Embraer's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Embraer S.A. (ERJ)

Q2 2012 Earnings Call

August 1, 2012, 09:00 am ET

Executives

Frederico Curado - President & CEO

Jose Filippo - EVP, Finance & Director, IR

Luciano Froes - IR

Analysts

Paulo Winterstein - Dow Jones

Jose Sergio Osse - Bloomberg

Presentation

Operator

Ladies and gentlemen thank you for waiting and welcome to Embraer’s teleconference for the discussion of results referring to the second quarter 2012. The audio is being broadcast simultaneously at www.embraer.com.br where the respective presentation can be found. All participants are only listening to the teleconference during the presentation of the company and then we will start Q&A. (Operator Instructions)

Before starting we would like to clarify that this teleconference includes projections, declarations regarding the circumstances that has not yet occurred. These projections, these forecasts have as basis mostly current expectations from the company, forecast about future events and trends that may affect lines of business. These forecasts are subject to risks, uncertainties and assumptions that may include among others general economic condition, commercial policies in Brazil and in markets where Embraer operates.

The words, believe, may, might, estimate, continues, anticipate, intend, hope and similar terms have as a purpose to identify expectations. Embraer makes no guarantees to publish update or reviewing any forecast because of new information, future events or any other happening. Because of risks and uncertainties, estimates, events and circumstances may not occur, real results maybe very different from those mentioned here.

And today we have Mr. Frederico Curado, Mrs. [Elaine Suno] Accounting Manager and Mr. Luciano Froes, Director of Investor Relations.

Now I would like to give the word to Mr. Frederico Curado.

Frederico Curado

Good morning to all. I would like to thank you for your time here. We have Jose Filippo, Vice President of Finance, relations with investors. And as many of you know, he has been here with us since June; Mr. Filippo will do a brief presentation of results that maybe followed with a link at the Embraer page and then we will go to the Q&A. Thank you. Filippo?

Jose Filippo

Thank you and good morning to all. We would like to start the second quarter 2012 conference. By going to the third page, we would like to start talking about some of our highlights. So we will get started with commercial aviation.

We have the delivery of 35 E-Jets in the second quarter totaling 858 air jets already in operation. It’s also important to highlight that we sold five E190 during the London integration there to China’s Hebei Airlines. And another highlight in commercial aviation is that we have the opportunity with our partners during Rio+20 (inaudible) flight that was entirely contested with renewable jet fuel and so there has been a lot of interest with regarding sustainability. These are the highlights I wanted to talk about commercial aviation.

Next page have to do with executive aviation. We delivered 20 executive jets, 17 were light and 3 were large. We had an agreement with Avic to build the legacy 600/650 in Harbin, China. This reflects 10 aircrafts that for which we signed a leasing and so this aircraft will be produced in the factory and delivered as planned.

Next page has to do with defense and security. This is a segment that has been growing a lot and we have been growing 33% regarding the last quarter. In the quarter, we sold eight Super Tucano’s and flight simulator to Indonesia. We signed also an agreement with Boeing for the KC-390s and the A-29 Super Tucano; highlighting some technical aspects that has to do with integration. So far the main highlight per first segment, we had many important deliveries and that was strong performance in the company and now we are going to go on to details.

So first on page six, we have a very solid portfolio. We announced at the end of the second quarter, we had about two years of invoicing with what we had in request in orders which is already reflecting the request that we had for the second semester of the second quarter. We have had a little bit of success and we are going to be announcing. Our backlog is good and we are well positioned at the end of the quarter.

Our net revenues per segment probably most relevant for commercial aviation, we see a growth in defense and executive aviation as well. First quarter of 2012, we have 67% coming from commercial aviation, 15% from executive, 17% from defense and 1% from other sources of revenues. We already see this growth here from other units regarding and you know we were thinking that we could go to 80% in commercial aviation, but we also see a new segmentation for the company.

Following on page eight, we had net revenue – we’ve had great solid revenue in the second quarter. We had 385 billion Reals reflecting a very solid margins also in the first quarter and this can be explained by a more favorable mix in commercial aviation and also thanks to the dollar that helped to grow while decreasing a few expenses.

So let’s talking about revenue; moving onto page nine revenues and gross margin. We had about 390 billion Reals in the second quarter. If we analyze the accumulated amount during the year, we feel that this can reflect a very favorable mix and also some reduction programs, cost reduction programs as well as a very favorable exchange.

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