Embraer S.A.'s CEO Discusses Q3 2011 Results - Earnings Call Transcript

Embraer S.A. (ERJ)

Q3 2011 Earnings Conference Call

November 4, 2011 10:00 ET

Executives

Frederico Curado – President and Chief Executive Officer

Paulo Penido – Chief Financial Officer

André Gaia – Head, Investor Relations

Rodrigo Rosa – Controller

Analysts

Nicolai Sebrell – Morgan Stanley

Caio Dias – Santander

Augusto Ensiki – Morgan Stanley

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer’s Third Quarter 2011 Results. Thank you for standing by. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions to participate will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded and webcasted at www.embraer.com.

This conference call includes forward-looking statements, or statements about events or circumstances which have not occurred. Embraer have based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance.

These forward-looking statements are subject to risks, uncertainties and assumptions, including among other things, general economic, political and business conditions in Brazil and in other markets where the company is present. The words belief, may, will, estimate, continue, anticipate, intend, expect and similar words are intended to identify forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statements because of new information, future events, or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call might not occur. The company’s actual results could differ substantially from those anticipated in the forward-looking statements.

Participants on today’s conference call are Mr. Frederico Curado, President and CEO; Mr. Paulo Penido, Chief Financial Officer; Mr. André Gaia, Head of IR; and Mr. Rodrigo Rosa, Controller.

I would now like to turn the conference over to Mr. Curado. Please go ahead, sir.

Frederico Curado – President and Chief Executive Officer

Good morning, everyone. Thank you for participating in our earnings call. I’ll just start by saying a few words about the quarter and also a little bit of the outlook as we see the development of the company. It was a good quarter, showing our progressive strength in the operations of the company.

We did have a non-cash impact to our bottom line, which Paulo will later on describe into more detail, which is an accounting effect due to IFRS legislation in some non-monetized assets in our balance sheet, which is subject to a – when there is strong volatility in the exchange rate, we may have effects, positive or negative like that, but as far as the operations go, the company did produce strong results. Of course, a relevant fact is the recent subpoena we disclosed and we disclosed because we thought it was important, although, we really have no further details to say at this stage about the contents of the investigation, which is totally independent. Our role is to support it in the most proactive way we can but of course it’s a relevant fact for the life of the company that’s why we decided to disclose it at this stage. Obviously, as the process moves on and we have relevant information this will be brought to our stakeholders.

We have had a good sales result in the quarter, not only in the commercials jets but also in business jets. The activity, we saw it picking up in a more meaningful way, but of course this whole situation in Europe again, kind of has stalled this recovery process. But I think the outlook, the way we see the world going forward is of a moderate growth. We do not work with a scenario where there will be a quick fix to the situation in Europe, which is not being European it’s also global in a sense. So, we don’t see a majestic return of growth in the world, but we do not see also, either we do not see a sharp crisis or any more deep recession. So we work within moderate growth scenario and our competitive positioning is to benefit of this challenging time to reinforce the strength of the company and to reinforce our ability to capture market share.

As you know, there is a strong correlation between the economic growth in the Brazilian market, both the commercial jets and business jets, so there is not much you can do in that respect. And as we seek to diversify the company in terms of revenues and of course contribution to margins, we do see the Defense and Security segment has the most promising growth rate at least in the short and mid-term. We know obviously that the defense, the mood about the defense business in the United States is not particularly bright these days, but the situation in Brazil is quite different. The country has liked investment in that area for decades. It has a legitimate need to re-fleet and not only re-fleet but refurbish the armed forces in general.

Last year, we presented the family of shareholders a proposition to open up the social, the companies objective, which was through to aerospace, so we opened up the scope to defense and security without the specific qualification allowing us to engage in other potential areas, such as navy, army, security forces and as you may or may not have read last night in satellite, we are just engaging to take the prime contractor role in the satellite program in Brazil. So, the way we see our defense business is different strategically than we see the commercial and business jets. In commercial and business jets we are global players, we’ve really worked towards being one of the major players in the market. We are definitely the third player in the commercial jets in the world, so we are the alternative in addition to Boeing and Airbus for mainline aircraft. We have a lot of work to do in the business jet to become a player of that magnitude, but we are steadily and very firmly working towards that direction.

On the defense side, strategically, we see ourselves different. We’re more of a niche player, but we have, we just happen to debate in Brazil and with the structural need that the country has for security and defense does present an opportunity for us to establish ourselves as a defense house of Brazil if you will. The center of the supply chain is the defense industry and security industry in Brazil, and we do that with our technological base, with the strength of our balance sheet, with the corporate strength that we have, the global presence that we have and experience in managing complex contracts. So our strategy there is much more, and Luiz Aguiar will detail that later on today, is much more to really solidify our position in the center of the supply chain in Brazil. And as Brazil also developed its geopolitical presence and importance, more specifically in South America and Africa, that’s we believe that may bring opportunity for us for exports as well.

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