The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from PR Newswire

EMBRAER Releases First Quarter 2011 Results in IFRS

Monday, May 02, 2011

EMBRAER Releases First Quarter 2011 Results in IFRS20:58 EDT Monday, May 02, 2011SAO JOSE DOS CAMPOS, Brazil, May 2, 2011 /PRNewswire/ -- (BM&FBOVESPA: EMBR3, NYSE: ERJ) The Company's operating and financial information is presented, except where otherwise stated, on a consolidated basis in United States dollars (US$) in accordance with IFRS. The financial data presented in this document as of and for the quarters ended March 31, 2010 (1Q10), December 31, 2010 (4Q10) and March 31, 2011 (1Q11), are derived from the unaudited financial statements, except where otherwise stated. HIGHLIGHTS:The firm order backlog totaled US$ 16 billion at the end of the first quarter of 2011 (1Q11), an increase of US$ 400 million over the firm order backlog at the end of 2010, representing approximately three times current annual revenues guidance; During 1Q11, Embraer delivered 20 jets to the commercial aviation market and eight to executive aviation market (six light jets and two large jets); 1Q11 Revenues reached US$ 1,055.7 million, and Gross margin achieved 24.3% in 1Q11;EBIT and EBITDA(1) margins were 8.9% and 14.8% in 1Q11 respectively ? above the 7.5% guidance and the 11% projection for the year;Net income attributable to Embraer in 1Q11 totaled US$ 105.1 million, higher than the US$ 24.1 million achieved in 1Q10. Earnings per ADS for 1Q11 reached US$ 0.5810; Net cash(2) position totaled US$ 504.9 million.MAIN FINANCIAL INDICATORS: in million of U.S dollars, except % and per share dataIFRS4Q101Q101Q11Revenues1,970.2992.01,055.7EBIT132.471.094.3EBIT Margin %6.7%7.2%8.9%EBITDA197.2116.9156.3EBITDA Margin %10.0%11.8%14.8%Net income attributable to Embraer Shareholders122.724.1105.1Earnings per share - ADS basic (US$) 0.67820.13300.5810Net Cash691.8444.2504.9REVENUES AND GROSS MARGINAs a result of aircraft deliveries and product mix, 1Q11 Revenues increased to US$ 1,055.7 million when compared to US$ 992 million in 1Q10. During the 1Q11, the contribution of aviation services to the Company's total Revenue was 15.4%, above the 2010 contribution of approximately 11%. Additionally, Aviation services margins are usually higher than the other business, and during the last quarter its margins were especially higher than usual due to mix of products and services. The higher Revenues, the product mix, and the Company's on-going efforts to maximize operational efficiencies have also positively contributed to Company's Gross margin during the 1Q11. The combined effects of these items resulted in a 24.3% Gross margin for 1Q11. EBITEBIT and EBIT margin were US$ 94.3 million and 8.9%, respectively. 1Q11 Operating income margin was higher than the 7.2% margin achieved in 1Q10. It is important to mention that a portion of the operating expenses are Real denominated and the 7.4% appreciation of the average Real to the average US dollar from 1Q10 to 1Q11 impacted those expenses. Research expenses totaled US$ 19.3 million, which, on an annualized basis, would amount US$ 77.2 million, consistent with the Company's outlook of US$ 90 million for the entire year. Selling expenses reached US$ 94 million, an increase of approximately 10% when compared to 1Q10 expenses mainly driven by the Company's efforts in expanding its customer support. Administrative expenses for 1Q11 reached US$ 57.2 million and were higher when compared to the US$ 35.1 million for 1Q10. The exchange rate effects already mentioned above, coupled with the adjustment in labor costs of approximately 10%, which took place during the 4Q10, contributed to such increase. Other operating income, net totaled US$ 8.4 million for 1Q11 compared to US$ 0.4 million for 1Q10. NET INCOMENet income attributable to Embraer and Earnings per ADS, for 1Q11, were US$ 105.1 million and US$ 0.5810, respectively. The Net margin reached 10%, and was significantly higher when compared to the 2.4% achieved in 1Q10. The improvement in Net margin comes mainly from the Income tax benefit, which contributed positively to Net income during 1Q11. Income tax totaled income of US$ 2.6 million for 1Q11, compared to an expense of US$ 50.1 million in 1Q10. Such difference comes mainly as a result of the appreciation of the Real and its impacts on the Company's deferred Income tax.MONETARY BALANCE SHEET ACCOUNTS AND OTHER MEASURESThe Company's Net cash position for the period decreased by US$ 186.9 million, reaching US$ 504.9 million, due to less operating net cash in 1Q11 than in 4Q10. Such decrease in Net cash comes mainly as a consequence of an increase in the Company's Inventories and Trade accounts receivable.in million of U.S.dollarsBalance Sheet Data (2)(1)(2)1Q104Q101Q11Cash and cash equivalents1,138.41,393.11,302.5Financial assets 1,143.8733.5716.2Total cash position2,282.22,126.62,018.7Loans short-term469.172.6152.8Loans long-term1,368.91,362.21,361.0Total loans position1,838.01,434.81,513.8Net cash*444.2691.8504.9 * Net cash = Cash and cash equivalents + short-term Financial assets - Short and long-term Loans(1) Derived from audited annual financial statements.(2) Derived from unaudited financial information.The Company calculates Free cash flow(3) taking into account mainly investments in PP&E, product development expenditures, which are recorded in Intangible assets, and changes in short-term investments (Financial Assets).in million of U.S.dollars IFRS 1Q102Q103Q104Q101Q11Net cash generated by (used) in operating activities (145.1)343.397.5578.162.1Financial assets adjusted (1)150.8(57.3)(92.1)(287.5)(47.9)Other assets adjusted (2)8.0(22.1)22.019.8-Additions to property, plant and equipment(34.1)(2.8)(46.8)(65.9)(91.8)Additions to intangible assets(39.7)(41.2)(46.5)(51.3)(48.1)Free cash flow(60.1)219.9(65.9)193.2(125.7) (1) Financial assets is adjusted by the unrealized gain (losses) on Financial assets. (2) Other assets adjusted correspond mainly of court-mandated escrow deposit and short term marketable securities.It's important to mention that Operating cash flow does not include the cash invested in product development. It includes changes in Financial assets which do not represent changes in the Company's net cash position since additions or reductions in Financial Assets reflects changes in the maturity profile of the Company's short-term investments and, as consequence, does not represent increases or decreases in the Company's Free cash flow. Additionally, Operating cash flow includes changes in court-mandated escrow deposits, which in its essence is not operational cash and shall be disregarded for Free cash flow calculation purposes. Therefore, Embraer's free cash flow is represented by the operating cash flow adjusted by Addition to property, plant and equipment (PP&E), Addition to intangible assets, Other assets and Financial assets.Additions to PP&E totaled US$ 91.8 million in 1Q11. Total PP&E includes values related to spare parts pool programs, aircraft under lease or available for lease and CAPEX. Of total 1Q11 PP&E, CAPEX amounted to US$38.8 million. On an annualized basis, CAPEX would amount to US$ 155.2 million, consistent with the US$ 200 million outlook provided by the Company. During 1Q11, the Company's total debt increased slightly to US$ 1,513.8 million, compared to US$ 1,434.8 million in 4Q10. Such increase comes primarily as a result of an increase in Short-term loans which reached US$ 152.8 million in 1Q11, compared to US$ 72.6 million in 4Q10 and are connected to the Company's day to day operating activities. Long-term loans remained stable and totaled US$ 1,361 million in 1Q11.Considering the Company's current debt profile, the average loan maturity reached 5.7 years and is in line with the Company's business cycle. Furthermore, the cost of Dollar denominated loans decreased from 5.9% to 5.6% p.a. and the cost of Real denominated loans remained stable going from at 4.2% to 4.3% p.a. The Adjusted EBITDA to financial expenses (gross) ratio improved in 1Q11, compared to 4Q10, from 6.81 to 7.59, mainly due to the growth in the Company's EBITDA. As of 1Q11, 26.7% of total debt was denominated in Reais.The Company's financial strategy continues to positively contribute to the results of the financial activities  and at the end of 1Q11 such contribution totaled US$ 9.4 million.Embraer's cash allocation management strategy continues to be the most important tool to mitigate exchange rate risks. In other words, by balancing cash allocation in Reais and Dollar denominated assets, the Company attempts to neutralize its balance sheet exchange rate exposures. Of total cash in 1Q11, 47% was denominated in Reais. OPERATIONAL BALANCE SHEET ACCOUNTSin million of U.S.dollarsBalance Sheet Data (2)(1)(2)1Q104Q101Q11Trade accounts receivable450.4349.3404.6Customer and commercial financing49.470.556.3Inventories2,481.62,198.32,560.5Property, plant and equipment 1,135.71,201.01,258.0Intangible729.9716.3729.7Trade accounts payable655.0750.2906.5Advances from customers1,224.8991.61,096.9Total shareholders' equity2,900.43,131.53,197.6(1) Derived from audited annual financial statements.(2) Derived from unaudited financial information.Inventories increased by US$ 362.2 million and totaled US$ 2,560.5 million in 1Q11, as the Company expects to experience some growth in the number of deliveries in the following quarters. Furthermore, Trade accounts receivable also increased to US$ 404.6 million. On the other hand, Trade accounts payable grew to US$ 906.5 million and helped partially to offset the negative impact of the increase in Inventories on the Company's working capital requirements. As a result of improvements in the sales environment, mainly in Commercial aviation, Advances from customers increased by US$ 105.3 million and totaled US$ 1,096.9 million.Intangible and Property, plant and equipment remained relatively stable and totaled US$ 729.7 million and US$ 1,258 million, respectively. Customer and commercial financing decreased to US$ 56.3 million, as a result of the payment of certain temporary finance structures.SEGMENT RESULTSFrom 1Q11 onwards, the Company will post its Revenue breakdown considering the Commercial aviation, Executive aviation, Defense and Security and Other businesses only.  Aviation services revenues will be broken down for each of the business units referred above. Such change better reflects the Company's strategy and management, once services are intrinsically connected to the Company's main business units. Nonetheless, given the differences in the market dynamics and margin profile, the Company will continue for now to inform the volume of services included in each segment. Hence, the 1Q11 Revenues mix by segment varied when compared to 1Q10, as a result of a significantly higher participation from the Commercial aviation segment, which represented 71.2% of Revenues for the period. Consequently, during 1Q11, the Revenues participation from the segments of Defense and Security, Executive Aviation and Others decreased to 16%, 11% and 1.8%, respectively. Net revenues(2)(2)(2)by segment4Q101Q101Q11US$M%US$M%US$M%Commercial Aviation1,028.552.3611.761.7751.871.2 - Commercial Aviation services88.767.6104.2Defense and Security Business272.413.8228.323.0169.316.0 - Defense and Security Business services41.439.440.4Executive Aviation648.932.9131.013.2115.811.0 - Executive Aviation services16.015.017.9Others20.41.021.02.118.81.8Total1,970.2100.0992.0100.01,055.7100.0(2) Derived from unaudited financial information.COMMERCIAL AVIATIONDuring the first quarter of 2011, the Company delivered 20 commercial jets and sold 44 new E-Jets. The air transport industry continued the 2010 positive trend with increased passenger demand and improved financials. "We are very pleased with the renewed market confidence on our E-Jets family, proving that our product's flexibility and performance meet airline requirements for better efficiency and profitability." said Paulo Cesar de Souza e Silva, Embraer Executive Vice President, Airline Market. Deliveries4Q101Q101Q11Commercial Aviation302120    ERJ 14521-    EMBRAER 1701 3 (2)* 1    EMBRAER 175312    EMBRAER 190201211    EMBRAER 195426*Deliveries identified by parenthesis were aircraft delivered under operating leases.Some of the main 1Q11 highlights related to the Commercial aviation segment:In January, Dniproavia, from Ukraine, purchased ten EMBRAER 190 jets;In March, three customers made new E-Jets acquisitions: Brazil's TRIP with four EMBRAER 190s, one was already included in the 4Q10 backlog as an "undisclosed" customer; Italy's Alitalia took 15 EMBRAER 175s and five additional EMBRAER 190s, the Netherlands' KLM confirmed five options for the EMBRAER 190, announced in early April.In March, the family of E-Jets operators welcomed Oman Air, from the Sultanate of Oman.On March 31, 2011, the E-Jets family had 987 firm orders and had delivered 719 jets to nearly 60 airlines in 40 countries across five continents.Commercial Aviation BacklogFirm OrdersOptionsTotalDeliveriesFirm BacklogERJ 145 Family890-8908882EMBRAER 170191352261829EMBRAER 17518929047913554EMBRAER 190502335837332170EMBRAER 195105451507035E-JETS Family9877051,692719268TOTAL1,8777052,5821,607270The diversified customer base and penetration in all regions of the world are strong confirmations of the E-Jets family efficiency, flexibility and passenger appealEXECUTIVE AVIATIONIn 1Q11 Executive Aviation delivered a total of six light jets and two large jets. The Company expects that the total revenue guidance for 2011 will be met.Deliveries4Q101Q101Q11Executive Aviation61198  Light jets48176  Large jets1322In February, the Legacy 650 large executive jet received certification from the U.S. Federal Aviation Administration (FAA). Such certification completes the major approval cycle, after Brazil's ANAC (National Civil Aviation Agency) and the European Aviation Safety Agency (EASA) which had already granted their certifications, last October. In the same month, Embraer announced the opening of its first U.S. aircraft final assembly plant at Melbourne International Airport in Melbourne, Florida. The new 80,000-square-foot hangar and modern paint shop facility is dedicated to the executive jet business in the Company's largest market, where it will begin operations with the production of the Phenom 100 entry level executive jet.Over the last months Embraer expanded its network of authorized service centers all around the world especially in the Asia Pacific region. With almost a dozen of new service centers joining its network or increasing their maintenance support coverage for Embraer executive jets, the Company reinforces its commitment to customer service.DEFENSE AND SECURITYThe Defense and Security market continues to present a favorable scenario for growth, with a series of campaigns underway for various applications including transportation of officials and authorities; training and light attack; intelligence, surveillance and reconnaissance systems; aircraft modernization; military transportation; command and control systems and services. The creation of Embraer Defense and Security in December, 2010, has consolidated Embraer as a main supplier of defense and security solutions for the Brazilian government, as well as for other governments worldwide. In addition to the acquisition of 64.7% of the capital of the radar division of Orbisat announced last March, more recently, at LAAD Defense & Security 2011 show, two other agreements were announced. One with AEL Sistemas, a subsidiary of the Israeli company Elbit Systems, envisaging the evaluation of joint exploration of the unmanned aerial systems (UAS), including the potential creation of a company with majority participation of Embraer Defense and Security. The other agreement was the acquisition of 50% of the capital of Atech Negocios em Tecnologias S.A. This agreement will increase the capacity of these companies for developing products and services in the area of command, control, computer, communications, and intelligence (C4I) systems.As for modernization programs, the Brazilian Air Force (FAB) signed a contract to modernize 11 additional F-5 jet fighters in continuation of the contract signed in 2000. The test campaigns of the AMX fighters are on-going, with the maiden flight of the first modernized prototype planned for 2012. The A-4 aircraft modernization program is also on schedule with the first updated aircraft scheduled for first flight in 2012. India's AEW program is also developing as contracted. In February, the first aircraft was presented to representatives of the Indian government. Also during 1Q11, two Super Tucano aircraft were delivered to the Ecuadorian Air Force, bringing total deliveries of this aircraft type to 152. The KC-390 development program is also progressing on schedule with the production of the first prototype expected to start in 2013, followed by first flight in 2014. At the end of 1Q11, 60 purchase intentions for this aircraft had been signed. DRS Training & Control Systems became the first contracted supplier for the Cargo Handling & Control System. ELEB, an Embraer industrial unit, will develop and manufacture the landing gear for the aircraft. More recently two other aerostructure suppliers were selected, the Argentine company FAdeA and the Czech company Aero Vodochody. These agreements reinforced the commitment of Argentina and Czech Republic to acquire six and two KC-390 aircraft respectively.TOTAL BACKLOGEmbraer's firm order backlog increased US$ 400 million during the first quarter of the year. As of March 31st the Company's backlog totaled US$ 16.0 billion. The following chart presents the Company's backlog evolution through 1Q11.INVESTOR RELATIONSAndre Gaia, Caio Pinez, Claudio Massuda, Juliana Villarinho, Luciano Froes and Paulo Ferreira.(+55 12) 3927-4404, investor.relations@embraer.com.brCONFERENCE CALL INFORMATIONEmbraer will host a conference call to present its 1Q11 Results in IFRS on May 3, 2011. The conference call will also be broadcast live over the web at http://ri.embraer.com.br IFRS / (US GAAP)Time: 10:30 (SP) / 09:30 (NY)Telephones:+1 888 700-0802 (North America)+1 786 924-6977 (International)+55 11 4688-6341(Brazil)Code: EmbraerReplay Number: +55 11 4688-6312Replay Code: 7911127ABOUT EMBRAEREmbraer (Embraer S.A. - NYSE: ERJ; BM&FBOVESPA: EMBR3) is the world's largest manufacturer of commercial jets up to 120 seats, and one of Brazil's leading exporters. Embraer's headquarters are located in Sao José dos Campos, Sao Paulo, and it has offices, industrial operations and customer service facilities in Brazil, China, France, Portugal, Singapore, and the United States. Founded in 1969, the Company designs, develops, manufactures and sells aircraft for the commercial aviation, executive aviation, and defense and security business. The Company also provides after sales support and services to customers worldwide. On March 31, 2011, Embraer had a workforce of 17,253 employees ? not counting the employees of its partially owned subsidiaries ? and its firm order backlog totaled US$ 16.0 billion.This document may contain projections, statements and estimates regarding circumstances or events yet to take place. Those projections and estimates are based largely on current expectations, forecasts on future events and financial tendencies that affect Embraer's businesses. Those estimates are subject to risks, uncertainties and suppositions that include, among others: general economic, political and trade conditions in Brazil and in those markets where Embraer does business; expectations on industry trends; the company's investment plans; its capacity to develop and deliver products on the dates previously agreed upon, and existing and future governmental regulations. The words "believe", "may", "is able", "will be able", "intend", "continue", "anticipate", "expect" and other similar terms are supposed to identify potentialities. Embraer does not feel compelled to publish updates nor to revise any estimates due to new information, future events or any other facts. In view of the inherent risks and uncertainties, such estimates, events and circumstances may not take place. The actual results can therefore differ substantially from those previously published as Embraer expectations.(1) EBITDA is a non-GAAP measure. For more detailed information please refer to page 9.(2) Net cash is equal to Cash and cash equivalents plus short-term Financial assets minus short and long-term Loans.(3) Free cash flow is a non-GAAP measure. For more detailed information please refer to page 10.SOURCE EMBRAER S.A.