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An
nu
Al
Rep
oR
t 2
010
Av. das Nações Unidas, 12.901CENU • Torre Norte • 21º andarBrooklin Paulista • São Paulo • SPcep: 04578-910 www.multiplusfidelidade.com.br
AnnuAl RepoRt 2010
An
nu
Al
Rep
oR
t 2
010
Av. das Nações Unidas, 12.901CENU • Torre Norte • 21º andarBrooklin Paulista • São Paulo • SPcep: 04578-910 www.multiplusfidelidade.com.br
AnnuAl RepoRt 2010
MESSAGE FROM THE CEOHiGHliGHTSPROFilEThe Loyalty Program IndustryHistory of MultiplusProducts and ServicesValue GenerationStrategy and Objectives
CORPORATE GOVERNANCEBoard of Directors and ManagementRelationship with TAMDifferentiated Corporate Governance PracticesInvestor RelationsInternal ControlsSocial-Environmental Responsibility
FiNANCiAl RESulTSEarningsIncome Statement
iNTANGiblE ASSETSBrandPeopleInformation TechnologyRisk Management
GlOSSARy
CORPORATE iNFORMATiON
CREdiTS
0204080810101620
24252830313333 363637 4444454949
52
54
55
liFE OFPOiNTS ANd dREAMS
2010 Annual Report Multiplus S.A.
in 2010, Multiplus recorded the first year of its history. We are very proud to be a part of this moment and pleased with the results achieved.
On February 4, Multiplus made its iPO and began trading 26.83% of its shares on the bM&FbOVESPA. The value of the shares had increased 113.40% by december and the daily average trading volume was R$7.3 million.
in line with the best Corporate Governance practices, i assumed the position of CEO of Multiplus in May, disassociating our administration from TAM Airlines. in August, we transferred our corporate head office to São Paulo’s united Nations business Center and approved our options plan. The company presented a proposal for its General Plan for Stock Options on december 17, 2010, approved by the l Extraordinary Shareholders’ Meeting held on October 4, 2010.
MESSAGE FROM THE CEO
Eduardo Gouveia CEO
2
We believe that we took an important step forward in the sense of preparing Multiplus for the growth opportunities present in Brazil’s loyalty program market. We created and structured several administrative areas, including Investor Relations, Marketing, Products, New Business, CRM, Operations Board and Finance. We installed and stabilized our technological platform, Siebel Loyalty, through which we began to manage our operations. This system allowed us to speed up the inclusion of new partners and our transaction processing.
As a result of our sales team’s efforts, we achieved the mark of 151 commercial partners in December, including those of the coalition, which allow for both the accumulation as well as the redemption of points. We began 2010 with five partnerships in this category: TAM Airlines, TAM Viagens, Ipiranga, Livraria Cultura and BomClube. During the second half of the year, the companies Accor Hospitality and Oi joined us. During this same period, we brought to the coalition network the companies Editora Globo, GEP (our first coalition partnership from the clothing segment with the stores of the brands Luigi Bertolli, Cori and Emme), the pay-TV operator SKY and Multi Holding (holder of approximately 3,520 schools
and nine brands of language, IT and vocational courses, such as Wizard and Microlins). We also inaugurated our presence in the pharmacy segment through a partnership with Drogaria Rosário, the largest retailer from the pharmaceutical sector in Brazil’s Central-Western region.
With these new partnerships, Multiplus ended the past year with gross billings from points of R$1.1 billion and a net income of R$118.4 million. With aims of maximizing the return to shareholders, the company distributed R$112.3 million, or 95% of this result, in the form of dividends or Interest on Capital, including the dividends proposed by the Board of Directors.
As can be clearly seen, in 2010 our efforts were focused on structuring the company and establishing new partnerships. Over the upcoming years, we will go far beyond the growth of the network, building a better experience for our clients, consolidating our brand and focusing on initiatives geared toward the growing return of our business.
We would like to thank all of the employees and shareholders who, from the very beginning, have also believed in Multiplus’ success.
Over the upcoming years, we
will go far beyond the growth of the network,
building a better experience for our clients, consolidating our brand and focusing on initiatives geared toward
the growing return of our business.
RElATóRiO ANuAl 2010 3
in 2010, Multiplus reached the mark of 8 million members, 151 partnerships and recorded gross billings of R$1.1 billion. Approximately 95% of the Net income for the period was distributed to shareholders.
2010 HiGHliGHTS
Multiplus, year 1
New head office, new systems
and a new team. The Management took an
important step forward in the sense of preparing Multiplus for the growth
opportunities present in brazil’s loyalty program market.
4
iPO of R$692 million
inauguration of new corporate head office
installation and stabilization of operating systems
Creation of new areas and structuring of top management
Approval of Stock Options Plan
8 million members
151 partnerships, 12 of which are from the coalition
Gross billings from points: R$1.1 billion
Adjusted EbiTdA: R$290.1 million (28.2% margin)
Net income: R$118.4 million
Proposed distribution of 95% of the net income in the form of dividends and interest on Capital
OPERATiONAl dATA 2010
Members (millions) 8
Partnerships 151
Points issued (thousand) 53,236,120
TAM Airlines 18,656,185
Banks, retail, industry and services 34,579,935
Points redeemed (thousand) 16,782,991
Airline tickets 16,710,594
Partners from the coalition and catalog 72,397
burn/earn (pro forma, %) 65.8%
breakage rate (average for past 12 months %) 22.6%
Number of employees 81
RElATóRiO ANuAl 2010 5
He said that we have our values and we can keep this idea alive for
generations. The gas station where i fill up my car has a loyalty program.
i always go there because i know i can join the points i accumulate there
buying gas with the points i earn at other companies. i know that we are
close to making our family’s dream come true. We want to go on our big
trip by gathering our points.
My FATHER AlWAyS TOld ME THAT ONE OF THE PillARS OF OuR FAMily iS lOyAlTy
At Multiplus, it is possible to gather the points earned at a gas
station and use them to purchase airline tickets. it is also possible accumulate
points with the airline company and exchange
them for fuel.
The loyalty Program industryThe client loyalty program industry involves tools and
reward practices based on loyalty to a specific company. One of the most common ways is the accumulation of incentive points, which can then be converted into awards. Such programs can be classified into two different categories: Individual Programs and Coalition Programs.
Consumer
Multiplus began operating in January 2010 as a coalition network created through the TAM Fidelidade (“TAM loyalty”) Program established in 1993. This network consists of 151 commercial partners and 8 million members (March 2011).
PROFilE
A Network
The coalition programs allow
for the accumulation and redemption of points at different companies. in
this case, it encourages the consumer’s loyalty not
only to an establishment, but also to a network
of commercial partners.
individual Program
$ Accumulation of points
Redemption of points
Company A Points
Company A Products
Company A Products
8
Until recently, frequent flyer programs were the most popular type of individual loyalty program. They involve the redemption of points by acquiring products at a single company. Their success is due primarily to the growing demand for free airline tickets. With aims of offering its members redemptions for airline tickets, different individual loyalty programs seek to establish relationships with frequent flyer programs.
The coalition programs allow for the accumulation and redemption of points at different companies. In this case, it encourages the consumer’s loyalty not only to an establishment, but also to a network of commercial partners. The advantages for these partners include lower client acquisition and retention costs, since the same are shared by all partners of the network. Furthermore, there are the benefits of access to the consumer base of other segments, the opening of a new channel to publicize the brand and the possibility for holding promotional actions together with other partners, among others. For the consumers, the coalition programs allow for the faster accumulation of points, more redemption options and improved point control management.
Coalition program
Advantages for partners
Lower client acquisition and retention cost
Possibility for access to consumer bases from other segments
Opening of a new publicity channel for the brand
Possibility of holding promotional actions together with other partners
Consumer
Coalition
Accumulation of points
Accumulation of points
Redemption of points
Redemption of points
Company A Products
Company B Products
Company C Products
$ $$
MAiN AdVANTAGES OF COAliTiON PROGRAMS WiTH RElATiON TO iNdiViduAl PROGRAMS
Advantages for consumers
Faster accumulation of points
More redemption options
Improved point control management
Company A Products
Company B Products
Company C Products
Company A Points
Company A Points
Company B Points
Company B Points
Company B Points
Company C Points
RElATóRiO ANuAl 2010 9
The Brazilian market is still in the initial phase of development when it comes to the loyalty program industry, with frequent flyer programs considered the most popular type among these. The good news is the sector’s notorious growth in the country, primarily in the telecommunications, clothing and food segments. Accordingly, this industry will tend to present high growth rates in the future, not only based on the current initial stage, but also the favorable expectations related to Brazil’s economic performance.
HiSTORy OF MulTiPluSMultiplus began operating in January 2010 as a
coalition network created through the TAM Fidelidade Program, which, established in 1993 by TAM Airlines, issued points to its members, sold points to partners, operationalized redemptions with frequent flyer tickets and defined all of the program’s rules.
Constituted as a new business in an entity considered separate from TAM Airlines, Multiplus began to assume the operational activity of point accumulation and redemption for TAM Airlines, as well as the sale of points to commercial partners. The creation of a coalition program from a frequent flyer program maximized the potential advantages of the network by gathering the so-called “frequent shoppers” and “frequent flyers” into a single points system. Furthermore, the creation of the new company increased the variety of available accumulations and redemptions. All of the points accumulated and awards delivered to consumers are sold and purchased by Multiplus, respectively, including the operations with TAM Airlines.
Accordingly, TAM continued to be responsible for issuing the award tickets and defining the rules of its loyalty program, such as the number of points accumulated per flight, the number of points necessary to redeem the frequent flyer ticket and the classification of the clients into categories.
In February 2010, Multiplus became a publicly-traded company, with its shares traded on the BM&FBovespa. The shares were sold at R$16, closing the year quoted at R$33.75.
In August 2010, the company transferred its corporate head office to São Paulo’s United Nations Business Center, separating its installations from those of TAM. During the same month, it finished installing its technological platform, Siebel Loyalty, which it then used to manage its operations.
The company closed the year with 8 million members, 151 partners, gross billings from points of R$1.1 billion and a net income of R$118.4 million.
PROduCTS ANd SERViCESMultiplus adopts a flexible business model based on
the combination of benefits from the two existing models: individual programs and coalition programs. In this sense, the company does not compete, but rather cooperates with the loyalty programs of its commercial partners, offering them highly attractive redemption alternatives while encouraging them to continue their relationship with their consumers.
The services offered by Multiplus can be divided into five categories:
1. accrual partnerships; 2. redemption partnerships; 3. coalition partnerships; 4. loyalty program outsourcing; and 5. CRM.
10
Partners
Outsourcing
Multiplus manages the partner’s
program (systems and operation)
Multiplus Product and Service Categories
CRM
Multiplus explores the transaction behavior of its participants and offers CRM services
Partners
Partners purchase Multiplus points to award their clients
and consumers
Accumulation
Partners
Redemption
Multiplus purchases points, products and
services from partners to deliver to participants
Partners
Coalition
Two-Way Road: exchange (purchase and sale) of points,
products and services between Multiplus and the partner
Accrual PartnershipsAs a way of attracting clients and earning their loyalty, the
accrual partners offer the so-called “Multiplus points.” These can be exchanged for products and services with the redemption partners or coalition partners.
At the end of 2010, Multiplus had 151 commercial accrual partners from several different economic segments, including financial institutions, hotels and car rental companies, as well as publishers, pharmacies, perfume shops and e-commerce. An important aspect of this operation was the financial institutions, considering their tradition of gaining client loyalty in the credit card segment.
Redemption PartnershipsThe redemption partnerships allow clients to
convert Multiplus points into products and services. In 2010 several redemption partnerships were included. See below some examples:
Experiences: Smartbox Tickets: Fórmula 1 Donations to NGOs: Casa Hope
RElATóRiO ANuAl 2010 11
Sample of the Multiplus accrual partnerships network
Financial institutions
* non-exhaustive
Travel and Entertainment
Retail, industries and Services
12
Coalition PartnershipsTraditionally, consumers have customarily used their
points to redeem airline tickets. However, it is expected that there will be the growing participation of redemptions for the other coalition partners who recently joined Multiplus, which allow for both the accrual and redemption of points from the network. Some of them have been part of the network since 2009, such as TAM Airlines, TAM
Multiplus coalition partnerships network
Viagens, Ipiranga and Livraria Cultura and, accordingly, have a higher volume of accumulated and redeemed points. In 2010, the company welcomed Accor Hospitality, Oi, Editora Globo, SKY, GEP, Multi Holding and Drogaria Rosário. By the end of March 2011, another four partners had joined the group: BM&FBovespa, Central do Carnaval, Pontofrio.com and Extra Farma.
Home Centers Groceries Specialized Retailers Pension Plan Insurance Car Rental Universities Furniture and
Decoration
Other
Gym
Food
Beauty and Healthy
Airline
Note: The spaces without identified companies represent the sectors in which Multiplus plans to establish coalition partnerships in 2011 and 2012.
RElATóRiO ANuAl 2010 13
Travel Agency Gas Stations Bookstore Hotels Telecom Magazine Subscriptions
Pay-TV Education
Drugstore
Stock Exchange
Entertainment
e-Commerce
Apparel
TAM AirlinesAccording to the Brazilian National Civil Aviation
Agency (ANAC), TAM Airlines – the coalition partner with the most representative volume of Multiplus point accrual and redemption – is one of the leading airline companies in Brazil, with a stake of 42.8% in the domestic market and 87.6% in the international market in 2010. The points acquired by the members of the TAM Fidelidade Program are credited when they use the commercial airline services offered by TAM Airlines or by airline companies that are members of the Star Alliance. Through a partnership between TAM Airlines and Multiplus, the accumulation of points and redemption of airline tickets are made directly, without the need to convert points.
TAM ViagensTAM Viagens, the tourism unit of TAM Airlines, offers
over 600 options of travel packages and has consolidated its place in the market as one of Brazil’s largest operators. Founded in 1998, it serves 5,000 agencies all over the country. With the mission of promoting tourism development, its actions are focused on the training of agents and the publicity of destinations. Through a partnership between TAM Viagens and Multiplus, the accrual of points and redemption of tourism products are made directly, without the need to convert points.
ipirangaOperating under the brands Ipiranga in the Southern
and Southeastern regions and Texaco in the Northern, Northeastern and Central-Western regions, Ipiranga is Brazil’s largest private gas station chain, according to the National Petroleum Agency (ANP).
The company has its own loyalty program, launched in 2009, which currently has over 5.8 million members, called Km de Vantagens (“Kilometers of Advantages”). Both the accrual and redemption of points take place by converting the points from the Km de Vantagens program into Multiplus points – and vice-versa.
livraria CulturaLivraria Cultura is a Brazilian bookstore chain that
also offers audio and video products and has its own loyalty program called +Cultura (“+Culture”). Both the accrual and redemption of points take place by converting the points from the +Cultura program into Multiplus points – and vice-versa.
Accor HospitalityThe Accor Group owns the largest and most
complete offer of accommodations in Latin America, where it operates the international chains Sofitel, Pullman, Novotel, Mercure, Ibis and Formule 1.
Together, they total 170 units, 143 in Brazil and 27 in the other Latin American countries: Argentina, Colombia, Peru, Ecuador, Guatemala, Chile, Paraguay and Uruguay. Brazil is company’s fourth largest market worldwide, trailing only France, Germany and the United Kingdom. The partnership between Accor and Multiplus works through the A|Club loyalty program. Both the accrual and redemption of points take place by converting the points from the A|Club program into Multiplus points – and vice-versa.
OiBrazil’s largest telecommunications company, Oi is a
pioneer in providing converging services in the country. It offers local and long distance voice transmission mobile phone, data communication, Internet and entertainment services. When it acquired control of Brasil Telecom in 2009, Oi began operating on the entire national territory.
In December 2010, the company had 64 million clients. Of this total, 20 million were in the area of fixed phone services, 39.3 million in cellular phone services, 4.4 million in fixed broadband, and 275,000 in cable television. In 2010, the company launched its relationship program, Oi Pontos (“Oi Points”). Both the accrual and redemption of points take place by converting the points from the Oi Pontos program into Multiplus points – and vice-versa.
14
Editora GloboThe publisher Editora Globo has earned a
distinguished place in the Brazilian editorial market, regularly publishing 14 magazines that are read by over 7 million readers. The partnership between Editora Globo and Multiplus involves the accrual of points and redemption of magazine subscriptions without the need to convert points.
SKySKY is Latin America’s largest high-definition pay-TV
operator. With more than 2.5 million clients, SKY offers its subscribers VIVA SKY, a relationship program in which they can exchange points for programs, gifts, experiences and also for Multiplus points and vice-versa.
Multi HoldingMulti Holding, a company with important operations
in the area of education and the owner of nine language, IT and vocational course brands, has approximately 3,520 schools from the Wizard, Skill, Alps, People, Yázigi, Quatrum, SOS, Microlins and Bit Company networks. Its participation in the Multiplus program establishes that both the accrual and redemption of points will be made directly, without the need for conversion.
GEPGEP operates in the area of fashion retail with the
brands Luigi Bertolli, Cori and Emme with a chain of 77 of its own stores. The partnership with Multiplus works through the relationship programs of each participating brand. In order to accrue and redeem points in the Multiplus network, it is necessary to convert points from the stores’ programs into Multiplus points – e vice-versa.
drogaria RosárioWith 80 stores, Drogaria Rosário is the largest retailer
in the pharmaceutical sector in Brazil’s Central-Western region, and has its own relationship program called Clube Mais Vantagens (“More Advantages Club”). Both the accrual and redemption of points take place by converting the points from the Clube Mais Vantagens program into Multiplus points – and vice-versa.
ExtrafarmaExtrafarma is one of the largest pharmacy chains
operating in Brazil’s Northern and Northeastern region, with 140 stores distributed throughout the states of Amapá, Ceará, Pará, Piauí and Maranhão. Club Extra is the relationship program used by the network that recognizes and awards its member clients. By participating in this program, among other advantages, the client earns points that can be redeemed with the conversion of points from the Club Extra program into Multiplus points – and vice-versa.
bM&FbovespaThe BM&FBovespa is Brazil’s main intermediation
institution for capital market operations and the only stock, commodities and futures exchange operating in Brazil. Its relationship program, called Fica Mais (“Stay Longer”), awards individual investors who maintain their shares in the stock exchange for a longer period of time. Both the accrual and redemption of points are made by converting the points from the Fica Mais program into Multiplus program points – and vice-versa.
RElATóRiO ANuAl 2010 15
Central do CarnavalCentral do Carnaval is Bahia’s largest entertainment,
events, conference and party company. The company gathers the best Carnival blocks in Salvador, the biggest attractions in local music and the most popular VIP boxes, strategically distributed throughout the main Carnival circuits. As part of the partnership, both the accrual of points and the redemption of Central do Carnaval products are made directly at the Multiplus points, without the need for conversion.
PontoFrio.comPontoFrio.com is an electronic commerce
company created in August 2008 from the spin-off of the online and telemarketing sales operations of Ponto Frio, one of the country’s largest retailers. Both the accrual and redemption are made directly in Multiplus points, without the need for conversion.
lOyAlTy PROGRAM OuTSOuRCiNGIn addition to operating the loyalty programs of
its commercial partners, Multiplus also offers consulting, management and client relationship services through an independent loyalty program, thereby promoting the demand for its own products and services. The company currently offers management services to the loyalty program TAM Fidelidade, which belongs to TAM Airlines and TAM Viagens.
CRMMultiplus currently collects and analyzes all of its
members’ transaction data. In the near future, it plans to assist its commercial partners with their business strategies, such as the offer of double points for a specific product or service. The company may also coordinate joint commercial actions together with two or more partners from its network.
VAluE GENERATiONMultiplus has a flexible business model with a
very solid cash flow. The company integrates several different commercial partners that share its expenses with loyalty marketing. And, even more than this, it offers an attractive value proposal for consumers, who can accumulate points quickly and gain access to an encompassing portfolio of awards.
Sales of PointsMultiplus sells its points to partner programs at the
moment that the client earns them. Or it sells them to partners with their own programs when the client converts his/her points into Multiplus points. In this way, the company records the cash inflow. Initially, however, it does not recognize the revenue in its results, with this amount instead computed in the deferred revenue, under liabilities.
When the points are redeemed for products or services offered by redemption partners or coalition partners, Multiplus recognizes both the cost of the redemption as well as the revenue from the sale of points. In 2010, the redemption of points for airline tickets represented approximately 99% of the costs. During this same period, the company earned R$1.1 billion with the sale of points, with TAM Airlines accounting for 28.3% of this total. The rest corresponded to the sale of points to banks, retail, industry and services.
16
Financial Flows and the Accounting of Point Accumulation and Redemption
Accumulation Flow: cash inflow through the sale of points to partners
redeems
POINTSMember
(consumer)
purchases
earns accumulates converts POINTS
PARTNER WITH ITS OWN PROGRAM
A
Products or
Services
Points Partner Program
earns
PARTNER WITHOUT ITS OWN PROGRAM
b
Member (consumer)
Redemption Flow: cash outflow through the purchase of points, products and services from the partner or third party.
converts
earns
earns
earns C
E
d
Products or
Services
Products or
Services
Points Partner Program
COALITION AND REDEMPTION PARTNERS
accumulates
MULTIPLUS WEBSITE
RElATóRiO ANuAl 2010 17
business ModelMultiplus has a business model that, although
singular, could be considered simple, and primarily, attractive. It is strongly based on IT and brand construction, and accordingly, has a low need for fixed capital investments. Based on a partnership system, this model generates a growing barrier to the entry of new competitors with the expansion and consolidation of the partnership network. Its growth is closely tied to expanding sectors in Brazil, such as the credit card, consumer and air travel segments. To summarize, the following are the company’s main sources of income:
1. Spread: difference between the point sales price and redemption cost. In 2010, earnings from the sale of points deducted from the respective costs totaled R$108 million.
2. Breakage: points issued that are not redeemed, and accordingly, do not generate costs. The Multiplus points expire in two years. In 2010, the breakage revenue was R$122.6 million.
3. Earnings from float interest: due to the positive cash flow, the company earns revenue from investments. In December 2010, investments and cash equivalents totaled R$919.3 million, having recorded R$34.6 million in financial revenue during the year.
4. Cross-selling of other services: the expansion of other services offered by the company, such as outsourcing and CRM, has the potential to contribute toward an additional margin in the future. In 2010, for example, Multiplus recorded revenue of R$3.3 million associated with outsourcing services.
Earnings % Redemption Cost %Source of profit
Spread(price of the sale of points subtracted
from the redemption cost)
breakage revenue(points that expire
without being redeemed)
Revenue from float interest(Interval between the sale of points and
redemption of the product and service)
Cross-selling of other services(outsourcing and CRM)
28% TAM 99% TAM Airline
Tickets
72% Banks,
Retail, Industry
and Service
1% Other
Products and
Services
Note: Based on 2010 full year.
18
RECOGNiTiON OF bREAKAGE REVENuEThe points sold by Multiplus are recognized as revenue
only when redeemed. However, given that each point issued has a validity of two years, some points expire before the redemption, an event called “breakage” that generates revenue free of cost. At the end of each month, the company calculates (i) a provision of the sum equivalent to the revenue expected from breakage, called the Breakage Liability, and (ii) a gradual recognition of this revenue in the results under Breakage Revenue.
The breakage tends to present a natural reduction over the long term until reaching a sustainable operating level, due to consumers’ growing understanding of the Multiplus concept and the higher proportion of redemptions with fewer than 10,000 points with relation to the total number redeemed (promotional redemptions of airline tickets and new options for the redemption of products and services in the growing network of partners).
RElATóRiO ANuAl 2010 19
STRATEGy ANd ObJECTiVES
VisionBe the coalition program that is the most desired by the public and companies.
MissionEncourage specific behaviors among the partner clients.
ValuesPassion, Determination, Team, High Performance, Overcoming, Innovation, Value for the Client.
STRATEGiC ObJECTiVESMultiplus’ main strategic objectives are to build the
client’s experience, publicize and consolidate its brand and ensure return for shareholders.
The consumer and commercial partner’s experience is built by using a user-friendly interface based on channels and tools that are at the same time simple and technologically advanced. The use of efficient processes also contribute toward this purpose.
This operational efficiency has positive impacts not only in terms of Multiplus client satisfaction, but also in terms of the financial results, since its reduces possible losses and avoids costs with rework.
One of the main objectives of the administration is to establish new accrual and coalition partnerships. The growth of the network is designed to improve the client’s perception of Multiplus’ value, contribute toward publicizing the brand and offer return to shareholders by increasing the revenue from the sale of points or by reducing the unit cost with redemptions.
The publicity of the Multiplus brand is crucial for the success of its business model. The major challenge is to publicize a new concept, that of multi-loyalty building, among consumers and other interested parties. Investments in marketing are generally directed at actions at the point of sale in detriment to large mass media campaigns. Furthermore, the resources are optimized by sharing costs with commercial partners.
The growth in the member base and volume of points issued, allowing for gains of scale, good breakage rate management and intelligent cash management also help to increase the return to shareholders. The launch of new services – such as CRM and outsourcing – is designed to leverage Multiplus’ business, whether by generating additional revenues or increasing the earnings of its main business.
20
user-friendly interface
(new website, new tools, etc.)
Operational efficiency
New partners
(and partnerships of higher added value)
New redemption options
(coalition)
New members
breakage management
Cash management
New services
(CRM and outsourcing)
Publicity of new concept
Actions at sales outlet
Costs sharing with partner
Client Experience
Shareholder Return
brand Publicity
Strategic Objectives
RElATóRiO ANuAl 2010 21
My mother decided to purchase the textbooks for my younger
brother, currently in college, and carefully researched the bookstores that
participate in the Multiplus loyalty network. besides this, she paid with
her credit card and earned double points! it seems like this habit is already
ingrained into our family. We always think of practical and intelligent
solutions. We believe that we can build the dream one day at a time!
My MOTHER THiNKS AbOuT THE POiNTS iN A PRACTiCAl ANd iNTElliGENT FASHiON
in brazil, nearly all banks
offer credit cards whose points can be converted into Multiplus points.
Multiplus is part of the bM&Fbovespa Novo Mercado (New Market) and it adopts the differentiated practices recommended by the brazilian Corporate Governance institute (ibGC). Furthermore, its management works to construct transparent and consistent dialogue with the capital market.
CORPORATE GOVERNANCE
Good Practices
Multiplus shareholders enjoy all
the rights and guarantees established by the Novo Mercado regulations, as
included in the company’s by-laws. it also maintains the high standards of corporate
governance by basing its operations on principles that
emphasize transparency and respect for shareholders.
Board of Directors
Operations and iT
Finances
business development
Presidency
24
RElATóRiO ANuAl 2010
bOARd OF diRECTORS ANd MANAGEMENT
board of directors Formed by five members (one independent member
and four representatives of the controlling block), the Board of Directors provides the general strategic guidelines for the business. It is responsible for establishing policies and for electing the executive directors (as well as for supervising and administering these), authorizing the issuing, repurchase, amortization and/or redemption of shares and forming commitments, among other duties.
The group meets every month or whenever so requested by any one of its members. The members of the Board of Directors must be company shareholders and elected by the General Shareholders’ Meeting. Residents in Brazil or abroad, they are elected for a two-year period, with the possibility for re-election. The terms of the current board members end on December 10, 2011. The By-Laws do not establish a limit age for their retirement, also applicable for the executive directors.
Controllership Project Management
Processes and Quality
IT Business Develop
IT Production Operations
Maurício Rolim Amaro, Chairman of the Board of Directors, is also Vice Chairman of the Multiplus Controlling Shareholder Board of Directors, executive director at TAM Empreendimentos e Participações S.A. (Multiplus Controlling Shareholder controlling company) and Chairman of the Board of Directors of TAM Aviação Executiva e Táxi Aéreo S.A.(subsidiary of the Controlling Shareholder). Amaro earned a degree in Business Administration and Aviation Administration from Broward Community College in Florida.
Egberto Vieira Lima, Vice Chairman of the Board of Directors, served as Treasurer-Manager of Alcoa Alumínio, as Financial and Investor Relations Director of Santista Têxtil and Moinho Santista (Bunge Group companies) and, over the past 14 years, he has served as the Administrative and Financial Director of TAM Airlines. Lima earned a degree in Economics and Business Administration from the Álvares Penteado School of Commerce Foundation College of Economic Sciences (FECAP).
IT Projects Information Security
Retail SalesFinancial Inst. Sales
Marketing Products & Markets
Investors Relations
People Management
New Business
25
Flávia Turci, member of the Board of Directors, is an attorney and partner of the law firm Turci Advogados Associados, specializing in the litigation and advisory areas of Corporate Law. She served as the advisory attorney and sub-coordinator of the São Paulo State Federation of Industries (FIESP) Parliamentary Action Coordination and general consultant to the Itamarati Group. Turci earned a degree in Law from Mackenzie Presbyterian University
Carlos Fonseca, member of the Board of Directors, is a partner at the bank BTG Pactual and a member of its Executive Committee. He has served as Head of Merchant Banking since 2008, and has been responsible for BTG Pactual Group investments in private equity, infrastructure and real estate. Before assuming this function, he was Head of M&A for the Investment Banking Division of UBS Pactual from 2006 to 2008. He began at Banco Pactual in 2005, working in its Investment Banking division, with a focus on M&A. Before joining Banco Pactual, he had been a partner at Banco Fator in the M&A Division since 1997. He is currently a member of the Board of Directors of the companies Derivados do Brasil, Multiplus, Rede D’Or, Panpharma, Brazil Pharma and also a member of TAM’s Executive Committee. Fonseca earned a degree in Business Administration from PUC-SP.
bOARd OF diRECTORS
Name Position Term
Maurício Rolim Amaro Chairman December 10, 2011
Egberto Vieira Lima Vice Chairman December 10, 2011
Flávia Turci Board Member December 10, 2011
Carlos Daniel Rizzo da Fonseca Board Member December 10, 2011
Antônio Luiz Rios da Silva Independent Board Member December 10, 2011
Antonio Luiz Rios da Silva, an independent member of the Board of Directors, served as Executive Vice President of the NotreDame Intermédica Group, as CEO of Companhia Brasileira de Meios de Pagamento (VisaNet and Brasilveículos Companhia de Seguros) and as Vice President of Retail/Distribution and Control/Investor Relations at Banco do Brasil. He is currently president of Editora FTD, one of the leaders in the Brazilian publisher market. He served as a member of the Boards of Directors for the Banco do Brasil Employee Retirement Fund (PREVI), the La Fonte Participações Group, Brasilveículos Companhia de Seguros, Aliança do Brasil Companhia de Seguros, Companhia Brasileira de Meios de Pagamento (VisaNet), Telemar Ceará, Paranapanema Group and Companhia Brasileira de Gestão em Serviços – Orizon. Silva earned a degree in Economic Sciences from the Catholic University of Brasília, an MBA in Finances from the Brazilian Capital Market Institute and completed a specialization in International Finances from the Getúlio Vargas Foundation (FGV) and University of Texas. He also earned an MBA in Controllership from the University of São Paulo (FIPECAFI), an MBA in Accounting Sciences from FGV and Breakthrough for Senior Executives from the International Institute for Management Development in Lausanne (Switzerland).
26
RElATóRiO ANuAl 2010
The ManagementThe Multiplus directors are responsible for the
representation and general directing of the company’s business, and are authorized to practice any act considered necessary or convenient for such purpose, except for those for which the Stock Corporations Act or By-Laws attributes authority to the General Shareholders’ Meeting or Board of Directors.
According to the company’s By-Laws, the Management must consist of at least two and a maximum of five members, whether shareholders or not, residents of Brazil, elected and dismissible at any time by the Board of Directors. The term is three years, with the possibility for re-election.
As a result of the signing of the Novo Mercado Participation Agreement, the managing partners signed a consent agreement to the Novo Mercado Participation Agreement and the Novo Mercado Regulations as condition for taking office in their respective positions.
Eduardo Campozana Gouveia, CEO and IRO of Multiplus, served as Executive Commercial and Marketing Director at Cielo, and as Vice President of Marketing and Vice President of the Special Business Units at Wal-Mart (Pharmacies, Gas Stations, Photo Development and E-Commerce).
He served as Financial Services and Marketing Director for the Bompreço Group and as General Manager of the credit
THE MANAGEMENT
Name Position Officer
Eduardo Campozana Gouveia CEO and IRO Yes
André Neris de Souza CFO Yes
Maurício Quinze Commercial Director No
Jesus de Francisco Garcia Operations and IT Director No
card administrator, Hipercard. With a degree in Computer Sciences from the Federal University of Pernambuco, Gouveia earned a Specialization in Finances from IBMEC and an MBA in Marketing from FGV.
André Neris de Souza, the CFO at Multiplus, has 23 years of experience in the financial and controllership areas, having worked at companies such as Symantec/Veritas, Cummins Filtration, Marconi Telecomunicações and Coopers & Lybrand Auditores, where he audited companies such as Rhodia, J&J, Ipiranga Group and Valeo, among others. A former financial executive for the BuscaPé Group, he earned a degree in Accounting Sciences from the São Paulo School of Economic Sciences (FECAP) and a graduate degree in Business Management from FGV. He also completed an extension course with the University of California - Irvine. He has also completed specialization courses in Controllership and Logistics at FGV.
Maurício Quinze, the company’s Commercial Director, has over 14 years of experience in the area of New Market Development in high technology and service segments and over 12 years of experience in the analysis and development of market studies and business planning. He has worked for over a decade managing and coordinating client accounts in the B2B and B2C markets, involving the areas of strategic planning, marketing, sales, manufacturing and logistics.
27
He earned a degree in Mechanical Engineering from the Armando Álvares Penteado Foundation (FAAP) and a graduate degree in Marketing from the College of Advertising and Marketing (ESPM). With a specialization in Negotiation from FGV, he also completed the Corporate Strategic Planning course at the São Paulo Business School (BSP). He also completed the Business Management Development STC Program at the Dom Cabral Foundation in Minas Gerais and studied at the Kellogg School of Management in the United States.
Jesus de Francisco Garcia, Operations and IT Director at Multiplus, has 27 years of experience in the Information and Operations Technology area at companies like TAM Airlines, Telefônica, Primesys (Portugal Telecom Group) and Pão de Açúcar Group. With a degree in Mathematics from PUC-SP and in Electrical Engineering from São Judas Tadeu University, he earned a specialization in Business Administration from FGV.
RElATiONSHiP WiTH TAM
Operating AgreementOn December 10, 2009, Multiplus signed an operating
agreement with TAM Airlines that established the terms and conditions governing the relationship between the two companies to apply as of January 1, 2010, when the company assumed the management, administration and operation of the TAM Fidelidade program.
Based on this agreement, Multiplus grants exclusivity to TAM Airlines, prohibiting the partnership with the loyalty programs of other airline companies or TAM Airlines competitor access to its database. TAM Airlines, in turn, agrees to prohibit the TAM Fidelidade Program from participating in other loyalty program networks or granting some Multiplus competitor access to its database.
The operating agreement is valid for 15 years, starting on January 1, 2010, and can be automatically extended for additional periods of five years, if Multiplus or TAM Airlines does not come forward at least 120 days ahead of time.
Both Multiplus and TAM Airlines may terminate the operating agreement at any time and for any reason, regardless of the payment of a fine, granted that notice is sent in writing to the other party at least 12 months ahead of time, during which time all clauses of the agreement shall remain in force.
Without affecting any possible compensation due, as well as any other rights or lawsuits, either of the parties, through written notice to the other, may terminate the agreement if any one of the following hypotheses applies: It is important to point out here that the following are not considered a failure to comply with the services levels – which have their own penalties:(i) serious agreement default that is not resolved by the violating Party as quickly as possible, but within a period no greater than 30 (thirty) days after receiving notification of the default sent by the other Party;(ii) repetition of failures to comply with the obligations established in the Agreement, regardless of whether such failures are resolved by the violating Party or in some other way resolved satisfactorily for the Parties, whose cumulative effect shall be understood as a serious Agreement violation;(iii) (one of the parties) becomes bankrupt;(iv) (one of the parties) has their judicial recovery deferred or their bankruptcy declared; and(v) under the other hypotheses established by law.
28
RElATóRiO ANuAl 2010
In this case, the violating party will pay the other one, upon the act of termination and for a period of 24 (twenty-four) months, a fine calculated by multiplying the average of the three last earnings during the months preceding the termination date. The TAM Fidelidade program continues to exist. Since January 1, 2010, however, it began to issue Multiplus points to its partners. Based on the operating agreement, Multiplus is responsible, for example, for processing the information on the accrual and redemption of points in the program and for the delivery the awards, based on the regulations of both companies. Multiplus is paid each month for such services. In order to maintain the principles of cooperation, transparency and economic-financial balance in the relationship, TAM Airlines must consult Multiplus about any change it plans to implement in the TAM Fidelidade regulations and award provisions that may affect the program’s management, administration and operation. Furthermore, starting January 1, 2010, TAM Airlines agreed to acquire Multiplus points for the members of the TAM Fidelidade program. In the same way, Multiplus agreed to acquire TAM Airlines airline tickets to deliver them to Multiplus members.
Based on the operating agreement, TAM Airlines agreed to assume for a period of up to 30 months, starting on January 1, 2010, the responsibility for the costs with the awards associated with the points accumulated by members in the TAM Fidelidade program up to December 31, 2009. As a result, Multiplus recognizes in the statement of income only the revenue and expenses or cost corresponding to the redeemed points that have been accumulated as of January 1, 2010.
TAM Airlines was also required to transfer to Multiplus all of its commercial partner agreements in order to prevent new accumulations of points in the TAM Fidelidade program resulting from these agreements after January 1, 2010. All commercial partnership agreements were transferred to Multiplus by June 30, 2010.
Service Sharing AgreementThrough a service sharing agreement, on December
10, 2009, TAM Airlines agreed to offer Multiplus legal and controllership, treasury, planning support and financial management, installation and infrastructure, human resources, IT Office Automation, audit and supply services. It also began to offer employees, equipment, tools, technology and other necessary resources, with the same degree of diligence, qualification and caution normally exercised with relation to its own operations.
In order to maintain the economic-financial balance existing on the agreement signing date, Multiplus and TAM Airlines agreed to review the contract service values every 12 months, starting with the term start date.
This document has a term of five years, and is automatically extended for equal and successive periods of five years. The agreement can be closed any time, without the requirement to pay a fine, compensation or penalty of any kind, granted that the other party is notified in writing at least 90 days ahead of time.
29
Commitment to Advance the Purchase and Sale of Airline Tickets
On January 12, 2010, Multiplus signed a payment advance agreement with TAM Airlines for the purchase and sale of airline tickets – to remain in force until the full use of the resources – designed for the redemptions by Multiplus members who want to convert their points into TAM Airlines award tickets. In order to anticipate this payment established in the agreement, Multiplus paid TAM Airlines R$622 million – 94% of the net resources received with the offer. The advance agreement also established a fixed discount for each awarded ticket.
diFFERENTiATEd CORPORATE GOVERNANCE PRACTiCES
brazilian Corporate Governance institute (ibGC)According to IBGC, corporate governance is
the system through which companies are directed and monitored, involving relationships between shareholders, boards of directors, the management, independent auditors and audit committees. The following are the basic principles that guide this practice:
transparency; fair disclosure; accountability; corporate responsibility.
Among the corporate governance practices recommended by IBGC in its Code of Best Corporate Governance Practices, we adopted the following:
exclusive issuing of common shares; policy of “one share equals one vote”; contracting of an independent audit company to analyze the financial balance sheets and statements – granted that this same company is not contracted to provide others services that may compromise its independence;
clear definition in the By-Laws (a) of the way of calling the general shareholders’ meeting (b) the procedure for electing and dismissing members of the Board of Directors and Management and their term of office;
transparency during the public disclosure of Annual Management Reports;
by-law provision for the formation of an Supervisory Board; calling of the shareholders’ meeting and the pertinent
document available starting with the date of the first calling, with details on the agenda topics, always aiming to hold the meetings during times and at sites that allow for the presence of the highest possible number of shareholders;
record, whenever so requested, the dissident votes in the shareholder or regular meeting minutes;
by-law provision for arbitration as a method for resolving any possible disputes between the company, its shareholders, its management and members of the Supervisory Board;
board members with experience in operational and financial issues;
by-law provision prohibiting the access to information and right to vote to board members in situations marked by a conflict of interests;
share purchase offers that result in the transfer or control must be directed at all shareholders, who will have the option of selling their shares under the same conditions as the controlling shareholder. In the case of the sale of the entire control block, the acquiring party must direct the public offer at all shareholders under the same conditions as the controlling shareholder (tag-along);
number of members of the Board of Directors varying between five and nine;
maintenance and disclosure of the record containing the number of shares that each partner owns, identifying them nominally;
30
RElATóRiO ANuAl 2010
Multiplus shareholders enjoy all the rights and guarantees established by the Novo Mercado regulations, as included in the company’s By-Laws. It also maintains the high standards of corporate governance by basing its operations on principles that emphasize transparency and respect for shareholders. On January 15, 2010, Multiplus signed the Novo Mercado participation agreement with BM&FBovespa, which became valid as of February 4, 2010, the publication date of the Starting Announcement. The By-Laws contain all minimum clauses required by the BM&FBovespa Novo Mercado regulations.
iNVESTOR RElATiONSDuring the year 2010, the Multiplus Management
worked to construct transparent and consistent dialogue with the capital market through the following initiatives:
structuring of a qualified and accessible Investor Relations team;
holding of conference calls and public meetings with analysts;
availability of a complete and objective IR website available in two languages;
participation in road shows and conferences in Brazil and abroad;
adoption of a period of silence and disclosure policy.
With aims of better meeting the needs of the capital market, Ronald Domingues assumed the position of Investor Relations Manager in July 2010, with the main challenges of disseminating the understanding of the company’s business model, increasing liquidity and guaranteeing the quality of analyst and investor services. In November 2010, the magazine Institutional Investor elected Domingues the “Top IR Professional in Latin America” in the Aerospace, Transportation & Industrials sector. Despite its focus on disseminating the company’s message to the market, the Investor Relations team is also strongly oriented to generate market feedback.
non-election of alternate board members; free access to the company’s information and installations by members of the Board of Directors;
disclosure of operations with related parties; provision of non-financial information each quarter,
such as, for example, the number of shares held by the company’s management and the number of shares in circulation.
Novo MercadoIn December 2000, BM&FBovespa created a
special share trading segment called Novo Mercado (“New Market”) with aims to attracting publicly traded companies willing to offer the market and their shareholders information – additional to that required by law – related to their businesses. They also commit to adopt corporate governance practices, such as differentiated administrative, transparency and minority shareholder protection actions.
The companies that join Novo Mercado voluntarily submit to more rigid rules than those determined by Brazilian law. For example, they are required to:
issue only common shares; maintain at least 25% of the company’s capital
shares in circulation; detail and include additional information in the quarterly reports;
provide annual financial statements in English based on internationally accepted accounting principles or Brazilian corporate law. In this case, accompanied by an explanatory note that demonstrates the balancing of the result for the year, the independent auditors’ result and net equity result – calculated based on Brazilian accounting criteria and internationally accepted accounting standards, indicating the main differences between each.
31
The conference calls of the results are conducted on the day following the disclosure of the accounting statements and their content is then made available on the IR website in transcription and audio file formats. The public meeting with analysts, held in November 2010, was chosen by the jury of Brazil’s Association of Capital Markets Analysts and Investment Professionals as one of the 10 Best Meetings of the Year in the São Paulo region.
During the second half of 2010, the IR team participated in six conferences and road shows in Brazil and six events abroad. During the year, there were 832 interactions with investors through meetings, visits, conferences calls and e-mails.
The company adopts procedures to safeguard the confidentiality of privileged information, known as the “quiet period” before the public disclosure of the financial results and the policy on the disclosure of relevant information and preservation of secrecy.
Corporate Structure
26,83%73,17%
TAM S.A.TAM S.A.
73.17% 26.83%
Share PerformanceOn December 31, 2010, the MPLU3 shares
were quoted at R$33.75 (value up 113% since the IPO), representing a market value of R$5.4 billion. The average daily volume of shares on the BM&FBovespa in 2010 was approximately R$7.3 million.
Quote at end of month R$ Average daily volume R$ million
dec 10
7.9
nov 10
13.3
oct 10
10.5
sep 10
9.7
aug 10
6.6
jul 10
5.0
jun 10
2.4
may 10
2.1
apr 10
6.1
mar 10
4.1
feb 10
15.5
33.7534.50
28.9027.4323.2521.50
19.3018.9020.4018.6918.25
32
RElATóRiO ANuAl 2010
diSTRibuTiON OF diVidENdS ANd iNTEREST ON OWN CAPiTAl ASSOCiATEd WiTH THE yEAR ENdEd ON 12/31/2010
Payment Method Payment date Value per Share Total Value million
Interest on Capital 8/18/2010 R$0.094 R$15.1
Dividends 8/18/2010 R$0.086 R$13.9
IOC Interest on Capital 1/7/2011 R$0.105 R$16.9
Dividends 3/15/2011 R$0.411 R$66.4
and internal management of the processes. Through the implementation and monitoring of the performance of these processes, it helps maximize results in a systematic and structured fashion, guaranteeing the integrity and reliability of the business.
SOCiAl-ENViRONMENTAl RESPONSibiliTy
EnvironmentDespite the fact that there is no commitment to a
specific international environmental protection standard, Multiplus’ activities do not directly generate any significant negative environmental impacts.
Social Responsibility, Sponsorship and Cultural incentiveAt the moment, the company does not have any
social responsibility activity or sponsorship or cultural incentive initiative. However, Multiplus is currently conducting certain studies on this topic and should begin to direct investments toward these areas in 2011.
dividends and interest on Own CapitalThe Multiplus By-Laws establish the distribution of
dividends and/or interest on own capital in a minimum value equivalent to 25% the adjusted net income, calculated in compliance with Articles 189 and following of the Stock Corporations Act, the accounting practices adopted in Brazil and the Brazilian Securities and Exchange Commission (CVM) rules. However, the company paid 95% of the net income associated with the year 2010 in the form of dividends and interest on own capital.
iNTERNAl CONTROlSWith aims of ensuring the constant improvement
of its processes, Multiplus monitors the efficiency and effectiveness of its internal controls. The Internal Audit department undertakes revision and control procedures in compliance with the U.S. Sarbanes-Oxley Law, through tests and evaluations in the company’s key controls.
At the same time, the company has a Process department that is responsible for establishing the culture
33
All of us use mobile phones and with Multiplus loyalty, we can add
up even more points. My husband travels a lot for work and needs to be
fluent in English. He always gathers Multiplus points every time he travels
and studies. i like to stay constantly informed to earn even more points
with my magazine subscriptions. Expenses with hotels, pharmacies and
clothing also help a lot. We have a world full of choices with Multiplus
Fidelidade! The idea of gathering points is a true passion in our family!
My HuSbANd ANd i diSCOVEREd A WORld OF CHOiCES TO GATHER EVEN MORE POiNTS
The network of Multiplus partners
includes a mobile phone operator, language course, publisher, hotels, pharmacies and clothing
stores. This variety makes it easy and fast to gather points and redeem awards.
GROSS billiNGS
Gross billings from the Sale of PointsMultiplus’ gross billings from the sale of points to
partners and are recorded as deferred revenue. In 2010, the total was R$1.119 million.
Earnings from the Sale of Points to TAM Airlines
In 2010, Multiplus recorded R$317.1 million in earnings from the sale of points to TAM Airlines. These earnings reflect the sale of 18.7 billion points associated with the passengers who traveled on the flights of TAM Airlines itself and those of partner airline companies when using the TAM Fidelidade program. The price for the points sold to this partner is calculated in Brazilian reais following the rules established in the operating agreement (see the chapter “Differentiated Corporate Governance Practices”).
Multiplus recorded gross billings of R$1.119 million, a revenue from the sale of points of R$382.3 million and a net income of R$118.4 million in 2010. The company distributed 95% of this result in the form of dividends and interest on Capital.
FiNANCiAl RESulTS
An Excellent year
The company closed the year with
a net income of R$118.4 million. With
aims of maximizing the return to shareholders,
Multiplus distributed 95% of this
result to them.
36
RElATóRiO ANuAl 2010
Earnings from the Sale of Points to banks, Retail, industry and Services
Earnings from the sale of points to banks, retail, industry and services was R$802.3 million. A total of 34.6 billion points were sold – whether through the conversion of partner loyalty program points into Multiplus points, or still, through the direct accumulation of Multiplus points by the members who consumed the products and services of partners without proprietary programs.
iNCOME STATEMENT
Revenue from the Sale of PointsAs the Multiplus points (issued as of January 1, 2010)
are redeemed, the revenue from the sale is recognized in the income statement. In 2010, the Company recognized R$382.3 million, corresponding to 16.8 billion points redeemed during the period.
breakage RevenueGranted that each point issued by Multiplus is valid
for two years, some expire without being redeemed. This event, called breakage, generates revenue free of cost. At the end of each month, the company calculates (i) a provision of the sum equivalent to the revenue expected from breakage, called the Breakage Liability, and (ii) a gradual recognition of this revenue in the results under Breakage Revenue. In 2010, Multiplus recognized R$122.6 million in breakage revenue.
Other RevenuesThe other revenues totaled R$13.0 million and refer
to the remuneration that TAM Airlines pays Multiplus for managing the TAM Fidelidade program and also for the values received from profit sharing of the TAM Fidelidade co-branded card.
Sales and Service-Related TaxesThese taxes totaled R$48.0 million in 2010 and
consist of PIS/COFINS (Social Contribution Program/Social Security Financing) at the rate of 9.25% applicable to all lines of revenue and the ISS (Service Tax) of 5% applicable to the revenue from program management.
Cost from the Redemption of PointsThe costs from the redemption of points totaled R$274.3 million and refer to the 16.8 billion Multiplus points redeemed on products and services with redemption partners or coalition partners. These costs can be divided into two groups:(i) R$273.4 million associated with the 16.7 billion points redeemed on TAM Airlines tickets or from partner airline companies; (ii) R$0.9 million associated with the 0.1 billion points redeemed on products and services from other partners.
Expenses with Shared ServicesIn 2010, Multiplus recorded R$7.9 million in
expenses with services shared with TAM Airlines. Among the services that TAM Airlines provides to Multiplus are controllership, treasury, planning support and financial management, installations and infrastructure, legal support, human resources, office automation, audits and supplies (see a description of the service sharing agreement in the chapter “Differentiated Corporate Governance Practices”).
Expenses with Personnel Expenses with personnel totaled R$17.7 million in
2010 and include salaries, benefits, a provision for profit sharing and provision for the stock options plan approved in October 2010 (see the description of the personnel, benefits and stock options plan in the chapter “Intangible Assets”).
37
depreciation and AmortizationIn 2010, these expenses totaled R$1.1 million and
refer primarily to the depreciation and amortization of the operating and management systems.
Expenses with MarketingThese expenses totaled approximately R$12.0
million during the year. Among the brand publicity and consolidation actions were the campaigns at the point of sale with sign materials, installation of panels at 10 airports in Brazil, advertising onboard the TAM Airlines flights and advertisements in print and online media.
Other ExpensesThe segment of other expenses totaled R$26.7
million – resulting primarily from expenses with services in the area of Information Technology for the installation of management systems.
Net income The company closed the year with a net income
of R$118.4 million. With aims of maximizing the return to shareholders, Multiplus distributed R$112.3 million, or 95% of this result, in the form of dividends or Interest on Capital, including the dividends proposed by the Board of Directors.
R$112.3 million
With aims of maximizing the return for shareholders, Multiplus distributed R$112.3 million, or 95% of its Net Income, in the form of dividends or Interest on Capital.
GROSS billiNGS FROM
THE SAlE OF POiNTS in R$ thousand2010
Earnings from the sale of points 1,119,475
TAM Airlines 317,155
Banks, retail, industry and services 802,320
38
RElATóRiO ANuAl 2010RElATóRiO ANuAl 2010
iNCOME STATEMENT in R$ thousand 2010
Gross revenue 517,875
Sale of points 382,271
TAM Airlines 54,686
Banks, retail, industry and services 327,585
Breakage 122,645
Other revenues 12,960
Sales and service taxes (48,032)
Net revenue 469,843
Cost from point redemption (274,258)
Airline tickets (273,370)
Other partners (888)
Total cost of services provided (274,258)
Gross profit 195,585
Gross margin 41.6%
Shared services (7,871)
Expenses with personnel (17,693)
Marketing (11,987)
Depreciation and amortization (1,091)
Other expenses (26,672)
Total operating expenses (65,313)
Total operating costs and expenses (339,571)
Operating profit 130,272
Operating margin 27.7%
Financial expense/revenue 33.259
Profit before income tax and social contribution 163,531
Income tax and social contribution (45,145)
Net income 118,386
Net margin 25.2% Related Parties:1. Balance associated with the advance payment for the purchase and sale of airline tickets for future delivery
of R$622.1 million. A total of R$290.2 million was consumed up to December 31,2010.2. Balance receivable from TAM Airlines associated primarily with the earnings from points.
bAlANCE SHEET in R$ thousand 2010
Total assets 1,403,549
Current assets 1,330,844
Cash and cash equivalents 17,186
Investments 851,830
Accounts receivable 68,699
Related parties 388,507
Accounts receivable 56,629
Advances to suppliers 331,879
Deferred taxes 3,769
Other assets 852
Non-current assets 72,705
Long term investments 50,280
Deferred taxes 1,217
Fixed 935
Intangible 18,997
Intangible underway 1,276
Total liabilities 11,403,548
Current liabilities 644,946
Suppliers 16,579
Taxes to pay 2,328
Deferred revenue 484,055
Breakage liability 130,495
Other liabilities 11,490
Equity 758,602
Capital 669,063
Remuneration plan 1,538
Reservations 5,919
Accumulated profit (loss) 82,082
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CASH FlOW in R$ thousand 1Q10 2Q10 3Q10 4Q10
Net income 7,479 23,129 44,501 43,276
Depreciation and amortization 18 - 46 1,026
Accounts receivable (62,178) (2,460) (27,010) 22,948
Accounts payable 3,590 (2,677) 3,374 11,439
Taxes (12,380) 12,790 5,501 (8,570)
Related parties (156,263) 58,561 64,440 (23,360)
Advance of airline tickets (606,799) 53,397 78,046 143,478
Deferred revenue and breakage liability 189,656 160,953 158,855 105,086
Other assets and liabilities 2,542 1,215 2,692 1,123
Operational cash flow (634,334) 304,909 330,446 296,445
Investments 1 (2,783) (590) (3,866) (11,278)
investment cash flow (2,783) (590) (3,866) (11,278)
Cost with issuing of shares (23,322) - - -
Capital 692,384 - - -
Dividends - - (29,033) -
Others - - - 314
Financing cash flow 669,062 - (29,033) 314
increase (reduction) in cash 31,946 304,320 297,548 285,480
Initial Cash2 - 31,946 336,265 633,813
Final Cash2 31,946 336,265 633,813 919,296
Note:1 R$11.3 million associated with investments in the Siebel Loyalty operating systems and management systems.2 Cash and cash equivalents, financial investments and long term financial investments.
in 2010, Multiplus presented a cash
generation of R$919.3 million and an
Adjusted EbiTdA of R$290.1 million.
40
RElATóRiO ANuAl 2010
dVA 2010
Revenues
Sales of merchandise, products and services 517,875
Raw materials acquired from third parties
Costs from products, merchandise and services sold
(274,424)
Materials, energy, third party services, others (46,190)
Gross added value 197,261
Net added value produced 197,261
Added value received through transfers
Financial revenues 35,374
Total added value to distribute 232,635
distribution of added value 232,635
Personnel
Direct remuneration 13,832
Benefits 539
F.G.T.S. (Unemployment Guarantee Fund) 457
Taxes, fees and contributions
Federal 95,521
Municipal 195
Third party capital remuneration
Interest 43
Rentals 1,589
Others 2,071
Own capital remuneration
Dividends 15,094
Interest on own capital 15,162
Profit (loss) retained during year 88,132
AdJuSTEd EbiTdA in R$ thousand 2010
Operational income 130,272
Depreciation and amortization 1,091
EbiTdA 131,363
Margin 28.0%
Earnings from the sale of points 1,119,475
Other revenue during the period 12,960
Taxes on earnings (104,750)
Net earnings 1,027,685
Revenue from the sale of points (504,915)
Other revenues during the period (12,960)
Taxes on revenue 47,903
Net revenue (469,972)
Costs of future redemptions (398,977)
Adjusted EbiTdA 290,098
Margin 28.2%
Note: A spreadsheet with the calculation log for the future redemption costs is available at the IR website: (www.multiplusfidelidade.com.br/ri).
41
Women just want to watch normal television, and my father and
brother are addicted to soccer! Everything in Pay-per-View and it’s point
after point. All i know is that i am pregnant with my second child. And the
trip? i changed my mind! We plan to redeem the points we accumulated
in Multiplus to put together a new home, which needs to be bigger. There
is no lack of options, that’s for sure!
THAT’S liFE: Full OF NEW THiNGS, dREAMS ANd POiNTS. iSN’T THAT TRuE?!
it is possible to use Multiplus points
to redeem products from several partners in the
network. The redemption options range from objects useful for daily use, such as household appliances, to event and gastronomy
experiences.
BrandMultiplus’ main challenge is to influence people’s
consumer habits, leading them to prioritize services and products from partner companies based on the benefits generated by the multi-loyalty network.
For this purpose, the brand must be present in their daily lives, making the network’s benefits tangible both for p members and partners, allowing them the possibility of gathering points from different companies and loyalty programs into a single account and using them in the most convenient way possible. This allows the company to increase its scope, the loyalty-building opportunities and generation of new business.
in order to take advantage of the loyalty market opportunities in brazil, Multiplus needs to have a strong brand, a team consisting of unique people, a flexible iT infrastructure management model and responsible risk management.
iNTANGiblE ASSETS
Far beyond the brand
Multiplus’ main challenge is to influence
people’s consumer habits, leading them to prioritize services and products from partner companies.
44
RElATóRiO ANuAl 2010
With this challenge in mind, in 2010 the marketing area developed actions focused primarily on brand construction and the activation of new partnerships.
During the first six months of the year, the Company undertook actions during the Salvador Carnival and in social networks; campaigns in partnership with banks; advertisements in newspapers and magazines and on television; merchandising in programs with a high audience; activations of the member base via e-mail marketing and actions onboard TAM flights . Among the cooperative campaigns with partner companies, of special note is the launch of the partnership between Multiplus and Oi, which involved the participation of TAM and Ipiranga. The initiative generated major repercussion in the media and constituted an example of the potential sharing of communication costs between partner companies.
During the second half of 2010, the company also tried to intensify its presence at the points of sale through an broad campaign to activate the loyalty programs of some of the coalition partners. In one month alone, it generated approximately 100,000 new registrations for its programs, contributing to the growth of the transactions completed.
Furthermore, in July of last year, the company structured its marketing area, when it stopped using the shared services model with TAM. This initiative reinforces the company’s strategy of developing a model that is closer to its main partners’ reality and increasing its presence at the points of sale, bringing a market vision that is closer to that of retail.
Aiming to optimize the client’s experience with the Multiplus brand, the marketing area also began to produce the company’s new corporate website, to be launched during the first six months of 2011. This portal will be entirely reformulated in terms of the experience of network members, improving the interfaces and the way the information is accessed.
During the year, the company plans to strengthen its relationship with the members of its network even more, aiming to intensify the cross-actions and relationship between partner companies and the Multiplus brand.
PeoPle
about UsMultiplus closed 2010 with 81 employees,
representing a 58% increase with relation to the group that was part of the spin off. The average age of employees is 32, and they have been working at the TAM Group for approximately three years (considering work with the airlines and Multiplus itself, pre and post-spin off) and its work force is predominantly female (60.5%).
45
Culture Management during Spin offsMultiplus recognizes the crucial role played by its
employees when it comes to its solid business performance. That is why one of the company’s biggest concerns in 2010 was to begin the process of forming the Multiplus culture and identity, awakening pride among those who work at the organization.
Because it is part of the TAM Group – loyal to a consistent culture and clear ethical values and principles – the strategy adopted by Multiplus was to reinforce those points that make it stand out. These include a client and profit-focused approach and the incorporation of values such as innovation and efficiency, considered so important for a multi-market company that must follow the dynamic of the consumer segments with which it holds partnerships.
employee distribution by age Group dec. 2010, in %
employee distribution by Gender dec. 2010, in %
As a sign of its independence, in 2010 the company changed the look of its office, full of symbols that represent the new phase it is entering: an environment without walls (favoring fluid communication) and full of colors (to encourage creativity).
After all, an internal climate characterized by enthusiasm and an ethical and healthy environment, where human relations are valued, reflects the results achieved. Believing in this idea, the company decided to apply an organizational climate survey at the other TAM Group companies in September 2010, designed to direct the projects of the recently-created People Management area. Multiplus also works to develop topics such as strategic planning and branding to build a management model that is up to speed with its challenges.
26 to 30 years
34.6%
Female
60.5% 31 to 35 years
27.2%
36 to 40 years
12.3%
41 to 45 years
7.4%
Male
39.5%
45 years and older
6.2%
until 25 years
12.3%
46
RElATóRiO ANuAl 2010
Salary & BenefitsMultiplus guarantees full compliance with labor law,
including the right to free labor union association for 100% of its employees, as well as respect for the work conditions established in the collective bargaining agreement. This is complemented by other benefits, such as the health plan, private pension, maternity leave, daycare assistance, dental assistance and meal tickets.
Based on the collective bargaining agreement, our employees received a salary increase of approximately 6% in August 2010.
The remuneration policy used at Multiplus was designed based on the Hay Methodology, which establishes the rules defined for the minimum and maximum salary values per position, thereby preventing distinctions based on race, ethnicity and gender.
With aims of boosting its productivity and efficiency, Multiplus also uses a variable remuneration policy that includes profit sharing for executives and other employees.
The company and its employees sign an agreement for the payment of the company’s profit sharing values, based on the goal plan. Payment frequency: annual.
Management evaluation and reward StrategyTo guarantee that the Multiplus objectives are aligned
with those of its shareholders, we have a long term incentive plan designed to retain executives and engage them in generating sustainable value for the company.
The plan is managed by the Board of Directors, which receives recommendations from the Human Resources Committee. The board can grant the purchase option for stocks issued by the company up to the limit of 3% the total number of capital shares. The stock options granted are personal and non-transferable, and the group is responsible for approving the strike price.
A Special Shareholders’ Meeting (AGE) was held on October 4, 2020, approving the Stock Option Plan with the maximum dilution of 3% the number of shares into which the Multiplus capital is divided. For the regular granting operations, a vesting of four years was defined and the strike price equivalent to the average price during the month before the granting was approved.
The complete text is available in the Corporate Governance section at the website: www.multiplusfidelidade.com.br/ri.
And also revise the overall remuneration program and company’s benefits and remuneration program, comparing fixed and variable salaries in a selected market in order to guarantee that Multiplus is attractive for newly contracted individuals and has practices in line with those of the market it which it operates.
The company’s leaders are also evaluated based on the metrics used by the financial market, which includes the net income and volume of points sold for each segment. Such figures, which are included in the managers’ corporate goals, are responsible for 30% to 50% of their annual variable remuneration.
STOCK OPTiONS
PlAN
47
Internal Communication Internal communication plays a crucial role in the
development and consolidation of the Multiplus culture, since it allows the company to align objectives and share important information, considered determining factors for ensuring compliance with the organization’s goals and strategies. Furthermore, the internal communication consists of a vital element for constructing a unique environment, one in which people feel respected, engaged and enjoy working at the company.
Multiplus kicked off 2010 presenting its business and growth strategies to the employees who were part of the spin off operation. The initiative was intensified during the year with the creation of new communication channels, such as lunches with the CEO and meetings with groups of employees to talk about results, advances, values and the organizational structure. In order to achieve a harmony between goals and objectives, the company also held external off-site events, with the participation of the executives.
attraction & retentionAlways in search of the best results, Multiplus
aims to guarantee an attractive work environment that promotes the exchange of ideas, team work, transparency, creativity and equal work conditions. Therefore, it is not by chance that its selection strategy is based on competencies and on the identification of professionals who share the company’s values.
The major challenge during 2010 was to efficiently and assertively complete the team of leaders, formed by professionals engaged and prepared to leverage the company’s business. The work was performed together with the redesigning of the organizational structure, under constant development due to the recent start-up. This phase was concluded in December, with all the Management positions filled for the new structure.
With the creation of the Multiplus People Management area, the selection process for new professionals was internalized. As a result of this, the company currently has its own evaluation tools. It is important to point out that the internal recruiting process seeks to value and prioritize the professionals who are already part of the company’s personnel, based on their skills and competencies.
Training and developmentMultiplus seeks to encourage the professional growth
of its employees and constantly promote their advancement, offering real development opportunities and career possibilities over the short and medium terms. The process favors the preparation of company expansion movements, in addition to reinforcing the administration of resources directed at training and qualification.
R$17.7 million
The expenses with personnel totaled R$17.7 million in 2010.
48
RElATóRiO ANuAl 2010
Health, Well Being, Safety and Quality of life in the Workplace
A healthy business environment makes all the difference when it comes to the productivity and satisfaction of any professional. With this in mind, Multiplus is focused on processes designed to recognize and care for its human capital.
The main actions include the eligibility of employees for the TAM Group club (which promotes sports, leisure and culture), in addition to disease prevention campaigns (such as those for dengue fever and HIV), programs focused on ergonomic revisions and massage therapy sessions.
The occupational exams are designed to guarantee the quality and preservation of the workers’ health, and are undertaken in compliance with Brazilian Ministry of Labor and Employment Regulatory Standard 7. More than simply fulfilling a legal obligation, Multiplus seeks to care for the health and well-being of its employees.
InforMaTIon TeCHnoloGyFor Multiplus, Information Technology (IT) is one of the
factors considered crucial for its growth and the success of its operation, since it guarantees a high level of reliability with relation to the information and business processes, supporting the entry of new partners and members and the consequent demand for computer resources.
The strategic IT plan is based on the following pillars: 1. Oracle Siebel Loyalty – back-end (or back-office)
platform, recognized and proven in the global market, with the flexibility for customization and the addition of new business processes.
2. Service-Oriented Architecture (SOA) Technological Paradigm – model for system integration with loyalty program partners, suppliers and business partners, allowing for gains in scale with the growth of the business and flexibility for changes.
3. Oracle R12 – Enterprise Resource Planning (ERP) solution, recognized in the market, which allows for the implementation of best business process practices, especially designed for financial processes.
Multiplus adopts a flexible IT infrastructure management model that allows for gains in scale. This model is designed to meet the growing demand expected due to the business opportunities emerging in the loyalty market in Brazil. The Data Centers where Multiplus hosts its computers and systems consist of modern areas with infrastructure that is adequate for monitoring and contingency operations and error tolerance (electrical, data communication, backup, external tape storage, etc). The adopted model allows for vertical and horizontal growth, fully corresponding to the company’s growth demands.
The company adopts best market practices in terms of the following systems: complete development and solution methodology and internal audits during their lifecycle (definition of solutions, development, implementation, commissioning and decommissioning).
Multiplus considers information security to be a fundamental need, since it guarantees the integrity of data and information, restricts access to information to only the areas that effectively need it and supports the audit and monitoring resources that are necessary and adequate for the systems. Since its spin off from TAM, the company has implemented several measures in line with its security policy, such as rigorous access control (encrypting, for example).
rISk ManaGeMenTDue to its specific activities, the company is exposed
to certain financial, operational and commercial risks whose management process is detailed below. (The Explanatory Notes of the Annual Financial Statements also include a more detailed description of these risks.)
49
fInanCIal rISk ManaGeMenT
foreign exchange riskThe company is exposed to foreign exchange risk
as part of its normal commercial activities, considering that most of the point sale agreements with financial institutions are quoted in U.S. dollars. These partners represented approximately 70% of Multiplus’ earnings in 2010.
The organization did not contract derivatives in foreign currency. However, in December it approved a financial risk policy, determining coverage limits and the list of financial instruments allowed, in addition to the rules related to eligibility and concentration by the counterpart.
Credit riskCredit risk results from cash and cash equivalents,
financial instruments, deposits in banks and financial institutions, as well as credit exposure to clients from wholesale, retail and financial institutions, including the outstanding accounts receivable. In 2010, the Multiplus receivables were concentrated at financial institutions and at the counterpart TAM Airlines.
The credit risk is administered internally by the Audit and Finance Committee based on the Investment Policy, which, approved in December 2010, determines the maximum concentrations per counterpart based on the type of investment and the institution’s credit risk rating.
liquidity riskThe company’s operation, which during its
normal course sells loyalty program points before redeeming them, has a positive character in terms of cash generation, minimizing its liquidity risk. Multiplus invests its surplus cash in exclusive investment funds and bank securities, respecting the Investment Policy, which
determines the maximum and minimum allocations per type of investment and the related terms.
Intelligent liquidity risk management involves: 1. maintaining sufficient cash flow and short term
financial investments; 2. checking the availability of funds through an adequate
credit line value; 3. guaranteeing the capacity to close market positions.
oPeraTIonal rISk ManaGeMenT
Technological riskMultiplus adopts state-of-the-art technology in its IT
systems and infrastructure, maintaining such assets updated and seeking to minimize exposure to the risks caused by technology obsoleteness. For this purpose, it also continuously invests in the renewal and upgrading of its IT systems, including hardware, software, processes and people.
distribution of receivables dec. 2010, in %
Investments
66.4%
Payment
Advances to TAM
Linhas Áereas
24.4%
Accounts receivable
from TAM Linhas Áereas
4.2%
Accounts receivable
from others
5.1%
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RElATóRiO ANuAl 2010
fraud riskThe fraud risk involved with a loyalty partnership
business model should never be underestimated, granted that Multiplus interacts daily with thousands of people and countless commercial establishments. In order to reduce this risk, the organization adopts a strict policy on the responsibilities and rights of access for employees and partners. There is the separation of responsibilities, audit trails and the cross-checking of information in its systems and business processes and backend.
Process riskThe nature of Multiplus’ complex technological
operations means that the impact of system and process-related changes represents a major risk for the business, and accordingly, must be very well planned and executed.
Accordingly, the company adopts rigorous change management control that includes system integration environments and the approval of systems and production, separated and replicated among each other. The company also employs rigid test and system and documentation acceptance processes.
CoMMerCIal rISk ManaGeMenT
Breakage ratePart of Multiplus’ result originates from expired
points that are not redeemed by the members, known as breakage. In 2010, the breakage rate was 22.6% and the total breakage revenue was R$122.6 million. It is expected that there be a reduction in the breakage rate as the company expands its network of commercial partners, which should be neutralized by an improved spread between the earnings and unit costs.
The efficient management of this rate is crucial for the success of the Multiplus business model. After all, a very high rate negatively affects the network’s attractiveness. A very low rate, on the other hand, may reduce the business profitability. Considering the current product and service portfolio, the management considers the maintenance of the breakage rate between 20% and 22% to be a “sustainable” option. Accordingly, it uses quantitative and qualitative management tools to calculate the same.
CompetitionThe market for loyalty networks and programs in Brazil
is still in the phase of development. Within this context, it is possible that there be a change in the national competitive scenario, in which competitors will seek to attract commercial partners and members of the Multiplus network.
The following factors are among those that mitigate the increase of this risk:
Exclusivity clause: the agreements signed between Multiplus and the coalition partners contain an exclusivity clause and average duration of approximately two years, the most important of which is the operating agreement with TAM Airlines, whose validity is 15 years starting in 2010 (see “Corporate Governance” section, pg. 24).
Current competition: Multiplus already competes with airline company loyalty programs and other individual programs (see Profile section, pg. 8), especially in the relationship with the financial institutions, which represent approximately 70% of the company’s earnings.
Positive effect on the market: the emergence of other loyalty program networks could help publicize and increase understanding of the loyalty-building concept by members, favoring the growth of the market as a whole.
51
ANAC: Brazilian National Civil Aviation Agency. Monthly Breakage: points expired and not redeemed
as a percentage of the points issued two years ago. Ex.: points expired and not redeemed in January 2010 as a percentage of the points issued in January 2008.
Burn/Earn: total points redeemed divided by the total points issued during a single period.
Point Expiration Date: date on which the point loses its validity. The Multiplus policy establishes a validity of two years for each point issued.
Gross Billings from Points: value corresponding to the Multiplus points issued during the period, calculated as deferred revenue.
Redemption Flexibilization: offer of the redemptions of award tickets for less than 10,000 points.
Member: individual registered as a member of the client loyalty programs or loyalty program coalition networks.
Award Ticket: airline ticket issued by the airline company as a result of the redemption by the member of the points from client loyalty programs or the client loyalty program coalition network.
GlOSSARy
52
Pro Forma: numbers that consider the liability accounts to be both the points issued before January 2010 (that remained in the TAM statement) as well as ones issued later (Multiplus liabilities).
RPK (Revenue Passenger Kilometer): number of kilometers traveled per paying passenger.
Revenue from the Sale of Points: value corresponding to the recognition of the earnings in the income statement as the points are redeemed.
Deferred Breakage Revenue: value corresponding to the percentage (breakage rate) of the issued points that it is estimated will not be redeemed.
Breakage Revenue: value corresponding to the recognition of the deferred breakage revenue as breakage revenue.
Breakage Rate: average of monthly breakage for the past 12 months.
RElATóRiO ANuAl 2010 53
54
CORPORATE iNFORMATiON
Multiplus S.A.website: www.multiplusfidelidade.com.br/ri
Head Office Address: Av. das Nações Unidas, 12.901 • CENU Torre Norte • 21º andar • Brooklin São Paulo • SP cep: 04578-910 SHareHolder and InVeSTor InforMaTIon
Investor Relations: Ronald Domingues André Junqueira Ferreira
Contact: Tel.: [55 11] 5105.1847 E-mail: [email protected]
Stock Exchange on which the shares are traded: BM&FBovespa S.A. – Stock, Commodities
and Futures Exchange Share Trading Code:
MPLU3 Custodian Financial Institution:
Itaú Corretora de Valores S.A. Independent Auditors:
PriceWaterHouseCoopers Auditores Independentes Newspapers that disclose information:
Diário Oficial do Estado de São Paulo Valor Econômico
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60
62
64
65
66
67
68
Financial statements
coments on perFormance
report oF independent auditors
Balance sheet
income statement
statement oF changes in equity
statement oF cash Flows
statement oF value added
notes to the Financial statements
To our ShareholderSThe Board of Directors of Multiplus S.A. submits for your
appreciation the Management Report and the Financial Statements of the Company, together with the report of independent auditors, for the year ended December 31, 2010.
Multiplus closed the year 2010 with 8.0 million members and 151 partners, specially to on 12 coalition partners..1
Management was focused on the structure of the team and implementation and stabilization of the new operating and corporate governance system. Among the main areas structured were marketing, products, new business, technology, and finance.
commenTS on performanceyear ended on december 31, 2010
operaTInG performance
operaTInG InformaTIon 2010
members (million) 8
partnerships 151
points issued (thousand) 53,236,120
TAM Linhas Aéreas 18,656,185
Banks, Retail, Industry and Services 34,579,935
points redeemed (thousand) 16,782,991
Air fares 16,710,594
Coalition Partners and Shopping Multiplus 72,397
burn/earn (pro forma, %) 65.8
breakage (average last 12m, %) 22.6
1 On December 28, 2010, the Company issued a Notice to the Market informing on the discontinuance, effective on January 2, 2011, of the Bomclube program, Walmart Brazil loyalty card a Bompreço and Hiper Bompreço stores, following its business strategy focued on “low price policy”. Therefore, since the beginning of 2011 Walmart is no longer part of the Multiplus partners coalition network.
On August 1st, Multiplus completed the implementation of its Siebel Loyalty technology platform, which is being used to manage its operations. Meeting commitments assumed with respect to Corporate Governance, the Company moved its head office and approved its stock option plan. (The full text of the Stock Option Plan is available in the Corporate Governance section of the website www.multiplusfidelidade.com.br/ri.)
In regard to results, Multiplus closed 2010 with 53.2 billion points issued. Sale of points totaled R$ 1,119.5 million. The Company posted a net revenue of R$ 469.8 million and a Net Profit of R$ 118.4 million, accounting for a net margin of 25.2%.
56
Sale of poInTS In R$’000 2010
Sale of points 1,119,475
TAM Linhas Aéreas 317,155
Banks, Retail, Industry and Services 802,320
fInancIal performance
Sale of points: R$1,119.5 million in 2010, due to points sold to:• TAM Linhas Aéreas: R$317.2 million in view of points accumulated by passengers on flights of TAM Linhas Aéreas and partner airlines,
when the TAM Loyalty program is used.• Banks, Retail, Industry and Services: R$802.3 million from sale of points to these partners. Consumers of partners with own loyalty
programs transfer their points to Multiplus, while consumers of other partners accumulate Multiplus points directly.
Total Members: by the end of 2010 Multiplus had 8.0 million members.Points issued: 53.2 billion, due to points sold to TAM Linhas Aéreas, Banks, Retail, Industry and Services that offer Multiplus points to their customers.Points redeemed: 16.8 billion Multiplus points redeemed during the year, for which the company recognizes revenues and costs in the
statement of income. Points expire in two years and Multiplus points are considered as those issued beginning on January 1st, 2010.Breakage (average of the last 12 months): the quantity of Multiplus points expired but not redeemed by participants (as a percentage of
points issued in the period of origin of points expired) was 22.6% in 2010.
Income STaTemenT In R$’000 2010
Gross sales 517,875Sale of points 382,271
TAM Linhas Aéreas 54,686Banks, retail, industry and services 327,585
Breakage 122,645Other revenues 12,959Taxes on sales and services (48,032)net revenue 469,843Cost of point redemptions
Air fares (273,370)Coalition Partners and Shopping Multiplus (888)
Financial statements 2010 57
revenues Net revenue was R$ 469.8 million in 2010 due to:Revenue from points: recognition of points billed and redeemed during the period.ther revenues: amount related to management of loyalty program of partners, and also to amounts received from profit sharing of the
co-branded card TAM Fidelidade.Tax on sales: related to the levy of PIS/Cofins (federal taxes) and ISS (tax on services) on gross revenue.
costs and expensesCosts and expenses were R$ 339.6 million in 2010 as a result of:Cost of point redemptions: R$ 273.4 million in air fares and R$ 0.9 million in points, products or services in coalition partners and
products available on the Multiplus catalogue.Shared services: agreement for sharing with TAM Linhas Aéreas controlling services, treasury processes, planning and financial
management support, call center, facilities, infrastructure, legal, human resources, information technology, audit, and supplies.Personnel expenses: payroll, including employee salaries, charges and benefits.Marketing expenses: marketing activities in brand advertising events.Other: expenses related to advisory and consulting services in the legal, strategic and IT (system implementation and support) areas.
Income STaTemenT In R$’000) 2010
Total costs of Services provided (274,258)Shared services (7,871)
Personnel expenses (17,297)
Marketing (11,987)
Depreciation and amortization (1,091)
Other (27,067)
Total operating expenses (65,313)
Total operating costs and expenses (339,571)
operating profit 130,272
Operating Margin 27.7%
Financial (Expenses)/Income 33.259
Income before Income Tax and Social contribution 163,531
Income Tax and Social Contribution (45,145)
net profit for the year 118,386
Net Margin 25.2%
58
capITal marKeTShareholding Structure
The shareholding structure of Multiplus is as follows:
Share performanceAt December 31, 2010, MPLU3 stock was quoted R$33.75 (113% appreciation since IPO) equivalent to a market value of R$5.4 billion.
The Ibovespa (IBOV) index rose by 8.4% in the period.
tam s.a.
73.17% 26.83%
Quote at end of month R$ Average daily volume R$ million
fev 10jan 10dec 10nov 10oct 10sep 10aug 10jul 10jun 10may 10
9.5
6.47.9
13.310.59.7
6.65.0
2.42.1
apr 10
6.1
mar 10
4.1
feb 10
15.5
28.3530.74
33.2833.91
28.4126.9622.8520.95
18.8118.4219.8818.2217.79
MPLU3
Financial statements 2010 59
IndependenT audITorS’ reporT on The fInancIal STaTemenTSyear ended on december 31, 2010
IndependenT audITorS’ reporT on The fInancIal STaTemenTS
To the Board of Directors and StockholdersMultiplus S.A.
We have audited the accompanying financial statements of Multiplus S.A. (the Company), which comprise the balance sheet as on December 31, 2010 and the income statement, statement of changes in equity and statement of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information.
management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices
adopted in Brazil and International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
auditor’s responsibilityOur 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 from 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 misstatement of the financial statements, whether due to fraud or error.
60
In making those risk assessments, the auditor considers internal control relevant to the entity’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 entity’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 audit opinion.
opinionIn our opinion the financial statements present fairly, in all material respects, the financial position of Multiplus S.A. as on December
31, 2010, and its financial performance and its cash flows for the year then ended in accordance with accounting practices adopted in Braziland International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
other mattersSupplementary information – statement of value added
We also have audited the statement of value added for the year ended on December 31, 2010, whose presentation is required by the Brazilian corporate legislation for listed companies, but is supplementary information for IFRS. This statement was submitted to the same audit procedures described above and, in our opinion, is fairly presented, in all material respects, in relation to the overall presentation of the financial statements.
São Paulo, February 11, 2011.
PricewaterhouseCoopers Auditores IndependentesCRC 2SP000160/O-5
Carlos Alberto de SousaContador CRC 1RJ 056561\O – 0 “S” SP
Financial statements 2010 61
balance SheeTyear ended on december 31, 2010In ThouSandS of reaIS, unleSS oTherwISe IndIcaTed
aSSeT note 2010 2009
currents
Cash and cash equivalents 5 111,235
Financial assets at fair value through profit and loss 6 757,781
Accounts receivables 7 68,699
Taxes recoverable 8 3,769
Relate parties 9 388,507
Other accounts receivable 853 859
1,330,844 859
non-current
Financial assets at fair value through profit and loss 6 50,280
Deferred income ax 10 1,217
Property, plants and equipaments 935
Intangible assets 11 20,273 3,783
72,705 3,783
Total assets 1,403,549 4,642
The accompanying notes are an integral part of this financial statements.
62
lIabIlITIeS note 2010 2009
current
Accounts payable 16,579 852
Salaries and social charges 5,961
Tax, charges and contributions 12 2,328
Related parties 9 3,923 3,917
Dividends 1,223
Deferred income 13 614,550
Other accounts payable 382
644,946 4,769
equity
Capital 692,385 1
Capital reserves (21,784)
Retained profits 88,002
Accumulated deficit (128)
Total equity 758,603 (127)
Total liability and equity 1,403,549 4,642
(*) The accompanying notes are an integral part of this financial statements.
Financial statements 2010 63
Income STaTemenTyear ended on december 31, 2010In ThouSandS reaIS, unleSS oTherwISe IndIcaTed
noteyear ended
december 31, 2010
period of 18 weeks ended
december 31, 2009
net revenue 15 469,843
Cost of sales 16 (274,258)
Gross profit 195,585
Operating expenses
Selling 16 (422)
General and administrative 16 (64,891) (127)
operating profit (loss) 130,272 (127)
Finance income 18 35,374
Finance expense 18 (2,115) (1)
profit (loss) before income tax and social contribution 163,531 (128)
Income tax and social contribution 19 (45,145)
profit (loss) for the year 118,386 (128)
earnings per share
basic 20 0,75 (0,26)
diluted 20 0,75 (0,26)
(*) There was no other comprehensive income in the reported years and, therefore, the statement of comprehensive income is not presented.
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STaTemenT of chanGeS In equITy year ended on december 31,2010In ThouSandS of reaIS, unleSS oTherwISe IndIcaTed
capital reserves
retained prifits
capitallSubscription
receivablecapital reserve
Stock option plan
legal reserve
retained profits
accumulated deficit
Total equity
at august 17, 2009 1 (1)
Payment of capital 1 1
Loss for the year (128) (128)
at december 31, 2009 1 (128) (127)
Capital increase
IPO increase - BDM (*) 2/4/2010 (note 14 (b)) 629,440 629,440
IPO increase - BDM 3/1/2010 (note 14 (b)) 62,944 62,944
Transaction costs, net of tax (23,322) (23,322)
Stock option plan expense 1,538 1,538
Profit for the year 118,386 118,386
Destination of the net income:
Legal reserve 5,919 (5,919)
Minimum mandatory dividends (note 14 (d))
Dividends paid in advance R$/share (13,871) (13,871)
Interest on own capital paid in advance R$/share
(15,162) (15,162)
Dividends proposed R$/share (1,223) (1,223)
Reserve for additional dividends proposed 16,937 (16,937)
Distributable profits reserve 65,146 (65,146)
at december 31, 2010 692,385 (23,322) 1,538 5,919 82,083 758,603
(*) BDM = Board of Director’s Meeting
Financial statements 2010 65
STaTemenT of caSh flow – IndIrecT meThodyear ended on december 31, 2010In ThouSandS of reaIS, unleSS oTherwISe IndIcaTed
note 2010 2009
cash used in operating activities 21 (468,340)
Taxes paid (31,924)
Interest paid
net cash used in operating activities (500,264)
cash flow from investing activities
Purchase of property, plant and equipment (958)
Purchase of intangible assets (17,558)
net cash used in investing activities (18,516)
cash flow from financing activities
Net proceeds from initial public offering (*) 657,048
Amounts from related parties 2,000
Minimum mandatory dividends paid in advance (13,871)
Interest on own capital paid in advance (15,162)
net cash generated from financing activities 630,015
Increase in cash and cash equivalents 111,235
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year 111,235
Supplementary information on cash flows:
Acquisition of intangible assets 11 3,783
(*) Public Offering of shares
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STaTemenT of added Valueyear ended on december 31, 2010In ThouSandS of reaIS, unleSS oTherwISe IndIcaTed
2010 2009
revenue
Sales of goods, products and services 517,875
Inputs acquired from third parties
Cost of products, goods and services sold (274,424)
Materials-Energy-Outsourced services-Other (46,190) (127)
Gross added value 197,261 (127)
net added value 197,261 (127)
Value added received in transfer
Financial income 35,374
Total added value to be distributed 232,635 (127)
distribution of added value 232,635
personnel
Direct remuneration 13,832
Benefits 539
Severance Indemnity Fund (F.G.T.S). 457
Taxes, fees and contributions
Federal 95,521
Municipal 195
remuneration of third party capital
Interest 43 1
Rentals 1,589
Others 2,071
remuneration of own capital
Dividends 15,094
Interest on own equity 15,162
Retained earnings 88,132 (128)
(*) The accompanying notes are an integral part of this financial statements.
Financial statements 2010 67
noTe To The fInancIal STaTemenTSyear ended on december 31, 2010In ThouSandS of reaIS, unleSS oTherwISe IndIcaTed
1. operaTIonS Multiplus S.A. (“Multiplus”, “Multiplus Fidelidade” or “Company”) is a company situated in Brazil, incorporated on August 6, 2009 under
the name Q.X.A.S.P.E Empreendimentos e Participações S.A.. On October 28, 2009, the Extraordinary General Meeting (AGE) approved the change of its name to Multiplus S.A. and the alteration and consolidation of the statutes. Multiplus’ main activity is the development and management of customer loyalty programs, sale of rights to redeem prizes in the scope of customer loyalty programs, the creation of data bases of individuals and legal entities, obtaining and processing of information related to consumer habits, the representation of other Brazilian or foreign companies, and rendering of auxiliary services to sell assets and products, including, but not limited to their import and export, further to the acquisition of items and related products, directly and indirectly, the performance of previously described activities.
The Company arose from a corporate restructuring started by its parent company through the segregation and transfer of the customer loyalty business of TAM Linhas Aéreas S.A. (“TLA”) to an independent entity, with the objective of providing more rationalization in the operating, administrative and financial structures of TLA’s customer loyalty business, as well as to obtain more efficiency, profitability and independence. As from January 1, 2010, the Company assumed the exclusive management of the Loyalty Program.
The main source of the Company’s revenue arises from the issuance of Multiplus Fidelidade (Loyalty) points to the commercial partners, including TLA, which, offer these points to their participants for them to redeem these as prizes. The Company allows its participants to accumulate points of Multiplus Fidelidade upon their purchase and redeem them for prizes through the programs of our commercial partners or from an electronic catalog.
In addition to the sale of points, the Company also provides the management of loyalty programs to commercial partners. Presently, in accordance with the Operating Contract, the Company renders this service to TLA, which mainly consists in the operation of the Programa TAM Fidelidade. This contract is effective for 15 years, renewable for additional five-year periods, and establishes the monthly fees due from TLA for this service. Termination of the contract for any reason is not subject to any burden, fine or penalty, except for the reimbursement of investments and not amortized made in order to comply with the Operating Contract.
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The business adopted model by the Company differs from the traditional coalitions, for being flexible and arising from the joining of benefits from two existing models: coalitions and individual programs. Instead of replacing the partners’ programs, the Company connects them into a wider network. Accordingly, the Company does not compete, but rather cooperates with the loyalty programs of its commercial partners, providing them with alternatives of highly attractive redemptions and allowing the commercial partners to continue with the relationship with their consumers.
The Company’s commercial partners include important companies from different sectors of the economy, such as fuel stations, book shops, credit cards, banks, hotels, among others. Other than the traditional individual loyalty programs, we allow, through a Multiplus Fidelidade account, that the participants of our commercial partners loyalty programs decide whether they will transfer their points to the different loyalty programs included in our Multiplus Fidelidade network or concentrate the accumulated points from different loyalty programs in one single Multiplus Fidelidade account.
Multiplus S.A. was listed as a publicly traded company under BMF&Bovespa’s New Market on February 3, 2010 through a Public Offering on February 5, 2010, obtaining proceeds in the gross amount of R$692,385, through the issuance of 43,274,000 shares of common stock at the issue price of R$16,00 per share. This amount was deducted costs of R$35,336 and the related tax effect of R$12,014, totaled R$23,322 (see Note 14 (c )) All the amounts obtained were appropriated to capital according to the decision of the Board of Directors Meetings held on February 4, 2010 and March 1, 2010.
2. SIGnIfIcanT accounTInG pracTIceS The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
2.1 declaration of conformityThese financial statements have been prepared in accordance with accounting practices adopted in Brazil (BR GAAP), including the
Pronouncements, Guidance and Interpretations issued by the Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities Commission (CVM) and with International Financial Reporting Standards – IFRS issued by International Accounting Standards Board – IASB. These are the first financial statements prepared in accordance with the CPCs and IFRS, as shown in note 22.
These financial statements were approved by the Board of Directors on February 11, 2011.
2.2 bases of preparation and presentationThe preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its
judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.
Financial statements 2010 69
The main accounting practices adopted in the preparation of these financial statements are follows:
(a) determination of results of operationsResults of operations are determined on the accruals basis of accounting. The most important aspects include:
(i) Revenue recognition• The invoicing of Multiplus Fidelidade points arising from the sale to commercial partners is initially recorded as deferred revenue upon
the issuance of points (see note 13). As the points from Multiplus Fidelidade are redeemed, these amounts are recognized in the statement of operations as gross revenue. Revenue, therefore, comprises the amount of points redeemed and the amount of points expected not to be redeemed (see note 15).
• From the total points sold in the month and recorded as Deferred Revenue, it is estimated that a percentage (calculated taking into consideration the historical average of the breakage rate in the last 12 months – see note 3.2) will not be redeemed. This amount, added to the balance from prior months is recognized as gross revenue in the statement of operations (see note 15), based on the redemption the curve of points which means the percentage of points accumulated and redeemed in the same month, applied over the balance of the breakage provision (see note 13).
(ii) Costs and operating expenses recognition• The main Multiplus costs are related to points redeemed (including the award-points distributed), especially award-tickets. Operating
expenses include selling, general and administrative expenses, including salaries, charges and benefits, shared services center, information systems, call center, legal, marketing and other (see note 16).
(iii) Finance revenue recognition• Interest revenue is recognized on the accruals basis, taking into consideration the outstanding principal and the effective interest rates
during the year ended up to maturity or the year-end (see note 18).
(b) functional and presentation currencyItems included in the financial statements of the Company are measured using the primary economic environment in which the entity
operates (“the functional currency) and are presented in Brazilian Reais (Real).
(c) cash and cash equivalentsCash and cash equivalents include cash in hand, bank deposits, short-term investments highly liquid with original maturities of three
months or less and which are subject to an insignificant risk of changes in value.
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(d) financial instruments
(i) Financial assets Multiplus classifies its financial assets in the following categories: measured at fair value through profit or loss (including derivative
financial instruments) and loans and receivables. The classification depends on the purpose for which financial asset was acquired. Management determines the classification of the financial assets at the time they are initially recorded.
Financial assets measured at fair value through profit or loss These are financial assets held for active and frequent trading. Derivatives are also classified as held for trading and included in the category,
unless they have been designated as hedge instruments. All financial assets in this category are classified as current assets. Gains or losses arising from the changes in the fair value of financial assets measured at fair value through profit or loss are recorded in the statements of operations as financial income or expense in the period they occur, unless the instrument has been contracted in connection with another instrument. In this case, the variations are recognized in the same line item in the statements of operations as that affected by this other instrument.
Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting date, which are classified as non-current assets. The Company’s loans and receivables comprise trade accounts receivable, other accounts receivable and cash and cash equivalents, except for certain short-term investments that meet the definition of assets at fair value through profit or loss.
Measurement of financial assetsThe fair value of investments for which there is an active market is based on current prices. For financial assets for which there is no
active market the Company establishes the fair value through estimation techniques. These techniques include the use of recent transactions contracted with third parties, reference to other instruments that are substantially similar, and the analysis of discounted cash flows.
Impairment of financial assetsFinancial assets, except those designated at fair value through profit or loss, are assessed based on impairment indicators at the end of
each reporting period. Impairment losses are recognized if, and only if, there is effective evidence of impairment of the financial asset as a result of one or more events that occurred after its initial recognition, with impact on the estimated cash flows of this asset.
Financial statements 2010 71
The criteria used to determine if there is an effective evidence of impairment may include
• Significant financial difficulty of the issuer or counterparty; or• Breach of contract, such as a default or delinquency in interest or principal payments; or• Probability of the debtor entering bankruptcy or financial reorganization; or• Disapperance of an active market for that financial asset because of financial difficulties.
For certain categories of financial assets, such as accounts receivable, the assets that are assessed as not impaired in an individual assessment may, subsequently, be assessed as impaired in a collective assessment. Objective evidences of impairment for receivables portfolio may include the Company’s past experience in the collection of payments and the increased number of delayed payments after a period of days, as well as observable changes in the national or local economic conditions related to defaults on receivables.
(ii) Derivative financial instrumentsThe Company did not operate with derivative instruments in the years ended on December 31, 2010 and 2009.
(e) accounts receivable Accounts receivable are amounts due from customers for sales of points performed in the ordinary course of business. If collection is
expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Accounts receivable are recognized initially at fair value and subsequently measured at amortised cost using the effective interest method, less the provision for impairment. Owing to their short term nature, the Company initially recognizes the accounts receivable by the original sale amount. An allowance for doubtful accounts is established when there is objective evidence that the Company will not be able to realize the amounts due under the original terms of the accounts receivable. The allowance is the difference between the book value and the recoverable value.
(f) Intangible assets
Software and IT projectsExpenses directly associated with identifiable and unique software, controlled by the Company and which will probably generate
economic benefits greater than the costs for more than one year, are recognized as intangible assets. Software development expenses recognized as assets are amortized using the straight-line method over the applicable useful lives, which in general is no longer than five years.
Ongoing costs of software development or maintenance are expensed as incurred.
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(g) Impairment of non-current assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject
to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value costs to sell and its value in use.
(h) accounts payableAccounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts
payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Accounts payable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. In practice, due to the short-term nature of most trade payables, they are usually recognized at the amount billed.
(i) current and deferred taxIncome tax and social contribution expense represents the sum of current and deferred taxes. Current and deferred income tax and
social contribution are recognized in the income statement for the year, except to the extent that it relates to items directly recognized in equity or other comprehensive income.
The current income tax and social contribution charge are calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax and social contribution are recognized using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss liability is settled. Deferred income tax and social contribution is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax and social contribution is realized or the deferred income tax liability is settled.
The current income tax and social contribution calculated at nominal rates of 25% and 9%, respectively, are used to calculate deferred taxes (note 10 and 19).
Deferred tax and social contribution assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized and/or tax losses, considering projections of future income based on internal assumptions and future economic scenarios which may, therefore, suffer changes. Company Management reviews these projections annually.
Financial statements 2010 73
(j) Transaction costsTransaction costs related to the Company going public were recorded as a deduction from the initial amount of the resources raised, less
the income tax and social contribution effects (see note 14 (c) – item (ii)).
(k) deferred revenueDeferred revenue comprises revenue related to Programa Multiplus Fidelidade (Note 2.2 (a)). Points sold are measured at their fair value on
initial recognition, and are recognized as revenue when Multiplus Fidelidade points are redeemed.
(l) provisionsProvisions are recognized when the Company has a legal or constructive obligation as a result of past events, and a future disbursement
of resources to settle the obligation is probable. Provisions are measured at the present value of expenditures required to settle the obligation, using a rate before taxes, which reflects current market assessments of the time value of money and specific risks of the obligation. The increase in the obligation as a result of the passage of time is recognized as financial expense. Provisions are presented net of the related judicial deposits.
(m) employee benefits
(i) Profit-sharing and bonusThe Company recognizes a liability and an expense for bonuses and profit-sharing, based on a Profit Sharing Program and some
operating indicators. The Company recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
(ii) Share-based paymentsMultiplus operates an equity-settled share-based compensation plan. Details regarding the determination of the fair value of these plans
are described in note 17.2. The fair value of the employees services received in exchange for the grant of the options is recognized as an expense. The total
amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and Sales growth targets). Non-market vesting conditions are included in the assumptions used to define the number of options that are expected to vest. At each balance sheet date, Multiplus revises its estimates of the number of options that are expected to vest, recognizing the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity.
When share options are exercised by issuing treasury shares, the proceeds received from the exercise of options, net of any directly attributable transaction costs are credited to treasury shares, the difference between the book value of the treasury shares awarded to the employee and the exercise price is recognized in retained earnings.
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(n) capitalCapital comprises common shares and is classified as equity. Additional costs directly attributable to share issues and share options are
recognized as deduction of equity, net of tax effects.
(o) dividend distribution and interest on own capitalDividend distribution and interest on own capital to the company’s shareholders is recognized as a liability in the Multiplus’ financial
statements at the end of the year. The financial statements reflect only minimum mandatory dividends, provided for in the Company’s statute, of 25% of the net profit. Any value above the minimum mandatory is only accrued on the date they are approved by shareholders in General Meeting (Ordinary / Extraordinary). Tax benefits of interest on equity are recognized in the income statement.
(p) earnings per shareEarnings per share are calculated through profit or loss for the year attributable to the Company’s controlling and non-controlling
stockholders and the weighted average of common shares outstanding in the related year. Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares for the periods presented.
(q) Statement of value added (dVa)This statement is intended to evidence the wealth created by the Company and its distribution during a certain period and is presented by
the Company, as required by Brazilian corporate Law, as part of its financial statements.The DVA was prepared based on information obtained from accounting records used as basis for preparing the financial statements and
following the provisions contained in CPC 09 – Statement of Value Added. In its first part the statement presents the wealth created by the Company, represented by revenues (gross sales revenue, including sales taxes, other revenues and the effects of the allowance for doubtful accounts), inputs acquired from third parties (costs of sale and acquisition of materials, energy and outsourced services, including taxes on the acquisition, the effects of losses and recovery of asset values, and depreciation and amortization) and the value added received from third parties (financial income and other income). The second part of the DVA presents the distribution of wealth among personnel, taxes and contributions, remuneration of third-party capital and remuneration of own capital.
(r) Segment informationOperating segment information is presented consistenly with the internal report provided to the chief operating decision maker. The
chief operating decision maker, responsible for allocating resources and assessing the performance of operating segments, is the Chief Executive Officer. As the cost basis of Multiplus’s operations is essentially fixed, although the decision maker assesses all the presented period based on revenues at different levels, Multiplus’ performance is assessed as a whole, and it is concluded that there is only one operating segment.
Financial statements 2010 75
(s) new and revised standards and interpretations already issued but not yet adopted
(i) Standards, amendments and interpretations of standards that are not yet mandatory and not early adopted• The IASB issued several IFRS standards, amendments to standards and interpretations during the year ended on December 31, 2010,
and permitted their early adoption. The Company did not elect the early adoption of any of the new standards or amendments to standards, since they do not yet have equivalent pronouncements issued by the Accounting Pronouncements Committee (CPC), and their adoption is Brazil is therefore not permitted. In view of the commitment of CPC and the Brazilian Securities Commission (CVM) to keeping up-to-date the set of standards issued based on updates made by the International Accounting Standards Board (IASB), it is expected that these pronouncements and modifications be issued by and approved by CVM by the date of their mandatory adoption.
• IFRS 9 – Financial instruments, issued in November 2009 and amended in October 2010, introduces new requirements for classification, measurement and derecogntion of financial assets and liabilities. Effective for periods beginning on January 1, 2013. IFRS 9 establishes that all recognized financial assets that are within the scope of IAS 39 – Financial instruments: recognition and measurement (equivalent to CPC 38) be subsequently measured at amortized cost or fair value. Specifically, debt instruments that are held under a business model, the purpose of which is receiving contractual cash flows, and that have contractual cash flows that refer solely to payments of principal and interest on the principal amount due are generally measured at amortized cost at the end of subsequent accounting periods. All other debt instruments and investments in equity instruments are measured at fair value at the end of subsequent accounting periods.
(ii) Standards, amendments to and interpretations of standards that are not yet effective and are not significant for the Company’s operations:
The following interpretations of and amendments to existing standards were published and are mandatory for the Company’s accounting periods beginning on January 1, 2011, or after this date, or for subsequent periods. However, they are not significant for Multiplus’ operations:
• Amendment to IAS 32, Financial Instruments: Presentation – Classification of Rights Issues”. The IASB amended IAS 32 to permit that rights, options or warrants to acquire a fixed number of an entity’s own equity instruments for a fixed price in any currency be classified as equity instruments, as long as the entity offers rights, options or warrants pro rata to all of its owners of the same class of its own non-derivative equity instruments. Effective for years beginning on or after February 1, 2010.
• IFRIC 19 – Extinguishment of Financial Liabilities with Equity Instruments, effective for transactions carried out on, or after, July 1, 2010. This standard clarifies the accounting treatment when an entity renegotiates the terms of its debts and as a result the liability is extinguished upon the issuance, by the debtor, of shares of its capital on behalf of the creditor.
• Amendments to IFRS 1 on elimination of fixed dates for first-time adopters of IFRSs: on December 20, 2010, IASB issued amendment to IFRS 1 – First-time Adoption of International Financial Reporting Standards (IFRSs), which deals with the elimination of fixed dates for first-time adopters of IFRSs. The amendments replace the fixed date for prospective adoption from January 1, 2004 to the date of transition to IFRSs, so that first-time adopters of IFRSs do not have to apply the derecognition requirements of IAS 39 retrospectively. The modification must be mandatorily adopted for years beginning on, or after, July 1, 2010
• IAS 24, Related Party Disclosures (revised in 2009). Changes the definition of a related party and modifies certain requirements for government-related entities. Effective for years beginning on, or after, January 1, 2011.
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• Amendment to IFRIC 14, IAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Removes unintended consequences arising from the treatment of prepayments in some circumstances when there is a minimum funding requirement. The results from prepayments of contributions in certain circumstances are recognized as asset, rather than as expense. Effective for years beginning on, or after, January 1, 2011.
(iii) Improvements to IFRS in 2010The amendments are generally applicable for annual periods beginning after January 1, 2011, unless otherwise indicated.
STandard maIn requIremenTS applIcaTIonS
IFRS 1 - “First-time Adoption of International Financial Reporting Standards”
(a)change in accounting policy in the year of adoption
Clarifies that, if a first-time adopter changes its accounting policies or its use of IFRS 1 exemptions after having published an interim financial report in accordance with IAS 34, “Interim Financial Reporting”, this entity should explain the changes and update the reconciliations between prior GAAP and IFRS.
Applied prospectively
b) revaluation as deemed cost
Per,its tha entities that adopt the IFRS for the first time use the fair value determined by a specific event as deemed cost, even if the events occurs after he transition date, but before the first IFRS financial statement are issued. When this remeasurement occurs after the date of tansition to IFRS, but during the period covered by their first IFRS financial statement, any adjustement subsequent to that fair value determined by the event will be recognized in equity. thsi event can be, for example, a privatization or acquisition.
The entities that adopted IFRS in prior periods can apply the change retroactively in the first annual period after the change becomes effective, as long as the measurement date is within the period covered b the first IFS financial statements.
(c) use of estimated cost for operations subject to regulted prices (for example, concessionaires of public service)
Entities subject to tariff regulation can use the prior carrying amounts, in acordance with prior GAAP, of property, plat and equipment or intangible assets as deemed cost on an item-by-item basis. The entities that use this exemption are required to test each item for impairment in accordance with IAS 36 at the transition date.
Applied prospectively
Financial statements 2010 77
STandard maIn requIremenTS applIcaTIonS
IFRS 3 – Business Combinations a) Transition requirements for contingent consideration from a business combination that occurred before the date the revised IfrS became effective.
Clarifies that amendments to IFRS 7 – Financial Instruments: Disclosures, IAS 32 – Financial Instruments: Presentation, and IAS 39 – Financial Instruments: Recognition and Measurement, which eliminate the exemption of contingent consideration, do not apply to contingent consideration arising from business combinations for wich the acquisitions dates precede the application of IFRS 3 (as revised in 2008).
Applicable to annual periods beginning on or after July1, 2010.Applied retroactively.
(b) measurement of non-controlling interests.
The choice of measurin non-controlling interests at fair value orbased on the proportional share of the acquirees net assets applies only to instruments that represent current interests and entitle their holders to a proportional share of the net assets in the event of liquidation. All other components of non-controlling interest are measured a fair value, unless another measurement is required by IFRS.
Applicable to annual periods beginning on or after July 1, 2010. Applied prospectively, as from the date when the entity applies IFRS 3.
Applicable to annual periods beginning on or after July 1, 2010.Applied prospectively
c) Share-based payment awards based on non-replaced shares or voluntarily replaced shares
The application guidance in IFRS 3 applies to all share-based payment transactions that are part of a business combination, including share-based payment awards based on non-replaced shares or voluntarily replaced shares.
IFRS 7, Financial Instruments Emphasizes the interactions between quantitative and qualitative disclosures on the nature and extent of risks associated with financial instruments.
January 1, 2011
Applied retroactively.
IAS 1 – Presentation of Financial Statements
Clarifies that an entity will present an analysis of other comprehensive income for each component of equity, in the statement of changes in equity or in the notes to the financial statements.
January 1, 2011
Applied retroactively.
IAS 27 – Consolidated and Separate Financial Statements
Clarifies that consequential amendments from IAS 27 made to IAS 21 – The Effects of Changes in Foreign Exchange Rates, IAS 28 – Investments in Associates and IAS 31 – Interests in Joint Ventures, apply prospectively to annual periods beginning on or after July 1, 2009, or before this date, when the IAS 27(R) is early applied.
Applicable to annual periods beginning on or after July 1, 2010. Applied retroactively.
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STandard maIn requIremenTS applIcaTIonS
IAS 34 – Interim Financial Reporting Offers guidance to illustrate how to apply IAS 34 disclosure principles and adds disclosure requirements regarding:• circumstances that probably will affect the fair values of financial instruments
and their classification; • transfers of financial instruments between different levels of hierarchy of fair
value;• changes in classification of financial assets; and •changes in contingent assets and liabilities.
January 1, 2011
Applied retroactively.
IFRIC 13 – Customer Loyalty Programmes
The meaning of fair value is clarified in the context of measurement of award credits in customer loyalty programmes.
January 1, 2011
3. crITIcal accounTInG eSTImaTeS and JudGmenTSThe estimates and judgments are constantly evaluated and are based on historical experience and other factors, among which expectation of future
events considered reasonable under present circumstances. The accounting estimates, by definition, are not equivalent to actual results. The estimates and assumptions that present significant risk of relevant adjustment in the book value of assets and liabilities in the following year is presented below:
3.1 breakageThe Company recognizes as gross revenue part of the deferred revenue that is estimated not to be redeemed, using a percentage
calculated based on the average of the breakage rate in the last 12 months. This percentage is revised monthly by Management in order to avoid significant deviations.
4. fInancIal InSTrumenTS
4.1 financial risk managementThe Company’s activities are exposed to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and
price risk), credit risk and liquidity risk.The Company has a risk management program formalized by the controlling company which allows its Treasury Department to enter into
derivative financial instruments in order to reduce the volatility of its expected cash flows, of variations in the exchange rates, interests and prices of commodities. The risk management process is monitored by the parent company’s Risks Committee whose attributions, among other, are to:
• Decide on any increase of the percentage level of protection based on strategic matters and monitor the comparison between the market and budgeted scenarios;
• Manage and administrate the risk exposure;• Monitor compliance with risks policy;• Decide on the exposure level of market risks;• Establish financial limits to all the institutions authorized to carry out hedge transactions; and• Monitor the performance of hedge transactions.
Financial statements 2010 79
The Treasury Department is responsible for, among other activities, planning the implementation of the Risks Committee’s decisions, certifying that the hedge transactions were contracted in conformity with market parameters and informing the Risk Committee on deviations to the Policy.
These derivatives are used in line with the parent company’s policies, considering liquidity, impact on results and cost/benefit analysis of each position taken. Control over the use of derivatives includes ensuring that the derivatives contracted are in line with market rates.
The Company did not carry out transactions with derivatives during the period ended December 31,2010.At year-end 2010, the Finance Committee and the Audit Committee approved the policy risk and marketable securities for the Company.
(a) market risks
(i) Exchange rate riskThe exchange rate risk consists of the fluctuation of the R$/US$ rate, which is a reference for part of the contracts for acquisition of
points. These fluctuations may impact the cash flows and the sales price of points. The Company is exposed to market risks from our normal commercial activities. The market risks principally relate to changes in interest rates,
exchange rates and redemption of financial institution points. Such variations can negatively affect its cash flows and future sales. The market risk is a possible loss arising from variations in the prices of variable market (exchange rates, interest, competition etc.) that affect the Company’s cash flows.
At December 31, 2010, the Company did not have any derivatives contracted in foreign currency.
(ii) Interest rate riskThe Company’s earnings are affected by changes in interest rates due to the impact those changes have on interest expense generated by
the balances of cash and short term investments. The Company does not have financial instruments for protection of cash flows against variations in interest rates.
(iii) Sensitivity analysisThe Company shall provide a sensitivity analysis of the financial instruments, that demonstrates the impact of changes in financial
instruments on the Company’s results and its shareholders’equity by considering:• Increase and decrease of 10 percentage points in exchange rate, by keeping constant all the other variables;• Increase and decrease of one percentage point in interest rates, by keeping constant all the other variables.
On December 31, 2010, Multiplus was not exposed to any market risk considered significant by Management that may affect equity or result’s of the Company’s.
In addition to the sensitivity analysis above, the Company shall provide a sensitivity analysis of financial instruments, describing the risks that may cause material damage, directly or indirectly by considering the following elements, as determined by CVM Instruction no 475/08:
80
• The probable scenario is defined as the one expected by the Company Management and referred by independent external source;• The possible adverse scenario considers deterioration of 25% in the major variable that determines the fair value for the financial
instrument; and• The remote adverse scenario considers deterioration of 50% in the major variable that determines the fair value for the financial
instrument.
The only financial investments held by the Company are in investment funds under the discretionary management of third parties. The custody and management of these investments are centralized in a single agent, independent of the managers. Additionally, the funds have independent audit and inspection by the CVM.
• Portfolio dynamics – managers can alter the portfolio composition at any time, at their discretion, within the limits of the Regulation. Thus, as the sensitivity analysis can have as a premise the maintenance of the portfolio in effect at December 31, 2010, it is not necessary the case and may lead to mistaken conclusions.
• Risk control – the funds’ regulation establishes market risk limits (Value at Risk) of 0.6% (Multimarket Funds) and 0.15% (Fixed-Income Funds), considering a time horizon of 21 business days and 95% of confidence. The Company recognizes the limitations intrinsinc to the risk control model, but believes in its efficiency in the prevention of material losses. In addition to the risk control, the fund manager has power to prevent the liquidation of transactions that extrapolate the fund risk limit; the Company also contracts an independent consultant to perform a weekly assessment of the fund risk levels.
• Restrictions imposed by the regulation – the funds’ regulation expressly prohibits leverage. In addition to the market risk limit described above, there are additional limits for allocation to classes of assets of greater volatility.
(b) credit riskThe credit risk is managed internally by the Audit and Finance Committee. The credit risk arises from cash and cash equivalents,
financial instruments, deposits at banks and financial institutions, as well as from credit exposures to wholesale and retail customers and financial institutions, including outstanding accounts receivable. Currently, Multiplus receivables are concentrated in financial institutions and counterpart TLA. The limits of individual risks are determined based on internal or external classifications. The use of credit limits is regularly monitored.
For investment of its funds, the Company enters into transactions only with financial institutions with a minimum credit rating of BBB – or equivalent provided by rating agencies Standard & Poors, Moody’s or Fitch.
(c) liquidity riskPrudent liquidity risk management implies (i) maintaining sufficient cash and marketable securities, (ii) the availability of funding through an
adequate amount of committed credit facilities and (iii) the ability to close out market positions.
Financial statements 2010 81
The Company currently invests surplus cash exclusive investment funds and bank securities, in compliance with the Investment Policy. The Company is highly dependent on TLA and financial institutions, which together, represent almost all of its gross invoicing sources
and revenue of the Company. A possible decrease on the sale of points to any of the main partners, for any reason, the decision of no longer taking part of the Program or no longer outsource the management, administration or operation of their loyalty programs may have a significant adverse effect for the Company.
Further, the Company destined approximately 94% of net resources obtained from the going public process (at February, 2010) for the payment in advance to purchase award tickets from TLA with the purpose of meeting the award redemptions in award tickets during the next 24 months (at the time). Considering the expected future redemptions at December 31, 2010, this amount is sufficient to meet the Company’s needs for approximately 12 months. Any temporary or permanent difficulties in TLA’s business may impair or prevent the receipt of these advance-purchased funds.
The only non-derivative financial liability of the Company refers to “Accounts payable” and has a maturity of less than 12 months.
4.2 commercial risk management
(a) risks related to the redemption of pointsThe main operating cost of the Company is the acquisition of points from coalition partners and products, particularly air tickets, for the delivery
of rewards to the Program participants. Part of the Company’s revenue arises from the number of Multiplus Fidelidade points which expire unredeemed by the participants, known as breakage. The recognition of breakage as part of revenue is based on historical trends. A decrease in breakage is expected as the Company expands its network of commercial partners. The Company’s expectation to neutralize the breakage reduction through its policy of pricing of points sold to the commercial partners. Should the points not be properly priced, or the volume of redemptions exceed the Company expectations, profitability may be affected.
(b) risk related to competitionThe sector of networks and loyalty programs in Brazil still it is in development phase. As the operating market of the Company develops
and the competition increases, the competitors may partially deviate the business that our commercial partners or participants presently have or may have in the future, with the Company, including the rewards acquired.
4.3 estimation of fair valueIt is assumed that the carrying amounts of accounts receivable, less the impairment provision and accounts payable, approximate their fair values.
The fair value of financial instruments is determined based by discounting the estimated cash flows using the market interest rate as a benchmark. The Company discloses the fair value of financial instruments by level of the following fair value measurement hierarchy:• Level 1– quoted prices (unadjusted) in active markets for identical assets or liabilities;• Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices).• Level 3 – Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
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Levels 2 and 3 are not applicable to Company at December 31, 2010.The following table presents the Company’s financial instruments that are measured at fair value:
2010 2009
financial assets at fair value through profit or loss
Exclusive investment fund (*) 757,782
Corporate securities 49,274
Certificates of bank – CDB 1,005
808,061
Current (757,781)
Non-current 50,280
(*) Average profitability for the year of 10.13%. Includes Brazilian government securities, corporate securities and transactions.
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is considered as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments are included in level 1 comprise exclusive investment funds and Bank Deposit Certificate – CDB. The exclusive investment funds being that each of these funds has a clear investment policy, with limits to concentration of risk in the related investments.
4.4 capital managementThe objective of capital management is to assure that the Company continues as a going concern, and at the same time, provide its
stockholders a strong capital base, as well as return of benefits to other interested parties and optimization of the cost of capital.The Company monitors capital on the basis of the leverage ratio measured as net debt as a percentage of total capital. Net debt is
defined as the total of liability, net of deferred income. The total capital as the total of shareholders’ equity and net debt defined above:
2010 2009
Total liability 679,293 4,769
Less: Deferred income (614,550)
Net debt (1) 64,743 4,769
Total equity 758,603 (127)
Total capital (2) 823,346 4,642
Levarege ratio (1)/(2) 7.8% 102.7%
The decrease in the leverage ratio at 2010 resulted from proceeds from: (a) the increase in equity resulting from profit for the year, and (b) the increase in equity resulting from issuance of shares, through a Public Offering (see note 1).
Financial statements 2010 83
compoSITIon 2010 2009
Accounts receivable 68,699
68,699
2010 2009
In local curreny
Exclusive investment fund
Brazilian government securities 578,175
Certifications of bank deposit – CDB 137,449
Debêntures 37,387
Other 4,771
Corporate securities 49,274
Certifications of bank deposit – CDB 1,005
Total 808,061
current (757,781)
non-current 50,280
compoSITIon 2010 2009
Not yet due 67,498Overdue:
Up to 60 days 529From 61 to 60 days 84From 91 to 180 days 485From 181 to 360 days 103
68,699
5. caSh and caSh equIValenTSOn December 31, 2010, the balance of cash and cash equivalents consists of cash and short-term deposits, totaled R$111,235 (2009 –
zero) all denominated in reais and there were no overdraft balances.
6. fInancIal aSSeTS aT faIr Value ThrouGh profIT or loSS
7. accounTS receIVable
All accounts receivable are denominated in reais.(a) breakdown of balance by maturity:
84
2010 2009
Prepayment of income tax and social contribution 2,089
PIS and Cofins recoverable 1,324
Withholding income tax 356
3,769
The maximum exposure to credit risk at the date of the financial statements is the book value of each type of receivable mentioned above.The Company has not recorded any provision for losses on doubtful accounts at on December 31, 2010.
8. TaxeS recoVerable
9. relaTed parTIeS The balances and transactions with related parties reflect mainly the contracts signed between the Company and TLA, as summarized
below:
(a) operating contractSigned on December 10, 2009, established the terms and conditions that regulate the relationship between the Company and TLA,
regarding: (i) transfer by TLA to the Company, of management, administration and operation of Programa TAM Fidelidade (Program); (ii) continuity of TLA customers that participate in the Program, of enjoying the Program’s benefits by means of points granted; and (iii) the redemption of points by the Program’s members through Multiplus Fidelidade network. TLA paid to the Company the amount of R$3,311 for this service during the year ended on December 31, 2010. It also established the conditions for purchase and sale of points, purchase and sale of air tickets, the use of the database, management of Programa TAM Fidelidade and related remuneration.
On January 15, 2010 the 1st Amendment to the Operating Contract was signed to regulate the situation of the contracts with partners of Programa TAM Fidelidade that did not migrate to the Company, mainly regarding the purchase and sale of these partners’ points. All commercial partnership contracts had been migrated to Multiplus on June 30, 2010.
(b) Shared Services contractSigned on December 10, 2009, established the terms, conditions and remuneration to be paid by the Company to TLA for the use of
administrative services. The contract is updated annually, or in the shortest frequency permitted by legislation, by the Amplified Consumer Prices Index, published by the Brazilian Institute of Geography and Statistics (IPCA/IBGE). At December 31, 2010 ended , the Company paid R$7,871 to TLA related to the use of administrative services. See note 9.2.
Financial statements 2010 85
2010 2009
current assets
Tam linhas aéreas S.a.
Related parties
Advance to suppliers (i) 331,878
Current account (ii) 34,406
Current account – other 22,201
388,485
TAM S.A
Related parties
Current account 22
388,507
current liabilities
Accounts payable
TAM Linhas Aéreas S.A. (iii) 635
Related parties
TAM Linhas Aéreas S.A. (iv) 3,923 3,917
Deferred Revenue (v)
TAM Linhas Aéreas S.A. 227,723
TAM Viagens 100
232,381 3,917
(i) Balance related to the advance for purchase and sale of air tickets. The contract does not provide for any remuneration. (ii) Balance receivable from TLA related to on lending of funds from contracts of cobranded (credit cards by financial institution) that during the period ended on December 31, 2010
was billed by TLA. The funds will be passed on by TLA to Multiplus as they are received by TLA.(iii) Monthly contract of shared services contract.(iv) In 2010 the value refers to the recovery of costs of implementation of R12 Oracle and Siebel Systems, disbursed by TLA. In 2009 the value refers to the Loan contract signed
with TLA on December 14, 2009 for the Company’s working capital, subject to IGP-M variation plus fixed interest of 0.00375% per month.(v) Balance of unappropriated deferred revenue, arising from the sale of Multiplus Fidelidade points to TLA and TAM Viagens.
(c) commitment for purchase and Sale of air TicketsSigned on January 15, 2010, established the terms, conditions and remuneration that will regulate the anticipated acquisition by the
Company and the sale of air tickets by TAM, to be issued from time to time and used solely and exclusively to permit that the members of Programa Multiplus Fidelidade carry out the redemption of points in air transportation services, in the terms of the Program Regulation and as set forth the Operating Contract; not being allowed that these resources be used for any other purpose.
9.1 balances
86
9.2 TransactionsThe transactions with related parties that affected results are as follows:
2010 2009
Tla Tam Viagens Total Total
Revenue of redeemed points (i) 54,686 33 54,719
Breakage revenue 34,746 16 34,762
Other revenue (ii) 3,311 3,311
Cost of redeemed points (iii) (301,221) (287) (301,508)
General and administrative expenses (iv) (7,871) (7,871)
(i) Amount related to the sale of Multiplus Fidelidade points to TLA and TAM Viagens, appropriated in the year.(ii) Amount related to the remuneration for the management, administration and operation of Programa TAM Fidelidade, as set forth the Operating Contract.(iii) Amount related to the purchase of air tickets as established in the Commitment for Purchase and Sale of Air Tickets.(iv) Amount related to the remuneration paid to TLA for shared services, as set forth in the Shared Services Contract.
9.3 Key management compensationKey management personnel include the directors and officers, members of the Executive Committee and statutory directors.
Remuneration paid or payable for their services is shown below:
2010 2009
Board of directors’ fees (note 16) 336
Salaries and profit sharing and bonus 430
Share based payment 349
1,115
10. deferred TaxeSOn December 31, 2010, deferred taxes comprise income tax and social contribution calculated at nominal rates of 25% and 9%,
respectively, on income tax and social contribution tax loss carry forwards and temporary differences. Deferred taxes are offset when there is a legal right to offset current tax and social contribution asset against current tax and social contribution liability and when deferred income taxes refer to the same tax authority.
Financial statements 2010 87
2010 2009
Income tax and social contribution basis
Temporary differences: 3,580
Other provision
Basis 3,580
Tax calculated at Brazilian tax rates 34%
Total deferred income tax and social contribution 1,217
Income tax 895
Social contribution 322
projetos de TI
on august 6, 2009
Additions 3,783
net book value on January 1, 2010 3,783
Additions 17,558
Amortization (note 16) (1,068)
net book value at december 31, 2010 20,273
(a) composition of deferred taxes balanceThe composition of deferred income tax and social contribution on assets balance is as follows:
Deferred assets resulting from tax losses, negative social contribution basis and temporary differences are recognized as the realization of the related tax benefit through future taxable income is probable. Based on a viability study, the Company estimates that the tax credits will be realized during the year to be ended on December 31, 2011.
There are no unrecognized deferred tax assets.
11. InTanGIble aSSeTS
The balance of IT projects refers mainly to the implementation of Siebel system that will control the Program points, as well as the redemption and sale of points by the partners. The system started operation in the month of August, 2010 and amortization is estimated to be over a period of up to five years.
88
12. Tax, charGeS and conTrIbuTIonS
2010 2009
PIS and Cofins 1,761
Other 567
2,328
2010 2009
Deferred revenue 484,055
Breakage provision 130,495
614,550
13. deferred reVenueDeferred revenue from Multiplus Fidelidade is recorded based on the number of outstanding points and a historical average rate for non –
redemption of points (breakage) in the last 12 months. In Multiplus Fidelidade points expire after two years. The balance is as follows:
14. capITal and reSerVeS
(a) authorized capitalAuthorized capital on December 31, 2010 is R$1,200,000 and may be increased with the issue of common or preferred shares, through
a decision of the Board of Directors.
(b) Subscribed share capitalOn December 31, 2010 comprises 161,294,000 fully paid-in common shares (December 31, 2009 – 500), as shown in the table below. Common shares grant to their owner the right to one vote in the general meetings.As per the Adhesion Agreement executed with Bovespa, the Company complies with the requirement to have a free float of 25% of its
shares available for sale.Movements of capital can be summarized as follows:
number of shares capital amount
on december 31, 2009 500 1
Share split according to EGM (*) on January 15, 2010 118,019,500
Capital increase according to BDM (**) on February 4, 2010 39,340,000 629,440
Capital increase according to BDM on March 1, 2010 3,934,000 62,944
on december 31, 2010 161,294,000 692,385
(*) Extraordinary General Meeting (**) Board of Directors Meeting
Financial statements 2010 89
2010
Transaction costs 35,336
Income tax and social contribution (12,014)
Transaction costs, net 23,322
The market value of Multiplus S.A. shares based on the closing date of the period ended on December 31, 2010, is R$33.75 per share. On December 31, 2010 the book value of the share is R$4.70 per share.
(c) reserves(i) legal reserveBrazilian law requires that a legal reserve is constituted by appropriating 5% of profit for the year until the legal reserve reaches 20% of
the amount of share capital.
(ii) capital reserveIn this account are recorded transaction costs incurred by the Public Offering of Shares held on February 5, 2010 (see note 1). The
amounts recorded are as follows:
(iii) Stock option planThe credit related to the expense for stock options is recorded in this reserve, and is released to retained earnings when options are
exercised or expire (note 17.2).
(d) payment of dividends and interest on own capitalThe Company’s management approved, at the Board of Directors’ meetings held on August 4, 2010 and on December 20, 2010, the
payment to its stockholders of interim interest on own capital of R$15,162, calculated based on the Long-Term Interest Rate (TJLP) variation, attributing it, net of withholding income tax, to the amount the of minimum mandatory dividend of R$28,084. Dividends paid in 2010 were R$26,860, including interest on own capital previously mentioned. Supplementary dividends and interest on own capital for the year ended on December 31, 2010, of R$0.403896 and R$0.105000 (net of R$0.089532), respectively, per share, totaling R$82,083 gross (net – R$79,588) will ratified at the General Stockholders’ Meeting to be held on April 30, 2011 and are recorded in a reserve for additional dividends proposed and distributable profits reserve in equity.
90
allocaTIon of profIT or loSS for The year 2010
Net profit for the year 118,386
(-) Allocation to legal reserve – 5% (5,919)
(-) Offset of accumulated losses (128)
Profit to be distributed 112,339
Minimum mandatory dividends – 25% 28,084
Additional dividends and interest on own capital proposed, net of withholing income tax 79,587
IRRF on interest on own capital proposed 2,495
IRRF on interest on own capital prepaid 2,173
Total distribution proposed 112,339
(-) Minimum mandatory dividends paid in advance (13,871)
(-) Interest on own capital paid in advance, net of withholding income tax (12,989)
(-) Withholding income tax on interest on own capital paid in advance (2,173)
Balance of dividends proposed 83,306
Minimum mandatory dividends proposed to be distributed, in current liabilities 1,223
Additional dividends proposed reserve (BDM – 12/20/2010 – interest on own capital) 16,937
Distributable profits reserve 65,146
deliberation date of payment Income Gross valuewithholding
tax net valueGross value
per share net value per share
BDM – 8/4/2010 08/18/2010 Sharing 13,871 13,871 0,086000 0,086000
BDM – 8/4/2010 08/18/2010 JCP 15,162 2,173 12,989 0,094000 0,089532
Directors – 12/31/2010 04/30/2011 Sharing 1,223 1,223 0,007591 0,007591
Total minimum mandatory sharings 30,256 2,173 28,084 0,187591 0,183122
BDM – 12/20/2010 01/07/2011 JCP 16,937 2,495 14,442 0,105000 0,089532
Directors – 12/31/2010 04/30/2011 Sharing 65,146 65,146 0,403896 0,403896
Total aditional sharings proposed 82,083 2,495 79,588 0,508896 0,493428
Total distribution proposed 112,339 4,668 107,671 0,696487 0,676550
(*) Interest on own capital
Financial statements 2010 91
2010 % 2009
revenue
Revenue of redeemed points 382,271 73.8
Breakage 122,645 23.7
Services rendered 3,311 0.6
Other revenue 9,648 1.9
Gross revenue 517,875 100.0
Sales taxes and other deductions (48,032)
net revenue 469,843
15. reVenue by naTure
2010 2009
cost of points redemption (*)
General and administrative Sales Total % Total %
Cost of points redeemed 274,258 274,258 80.7
Personnel 16,625 336 16,961 4.9
Director´s fees 336 336 0.1
Depreciation 23 23 0.0
Amortization (note 11) 1,068 1,068 0.3
Outsourced services 31,549 31,549 9.2
Selling and marketing 11,901 86 11,987 3.2
Other 3,389 3,389 1.6 127 100.0
274,258 64,891 422 339,571 100.0 127 100.0
16. operaTInG expenSeS by naTure
(*) Net of PIS and Cofins credits.
92
17. employee benefITSPersonnel costs are composed of the following amounts:
2010 2009
Salaries and social charges and bonuses 12.676
Defined contribution pension plan 156
Share based payment 1.538
Taxes and social contributions 2.926
17.296
17.1 profit-sharing and bonusesThe Company’s Management will pay profit sharing to its employees if certain performance targets, established based in the annual budget,
are achieved. Accordingly, management has recorded in the caption “Salaries and social charges”, a provision for payment of this benefit, of R$ 3,538 in the period ended on December 31, 2010 (2009 – zero).
17.2 Share based paymentThe Extraordinary Stockholder’s Meeting held on October 4, 2010 authorized that the Board of Directors may grant stock options to
employees up to 3% of outstanding shares.These transactions can be summarized as follows:
number of stock options outstanding
weighted average exercise price – r$
on december 31, 2009
Granted 1,660,759 18,07
on december 31, 2010 1,660,759 18,07
Under the terms of the Plan, the options granted are divided into three equal amounts and employees may exercise one third of their options after two, three and four years, respectively, if still employed by the Company at that time. The options have a contractual term of seven years. The 1st extraordinary grant was divided into two equal parts that can be exercised as follows: half of the options after three years, and another half after four years. The 2nd extraordinary grant was also divided into two equal parts that can be exercised after one year and two years, respectively.
The options contain a service condition as vesting and exercisability of the options depends, only on, the rendering of a defined period of services by the employee. Dismissed employees have the obligation to satisfy certain conditions in order to maintain their options rights.
Financial statements 2010 93
1st grant 2nd grant1st special
grant2nd special
GrantTotal or
weighted average
Date 10/04/2010 11/08/2010 10/04/2010 10/04/2010
Number of options granted 98,391 36,799 1,370,999 154,570
Exercise price at grant date 27,33 31,55 16,00 27,33
Risk free interest rate % 10.16 10.16 10.16 10.16
Average term (year) 5,0 5,0 5,25 4,25
Expected dividend yield % 0.67 0.57 0.67 0.67
Share price volatility % 30.25 31.21 30.25 30.25
Market share price - R$ 26,90 31,55 26,90 26,90
Fair value option at grant date – R$ 11,58 14,06 16,91 10,53
Number of options outstanding (i) 98,391 36,799 1,370,999 154,570 1,660,759
Exercise price (adjusted by IGP-M )(i) 28,20 32,23 16,51 28,20
Remaining average term (i) 5,0 5,0 5,25 4,25
Share price volatility is determined based on historical share price volatility of the company’s quoted shares.
18. fInancIal Income (expenSeS)
2010 2009
Financial income
Interest from financial investments 34,559
Other 815
35,374
Financial expenses
Interest expense (43)
Financial discount (1,906)
Other (166)
(2,115)
Financial income, net 33,259
The options are valued using the Black-Scholes options pricing model. The following table shows details of the various option grants, together with the variables used in valuing the options granted. The exercise price is adjusted by the IGP-M (General Price Index), from the award grant date up to the exercise date.
(i) On December 31, 2010.
94
2010 2009
Current tax (46,362)
Deferred tax 1,217
(45,145)
19. Income Tax and SocIal conTrIbuTIon Income tax and social contribution expense
The income tax and social contribution on Multiplus’ profit before tax differs from the theoretical amount that would arise using the tax rate applicable to Multiplus as follows:
2010
Profit before tax 163,531
Tax rates applicable to profits 34%
Income tax and social contribution calculated at Brazilian tax rates applicable to profits (55,600)
Tax credit on interest paid on own capital 10,913
Non deductible expenses (2)
Stock option plan (523)
Other permanent (additions)/deductions 24
Other 43
(45,145)
Effective rate – % 27.6
The tax year 2009 is subject to examination by Brazilian tax authorities.
Financial statements 2010 95
2010 2009
Profit (loss) attributable to equity holders of the Company 118,386 (128)
Weighted average of the number of common shares issued (in thousands) 157,360 500
Basic earnings per share (R$/share) 0,75 (0,26)
As mentioned in note 1, Multiplus is a listed Company in the scope of BMF&Bovespa’s New Market on February 3, 2010. Up to date, the company had no issued common shares outstanding.
(b) dilutedDiluted earnings per share is calculated by adjusting the weighted average number of shares outstanding. The company has only one
category of dilutive potential ordinary shares: stock options.
2010 2009
Profit attributable to equity holders of the company 118,386 (128)
Weighted average number of shares outstanding (in thousands) 157,360 500
Adjustments for share options (in thousands) 179
Weighted average number of shares for diluted earnings per share calculation (in thousands) 157,539 500
Diluted earnings per share (reais per share) 0,75 (0,26)
20. earnInGS per Share
(a) basicThe basic earnings per share is calculated dividing the profit attributable to the Company equity by the weighted average number of
common shares issued in the year.
96
2010 2009
profit (loss) for the year 118,386 (128)
adjustments for:
Deferred income tax and social contribution (note 19) (1,217)
Interest expense and Foreign Exchange losses (gains) (778)
Depreciation and amortization (note 16) 1,091
Stock option plan 1,538
Other provision 3,591
changes in working capital (excluding the effects of acquisition and exchange differences)
Financial assets measurement through profit and loss (808,061)
Accounts receivable (68,699)
Taxes recoverable 8,243
Related parties (389,721) 134
Other accounts receivable 6 (858)
Accounts payable 15,727 852
Salaries and social chages 2,370
Tax, charges and contributions 34,251
Deferred tax 614,550
Other accounts payable 382
cash generated used in operations (468,340)
21. caSh GeneraTed from operaTIonS
22. adopTIon of The cpcs and IfrS for The fIrST TImeThe financial statements for the year ended on December 31, 2010 is the first financial year in compliance with the CPCs and IFRS. The
Company applied CPCs 37 and 43 and IFRS 1 in preparation of these financial statements.The Company was constituted on August 6, 2010, being the date considered as transition date. Up on December 31, 2009, the equity,
transactions and results ot the Multiplus had no balances or significant movements, and the total equity below R$1,000 (one thousand reais). The exceptions and exceptions of retrospective application are not applicable to Company. In the same way, there are no adjustments in
the balance sheets and income statements derived from the implementation of the new CPCs or IFRS.
Financial statements 2010 97
RElATóRiO ANuAl 2010
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Av. das Nações Unidas, 12.901CENU • Torre Norte • 21º andarBrooklin Paulista • São Paulo • SPcep: 04578-910 www.multiplusfidelidade.com.br
AnnuAl RepoRt 2010