Gol Reports R$ 2.3 Billion First Quarter Losses, Despite Decent Operational Results

RIO DE JANEIRO, BRAZIL – One of the companies most affected by Covid-19, as reflected in the performance of its shares in the year to date with a drop of approximately 70 percent, Gol (GOLL4) deferred the release of its financial statements for the first quarter of 2020, despite disclosing unaudited figures that provided very significant indications of the way the company is being impacted and how it has been tackling the pandemic.

The airline recorded an acute net loss of R$2.261 billion (US$452 million) compared to a net profit of R$35.2 million in the same period of 2019, without considering the Smiles merger. Excluding negative exchange and monetary variations of R$2.531 billion, net income stood at R$173.2 million in the first quarter, up 76 percent compared to R$98.4 million in the same period in 2019.

The company’s financial result was R$3.243 billion negative in the first quarter of this year, which strongly impacted its financial position. The company noted that financial expenses in the period skyrocketed due to the exchange rate variation – the reference dollar used by the company stood at R$4.03 in late 2019 to R$5.20 in the end of March (96.6 percent of the airline’s gross debt is in American currency).

The company decided to release unaudited figures on Monday since the independent auditors retained to assess the financial results asked for more time; the audited data, according to Gol, should be published on May 15th.

Despite the alarming loss, the result was considered slightly above expectations by analysts when operational performance is taken into account – however, the focus of investors is still on liquidity and monitoring the impact of coronavirus on operations.

The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled R$1.439 billion in the quarter, an increase of 51.3 percent compared to the same period last year and above consensual projections of 37 percent and four percent compared to Bradesco BBI estimates. The EBITDA margin stood at 29.8 percent compared to 17 percent in the first quarter of 2019.

The EBIT for the quarter was R$937.9 million, an increase of 71.7 percent compared to the first three months of 2019. The company noted that on a per seat-kilometer basis, the recurring EBIT was 7.53 cents of a Brazilian Real in the quarter, an increase of 79.7 percent compared to the same period in 2019. The company’s revenue was R$3.147 billion, a two percent decrease in the annual comparison.

Bruna Pezzin, an analyst at XP Investments, pointed out that the company reported results slightly above expectations mainly due to (i) higher-than-expected growth in other revenues (16 percent higher than XP’s estimate) and (ii) lower-than-expected unit costs (CASK) (6 percent lower than expected).

In addition, the results were positively impacted by a profit of R$595 million in sales and leaseback operations (which XP forecast at R$500 million) and there was also a non-recurring reimbursement of R$193 million due to the stoppage of the MAX jets.

In addition, Gol closed the quarter with a healthy cash and equivalents position. As highlighted by the XP analyst, although guidance remains suspended, management provided an indication of the expected reduction in cash burn over the second quarter (to R$9 million per day until June, compared to the current R$22 million per day).

“In general, first quarter results already partly reflect the impacts of reduced demand and more restrictive social distancing policies, as well as a depreciated exchange rate. We believe that the focus from now on will be on the management of the company’s liquidity, as well as on the flow of news related to the BNDES credit line and on the development of social distancing policies in Brazil”, evaluates Bruna.

Looking ahead

For Bradesco BBI, the most significant factor in relation to Gol’s first quarter results is the company’s cash position of R$4.2 billion, of which R$3.4 billion in cash and equivalents, and R$800 million in receivables.

“We estimate that GOL’s revolving credit requirement for 2020 is minimal due to its cash position coupled with initiatives to reduce cash outflow, such as 1) deferral of aircraft lease payments; 2) no pre-delivery payments in 2020; 3) reductions in wages and unpaid leaves, and 4) cuts in other expenses, such as marketing,” they assess.

The company also signaled its next steps, pointing out that total revenue should reach R$900 million in the second quarter compared to R$3.1 billion, a 70 percent drop. The company expects a recurring EBITDA margin of approximately 6 percent, compared to 25.9 percent in the second quarter of 2019. Total expenses should decrease by approximately 50 percent.

The company estimates a net debt/EBITDA ratio of 2.9 at the end of the second quarter. The average operating fleet of 27 aircraft should have an occupancy rate of approximately 80 percent.

Gol says it “is maintaining a minimum use of cash” and estimates that its cash preservation measures implemented during March will preserve approximately R$2.4 billion throughout 2020. The airline had approximately R$7 billion in liquidity on March 31st.

The company said it reduced capacity by approximately 80 percent in the second quarter of 2020 (75 percent domestic and 100 percent international routes) with the expected sequential contraction of Brazil’s GDP by at least five percent in the quarter.

In the midst of the complex scenario for airlines that should endure in the coming quarters, the note of importance for the search for liquidity was reinforced on Monday by Paulo Kakinoff, the airline’s CEO. He pointed out that Gol has enough working capital to sustain its operations consistently.

“Even with the existing assets and all the measures already in place, we are working hard, every day, to always seek maximum efficiency and intelligence in the use of our liquidity,” the CEO said.

During a conference call with investors on Monday, the news about possible federal government aid for airlines, through the BNDES, was also on the agenda, as it would allow each company to access an amount close to R$3 billion. However, Kakinoff pointed out that the terms have not yet been introduced – the development bank would have signaled that it will release its final conditions on May 15th.

Despite indications of a good cash position and relatively good operating figures, the scenario is still very cautious regarding the company in the midst of the still negative scenario on the impact of the coronavirus on the airline’s operations.

Thus, UBS, XP, and Morgan Stanley have recommendations equivalent to neutral for shares. On the other hand, Bradesco BBI continues with an outperform recommendation (performance above the market average), pointing out that Gol has enough liquidity to overcome the COVID-19 crisis, greater exposure to domestic demand that should recover first and tax savings related to the potential incorporation of Smiles.

In general, the recommendation is cautious for the company’s shares, as can be observed in this Monday’s shares performance, as they dropped by 10.08 percent, at R$11.15, while also pushing down Azul’s shares (AZUL4, R$15.16, -12.87 percent). On May 14th, it will be Azul’s turn to release its figures, which will also be reviewed by the market to understand what the company’s will be in the midst of the coronavirus crisis.

Source: Estadão Conteúdo

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