3Q13 Earnings Release

Transcription

1 3Q13 Earnings Release São Paulo, October 31, 2013 Smiles S.A. (BM&FBOVESPA: SMLE3), one of the largest coalition programs in Brazil, with more than 9.5 million members, announces today its results for 3Q13. The financial and operating information herein refers to results of Smiles S.A. and is presented in accordance with IFRS and in Brazilian Reais (R$), except when indicated otherwise. Smiles S.A. BM&FBOVESPA: SMLE3 Novo Mercado Quotation: R$ Number of shares: 122,173,912 Market value: R$ 3.6 bn Closing price: Oct 30 th, Q13 Conference Calls November 1, 2013 Portuguese: 11:00 AM (Brasília) 9:00 AM (US EDT) Phone: +55 (11) Password: Smiles Replay: +55 (11) Password: English: 1:00 PM (Brasília) 11:00 AM (US EDT) Phone: Password: Smiles Replay: Password: Net revenue of R$155.9 million growth of 37.7% over 2Q13 Net profit of R$63.0 million in 3Q13 Net profit of R$63.0 million, a 30.5% increase over 2Q13 Highlights of the Period increase of 30.5% over 2Q13. Net margin of 40.4% in 3Q13 Joint Initiatives with all major financial partners new products, promotions and contract renewal with Banco Itaú for three years Two-digit growth in issue and redemption increases of 18.6% and 30.3% in issue and redemption of miles, respectively, over 3Q % growth in miles accrual for ex-gol partners 20.1% up on 2Q13 and 28.3% more than in 3Q12 One of the main highlights was the positive performance regarding miles accrual and redemption in the quarter, which positively impacted our revenues. The solid operational result, along with a strong financial result, referring to advanced purchase of tickets, led to a net profit increase of 30.5% over 2Q13. CONTACTS Flavio Vargas Chief Financial and Investor Relations Officer Marcos Pinheiro Treasury Director Renata Oliva Bruno Fregonezi Investor Relations Highlights 1 Units 3Q13 2Q13 3Q12 2Q13 (%) 3Q12 (%) Miles Accrual billion % 18.6% Partners ex-gol billion % 28.3% Gol billion % (4.5%) Miles Redemption (Program) billion % 30.3% Gross Billings 2 R$ million % 21.4% Net Revenues R$ million % - Net Revenues (ex breakage) R$ million % - Operational profit R$ million (6.7%) - Operational margin % 24.9% 36.8% - (11.9) p.p. - Net Profit R$ million % - Net margin % 40.4% 42.7% - (2.2) p.p. - 1 The 2012 accumulated figures reflect the program s accumulated miles before the spin-off. Redemption figures include legacy miles, accrued in the program before Gross billings are not an accounting measure. It corresponds to the total billings from miles sales and the cash portion of Smiles & Money, gross of taxes. These revenues may have affected the current period or will be recognized as revenue in future periods, depending on the date of redemption by the members of the program. For the 2012 periods, pro-forma billings reflect the estimated amounts that would have been billed to GOL, in compliance with the ticket and miles purchase agreement.

2 Mensagem ministração Message from Management We operate in an extremely dynamic and challenging market. We remain committed to optimizing our profitability and are working towards further improving our business model. Net profit totaled R$63.0 million, an upturn of 30.5% over 2Q13, and cash from operating activities came to R$133.4 million in the quarter. Aiming to rescue the brand s potential and present our competitive edge to the market, we went back to the media with a mass communication campaign. With the slogan Quem vai com Smiles, volta sorrindo ( Who goes with Smiles comes back smiling ), we applied the concept We do everything for you to travel with Smiles and showed the public some exclusive benefits offered by the program, such as the possibility to combine miles&money and reactivate expired miles. We continue to obtain high profitability in our asset light business model, having posted record net profit in 3Q13, reinforcing our ability to provide attractive return to our shareholders. In the third quarter, the Smiles program accelerated the miles redemption, reflecting the increased commitment from our customers and the alignment with partner airline companies. In line with our goal of strengthening our relationship with financial partners, we renewed our commercial agreement with Banco Itaú for a three-year period, investing in a long-term relationship with the bank. Smiles remains close to the financial segment, developing custom programs and solutions with all main retail banks in Brazil and as a result we obtained a substantial increase in the number of miles accrued in the quarter. In addition, on September 13 th we launched Clube Smiles, an unprecedented product in the loyalty market, which allows its members to receive 1,000 miles every month for a R$30 monthly fee, in addition to having access to a series of exclusive benefits. Clube Smiles was developed with the aim of engaging our clients, increasing the program s coalition power and expanding our operation base. Aiming to strengthen our exposure in the retail segment, in October we signed the Investment Agreement to acquire a minority interest in the loyalty company Netpoints. We believe that Netpoints experience in this segment will complement our strategy to operate in this channel, which has an attractive growth potential. We remained committed to offering an attractive value proposition to members and strengthening our relationship with financial partners, international airlines and major retailers. 2

3 Comments on Performance Operating Performance Operational Data 1 Units 3Q13 2Q13 3Q12 2Q13 (%) 3Q12 (%) Participants thousand 9,527 9,333 8, % 7.3% Partnerships unit % 14.4% Miles Accumulated 2 million 10,170 8,681 8, % 18.6% Partners ex-gol million 7,743 6,448 6, % 28.3% Gol million 2,427 2,232 2, % (4.5%) Miles Redemption (Program) million 8,684 6,955 6, % 30.3% Breakage Rate % 15.2% 16.3% 22.3% (1.1 p.p.) (7.1 p.p.) % New Miles % 54.2% 42.4% p.p p.p. 1 All amounts corresponding to miles are net of refund effects. 2 Accrual of miles for 3Q12 refers to the Smiles Program, while from 2Q13 on it refers to Smiles S.A. Participants (millions) Partners (units) Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Members: The number of members of the Smiles program grew by 7.3% and 2.1% over 3Q12 and 2Q13, respectively, reaching 9.5 million clients at the end of 3Q13. We continue to launch innovative campaigns and promotions, which have led to an increase in our client base. Partnerships: In order to continue expanding our partnerships in the retail segment, Smiles established a partnership with the drugstore chain DPSP, owner of the Drogaria São Paulo and Pacheco brands and one of the country s largest drugstore chains in terms of number of stores, with approximately 700 outlets, annual revenue of around R$4.5 billion and presence in five Brazilian states. At the end of the third quarter, Smiles had 215 partners. 3

4 Accrued Miles* (Billions of miles) Program s Redeemed Miles* (Billions of miles) Q12 3Q13 2Q13 3Q13 3Q12 3Q13 2Q13 3Q13 *Graphics numbers reflect the miles/awards net of refund effects Accrued Miles: The number of miles accumulated in 3Q13 increased by 18.6% over 3Q12 and 17.2% over 2Q13. The increase is explained by the upturn in miles issued by ex-gol partners of 28.3% over 3Q12 and 20.1% over 2Q13. We are increasing our focus on financial institutions by putting together a team dedicated to serving this channel. Among the initiatives introduced over the quarter, we highlight the special sale of miles to customers of our financial partners and the bonus campaigns to encourage mileage transfers. Mileage Redemption: The number of redeemed miles increased by 30.3% and 24.8% over 3Q12 and 2Q13, respectively. As a percentage of the program s total mileage redemption, new miles grew from 42.4% in 2Q13 to 54.2% in 3Q13. 4

5 Operational Data 1 Units 3Q13 2Q13 3Q12 2Q13 (%) 3Q12 (%) Miles Redemption of the program 2 million 8,684 6,955 6, % 30.3% Smiles & Money Redemption million % (46.7%) Traditional (100% Miles) Redemption million 8,365 6,702 6, % 37.9% Amount of Products Awarded thousand 1, % 32.6% Smiles & Money Redemption thousand % (12.2%) Traditional (100% Miles) Redemption thousand % 47.4% Average Miles per Product unit 8,043 7,976 8, % (1.8%) Smiles & Money Redemption unit 1,795 1,681 2, % (39.3%) Traditional (100% Miles) Redemption unit 9,277 9,287 9,920 (0.1%) (6.5%) 1 All amounts corresponding to miles are net of refund effects. 2 The mileage redemption amounts represent the redemptions related to the new and old miles. Number of Awards and Average Miles: The total number of redeemed awards grew by 23.8% over 2Q13, as a result of the increase in redemptions of Smiles & Money and traditional products (100% miles), reinforcing the Smiles Program s unique pricing approach. Awards Redeemed* (thousands) Breakage Rate (last twelve months) 1,080 1, % % 22.3% 17.9% 17.5% 16.3% 15.2% 3Q12 3Q13 2Q13 3Q13 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 *Graphic s numbers reflect the awards net of refund effects Breakage: The breakage rate stood at 15.2% in 3Q13, a 1.1 p.p. decline over 2Q13, due to the increase in clients engagement and in the program s attractiveness. 5

6 Financial Performance Summary Financial Information Units 3Q13 2Q13 3Q12 2Q13 (%) 3Q12 (%) Gross Billings 1,2 R$ million % 21.4% Partners ex-gol R$ million % 20.5% Smiles & Money R$ million % 41.0% Gol (miles + management fee) R$ million % 0.8% Net Revenues R$ million % - Net Revenues (ex Breakage) R$ million % - Gross Profit R$ million (3.8%) - Gross Margin % 36.5% 52.2% - (15.7 p.p.) - Operational Profit R$ million (6.7%) - Gross Margin % 24.9% 36.8% - (11.9 p.p.) - Net Income R$ million % - Net Margin % 40.4% 42.7% - (2.3 p.p.) - Gross Billings: Billings from miles with ex-gol partners posted a significant 23.1% increase in 3Q13 over the previous quarter, chiefly due to the 20.1% upturn in the number of miles sold and the 2.5% increase in the average price. This increase in the average price, despite the effect from the positive foreign exchange variation in the period (8.6% 3 ), reflects the financial discount granted to some financial institutions. Advance mileage sales represented 64.6% of total billings from mileage sales with ex-gol partners in 3Q13. Note that advance mileage sales were not directly recognized as billings, which only occurs as clients request the transfer of points to the Smiles Program. Billings from Smiles & Money grew by 36.5% in 3Q13 over 2Q13, due to the 18.5% upturn in the number of issues and to the 15.2% increase in the cash portion, showing the attractiveness of this redemption option for members. Revenue (R$ million) 3Q13 2Q13 Δ(%) Gross Revenue % Miles Redemption Revenue % Money Revenue % Breakage Revenue (16.4%) Other Revenues (0.0%) Direct Taxes (16.0) (11.6) 37.9% Net Revenues % Net Revenues (ex Breakage) % 1. Gross billings are not an accounting measure. It corresponds to the total billings from mileage sales and the cash portion from Smiles & Money, gross of taxes. These billings may have affected the current period or will be recognized as revenue in future periods, depending on the date of redemption by the members of the program. 2. For the 2012 periods, pro-forma billings reflect the estimated amounts that would have been billed to GOL, in compliance with the tickets and miles purchase agreement. 3. Variation in the Ptax sale for the closing of the months in the periods mentioned. 6

7 Revenue from Mileage Redemption: Gross revenue from mileage redemption climbed 53.2% over 2Q13, due to the increase in the number of miles redeemed by the program, with legacy miles accounting for a smaller share of total revenue. Money Revenue: As mentioned earlier, the upturn in this revenue is due to higher Smiles & Money billings. Breakage Revenue: This revenue was calculated based on the information provided in the table below: Calculus Summary (R$ Million) 1Q13 2Q13 3Q13 A Initial Balance B = B1+B2+B3 Accrual B1 Gross Billings B2 Other effects (4.0) C Redemption D Expiration E = A + B - C - D Final Balance F Rate 17.5% 16.3% 15.2% G = E * F Breakage Balance (SF * Rate) H(t) = G(t) - G (t-1) Variation P&L I = D + H(t) Breakage Revenue (gross) The 16.4% decline in the Breakage revenue in 3Q13 versus 2Q13 is due to the 4.6% decrease in the mileage balance, combined with the 12.4% drop due to the negative variation of the Breakage rate. Direct Margin by Product: It is worth mentioning that this margin includes the allocation of net miles redemption revenue by the proportion of redeemed miles between Smiles & Money and Traditional Products (100% miles). The allocation between Smiles & Money and Traditional (100% miles) costs takes into account the proportion between these products costs. Operational Costs (R$ million) 3Q13 2Q13 Δ (%) Cost of Redemptions (99.1) (54.1) 83.0% Cost of Ticket Purchase (96.0) (51.8) 85.2% Classical Gol Tickets (100% miles) (57.8) (34.1) 69.6% Smiles&Money (35.1) (16.1) 117.9% Partners ex-gol (3.0) (1.6) 87.5% Cost of Product Purchase (0.7) (0.4) 75.0% Other Costs (2.4) (1.9) 26.3% 7

8 Direct Margin by Product: 3Q13 (Margin per product) 100% miles products Smiles& Money Non allocated Total Gross Revenue Miles Redemption Revenue Money Revenue Breakage Revenue Other Revenues (-) Direct taxes (8.6) (5.9) (1.5) (16.0) (=) Net Revenue (-) Direct Costs (61.5) (35.1) - (96.7) (-) Non Allocated Costs - - (2.4) (2.4) (=) Gross Profit Gross Margin 27.4% 38.9% n/a 36.5% 2Q13 (Margin per product) 100% miles products Smiles& Money Non allocated Total Gross Revenue Miles Redemption Revenue Money Revenue Breakage Revenue Other Revenues (-) Direct taxes (5.6) (4.3) (1.7) (11.6) (=) Net Revenue (-) Direct Costs (36.1) (16.1) - (52.2) (-) Non Allocated Costs - - (1.9) (1.9) (=) Gross Profit Gross Margin 34.7% 61.5% n/a 52.2% 100% mile products: The total cost from 100% mile redemptions increased 70. 4% over 2Q13, largely due to the upturn in the number of redeemed miles. The cost per ticket (disregarding legacy effects) remained flat in relation to the figures reported in previous quarters. Smiles & Money: The significant increase in the Smiles & Money cost in 3Q13 versus 2Q13 is mainly due to the 18.5% upturn in the number of tickets issued and the increase in the cost per ticket. This line s higher costs reflect the mix between standard and commercial fares. However, this higher cost was partially offset by the upturn in revenue per ticket. 8

9 Operating Expenses: Selling expenses in 3Q13 were mainly impacted by the increased advertising expenses associated with the media campaign launched in September Also in the selling expenses line, there was a reduction of R$5.4 million due to the modification on the recognition of bonus miles expenses. Administrative expenses grew by R$5.1 million over 2Q13, reflecting the provisions for the profit sharing plan and the long-term incentive plan for the Company s employees, as well as the restructuring of some areas in line with the development of our business model. Operational Expenses (R$ million) 3Q13 2Q13 Δ (%) Operational Expenses (18.1) (17.5) 3.5% Selling Expenses (7.8) (12.3) (36.6%) Administrative Expenses (10.3) (5.2) 98.1% Other Revenues and Expenses: Financial Income: The period's financial income is chiefly composed of the R$42.7 million revenue from discounts and the R$4.6 million revenue associated with gains from financial investments. Income Tax and Social Contribution: The main difference between the 26.9% effective rate and the 34.0% fiscal rate is associated with the interest on capital expense deduction, with an approximate impact of R$6.2 million on result. Other Revenues and Expenses (R$ million) 3Q13 2Q13 Δ (%) Other Revenues and Expenses % Net Financial Results % Income Tax and Social Contribution (23.2) (25.3) (8.3%) Net Income: The Company s net income came to a record R$63.0 million in the quarter, 30.5% up on 2Q13, resulting in a net margin of 40.4%. 9

10 Income Statement Income Statement (R$ thousand) 3Q13 2Q13 Δ (%) Δ (Abs) Gross Revenues % 47.0 Miles Redemption Revenue % 33.6 Money Revenue % 16.0 Breakage Revenue (16.3%) (2.6) Other Revenues % 0.0 Direct Taxes (16.0) (11.6) 37.9% (4.4) Net Revenue % 42.7 Cost of Services (99.1) (54.1) 83.2% (45.0) Cost of Ticket Purchase (96.0) (51.8) 85.3% (44.2) Gol Tickets (100% miles) % 23.7 Smiles&Money % 19.0 Partners ex-gol % 1.4 Product Purchase (0.7) (0.4) 75.0% (0.3) Other Costs (2.4) (1.9) 26.3% (0.5) Gross Profit (3.7%) (2.2) Gross margin 36.5% 52.2% (15.7 p.p.) n/a Operational expenses (18.1) (17.5) 3.4% (0.6) Selling Expenses (7.8) (12.3) (36.6%) 4.5 Administrative Expenses (10.3) (5.2) 98.1% (5.1) Operational Profit (6.7%) (2.8) Operational margin 24.9% 36.8% (11.9 p.p.) n/a Other Revenues and Expenses % 17.6 Net Financial Result % 15.5 Income Taxes (23.2) (25.3) (8.3%) 2.1 Net Income % 14.7 Net margin 40.4% 42.7% (2.3 p.p.) n/a 10

11 Balance Sheet Balance Sheet (R$ million) 3Q13 2Q13 Δ (%) Δ (Abs) Assets 1, , % 6.4 Current % 87.6 Cash and Cash Equivalents % 27.3 Financial Investments % 47.5 Accounts Receivable % 6.3 Advance Payment to suppliers % 22.1 Deferred Taxes (80.6%) (11.2) Prepaid expenses (11.1%) (0.3) Credit with Related Companies (6.9%) (3.2) Other Credits and Amounts (53.3%) (0.8) Non-Current ,078.1 (7.5%) (81.2) Deferred Taxes % 2.5 Advanced Payment to suppliers ,074.0 (7.8%) (83.7) Fixed Assets (16.7%) (0.1) Intangible n/a 0.1 Liabilities 1, , % 6.4 Current (11.1%) (47.0) Accounts Payable (24.1%) (4.6) Labor Liabilities % 4.4 Tax Payable % 1.6 Advanced Payment from Customers (23.5%) (76.5) Deferred Revenue % 28.0 Non-Current % 27.4 Labor Liabilities (67.6%) (35.5) Tax Liabilities n/a 0.1 Deferred Revenue % 62.8 Equity 1, , % 26.0 Capital Stock 1, , % 0.0 (-) Cost of Stock issuance (36.3) (36.2) 0.3% (0.1) Stock based compensation payment % 0.2 Earnings Accrual % 26.0 Adjusted Operating Cash Flow¹ Adjusted Cash Flow Statement (R$ million) 3Q13 2Q13 Δ (%) Δ (Abs) Cash generated from (consumed by) operational activities (962.5) (113.9%) 1,095.9 Income tax and social contribution paid (21.3) (7.9) 169.6% (13.4) Net cash flow from (consumed by) operating activities (970.4) (111.6%) n/a Advanced Payment to suppliers (103.5) 1,431.3 n/a n/a Advanced Payment from customers (321.3) n/a n/a (-) CAPEX (0.1) (0.4) n/a n/a Adjusted Operating Cash Flow (13.5%) (18.8) 1. The Adjusted Operating Cash Flow is composed of the net cash flow from (consumed by) operating activities, net of effects from advanced payment to suppliers and from customers and also net of CAPEX. 11

12 Cash Flow Statement Cash Flow Statement (R$ million) 3Q13 2Q13 Δ (%) Δ (Abs) Net Profit % 14.7 Stock-based compensation (87.5%) (0.7) Deferred taxes (2.4) 16.6 (114.5%) (19.0) Provisions for risks and costs - Litigation n/a 0.1 Depreciation and Amortization n/a 0.1 Obtained Discounts (42.7) (29.3) 45.7% (13.4) Exchange Rate Variations, net (0.1) 0.2 (150.0%) (0.3) Provision for Doubtful Accounts (50.0%) (0.2) Provision for Share of Profits and Results n/a 6.5 Accounts Receivable (6.4) 41.9 (115.3%) (48.3) Advanced Payment to suppliers (1,431.3) (107.2%) 1,534.8 Prepaid Expenses 0.3 (1.8) (116.7%) 2.1 Taxes Recoverable 11.3 (13.2) (185.6%) 24.5 Other credits 0.8 (1.3) (161.5%) 2.1 Accounts Payable (4.5) 7.7 (158.4%) (12.2) Labor Liabilities (2.1) 1.7 (223.5%) (3.8) Advanced Payment from Customers (112.0) (134.9%) (433.3) Deferred Revenue (2.5%) (2.3) Taxes Payable 23.6 (10.5) (324.8%) 34.1 Credit with related companies 3.3 (7.1) (146.5%) 10.4 Cash flow from (consumed by) operating activities (962.5) (113.9%) 1,095.9 Income tax and social contributions paid (21.3) (7.9) 169.6% (13.4) Net cash flow (consumed by) from operating activities (970.4) (111.6%) 1,082.5 Purchase of fixed assets (0.1) (0.4) (75.0%) 0.3 Financial investments (47.4) (99.4) (52.3%) 52.0 Net cash flow from operating activities (47.6) (99.9) (52.4%) 52.3 Capital Stock - 1,132.2 (100.0%) (1,132.2) (-) Cost of Stock issuance (0.1) (36.2) (99.7%) 36.1 (-) Advance of dividends / interest on capital (37.1) - n/a (37.1) Net cash flow used in investment activities (37.2) 1,096.0 (103.4%) (1,133.2) Net increase in cash and cash equivalents % 1.6 Cash and cash equiv. at beginning of period % 25.7 Cash and cash equivalents at end of period %

13 Business Model Smiles began its operations as an individual loyalty program, but evolved into the current model, becoming a model of coalition with some unique features which allow the accrual and redemption of Miles on flights with GOL and its international partner airlines, as well as in the principal Brazilian commercial banks, including co-branded cards issued by Bradesco and Banco do Brasil, and a wide network of retail partners. The current model works by (i) the accrual of Miles by the Member on buying airline tickets from GOL or other partner airlines, or products and services from the business and financial partners that acquire these Miles from Smiles as a form of encouraging customer loyalty, and (ii) the redemption of Awards by the Member when exchanging their Miles for airline tickets from GOL and other partner airlines or for products and services from business and financial Partners. The company s main sources of revenue are (i) the spread between revenue from Miles issued and their redemption cost, represented by tickets and awards in its network of airline, business and financial partners, (ii) interest income arising from the difference between the dates of accrual and redemption of Miles, and (iii) Breakage revenue if the Miles issued expire without being redeemed. Glossary Asset Light - strategy of managing the company s business with few assets Award Products - Products or services other than airline tickets delivered to a Member by a business partner as a result of the Member redeeming Miles acquired in customer loyalty programs. Award Tickets - Airline tickets delivered to the Member as a result of redeeming Miles. Awards - Products or services delivered to a Member by a business partner as a result of the Member redeeming Miles acquired in customer loyalty programs. Breakage - Miles expired and not redeemed; it may be expressed as the number of miles, the amount in Reais or as a percentage of miles issued, as appropriate to the context. Burn / earn ratio The ratio between the number of redeemed and accumulated miles in a given period. Miles - The redemption rights of Members of the Smiles Program sold to Business Partners. Payout percentage of net profits obtained by the company distributed to shareholders through dividends and interest on capital. Smiles & Money - A way of issuing airline tickets by which it is possible to combine money and miles. Smiles Program A multi-loyalty program for several companies, including GOL Linhas Aéreas Inteligentes S.A. Smiles Shopping - A way of using Miles to acquire products instead of tickets. Miles can be redeemed for products and services in various segments, such as portable appliances, cameras and camcorders, tools and garden products, books, gift cards, DVDs and Blu-ray, electronics, housewares, bed, bath and table linen, products for automobiles, furniture and decorations, baby products, toys, home appliances, mobile phones and telephones, health and beauty products, computer products, stationery, sports and leisure, as well as fashion and accessories. Spin-off corporate separation of the Smiles Program into Smiles S.A., which took place on January 1, Yield Index created to measure the profitability of a company s dividends/interest on capital in relation to the price of its stock. 13