GOL recorded a net loss of R$19.3 million in 4Q13, an improvement of R$428 million compared to 4Q12,  leading to an annual net loss of R$724.6 million. Part of this result was due to the foreign exchange variation, which generated an expense of R$490 million in 2013.

      GOL’s cash position closed the year at a historical record R$3 billion,  corresponding to 34% of annual net revenue. 

      In 2013, the Company paid and pre-paid R$438 million in debt, in line with GOL’s focus on avoiding amortization pressure in the horizon of the next 2 years.

      GOL was the airline with the highest rate of on time flights in the market in 2013. Focusing on operating efficiency, the Company achieved an index of 94% of flights on time, while remote check-in accounted for around 60% of total passengers at those airports most used by business customers in 4Q13.

      SMILES S.A. reported net income of R$66.7 million in 4Q13, 6% up on the previous quarter, with a net margin of 35.6%. The client base totaled 9.7 million members, an 8% year-over-year increase.

1- Financial commitments (gross debt + operational leasing contracts, in accordance with note 27 to the interim financial statements) less cash and cash equivalents and short-term financial investments; 2 - Gross debt + LTM operational leasing expenses x 7;

           Message from Management

In 2013, GOL recorded an operating margin (EBIT) of 3.0%, at the upper limit of its announced guidance in a very adverse macroeconomic scenario. The commitment to delivering a positive operating margin was successful thanks to the flexibility strategy and capacity management.

The Company dynamically reduced its supply in the domestic market by 7.4% in a background of low economic growth, with the 11% depreciation of the Real against the average Dollar and the jet fuel price 6% higher than in 2012. In February, the Company modified its network to maximize profitability by focusing more on business clients, preserving attractiveness in leisure fares.

For the second consecutive year, in 2013, GOL maintained its lead in terms of flights on time in the Brazilian market, with a ratio of 94% of flights without delay, considering consolidated data for all airports. In order to achieve this level of operational performance, GOL implemented the fast travel concept, which reduced boarding time, and took several measures to increase its efficiency; among these, the continuous streamlining of check-in, allowing all customers to anticipate and cancel their flights through GOL's website, at the self-service totems or through smart phones. The rate of approximately 60% of remote check-in ratio, in 4Q13, is one of the indicators which reflects the result of these actions. 

Additionally, the Company launched its new visual identity in airports, with a more functional and practical bilingual communication, and the new website, with a faster and easier purchasing process.

The Company increased to 30 the number of aircraft with sky interior and launched, in the year of 2013, the GOL+ on the Rio-São Paulo shuttle service, ensuring greater passenger comfort and an even better flying experience. In 2014, the Company will continue developing and improving its products and services and will expand the GOL+ product to 80% of its fleet until May, catering for 100% of domestic flights. This strategy is the result of the success of the product on the shuttle route, and is part of a process of standardization, efficiency gains and revenue generation.

Thanks to these and other measures, GOL was the airline that carried most business passengers in 2013, according to ABRACORP (the Brazilian Travel Agents’ Association). This evolution contributed for the 18% increase in PRASK, in turn fueling the R$853 million increase in annual revenue.

In regard to costs, the Company adjusted its structure by R$319 million in 2013, of which R$131 million in fuel and lubricant and R$188 million in other operating expenses, maintaining CASK flat over the year before.

In regard to manageable costs, it is worth noting that the workforce count is stable since the beginning of 2013, at the same time as the customer satisfaction index remained at 7.6 points (on a scale from 1 to 10).

Aiming to develop GOL’s Loyalty Program, in April 2013 SMILES S.A.’s initial public offering (IPO) was concluded. The entire proceeds of R$1.1 billion were used for the advanced purchase of GOL tickets. This operation reflects the confidence in the growth of the loyalty program market in Brazil in the coming years and helped strengthen the Company’s liquidity.

Cash position totaled R$3.0 billion at the end of 2013, equivalent to 34.0% of annual net revenue, the highest level in the Company’s history in nominal terms. With the R$1.3 billion upturn in EBITDAR, reaching the highest historical maximum of R$1.5 billion, and the amortization and prepayment of obligations totaling R$438 million in the year, financial leverage closed 2013 at 6.9x, versus 37.6x at the end of 2012.

In 2014 Brazil will host the World Cup and GOL will have a special role, being the proud official carrier of the Brazilian team. The Company has adopted measures to serve with excellence in the event. The supply and demand management through the request for 974 extra flights or with schedule alterations, specific staff training programs and the placement of professionals who are fluent in more than one language at the host cities’ airports are examples of actions especially developed for the event.

The 2014 economic scenario is proving to be even more challenging with fuel prices higher than in 2013 and the devaluation of the Real against the Dollar, maintaining pressure on costs. With this in mind, the Company announced a new organizational structure aimed at increasing revenue generating capacity, and has increased its focus on planning and controlling costs, a crucial factor in the execution of its short and long-term strategies.

The expansion of the code share with Delta provides greater connectivity for clients, offering them approximately 400 destinations served by both airlines in the world. In addition, the collaboration between both companies enables the exchange of knowledge, thereby improving products and services.

In continuity with the strategy of forming international partnerships, in February 2014, GOL announced the strengthening of its alliances through the strategic partnership with AirFrance-KLM, encompassing commercial cooperation, the expansion of the code share, joint sales activities and more benefits for clients of both companies through their loyalty programs, in the Brazilian and European markets. As part of the total investment of US$100 million, AirFrance-KLM will hold a stake of approximately 1.5% of capital stock, in GOL preferred shares. This agreement is subject to antitrust approval from CADE.

For 2014, the Company is projecting a -3% to -1% variation in domestic seat supply, and a growth of until 8% in the international market. This projection reiterates the consolidation of strategy, seeking margin expansion through revenue growth. The increase in profitability should be driven by yield management and supply flexibility together with the increase in the load factor, a trend already observed in recent months. The Company announces a growth projection of equal to or above 10% in RASK, and an increase of equal to or less than 10% in CASK ex-fuel. With this, GOL estimates an EBIT margin of between 3% and 6% in 2014.

GOL wishes to thank its Customers for their loyalty, its Team of Eagles for their commitment throughout the year, and its Shareholders for their confidence, all of which increasingly reinforces GOL's vision of being the best company to fly with, work for and invest in.

Paulo Sergio Kakinoff 

               CEO of GOL Linhas Aéreas Inteligentes S.A..

SMILES

In 4Q13, SMILES S.A. reported net revenue of R$187.6 million and net income of R$66.7 million, increases of 20% and 6%, respectively, over 3Q13.

The Company proposed 2013 dividends and interest on equity of R$197.5 million, R$37.1 million of which has already been paid and R$160.3 million is pending approval by the annual shareholders’ meeting. This amount represents a 95% payout on annual net income. Another of the program’s annual highlights was the number of miles redeemed, which came to 30.7 billion, 17% up on 2012.

At the end of the year, SMILES had 215 commercial partners and a 9.7 million member base, 10% and 8% more than in 4Q12, respectively. In addition, in order to strengthen the program, in the fourth quarter SMILES implemented its partnership with PayPal, allowing SMILES customers to redeem their miles in a prepaid virtual card to be used as a means of payment with all partners of the PayPal network. PayPal is the most popular on-line payment method in the world, with over 132 million users.

On December 31, 2013, the merger of G.A. Smiles Participações S.A. by Smiles was approved, with no change in the capital stock. This operation generated tax benefit of R$72.9 million, to be captured in the five years as of 2014.  

In February 2014, General Atlantic (GA) exercised its purchase option of SMILES shares in the amount of R$80 million. In this way, GOL now holds 54.5% and GA 17.9% of SMILES’ capital stock.

SMILES represents a solid sales channel for GOL, which regards the loyalty program as a competitive advantage to increase the attractiveness of its products and services.

SMILES – 2013 Financial Highlights

Aviation Market: Industry ­ 

                                                     National Civil Aviation Agency (ANAC) figures

In 4Q13, aviation industry demand increased by 6.0% over the same period in 2012, while supply grew by only 1.0%. Consequently, the load factor moved up by 3.8 percentage points to 79.2%. The 2013 result followed the same tendency: supply fell by 0.6%, while demand grew by 2.2%. As a result, the load factor came to 76.4%, 2.1 percentage points more than in 2012. In the domestic market, supply declined by 2.9%, while demand increased by 1.4% and the load factor climbed by 3.2 percentage points.  

Aviation Market: GOL 

      (*) National Civil Aviation Agency (ANAC) figures

                             Domestic Market

      GOL’s domestic supply remained virtually flat in 4Q13, with a slight 0.3% upturn, while demand grew by 7.3% and the load factor increased by 4.9 percentage points over 4Q12, to 75.6%. In the period, the Company reached the mark of 10 million passengers transported. In 2013 as a whole, supply and demand fell by 7.4% and 7.3%, respectively, resulting in a stable load factor. Due to the opportunity for generating additional revenue observed in December and the consequent increase in ASKs in that month, the reduction in 2013 supply was 1.6 percentage points below the guidance announced for the year. In December, GOL reported the record number of customers transported in a single day by the Company:  139,432 passengers.

International Market

Fourth-quarter supply grew by 26.2% over 4Q12, while demand moved up by 44.4% and the load factor increased by 8.6 percentage points to 68.0%. In the full year, fueled by the flights to Miami and Orlando, GOL's supply grew by 29.9% and demand increased by 26.9%, while the load factor stood at 62.7%, a 1.5 percentage points decline over 2012.

              PRASK, RASK and Yield

      Thanks to GOL’s strategy of becoming increasingly attractive to business customers and offering competitive prices to leisure passengers, combined with supply management, yields increased by 19% year-over-year in 4Q13. As a result, PRASK moved up by 27% and RASK grew 25%. In 2013, yield increased by 19%, while PRASK and RASK climbed by 18% and 15%, respectively. 

The Company’s commitment to increasing the profitability of its routes and improving its product fueled PRASK growth throughout the year. This can be seen in the graph below:

Annual Variation in Total PRASK and Domestic ASK*

(*) National Civil Aviation Agency (ANAC) figures

                        Key Operating Indicators

1. Source: Brazilian Central Bank; 2. Source: Bloomberg; 3. Fuel expenses/liters consumed.

            Income Statement in IFRS (R$ thousand)

¹ Interest income comprises income from short-term investments and investment funds

In accordance with CVM Instruction 527, the reconciliation of EBIT and EBITDA is shown in the “Operating Result” section. We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator.

4Q13 Result – Operating Segment (R$ Thousand)

For more information on the breakdown by business segment, see Note 29 to our Financial Statements.

Net Revenue (R$ million)

Net revenue came to R$2,728.2 million in 4Q13, R$609 million, or 29%, more than the R$2,119.5 million recorded in 4Q12. This result was mainly fueled by the 27% upturn in PRASK, which occurred against a background of stable domestic supply and high demand observed in the period.

Annual net revenue totaled R$8,956.2 million, R$853 million, or 11%, up on 2012. Net revenue per ASK (RASK) increased by 25% in the quarter and 15% in 2013, reaching the annual guidance of growth equal to or more than 10% in this indicator. 

Net passenger revenue totaled R$2,451.4 million in 4Q13, 31% up on the R$1,873.7 million reported in 4Q12. Net passenger revenue per ASK (PRASK) stood at R$19.34 cents, a 27% upturn, driven by the 19% increase in yield, which reached R$25.85 cents, and the 5.1 percentage points year-over-year growth in the load factor. Ancillary revenue came to R$276.9 million in 4Q13, 13% more than in 4Q12, while ancillary revenue per ASK grew by 10%, chiefly due to the upturn in cargo revenue, in addition to revenue from the cancelling of flights and no show.

  Operating Expenses (R$ million)

Operating expenses totaled R$2,565.4 million in the quarter, 4% up on the R$2,477.1 million reported in 4Q12. Excluding fuel expenses, operating expenses came to R$1,593.3 million, 3% more than in 4Q12.

In the quarter, expenses per ASK stood at R$20.24 cents, a 0.9% increase over the R$20.05 cents recorded in 4Q12. Excluding fuel expenses, CASK moved up by 0.6% year-over-year, to R$12.57 cents.

Given the adverse macroeconomic scenario, CASK ex-fuel came to R$10.23 cents, above the annual guidance (between R$9.5 and R$10.0 cents).

In 2013 as a whole, GOL generated cost savings of R$319 million, or 4%, R$131 million of which in fuel and lubricant costs and R$188 million related to other categories of operating costs.

Fuel costs per ASK totaled R$7.67 cents in 4Q13, 1% up on 4Q12 due to the 4% year-over-year increase in the average fuel price. Salaries, wages and benefits per ASK came to R$3.07 cents in the quarter, 2% less than in the same period last year, driven by the 8% reduction in the workforce from 17,676 at the close of 2012 to 16,319 at the end of 2013. The decrease in the number of employees was partially compensated by the agreement signed in relation to labor benefits and also for the recognition of profit sharing in 2013 attributed to employees. The sum of these effects corresponds to approximately R$51 million.

Aircraft leasing costs per ASK stood at R$1.65 cents in 4Q13, 22% up on an annual comparison, mainly due to the 10% period depreciation of the Real against the average Dollar and the decline in the aircraft utilization rate (from 11.8 block hours/day in 4Q12 to 11.6 block/hours day in 4Q13), resulting in less dilution of fixed costs. The number of aircraft under operational leasing contracts remained flat at 96, corresponding to 70% of the operational fleet.

Sales and marketing expenses per ASK totaled R$1.49 cents, 52% up on 4Q12, due to higher commissions resulting from increased sales. These costs were also impacted by the four-year agreement signed with the CBF (Brazilian Football Confederation) and the increase in losses related to fraud on channels with credit card sales.

Landing costs per ASK came to R$1.18 cents, 7% higher than in 4Q12, chiefly due to the charging of a passenger connection fee of between R$4 and R$8 depending on the category of the airport. This fee was initiated in the end of 2012 for certain airports, and since July 2013 is now applied to all airports.

      Aircraft and traffic servicing per ASK stood at R$1.17 cents, 4% up on 4Q12, primarily due to expenses related to consulting and servicing(approximately R$10 million).

      Maintenance, materials and repairs per ASK totaled R$1.35 cents, stable in relation to 4Q12, due to the combined effects of i) increase in the number of engine removals (14, versus 13 in 4Q12); and ii) 10% period depreciation of the Real against the average Dollar, as most of these expenses are denominated in dollars; compensated by non-recurring expenses in 4Q12 related to the return of Webjet’s aircraft.

      Depreciation and amortization per ASK came to R$1.42 cents, 19% higher than year-over-year, chiefly due to accelerated depreciation of improvements associated with major engine maintenance work of aircraft in the process of being returned.

      Other expenses per ASK stood at R$1.24 cents, 45% down on 4Q12, primarily due to the provisioning of around R$140 million related to the winding up of Webjet's activities and asset revaluation in 4Q12. In addition, in 4Q13 there were gains from the sale leaseback of an aircraft, totaling R$116.7 million in the year. These effects were partially compensated by the accounting of the write-off of the remaining balance of the Varig brand and the write-off of software use license.

  Operating Result

GOL recorded consolidated operating income (EBIT) of R$163 million in 4Q13 with an operating margin of 6.0%, growth of R$520 million and 22.8 percentage points year-over-year. In 2013, EBIT reached R$266 million, with a margin of 3.0%, on the upper limit of the annual operating margin guidance (between 1% and 3%). These figures represent a R$1,172 million and 14.2 percentage point improvement over 2012.

 

In accordance with CVM Instruction 527, the Company presents the reconciliation of EBIT and EBITDA, whereby: EBIT = net loss (income) plus income and social contribution taxes and the net financial result; and EBITDA = net loss (income) plus income and social contribution taxes, the net financial result, and depreciation and amortization.

We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator, whereby: EBITDAR = net income (loss) plus income and social contribution taxes, the net financial result, depreciation and amortization, and aircraft operating lease expenses.

  Hedge Result

The Company makes use of hedge accounting to recognize some of its derivative instruments. In 4Q13 GOL recorded a book gain of R$82.9 million from hedge operations.

*OCI (Other Comprehensive Income) or Statement of Comprehensive Income is a transitional account where positive and negative fair value adjustments of future operations are booked, designated as effective for hedging cash flow. The purpose is to state income as close to the Company’s reality as possible. As the results from operations occur in their respective accrual periods, they are incorporated into the Company's income. GOL records the fair value of hedges due in future periods whose aim is to protect cash flow.

The amount related to hedge operations was partially recognized under the financial result. For more details, see the “Financial Result” section.

 

Fuel: fuel consumption hedge transactions, which are effected through derivative contracts involving crude oil and its by-products (WTI, Brent and heating oil) generated gains of R$13.6 million in 4Q13. The Company’s fuel hedge position had a slight reduction in relation to 3Q13, and at year-end, 19% of its exposure in the next three months was protected.

Foreign Exchange: foreign exchange hedge transactions designed to protect the Company’s operational cash flow generated gains of R$41.4 million. GOL reduced its FX hedge protection, with 43% of exposure in the next three months being protected, versus 70% in 3Q13.

Interest: swap transactions to protect cash flow from aircraft leasing against an increase in interest rates generated total gains of R$27.9 million. The Company reduced its nominal hedged position from US$1,431 million in 3Q13 to US$1,319 million at year-end.

The table below shows the nominal value of derivatives contracted as a hedge against future expenses, the derivatives’ average contracted rate and the percentages of hedged exposure on an accrual basis on December 31, 2013:

* Weighted average of derivative strike prices.

** On 12/31/2013, the exchange rate was  R$2.3426 / US$1.00.

Financial Result

The 4Q13 net financial result was an expense of R$201 million, 57% higher than in 4Q12, primarily impacted by the exchange variation, which totaled an expense of R$185.8 million, versus R$18.1 million in the same period in 2012. In 2013 as whole, the net financial result recorded an expense of R$919 million, 35% up on the previous year, also due to the exchange variation. 

                                    ¹ Interest income comprises income from short-term investments and investment funds

Interest expenses totaled R$145.1 million in the quarter, 22% up on 4Q12, chiefly due to the 10% year-over-year depreciation of the Real against the average Dollar. This had an adverse impact on the Company’s Dollar-denominated debt, which accounted for 78% of the total, versus 70% in 4Q12. Part of the increase was also the result of new debt issues in comparison with the same period in the previous year (Senior Notes in February 2013, maturing in 2023). In addition, the approximate 2.9 percentage point period upturn in the CDI interbank rate increased interest payments on CDI-indexed debt, which was the case of the 4th and 5th debenture issues.

The exchange variation was negative by R$185.8 million in 4Q13, up by 925% in the annual comparison, chiefly due to the 15% depreciation of the Real against the end-of-period Dollar.

Interest income totaled R$33.2 million in the quarter, 87% more than in 4Q12, mainly due to the 92% period increase in the cash position and the upturn in the benchmark interest rate (SELIC).

Other financial expenses came to R$2.5 million, an R$11 million reduction, primarily due to the increase of the “Voe Fácil” program, partially compensated by the expenses related to the waiver obtained with holders of the 4th and 5th issue debentures.

  Income Taxes

Income tax in the quarter totaled a positive result of R$18.4 million, versus a positive result of R$38.4 million in 4Q12, largely due to the variation in current tax, in turn due to the impact of income and social contribution taxes on the taxable income of SMILES S.A.

 

                        Net Loss

GOL posted a net loss of R$19.3 million in 4Q13, with a negative net margin of 0.7%, a R$428 million and 20.4 percentage point improvement over the net loss of R$447.1 million with negative margin of 21.1% reported in 4Q12.

Balance Sheet: Liquidity

GOL reached a new record in terms of total cash, financial investments and short and long-term restricted cash, which closed 4Q13 at R$3,045.7 million, 92% up on 4Q12 and 4% more than in the previous quarter.

Total cash represented 34% of LTM net revenueand 6.9x the obligations due in the next 12 months, versus6.5x in 3Q13 and 0.9x in 4Q12. At the end of 4Q13, short-term receivables totaled R$324.8 million, practically stable in relation to 4Q12 and 12% less than in 3Q13. These consist mostly of ticket sales via credit card and accounts receivable from travel agencies and cargo transportation.

Balance Sheet: Indebtedness

On December 31, 2013, the Company’s total loans and financings came to R$5,589.4 million (including financial leasing), 8% up on 4Q12, primarily due to the following factors: (i) the 15%

 

devaluation of the Real against the end-of-period Dollar; (ii) the Senior Notes issue maturing in 2023; (iii) financing guaranteed by the U.S. Ex-Im Bank for engine maintenance; and (iv) the entry of an aircraft under a finance lease contract. These effects helped increase the Dollar-denominated portion of the Company’s total debt, which moved up from 70% in 4Q12 to 78%. The increase in total debt was partially offset by the amortization of R$438 million in short-term debt in the period, including R$91 million in pre-payments.

The current liquidity ratio (total cash plus receivables divided by current liabilities) stood at 0.9x in 4Q13, the same level as the previous quarter. In 4Q12, the ratio was 0.4x.

On December 31, 2013, the average maturity of the Company’s long-term debt, excluding financial leasing, was 5.5 years, with an average rate of 11.5% for local-currency debt and 9.1% for Dollar-denominated debt

In line with its policy of avoiding amortization pressure over the next two years, GOL paid and prepaid debt of around R$438 million in 2013. Additionally, the Company also negotiated a waiver with its

debenture holders in relation to its possible non-compliance with the restrictive clauses in the indentures of the 4th and 5th debenture issues. The granting of the waiver before the end of the year meant that the debt in question remained classified as long-term on December 31, 2013.

Due to the period recovery of EBITDAR, which totaled R$552 million in the fourth quarter and R$1,526 million in the full year, the Company closed 2013 with a leverage ratio (adjusted gross debt/LTM EBITDAR) of 6.9x, versus 10.9x in the previous quarter and 37.6x in 4Q12.

Financial Debt Amortization Schedule (R$ million)

GOL’s loans and financing amortization profile, excluding interest and financial leasing, shows that the Company remains committed to reducing its short-term financial obligations, as can be seen from the position on December 31, 2013.

Main Financial Ratios