3Q18 Earnings Release

Transcription

1 3Q18 Earnings Release Barueri, October 30, 2018 Smiles Fidelidade S.A. (B3: SMLS3) one of the largest loyalty programs in Brazil with over 14 million members, announces today its 3Q18 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$), except when indicated otherwise. Percentage variations may use more decimal places for the calculations than shown in the document and are in comparison with Smiles Fidelidade S.A. numbers. Smiles Fidelidade S.A. Gross billings reached record volume of R$ million in 3Q18 B3: SMLS3 Novo Mercado Price: R$ No. of shares: 124,007,953 Market value: R$ 4.5 billion (close: 10/29/2018) 3Q18 Conference Call October 31, 2018 In Portuguese and English: (Simultaneous Translation) 11:00 a.m. (Brasília) 10:00 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 HIGHLIGHTS Gross Billings amounted to R$ million in 3Q18, an increase of 17.6% compared to 3Q17. Net income reached R$ 212,1 million in 3Q18, a decrease of 37.5% compared to 3Q17 and an increase of 85.8% higher than the 2Q18. Excluding the extraordinary effect, reported net income was R$ million in 3Q18, an increase of 4.8% compared to 3Q17. Direct redemption margin reached 42.5% in 3Q18, a 0.4 p.p. rise versus 3Q17. Main Highlights Unit 3Q18 2Q18 3Q17 Miles accrual Bln % 18.8% Gol Bln % 12.1% Banks, retail and others Bln % 21.4% Smiles & Money bln % 9.9% Smiles' program redemptions bln % 33.7% Total gross billings ² R$ mn % 17.6% Total gross billings (ex-gol) ² R$ mn % 17.4% Net revenues* R$ mn % 21.1% EBITDA 1 R$ mn % 41.9% EBITDA 1 margin % 87.8% 68.1% 74.9% 19.7 p.p p.p. Net income R$ mn % (37.5%) Net margin % 80.5% 57.6% 156.1% 22.9 p.p. (75.6 p.p.) Net Income (ex-extraordinary)** R$ mn % 4.8% Net margin % 58.3% 57.6% 67.4% 0.7 p.p. (9.1 p.p.) 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. 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 ** Excludes the extraordinary effects

2 Message from Management Amid a challenging scenario of political and economic uncertainties, marked by a high exchange rate volatility, Smiles continued to deliver healthy operating and financial indicators, with strong growth and reaching records levels in all operational metrics. The highlight of operational indicators was the redemption, which reached the record of 22.9 billion of miles redeemed, an increase of 33.7% in comparison to 3Q17. Management s commitment with business profitability is translated on an ample direct redemption margin of 42.5% in 3Q18, 0.4 p.p. higher than 2Q18. We remain optimistic regarding the loyalty industry prospects and reaffirm our commitment in consolidating Smiles as Brazil s most innovative business platform and a complete marketplace for the traveler. In order to conquest this, we are constantly evaluating new business partnerships and focus on enhancing customer experience. The internationalization process towards Argentina continues to evolve on a satisfactory manner. We expect to conclude the documentation phase for the beginning of Smiles Argentina operation soon and start exploring the huge potential of this new market. Supported by Accounting Standards Committee Pronouncement 47 (CPC 47) and Normative Instruction 1771 of the Brazilian Internal Revenue Service, the Company recorded extemporary tax credits on Breakage provision in the balance sheet amounting to R$ 259 million and R$ 59 million positive impact on net income, net of taxes, since tax collection should occur only at the time of miles expiration. On October 14 th, 2018, Gol Linhas Aéreas Inteligentes S.A (GLAI) communicated to the Company and the market that it is initiating proceedings aiming at a corporate reorganization of GLAI, and previously notified its intention to not renew the operating and backoffice services agreements. The terms of the Reorganization will be negotiated with GLAI and Company s Independent Committee and, where applicable, submitted for approval by GOL and SMILES shareholders. Our mission is to turn miles into smiles :) 2

3 Operating Performance Operating Data 1 Unit 3Q18 2Q18 3Q17 Members mn % 16.2% Miles Accrual bln % 18.8% Gol bln % 12.1% Banks, retail and others bln % 21.4% Smiles & Money Gol bln % 9.9% Smiles' Program Redemptions bln % 33.7% Airline Redemptions bln % 34.6% Non-airline bln (5.1%) 28.6% Breakage Rate % 17.9% 18.3% 18.0% (0.4 p.p.) (0.1 p.p.) 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 14.8 million in 3Q18, up 16.2% in comparison to 3Q17. Miles accrual: In 3Q18 miles accrued increased 18.8% compared with 3Q17, mainly boosted by the 21.4% expansion in miles accrual from banks, retail and services and an increase of 12.1% of miles accrued by Gol. Miles redemption: In 3Q18 miles redeemed were 33.7% higher than in 3Q17, and totalled 22.9 billion miles. Miles redeemed evolution were largely explained by the 34.6% increase of airline tickets redemption, which account for around 92.3% of total miles redeemed. The burn/earn ratio was 84.7% in 3Q18, 8.5 p.p rise compared to 2Q18. Operating data 1 Unit 3Q18 2Q18 3Q17 Smiles' redemption program bln % 33.7% Gol + International Partners Tickets bln % 34.6% Non-airline bln (5.1%) 28.6% % of miles redeemed Gol + International Partners Tickets % 92.3% 90.1% 91.7% 2.2 p.p. 0.6 p.p. Non-airline % 7.7% 9.9% 8.3% (2.2 p.p.) (0.6 p.p.) 1 All values corresponding to miles are net of reimbursement. Segregation among different redemption types were not reviewed by auditors. Breakage: The breakage rate was 17.9% this quarter from 18.3% in 2Q18. 3

4 Financial Performance Financial information summary Unit 3Q18 2Q18 3Q17 Gross billings 1 R$ mn % 17.6% Gol R$ mn % 20.0% ex-gol R$ mn % 17.4% 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 17.6% when compared to 3Q17 s figure, mostly due to the 17.4% increase in ex-gol miles billings. Gol s billings rose 20.0% versus 3Q17, influenced by the higher demand for domestic air tickets. Revenue (R$ thousand) 3Q18 2Q18 3Q17 Revenue 591, , , % 21.4% Redemption revenue 524, , , % 23.8% Breakage revenue 62,086 35,814 57, % 7.2% Other revenues 4,684 5,029 5,284 (6.9%) (11.4%) Services Provide Cost (304,185) (261,576) (223,332) 16.3% 36.2% Airline tickets (281,146) (237,118) (197,115) 18.6% 42.6% Diverse Products (23,039) (24,458) (26,217) (5.8%) (12.1%) Gross Revenue 286, , , % 8.9% Taxes and Contributions (23,479) (20,443) (45,925) 14.9% (48.9%) Net Revenues 263, , , % 21.1% Operational Costs (14,779) (14,622) (12,346) 1.1% 19.7% Gross Profit 248, , , % 21.2% *Managerial table in order to demonstrate revenues and costs related to redemption. Net revenue: Net revenue rose 21.1% compared to 3Q17, mainly due to a higher volume of miles redeemed in this period which resulted in an increase of 23.8% of redemption revenue. Breakage revenue increased 7.2% in 3Q18 in comparison to the same period last year, influenced by a higher volume of miles expired. Other revenues: Other revenues fell by 11.4% compared with 3Q17, reaching R$ 4.7 million. This item is mainly composed of cancellation fees, incentives to sell co-branded credit cards and Gol s loyalty program management fees. 4

5 Direct redemption margin: in the 3Q18 direct redemption margin reached 42,5%, an increase of 0.4 p.p in comparison to 3Q17. 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 3Q18 2Q18 3Q17 Revenue > Net Revenue of Redemption (b)1 528, , , % 37.0% Revenue 528, , , % 24.3% (-) Direct Taxes - - (39,348) - - Costs of provided services > Redemption costs (304,185) (261,576) (223,332) 16.3% 36.2% (-) Cost with Redemption (304,185) (261,576) (240,734) 16.3% 26.4% (+) Credits with direct taxes , Gross Revenue Gross result of redemption (a) 224, , , % 38.1% (-) Interest over Spread (20,789) (16,905) % - (=) Net Revenue Net result of redemption (=a/b) 203, , , % 25.3% % Redeem direct margin 42.5% 41.1% 42.1% 1.4 p.p. 0.3 p.p. 1 managerial redemption results: Gross results of redemption consider other revenues related to redemption that are registered as Other revenues. Application of Normative Instruction 1771: Supported by Accounting Standards Committee Pronouncement 47 (CPC 47) and Normative Instruction 1771 of the Brazilian Internal Revenue Service, the Company recorded extemporary tax credits on Breakage provision in the balance sheet amounting to R$ 259 million and R$ 59 million positive impact on net income, net of taxes, since tax collection must occur at the time of miles expiration. Operating Expenses (R$ thousand) 3Q18 2Q18 3Q17 Operating Expenses (21,491) (53,029) (45,500) (59.5%) (52.8%) Commercial Expenses (28,379) (28,695) (24,562) (1.1%) 15.5% Administrative Expenses (31,218) (24,334) (20,938) 28.3% 49.1% Other Expenses/ Revenues 38, n/a n/a Operating expenses: operating expenses were 59.5% and 52.8% lower than 2Q18 and 3Q17, respectively. The drop was influenced by the extraordinary effect on the calculation of extemporary fiscal credits of income tax, social contribution, PIS and COFINS related to the last 5 fiscal years. The fiscal credit revenue was recognized on other expenses/revenues line. If we exclude this extraordinary effect, operational expenses were up by 12.4% in comparison to 2Q18, reaching R$ 58.6 million. The operational expenses climb reflects higher administrative expenses (28.3%) which includes R$ 6.8 million of personnel expenses related to a higher provision for profit sharing distribution. 5

6 Other information (R$ thousand) 3Q18 2Q18 3Q17 Net financial result 96,681 38,071 52, ,9% 84.6% Financial expenses (1,035) (132) (210) 684,1% 392.9% Financial revenues 92,177 42,298 49, ,9% 85.7% Net exchange variation 5,539 (4,095) 2,949 n/a 87.8% Income tax and social Contribution (111,653) (54,387) 127, % n/a Financial result: the financial result increased 84.6% in 3Q18 versus 3Q17 figures, chiefly due to the extraordinary impact of R$ 53.9 million on financial result related to the monetary correction and interest on fiscal credit calculated in this quarter. The positive exchange rate variation also contributed to the financial result arising from the exchange rate volatility seen on this quarter. 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 the effective income tax and social contribution was 35%. Net income: Smiles Fidelidade s net income totaled R$212.1 million in 3Q18, an expansion of 85.8% in comparison to 2Q18. Excluding the extraordinary effect of R$ 58.6 million, the net income reached R$ million. Balance of advance to suppliers: the balance of advance to suppliers breakdown in the quarter is shown in the table below: Tranche Contract Data Balance 3Q18 Rate (a.a.) Tranche A 3º Contract 02/29/ % Tranche B 3º Contract 05/12/ % Single Tranche 4º Contract 08/02/ % Single Tranche 5º Contract 09/10/ % Single Tranche 6º Contract 09/27/ % Tranche A 7º Contract 09/28/ % Total 1, % 6

7 Income Statement IFRS 15 Income statement (R$ thousand) 3Q18 2Q18 3Q17 Net revenues 263, , , % 21.1% Operational costs (14,779) (14,622) (12,346) 1.1% 19.7% Gross profit 248, , , % 21.2% gross margin 94.4% 92,6% 94.3% 1.8 p.p. 0.1 p.p. Operating expenses (21,491) (53,029) (45,500) (59.5%) (52.8%) Selling expenses (28,379) (28,695) (24,562) (1.1%) 15.5% Administrative expenses (31,218) (24,334) (20,938) 28.3% 49.1% Other expenses/revenues 38, n/a n/a Operating profit 227, , , % 42.3% operating margin 86.2% 65.9% 73.4% 20.4 p.p p.p. Financial income 96,681 38,071 52, % 84.6% Financial revenues 92,177 42,298 49, % 85.7% Financial expenses (1,035) (132) (210) 684.1% 392.9% Exchange variation, net 5,539 (4,095) 2,949 (235.3%) 87.8% EBT 323, , , % 52.7% Income and social contribution taxes (111,653) (54,387) 127, % (187.6%) Net income 212, , , % (37.5%) Net margin 80.5% 57.6% 156.1% 22.9 p.p (75.6 p.p) 7

8 Balance Sheet Balance Sheet (R$ thousand) 3Q18 2Q18 3Q17 Assets 2,577,469 2,058,860 2,098, % 22.8% Current 2,319,738 1,835,193 1,618, % 43.3% Cash and cash equivalents 227, , ,675 (19.3%) 11.5% Short-term investments 519, , , % 198.7% Restrict Cash n/a n/a Trade receivable 351, , ,812 (10.4%) 2.1% Advances to suppliers 946, , , % 7.0% Recoverable Taxes 251, n/a n/a Related-parties credits n/a n/a Other credits and values 23,955 26,287 13,189 (8.9%) 81.6% Noncurrent assets 257, , , % (46.2%) Deferred taxes - 170, ,188 (100.0%) (100.0%) Judicial deposits and blocked escrows 17,834 16,945 15, % 18.7% Advances to suppliers 200, ,043 n/a 11.6% Investments ,184 n/a (100.0%) Property, plant and equipment 2,595 2,783 1,855 (6.8%) 39.9% Intangible 36,371 33,719 29, % 25.3% Other credits and values n/a n/a Liabilities 2,577,469 2,058,860 2,098, % 22.8% Current 1,343,994 1,057,723 1,039, % 29.2% Suppliers 139, , ,116 (4.6%) (3.5%) Salaries 20,570 11,844 15, % 32.5% Dividends and interest on equity payable - 9,089 7,847 (100.0%) (100.0%) Taxes Payable 46,736 16,213 19, % 139.6% Related companies 29,109 15,479 24, % 20.6% Advances from customers 287,557 52,112 52, % 444.2% Deferred revenues 818, , , % 5.8% Obligations with affiliates n/a n/a Other liabilities 2,638 1,584 2, % 10.0% Noncurrent liabilities 242, , , % 18.5% Suppliers - - 1,061 n/a (100.0%) Client advances n/a n/a Provision for legal proceedings 19,088 17,151 14, % 36.0% Deferred revenues 198, , ,415 (3.6%) 4.6% Deferred taxes 25, n/a n/a Other liabilities % n/a Shareholder s equity 991, , , % 16.1% Capital stock 44,874 44,874 43,104 0,0% 4.1% Capital to subscribe n/a n/a (-) Cost of issued shares (1,107) (1,107) (1,344) 0.0% (17.6%) Capital reserve 481, , , % 0.0% Share-based payment % 888.4% Profit Reserve 8,621 8, % n/a Additional dividends proposed n/a n/a Retained earnings 456, , , % 38.1% 8

9 Statement of cash flows Statement of Cash Flows (R$ thousand) 3Q18 2Q18 3Q17 Net Income 212, , , % (37.5%) Share-based payments n/a 544.2% Deferred income and social contribution taxes 195,295 16,440 (170,655) n/a (214.4%) Provision for legal proceedings 5,043 3,071 5, % (0.5%) Depreciation and amortization 4,222 4,421 3,371 (4.5%) 25.2% Discounts in advance ticket purchases (29,369) (32,922) (46,703) (10.8%) (37.1%) Financial restatement of income and social contribution taxes - - (160) n/a (100.0%) Exchange variations, net 4,973 (4,124) 894 (220.6%) 456.3% Interest and amortization of costs on loans n/a (100.0%) Allowance for doubtful accounts (11) 16 3 (168.8%) (466.7%) Netpoints n/a n/a Profit sharing 8,456 3,054 4, % 88.4% Property, plant and equipment Sell (100.0%) (100.0%) Trade receivables 40,822 (13,779) (56,441) (396.3%) (172.3%) Advances to suppliers (432,889) 219, ,778 (297.6%) (301.6%) Anticipated expenditure n/a n/a Recoverable taxes (251,683) 2,346 6 n/a n/a Judicial deposits and blocked escrows (889) (270) (605) 229.3% 46.9% Other assets and liabilities, net 3,453 (1,461) (6,078) (336.3%) (156.8%) Related-Party Transactions (Obligations) 13,630 (10,188) (3,562) (233.8%) (482.7%) Suppliers (10,673) 18,939 (1,832) (156.4%) 482.6% Salaries (24.4%) (15.4%) Advances from customers 235,445 (23,028) (25,063) n/a n/a Deferred revenue 5,332 76,531 17,123 (93.0%) (68.9%) Taxes obligations 73,942 22,658 17, % 320.2% Lawsuits and labor claims (3,106) (1,694) (3,889) 83.4% (20.1%) Interest paid - - (1) n/a (100.0%) Income and social contribution taxes paid (43,419) (39,211) (18,984) 10.7% 128.7% Net cash flows from (used in) operating activities 31, , ,041 (91.1%) (88.3%) Acquisition of property, plant and equipment and intangible assets (6,898) (1,418) (644) 386.5% 971.1% Short-term investments (68,925) 91,217 (123,813) (175.6%) (44.3%) Restrict Cash n/a n/a Capital Increase of Associates n/a n/a Webjet S.A. s absorbed cash n/a (100.0%) Net cash flows used in investing activities (75,823) 89,799 (124,218) (184.4%) (39.0%) Capital Stock n/a n/a Capital increase for exercise of stock options n/a n/a Transaction with related parties n/a n/a Loan Payment n/a n/a Cost of issued shares - - (1,344) n/a (100.0%) Capital Decrease n/a n/a Future capital increase advance n/a n/a Debentures caption n/a n/a Interest on equity paid and dividends paid (9,088) (451,042) (12,582) (98.0%) (27.8%) Merged net assets n/a n/a Net cash flows from (used in) financing activities (9,088) (451,042) (13,926) (98.0%) (34.7%) Effect of exchange variation on cash and cash equivalents (841) (3,062) 72 (72.5%) n/a Net increase (decrease) in cash and cash equivalents (54,248) (9,799) 131, % (141.1%) Cash and cash equivalents at the beginning of the period 281, ,098 71,706 (3.4%) 292.3% Cash and cash equivalents at the end of the period 227, , ,675 (19.3%) 11.5% 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