GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

 

São Paulo, November 07, 2016 - GOL Linhas Aéreas Inteligentes S.A. (“GLAI”), (BM&FBOVESPA: GOLL4 and NYSE: GOL), (S&P: CCC, Fitch: CC and Moody’s: Caa3), Brazil's largest air transportation and travel services group, with operation in passenger transportation, cargo transportation and coalition loyalty programs, announces today its consolidated results for the third quarter of 2016. All information is presented in accordance with International Financial Reporting Standards (IFRS) and in Brazilian Reais (R$), and all comparisons are with the third quarter of 2015 unless otherwise stated.

Quarter highlights

|      The operating result (EBIT) was R$232.6 million in 3Q16, with a margin of 9.7%. EBITDA was R$333.4 million, with a margin of 13.9%, and EBITDAR was R$599.5 million, with a margin of 25.0%. The margin improvement was due to the capacity management, which drove an increase in yield, stronger currency and cost control.

|      Net income was R$65.9 million in the third quarter and R$1.1 billion year-to-date, versus respective losses of R$2.1 billion and R$3.2 billion in the same periods last year. EPS was R$0.19 in 3Q16 and R$3.26 in 9M16.

|      Financial leverage (adjusted gross debt/EBITDAR) ended the quarter at 7.2x, versus 8.4x at June 30, 2016.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

              Message from Management

GOL posted an operating margin of 9.7% in 3Q16, accompanied by an operating result (EBIT) of R$232.6 million, due to the rationalization of capacity, which reduced the number of seats available for sale by 20.1%, leading to a 1.5% increase in yield, and the strict control over costs, which fell by 12.6%. In the year through September, EBIT was R$498.3 million, with a margin of 6.9%, and net income reached R$1.1 billion, representing a margin of 15.7%.

Aiming to ensure a better flight experience for our customers, in August 2016 we launched the GOL Premium Lounge in Guarulhos International Airport in São Paulo. The new VIP lounge has modern and distinctive spaces specially designed to provide clients with increased ease and convenience. We will be inaugurating two more lounges, in the Galeão Airport in Rio de Janeiro, by 1Q17. 

On October 4, we undertook the first commercial flight in South America with internet on board on the Congonhas-Brasilia-Congonhas route. The Company's entire fleet will be equipped with this service by October 2018.

We announced the expansion of our codeshare agreement with Copa Airlines and Aeromexico, as well as a new partnership with Emirates. As a result, passengers served by these companies will only have to check-in themselves and their baggage once and will be able to take advantage of an extensive route network. Customers will also benefit from being able to accumulate miles and redeem tickets through loyalty programs.

We deepened our activities with Smiles in order to provide more benefits and amenities to customers, exemplified by the expansion of miles accumulation to promotional fares. In addition, customers entitled to a category upgrade during the year and who accumulate more qualifying miles than necessary will be entitled to carry the surplus forward to the following year, helping them maintain their category or possibly entitling them to a new upgrade.

We concluded our service to the Olympic Summer Games held in Rio de Janeiro in August and September with absolute success. All in all, we carried more than 7,200 athletes, 5,604 passengers with passengers with reduced mobility or special needs, and 49 delegations. The launch of the accessibility ramp, the improvements in our processes and procedures and the excellence of our service, as well as the high level of security in our operations represent the medals we won in the Games and which we will wear with great pride!

I would like to thank all the organizations and our Team of Eagles who played a vital role in helping us get through this period of rapid economic change. We are convinced we will arise from this arduous and complex process even stronger, more efficient and fully prepared for a new cycle in Brazil’s economy.

Paulo Sérgio Kakinoff                                                                      
CEO of GOL Linhas Aéreas Inteligentes S.A.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

 

Operating and financial indicators

1. Source: Central Bank; 2. Source: Bloomberg; 3. Fuel expenses/liters consumed; 4. Excluding non-recurring results on return of aircraft under finance lease contracts and sale-leaseback transactions; *Certain variation calculations in this report may not match due to rounding..

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

Domestic market – GOL

      Domestic supply decreased by 4.3% in the quarter and 5.7% from January to September of 2016 compared to the same period of 2015, reflecting the network adjustments in May 2016 with the aim of reducing supply about 8% over the year.

      Domestic demand decreased by 2.9% in 3Q16 and 6.6% in 9M16, resulting in a domestic load factor of 80.4%, a increase of 1.2 p.p. compared to 3Q15, and 77.9%, a decrease of 0.8 p.p. compared to 9M15.

      GOL transported 7.7 million passengers in the domestic market in the quarter, representing a decrease of 16.9% when compared to the same period in 2015. The Company maintained its leadership position in the number of transported passengers in Brazil’s domestic aviation market.

International market - GOL

      GOL’s international supply decreased 21.4% in the quarter and 17.6% in 9M16, compared to 2015. International demand showed a decrease of 21.1% between July and September, registering load factor of 74.6%, and, in 9M16, a decrease of 14.9%, leading the international load factor to 74.3%.

      During the quarter, GOL transported 469.4 thousand passengers in the international market, 16.5% less than in 2015. For 9M16, the Company transported 1,431.6 thousand passengers, a decrease of 10.8% compared to the same period in 2015.

Volume of departures and Total seats - GOL

The volume of departures in the overall system was reduced by 20.5% and 16.4% in the third quarter and 9M16, respectively. The total number of seats available of the market fell 20.1% in 3Q16 and 16.2% in the nine months of 2016.

PRASK, Yield and RASK

      Net PRASK grew by 3.0% and 9.0%, RASK improved 3.3% and 9.0% and yield increased by 1.5% and 9.5%, in comparison with 3Q15 and 9M15, respectively.  It is worth noting the ASK decreased 6.7% in the quarter and 7.2% from January to September of 2016.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

Income statement in IFRS (R$ MM)

* Certain variation calculations in this report may not match due to rounding.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

¹ excluding non-recurring results on the anticipated return of aircraft under finance lease contracts and sale-leaseback transaction; * Certain variation calculations in this report may not match due to rounding.

*In accordance with CVM Instruction 527, the Company presents the reconciliation of EBIT and EBITDA, whereby: EBIT = net income (loss) plus income and social contribution taxes and net financial result; and EBITDA = net income (loss) plus income and social contribution taxes, net financial result, and depreciation and amortization. We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator, whereby: EBITDAR = net income (loss) plus income and social contribution taxes, the net financial result, depreciation and amortization, and aircraft operating lease expenses; * Certain variation calculations in this report may not match due to rounding.

Net revenue

In the third quarter of 2016, total net revenue reached R$2,401.4 million, a reduction of 3.5% compared to 2015. The result was impacted by a lower demand in the period reflecting the lower economic activity in Brazil.

Passenger revenue  was R$2,099.4 million and represented 87.4% of total net revenue in 3Q16, a decrease of 3.8% related to the same period of 2015.

International passenger revenue totaled R$334.4 million in the quarter, equivalent to 13.9% of total net revenue and a reduction of 3.5% when compared to 2015. This result reflects the adjustments in capacity by 21.4% implemented in the international network of GOL.

Net cargo and auxiliary revenue was R$302.1 million in 3Q16, representing 12.6% of total net revenue and an reduction of 1.5% compared to the previous year, due to the supply reduction in 2016.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

Operating expenses

Operating costs and expenses totaled R$2,167.5 million in the period, a decrease of 12.6% compared to the previous year and excluding fuel expenses, totaled R$1,499.3 million in the quarter, representing a reduction of R$158.0 million, or 9.5%, compared to 2015. The cost per ASK (CASK) reached R$18.84 cents, a decrease of 6.4% compared to the same period in 2015. The result of CASK mainly reflects the GOL restructure that generated gains, up to September, with early return of aircraft finance lease, in addition to the adequacy of the company's structure to the new level of demand. The details for each expense line are as follows:

¹ excluding non-recurring results on the return of aircraft under finance lease contracts and sale-leaseback transaction; *Certain variation calculations in this report may not match due to rounding.

Aircraft fuel per ASK reached R$5.81 cents, a decrease of 13.0% (-18.8% in nominal terms) compared to 2015. This variation was mainly due to the reduction of fuel prices in Brazil by 8.0% in relation to 3Q15 and the lowest fuel consumption in liters at 11.7%.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

Salaries, wages and benefits per ASK reached R$3.30 cents, up 4.1% (-2.8% in nominal terms) compared to the previous year due to an increase of 11% in employee wages from the collective pay rise agreement, partially offset by 9.4% reduction in the workforce.

Aircraft rent per ASK totaled R$2.31cents, a 8.0% increase (0.8% in nominal terms) compared to 2015, mainly due to the higher number of aircraft under operating lease contracts compared to the same period last year (101 on 3Q16 versus 98 on 3Q15), although there was an impact of 8.3% average depreciation of the US Dollar against the Real.

Sales and marketing per ASK registered R$1.19 cents, a decrease of 16.3% (-21.9% in nominal terms) compared to the previous year, mainly due to the decrease in sales commission tickets and losses with accounts receivables.

Landing fees per ASK totaled R$1.48 cents, a 6.1% increase (-0.9% in nominal terms) year-over-year due to adjustments in Infraero airport fees - landing fee and navigation support, partially offset by the reduction of takeoffs in 20.5%.

Aircraft and traffic servicing per ASK totaled R$2.12 cents in the period, stable compared to 3Q15 (-6.6% in nominal terms), due to increased expenses on IT services in domestic and international databases, more than offset by a lower volume of purchases of similar companies crossings.

Maintenance materials and repairs per ASK registered R$0.91cents, a decrease of 8.7% (-14.7% in nominal terms) compared to 2015, reflecting the 8.3% appreciation in average BRL/USD rate and reversal of provisions related to aircraft returns.

Depreciation and amortization per ASK reached R$0.88 cents, an increase of 3.1% (-3.7% in nominal terms), according to the aircraft returns and appreciation of the Real against the US dollar by 8.3%, partially counterbalanced by the reduction of life cycle of spare parts from 25 to 18 years.

Other expenses per ASK reached R$0.85 cents, a 37.6% (-41.8% in nominal terms) decrease year-over-year due to the adjustment of Company's capacity and consequent lower number of accommodation for the crew members and interrupted flights.

Operating result

The EBIT in the third quarter of 2016 was R$232.6 million, with a positive margin of 9.7%, representing an evolution of 9.3 percentage points compared to 3Q15. The EBITDAR reached R$599.5 million with margin of 25.0%, an increase of 9.8 percentage points in relation to the same period of 2015.

Net financial result

In the third quarter of 2016, net financial expenses were R$100.9 million, a significant improvement compared to net financial expenses of R$ 1,702.6 million in 3Q15. The variation in annual basis is mainly by the depreciation of the Real against the dollar (end of period), which ranged from R$3.1026 on June 30, 2015 to R$3.9729 on September 30, 2015, generating a negative result of R$ 1,440.6 million in 3Q15.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

|   Interest expense totaled R$197.1 million in the period, a decrease of R$29.3 million or 13.0% compared to the same quarter in 2015. This decrease is a result of a lower debt level and also the depreciation of the US dollar against the Real.

|   Net exchange variation totaled R$35.6 million negative in the quarter. The variation in annual basis is mainly by the depreciation of the Real against the dollar (end of period), which ranged from R$3.1026 on June 30, 2015 to R$3.9729 on September 30, 2015, generating an impact in negative result of R$ 1,440.6 million in 3Q15.

|   Interest income totaled R$31.8 million in the quarter, a decrease of R$18.4 million compared to 3Q15. The variation is explained by the lower level of our cash position held in Brazilian Reais.

|   Other financial expenses totaled R$232.2 million in 3Q16, an increase of R$325.0 million compared to the same period of 2015. The variation is explained by the discount obtained in senior notes as a result of debt restructuring.

Hedge result

The Company uses hedge accounting to account for some of its derivative instruments. In 3Q16, GOL recorded a loss of R$185.8 million from hedge operations.

*OCI (Other Comprehensive Income) or Statement of Comprehensive Income (loss) is a transitional account where positive and negative fair value adjustments of derivatives recorded as hedge accounting, designated as effective for hedging cash flow. GOL records the fair value of hedges due in future periods whose aim is to protect cash flow.

|   Fuel: fuel hedge operations were made for this quarter through derivative contracts. During the quarter, the Company hedged through derivative financial instruments of 26.6% in the next 3 months.

|   Interest: swap transactions to protect the cash flow from future aircraft leasing deliveries against an increase in Libor interest rates generated total gain of R$142.6 million in 3Q16, reflecting adjustments in the company's fleet plan.

|   Foreign exchange: foreign exchange hedge transactions through derivative financial instruments in the form of NDFs (non-deliverable forwards), futures and options totaled a losses of R$44.6 million in 3Q16 and are used as the Company's economic hedge. The Company also maintains part of its cash position in US Dollars as a natural hedge instrument against its foreign exchange exposure. In 3Q16, this portion protected 20.0% of exposure in the next 3 months and 4.8% in the next 12 months. Summing the cash and derivative instruments, 19.0% of foreign exchange exposure in the next 3 months and 4.1% in the next 12 months was protected.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

Income taxes

The third quarter of 2016 taxes totaled an expense of R$65.8 million, a decrease of R$374.1 million compared to the same period of 2015. The result was mainly due to income taxes expenses from Smiles.

Net income

GOL recorded net income of R$65.9 million in 3Q16, with a net margin of 2.7%, compared to losses of R$2,133.6 million and a negative net margin of 85.7% in 3Q15. This result mainly reflects for continuous operational improvement of the Company and also the appreciation on Brazilian Real versus the US Dollar.

Earnings per Share (EPS)

Earnings per share before minority interest were R$0.19 in 3Q16, compared to losses of R$6.14 in 3Q15. The number of shares considered in this calculation were 347.2 million, reflecting the ratio of 35 voting shares for each non-voting share.

Smiles Subsidiary - 3Q16 results

Smiles posted a quarterly net income of R$144.7 million, which represents a net margin of 36.3%, 8.1p.p. higher than 3Q15 and 1.0 p.p. higher than 2Q16. The company posted an operating profit of R$162.6 million, 32.5% up over 3Q15, representing an operating margin of 40.8%. Operating profit growth is mainly result of the 14.1% increase in net revenues and the improvement of 5.7 p.p. in operating margin when compared to 3Q15. For further information, please visit http://www.smiles.com.br/ri.

The following table summary of the results of our Smiles subsidiary:

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

 

Cash Flow

The cash generated from operating activities was  R$19.7 million and was mainly affected by the increase in accounts receivable balance of R$228.7 million, due to the reduction in the volume of prepayments of credit card receivables at the end of the quarter, and the increase in the balance of deposits of R$279.3 million, mainly related to maintenance events with the lessors to replace letters of credit.

The cash generated from investing activities was R$390.0 million, mainly due to the reduction in the amount of advances for the acquisition of fixed assets in the amount of R$453.5 million and partially offset by the increase in property, plant and equipment and intangible assets of R$121.9 million.

The cash used in financing activities was R$1,560.5 million, mainly due to the amortization of loans and financing in the amount of R$496 million, financial lease payments in the amount of R$306.5 million, interest on loans paid in the amount of R$561.3 million and dividend payments, net of R$154.0 million by GOL’s subsidiary Smiles in May/16.

1-     Management cash flow: some items were reclassified for better presentation. The groups may not be comparable with the totals presented in our financial statements.

2-     Net cash flow = cash flow from operating activities + cash flow from investing activities

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

Capex

Capital expenditures for the nine-month period ended September 30, 2016, were R$(380.3) million, representing a reduction due to the postponement of aircraft deliveries in 2016 and 2017 and consequent return of cash deposits. For more details on changes in property, plant and equipment, see Note 15 in the interim financial statements.

Operational fleet

At the end of 3Q16, out of a total of 135 Boeing 737-NG aircraft, GOL was operating 116 aircraft on its routes. Of the 19 remaining aircraft, 11 were in the process of being returned to the lessors and 8 were sub-leased to other airlines.

GOL has 101 aircraft under operating leases and 34 under finance leases, 31 of which have a purchase option for when their leasing contracts expire.

The average age of the fleet was 8.0 years at the end of 3Q16. In order to maintain this low average, the Company has 120 firm aircraft acquisition orders with Boeing for fleet renewal by 2027.

The next B737 aircraft is expected to be received by the Company in July 2018.

Balance sheet: Liquidity and Indebtedness

      On September 30, 2016, the Company reported total cash, including financial investments, restricted cash, and accounts receivable of R$1,828.7 million, equivalent to 21.1% of net revenue in the last twelve months. Short-term accounts receivables totaled R$680.6 million, consisting mostly of ticket sales via credit card and accounts receivable from travel agencies and cargo transportation and representing a decrease of 10.8% versus the second quarter.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

 

1 - Financial commitments (gross debt + operational leasing contracts) less Cash  /  2 - Debt + LTM operational leasing expenses x 7; *Certain variation calculations in this report may not match due to rounding.

Loans and financing

        During 3Q16, the Company’s total loans and financings totaled R$6,345.8 million (including finance leases), a decrease of 33.1% and 8.7% compared to 3Q15 and 2Q16, respectively.

The Company amortized R$802.5 million in debt in the year, of which R$496.0 million was from financial debt amortization and R$306.5 million in finance leases in 2016.

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

The adjusted gross debt/EBITDAR (LTM) ratio reached 7.2x in 3Q16, compared to 8.4x in 2Q16. This indicator improved mainly by the appreciation of the Real against to the US Dollar in the period. The adjusted net debt/EBITDAR (LTM) ratio also improved and reached 6.7x in the period compared to 7.6x in 2Q16.

The average maturity of the Company's long-term debt in 3Q16, excluding aircraft financial leasing and non-maturing debt, was 3.8 years, remaining the same when compared to 2Q16, with an average rate of 18.64% for local-currency debt, same rate as of 2Q16, and 7.45% for Dollar-dominated debt, compared to 7.57% in 2Q16.

Bank Debt amortization schedule 3Q16 (R$ MM)

2016 Guidance

Given the volatility of the Brazilian economic scenario, the Company’ revised guidance (above) for 2016 may be adjusted in order to incorporate the evolution of its operating and financial performance and any eventual changes in interest rates, exchange rate, GDP and WTI and Brent oil price trends.

Fleet plan

                   *Considers aircraft list price

GOL announces expansion of operating margin to 10% in 3Q16 Operating income was R$233 million in the period

 

Balance Sheet