Sustainability Report - Smiles

Transcription

Reasons
to Smile
2013
1
Sustainability Report
Sustainability Report | 2013
Table of Contents
2013 Highlights
Message From The Management
About The Report
01
Company Profile
02
Corporate Governance
03
Economic And Financial Performance
04
People Management
05
Social-Environmental Management
06
GRI Index
07
Financial Statements
08
Credits
3
2013 Highlights
Smiles S.A. goes public and its shares
are listed for trading on the Novo Mercado
segment of BM&FBovespa under
ticker SMLE3.
The Company’s shares closed the year at
R$ 32.49 - a 50% increase since the IPO and with a market cap of R$ 4 billion.
For the third consecutive year the Wall
Street Journal ranks Smiles Program as one
of the top five programs in the world and
from Latin America.
Smiles enter into an investment agreement
in which it acquires a 25% interest at
Netpoints Fidelidade S.A., strengthening its
strategy of focusing on alliances with key
partners in the retail segment.
The Company closes the year with
215 partner companies. Among the
newcomers in 2013 are BR Premmia,
PayPal, Centauro, Agaxtur, Escola Superior
de Propaganda e Marketing (ESPM),
Ri Happy, Drogaria São Paulo, Flores on Line,
among other partnerships.
Innovative products such as the Smiles Club,
Mileage Reactivation, and Mileage Transfer
were launched throughout 2013 in order to
encourage the cashing in of rewards using
miles by the participants and to show how
attractive the Smiles Program is.
Smiles closes the year with net income
of R$ 207.8 million, net revenue of
R$ 573.3 million, and operating profit
of R$ 180.2 million.
Message from the management
In a scenario of challenges and opportunities, the
year 2013 was marked by the success of Smiles in the
Brazilian customer loyalty market.
Our IPO on BM&FBOVESPA (SMLE3) was a complete
success with an increase in value of approximately 50%
in our first year as independent manager of the loyalty
program of GOL Linhas Aéreas Inteligentes (GOL).
In addition, we launched innovative products (the
Smiles Club, Mileage Reactivation, Mileage Transfer,
among others) and we strengthened our relationships
with key financial and commercial partners, as well
as consolidated our business plan guided by strategic
guidelines with a focus on the client.
We turned to the media with a mass communication
campaign with the intent of bringing the brand to its
full potential and introducing our advantages to the
market. With the theme “Who goes with Smiles, comes
back smiling,” we used the concept “We do everything
for you to travel with Smiles”.
Also with the intent of strengthening our exposure
in the retail segment, in October we signed an
“Investment Agreement” for acquiring a minority stake
in aa loyalty company, Netpoints, with the option to
acquire the company’s control after the end of fiscal
year 2018. We believe that the experience of
Netpoints in this segment will complement our
operational strategy in this channel with an
attractive growth potential.
We grew strongly throughout the year and ended 2013
with 9.7 million participants, 215 partner companies,
38.8 billion miles earned, and 30.7 billion miles
redeemed1. As a result we recorded gross revenues of
R$ 1 billion and net income of R$ 207.8 million.
It is important to point out that after only four months
as an independent company we advanced the payment
of R$ 37.1 million in Dividends and Interest on Equity,
and we proposed for 2014 additional dividends of
R$ 160.3 million, representing a payout of 95%.
We recorded important achievements in the year
in which Smiles rose to become an innovative
business platform. For 2014 we remain committed to
optimizing our profitability and we will work hard to
always improve our business model with effort and
transparency, following our strategic pillars and the best
corporate governance practices so as to increasingly
ensure the Company is well sustained and solid,
adding value to our customers, shareholders, partners,
employees, and stakeholders.
Leonel Andrade
Smiles S.A. CEO
Redemptions include legacy miles earned in the program before 2013.
1
5
About the report
For Smiles, the year 2013 was marked by the beginning of its independent
operation as the company managing the loyalty program of GOL Linhas
Aéreas Inteligentes and by its IPO. In this scenario and for for the first time,
Smiles S.A. presents its Sustainability Report for the year 2013, containing
information about its operations, performance, and economic, social and
environmental commitments. Our goal is to open a channel of dialogue
with all our stakeholders, including customers and investors.
This report covers the period from January 1 to December 31, 2013, and
was prepared under the guidelines of the Global Reporting Initiative (GRI), a
global and multi-sector standard that provides companies all over the world
with reporting indicators and principles.
Defining Report Content
“
By adopting the GRI, Smiles
seeks to build a channel of
multistakeholder dialogue
and give more transparency
to its operations. In addition,
this report aims to engage
its employees in important
themes on sustained business
development, serving as
a management tool that
supports the identification of
best practices to be adopted
to generate opportunities and
mitigate business risks.
“
Smiles developed a three-phase process of dialogue and engagement with
its internal and external audiences in order to define the content to be
reported based on GRI indicators material to the Company’s business:
1 - Engagement and dialogue
with the Company’s leadership
through personal interviews
to define sustainable
development material
indicators and how Smiles
manages them.
2 - Composition of the Working
Group (WG) with employees
from different areas of the
Company. Meetings with
WG members to identify and
monitor GRI indicators.
3 - Online consultation
with Smiles’ stakeholders to
define the topics that they
are most interested in
learning about related to
the Company’s management
and performance.
During the inquiry stage, the Company’s stakeholders
had the option to choose 10 among 47 topics of great
magnitude and impact as defined by GRI. The topics chosen
by Smiles stakeholders as those of greatest interest for
reporting were as follows:
Relevance
2.5
2
1
3
2.0
4 to 6
7
1.5
10
9 and
8
Materiality
1.0
0.5
0
0.5
High
1.0
1.5
Low
»
1: Economic performance
»
2: Market presence
»
3: Marketing communications on the Company’s services
»
4: Job creation
»
5: Training and education
»
6: Customer Privacy
»
7: Indirect economic impacts
»
8: Environmental protection expenditures and investments
»
9: Corruption
»
10: Use of materials
2.0
2.5
7
Lorem ipsum sit amet dolor
01.
Company’s
Profile
01.
Company’s Profile
Smiles
Smiles S.A. is one of the largest
multi-loyalty programs in Brazil with
more than 9.7 million participants
in 2013. Created 20 years ago
(in 1994) as part of the marketing
department of Varig, later acquired
by GOL, in 2013 Smiles became
an independent company to
exclusively manage, administer,
and operate the Smiles Program.
With a business model based
on developing a single platform
for mileage accrual and
redemption, Smiles has built an
extensive and diverse network of
business and financial partners
comprised of over 215 companies,
and the number of participants
continues to increase.
Aerolíneas Argentinas. In addition,
participants in the Smiles Program
can also earn miles with retail
partners and major Brazilian banks.
The Smiles Program allows
members to accrue miles on GOL
flights, which is the Company’s
leading airline partner and exclusive
in the domestic civil aviation
industry, as well as on flights of its
international partners such as Delta
Air Lines, Air France, Iberia, KLM,
and Qatar Airways, which together
cover more than 560 destinations
around the world. Beginning
in 2014, Smiles will also have a
new international airline partner,
Easy to
Accrue
Miles
The goal of the Smiles Program is
to offer its users all the benefits
of their routine purchases and
activities in a single program.
This enables consolidated accrual
of miles and broader opportunities
of redemption, meeting the
different demands that
participants may have.
Easy to
Redeem
Fly with one of the
partner airlines.
Transfer miles from
credit cards to Smiles.
Accruing and
redeeming miles
Issue tickets with Smiles partners
and fly to over 560 destinations
in Brazil and world-wide.
$
Fly with 2,000 miles using
Destino Surpresa (Surprise
Destination) and Milhas
Reduzidas (reduced Miles).
Use Smiles’ credit
card and transform
purchases in miles.
Buy products and services
form Smiles Shop where you
can find great brands.
Buy products and services
form Smiles partners.
Paypal with Miles.
This option connects you
with thousands
of purchase options.
9
To get to know the partners of the Smiles Program where you can earn
miles and redeem products or services, go to:
http://www.smiles.com.br/en/earn-miles/
partner-airline-companies.aspx
foreign
exchange
credit card
entertainment
parking lot
hotels
car rental
e-commerce
publications
and courses
restaurants
others
“
In 2013 Smiles agreed on a
strategic partnership with PayPal,
a worldwide leader in online
payment solutions, enabling
miles accrued in the program
to be transformed into a virtual
prepaid card to be used as
payment on all PayPal partners.
This extends the use of mileage to
purchases in countless segments
around the world.
“
Smiles Products
»
»
Smiles & Money: makes it
possible to redeem air tickets
using both miles and cash.
The Smiles & Money ticket
was created for participants
who want to travel with a low
number of miles.
Smiles Club: with a monthly
fee of R$30 charged to their
credit card, the participants
can become members of the
Smiles Club and have unique
advantages such as accruing
1,000 miles every month
with additional expiration
date, access to promotions
in advance and progressive
bonuses with the transfer of
points from banks and credit
card partners.
»
Mileage Purchase: customers
can complete their balance
to redeem air tickets or prizes
at Smiles Shopping through
the purchase of 1,000
to 40,000 miles.
»
Expired Mileage Reactivation:
this feature in the Smiles
Program allows participants to
reactivate expired miles.
»
Mileage Transfer: this product
allows for the transfer of miles
between Smiles accounts.
This way participants can
complete their own balance
or the balance of another
person they choose.
“
With its restructuring in 2013, the
Company invested in developing
innovative products and in the
infrastructure necessary for
building new partnerships
and an increased portfolio.
Investments were also made in
new redemption options and
technology - in the Smiles Club
for example - creating value for
customers and shareholders.
“
Timeline
A study begins on the possibility
of making the Smiles Program an
independent business unit
On January 1, Smiles S.A. takes on
the operations of the Smiles Program
and on April 29 its shares begin to
be traded on the Novo Mercado
segment of BM&FBovespa
2010
Siebel system goes online on the
Program’s website with a better
targeting of functionalities and
usability. Mileage accrual and upgrade
rules are changed so that participants
can make better use of them
2008
The Smiles Program is completely
restructured by GOL, introducing
the mileage accrual and redemption
for GOL flights
2006
The mileage expiration date is changed
from the last day of the year to the
month of the client’s registration
1994
Launching of the Smiles Relationship
Program by Varig Airlines whereby the
relationship with the customers was
carried out by the VClub
2012
Mileage earning begins to be based
on the Family of Fares. Partnerships
with international airlines and rewards
for routes beyond South America
are resumed. Furthermore,
the Program establishes co-branded
card partnerships with
Bradesco and Banco do Brasil
2009
Gol Linhas Aéreas
Inteligentes acquires
Varig Linhas Aéreas and with
it the Smiles Program
2007
The program establishes
co-branded card partnerships with
banks Unibanco and Santander
2013
1997 to
2000
11
Strategy and competitive advantages
Strategy
In essence, Smiles seeks to consolidate a
partnership and relationship program with unique
characteristics that provide a single platform with
a centralized cost structure and administration,
Retail
Smiles has worked at diversifying the choices to redeem
miles for rewards other than airline tickets. To this end,
it has developed relationships with commercial partners
focused on low-cost consumer products, aligning new
forms of redemption so as to increase even more
participant access and redeemed mileage. Regarding
miles accrual, Smiles seeks partnerships with several key
e-commerce partners and partners such as gas stations,
drug stores, and other businesses with high frequency
purchases in the day-to-day life of our customers.
The management of Smiles remains focused on
developing alliances with key partners in the retail
segment. To complement its strategy, Smiles acquired
a 25% stake in the control of Netpoints, a loyalty
company specializing in retail with over 100 physical
points of sales including supermarkets, gas stations,
drugstores, perfume stores, pet shops, among others.
The investment in Netpoints strengthens Smiles in its
pursuit of leading the loyalty sector in Brazil and ensures
a unique position to foster and capture the growth
potential of this market, further strengthening the
relationship with its customers.
generating operational and managerial efficiency
for its partners. To this end, the Company
has four strategic pillars in order to ensure the
sustainability of its business:
Customers
To increasingly promote the engagement of
the public with its services, the Company
is focused on customer experience through
quality and product innovation. One of
the initiatives in this context is the Smiles
Club, a club of advantages focusing on
the end consumer—with a monthly fee of
R$30 consumers have a number of unique
benefits, reinforcing the premise “We do
everything for you to travel”.
Airline partners
The Company’s main partners for
redeeming rewards are GOL Linhas
Aéreas Inteligentes and its international
partner airlines. The Company is fully
aligned with GOL, its exclusive partner
in the Brazilian civil aviation market,
and aims to expand its operations with
international rewards through GOL’s own
partner airlines such as Delta Air Lines,
Air France, Iberia, KLM, Qatar Airways,
and shortly Aerolineas Argentinas.
Financial partners
Smiles has partnered with all major
banks in the country, which are
responsible for most of the miles
accrued with the Company. The
agreements with financial partners
seek to generate a win-win relationship
in which differentiated products and
campaigns are developed according to
the profile of each audience.
Competitive advantages
Even though 2013 was the first year Smiles operated as
an independent company, in practice Smiles has a track
record and tradition of almost 20 years of experience
earned through its solid strategies that have resulted
in the following advantages:
»
»
»
Exclusive relationship with GOL and its international
airline partners: this partnership results in several
benefits for Smiles since GOL has a 38.7% market
share in the Brazilian domestic market and operates
about 910 flights per day to 65 destinations in
10 countries in South America, the Caribbean,
and the United States. Furthermore, through its
international airline partners, Smiles covers more
than 560 destinations around the world. The
Company believes that GOL’s pioneering quest to
expand the access to transportation in the country
and its strategic partnerships with international
airlines can help bring more members
to the loyalty program.
Independence in managing the Smiles Program with
an efficient reward pricing model: the commercial
relationship between Smiles and GOL allows
for unrestricted access to seat occupancy at
extremely competitive prices with independence
for mileage pricing from Smiles. This edge
provides greater flexibility to deal with adverse
circumstances that may affect the program’s
competitiveness or profitability.
Exposure to growing sectors: Smiles believes that
its partnership with GOL and with the financial
institutions that offer air ticket rewards contribute
to the growth of the loyalty industry. In addition,
miles can be accrued in the retail sector. In this
context, the expansion of the network for mileage
accrual is part of Smiles’ coalition model and aims
to also benefit participants who have not accrued
enough miles. For commercial partners, this
dynamics creates a cycle in which the resources
invested in loyalty return to the store through the
purchase of their own products as rewards. This
way the Company expands its market and takes
advantage of a scenario of increased income, social
mobility, and growth in sectors in the industry.
»
Attractive value proposal: the Smiles Program is
very simple in how it works and its characteristics
due to the ease of access and use of the website,
its clear rules for a fast accrual of miles in a single
loyalty program, its quality customer service
channels, and its comprehensive network of flights
and partners for redeeming rewards.
In addition, the Company has products such as
Smiles & Money that lets you combine cash and
miles to redeem tickets along with a number of
other benefits for its participants such as dynamic
reward ticket pricing, a simple and fast redemption
process, a single communication channel, the
possibility of redeeming tickets up to 330 days
in advance, ticketing directly through the Smiles
website, longer mileage expiration in comparison
with competitors, among other benefits.
»
Significant participants base with high growth
potential: with 9.7 million members at the end
of 2013, Smiles believes that its solid base is very
attractive for its current and potential business
partners seeking to increase their visibility
with their customers.
»
A profitable and resilient business model with
strong cash generation: The Smiles business model
is based on high operating margins, a negative
working capital, and low investment needs.
13
02.
Corporate
Governance
02.
Corporate Governance
Capital market
Smiles held its IPO in 2013 and since then its shares have been listed for
trading on the Novo Mercado segment of BM&FBovespa under ticker
SMLE3. The Company’s capital consists of 122,173,912 common shares
with a market cap of R$4.1 billion (as of 3/1/2014).
Shareholding as of 12/31/2013
Ownership Structure
SMLE3 ON
%
Controlling Shareholder
70,000,000
57.3%
70,000,000
57.3%
52,173,912
42.7%
General Atlantic
18,433,180
15.1%
Others
33,740,732
27.6%
122,173,912
100.0%
GOL Linhas Aéreas Inteligentes
Market - Free Float
Total
Smiles strives to have a transparent relationship with stakeholders and
shareholders, especially with regard to information on its management
principles and performance. With this objective, the Company keeps to
the following corporate governance practices:
»
BM&FBovespa’s Novo Mercado: the Company has been listed on the
Novo Mercado since its IPO. This segment upholds the highest level of
corporate governance practices, and has higher reporting requirements
in relation to those already imposed by the Brazilian law.
»
Code of Ethics: the Company’s Code of Ethics is available on its
institutional website (www.eticanasmiles.com.br), on the Investor
Relations website (www.smiles.com.br/ri), and filed with the Securities
Commission - CVM (www.cvm.gov.br). It applies to all employees and
contains the Smiles values and culture, strengthening the Company’s
commitment to professionalism and transparency in business.
“
The communication channels
of the Ethics Committee
include a dedicated phone
line to receive reports and
inquiries of a confidential
nature. Furthermore, the report
will be received by an external
and independent company
that ensures the integrity
and strict confidentiality
through the website
www.eticanasmiles.com.br.
“
15
Moreover, so that everyone complies with the ethical
standards established in the Code, the Company has
an Ethics Committee composed of Human Resources,
Legal, Internal Audit, and Compliance leaders.
Reporting directly to the Smiles CEO, this Committee
holds regular meetings and is responsible for evaluating
any violation of the Code of Ethics and for clarifying
questions and ethical dilemmas, promoting employee
commitment to the Code through lectures
and awareness events.
»
Smiles S.A. Securities Trading Policy: this Policy
aims to regulate transactions with Company
shares, establishing appropriate trading practices,
restrictions, and permissions, which must be
observed by the Company itself, its controlling
shareholders (direct and indirect), managers,
tax advisors, members of Company bodies with
technical and advisory functions, as well as Smiles
employees and executives.
»
Disclosure Policy: to comply with its commitment
to transparency, the Company has a Disclosure
Policy that establishes Smiles’ duty to passing on
relevant information on its business as appropriate.
It sets out reporting obligations and mechanisms
to ensure compliance with current legislation and
regulations and to disseminate the information to
all audiences simultaneously and without privileges.
Also in this respect, it should be pointed out
that the Legal Department analyzes legal risks
for the Company with a focus on protecting
the corporation, its partners, directors,
stakeholders, and assets, always acting
according to ethical principles for all parties
involved in the business relationship. No case of
corruption was confirmed in 2013.
17
Management
Board of Directors
The Board of Directors is primarily responsible for
general guidelines - strategic and targets - regarding
the Company’s business, electing the Company’s
directors and setting their compensation, besides
supervising their activities.
Currently, the Board consists of seven members elected
at the General Meeting that have a term of one year
and they may be reelected. The Board meets every
quarter, or whenever necessary, and meetings are
called by the Chairman or by any two other members.
Members of the Smiles Board of Directors in 2013
Board Members
Title
Date of election
End of term office
Chairman
04/30/2014
1 Year
Henrique Constantino
Board Member
04/30/2014
1 Year
Joaquim Constantino Neto
Board Member
04/30/2014
1 Year
Ricardo Constantino
Board Member
04/30/2014
1 Year
Boanerges Ramos Freire
Independent Board Member
04/30/2014
1 Year
Marcos Grodetzky
04/30/2014
1 Year
Martín Emiliano Escobari Lifchitz
04/30/2014
1 Year
Constantino de Oliveira Junior
Executive Board
This board is responsible for coordinating and
supervising the Company’s activities. It may have
between two and five members elected by the Board of
Directors for a term of one year, with the right to
re-election. The two current directors have the necessary
experience for dealing with the businesses at Smiles.
Members of Smiles Board of Executive Officers in 2013
Directors
Title
Start of term office
Chief Executive Officer
02/22/2013
Chief Financial Officer and Investor Relations Officer
02/22/2013
Leonel Dias de Andrade Neto
Flavio Jardim Vargas
Fiscal Council
Responsible for supervising Management activities,
reviewing the Company’s financial statements, and
reporting its findings to shareholders, the Fiscal Council,
pursuant to the Brazilian Corporate Law, is a corporate
body that is independent from Management and the
external auditors. In the case of Smiles, its Bylaws
provide for a non-permanent Fiscal Council elected
only at the request of the Company’s shareholders at
a general meeting. Smiles currently does not have a
Fiscal Council installed.
Risk management
Smiles continuously identifies and monitors the
risks it is exposed to and that can directly affect the
sustainability of the business, noting in its management
and strategic planning initiatives and operational
guidelines that seek to mitigate their possible impacts.
The main risks observed are presented below:
• Risk: high dependence on commercial partners
- As these partnerships represent a significant portion
of Smiles’ revenues, the disruption of the business
relationship or the occurrence of events that affect the
results of the partners may affect Smiles’ performance.
Such impact may result in the termination of contracts
and changes in reward policies, for example.
Management and mitigation: the Company relies on the
implementation of its strategy to expand its operations
and partnerships in the retail segment so as to lower
the concentration and dependence on their sources
of revenue, and on the implementation of a policy for
longer contracts with stricter termination clauses.
• Risk: possible database security failure - the Company
has a database with information on customers who
have been registered as participants of the Smiles
Program. Failures in safety procedures can affect the
integrity of its database, resulting in the possible
misuse of such information. In addition, the Company
lose data in the call center service either due to fire,
power failure, fraud, among others, and the quality of
its services is entirely dependent on its ability to store,
retrieve, process, and manage large amounts of
data 24 hours a day, seven days a week.
Management and mitigation: to reduce these
possibilities of impacts, the Company continually
invests in technology, using the best systems
and suppliers available.
“
As it deals with personal information
from its customers on a daily basis,
Smiles is concerned with the privacy and
security of this information. To ensure
data privacy and security, the Company
has taken the following precautions:
- On the client side, the Company’s
website undergoes regular invasion
tests throughout the year in order to
detect and correct potential security
flaws. Furthermore, Smiles constantly
improves the security mechanisms for
transactions such as ticketing, product
purchasing, password requests, etc.
- As for servers and infrastructure, all
data from Smiles customers are kept in
professional storage facilities in Data
Centers with international certification
on security, failure protection, and
business continuity in crises. At these
locations, physical access is controlled
and remote access is not allowed.
- From the perspective of Smiles
employees, all computers have
virus protection, the entire network
is protected by firewalls managed
by specialized companies, access
is segregated in accordance with
the employee’s usage profile, and
authorizations follow an approval flow.
“
• Significant changes in laws and regulations:
Smiles’ business is subject to a great variety of laws
and regulations regarding labor, taxes, trade, and on
the client side, confidentiality, among other issues
Changes in such laws and regulations could impact the
Company’s dynamics. Likewise, changes in laws and
regulations related to the airline industry may also
cause an impact since most of the mileage is
redeemed as GOL tickets.
Management and mitigation: the Company’s legal
department keeps up-to-date on the legal and political
movements in the country in order to learn about
possible changes in advance to try to minimize the
impacts, bringing the interests of Smiles before
the competent bodies or adapting to the changes so
that the impact is as low as possible.
• Risk: increased mileage redemption - if this situation
occurs, the costs related to the mileage redemption
may increase beyond expectations and adversely affect
the Company since its primary operating cost is the
purchase of products for the delivery of rewards to
participants, and also considering the fact that its result
depends in part on the number of unredeemed
expired miles (breakage).
Management and mitigation: Smiles seeks to neutralize
the decrease in breakage by adopting and improving a
rational pricing policy for miles sold to its commercial
partners and the pricing of the rewards given so as to
match costs and revenues and avoid increases
beyond expectations.
19
• Risks: economic fluctuations in the market - variations
in the exchange rate, interest rates, inflation and others
can happen through interventions in the Brazilian
economy by the Federal Government and thereby
impact the financial performance of the business.
Management and mitigation: in relation to the foreign
exchange risk, the Company can adopt strategies to
hedge its cash flow against the appreciation and/or
depreciation of the dollar by using dollar derivatives
or contracting costs pegged to the dollar and, where
necessary, the Company’s Audit and Finance Committee
may submit the hedge program to the Board of
Directors. As for the interest rate risk, the Company can
adopt strategies to hedge its cash flow against lower
rates, including the DI Rate, by using derivatives.
Also in this respect, for equity hedging, the Company
can protect itself against volatility in its net income due
to an abrupt decrease in revenues linked to market
prices that may affect its competitiveness. For that
purpose, it can use financial instruments available in
the financial market for this type of hedging, such as
swaps, futures contracts, and foreign exchange options.
Additionally, transactions involving interest and foreign
currency rate hedging would be contracted through
international banks classified as low risk (ratings
averaging A+ by risk rating agencies Moody’s and Fitch).
Transactions that involve a foreign currency may also be
traded on BM&FBovespa.
03.
Economic and
Financial Performance
03.
Economic and Financial Performance
Operating Performance
The Company closed fiscal year 2013 with 9.7 million customers, an increase of 7.5% over the previous year, and
with 215 commercial partners, 10.3% more than in 2012.
Operational Data
Unit
Participants
thous.
Partnerships
Miles Accrual
Gol
Ex-GOL
2013
2012 vs. 2013 (%)
9,700
7.5%
195
215
10.3%
mn
mn
35,891
38,827
8.2%
mn
10,160
9,607
(5.4%)
25,731
29,220
13.6%
26,318
30,737
16.8%
mn
Miles Redemption (Program)
2012
9,026
#
*
Breakage Rate
%
17.9%
15.5%
(2.4 p.p.)
% New Miles
%
0.0%
47.6%
47.6 p.p.
* All values corresponding to miles are net of reimbursement effects. The data on this table do not reflect financial information.
In the period 38.8 billion miles were accrued by the participants of the Program, up 8.2% year-over-year.
Excluding miles earned from GOL, the increase was of 13.6%, totaling 29.2 billion miles earned,
showing mileage from other partners increased in the period.
Total miles Accrued
(billions of miles)
8.2%
21
Miles Accrued ex-Gol
(billions of miles)
13.6%
35.9
38.8
25.7
29.2
2012
2013
2012
2013
Regarding mileage redemption, in 2013 the Smiles Program recorded an increase of 16.8% over 2012 and an
increase of 12% in products redeemed in the period. New miles represented 47.6% of the Program’s overall
redemption in 2013.
Operational Data*
Units
2012
2013
mn
26,318
30,737
16.8%
Smiles & Money Redemption
mn
2,420
1,186
(51.0%)
Traditional (100% Miles) Redemption
mn
23,898
29,551
23.7%
mn
3,527
3,951
12.0%
Miles Redemption of the Program**
Amount of Products Awarded
2012 vs. 2013 (%)
mn
843
742
(12.0%)
mn
2,684
3,209
19.6%
* All values corresponding to miles are net of reimbursement effects. Segregation between Smiles & Money redemptions and 100% miles is not audited.
** Miles redeemed represent new and legacy miles. Data for 2012 was not audited.
Breakage Rate
(last 12 months)
Miles Redemption
(Program)
(billions of miles)
16.8%
33.1
%
25.6
%
22.3
%
1Q12
2Q12
3Q12
17.9
%
4Q12
17.5
%
16.3
%
15.2
%
15.5
%
1Q13
2Q13
3Q13
4Q13
26.3
30.7
2012
2013
During the year, the breakage rate - the percentage of miles issued but not redeemed - showed a consistent
decrease, reaching 15.5% at the end of 2013, which is 2.4 percentage points lower than in the beginning of 2012
and signals the evolution of the Program’s attractiveness as perceived by the Participants in the period.
Economic-Financial performance
Summary Financial Information
Unit
2013
Gross Billings 1,2
R$ mn
1,008.0
914.0
10.3%
R$ mi
124.6
134.1
(7.1%)
Partners ex-GOL
R$ mi
646.0
584.2
10.6%
Smiles & Money
R$ mi
237.4
195.7
21.3%
Net Revenues
R$ mi
573.3
-
-
Net Revenues (ex-Breakage)
R$ mi
505.9
-
-
Gross Profit
R$ mi
269.3
-
-
%
47.0%
-
-
R$ mn
180.2
-
-
GOL (miles+ management fee)
Gross Margin
Operating Profit
Operating Margin
Net Profit
20122
2012 vs. 2013 (%)
%
31.4%
-
-
R$ mn
207.8
-
-
%
36.3%
-
-
Net Margin
Gross Revenues
Operating Cost
In 2013, the Company’s gross revenues totaled
R$1 billion, up 10.3% year-over-year due to increased
revenues from Smiles & Money by 21.3% and from
partners (not including GOL) by 10.6%.
The cost from the services provided by Smiles in
2013 was R$304 million and includes the costs listed
in the table below:
Sales Revenue
Gross revenue from mileage redemption totaled
R$632.2 million in 2013, and was made up of the
revenue sources presented in the following table.
Net revenue for the year totaled R$573.3 million.
Revenues (R$ thousands)
Gross revenues
2013
632,171
Operational Costs (R$ thousands)
Cost of Redemptions
Cost of Ticket Purchase
2013
(304,004)
(293,348)
Traditional Gol Tickets
(163,434)
Smiles&Money
(115,696)
Partners ex-Gol
(14,218)
Cost of Product Purchase
(2,010)
Other Costs
(8,646)
Miles Redemption Revenue
307,499
Operating expenses
Money Revenue
237,434
In 2013, operating expenses totaled R$89.2 million
- R$51.5 million in selling and R$37.7 million in
administrative expenses - composed mainly of
expenditures with advertising activities, provision
for profit sharing, and with sales.
Breakage Revenue
74,317
Other Revenues
12,921
Direct Taxes
(58,825)
Net Revenue
573,346
23
Financial income
Financial income in 2013 was mainly composed of discounts obtained of
R$114.9 million and of revenue of R$14.6 million from gains with financial
investments, totaling R$129.7 million.
Net income
Smiles closed its first year of operation with net income of R$207.8 million
and a margin of 36.3%.
Distribution of value added
In 2013 the value added distributed by the Company totaled R$371 million
and was used as follows:
Distribution of value added
in 2013 (R$ million and %)
27.8;
1; 8%
0%
49.4;
13%
Personnell
134.3;
36%
Taxes and
social contributions
Funders
Interest on own capital
and dividends
148.1;
40%
Legal reserve
10.4;
3%
Proposed additional
dividends
25
Indirect economic impacts
Because it is a pure coalition program that offers
earning miles through several partners from different
segments, Smiles promotes a positive impact on
the chain it operates in - both for customers and
commercial partners - reflecting across the entire
loyalty industry through the following attributes:
»
Coalition Power: as stated earlier, Smiles customers
can earn points from various commercial partners
through the miles coalition. In contrast,
the program would not have the same relevance
and loyalty value added if mileage was
accumulated individually.
»
Economy of Scale: by rewarding its customers with
Smiles mileage, the Company’s commercial partners
benefit from an economy of scale since they do
not have to develop a technology platform, select,
purchase, and deliver reward products and services,
which means that the partner retains customer
loyalty strategic decisions without worrying about
the operation.
»
GOL Partnership: it is important to note the
resulting economic effect from the partnership
with GOL, which represented 25% of the miles
earned and 91% of the miles redeemed through
Smiles in 2013. On the other hand, Smiles
contributed positively to GOL’s load factor and
margin because it brings additional passengers,
paying at least the cost of their transportation,
increasing flight efficiency.
04.
People
Management
04.
27
People Management
Employee Profile
In 2013, its first year of operation as an independent company,
Smiles set up its staff, closing the year with 68 professionals.
Smiles Employees Profile in 2013
Employees by employment
contract (total and %)
6;
8%
4;
5%
CLT
8hs
Trainees
6hs
Outsourced
3;
5%
1;
1%
Third parties
3;
4%
62;
94%
63;
83%
Employees by color/race
(total and %)
20;
30%
45;
68%
Employees by employment
type (total and %)
1;
2%
4hs
Employees by category
(total and %)
6;
9%
Brown
Black
White
Executive
Manager
7;
11%
Operational
(other levels)
53;
80%
Employees by
education level (total and %)
1;
1%
8;
12%
Employees by
age bracket (total and %)
1;
1%
2;
3%
Incomplete university
University
5;
8%
Up to 18
18 to 35
Post graduate
36 to 45
High school
46 to 60
15;
23%
52;
79%
48;
73%
Turnover by gender:
Hirings in 2013
(total and %)
Layoffs in 2013
(total and %)
Female
Male
29;
56%
23;
44%
Female
Male
8;
38%
13;
62%
Corporate Education
Human Resources activities were carried out by GOL until the middle of
2013, and in August Smiles created its own internal HR department. From
then on the Company began to develop training and development projects.
Therefore, the table below shows the number of employees trained and
training hours from August to December 2013.
Position
Number of employees trained
(in absolute numbers)
Training Hours
(total hours)
Directors
5
60
Managers
2
8
Administrative
14
140
Apprentices
1
28
Compensation and benefits
Smiles offers its employees compensation and benefits in line with market
practices, based on a survey made by the Company and subsequently
approved by the Board of Directors.
In 2013, the lowest salary paid by the Company was 3.7 times higher than
the national minimum wage for men and 4.0 times for women. As for
benefits, the Company offers its full-time employees restaurant vouchers,
health insurance, life insurance, transportation vouchers or allowance for
private transportation and discounts on miles. Smiles also has one
part-time position, a young apprentice who is entitled to the same benefits
as the others except for the allowance for private transportation.
29
05.
Social-Environmental
Management
05.
Social-Environmental Management
Environment
Since it is a service company, the environmental impacts from Smiles’
businesses come from the consumption of natural resources in its office.
Therefore, it controls its consumption in order to minimize the potential
impacts on the environment.
Use of materials
Because it does not deal with industrial processes and its loyalty process
is completely electronic for both mileage earning and redemption, Smiles
uses a very small amount of physical materials. Its only consumption for
use in its core business is the plastic of the cards for its diamond and gold
customers, which are very few in number. Consequently, not issuing cards
to all registered customers, but instead providing a digital version on the
mobile application, spared the consumption of 3.3 tons of plastic in 2013
(considering only the number of new customers registered,
not the entire base).
Furthermore, most informational bulletins and communication media
used to interact with its customers is electronic. For reward ticketing with
GOL, for example, it is possible to go through the entire travel experience
without printing a single piece of paper since ticketing is done through
Smiles’ own website, the confirmation is sent by e-mail, and the boarding
pass is made available on GOL’s mobile app.
In addition to these resources, the Company monitors its consumption of
paper and plastic cups in its office, as shown below:
Type of Material
Weight (kg)
Volume (m3)
A4 paper
135.5
0.17
Plastic Cups
111.5
0.118
Society
in 2013, the Company used a tax benefit based on the Federal Law for
Culture Incentive (Rouanet Law) in the amount of R$1 million to sponsor
Broadway’s rock-opera Jesus Christ Superstar, which is scheduled to open
in March, 2014. This way the Company seeks to direct resources that fall
under the laws of incentive to support initiatives that disseminate and
promote culture in the country.
31
06.
GRI Index
06.
33
GRI Index
GRI Index
Aspect
Indicator
Answer
G4 - EC1
Direct economic value generated and distributed in 2013
G4 - EC2
The risks and opportunities associated with
climate change only relate to Smiles’ business
partners considering that the Company has a
Risks and opportunities for the organization’s activities due to low environmental impact. For that reason the
Company tries to maintain a close relationship
climate change
with all its partners and anticipate the possible
risks and opportunities, adapting its offer and
operation as necessary.
G4 - EC3
Coverage of the Company’s defined benefit plan obligations
The Company does not offer a pension plan.
G4 - EC4
Financial assistance received from government
Complete
G4-EC5
Ratios of standard entry level wage by gender compared to local
minimum wage
Complete
G4-EC6
Proportion of senior management hired from
the local community
76.9% of directors and managers contracted
by the Company were hired locally in their
state of birth.
G4-EC7
Development and impact of infrastructure investments and
services supported
Complete and inserted
G4-EC8
Significant indirect economic impacts, including the
extent of impacts
G4-EN1
Materials used by weight or volume in the production and
packaging of the Company’s main products and services
G4-EN2
Percentage of materials used that are recycled input materials
The Company did not identify the use of
recycled materials in 2013.
Total environmental protection expenditures and
investments by type
The Company did not investment in
environmental protection measures in 2013.
Total number and rates of new employee hires and employee
turnover by age group, gender, and region
Complete
Generation of jobs G4-LA2
Benefits provided to full-time and part-time employees
Complete
G4-LA3
Return to work and retention rates after parental leave,
by gender
There was no parental leave in 2013.
G4-LA9
Average hours of training per year per employee by gender, and
by employee category
Complete
G4-SO3
Total number and percentage of operations assessed for risks
related to corruption and significant risks identified
G4-SO4
Communication and training on anti-corruption
policies and procedures
G4-SO5
Confirmed incidents of corruption and actions taken
Marketing
Communications
G4-PR6
Products and services offered by the Company banned in
certain markets and/or disputed by stakeholders, and the
company’s response
None of the services offered by the Company
are banned in the markets it operates in.
Customer privacy
G4-PR8
Procedures to ensure customer information security and total
number of substantiated complaints regarding breaches of
customer privacy and losses of customer data
There were no data loss or privacy breach
complaints in 2013.
Economic
performance
Market presence
Indirect economic
impacts
Use of materials
Investments in the
G4-EN31
environment
G4-LA1
Training and
education
Corruption
Complete
07.
Financial
Statements
07.
35
Financial Statements
Management Report
Message From Management
2013 was a year of solid growth for Smiles in the Brazilian customer loyalty market. We successfully held an IPO
on the BM&FBOVESPA (SMLE3), having registered an upside of around 50% in our first year as an independent
company running the loyalty program of GOL Linhas Aéreas Inteligentes (GOL). We launched innovative products
(including Clube Smiles (Smiles Club), miles purchase, reactivation of expired miles and miles transfer, among others)
and strengthened our ties with key financial and commercial partners. We consolidated our business plan, oriented
by strategic guidelines and being client-focused.
In the fourth quarter, we posted a record net profit of R$66,7 million (net margin of 35.6%), reflecting the attractiveness
of our program and our asset light business model. In 2013, we recorded gross billings of R$1,0 billion and net profit
of R$207,8 million.
Another milestone in the development of our platform was the partnership established with PayPal, a global leader
in online payment solutions. Smiles pioneered this type of transaction, allowing its clients to transform miles accrued
in the Program into a pre-paid virtual card to be used as means of payment in any transaction with PayPal’s partners.
With only four months operating independently, we anticipated the payment of R$37,1 million as Dividends and
Interest on Equity (IOE). Additionally, on February 4, 2014, we proposed the payment of complementary dividends
worth R$160,3 million, totaling a compensation of R$197,5 million for 2013 and representing a payout of 95%. We
closed the year with a cash flow of R$382.7 million, including financial investments.
In December 2013, we merged with G.A. Smiles Participações S.A. in a transaction that generated goodwill of R$214.5
million and tax incentives worth R$72.9 million, the latter to be captured over the next five years from 2014 onwards.
We have made important achievements in 2013, having transformed the Smiles program into an innovative business
platform. We remain enthusiastic about the opportunities in our segment and we are strongly committed to executing
our business plan in compliance with best corporate governance practices.
This year, Smiles went back to the media, with the slogan “Quem vai com Smiles, volta sorrindo” (“Who goes with
Smiles comes back smiling”), underpinning the advantages of the differentiated products offered.
We would like to thank everyone who contributed to our initial success and we reinforce Management’s commitment
to maintaining profitability and attractiveness of the program.
Management Report
>> Comments on Performance
Operating Performance
Operational Data 1
Unit
Participants
Partnerships
Miles Accrual2
Gol
Ex-GOL
Miles Redemption (Program)
Breakage Rate
% New Miles
4Q13
3Q13 4Q122
thous. 9,700 9,527 9,026
#
215
215
195
mn 10,795 10,170 7,937
mn 3,084 2,427 2,234
mn 7,711 7,743 5,703
mn 7,691 8,684 7,027
% 15.5% 15.2% 17.9%
% 63.2% 54.2% 0.0%
4Q13 vs. 4Q13 vs.
3Q13 (%) 4Q12 (%)
2013
20122
2012 vs.
2013 (%)
1.8%
7.5% 9,700 9,026
7.5%
0.0%
10.3%
215
195
10.3%
6.1%
36.0% 38,827 35,891
8.2%
27.0%
38.0% 9,607 10,160
(5.4%)
(0.4%)
35.2% 29,220 25,731
13.6%
(11.4%)
9.5% 30,737 26,318
16.8%
0.3 p.p. (2.4 p.p.) 15.5% 17.9% (2.4 p.p.)
9.0 p.p. 63.2 p.p. 47.6%
0.0% 47.6 p.p.
All amounts corresponding to miles are net of refund effects.
1
Accrual of miles for 2012 refers to the Smiles Program, while from 2013 on it refers to Smiles S.A. 2012 data
is not audited.
2
Members: The number of members of the Smiles program grew by 7.5% and 1.8% over 4Q12 and 3Q13, respectively,
reaching 9,7 million clients at the end of 4Q13.
Partnerships and products: Growth of 10.3% in 4Q13 compared with 4Q12, totaling 215 commercial partners on
December 31st, 2013.
It is worth noting the partnership established with PayPal in 4Q13, which allowed Smiles’ clients to redeem miles in
a pre-paid virtual card to be used as means of payment with any PayPal network partner. PayPal is the world’s most
widely used online means of payment, with more than 132 million users registered.
Total Miles Accrued*
(billions of miles)
36.0% 36.0%
8.2% 8.2%
35.9
7.9
7.9
10.8
Milles Accrued ex-GOL*
(billions of miles)
35.9
38.8
13.6% 13.6%
35.2% 35.2%
38.8
10.8
4Q12 4Q12
4Q13 4Q13 2012 2012
2013 2013
*Graphics’ numbers reflect the miles net of refund effects
25.7
5.7
5.77.7
25.7
29.2
29.2
7.7
4Q12 4Q12
4Q13 4Q13 2012 2012
2013 2013
37
Management Report
Accrued Mileage: It is worth mentioning the strong growth of miles accrued by ex-GOL partners, up 35.2% over
4Q12. There was also a strong promotion with GOL in the quarter, causing miles accrued by GOL to increase 38.0%
over 4Q12.
Mileage Redemption: The number of redeemed miles increased by 9.5% over 4Q12. As a percentage of the program’s
total mileage redemption, new miles grew from 54.2% in 3Q13 to 63.2% in 4Q12.
Operational Data 1
Units
Miles Redemption of the Program 2
Amount of Products Awarded
Average Miles per Product
4Q13
mn 7,691
mn
327
mn 7,364
mn
898
mn
211
mn
687
# 8,563
# 1,548
# 10,719
3Q13
4Q122
8,684 7,027
320
631
8,365 6,396
1,080
755
178
193
902
562
8,043 9,302
1,795 3,267
9,277 11,376
4Q13 vs. 4Q13 vs.
3Q13 (%) 4Q12 (%)
(11.4%)
2.3%
(12.0%)
(16.8%)
18.6%
(23.8%)
6.5%
(13.7%)
15.5%
20122
2012 vs.
2013 (%)
9.5% 30,737 26,318
(48.2%) 1,186 2,420
15.1% 29,551 23,898
18.9% 3,951 3,527
9.3%
742
843
22.2% 3,209 2,684
(7.9%) 7,780 7,461
(52.6%) 1,599 2,870
(5.8%) 9,209 8,903
16.8%
(51.0%)
23.7%
12.0%
(12.0%)
19.6%
4.3%
(44.3%)
3.4%
2013
All figures corresponding to miles are net of refund effects. Segregation between traditional and Smiles & Money
data was not audited.
2
The mileage redemption figures represent redemptions of new and legacy miles. 2012 data is not audited.
1
Miles Redemption
Program*
(billions of miles)
9.5%
9.5% 16.8%
Breakage Rate
(last 12 months)
16.8%
33.1
%
26.3
7.0
4Q12
7.7 7.0
30.726.3
25.6
%
30.7
2013
25.6
%
22.3
%
7.7
4Q13
4Q122012
4Q1320132012
33.1
%
1Q12
22.3
17.9 % 17.517.9 16.317.5 15.216.3 15.515.2
% % % % % %
%
%
%
1Q133Q13
2Q121Q123Q12
2Q124Q123Q121Q13
4Q122Q13
2Q134Q13
3Q13
*Graphics’ numbers reflect the miles net of refund effects
Breakage: The breakage rate stood at 15.5% in 4Q13, a 0.3 p.p. increase over 3Q13.
1
4
Management Report
>> 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) revenue from miles redeemed, 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) expired miles 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 accrued miles in a given period.
Free Float - Shares owned by non-controlling shareholders.
Legacy miles - Miles accrued before the Program’s spin-off
Miles - The redemption rights of Members of the Smiles Program sold to Business Partners.
New miles - Miles accrued after the Program’s spin-off.
Payout - percentage of net profits distributed 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.
Spin-off - corporate separation of the Smiles Program into Smiles S.A., which took place on January 1, 2013.
Comments on Managerial Projections’ Behavior
Up to the date of this Financial Statement, the Company did not disclose any projections or estimates of any kind,
operational, technical, administrative or financial.
Capital Budget Proposal: Up to the date of this Financial Statement, we did not have any ongoing investments in the
Company. Furthermore, the Company intends to invest operationally in the future to update its website and improve
its electronic platform of miles accrual and redemption.
Opinions and Statements/Statement of the Directors on the Financial Statements: In compliance with the requirements
of CVM Instruction 480/09, the Board states that it has discussed, reviewed and agreed to the financial statements
for the fiscal year ended on December 31, 2013.
Opinions and Statements/Statement of Directors on the Independent Auditors Report: In compliance with the
requirements of CVM Instruction 480/09, the Board states that it has discussed, reviewed and agreed with
the opinions expressed in the report of the independent auditors for the fiscal year ended on December 31, 2013
39
Balance Sheets
As of December 31, 2013 and 2012
(In thousands of Brazilian Reais - R$)
Assets
Note
12/31/2013
12/31/2012
3
4
5
6
7
154,243
228,489
49,637
351,403
418
105
48,990
831
834,116
–
–
–
91,808
–
70
–
–
91,878
7
6
77,308
1,031,423
1,137
166
1,110,034
1,944,150
–
–
–
–
–
91,878
Note
12/31/2013
12/31/2012
Current liabilities
Accounts payable
Salaries, wages and benefits
Dividends payable
Tax obligations
Advance from customers
Deferred revenue
11
16
12
13
14
16,094
14,849
12,247
13,502
167,759
119,669
344,120
70
–
–
–
91,808
–
91,878
Noncurrent liabilities
Advance from customers
Lawsuits provisions
Deferred revenue
13
15
14
3,645
104
267,225
270,974
–
–
–
–
1,132,174
(36,402)
72,942
10,392
148,102
1,848
1,329,056
1,944,150
–
–
–
–
–
–
–
91,878
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Advances to suppliers
Recoverable taxes
Prepaid expenses
Related-party transactions
Other credits
Noncurrent assets
Deferred taxes
Property, plant and equipment
Intangible
8
Total Assets
Liabilities
Shareholder’s equity
Issued capital
Cost of issued shares
Capital reserves
Statutory reserves
Proposed additional dividends
Share-based payments
Total Liabilities and Equity
16
9
The accompanying notes are integral part of these financial statements.
Statement of Profit or Loss
For the Year Ended December 31, 2013
(In thousands of Brazilian Reais - R$, except basic/diluted loss per share)
Note
12/31/2013
Net revenues
17
573,346
Cost of services rendered
18
(304,004)
Gross Profit
269,342
Operating Expenses
(89,171)
Selling expenses
18
(51,452)
General and administrative expenses
18
(37,719)
Earnings Before Interest and Taxes
180,171
Financial Income
19
129,704
Financial expenses
19
(146)
Exchange variation, net
19
(331)
129,227
Earnings Before Taxes
309,398
Current income tax expenses
7
(87,167)
Deferred income tax expenses
7
(14,387)
Net Income
207,844
Basic EPS
10
1.969
Diluted EPS
10
1.966
Statement of Comprehensive Income
12/31/2013
Profit for the Period
207,844
Other Comprehensive Income
–
Comprehensive Income for the period
207,844
Total comprehensive income for the period
207,844
41
Statement of Changes in Equity
Capital
reserve
Note
Begin of Period Balance
Special
Additional Expenditures
Share
Capital reserve of
Legal dividend with issuance
based Retained
stock goodwill reserve proposed
of shares payments earnings
Total
–
–
–
–
–
–
–
Capital increase on May 2, 2013
16 1,006,377
–
–
–
–
–
– 1,006,377
Capital increase on May 10, 2013
16
125,797
–
–
–
–
–
–
125,797
Expenditures with issuance
of shares
16
–
–
–
–
(36,402)
–
–
(36,402)
Share based payments
9
–
–
–
–
–
1,848
–
1,848
Net assets incorporated
1
72,942
–
–
–
–
13
72,955
–
–
–
–
–
– 207,844
207,844
Net profit for the period
–
Legal reserve
16
–
– 10,392
–
–
– (10,392)
–
Mandatory dividends payable
16
–
–
–
–
–
– (12,247)
(12,247)
Anticipated payment of dividends
and interest on capital
16
–
–
–
–
–
– (37,116)
(37,116)
Additional dividends proposed
16
–
–
–
148,102
–
– (148,102)
–
72,942 10,392
148,102
(36,402)
End of Period Balance
1,132,174
1,848
– 1,329,056
Statement of Cash Flows
For the Years Ended December 31, 2013 and 2012
12/31/13
12/31/12
207,844
–
1,516
–
Profit for the period
Adjustments to Reconcile the Net Income and Operating Cash Flow
Shared-based payments
14,387
–
Provisions for contingencies
104
–
Depreciation and amortization
130
–
(112,832)
–
Exchange and monetary variations, net
305
–
Allowance for doubtful accounts
932
–
13,408
–
125,794
–
(50,569)
–
(1,178,187)
(91,808)
(35)
(70)
(833)
–
(48,658)
–
15,305
70
1,441
–
79,596
91,808
386,894
–
75,364
–
(593,888)
–
(80,615)
–
(674,503)
–
(1,434)
–
Financial investments
(228,489)
–
Cash Flow from Investing Activities
(229,923)
–
Capital increase
1,132,174
–
Cost of issuance of shares
(36,402)
–
Dividends and interest on capital paid in advance
(37,116)
–
13
–
1,058,669
–
154,243
–
Cash and cash equivalents at begin of the period
–
–
Cash and Cash Equivalents at End of the Period
154,243
–
Deferred taxes
Obtained discounts
Provision for profit sharing and results
Adjusted Net Profit
Changes in Assets and Liabilities
Accounts receivable
Prepaid expenses
Other credits
Suppliers
Salaries, wages and benefits
Advances from customers
Deferred revenue
Taxes payable
Cash Flow from Operating Activities
Income tax paid
Cash Flow from Operating Activities, net of Income Taxes
Investing Activities
Acquisition of fixed assets
Incorporated cash of G.A. Smiles Participações
Cash Flow from Financing Activities
Net increase in cash and cash equivalents
43
Statement of Value Added
12/31/13
Revenues
Sales of goods, products and services
Other operating income
619,250
12,921
(295)
Acquired from Third Parties
Cost products, goods and services sold
(324,050)
Materials, energy, third party services and other
(37,895)
Sales and advertising
(28,483)
Gross Value Added
241,448
Retentions
Depreciation, amortization and exhaustion
Net Added Value Produced by the Company
(130)
241,318
Value Added Received in Transfer
Financial income
129,704
Total Value Added for Distribution
371,022
Value Added Distribution
27,857
Employees
134,277
Taxes
Return on third party capital
1,044
Interest on capital and dividends
49,363
Legal reserve
10,392
Additional dividend proposed
148,089
Total Added Value Distributed
371,022
Notes to the Consolidated Financial
Information for the Years Ended on December 31, 2013 and 2012
(In thousands of brazilian reais - R$, except when indicated otherwise)
1. General information
Smiles S.A. (“Company”), established on June 10, 2012, originally named “Santa Angélica Empreendimentos e
Participações S.A.”, is a publicly-listed company incorporated in accordance with Brazilian laws. On June 27, 2012,
Gol Linhas Aéreas Inteligentes S.A. (“GLAI”) acquired the Company at its book value. GLAI is a Company listed on the
São Paulo Stock, Commodities and Futures Exchange - BM&FBOVESPA, and the Stock Exchange in New York.
The Company is engaged in the customers loyalty program to accomplish primarily: (a) the development and management
of the program; (b) the marketing rights of rewards acquired; and (c) establishment of a database of individuals and
legal entities.
The Company’s operations result from the organizational restructuring of GLAI, which transferred to the Company the
Smiles mileage program (“Smiles Program”), which was managed by VRG Linhas Aéreas (“VRG”). The Smiles Program
consists of the granting of credit reward miles to participants who can use them to redeem rewards, mainly airline tickets.
Agreements have been entered into GLAI and VRG to facilitate the transfer of operations, which are described in Note 8.
The miles are issued by the Smiles Program to: (a) transfer to participating passengers through the VRG loyalty
program; (b) the sale of miles to banks that transfer to its customers with miles according to credit card spending;
(c) the sale of miles to retail and entertainment customers; (d) the sale of miles to airline partners; and (e) the sale of
miles to individuals.
On April 25, 2013, the Company completed the IPO of its common shares. Under this context, the Company issued
52,173,912 common shares at R$21.70 per share, resulting in a capital increase of R$1,132,174, approved on the same
date by the Board of Directors. The total cost of the shares’ issuance on the IPO determined by the Company, net of the
deferred tax effects, was R$36,402 and is recorded in shareholders’ equity under “cost of issuing shares.”
On October 8, 2013, the Company signed an investment agreement for the acquisition of 25% of the capital of Netpoints,
which operates a loyalty program specialized in retail’s customers. On January 21, 2013, the Administrative Council
for Economic Defense (“CADE”) approved the operation, which enabled the agreement closure. The payment of the
acquisition of 25% in the amount of R$25,000 had not yet been made by the filing date of these financial statements.
The transaction also provides the option of acquiring 50% plus one share of Netpoints, which may be exercised after the
end of year 2018.
On December 31, 2013, the Company incorporated its non-controlling shareholder G.A. Smiles Participações S.A. in
order of simplify and modernize its corporate structure. The incorporation was made based on the book value of its
equity as of December 31, 2013, and the transaction does not result on a capital increase and/or issue of new shares.
The total goodwill resulted by the operation of R$214,534 led to a tax credit of R$72,942, with the counterpart in special
reserve of goodwill in equity recorded at the moment of the incorporation and it was approved by the Extraordinary
General Meeting. The appraisal report of G.A. Smiles Participações S.A. on the date of incorporation was presented:
Tax benefit
Assets transferred
Liabilities transferred
Total amount transferred, net
72,942
429
(416)
72,955
2. Approval and summary of significant accounting policies applied
in preparing the financial statements
These financial statements were approved and authorized for issue at the Company’s Board of Directors’ meeting
held on February 4, 2014. The Company’s head office is at Alameda Rio Negro, 585, Edifício Padauiri, Bloco B, 2º Floor,
Alphaville, Industrial, Cidade de Barueri, SP, Brazil.
45
2.1. Declaration of conformity
The Company’s financial statements were prepared in accordance with the accounting practices adopted in
Brazil and the International Financial Reporting Standards (IFRSs) issued by the International Accounting
Standards Board - “IASB”.
The accounting practices adopted in Brazil comprise those included in the Brazilian corporate law and the
technical pronouncements, guidelines and interpretations issued by the Brazilian Accounting Pronouncements
Committee - “CPC” and approved by the Federal Accounting Board - “CFC” and the Brazilian Securities and
Exchange Commission - “CVM”.
2.2 Basis of presentation
The financial statements were prepared based on historical cost, except for certain financial assets and liabilities,
which are measured at fair value, as described on the policies below.
These financial statements were prepared using the Brazilian Real as the functional and presentation currency.
The financial statements were prepared in accordance with International Accounting Standards (“IAS”) nº 1,
corresponding the Brazilian technical pronouncement CPC 26 (R1) related to financial statements.
The Company started its operations as of January 1, 2013 in accordance with Note 1, therefore there is no comparative
information related to December 31, 2012 on the income statement, comprehensive income statements and
statement of value added.
The summary of significant accounting policies adopted by the Company is as follows:
a) Cash and cash equivalents
In this line are classified the bank deposits and short term investments with maturities of less than 90 days or with
no deadlines for redemption, which have high liquidity, are readily convertible into an amount of cash and have an
insignificant risk of value changes, measured at fair value through income.
b) Short term investments
Represent securities with maturities up to 90 days and change in value risks, measured at fair value through
profit or loss.
c) Prepaid expenses
Represent advance payments whose benefits to the Company will occur after the balance sheet date, classified based
on the criteria of segregation between short and long term.
d) Trade and other receivables
Trade receivables are measured based on cost (net of allowances for doubtful accounts) which approximates its fair
value, due to its short-term maturity.
The allowance for doubtful accounts is established when there is evidence that the Company will not be able to
collect all amounts overdue for more than 90 days, according to the original terms of the receivables. The allowance
for doubtful accounts is the difference between the book value and the recoverable amount, calculated based on a
risk and historical analysis of recovery of the overdue amounts.
e) Advances to suppliers
Refer to anticipated tickets purchase, to be used as miles and are redeemed by the program participants.
The anticipated amounts are adjusted by monetary correction, according to contract agreements.
f) Foreign currency transactions
Transactions in foreign currencies are recorded at the exchange rate prevailing at the time that the transaction occurs.
Monetary assets and liabilities in foreign currencies are subsequently calculated based on the conversion using the
exchange rate at the balance sheet date and differences resulting from the currency conversion are recognized in the
income statement.
g) Share-based payments
The Company holds share-based plans of stock options. Additionally, through its parent company, the Company offers
to its key personnel share-based plans and restricted shares settled exclusively by GLAI’ shares.
The cost of equity-settled transactions is recognized, along with a corresponding increase in equity, being described
as “Share-Based Payments” over the year in which the performance and/or the service conditions are fulfilled, with
maturity on the date that the employee acquires the right (acquisition date). The expense in the income statement
for the period is recorded under “administrative expenses”.
The fair value of the GLAI and Company’s equity-settled transactions with employees was estimated on the options
and/or restricted share grant date using the Black-Scholes pricing model. This fair value is recorded on a straightline basis according to CPC 10 (R1) - “Share-Based Payment”, as an expense in the net income statement for the
period over the vesting period, based on estimates on which shares granted will become eventually vested, with a
corresponding increase in equity.
The eventual impact of any review of the original estimates, if any, is recognized in the income statement, in order
that the year-to-date expense reflects the revised estimates with the corresponding adjustment in the equity in the
account that previous recorded the employees’ benefit.
h) Provisions for escrow deposits
Provisions are recognized when the Company has a present obligation (legal or presumed) as a result of past events,
being probable that an outflow of resources will be required to settle the obligation.
When the Company expects some or all of the provision to be reimbursed, the reimbursement is recognized as
a separate asset. The expense relating to any provision is presented in profit or loss net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects,
where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to
the passage of time is recognized as a finance cost.
i) Deferred revenue
The “Smiles Program” aims to gain its customers through the grant of mile credits to its participants. The obligation
created by the issuance of miles is measured based on the price that the miles were sold to its airline partners and
non-airline partners, classified by the Company as the fair value of the transaction. The revenue recognition occurs
when the miles are redeemed by the Smiles Program participants to exchange the rewards with their partners.
j) Income tax
The income tax and social contribution expenses are represented by the sum of current and deferred income taxes.
Current income tax
The provision for income tax and social contribution is based on the years’ taxable income. The taxable income differs
from the one reported under the income statements, since excludes other years’ taxable or deductible revenues or
expenses, and also excludes nontaxable or nondeductible items permanently.
Deferred income tax
The deferred income tax is recognized on temporary differences between the balances of assets and liabilities
recognized in the financial statements and tax bases used on calculation of taxable income. The deferred income tax
47
liability is usually recognized on all taxable temporary differences and the deferred income tax asset are recognized
on all deductible temporary differences, only when it is probable that the Company will produce enough taxable
income in the future so such deductible temporary differences can be used.
The deferred income tax assets and liabilities are not recognized on temporary differences from the initial recognition
of assets and liabilities on a transaction which does not affect the taxable or the book income. Additionally, deferred
tax liabilities are not recognized if the temporary difference is an effect arising from the goodwill initial recognition.
k) Main accounting estimates and assumptions adopted
The process of elaborating these Financial Statements often requires that the Management adopt assumptions,
judgments and estimates that may affect the application of the policies and amounts of assets and liabilities, revenues
and expenses.
The real results may differ from the adopted estimates, since such are based on historical experience and some
assumptions that are believed to be appropriate under the circumstances. The reviews of accounting estimates are
recognized in the same period in which the assumptions are reviewed on a prospective basis.
The estimates and assumptions that have a significant risk of material adjustments in the accounted for amounts of
assets and liabilities are discussed below:
i. Breakage
Breakage consists of the statistical calculation of miles that have high potential of expiration due to non-use of the
miles by the participants of Smiles Program. For the breakage calculation, the Company considers the amount of
expired miles in the last twelve months. This calculation is applied on the non-used mile balance, which results on
the breakage revenue. Future opportunities may significantly modify the customers profile and the historical pattern,
and such changes may result in significant changes in the deferred revenue balance, as well as the recognition
of the revenue from this Program. The Smiles policy provides the cancellation of all the given miles from
customers’ accounts after 36 months, except for Gold and Diamond customers whose expiration period
is 48 and 60 months, respectively.
ii. Income Taxes
The Company believes that the tax positions taken are reasonable. However, it recognizes that the authorities may
question the positions taken which may result in additional liabilities for taxes and interest. The Company recognizes
provisions that involve considerable judgment of the management. The provisions are reviewed and adjusted
to account for changes in circumstances, such as lapsing of applicable statutes of limitations, conclusions of tax
authorities, additional exposures based on the identification of new issues or court decisions affecting a particular
tax issue. Actual results can differ from estimates.
iii. Allowance for doubtful accounts
The allowance for doubtful accounts is recorded based on the sufficient amount considered by the management in
order to cover possible losses on accounts receivable arising from receivables, considering the risks involved. The
Company periodically evaluates its receivables and, based on historical data, combined with risk analysis per client,
registers the allowance for losses.
iv. Legal provisions
The Company is a defendant in several lawsuits and administrative proceedings. Provisions are recorded for all
lawsuits that represent probable losses, according to the loss probability, which includes the assessment of available
evidence, including the legal consultants’ opinion, internal and external from the Company, the proceeding nature
and past experiences. The management believes that the provisions recorded are sufficient and truly presented on
the financial statements. The provisions are estimated considering the likely settlement amount on the financial
statements date and monetary corrected after that when applicable, being, therefore, presented at present value.
l) Statement of value added (“DVA”)
The purpose of this statement is to disclose the wealth created by the Company and its distribution during a certain
reporting period, and is presented by the Company, as required by the Brazilian Corporate Law, as an integral part of
its financial statements.
The DVA was prepared based on information obtained in the accounting records that serve as basis for the preparation
of financial statements and in accordance with the provisions of CPC 09 - Statement of Value Added. The first part
of the DVA presents the wealth created by the Company, represented by revenues (gross sales revenue, including
taxes levied on sales, other revenues and the effects of the allowance for doubtful accounts), inputs purchased from
third parties (cost of sales and purchases of materials, power and services from third parties, including the taxes
levied on purchase, the effects of impairment and recovery of assets, and depreciation and amortization) and the
value added received from third parties (equity in subsidiaries, financial income and other income). The second part
of the DVA presents the distribution of wealth among employees, taxes and contributions, compensation to third
parties and shareholders.
m) Cost of equity securities issue
Transaction costs incurred on raising funds transactions through the issuance of equity securities are accounted for
as a reduction to shareholders’ equity, net of tax effects.
n) Segment information
Operating segments are defined as business activities from which it may earn revenues and incur expenses, whose
operating results are regularly reviewed by the decision makers to allocate resources and evaluate the segments’
performance. Considering that the operating results are regularly reviewed by the Company’s Administration and the
internal reports are used to make decisions about resources to be allocated to the segment, the conclusion is that the
Company operates in a single operating segment, which is that of customer loyalty services.
o) New standards and interpretations issued and revised in 2013
i. New standards, interpretations and revisions issued and adopted in 2013:
Standard
Amendment to IFRS 7
IFRS 10
IFRS 11
IFRS 12
IFRS 13
Amendment to IAS 1
IAS 19 (reviewed in 2011)
Description
Disclosure - netting of assets and liabilities Financeiros
Consolidated Financial Statements
Participation Agreements
Disclosures of interests in other entities
Fair value measurement
Presentation of Items of Other Comprehensive Income Abrangente
Employee Benefit
Aplicable
January 01, 2013
January 01, 2013
January 01, 2013
January 01, 2013
January 01, 2013
July 01, 2012
January 01, 2013
• The amendments to IFRS 7 increase the requirements of disclosure of transactions involving financial assets. These
changes are intended to provide greater transparency to risk exposures when a financial asset is transferred, but the
transferor still retaining some level of exposure in assets.
The amendments also require the disclosure of the transfer of financial assets when they are not equally distributed
in the year.
The impacts of the amendment did not affect the disclosures in the Company’s financial statements.
• On May 2011, a package of five rules for consolidation, participation agreement, affiliated companies and disclosures
was issued, including the IFRS 10, 11, 12, IAS 27 (reviewed in 2011) and IAS 28 (reviewed in 2011). IFRS 10 does not
apply to the Company, since is related only to consolidated financial statements.
49
The main requirements of these five standards are described below:
a) The IFRS 10 supersedes the parts that IAS 27 consolidated financial statements addressed. SIC-12 Consolidation
- special purpose entities was withdrawn with the issuance of IFRS 10. In accordance with IFRS 10, there is only one
basis of consolidation, that is, the control.
b) The IFRS 11 supersedes IAS 31-interests in Joint Ventures “. IFRS 11 discusses how a participation agreement in
which two or more parties have control must be classified. SIC-13 “Joint Ventures”-non-monetary Contributions
from investors was withdrawn with the issuance of IFRS 11. In accordance with IFRS 11 participation agreements
are classified as joint operations or joint ventures, as per the rights and obligations of the parties to the agreements.
c) The IFRS 12 is a standard of disclosure applicable to entities that own stakes in subsidiaries, participation agreements,
affiliates and/or unconsolidated structured entities. Generally, the disclosure requirements in accordance with IFRS
12 are more comprehensive than the current rules.
There were no effects of the IFRS 10, 11, 12, IAS 27 (reviewed in 2011) on the Company’s financial statements.
• IFRS 13 offers a single source of guidance for fair value measurements and disclosures about fair value measurements.
The standard defines fair value, provides a framework for measuring fair value and requires disclosure of fair value
measurements. The scope of the IFRS 13 is comprehensive, applying to items of financial and non-financial instruments,
for which other IFRSs require or permit fair value measurements and disclosures of fair value measurements, except
in certain cases. IFRS 13 is applicable to annual periods beginning on or after January 1, 2013.
There were no impacts due to the adoption of this new regulation in the Company’s financial statements.
• Amendments to IAS 1 allows the presentation of the result and another comprehensive result in one demonstration
or in two separate statements. However, the change to IAS 1 requires additional disclosures of the other comprehensive
income so that the items of other comprehensive income are grouped into two categories: (i) items that will not be
reclassified later in the result; and (ii) items that will be reclassified later in the result according to certain conditions.
The income tax on the items of other comprehensive income will be designed in the same way. The amendments to
IAS 1 are applicable to annual periods beginning on or after July 1, 2012.
There were no impacts due to adoption of this regulation in Company’s financial statements, since there was no
comprehensive income registered during the year.
• Amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most significant
modification refers to accounting for changes in defined benefit obligations and plan assets. The modifications require
the recognition of changes in defined benefit obligations and the fair value of plan assets as they occur, and therefore
the Elimination of the “corridor approach” allowed in the previous version of IAS 19 is the early recognition of past
service costs. The amendments to IAS 19 are applicable to annual periods beginning on or after January 1, 2013 and
demands retroactive application, except in certain circumstances.
The Company has no operations that may be impacted by the changes to IAS 19.
ii. New standards, amendments and interpretations issued in 2013 and apply in future years:
The Company did not apply the new and reviewed IFRS as follows:
Amendment to IFRS 10,12 and IAS 27
Amendment to IAS 32
IFRS 9
Amendment to IFRS 9 and IFRS 7
Investment entities
Offsetting Financial assets and liabilities
Financial Instruments
Date of mandatory application of IFRS 9 and transition disclosures
January 01, 2014
January 01, 2014
January 01, 2015
January 01, 2015
• IFRS 9, issued in November 2009 introduces new requirements for the classification, and measurement of financial
assets and liabilities. The amendment to the IFRS was issued in October 2010 in order to include the requirements of
classification and measurement of financial liabilities, and to derecognition.
According to IFRS 9, the entities may choose, irrevocably, to present subsequent changes to the fair value of an
equity investment (not held for trading) in other comprehensive income, being only the dividend revenue recognized
in the income statement.
The most significant impact of the IFRS 9 related to the classification and measurement of financial liabilities refers
to the recognition of changes in fair value of a financial liability (designated at fair value through profit or loss)
attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, related to financial liabilities
measured at fair value through income, the amount of the changes in the fair value of a financial liability attributable
to changes in credit risk of that liability are recognized under “ Other comprehensive income” unless the recognition
of the effects of changes in credit risk of the liability in “Other comprehensive income” results in or increases
the accounting mismatch in profit or loss. Fair value variations attributable to the credit risk of a financial liability
are not reclassified in the income statement. Previously, in accordance with IAS 39 and CPC 38, the total amount
of the change in fair value of the financial liability measured at fair value through profit or loss was recognized
in the income statement.
The Company’s Management does not expect that the amendments to IFRS 9 have a significant effect on the disclosure
in its financial statements.
• The amendments to IFRS 10 define an investment entity and require that the reporting entity that fits the definition
of an investment entity does not consolidate its subsidiaries, but instead measure its subsidiaries at fair value through
profit or loss on its individual and consolidated financial statements.
To be defined as an investment entity, the reporting entity must:
i. Obtain resources from one or more investors in exchange in professional services of investment management.
ii. Commit to its investor(s) that its corporate purpose is to invest resources only in order to obtain return on capital
appreciation and investment revenue, or both.
iii. Measure and assess the performance of basically all its investments based on fair value.
There were amendments arising from IFRS 12 and IAS 27 in order to introduce the new disclosure requirements for
investment entities.
The Company’s management does not expect that the amendments to investment entities to affect its financial
statements, since the Company does not represent an investment entity.
• The amendment to IAS 32 clarifies the requirements related to assets offset and financial liabilities. Specifically,
the amendment clarifies the meaning of “currently have the legal right to offset” and “simultaneous realization
and settlement”.
The Company’s management does not expect that the adoption of IAS 32 amendments will result in any significant
impact to its financial statements, since there were no assets or liabilities that qualify for compensation.
The previous amendments to IFRSs mentioned above were not yet reviewed by the CPC. However, under the CPC
and CVM commitment of updating the issued standards based on the changes and amendments issued by IASB,
it is expected that these amendments will be reviewed by CPC and approved by CVM before the applicable
mandatory date.
CFC and CPC assumed the commitment of issuance of new standards when such were issued by IASB, and to review
and update of all the issued documents, in order to maintain the brazilian accounting policies in full conformity with
the international standards, for purposes of preparation and presentation of the individual financial statements of
the Brazilian Companies (with the commented exception until that the complete convergence is legally possible or
until IASB proposes changes).
The Company can apply a new IFRS, although not yet mandatory, only when this IFRS allows its prior application,
however subject to the approval of correlated pronouncement by the CPC and CVM.
p) Anticipated Adoption of the Provisional Measure 627/13
The provisional measure nº 627 from November 11, 2013 and the Instruction of Brazil’s Internal Revenue Office
Measure nº 1,397 from September 16, 2013, brought significant changes in the rules of federal taxes. The measure
will be effective starting in the year 2015, with the option of anticipated adoption from the year 2014.
51
In order to ensure tax neutrality established on acts. no. 15 and 16 of Law no. 11,941, from May 27, 2009, since
that dividend payments occurred until the date of the measure publication, based on the reported results between
January 01, 2013 and December 31, 2013, the Company’s management will chose the anticipated adoption as
mentioned above, as the procedures for this adoption become available. Thus, it will be guaranteed the usage of the
equity measured in accordance with the Law no. 6404 from 1976, for purposes of calculating the limits as act. 9 of
the law no. 9,249 from 1995, which relates to the tax effects of interest on capital.
Regarding the dividends paid or to be paid after this measure publication related to profit or loss for the year 2013,
the Company’s management accomplished that the values would be in higher amounts that those calculated in
accordance with current accounting practices of December 31, 2007 and, therefore, the excess portion of the
amount will be subject to the withholding tax on payments to beneficiaries classified as individual and resident and/
or domiciled abroad.
The Company’s management continues the analysis of other possible impacts of the adoption of the measure.
3. Cash and cash equivalents
12/31/2013
1,337
152,906
154,243
Cash and bank deposits
Cash equivalents - Investment funds
The balance classified as cash equivalents is composed as follows:
12/31/2013
Investment funds
Private securities
106,127 46,779
152,906
As of December 31, 2013, the cash equivalents are represented by private bonds (Bank Deposit Certificates “CDB”),
public bonds (Financial Treasury Bills “LFT”) paid at approximately weighted average rate of 99.00% of CDI rate.
The Company’s treasury invests on buy-back transactions with highly liquid and are remunerated at approximately
weighted average rate of 75.00% of CDI rate, with maturity of 30 days. The Company does not have balances in
foreign currency.
4. Short-term investments
As of December 31, 2013, the short-term investments in the amount of R$228,489 are represented by investment
funds, primarily private bonds, LTNs and buy-back money transactions, mainly based on NTN-F (National Treasury
Bills - F Series) and NTN-B (National Treasury Bills - B Series). Such are remunerated at approximately weighted
average rate of 99.00% of CDI rate
5. Trade and receivables
12/31/2013
Non-airline partners companies
Airline partners companies
Credit card administrators
29,174
14,373
6,385
49,932
(295)
49,637
Of the balance of non-airline partners, R$17,851 is basically represented by the miles sales to financial institutions.
Of the balance of the airlines partners, R$10,028 is related to miles sales and R$671 is related to administration fees
of the Smiles Program to VRG, as described in Note 8.
The total receivables are denominated in Brazilian Reais. The composition of accounts receivable by maturity
is as follows:
12/31/2013
To mature
Up to 30 days
48,916
Overdue
Until 30 days
425
31 to 60 days
238
61 to 90 days
58
91 to 180 days
272
Above 181 days
23
Total
49,932
The maximum exposure to credit risk as of December 31, 2013 is represented by the book value of each type of
receivable mentioned above. The Company booked an allowance for doubtful accounts for overdue amounts over
90 days, as mentioned in the accounting practices.
The changes in the allowance for doubtful accounts are as follows:
12/31/2013
Balance at beginning of the period Additions
Recoveries
Balance at the end of the period
–
(932)
637
(295)
6. Advances to suppliers
The Company signed, on May 10, 2013, the second agreement of anticipated airline tickets purchase and sale
with VRG Linhas Aéreas S.A. Based on this agreement, the Company acquires monthly VRG airline tickets with the
conditional discount rate when compared to the ticket based at CDI rate, which corresponds to 12.49% p.y. at the
agreement assignment date. This discount is conditional on the usage of the total amount in up to 4 years from
the date of signing the contract. As of December 31, 2013, the amount of advance ticket purchases was R$351,403
(R$91,808 on December 31, 2012) classified in current assets and R$1,031,423 classified in noncurrent assets.
7. Deferred and recoverable taxes
a) Recoverable taxes - Short term
The recoverable tax in the amount of R$418 arises from the incorporation of G.A. Smiles Participações S.A. and refers
to the withholding tax on interest on equity.
53
b) Deferred taxes - Long term
12/31/2013
Temporary differences:
Suppliers and other provisions
Other temporary differences
Tax benefit from goodwill incorporation (*)
Total deferred tax and social contribution
3,700
666
72,942
77,308
The Company recorded an expense for the deferred income tax and social contribution related to the share issuance
costs of R$18,753 in the income statement for year ended on December 31, 2013. The counterpart is registered in
equity, in accordance with CPC 08 - Costs of Transactions and Premiums on Issuance of Securities.
(*) On December 31, 2013, the Company operated a reverse incorporation of its minority shareholder G.A. Smiles
Participações S.A.. The goodwill according to fiscal criteria, generated by G.A. Smiles Participações S.A. on the
acquisition of 15.08% participation in Smiles S.A. was R$214,534. Consequently, the operation led to the recording
of deferred income tax and social contribution taxes of R$72,942, which will be realized proportionally to its use over
5 years, as determined in ICPC 09 R1 (Individual Financial Statements, Consolidated Financial Statements, Equity
Method Application). Under the terms of the current legislation, the goodwill generated by the operation will be a
deductible expense in the Income Tax and Social Contribution calculation.
The estimated recovery of deferred tax assets was based on taxable income projections, considering the assumptions
adopted for the long-term business plan preparation, besides the several financial assumptions, business and internal
and external factors considered at the end of the year. Consequently, the estimates may not materialize in the future,
due to the uncertainties inherent in these estimates.
The Company considers that the deferred taxes registered as of December 31, 2013 resulting from temporary
differences will be realized in accordance with the provision realization.
The expected realization of deferred tax assets is as follows:
2014
2015
2016
2017
2018
18.956
14.588
14.588
14.588
14.588
77.308
The amounts of income tax and social contribution presented in the income statement are reconciled to the combined
rate as follows:
12/31/2013
Profit before income tax and social contribution
Combined tax rate
Income tax expense at the combined tax rate
Adjustments to calculate the effective tax rate:
Nondeductible expenses
Interest on capital
Tax incentive
Expense of income tax and social contribution
Current income tax and social contribution
Deferred income tax and social contribution
Effective rate
309,398
34%
(105,195)
(3,845)
6,218
1,268
(101,554)
(87,167)
(14,387)
33%
8. Related-party transactions
The Company’s related parties are basically represented by the purchase of airline tickets and mile sales agreements
with its associate VRG with the following characteristics:
i. Operating Agreement
On December 28, 2012, the Company, VRG and GLAI entered into an agreement to govern their operating and
business relationship, the exclusivity characteristics of the Smiles Program, which is the sole VRG’s customer loyalty
program. Additionally, the agreement also specifies VRG as the exclusive partner in the Company’s air segment and
establishes guidelines for the program management by the Company.
The agreement maturity is 20 years from the execution date referred to above, and is automatically renewed for
successive five-year periods, unless the Company, VRG or GLAI decides otherwise and gives prior notice of such
decision within no less than 2 years before the agreement expiration.
The Company will charge monthly a relationship program management fee to VRG, which will be calculated, starting
in 2014, based on the gross sales of miles to VRG in the previous year, adjusted using the General Market Price Index
(IGP-M). As the Company’s gross revenue increases, this factor decreases proportionally as agreed. For 2013, the
established management fee was 6%, and the value recognized in the income statement as of December 31, 2013
under “Other revenue” was R$7,110, described in Note 17. The trade receivable from affiliate VRG as of December
31, 2013 was R$671, as described in Note 5.
The Company has agreements with companies that perform miles exchange for several products to be delivered to its
customers. A portion of this amount, which is charged by the Company’s partners, is transferred to its related party
VRG and the balance as of December 31, 2013 recorded in “Receivables from related parties” is R$395.
ii. Miles and Air Tickets Purchase Agreement
This agreement sets the prices and the terms and conditions for the purchase by VRG of miles issued by the Company,
and the purchase of air tickets by the Company from VRG. The agreement duration is 20 years from the execution
date (December 28, 2012), and is automatically renewed for successive five-year periods, unless the Company,
VRG or GLAI decides otherwise and gives prior notice of such decision within no less than 2 years before the
agreement expiration.
Additionally, VRG must transfer the amount received by the portion in money related to Smiles & Money transactions,
which are deposited in the related-party banking account, but refers to the Company’s revenue. On December 31,
2013, the receivable balance from VRG related to transfers of ticket sales with counterparts and individuals was
R$53,345, recognized in “related-parties transactions” with an average settlement of 30 days. The payable amount to
its affiliate VRG regarding to the transfer of receivables of mileage selling from counterparts is R$5,120.
Until December 31, 2013, the total miles sold to VRG was 9,608,958,462, representing the amount of R$117,461 and
the total of tickets purchased from VRG was 3,821,236, representing the amount of R$279,131 net of recoverable
taxes. The receivable amount regarding the miles sales as of December 31, 2013 is R$10,028 as disclosed in Note 5.
iii. Share-based plans
The Company holds share-based plans which were issued in VRG employee’s benefit. During the year ended on
December 31, 2013, the Company registered the amount of R$332 and labor taxes in the amount of R$38, both
registered under “Credits with related parties”, as disclosed in Note 9.
55
The related parties transactions mentioned above are summarized as follows:
Asset
Operational agreement (i)
Transfer of miles sales (ii)
Stock Options Plan (iii)
Liability
Transfer of miles sales (ii)
Credits with related parties
12/31/2013
395
53,345
370
54,110
(5,120)
(5,120)
48,990
iv. Service agreement
Under the Service Agreement entered into on December 28, 2012, VRG will provide certain administrative services
to the Company for which the Company will pay a fixed monthly amount for each service group, subject to annual
renegotiation. This agreement is effective for 36 months and can be canceled by either party after a minimum prior
notice of 120 days. For the year ended December 31, 2013, the Company recognized the total expenses related to these
services of R$18,292, of which R$13,354 is recorded as “selling expenses” and R$4,938 recorded as “administrative
expenses”. Of this amount, R$1,513 comprises the amount under “Suppliers” in current liabilities.
v. Equipment Lease Agreement and Other Covenants
Effective to December 28, 2013 and renewable through an amendment signed by the parties, this agreement consists
of leasing the equipment owned by VRG to the Company. The agreement provides for monthly payments due to the
lease of this equipment, and in case of delay, the outstanding payments are subject to fines and interest. For the year
ended December 31, 2013, the Company recognized R$70 of expenses related to these services.
vi. Domain Name and Trademark Assignment Agreement
VRG assigned, on permanent, non-onerous terms, the rights of use and the rights to exploit the trademarks and the
domain name “Smiles” to the Company.
vii. Key Management Personnel Payments
12/31/2013
Salaries and Benefits
Related Taxes
Share-based Payments
12,178
261
1,302
13,741
As of December 31, 2013, the Company did not offer postemployment benefits, and there are no severance benefits
or other long-term benefits for the Management or other employees.
9. Share-based payments
Stock option plan - Smiles
The Company’s Board of Directors, during the Extraordinary General Meeting held on February 22, 2013, approved the
grant of a stock options plan, which consists of an additional payment to the Company’s management and executives. On
August 08, 2013, the Company’s Board of Directors approved the grant of 1,058,043 shares related to the stock option
plan, of which 260,020 shares were granted to employees of its affiliate VRG. This plan stimulates and promotes the
alignment of the Company’s goals, the administrators and employees, mitigates risks in value creation to the Company
for the loss of their executives and strengthens the commitment and productivity of these executives to long-term
results. The plans were developed to attract and retain key managers and strategic talents, linking a significant part of
their equity to the value of the Company.
The fair value of stock options was estimated on the grant date using the Black-Scholes option pricing model.
The expected volatility of the options is based on the historical volatility of 252 working days of the Bovespa index.
The other assumptions utilized in the Black-Scholes option pricing model are as follows:
Year of the
Option
2013
Date of
the Board
Meeting
Stock Options Plan
Fair Value of the Estimate
Exercise Price
Option at Grant Volatility
Risk-free Length of
of the Option
Date - in
of Share Expected
Rate
the Option
(in Brazilian reais) Brazilian reais - (a)
Price
Dividend Return (in Years)
Total
Options
Granted
08/08/2013 1,058,043
21.70
4.84(a)
36.35%
6.96%
7.40%
10
(a) The fair value calculated for the 2013 plan was R$4.84, R$4.20 and R$3.72 for the respective periods of vesting
(2013, 2014 and 2015).
There is no vested option under this plan as of December 31, 2013.
Additionally, through its parent Company GLAI, the Company has stock options and restricted shares- plans granted to
some executives transferred from VRG on January 1, 2013. Consequently, the remaining expenses related are recognized
in the Company’s income statements. The amounts granted to executives transferred are summarized below:
Stock option plan - GLAI
Outstanding options
Year of the
option
2009
2010
2011
2012
Range of
exercise
prices
10.52
20.65
27.83
12.81
10.52-27.83
Options
outstanding
Average
remaining maturity
(in years)
18,000
94,581
125,003
41,127
278,711
Average
exercise
price
6
7
8
9
7.5
Options exercisable
Average
Options
exercise
exercisable
price
10.52
20.65
27.83
12.81
22.06
18,000
94,581
125,003
34,272
271,856
Fair value
10.52
20.65
27.83
12.81
22.29
(Black &
Scholes)
8.53
16.81
16.11
5.35
The movement of existing stock options during the period to December 31, 2013 is as follows:
Total of stock
options
Options outstanding as of December 31, 2012
Options cancelled and adjustments in estimated lost rights
Options outstanding as of December 31, 2013
Number of options exercisable as of December 31, 2012
Number of options exercisable as of December 31, 2013
Weighted Average
Exercise Price
298,292
(19,581)
278,711
253,596
271,856
22.44
27.83
22.06
22.71
22.29
Restricted shares plan - GLAI
Year of the
Share Grant
(in Years)
2012
Total
Shares Granted
Fair Value of the
Share at Grant Date
Duration
of Share
37,139
9,70
10
57
The movement of existing restricted shares during the period to December 31, 2013 is as follows:
Total of Shares
Restrict shares outstanding as of December 31, 2012
Restrict shares cancelled and adjustments in estimated lost rights
Restrict exercible shares as of December 31, 2013
Number of transferred restricted shares as of December 31, 2012
Number of restricted shares exercisable as of December 31, 2013
43,519
(6,380)
37,139
14,506
24,759
As of December 31, 2013, the Company recorded under shareholders’ equity a result from share-based payments in
the amount of R$1,848, which R$1,516 is registered under the income statement classified as salaries expenses and
R$332 is registered in current assets under “credit with related parties”.
10. Earnings per share
The basic earnings per share is calculated based on the net income of the year attributable to shareholders of the
Company and the weighted average number of common shares outstanding during the year. The diluted earnings per
share is calculated based on the average shares outstanding, adjusted by instruments that are potentially convertible
into shares with a dilutive effect for the period presented.
12/31/2013
Numerator
Income for the period, net
Denominator
Weighted average number of outstanding shares (in thousands)
Effect of diluted position
Stock options plan
Adjusted weighted average number of outstanding shares and diluted presumed (in thousands)
Basic earning per share
Diluted earning per share
207,844
105,545
165
105,710
1.969
1.966
Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding to assume
the conversion of all potential dilutive shares. The Company has a category of potential dilutive shares which refers
to the stock option plan.
In order to estimate the diluted earnings per share, the Company assumes the exercise of options granted and the
assumed values from these instruments are considered as been received from the grant of shares at the average
market price during the period. The difference between the number of granted shares and the number of common
shares that would have been granted at average market price during the period was estimated as the granted ordinary
shares with no effect on the diluted earnings per share.
11. Salaries, wages and benefits
12/31/2013
Vacation provisions
INSS and FGTS recoverable
Profit sharing plan and results
803
638
13,408
14,849
On August 8, 2013 the Company approved at the Board of Directors the Profit Sharing Plan of managers and
employees, as recommended by the Committee on Human Resources Management and Corporate Governance.
As of December 31, 2013 the balance of R$13,408 is recorded in the income statement under “personnel expenses”.
12. Taxes payable
Taxes payable are registered in current liabilities and are shown below:
12/31/2013
9,872
3,180
450
13,502
IRPJ and CSLL payable
PIS and COFINS
Other
13. Advances from customers
The Company realized advance miles sales and recorded such under “Advances from Customers”. On December 31,
2013, the outstanding balance regarding these anticipated sales is represented as follows:
Financial institutions (a)
Others
Current
Non current
12/31/2013
12/31/2012
169,649
1,755
171,404
167,759
3,645
91,808
91,808
91,808
-
(a) On December 1, 2012, VRG transferred to the Company the Smiles Partnership Agreement, signed jointly
on December 1, 2009 with financial institutions of the Banco Itaú S.A Group. The contract has the objective to regulate
the conversion of the accumulated points arising from the rewards programs of Banco Itaú S.A. into miles of the
Smiles Program from January 1, 2013. As of December 31, 2013, the full amount was settled (R$91,808 as of
December 31, 2012).
On April 8, 2013, the Company concluded the advances on miles sales agreement in the approximately total amount
of R$400,000 with the financial institutions Bradesco S.A., Banco do Brasil S.A. and Santander S.A..The funds
were received by the Company on April 30, 2013 and the total balance on December 31, 2013 is R$166,004 and
R$3,645 registered in current liabilities and noncurrent liabilities respectively.
Advances from customers are transferred to “Deferred revenue” as the miles are transferred to the participants
of Smiles Program.
14. Deferred revenue
The miles issued are initially recorded as deferred revenue, and as they are redeemed by the customers, are recognized
as revenue in the income statement. As of December 31, 2013, the balance of Smiles deferred revenue is R$386,894
and the number of outstanding miles amounted to 20,211,339,640.
12/31/2013
Deferred revenue
( - ) Breakage provision
Current
Non current
457,927
(71,033)
386,894
119,669
267,225
59
Breakage consists of a statistical calculation of miles issued for which there is no expectation of redemption, miles
that will expire without the expectation of use; such are recognized in advance in the earnings of the period, as
described in Note 2k (i).
15. Provisions
Lawsuits
Balance as of December 31, 2012
Additions
Utilized provisions
Balance as of December 31, 2013
–
104
–
104
Lawsuits provisions are reviewed based on the progress of the proceedings and history of losses based on the best
current estimate for labor and civil lawsuits.
As of December 31, 2013 the Company is involved with 282 civil judicial and administrative procedures.
The civil proceedings are primarily related to compensation claims generally to redeem miles for exchange in prizes.
As of December 31, 2013, the allowance for risks related to civil lawsuits with probable losses is R$104.
There are other civil lawsuits assessed by management and its legal counsel as to possible loss, with an estimated
exposure of R$370 on December 31, 2013, for which no provision was registered.
The Company has no lawsuits in respect of labor and tax.
16. Shareholders’ equity
a) Issued Capital
On December 31, 2013, the share capital subscribed and fully paid by shareholders domiciled in Brazil, was
R$1,132,174, represented by 122,173,912 common shares, nominative, without face value, paid primarily with funds
from the public offering of shares of the Company held on April 25, 2013. The authorized share capital as of December
31, 2013 was 139,999,999 common shares. Shares are held as follows:
12/31/2013 12/31/2012
Gol Linhas Aéreas Inteligentes S.A.
G.A. Brasil V Fundo de Investimento em Participações
Others
Common
57,295%
15,088%
27,617%
100,000%
Common
100,000%
0,000%
0,000%
100,000%
The Company shares as of December 31, 2013 quoted on the São Paulo Stock Exchange - BOVESPA amounted R$32.49
each. The book value per share as of December 31, 2013 is R$11.03 (R$1.00 as of December 31, 2012).
b) Share issuance costs
Costs incurred for the capital increase through the issue of shares by the Company amounted to R$55,155 in February
2013, which, net of tax, represents R$36,402.
c) Share-based payments
As of December 31, 2013, the amount recorded related to share-based payment expenses was R$1,848, of which
R$1,516 was registered in the statement of profit or loss classified as personnel costs, and R$332 was registered
under current assets as “related parties transactions”.
d) Dividends and interest on capital
The Company’s bylaws provide for a mandatory minimum dividend to be paid to shareholders, in the aggregate of at
least 25% of annual adjusted profit under the article n. 202 of the “Lei das Sociedades por Ações (LSA - 11.638/2007)”.
On August 8, 2013, the Company shareholders approved without losses on the bylaws agreements, the distribution
of dividends and intermediary interest on capital, based on the estimated results for the year 2013.
Management proposed dividends to be paid, estimated as shown below, considering prepaid dividends and interest
on capital to its shareholders in the amount of R$37,116, as mentioned above, paid in 2013. The amount of
dividends payable as of December 31, 2013 is R$12,247, recorded under current liabilities.
After the end of the year, the Company’s management submitted to the Ordinary General Meeting the proposal for
the mandatory minimum dividends distribution of R$49,363, being the total dividends distribution of R$31,074 and
interest on capital of R$18,289, as shown below:
12/31/2013
Profit for the period
Legal reserve
Adjusted Profit for the period
Mandatory Dividends:
25% of the adjusted profit for the period
Dividends and interest on capital distributed in the year:
Intermediary Interest on capital (gross) paid in august 2013
Intermediary Dividends paid in august 2013
Mandatory Dividends Payable for the year
Mandatory Dividends for the period ended on 2013
Amounts per share, in reais
Intermediary dividends paid in august, 2013
Intermediary interest on capital paid in august, 2013
Mandatory dividends in december, 2013
Mandatory Dividends for the year ended on 2013
207,844
(10,392)
197,452
49,363
18,289
18,827
12,247
49,363
0.15
0.15
0.10
0.40
e) Additional dividend suggested
The remaining balance of net income for the year ended on December 31, 2013 not yet designated in the amount
of R$148,089 plus the net transfers from G.A. Smiles Participações S.A. in the amount of R$13, which amounted
to R$148,102, were classified as additional dividends suggested under equity in accordance with management’s
proposal for the net income destination, which will be submitted for approval to the Shareholders’ Ordinary
General Meeting, scheduled for April 30, 2014. The value per share of the proposed additional dividend distribution
amounts to R$1.21 per share.
f) Capital reserve
The goodwill special reserve is originated by the reverse incorporation of its shareholder G.A. Smiles Participações
S.A., as described in Note 1. This reserve can be used for capital increase at the end of each year after the amortization
of the related tax benefit. The amount as of December 31, 2013 was R$72,942.
g) Legal reserve
It is recognized by allocating 5% of the profit for the year after the absorption of accumulated losses in accordance
with Article 193 of Law 11,638/07, limited to 20% of the capital, according to the Brazilian Corporate Law and the
Company’s by laws.
61
17. Sales revenue
The net sales revenue for the period has the following composition:
12/31/2013
307,499
237,434
74,317
12,921
632,171
(58,825)
573,346
Revenue from redeemed miles
Smiles & Money revenue
Breakage revenue and expired miles
Other operating income (a)
Gross revenue
Taxes
Net revenue
(a) Other operating income is related to the management fee of the Smiles Program relationship charged to VRG,
as described in Note 8. The total amount recorded as of December 31, 2013 was R$7,110.
18. Costs of redeeming rewards, selling expenses and administrative expenses
Cost of award
redemption
Salaries
Cost of purchase of airline tickets
Cost of purchase of various products
Computer services
Call center
Services
Sales and marketing
Depreciation and amortization
Other
–
(293,348)
(2,010)
(7,969)
–
–
–
(130)
(547)
(304,004)
12/31/2013
Selling Administrative
Expenses
expenses
(9,319)
–
–
–
(13,354)
–
(28,779)
–
–
(51,452)
Total
%
(21,150) (30,469)
7.7
– (293,348) 74.6
–
(2,010)
0.5
(1,227)
(9,196)
2.3
– (13,354)
3.4
(9,280)
(9,280)
2.4
– (28,779)
7.3
–
(130)
0.0
(6,062)
(6,609)
1.8
(37,719) (393,175) 100.0
19. Financial Result
12/31/2013
Financial income
Obtained discounts
Income from Short-term Investments
Other financial revenue
Financial expenses
Tax on financial (IOF) and currency operations (IOC)
Others
Foreign Exchange Changes, net
Total
114,920
14,592
192
129,704
(37)
(109)
(146)
(331)
129,227
On “obtained discounts” is registered the amount of R$112,832 related to anticipated purchases of tickets with VRG
as explained in Note 6 - Advances to suppliers.
20. Financial instruments
The description of the account balances and the categories of financial instruments included in the balance sheet as
of December 31, 2013 is as follows:
Measured at fair value
Measured at
through profit or loss
amortized cost
12/31/2013 12/31/2013 12/31/2012
ASSETS
Cash and bank deposits
Cash and cash equivalents
Short-term investments
Trade receivables
Other
LIABILITY
Accounts payable
–
152,906
228,489
–
–
–
1,337
–
–
49,637
48,990
831
–
–
–
–
–
–
–
16,094
70
Financial assets and financial liabilities are measured at amortized cost. Their carrying amount approximates their fair
value due to their nature and to their short-term maturity.
Management manages the financial instruments in accordance with a formal guideline, consistent with the Risk
Management Policy of parent GLAI, periodically defined by the Financial Policies and Risk Committee and submitted
to GLAI’s Board of Directors. The Committee establishes the guidelines and the limits, and monitors the controls,
including the mathematical models adopted for the continuous monitoring of the exposures and possible financial
impacts, as well as to prevent the use of speculative transactions with financial instruments.
Risks
The operating activities expose the Company and its subsidiaries to the following financial risks: market
(including currency risk and interest rate risk), credit and liquidity risks.
The Company’s risk management policy aims at mitigating potential adverse effects from transactions that could
affect its financial performance.
The Company’s decisions on the exposure portion to be hedged against financial risk, both for currency and interest
rate exposures, considers the risks and hedge costs.
Until December 31, 2013, the Company has not entered into any financial instruments related to derivative
transactions.
a) Market
i) Interest Rate Risk
The Company is exposed to fluctuations in interest rates in respect of interest income generated by cash balances
and short-term investments.
The Company has no derivatives in respect of cash flow hedges on interest rate fluctuations as of December 31, 2013.
ii) Sensitivity analysis
The sensitivity analysis of financial instruments was prepared according to CVM Instruction 475/08, in order
to estimate the impact on the fair value of financial instruments operated by the Company, considering three
scenarios considered in the risk variable: most likely scenario, the assessment of the Company; deterioration of 25%
(possible adverse scenario) in the risk variable, deterioration 50% (remote adverse scenario).
The estimates presented, since they are based on simple statistics, do not necessarily reflect the amounts to be
reported in the next financial statements. The use of different methodologies and /or assumptions may have a
material effect on the estimates presented.
63
Additionally, the Company must present in its sensitivity analysis of derivative instruments the risk that may
result in material losses, directly or indirectly considering the following elements, as determined by CVM
Instruction nº 475/08:
• The likely scenario is defined as the expected scenario by the Company and referenced by an independent external
source;
• The possible adverse scenario considers a deterioration of 25% in the major risk variable that determines the fair
value of financial instruments; and
• The remote adverse scenario considers a deterioration of 50% in the major risk variable that determines the fair
value of financial instruments.
The only financial instruments that the Company owns are investments in Bank Deposit Certificates (CDB)
and investment funds, classified as cash equivalents and short term investments. The Company measured its
non-derivative financial instruments, considering the impact of quarterly interest on the values exposed on
December 31, 2013, from changes in interest rates and the scenarios as follows:
The likely scenario adopted by the Company is the market levels maintenance.
Instrument
Cash equivalents
Short term investments
Risk
Reduction of CDI
Reduction of CDI
Exposed
Values
152,906
228,489
Possible Adverse
Scenario 25%(*)
(2,824)
(4,604)
Remote Adverse
Scenario 50% (*)
(5,648)
(9,207)
(*)These values represent the estimated amount of gains reduction, given the adverse scenarios presented above.
b) Credit risk
The credit risk is inherent in the Company’s operating and financing activities, mainly represented by trade receivables,
cash and cash equivalents, including bank deposits.
The “trade receivable” credit risk consists of amounts falling due from the largest credit card companies, with a credit
risk better than or equal to those of the Company, and receivables from non-airline partners.
As defined in the Risk Management Policy, the Company is required to evaluate, for the more relevant clients, the
counterparty risks in financial instruments and diversify the exposure. Financial instruments are performed with
counterparties rated at least as investment grade by S&P and Moody’s.
c) Liquidity risk
Liquidity risk takes on two distinct forms: market liquidity risk and cash flow liquidity risk. The first is related to current
market prices and varies in accordance with the types of assets and the markets where they are traded. Cash flow
liquidity risk, however, is related to difficulties in meeting the contracted operating obligations at the agreed dates.
As a way of managing the liquidity risk, the Company invests its funds in liquid assets, basically represented by CDBs
and Commitment Agreements.
The Company maintains a strong dependence on its associate VRG and on financial institutions, which together
represents almost the entire Company revenue source. A reduction of the sale of miles to any main partner or
business relationship severance may result in adverse events that could significantly impact the Company’s results.
d) Capital management
The Company remains committed to maintain high liquidity, and to ensure continued operations over time, providing
its shareholders a strong capital base, as well as a return of benefits to other stakeholders. The available resources
are sufficient to meet current liabilities.
As of December 31, 2013 the Company had no financial leverage.
e) Measurement of the fair value of financial instruments
In order to comply with the disclosure requirements for financial instruments measured at fair value, the Company
must classify its instruments in Levels 1 to 3, based on observable fair value levels:
a) Level 1: Fair value measurements are calculated based on quoted prices (without adjustment) in active market or
identical liabilities;
b) Level 2: Fair value measurements are calculated based on other variables besides quoted prices included in Level
1, that are observable for the asset or liability directly (such as prices) or indirectly (derived from prices); and
c) Level 3: Fair value measurements are calculated based on valuation methods that include the asset or liability but
that are not based on observable market variables (unobservable inputs).
The following table states a summary of the Company’s financial instruments measured at fair value, including their
related classifications of the valuation method, as of December 31, 2013.
Financial Instrument
Cash equivalents
Short term investments
Book Value
152,906
228,489
Other Significant Observable
Factors (Level 2)
152,906
228,489
21. Insurance
As of December 31, 2013, the main insurance coverage by nature, and related to the maximum reimbursable
amounts, is as follows:
Modality
Bail Lessor (Place Luigi Galvani)
Bail Lessor (Condominium Rio Negro - Alphaville)
Civil Responsibility
Fire (Asset Insurance)
In BR Reais
831
946
50,000
4,000
22. Non-cash transactions
In December 2013 the Company incorporated its shareholder G.A. Smiles Participações S.A., with no capital increase
and/or new shares issuance. The counterpart of the tax credit of R$72,942 was recorded in goodwill special reserve
in shareholders’ equity and liabilities assumed and incorporated assets totaled R$429 and R$416 respectively. This
transaction did not affect its cash position during the year ended on December 31, 2013.
23. Subsequent events
a) On January 21, 2014, the Administrative Council for Economic Defense (“CADE”) approved without limitation
the acquisition of 25% of the capital of Netpoints by the Company. According to CADE determinations, the involved
parties should not complete the transaction within 15 days from the approval date, which will be the period that
possible protests against the decision can be lodged.. That period ends on February 5, 2014.
b) On February 4, 2014, the Company’s management submitted to the Ordinary General Meeting the dividends
distribution based on income for the year ended on December 31, 2013, at the rate of R$0.10 per common share,
without withholding tax, according with the current legislation. The total amount distributed is R$12,247 and will be
paid until May 25, 2014. The proposal to distribute the additional amount of R$ 148,102 will also be submitted to
approval of the Ordinary General Meeting that will occur on April 30, 2014.
c) On February 4, 2013, the Board of Directors approved the grant of 1,150,000 (one million, one hundred and
fifty thousand) shares related to the Stock Option Plan at a price of R$ 31.28 reais per share to the Company´s
management and executives which are under the terms of this plan.
Board of Directors
Board of Executive Officers
Constantino de Oliveira Júnior
Chairman
Henrique Constantino
Vice Chairman
Joaquim Constantino Neto
Board Member
Boanerges Ramos Freire
Board Member
Marcos Grodetzky
Board Member
Ricardo Constantino
Board Member
Martin Emiliano Escobari Lifchitz
Board Member
Leonel Dias de Andrade Neto
Chief Executive Officer / Managing Director
Flavio Jardim Vargas
Investor Relations Officer
Accountant
Mônica Gomide Mendes
CRC 1SP251629/O-3
65
Independent
Auditor’s Report
To the Shareholders, Directors and Management of
Smiles S.A.
Barueri - SP
We have audited the accompanying financial statements of Smiles S.A. (“Company”), which comprise the balance
sheet as at December 31, 2013, and the income statement, statement of comprehensive income, statement of
changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting
policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (“IFRSs”),
issued by the International Accounting Standards Board (“IASB”), and for such internal control as Management
determines is necessary to enable the preparation of financial statements that are free from material misstatements,
whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with Brazilian and international standards on auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our unqualified
opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Smiles S.A. as
at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with
the International Financial Reporting Standards (IFRS) issued by IASB and the accounting practices adopted in Brazil.
Other matters
We have also audited the statement of value added (“DVA”) for the year ended December 31, 2013, prepared under
the responsibility of the Company’s management, the presentation of which is required by the Brazilian Corporate
Law for publicly-traded companies and as supplemental information by IFRS, which that does not require the
presentation of a DVA. This statement was subject to the same auditing procedures.
described above and, in our opinion, is fairly presented, in all material respects, in relation to the financial statements
taken as a whole.
The accompanying financial statements have been translated into English for the convenience of readers outside
Brazil.
São Paulo, February 4, 2014
Deloitte Touche Tohmatsu Auditores Independentes
CRC nº 2 SP 011609/O-8
André Ricardo Aguillar Paulon
Engagement Partner - CRC nº 1 SP 222749/O-5
67
08.
Credits
Redação, Revisão, Consultoria GRI e Revisão
RICCA RI
Criação e Conceito
RICCA RI
Diagramação e Revisão
Luz Publicidade
Fotos
Shutterstock
Coordenação
Relação com Investidores - Marcos Pinheiro e Bruno Fregonezi
Marketing - Bruna Millet e Karina Bernardo

Sustainability Report - Smiles

Transcription

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