EMBRAER Releases First Quarter 2011 Results in IFRS

SAO 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 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.

REVENUES AND GROSS MARGIN

As 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.

EBIT

EBIT 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 INCOME

Net 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 MEASURES

The 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.

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.

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 RESULTS

From 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.

COMMERCIAL AVIATION

During 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.

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.

The diversified customer base and penetration in all regions of the world are strong confirmations of the E-Jets family efficiency, flexibility and passenger appeal

EXECUTIVE AVIATION

In 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.

In 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.

ABOUT EMBRAER

Embraer (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.