São Paulo, August 12, 2013 - GOL Linhas Aéreas Inteligentes S.A. (BM&FBOVESPA: GOLL4 and NYSE: GOL), (S&P: B, Fitch: B-, Moody’s: B3), the largest low-cost and low-fare airline in Latin America, announces its results for the second quarter of 2013 (2Q13). All the information herein is presented in accordance with International Financial Reporting Standards (IFRS) and in Brazilian Reais (R$), and comparisons are with the second quarter (2Q12) and first half of 2012 (1H12), unless otherwise stated.

Highlights

GOL recorded an operating loss (EBIT) of R$35 million in 2Q13 resulting in a negative margin of 1.8%, an improvement of R$320 million and 18 percentage points over 2Q12. In the first half, GOL recorded a positive operating margin of 1.7%,  in line with the margin projected for 2013, of between 1% and 3%.         PRASK (passenger revenue per available seat-kilometer) totaled R$14.14 cents in 2Q13, 10.5% up on 2Q12. This performance fueled the 7.5% year-over-year upturn in RASK (operating revenue per available seat-kilometer), which came to R$15.72 cents in 2Q13. The continuous monthly increase in PRASK since April 2012 reflects the Company’s efforts in optimizing its offer and maximizing the profitability of its routes.       CASK (operating cost per available seat-kilometer) totaled R$16.01 cents  in the second quarter, 8.4% down on the same period last year. Fuel costs per ASK fell by 8.8%, primarily due to the 3.4% decline in the per-liter fuel price and the use of a more fuel-efficient fleet. CASK ex-fuel fell by 8% in the same period, chiefly impacted by the reduction in personnel costs.         SMILES’ IPO during the quarter meant that the Company ended 2Q13 with its biggest ever quarterly cash position (cash, cash equivalents, financial investments and short and long-term restricted cash), totaling R$2.8 billion, equivalent to 34% of net revenue of the last 12 months (LTM).         SMILES S.A. posted an ex-breakage  operating margin of 27.5%, 5.5 percentage points up on 1Q13. The customer base grew by 7% in the last 12 months, reaching 9.3 million participants.       Continuing with its gradual deleveraging process, the Company closed the second quarter with a leverage ratio, represented by the adjusted gross debt/LTM EBITDAR ratio, of 15.5x, a 44% improvement over 1Q13, thanks to the gradual upturn in operating margins (LTM EBITDAR of R$654 million in 2Q13, versus R$357 million in 1Q13) and around R$318 million debt amortizations in the first-half, including pre payments. Net debt registered a decrease of around R$900 million between 1Q13 and 2Q13, while EBITDAR totaled R$602 million in the first half, a 192.8% increase compared to the same period in 2012.

      Given high exchange rate volatility and the slowing of Brazilian GDP growth, GOL announced in June 2013 a further reduction in 2013 domestic supply of around 9%, versus the previous estimate of 7%.

      In July 2013, GOL strengthened its airline partnerships with the initiation of ticket sales for Delta’s international flights to New York and Detroit through its sales channels. Also in July, the Company requested authorization from the Brazilian and Italian governments to implement a codeshare agreement with Alitalia.

Message from Management

In 2Q13, the Company recorded an improvement of R$320 million and registered an operating loss (EBIT) of R$35 million. The operating margin was negative by 1.8%, up by 18 percentage points over 2Q12, in what is the industry’s seasonally weakest quarter. As a result, GOL reported a positive operating margin of 1.7% in the first half.

Since April of last year, GOL has adapted its capacity to the new cost reality in the aviation industry, reducing its domestic route network while adjusting its cost structure and operational capacity.

The strategy was implemented without losing focus on the client and the Company’s commitment to expanding products and services. Corporate clients are the object of special attention for GOL. According to Abracorp (the Brazilian travel agents’ association), GOL’s share of the domestic business trip market grew by 3 percentage points in the last 12 months, closing the first half at 33.5%.

The remote check-in ratio has also been recording a continuous improvement, reaching an average 55% in the first half of the year, helping GOL to maintain the punctuality lead in the domestic market year-to-date.  In the country’s leading airports, the ratio was higher than 80%.

The development of partnerships has also played an important role in GOL’s strategy of increasing its international presence. The codeshare agreement with Delta was expanded and all destinations covered by Delta in Brazil will be connected to GOL’s route network and available for purchase on its sales channels by the end of August. The Company also announced the first step in the implementation of a codeshare agreement with the Italian airline, Alitalia, which will give GOL and Alitalia clients improved access to flights between Brazil and Europe.

Thanks to these measures, among others, our services became more attractive to passengers willing to pay for higher yields, reflected in the 10.5% year-to-date increase in PRASK and in the clear benefits for members of the SMILES program.

In line with its commitment to maintaining high liquidity, GOL accessed the capital market and launched the IPO of SMILES S.A. in the end of April. With this, the Company’s total cash position reached R$2.8 billion at the close of the quarter, equivalent to 34% of LTM net revenue and the Company’s highest ever figure. GOL also amortized debt of around R$318 million in the first half, thereby reducing its financial costs.

Thanks to the improved operating margins and the consequent EBITDAR recomposition, GOL continued its process of gradual deleveraging and strengthening the balance sheet. GOL closed 2Q13 with a 44% improvement in its financial leverage ratio over the previous three months and this downward trajectory should continue until the end of the year due to prospects of a positive annual operating result.

Given the recent shift in the macroeconomic scenario, the Company has increased its projected annual reduction in domestic supply from 7% to 9% in June. In the second half of the year, it will have to cope with record jet fuel prices and a new cost hike due to the depreciation of the Real, as well as prospects of a reduction in Brazil’s annual GDP growth estimates. The scenario is even more challenging.

The various changes in scenarios faced by the industry in recent years have made us strengthen our fundamentals, maintaining a strong cash position, appropriate debt profile, efficient cost structure and a focus on the profitability of our flights, always seeking to serve our clients in the safest and most intelligent manner possible. It is for these reasons that we have maintained our beginning-of-year annual operating margin guidance at between 1% and 3%.

GOL thanks its Team of Eagles for their hard work, motivation and commitment in this especially challenging period for the airline industry.

Paulo Sérgio Kakinoff 

CEO of GOL Linhas Aéreas Inteligentes S.A.

SMILES

In 2Q13, SMILES S.A. reported impressive results, underlining the potential of the loyalty program industry in Brazil. The company’s ex-breakage operating margin stood at 27.5%, 5.5 percentage points up on the 1Q13 figure, while net income came to R$48.3 million, a 62.0% improvement. The company will distribute R$37.1 million in dividends and interest on capital related to its first-half results Continuing with its efforts to strengthen relations with partners, in recent months SMILES entered into agreements with two major retail chains, Ri Happy and Drogarias Pacheco e São Paulo. Clients of either chain who are members of the loyalty program can accumulate miles. At the close of 2Q13, SMILES had 212 commercial partners and a base of 9.3 million participants, 7% up year-over-year.

With the intention of implementing a codeshare agreement between GOL and Alitalia, the companies plan to offer members of SMILES and MilleMiglia, Alitalia’s loyalty program, the possibility of accumulating and redeeming miles on all eligible flights operated by both airlines.

GOL believes that SMILES has important advantages that will allow it to gain strength as a loyalty-building tool. Thanks to the growth of commercial partnerships and closer ties with financial institutions, SMILES is becoming an increasingly important sales channel for GOL.

Smiles – Financial Highlights

Aviation Market: Industry ­ 

                             National Civil Aviation Agency (ANAC) figures

The aviation industry’s domestic supply fell by 3.7% year-over-year in 2Q13, while demand grew by 1.5%. Due to the reduction in supply, the period load factor increased by 3.8 percentage points. In year-to-date terms domestic supply declined by 5.8% over the first half of 2012, while demand remained flat.

              Aviation Market:  GOL 

National Civil Aviation Agency (ANAC) figures; 2Q12 includes consolidated GOL + Webjet figures

Domestic Market

GOL’s domestic supply fell by 5.8% over 2Q12. The year-to-date reduction was 11%, above the Company’s own estimate of between -8% and -10%.

Domestic demand recorded a 7.5% decline in the quarter due to the above-mentioned reduction in supply and the recomposition of prices in the period. The domestic load factor came to 69.0%, versus 70.3% in 2Q12.

International Market

In 2Q13, international market supply moved up by 34.0% over the same period of the last year, chiefly due to the new flights to Santo Domingo, Miami and Orlando launched in December 2012, helping push international demand up by 26.1%. 

As a result, the international load factor stood at 57.2% in the quarter, 3.6 percentage points down on the 60.8% recorded in 2Q12. Part of this reduction was due to the increased representativeness of the flights to Santo Domingo, where we made around 85% of seats available for sale due to the performance of the 737-800 NG aircraft. In accordance with ANAC’s methodology, the load factor is calculated over total aircraft capacity.

              PRASK, RASK and Yield   

In 2Q13, PRASK and RASK increased by 10.5% and 7.5% year-over-year, respectively, primarily due to the 13.4% upturn in yield.

Annual Yield Variation

The graph below shows that PRASK growth in recent months has outpaced the reduction in supply in comparison with the same months of the last year.

Annual Variation in Domestic PRASK and ASK

Key Operating Indicators

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

Income Statement in IFRS (R$ thousand)

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.

2Q13 Result – Operating Segment (R$ thousand)

For more information on the breakdown by business segment, see Note 29 to the Quarterly Information Report (ITR).

Net Revenue (R$ million)

Net revenue came to R$1,914.8 million in 2Q13, 4.6% more than the R$1,830.7 million recorded in 2Q12, chiefly due to the 13% increase in yield in the period. 

Net revenue per ASK (RASK) increased by 7.5% over 2Q12,  mainly due to higher PRASK. The upturn was partially offset by INSS (social security) contributions, which are now recognized under revenue taxes due to the aviation industry’s inclusion in the Brasil Maior payroll-tax exemption program as of 2013. As a result the calculation base of INSS over payroll was changed to 1% of total gross revenue, increasing revenue taxes by 17.3%. 

Net passenger revenue totaled R$1,722.6 million, 7.5% up on the R$1,602.0 million posted in 2Q12 due to the period reduction in supply and the Company’s efforts to pass on the cost hikes, seeking to attract passengers with higher yields. Net passenger revenue per ASK (PRASK) increased by 10.5%thanks to the 13.4% period upturn in yields. Ancillary revenue came to R$192.3 million, 15.9% down on the R$228.7 million posted in 2Q12, primarily due to the 2.7% reduction in seat supplyand the alteration in the fair value evaluation of miles sales due to the separation of SMILES and VRG. This was partially offset by the 9% upturn in cargo revenue. The success of GOLLOG’s Voo Certo product has also contributed to the improvement in cargo revenue and reflects the company’s strategy of increasing its ancillary revenue.Ancillary revenue per ASK fell by 13.6%.

            Operating Expenses (R$ million)

Operating expenses came to R$1,949.9 million in 2Q13, 10.8% down on the R$2,185.3 reported in 2Q12.

Total CASK amounted to R$16.01 cents in 2Q13, 8.4% down on the R$17.46 cents recorded in 2Q12, while CASK ex-fuel totaled R$9.30 cents, down by 8.0%. It is worth noting that this reduction took place against a background of increased pressure on operating costs, represented by the reduced dilution of costs per ASK and the 5.3% average depreciation of the Real against the Dollar in the quarter.

In the first half as a whole, GOL recorded savings of R$413 million, R$147 million of which due to reduced fuel costs and R$266 million in other operating costs, demonstrating the Company’s ability to manage its costs in line with changes in the scenario.

Fuel costs per ASK totaled R$6.71 cents in 2Q13, 8.8% down on 2Q12, due to the grounding of the B737-300s, which improved fuel consumption per ASK in the period by 5.6%, and the 3.4% year-over-year reduction in the average fuel price. The exchange rate at the end of 2Q13 will push fuel prices up in the coming quarter, given the jet fuel pricing policy which contains a time lag.   Salaries, wages and benefits per ASK came to R$2.75 cents in 2Q13,  13.7% less than in 2Q12, due to the 13% reduction in the Company’s workforce and the inclusion of the aviation sector in the Brasil Maior payroll-tax exemption program as of this year. At the close of the quarter, GOL had 16,465 employees, versus 18,966 at the end of 2Q12.

Aircraft leasing costs per ASK stood at R$1.26 cents, 1.5% down on 2Q12 due to the lower number of aircraft under operational leasing contracts (90, versus 99 in 2Q12). On the other hand, the 5.3% average depreciation of the Real against the Dollar in the period and the reduction in the aircraft utilization rate (from 12.0 to 11.7 block hours/day) pressured fixed costs.

Sales and marketing expenses per ASK totaled R$0.90 cents, 18.0% up on 2Q12, chiefly due to the agreement with the CBF (Brazilian Football Confederation), which includes advertising campaigns and transportation of the delegations taking part in the Copa do Brasil and the Brazilian Championship, as well as the games of the Brazilian national team, for the next four years.

Landing costs per ASK came to R$1.11 cents, 2.7% up on 2Q12, primarily due to the implementation of the R$7 passenger connection charge since the end of 2012 in Brasília, Guarulhos and Viracopos, generating additional costs of around R$6 million in 2Q13.

Aircraft and traffic servicing expenses per ASK came to R$1.16 cents, 10.5% more than in 2Q12, mainly due to the 5.3% average depreciation of the Real against the Dollar and higher consulting and IT expenditures.

      Maintenance, materials and repairs per ASK stood at R$0.67 cents, 21.2% down on 2Q12, chiefly due to the grounding of the B737-300s and the period reduction in the number of engine removals, as programmed, partially offset by the depreciation of the Real against the Dollar.  

      Depreciation and amortization per ASK totaled R$0.95 cents, 10.4% down year-over-year, chiefly due to the non-recurrence of expenses related to the return of Webjet’s aircraft in the same period last year, partially offset by the addition of one aircraft to the fleet under finance lease, totaling 46, versus 45 in 2Q12.

      Other operating expenses per ASK came to R$0.49 cents, 42.3% down on 2Q12, primarily due to gains of around R$30 million from sale leaseback operations in 2Q13 and the sub-leasing of five aircraft to Transavia to operate in the European summer high season.

  Operating Result

GOL recorded a consolidated operating loss (EBIT) of R$35.1 million in 2Q13, the Brazilian aviation industry’s seasonally weakest quarter, with a negative operating margin of 1.8%, an 18 percentage point improvement, equivalent to R$320 million, over 2Q12, thanks to the strategy of maximizing revenue and focusing on the control of manageable costs even in the midst of a highly challenging macroeconomic scenario.

The first-half operating result was a positive R$66.1 million, with an operating margin of 1.7%. The Company is reaffirming its annual operating margin guidance of between 1% and 3%.

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 record some of its derivative instruments. In 2Q13, the Company recorded a net gain from hedge operations of R$43.3 million.

*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 for effective 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 with the aim of protecting cash flow.

The amount related to hedge operations was substantially recognized in 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 losses of R$20.9 million in the quarter (R$17.1 million in the financial result and R$3.8 million in the operating result).

Foreign Exchange: foreign exchange hedge transactions designed to protect the Company’s cash flow generated gains of R$49.1 million, recognized in the financial result.

Interest: swap transactions to protect cash flow from aircraft leasing against an increase in interest rates generated gains of R$15.1 million in the financial result.

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 June 30, 2013:

*Weighted average of derivative strike prices.

** On 06/28/2013, the exchange rate was R$2.2156 / US$1.00.

All the financial instruments used for hedging purposes this quarter consisted of Brent and WTI options and collars, Libor interest rate swaps and dollar futures and options. GOL focuses on simplified derivative structures, aiming to reduce its operating risks and ensure as much compliance as possible with the targets established in its annual budget.

Financial Result

The 2Q13 net financial result was an expense of R$425 million no 2Q13, 5.6% down on the expense of R$450.3 million recorded in 2Q12.

Interest expenses totaled R$130.0 million, 18.7% up on 2Q12, chiefly due to: (i) the 10% year-over-year end-of-period depreciation of the Real against the Dollar, which had an adverse impact on the Company’s dollar-denominated debt (76.5% of the total in 2Q13, versus 70.2% in 2Q12); and (ii) new funding operations in the period: Senior Notes issues maturing in 2023 and financing guaranteed by the U.S. Ex-Im Bank for engine maintenance.

The exchange variation was up by only 0.3% over 2Q12, as most of the Company’s debt is foreign-currency-denominated. The result was practically offset by the reduced volatility of the exchange rate between 2Q13/1Q13 (+10%) and 2Q12/1Q12 (+11%).

Financial revenue totaled R$13.8 million, down -51.4% over R$28,4 million recorded in 2Q12, mainly due to the net income from financial investments.

Other financial expenses climbed by 19.4%, recording an expense of R$22.2 million in 2Q13, versus R$18.6 million in 2Q12, due to: (i) the 10% year-over-year end-of-period devaluation of the Real against the Dollar; (ii) the increase in bank commissions due to new funding operations; and (iii) the loss in the fair value of the SMILES stock purchase option entered into with General Atlantic.

Income Tax

Income tax totaled R$27.1 million, 70% down on the R$89.9 million reported in 2Q12, chiefly due to the 55% decline in expenses from deferred income tax as a result of: (i) the realization of miles constituted prior to the separation of SMILES’ activities (legacy of VRG); and (ii) the settlement of derivative operations.

Net Loss

GOL posted a 2Q13 net loss of R$433.0 million, with a negative net margin of 22.6%, versus a net loss of R$715.1 million and a negative net margin of 39.1% in 2Q12.

Balance Sheet: Liquidity

Cash, cash equivalents, financial investments and short and long-term restricted cash closed the quarter at R$2,767.1 million, 41% up on 2Q12 and 71% more than in 1Q13. This is the Company’s highest ever quarterly cash position.

Total cash represented around 34% of LTM revenue and 5.8x  obligations due in the next 12 months (3.3x in 1Q13).

This increase in relation to 2Q12 and 1Q13 was due to the cash entry of approximately R$1.5 billionin May 2013 from the SMILES IPO (R$1.1 billion) and the agreement involving the advanced sale of SMILES miles to financial institutions (R$400 million), underlining the Company’s commitment to maintaining high liquidity and reducing its leverage.   Short-term receivables consist mostly of ticket sales via credit card and accounts receivable from travel agencies and cargo transportation. At the end of 2Q13, these receivables totaled R$353.4 million, 1.8% less than the R$359.8 million recorded in 1Q13.

Balance Sheet: Indebtedness

On June 30, 2013, the Company’s total loans and financings came to R$5,594.5 million, including finance lease, 6.9% up on 2Q12, primarily due to: (i) the 10% year-over-year end-of-period depreciation of the Real against the Dollar; and (ii) Senior Notes issues maturing in 2023 and financing guaranteed by the U.S. Ex-Im Bank for engine maintenance, partially offset by the reduction in the Company’s debt by around R$318 million in the first half.

In comparison with 1Q13, there was an increase of 4.6%, also due to the 10% year-over-year end-of-period depreciation of the Real against the Dollar and the new funding operations described above, partially offset by the period reduction in the Company’s debt.

Continuing with its gradual deleveraging process, debt payments and pre-payments came to around R$318 million in the first half. The Company remains focused on its strategy of maintaining an adequate debt amortization profile.

The current liquidity ratio (total cash plus receivables divided by current liabilities) stood at 1.0x in 2Q13 (versus 0.7x in 1Q13 and 0.8x in 2Q12). On June 30, 2013, the average maturity of the Company’s long-term debt, excluding financial leasing was 5.7 years, with an average rate of 10.5% for local-currency debt and 8.9% for dollar-denominated debt.

The Company closed 2Q13 with a leverage ratio (adjusted gross debt/LTM EBITDAR) of 15.5x versus 27.9x in 1Q13 and 16.0x in 2Q12. The 44% improvement over the previous quarter was due to the EBITDAR  recomposition process. At the end of 2Q13, EBITDAR came to R$235 million, with a margin of 12.3%, giving first-half EBITDAR of R$601.7 million, with a margin of 15.1%, 133% more than the R$258 million (margin of 3.2%) reported in the entire year of 2012. Given the EBITDAR recovery, the Company’s financial leverage metrics should also stage a gradual recovery throughout 2013.

Financial Debt Amortization Schedule (R$ million)

Main Financial Ratios