2Q18 Earnings Release

Transcription

1 2Q18 Earnings Release Barueri, July 31, 2018 Smiles Fidelidade S.A. (B3: SMLS3) one of the largest loyalty programs in Brazil with over 14 million members, announces today its 2Q18 results. The financial and operational information in this report refers to the consolidated results of Smiles Fidelidade S.A. and is presented in accordance with IFRS and in Brazilian reais (R$), except when indicated otherwise. Percentage variations may use more decimal places for the calculations than shown in the document and are in comparison with Smiles Fidelidade S.A. numbers. Smiles Fidelidade S.A. Gross billings increase 18.8% in annual comparison B3: SMLS3 Novo Mercado Price: R$ No. of shares: 124,007,953 Market value: R$ 6.5 billion (close: 07/30/2018) 2Q18 Conference Call August 01, 2018 HIGHLIGHTS 2Q18 Miles Accrual was up 21.9% compared to 2Q17, reaching 25.0 billion of miles. 2Q18 Gross Billings was up 18.8% compared to 2Q17, totalizing R$ million. 2Q18 Miles Redemption increased 16.5% versus 2Q17, reaching 19.1 billion of miles. Direct redemption margin reached 41.1% in 2Q18, a 0.2bps reduction in comparison to 2Q17. Net income reaches R$ million in 2Q18, a reduction of 20.7% compared to 2Q17. In Portuguese and English: (Simultaneous Translation) 10:00 a.m. (Brasília) 09:00 a.m. (US EST) Phone: +55 (11) or +1 (646) Password: Smiles webcast (Portuguese) webcast (English) SMILES CONTACTS Leonel Andrade CEO Marcos Pinheiro CFO Maria Laura Pessoa Investor Relations Manager Vinicius Bioni e Letícia Silveira Investor Relations ri@smiles.com.br Main Highlights Unit 2Q18 1Q18 2Q17 Miles accrual Bln % 21.9% Gol Bln % 35.3% Banks, retail and others Bln % 25.5% Smiles & Money bln (3.2%) (3.2%) Smiles' program redemptions ² bln % 16.5% Total gross billings ³ R$ mn % 18.8% Total gross billings (ex-gol) ³ R$ mn % 15.7% Net revenues* R$ mn (19.8%) (8.9%) EBITDA 1 R$ mn 134, % (20.8%) EBITDA 1 margin % 68.1% 76.1% 78.3% (8.0 bps) (10.2 bps) Net income R$ mn % (20.7%) Net margin % 57.6% 62.7% 66,1% (5.1 bps) (8.5 bps) 1. EBITDA is not an accounting measurement elaborated by the Company, reconciled with its financial statements. The EBITDA is composed by net income attributable to the Company s shareholders, added by net financial result, income tax and social contribution, and expenses related to depreciation and amortization. 2. Corresponds to miles redeemed in the program (new miles and legacy miles). 3. Gross Billings is not an accounting measurement and corresponds to total sales revenues for miles and the cash portion of 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 program members. *Considers the new accounting presentation IFRS 15

2 Message from Management The second quarter of 2018 was quite challenging. Consumption, the driving force behind economy recovery decelerated on this quarter. The trucker drivers strike contributed to the slowdown of household consumption because it affected the confidence of both entrepreneurs and consumers. That, combined with dollar appreciation, oil price increase, World Cup and a certain instability surrounding upcoming presidential elections risk resulted in this challenging scenario. With this background, Smiles continued to deliver healthy evolution in operational and financial indicators, with a sharp growth of 18.8% of gross billings versus 2Q17, totalizing R$ million. In terms of operational indicators, we highlight the 21.9% increase in the total of miles accrued, and a 16.5% increase in the volume of miles redeemed, comparing both indicators with the 2Q17. In accordance with the management s commitment to business profitability, the general direct redemption margin remained relatively stable in the 40% level on 2Q18 which is also within the guidance range disclosed for the year of We remain optimistic in relation to opportunities arising from the loyalty industry and reaffirm our commitment in consolidating Smiles as Brazil s most innovative business platform and a complete tourism marketplace for the traveler. As a result, we are constantly evaluating new partnerships that add value to the universe of the traveler as well as focusing on enhancing customer experience. The process of internationalization towards Argentina continues to evolve positively. We are in advanced discussions with financial institutions for potential partnerships to take advantage, in the short term, of the great potential Argentine market by replicating the success business model of the Smiles s Brazilian operation. In this quarter, the partnership with Ingresso Rápido, the ticket sales operation for shows, theaters and many other types of entertainment, which we announced in May, is now fully operational. From now onwards, the traveler can also redeem miles or buy with a credit card the entertainment of their trip with Smiles. Also, in the 2Q18, the new Flight Search Calendar was launched, and we signed another partnership for the Traveler's Universe, as detailed below: New flights search calendar. Smiles has launched a new flight search calendar: it is an innovative way to facilitate the search for airline tickets of all our airline partners and to enhance customer engagement. The traveler can find the cheapest air ticket for the trip within the month or period they wish to travel. Besides that, one can sort flights tickets by choosing a maximum number of miles as well as choose the airline partner. Smiles and SulAmérica. In May, one more product was added to complement the Traveler's Universe: travel insurance in partnership with Sulamérica. The product is only offered to customers who redeem the air ticket with Smiles and can be contracted for the whole period of the travel. The traveler can get travel insurance coverage by redeeming miles or using the credit card (and accumulate more miles for the next trip). More recently, at the end of July, we have announced 4 new airline partners: Passaredo in the domestic routes and South African Airways, Ethiopian Airlines and Royal Air Maroc for the international routes. As a result, we now have 18 airline partners that fly to over 900 destinations. In this quarter our family is represented by 118 smiling and enthusiastic collaborators. 2

3 Operating Performance Operating Data 1 Unit 2Q18 1Q18 2Q17 Members mn % 16.8% Miles Accrual mn % 21.9% Gol mn % 35.3% Banks, retail and others mn % 25.5% Smiles & Money Gol mn (3.2%) (3.2%) Smiles' Program Redemptions mn % 16.5% Airline Redemptions mn % 14.7% Non-airline mn % 35.7% Breakage Rate % 18.3% 19.1% 17.8% (0.8 bps) 0.5 bps 1 All relevant miles amounts are net of reimbursement. The data in this table do not reflect financial information. Members: The number of program members reached 14.6 million in 2Q18, 16.8% higher than 2Q17. Miles accrual: In 2Q18 miles accrued increased 21.9% compared with 2Q17, boosted by the 25.5% expansion in miles accrual from banks, retail and services, and the new dynamic of miles accrual from Gol in which the customer who flies with Gol accumulate more miles per real spent. The volume of miles accrued from Gol was 35.3% higher than 2Q17. Miles redemption: In 2Q18 miles redemption was 16.5% higher than in 2Q17, reaching 19.1 billion miles. The evolution on the redemption was largely explained by 14.7% increase of airline tickets redemption, which represents around 90.1% of total miles redeemed. The burn/earn ratio was 76.2% in 2Q18 a 7.9 bps in comparison to 1Q18. Operating data 1 Unit 2Q18 1Q18 2Q17 Smiles' redemption program mn % 16.5% Gol + International Partners Tickets mn % 14.7% Non-airline mn % 35.7% % of miles redeemed Gol + International Partners Tickets % 90.1% 91.5% 91.5% (1.4 bps) (1.4 bps) Non-airline % 9.9% 8.5% 8.5% 1.4 bps 1.4 bps 1 All values corresponding to miles are net of reimbursement. Segregation among different redemption types were not reviewed by auditors. Breakage: The breakage rate which reached 19.1% no 1Q18, was 18.3% this quarter. 3

4 Financial Performance Financial information summary Unit 2Q18 1Q18 2Q17 Gross billings 1 R$ mn % 18.8% Gol R$ mn % 123.7% ex-gol R$ mn % 15.7% 1. Gross Billings is not an accounting measurement and corresponds to total billings from the sale of miles 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 program members. Gross billings: Total gross billings climbed 18.8% compared to 2Q17 s figure, mostly due to the 15.7% increase in ex- Gol miles billings. Gol s billing rose 123.7% versus 2Q17, mainly due to the new dynamic of Gol s accrual since 3Q17 that allows the client to earn more miles per real spent. Revenue (R$ thousand) 2Q18 1Q18 2Q17 Net Revenue 198, , ,574 (19.8%) (8.9%) Operational Costs (14,622) (12,585) (11,448) 16.2% 27.7% Gross profit 183, , ,126 (21.7%) (11.0%) Redemption revenue: Net revenues fell by 8.9% over 2Q17, mainly due to the reduction of 42.2% of breakage revenue in the same period, influenced by a lower volume of miles expired effectively and a slightly lower speed of miles redemption. Redemption revenue grew 6.8% in the 2Q18 versus 2Q17 figure. Other revenues: Other revenues fell by 63.7% compared with 2Q17, reaching R$ 5.0 million. This item is mainly composed of cancellation fees, incentives to sell co-branded credit cards and Gol s loyalty program management fees. It is worth noting that revenue from the Gol tickets cancellation are not being recorded as other revenues since the 3Q17. This effect does not change the profitability of the company, considering that the referred revenue was absolutely reflected in costs until 2Q17. 4

5 Direct redemption margin: in the 2Q18 direct redemption margin reached 41,1%. The direct redemption margin is not an accounting measure and it is calculated using only managerial revenues and costs directly related to miles redemptions, as illustrated in the table below: Redemption P&L Redemption Results¹ 2Q18 1Q18 2Q17 Revenue > Net Revenue of Redemption (b)1 444, , , % 16.3% Revenue 444, , , % 5.5% (-) Direct Taxes - - (38,952) - n/a Costs of provided services > Redemption costs (261,576) (260,499) (224,143) 0.4% 16.7% (-) Cost with Redemption (261,576) (260,499) (240,189) 0.4% 8.9% (+) Credits with direct taxes ,046 - n/a Gross Revenue Gross result of redemption (a) 182, , , % 15.7% (-) Interest over Spread (16,905) (16,879) - 0.2% n/a (=) Net Revenue Net result of redemption (=a/b) 165, , , % 5.0% % Redeem direct margin 41.1% 41.2% 41,3% (0.1 bps) (0.2 bps) 1 managerial redemption results: Gross results of redemption consider other revenues related to redemption that are registered as Other revenues. Operating Expenses (R$ thousand) 2Q18 1Q18 2Q17 Operating Expenses (53,029) (50,487) (39,225) 5.0% 35.2% Commercial Expenses (28,695) (27,754) (22,055) 3.4% 30.1% Administrative Expenses (24,334) (22,733) (15,446) 7.0% 57.5% Other Expenses/ Revenues - - (1,724) n/a n/a Operating expenses: operating expenses increased by 35.2% when compared to 2Q17. The rise was a result of higher Administrative expenses (up 57.5% or R$ 8.9 million) and mostly derived from an increase in personnel expenses (up 30.7% versus 2Q17) and IT services (up 41.9% versus 2Q17). Commercial expenses surged 30.1% impacted by marketing/advertising expense. 5

6 Other information (R$ thousand) 2Q18 1Q18 2Q17 Net financial result 38,071 44,966 43,676 (15.3%) (12.8%) Financial revenue 42,298 44,704 48,236 (5.4%) (12.3%) Financial expenses (132) (129) (1,132) 2.3% (88.3%) Net exchange variation (4,095) 391 (3,428) n/a 19.5% Income tax and social Contribution (54,387) (73,964) (66,696) (26.5%) (18.5%) Financial result: the financial result declined 12.8% in 2Q18 versus 2Q17 figures, chiefly due to the reduction of the key base interest rate in Brazilian market, which resulted in a 12.3% decrease in financial revenue, and the impact of net exchange rate variation of 19.5%, reflecting the dollar appreciation versus the Brazilian real (+17.2% om 2Q18). Net exchange variation: The net exchange variation recorded in the period is largely a result of the effect of foreign exchange rate variation of the accounts payable outstanding in USD, related to the cost of international ticket redemptions. Income tax and social contribution: this quarter had the tax benefit of the distribution of interest on Capital. Considering this effect, the effective income tax and social contribution was 32.3%. Net income: Smiles Fidelidade s net income totaled R$114.2 million in 2Q18. 6

7 Income Statement IFRS 15 Income statement (R$ thousand) 2Q18 1Q18 2Q17 Net revenues 198, , ,574 (19.8%) (8.9%) Operational costs (14,622) (12,585) (11,448) 16.2% 27.7% Gross profit 183, , ,126 (21.7%) (11.0%) gross margin 92.6% 94.9% 94.7% (2.3 p.p.) (2.1 p.p.) Operating expenses (53,029) (50,487) (39,225) 5.0% 35.2% Selling expenses (28,695) (27,754) (22,055) 3.4% 30.1% Administrative expenses (24,334) (22,733) (15,446) 7.0% 57.5% Other expenses/revenues - - (1,724) n/a n/a Operating profit 130, , ,901 (29.1%) (21.8%) operating margin 65.9% 74.5% 76.7% (8.6 p.p.) (10.9 p.p.) Financial income 38,071 44,966 43,676 (15.3%) (12.8%) Financial revenues 42,298 44,704 48,236 (5.4%) (12.3%) Financial expenses (132) (129) (1,132) 2.3% (88.3%) Exchange variation, net (4,095) 391 (3,428) n/a 19.5% EBT 168, , ,577 (26.4%) (20.0%) Income and social contribution taxes (54,387) (73,964) (66,696) (26.5%) (18.5%) Net income 114, , ,881 (26.4%) (20.7%) Net margin 57.6% 62.7% 66.1% (5.1 p.p.) (8.5 p.p.) 7

8 Balance Sheet Balance Sheet (R$ thousand) 2Q18 1Q18 2Q17 Assets 2,058,860 2,353,170 1,774,926 (12.5%) 16.0% Current 1,835,193 2,110, ,471 (13.0%) 87.6% Cash and cash equivalents 281, ,098 71,706 (3.4%) 292.3% Short-term investments 450, ,650 50,068 (16.8%) 799.6% Trade receivable 391, , , % 36.4% Advances to suppliers 685, , ,347 (21.4%) 22.5% Recoverable Taxes - 2,346 - (100.0%) n/a Other credits and values 26,287 25,807 9, % 163.5% Noncurrent assets 223, , ,455 (7.9%) (71.9%) Deposits 16,945 16, % n/a Deferred taxes 170, ,660 67,533 (8.8%) 152.1% Advances to suppliers ,385 n/a (100.0%) Investments ,184 n/a (100.0%) Property, plant and equipment 2,783 2,962 1,947 (6.0%) 42.9% Intangible assets 33,719 36,424 31,662 (7.4%) 6.5% Other credits and values - - 7,744 n/a (100.0%) Liabilities 2,058,860 2,353,170 1,774,926 (12.5%) 16.0% Current 1,057,723 1,135,080 1,071,186 (6.8%) (1.3%) Suppliers 145, , , % 1.6% Salaries 11,844 8,433 10, % 11.4% Dividends/ 9, ,116 12,582 (91.9%) (27.8%) Tax obligations 16,213 31,043 34,590 (47.8%) (53.1%) Obligations to related companies 15,479 25,667 - (39.7%) n/a Advances from customers 52,112 75,140 77,223 (30.6%) (32.5%) Deferred revenues 805, , , % 4.6% Obligations with affiliates ,399 n/a (100.0%) Other liabilities 1,584 2,598 5,154 (39.0%) (69.3%) Noncurrent liabilities 222, , , % 24.4% Suppliers - 1,977 1,876 (100.0%) (100.0%) Provision for legal proceedings 17,151 15,774 1, % n/a Deferred revenue 205, , , % 16.9% Other liabilities n/a n/a Shareholder s equity 778,397 1,013, ,731 (23.2%) 48.3% Capital stock 44,874 44, , % (75.8%) Cost of issue shares (1,107) (1,107) (36,402) 0.0% (97.0%) Capital reserve 481, ,628 43, % n/a Share-based payments ,7% (96,1%) Profit Reserve 8,621 8,621 36, % (76.3%) Additional dividends proposed - 339,301 - (100.0%) n/a Retained earnings 244, , , % (15.2%) 8

9 Statement of cash flows Statement of Cash Flows (R$ thousand) 2Q18 1Q18 2Q17 1Q18 (%) 2Q17 (%) Net Income 114, , ,240 (26.4%) (21.9%) Share-based payments (55.8%) (55.8%) Deferred income and social contribution taxes 16,440 25,291 (2,143) (35.0%) (867.1%) Provision for legal proceedings 3,071 5, (40.6%) 530.6% Depreciation and amortization 4,421 4,081 3, % 31.8% Discounts in advance ticket purchases (32,922) (34,089) (45,927) (3.4%) (28.3%) Exchange variations, net (4,124) (2,586) (1,147) 59.5% 259.5% Interest and amortization of costs on loans n/a n/a Allowance for doubtful accounts % 700.0% Profit sharing 3,054 5,371 2,855 (43.1%) 7.0% Property, plant and equipment Sell - 15,184 - (100.0%) n/a Trade receivables (13,779) (25,342) (20,116) (45.6%) (31.5%) Advances to suppliers 219,059 28,977 (73,654) 656.0% (397.4%) Recoverable taxes 2,346 (2,346) - (200.0%) n/a Judicial deposits and blocked escrows (270) (200.7%) n/a Credits with related companies (10,188) (4,727) 1, % (662.6%) Other credits / obligations (1,461) (8,303) (3,992) (82.4%) (63.4%) Suppliers 18,939 (9,993) 16,763 (289.5%) 13.0% Labor obligations 357 (15,208) 628 (102.3%) (43.2%) Advances from customers (23,028) 60,413 (40,394) (138.1%) (43.0%) Deferred revenue 76,531 (22,310) (3,765) (443.0%) n/a Tax obligations 22,658 50,058 67,064 (54.7%) (66.2%) Lawsuits and labor claims (1,694) (3,777) (472) (55.1%) 258.9% Income and social contribution taxes paid (39,211) (37,326) (73,679) 5.1% (46.8%) Net cash flows from (used in) operating activities 354, ,727 (25,998) 110.1% n/a Acquisition of property, plant and equipment and intangible (1,418) (3,165) (449) (55.2%) 215.8% assets Short-term investments 91,217 (320,408) 58,030 (128.5%) 57.2% Net cash flows used in investing activities 89,799 (323,573) 57,581 (127.8%) 56.0% Capital Stock - 1,770 - (100.0%) n/a Capital Increase - 1,770 - (100.0%) n/a Debentures caption n/a - Cost of issued shares n/a n/a Interest on equity paid, net of taxes (451,042) (2,569) - n/a n/a Transaction with related parties n/a n/a Net cash flows from (used in) financing activities (451,042) (799) - n/a n/a Effect of exchange variation on cash and cash equivalents (3,062) 552 (340) (654.7%) 800.6% Net increase (decrease) in cash and cash equivalents (9,799) (155,093) 31,243 (93.7%) (131.4%) Cash and cash equivalents at the beginning of the period 291, ,191 40,463 (34.8%) 619.4% Cash and cash equivalents at the end of the period 281, ,098 71,706 (3.4%) 292.3% 9

10 Business Model Smiles started as a single loyalty program, but has evolved into its current coalition model, which features several unique characteristics that allow for the accrual and redemption of Miles from GOL flights and its international partner airlines, as well as Brazil's main commercial banks, including co-branded cards issued by Bradesco, Banco do Brasil and Santander, and a wide network of retail partners. The current model works through (i) the accrual of Miles by Members when they purchase airline tickets with GOL or other partner airlines, or products and services from Business and Financial Partners; Smiles Miles being acquired through the loyalty of these customers to those businesses, and (ii) Awards redemptions by Members when they exchange their Miles for flights on GOL and other partner airlines, or for products and services offered by Commercial and Financial Partners The main sources of our revenues come from (i) redeemed miles revenues, represented by tickets and awards in its network of airline, commercial and financial partners, (ii) interest income between the date the miles were accrued and the date they were redeemed, and (iii) Breakage revenues if issued miles expire without being redeemed. Glossary Awards - Products or services provided to members by a commercial partner as the result of redeeming customer miles loyalty program. Award Products - Product or service, excluding air tickets, provided to members by a commercial partner as the result of redeeming customer loyalty program points. Breakage Estimate Miles expired and not redeemed; it may be expressed as a number of miles, an amount in Brazilian reais or as a percentage of miles issued, depending on the context. Burn/Earn Ratio - The ratio between the number of redeemed and accrued miles in a given period. Free Float - Shares owned by non-controlling shareholders. Miles - The redemption rights of Smiles Program members sold to commercial partners. Smiles & Money - A means of issuing air tickets by combining money and miles. Smiles Program - A multi-loyalty program for several companies, including GOL Linhas Aéreas Inteligentes S.A. This release may contain forward-looking statements related to business prospects, estimates of operating and financial results, and growth prospects for Smiles. These are merely projections and, as such, are based exclusively on management's expectations for Smiles. Such forward-looking statements depend, substantially, on external factors and risks presented in the disclosure documents filed by Smiles, and are, therefore, subject to change without notice. Independent auditors did not review the Company s non-financial information. Some values from this report may differ from the financial statements due to rounding. 10