuel efficiency |
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programs and an increasingly efficient fleet. This was partially offset by the recognition of a US$55.2 million fuel hedge loss, compared to a US$4.4 million fuel hedge loss in the third quarter 2014. At the same time, the Company recognized a US$5.6 million gain related to foreign currency hedging contracts, compared to a US$6.9 million loss recognized in the same period of last year. |
| Commissions to agents decreased by 14.5% mainly due to lower passenger and cargo sales, as well as the positive effect of the depreciation of the Brazilian real. |
| Depreciation and amortization decreased by 7.2%, despite the increase in the number of owned aircraft, mainly as a result of the positive effect of the 55.5% devaluation of the real against the dollar during the quarter on a portion of these costs. |
| Other rental and landing fees decreased by 16.5% mainly due to a decrease in aeronautical rates resulting from the decrease in cargo operations. |
| Passenger service expenses decreased by 1.8%, mainly due to the positive effect of the depreciation of the Brazilian real, despite the slight increase in transported passengers. |
| Aircraft rentals increased by 1.3% despite fewer leased aircraft, as a result of the incorporation of larger and more modern aircraft under operating leases. |
| Maintenance expenses increased by 7.0% due to redelivery costs related to the Companys fleet restructuring, offset by ongoing efficiencies related to the renewal of our fleet. |
| Other operating expenses decreased by 16.9%, mainly due to lower advertising and marketing costs as well as commercial and distribution system costs, in line with the Companys cost efficiency initiatives. |
Non-operating results
| Interest income increased by 40.1% to US$32.7 million in third quarter 2015 from US$23.3 million in the same period 2014, mainly due to an increase in the interest rate base for Brazilian investments. |
| Interest expense increased from US$85.9 million in third quarter 2014 to US$107.9 million in the same quarter 2015, mainly as a result of the non-recurring negative carry recognition of the prefunded financing of certain aircraft with deliveries through the first quarter of 2016. |
| Under Other income (expense), the Company recognized a US$231.1 million loss, negatively impacted by a foreign exchange loss of US$241.5 million mostly recognized at TAM as a result of the 27.2% depreciation of the Brazilian real between June 30 and September 30, 2015. This compares to the US$152.7 million loss in other income (expense) in the third quarter 2014, which included a foreign exchange loss of US$144.1 million. |
LIQUIDITY AND FINANCING
At the end of the third quarter 2015, LATAM reported US$1,542 million in cash and cash equivalents, including certain highly liquid investments accounted for as other current financial assets, equivalent to 14.2% of net revenue in the last twelve months. As of September 30, 2015, the Company reported deposits with aircraft manufacturers (pre-delivery payments) of US$950 million, US$412 million of which were funded directly by LATAM. Furthermore, the Companys liquidity position is also enhanced by US$130 million in undrawn committed credit lines with Chilean and international banks. LATAM continues actively working to maintain a strong balance sheet and to maintain its cash position at approximately US$ 1.5 billion, which we consider to be an adequate level for the Company under current market conditions.
LATAMs financial debt during the third quarter 2015 reached US$8,874 million, an increase of 1.3% as compared to the second quarter 2015. The Company amortized US$501 million in debt, of which 44% was related to aircraft financing. Funding issuances during the quarter totaled US$456 million, of which US$282 million are related to fleet financing. For the remainder of 2015 and full year 2016, the Company has debt maturities of US$400 million and US$1,356 million, respectively.
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Regarding the Companys fleet commitments, during 2015 LATAM had obligations for US$1.7 billion, of which 51% were capital expenditures financed through financial leases and 49% were operating leases. For 2016, fleet commitments amount to US$2.0 billion, of which 45% are expected to be capital expenditure requirements in the form of financial leases and 55% will be operating leases. Year to date, we have fully financed the 2015 fleet requirements and we have financed approximately 80% of our fleet obligations for 2016. In addition, non-fleet capex is approximately US$400 million per year, including expenditures on spare engines, components and information technology, among others.
One of the objectives of LATAM Airlines Group is to reduce the volatility of our financial results and cash flow caused by external factors such as foreign exchange rate and fuel price fluctuations. As of September 30, 2015, the Company has reduced the exposure to the Brazilian real on LATAMs balance sheet to US$1.1 billion. In addition, the Company has hedged approximately 90% of its estimated total net Brazilian real monthly operating exposure for the next six months through foreign exchange derivative contracts.
In relation to fuel exposure, LATAM Airlines Group has hedged approximately 37% of its estimated fuel consumption for the next twelve months. The Groups fuel hedging strategy, consisting of a combination of Jet Fuel options, has allowed us to limit our potential fuel hedge losses to a maximum amount of US$40 million for the fourth quarter 2015 and a maximum of US$60 million for the full year 2016.
LATAM FLEET PLAN
The Company continues advancing in its fleet renewal plan, taking advantage of the delivery of new and more efficient aircraft types to phase out the less efficient models, as well as allocating the best suited to each one of our markets. During the third quarter 2015, LATAM sold five Dash 8-200s and one Airbus A319 and redelivered one Airbus A330. In addition, the Company took delivery of five Airbus A321s, which have approximately 10% lower CASK than the Companys Airbus A320s, and three B787-9s, with approximately 21% lower CASK than LATAMs B767s. The Company ended the quarter with a total of 31 Airbus A321s and 16 Boeing 787 aircraft, making LATAMs one of the most modern fleets in Latin America and the world.
As mentioned above, LATAM Airlines Group is working to restructure its fleet delivery schedule for 2016 2018, aiming to reduce its fleet commitments for this period through deferrals and sales of both wide body and narrow body aircraft. The fleet plan shown below reflects the Groups current fleet commitments, as well as redeliveries planned for 2016. The plan below may vary as the Company advances with its ongoing negotiations. For 2016, the Company expects fleet capex to reach approximately US$960 million, with the remaining fleet commitments to be financed through sale and leaseback transactions.
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At year end | 2015 | 2016 | 2017 | |||||||||||
Passenger Aircraft |
||||||||||||||
Dash 8-200 |
0 | 0 | 0 | |||||||||||
Airbus A319-100 |
50 | 48 | 48 | |||||||||||
Airbus A320-200 |
153 | 148 | 140 | |||||||||||
Airbus A320 Neo |
0 | 2 | 20 | |||||||||||
Airbus A321-200 |
36 | 48 | 48 | |||||||||||
Airbus A330-200 |
10 | 0 | 0 | |||||||||||
Boeing 767-300 |
38 | 37 | 36 | |||||||||||
Airbus A350-900 |
1 | 7 | 13 | |||||||||||
Boeing 777-300 ER |
10 | 10 | 10 | |||||||||||
Boeing 787-8 |
10 | 10 | 10 | |||||||||||
Boeing 787-9 |
7 | 12 | 14 | |||||||||||
TOTAL |
315 | 322 | 339 | |||||||||||
Cargo Aircraft |
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Boeing 777-200F |
3 | 2 | 2 | |||||||||||
Boeing 767-300F |
8 | 7 | 6 | |||||||||||
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TOTAL |
11 | 9 | 8 | |||||||||||
TOTAL FLEET |
326 | 331 | 347 | |||||||||||
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Fleet Commitment (US$ millions) |
1,689 | 2,000 | 1.849 |
Note: This table does not include three 767-300Fs and one 777-200F that LATAM is currently leasing to a third party.
GUIDANCE FOR 2015 AND 2016
Capacity growth guidance for 2015 remains unchanged (see table below). In addition, the Company maintains its guidance for an operating margin of between 3.5% and 5% for full year 2015.
The Company is introducing preliminary guidance for capacity growth for 2016 in both passenger and cargo operations. LATAM expects total passenger ASK growth to be between 0% and 3% for full year 2016. TAMs domestic passenger ASKs in the Brazilian market are expected to decline between 6% and 9% during 2016. ASKs in domestic Spanish-speaking countries are expected to increase in the aggregate by approximately 6% to 8% during 2016.
International passenger ASK growth for full year 2016 is expected to reach between 4% and 6%. The Company will continue to review capacity in markets where demand has been most impacted during this year, but at the same time will continue to pursue growth opportunities in specific markets.
Regarding cargo operations, LATAM expects cargo ATKs to decline between 2% and 0% as compared to 2015, mainly driven by increased capacity in the bellies of passenger aircraft.
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2015 | 2016 | |||||
ASK Growth (Passenger) |
Total Network |
2% / 4% | 0% / 3% | |||
International (Long Haul & Regional) |
4% / 6% | 4% / 6% | ||||
Brazil Domestic |
0% | -9% / -6% | ||||
SSC Domestic |
-4% / -2% | 6% / 8% | ||||
ATK Growth (Cargo) |
-2% / 0% | -2% / 0% | ||||
Operating Margin |
~3.5% / 5% |
*****
LATAM has filed today its quarterly financial statements as at September 30, 2015 with the Superintendencia de Valores y Seguros of Chile. These financial statements are and will be available in Spanish, Portuguese and English languages at www.latamairlinesgroup.net.
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About LATAM Airlines Group S.A.
LATAM Airlines Group S.A. is the new name given to LAN Airlines S.A. as a result of its association with TAM S.A. LATAM Airlines Group S.A. now includes LAN Airlines and its affiliates in Peru, Argentina, Colombia and Ecuador, and LAN Cargo and its affiliates, as well as TAM S.A. and its subsidiaries TAM Linhas Aereas S.A., including its business units TAM Transportes Aereos del Mercosur S.A., (TAM Airlines (Paraguay)) and Multiplus S.A. This association creates one of the largest airline groups in the world in terms of network connections, providing passenger transport services to about 140 destinations in 24 countries and cargo services to about 144 destinations in 26 countries, with a fleet of 318 aircraft. In total, LATAM Airlines Group S.A. has approximately 53,000 employees and its shares are traded in Santiago, as well as on the New York Stock Exchange, in the form of ADRs, and Sao Paulo Stock Exchange, in the form of BDRs.
Each airline will continue to operate in parallel and maintain their respective brands and identities until further notice. The implementation of the new brand will happen gradually and will be visible starting in the first half of 2016. For more information please visit www.lan.com or www.tam.com.br respectively. Further information is available at www.latamairlinesgroup.net
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Note on Forward-Looking Statements
This report contains forward-looking statements. Such statements may include words such as may will, expect, intend, anticipate, estimate, project, believe or other similar expressions. Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. These statements are based on LATAMs current plans,, estimates and projections and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent known and unknown risks, uncertainties and other factors, many of which are outside of LATAMs control and difficult to predict. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors and uncertainties include in particular those described in the documents we have filed with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them, whether in light of new information, future events or otherwise.
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LATAM Airlines Group S.A.
Consolidated Financial Results for the third quarter 2015
For the three month period ended September 30 | ||||||||||||
2015 | 2014 | % Change | ||||||||||
REVENUE |
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Passenger |
2,113,683 | 2,637,086 | -19.8 | % | ||||||||
Cargo |
309,781 | 410,486 | -24.5 | % | ||||||||
Other |
91,358 | 93,728 | -2.5 | % | ||||||||
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TOTAL OPERATING REVENUE |
2,514,822 | 3,141,300 | -19.9 | % | ||||||||
EXPENSES |
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Wages and Benefits |
-507,351 | -607,417 | -16.5 | % | ||||||||
Aircraft Fuel |
-658,840 | -1,047,722 | -37.1 | % | ||||||||
Comissions to Agents |
-81,769 | -95,680 | -14.5 | % | ||||||||
Depreciation and Amortization |
-233,052 | -251,231 | -7.2 | % | ||||||||
Other Rental and Landing Fees |
-275,688 | -330,120 | -16.5 | % | ||||||||
Passenger Services |
-78,161 | -79,603 | -1.8 | % | ||||||||
Aircraft Rentals |
-133,442 | -131,742 | 1.3 | % | ||||||||
Aircraft Maintenance |
-122,990 | -114,993 | 7.0 | % | ||||||||
Other Operating Expenses |
-302,959 | -364,419 | -16.9 | % | ||||||||
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TOTAL OPERATING EXPENSES |
-2,394,252 | -3,022,927 | -20.8 | % | ||||||||
OPERATING INCOME |
120,570 | 118,373 | 1.9 | % | ||||||||
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Operating Margin |
4.8 | % | 3.8 | % | 1.0 pp | |||||||
Interest Income |
32,706 | 23,347 | 40.1 | % | ||||||||
Interest Expense |
-107,909 | -85,930 | 25.6 | % | ||||||||
Other Income (Expense) |
-231,060 | -152,729 | 51.3 | % | ||||||||
INCOME BEFORE TAXES AND MINORITY INTEREST |
-185,693 | -96,939 | 91.6 | % | ||||||||
Income Taxes |
82,204 | 4,106 | 1902.0 | % | ||||||||
INCOME BEFORE MINORITY INTEREST |
-103,489 | -92,833 | 11.5 | % | ||||||||
Attributable to: |
||||||||||||
Shareholders |
-113,344 | -107,829 | 5.1 | % | ||||||||
Minority Interest |
9,855 | 14,996 | -34.3 | % | ||||||||
NET INCOME |
-113,344 | -107,829 | 5.1 | % | ||||||||
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|
|
|
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Net Margin |
-4.5 | % | -3.4 | % | -1.1 pp | |||||||
Effective Tax Rate |
42.0 | % | 3.7 | % | 38.4 pp | |||||||
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|||||||
EBITDA |
353,622 | 369,604 | -4.3 | % | ||||||||
EBITDA Margin |
14.1 | % | 11.8 | % | 2.3 pp. | |||||||
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|
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|
|||||||
EBITDAR |
487,064 | 501,346 | -2.8 | % | ||||||||
EBITDAR Margin |
19.4 | % | 16.0 | % | 3.4 pp. |
9
LATAM Airlines Group S.A.
Consolidated Financial Results for the nine month period ended September
For the nine months period ended September 30 | ||||||||||||
2015 | 2014 | % Change | ||||||||||
REVENUE |
||||||||||||
Passenger |
6,434,371 | 7,853,657 | -18.1 | % | ||||||||
Cargo |
994,548 | 1,256,130 | -20.8 | % | ||||||||
Other |
289,899 | 256,676 | 12.9 | % | ||||||||
|
|
|
|
|
|
|||||||
TOTAL OPERATING REVENUE |
7,718,818 | 9,366,463 | -17.6 | % | ||||||||
EXPENSES |
||||||||||||
Wages and Benefits |
-1,611,200 | -1,823,750 | -11.7 | % | ||||||||
Aircraft Fuel |
-2,077,877 | -3,155,006 | -34.1 | % | ||||||||
Comissions to Agents |
-235,852 | -304,311 | -22.5 | % | ||||||||
Depreciation and Amortization |
-705,585 | -744,260 | -5.2 | % | ||||||||
Other Rental and Landing Fees |
-834,071 | -993,318 | -16.0 | % | ||||||||
Passenger Services |
-222,679 | -228,529 | -2.6 | % | ||||||||
Aircraft Rentals |
-391,134 | -392,815 | -0.4 | % | ||||||||
Aircraft Maintenance |
-352,688 | -346,033 | 1.9 | % | ||||||||
Other Operating Expenses |
-922,965 | -1,132,086 | -18.5 | % | ||||||||
|
|
|
|
|
|
|||||||
TOTAL OPERATING EXPENSES |
-7,354,051 | -9,120,108 | -19.4 | % | ||||||||
OPERATING INCOME |
364,767 | 246,355 | 48.1 | % | ||||||||
|
|
|
|
|
|
|||||||
Operating Margin |
4.7 | % | 2.6 | % | 2.1 pp | |||||||
Interest Income |
64,590 | 68,596 | -5.8 | % | ||||||||
Interest Expense |
-313,492 | -330,348 | -5.1 | % | ||||||||
Other Income (Expense) |
-408,806 | -146,562 | 178.9 | % | ||||||||
INCOME BEFORE TAXES AND MINORITY INTEREST |
-292,941 | -161,959 | 80.9 | % | ||||||||
Income Taxes |
119,157 | -24,785 | -580.8 | % | ||||||||
INCOME BEFORE MINORITY INTEREST |
-173,784 | -186,744 | -6.9 | % | ||||||||
Attributable to: |
||||||||||||
Shareholders |
-203,018 | -208,072 | -2.4 | % | ||||||||
Minority Interest |
29,234 | 21,328 | 37.1 | % | ||||||||
NET INCOME |
-203,018 | -208,072 | -2.4 | % | ||||||||
|
|
|
|
|
|
|||||||
Net Margin |
-2.6 | % | -2.2 | % | -0.4 pp | |||||||
Effective Tax Rate |
37.0 | % | -13.5 | % | 50.5 pp | |||||||
|
|
|
|
|
|
|||||||
EBITDA |
1,070,352 | 990,615 | 8.0 | % | ||||||||
EBITDA Margin |
13.9 | % | 10.6 | % | 3.3 pp. | |||||||
|
|
|
|
|
|
|||||||
EBITDAR |
1,461,486 | 1,383,430 | 5.6 | % | ||||||||
EBITDAR Margin |
18.9 | % | 14.8 | % | 4.2 pp. |
10
LATAM Airlines Group S.A.
Consolidated Operational Statistics
For the three month period ended | For the nine months period ended | |||||||||||||||||||||||
September | September | |||||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
System |
||||||||||||||||||||||||
ASKs-equivalent (millions) |
53,104 | 51,554 | 3.0 | % | 155,223 | 153,237 | 1.3 | % | ||||||||||||||||
RPKs-equivalent (millions) |
38,530 | 38,727 | -0.5 | % | 112,280 | 113,811 | -1.3 | % | ||||||||||||||||
Overall Load Factor (based on ASK-equivalent)% |
72.6 | % | 75.1 | % | -2.6 pp | 72.3 | % | 74.3 | % | -1.9 pp | ||||||||||||||
Break-Even Load Factor (based on ASK-equivalent)% |
71.2 | % | 73.7 | % | -2.5 pp | 73.7 | % | 70.2 | % | 3.5 pp | ||||||||||||||
Yield based on RPK-equiv (US Cent) |
6.3 | 7.9 | -20.1 | % | 6.6 | 8.0 | -17.3 | % | ||||||||||||||||
Operating Revenues per ASK-equiv (US Cent) |
4.6 | 5.9 | -22.8 | % | 4.8 | 5.9 | -19.5 | % | ||||||||||||||||
Costs per ASK-equivalent (US Cent) |
4.7 | 6.0 | -22.3 | % | 5.0 | 6.2 | -19.8 | % | ||||||||||||||||
Costs per ASK-equivalent ex fuel (US Cents) |
3.4 | 4.0 | -13.7 | % | 3.6 | 4.2 | -12.3 | % | ||||||||||||||||
Fuel Gallons Consumed (millions) |
311.3 | 305.7 | 1.8 | % | 910.5 | 907.1 | 0.4 | % | ||||||||||||||||
Fuel Gallons Consumed per 1,000 ASKs-equivalent |
5.9 | 5.9 | -1.14 | % | 5.9 | 5.9 | -0.9 | % | ||||||||||||||||
Average Trip Length (thousands km) |
1.6 | 1.6 | 2.9 | % | 1.6 | 1.6 | 1.6 | % | ||||||||||||||||
Total Number of Employees (average) |
52,421 | 53,062 | -1.2 | % | 53,003 | 53,319 | -0.6 | % | ||||||||||||||||
Total Number of Employees (end of the period) |
51,866 | 52,897 | -1.9 | % | 51,866 | 52,897 | -1.9 | % | ||||||||||||||||
Passenger |
||||||||||||||||||||||||
ASKs (millions) |
34,522 | 32,880 | 5.0 | % | 99,723 | 96,768 | 3.1 | % | ||||||||||||||||
RPKs (millions) |
28,973 | 27,785 | 4.3 | % | 82,848 | 80,533 | 2.9 | % | ||||||||||||||||
Passengers Transported (thousands) |
17,571 | 17,339 | 1.3 | % | 50,608 | 49,988 | 1.2 | % | ||||||||||||||||
Load Factor (based on ASKs) % |
83.9 | % | 84.5 | % | -0.6 pp | 83.1 | % | 83.2 | % | -0.1 pp | ||||||||||||||
Yield based on RPKs (US Cents) |
7.3 | 9.5 | -23.1 | % | 7.8 | 9.8 | -20.4 | % | ||||||||||||||||
Revenues per ASK (US cents) |
6.1 | 8.0 | -23.7 | % | 6.5 | 8.1 | -20.5 | % | ||||||||||||||||
Cargo |
||||||||||||||||||||||||
ATKs (millions) |
1,765 | 1,774 | -0.5 | % | 5,273 | 5,365 | -1.7 | % | ||||||||||||||||
RTKs (millions) |
908 | 1,039 | -12.7 | % | 2,796 | 3,161 | -11.6 | % | ||||||||||||||||
Tons Transported (thousands) |
254 | 268 | -5.2 | % | 738 | 811 | -9.0 | % | ||||||||||||||||
Load Factor (based on ATKs) % |
51.4 | % | 58.6 | % | -7.2 pp | 53.0 | % | 58.9 | % | -5.9 pp | ||||||||||||||
Yield based on RTKs (US Cents) |
34.1 | 39.5 | -13.6 | % | 35.6 | 39.7 | -10.5 | % | ||||||||||||||||
Revenues per ATK (US Cents) |
17.5 | 23.1 | -24.2 | % | 18.9 | 23.4 | -19.4 | % |
11
LATAM Airlines Group S.A.
Consolidated Balance Sheet (in thousands of US Dollars)
As of September 30 2015 |
As of December 31 2014 |
|||||||
Assets: |
||||||||
Cash, and cash equivalents |
1,022,926 | 989,396 | ||||||
Other financial assets |
588,276 | 650,401 | ||||||
Other non-financial assets |
344,102 | 247,871 | ||||||
Trade and other accounts receivable |
976,144 | 1,378,837 | ||||||
Accounts receivable from related entities |
392 | 308 | ||||||
Inventories |
203,512 | 266,039 | ||||||
Tax assets |
71,469 | 100,708 | ||||||
Non-current assets and disposal groups held for sale |
929 | 1,064 | ||||||
Total current assets |
3,207,750 | 3,634,624 | ||||||
Property and equipment |
10,558,010 | 10,773,076 | ||||||
Goodwill |
2,244,869 | 3,313,401 | ||||||
Intangible assets other than goodwill |
1,286,661 | 1,880,079 | ||||||
Other non- current assets |
677,737 | 883,250 | ||||||
Total non- current assets |
14,767,277 | 16,849,806 | ||||||
|
|
|
|
|||||
Total assets |
17,975,027 | 20,484,430 | ||||||
|
|
|
|
|||||
Liabilities and shareholders equity: |
||||||||
Other financial liabilities |
1,629,078 | 1,624,615 | ||||||
Trade and other accounts payables |
1,390,531 | 1,489,396 | ||||||
Tax liabilities |
19,444 | 35 | ||||||
Other non-financial liabilities |
2,392,528 | 2,715,686 | ||||||
Total current liabilities |
5,431,581 | 5,829,732 | ||||||
Other financial liabilities |
7,338,891 | 7,389,012 | ||||||
Accounts payable |
566,675 | 577,454 | ||||||
Other provisions |
476,466 | 703,140 | ||||||
Deferred tax liabilities |
799,761 | 1,051,894 | ||||||
Employee benefits |
77,379 | 74,102 | ||||||
Other non-financial liabilities |
331,619 | 355,401 | ||||||
Total non-current liabilities |
9,590,791 | 10,151,003 | ||||||
|
|
|
|
|||||
Total liabilities |
15,022,372 | 15,980,735 | ||||||
|
|
|
|
|||||
Share capital |
2,545,705 | 2,545,705 | ||||||
Retained earnings |
334,736 | 536,190 | ||||||
Treasury Shares |
(178 | ) | (178 | ) | ||||
Other reserves |
(6,286 | ) | 1,320,179 | |||||
Equity attributable to the parent companys equity holders |
2,873,977 | 4,401,896 | ||||||
Minority interest |
78,678 | 101,799 | ||||||
|
|
|
|
|||||
Total net equity |
2,952,655 | 4,503,695 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
17,975,027 | 20,484,430 |
12
LATAM Airlines Group S.A.
Consolidated Statement of Cash Flow Direct Method (in thousands of US Dollars)
As of September 30, 2015 |
As of September 30, 2014 |
|||||||
Cash flow from operating activities |
||||||||
Cash collections from operating activities |
||||||||
Proceeds from sales of goods and services |
8,546,230 | 9,434,101 | ||||||
Other cash receipts from operating activities |
69,853 | 76,377 | ||||||
Payments for operating activities |
||||||||
Payments to suppliers for goods and services |
(5,316,193 | ) | (6,607,670 | ) | ||||
Payments to and on behalf of employees |
(1,669,876 | ) | (1,832,337 | ) | ||||
Other payments for operating activities |
(231,010 | ) | (362,026 | ) | ||||
Interest Received |
34,465 | 8,236 | ||||||
Income Taxes refunded (paid) |
(30,077 | ) | (79,234 | ) | ||||
Other cash inflows (outflows) |
(191,865 | ) | (30,026 | ) | ||||
Net cash flows from operating activities |
1,211,527 | 607,421 | ||||||
Cash flow used in investing activities |
||||||||
Other cash receipts from sales of equity or debt instruments of other entities |
273,390 | 441,720 | ||||||
Other payments to acquire equity or debt instruments of other entities |
(348,301 | ) | (303,847 | ) | ||||
Amounts raised from sale of property, plant and equipment |
45,016 | 517,739 | ||||||
Purchases of property, plant and equipment |
(886,475 | ) | (888,930 | ) | ||||
Amounts raised from sale of intangible assets |
104 | | ||||||
Purchases of intangible assets |
(13,357 | ) | (36,267 | ) | ||||
Other cash inflows (outflows) |
15,301 | (15,723 | ) | |||||
Net cash flows used in investing activities |
(914,322 | ) | (285,308 | ) | ||||
Cash flow from (used in) financing activities |
||||||||
Amounts raised from issuance of shares |
| 156,344 | ||||||
Payments to acquire shares from society |
| 792 | ||||||
Amounts raised from long-term loans |
1,161,306 | 428,080 | ||||||
Amounts raised from short-term loans |
115,000 | 561,151 | ||||||
Loans repayment |
(949,875 | ) | (2,012,490 | ) | ||||
Payments of finance lease liabilities |
(241,778 | ) | (280,979 | ) | ||||
Dividends paid |
(25,683 | ) | (26,874 | ) | ||||
Interest paid |
(237,148 | ) | (284,115 | ) | ||||
Other cash inflows (outflows) |
(33,600 | ) | (14,949 | ) | ||||
Net cash flows from (used in) financing activities |
(211,778 | ) | (1,473,040 | ) | ||||
Net increase (decrease) in cash and cash equivalents before effect of exchange rate changes |
85,427 | (1,150,927 | ) | |||||
Effects of variations in the exchange rate on cash and equivalents |
(51,897 | ) | (83,667 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
33,530 | (1,234,594 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
989,396 | 1,984,903 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
1,022,926 | 750,309 |
13
LATAM Airlines Group S.A.
Consolidated Balance Sheet Indicators (in thousands of US Dollars)
As of September 30 2015 |
As of December 31 2014 |
|||||||
Total Assets |
17,975,027 | 20,484,430 | ||||||
|
|
|
|
|||||
Total Liabilities |
15,022,372 | 15,980,735 | ||||||
Total Equity* |
2,952,655 | 4,503,695 | ||||||
|
|
|
|
|||||
Total Liabilities and Shareholders equity |
17,975,027 | 20,484,430 | ||||||
Net Debt |
||||||||
Current and long term portion of loans from financial institutions |
7,371,103 | 7,049,033 | ||||||
Current and long term portion of obligations under capital leases |
1,441,251 | 1,709,034 | ||||||
Other liabilities current and long term portion |
61,495 | 59,148 | ||||||
Cash and cash equivalents |
-1,542,275 | -1,533,770 | ||||||
Total Net Debt |
7,331,574 | 7,283,445 | ||||||
Plus: 7 x last twelve months aircraft rent |
3,637,921 | 3,649,688 | ||||||
|
|
|
|
|||||
Adjusted Net Debt |
10,969,495 | 10,933,133 | ||||||
|
|
|
|
(*) | Note: Includes minority interest |
LATAM Airlines Group S.A.
Main Financial Ratios
As of September 30 | As of December 31 | |||||||
2015 | 2014 | |||||||
Cash and Equivalents as % of LTM revenues |
14.2 | % | 12.3 | % | ||||
|
|
|
|
|||||
Adjusted Gross Debt (US$ thousands) |
12,511,770 | 12,466,903 | ||||||
Adjusted Gross Debt / EBITDAR (LTM) |
5.9 | 6.2 | ||||||
|
|
|
|
|||||
Adjusted Net Debt (US$ thousands) |
10,969,495 | 10,933,133 | ||||||
Adjusted Net Debt / EBITDAR (LTM) |
5.2 | 5.4 |
14
LATAM Airlines Group S.A.
Consolidated Fleet
As of September 30, 2015 | ||||||||||||
Off-Balance | On-Balance | Total | ||||||||||
Passenger Aircraft |
||||||||||||
Dash 8-200 |
2 | 0 | 2 | |||||||||
Airbus A319-100 |
12 | 39 | 51 | |||||||||
Airbus A320-200 |
60 | 95 | 155 | |||||||||
Airbus A321-200 |
10 | 21 | 31 | |||||||||
Airbus A330-200 |
2 | 8 | 10 | |||||||||
Boeing 767-300 |
4 | 34 | 38 | |||||||||
Boeing 777-300 ER |
6 | 4 | 10 | |||||||||
Boeing 787-800 |
4 | 6 | 10 | |||||||||
Boeing 787-900 |
4 | 2 | 6 | |||||||||
|
|
|
|
|
|
|||||||
TOTAL |
104 | 209 | 313 | |||||||||
Cargo Aircraft |
||||||||||||
Boeing 777-200F |
2 | 2 | 4 | |||||||||
Boeing 767-300F |
3 | 8 | 11 | |||||||||
|
|
|
|
|
|
|||||||
TOTAL |
5 | 10 | 15 | |||||||||
TOTAL FLEET |
109 | 219 | 328 |
Note: This table includes three 767-300Fs and one B777-200F that LATAM is currently leasing to a third party.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 12, 2015 | LATAM AIRLINES GROUP S.A. | |||||
By: | /s/ Enrique Cueto | |||||
Name: | Enrique Cueto | |||||
Title: | Latam Airlines Group CEO |
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end