Embraer S.A.

Good morning, ladies and gentlemen, and welcome to the audio conference call that will reveal Embraer's fourth quarter 2020 and fall year 2020 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 the time. If you should require assistance during the call, please press the star key followed by zero. As a reminder, this conference is being recorded and webcasted at ri.embraer.com.br. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred. Embraer has 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 believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward-looking statements. Embraer undertakes no obligations to update public life 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 actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO, Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement, and Mr. Eduardo Couto, Director of Investor Relations. I would like now to turn the conference over to Mr. Francisco Gomez Neto. Please go ahead, sir.

Good afternoon to all, and thank you for joining us in our fourth quarter and fiscal year 2020 results presentation. I hope that all of you are well and safe, and I thank you for your interest in our company, and most of all, in the confidence in our future. I will start with a short introduction about last year and afterwards our CFO Antonio will go into more details on the numbers for 2020 and the fourth quarter. I will return at the end of the presentation to speak a bit more about our main initiatives and my vision of the future. Our challenges in 2020 were not just limited to the COVID-19 pandemic crisis. We also had to deal with the termination of the strategic partnership with Boeing in commercial aviation. These and other challenges negatively impacted our revenues and costs throughout 2020, directly affecting the results of the company. That said, we reacted quickly to adapt to the new reality in an integrated and structured way, prioritizing the health and safety of our employees, supporting our society with several initiatives to combat the pandemic, and we also focused on cash preservation. Faced with this new reality, we adjusted our workforce to create a leaner and right-sized organization. We are now more agile to progress with efficient gains, with sales campaigns, and with strategic partnerships. During this process, we also recovered synergies with the reintegration of the commercial aviation business and its related services. Finally, we created a new business plan, known as Embraer Strategic Plan 2125, which will be our guide for the next several years to return to grow in a profitable and sustainable way. resulting in Embraer becoming more profitable than it was in the past. Before I go into more details regarding the 2021-25 initiatives, we will discuss the 2020 results. I will now hand it over to Antonio, and I will return in the end. Thank you.

Thank you, Francisco. 2020 was my first year at Embraer and a very challenging and unprecedented year for the company. But I'm very happy with all achievements that we had, which I will show in more detail in the upcoming slides. The Embraer team is impressive and I'm convinced that Embraer is on the right path. Now moving to the financial highlights on slide five. The COVID pandemic impact was felt much more in commercial aviation. Our consolidated revenues declined around 30% in 2020. And commercial aviation and its related services responded for more than 80% of this decline. During the year, we made a great progress in integrating commercial aviation within Embraer. And all of our business units are now moving forward with a united focus on improving results as we gradually emerge from the pandemic. We have a resilient backlog with strong customer and partners to build on. And we are proud to say that none of our commercial customers canceled any of their orders during 2020. We, in fact, are cautiously optimistic in signing orders in commercial aviation during 2021. The executive aviation and defense businesses showed encouraging performance during the year with a strong profitability improvement as we continue to work on this business to generate consistent margin going forward. The required margins and executive jets proves that we are in the right way. We changed the company mindset. to implement actions to reduce cash outflows, expenses, and optimize investment in SG&A in 2020 without compromising any of our ongoing projects or operating capabilities of the business. Besides that, the right size we announced in the third quarter has been implemented, and we expect a tailwind from that in 2021 results. We continue to work on reducing our working capital needs to unlock cash in our business, particularly with respect to inventories and accounts payables. As we highlighted in the second quarter and again reiterated in the third quarter of last year, we finished 2020 with a very strong cash generation, which was ahead of our expectation of a break-even cash in the second part of the year. we are also able to improve our liquidity during the less less difficult time last year securing more than a billion in finance from different sources such as bns usx private and public banks as well from the debt capital market with long-term bonds finished the year with a very strong liquidity of $2.8 billion in cash. It's important to note that due to the uncertainties related to the pandemic and its impact on our business, we are not announcing financial guidance for 2021 this time. We will continue to evaluate the possibility of releasing 2021 guidance as the year progresses. So moving to the highlights for our commercial aviation business on slide six. Delivers recovered nicely in the fourth quarter with 28 jets delivered in the period and a total of 44 aircraft delivered during 2020. This also included the milestone of the E-jet number 1600 delivered to Helvetica Airways. We also had deliveries to important and long-time customers in 2020, including AirCap, Air France, American Airlines, ASU, United Airlines, and others. We had zero firm order cancellations since the start of the pandemic, a fact that we are very proud of, which illustrates a less speculative nature of our backlog compared to peers. It sparked some new COVID outbreaks in several regions of the world, and at the end of 2020 and early 2021, have delayed some sales campaign. But we are confident that we will announce important new orders in short term and throughout 2021. Our commercial aircraft continue to lead the recovery of domestic flights in several markets around the world. And airlines recognize the economics and the environment value of our best-in-class jets in the sub-150 seats category. We see strong market demand for E-jets around the world. And last year, LeSource placed up to 90 used E-jets in the market, and we added six new E-jet operators during the pandemic. Now shifting to executive aviation highlights on slide seven. Embraer delivered 43 executive jets in the fourth quarter, leading to a total of 86 jets delivered in 2020, with no whitetail carryover into 2021. As far as profitability, 2020 was really a great year for Embraer's executive jets, as we presented strong margins of high single digits and cash generation with a solid backlog and improving sales. In terms of client recognition, the Fino 300 was the best-selling light jet, again in 2020, the ninth consecutive year. And last year, the Fino 300 was not only the best-selling light jet, but also the best-selling twin-engine jet in the entire executive aviation industry. We also reached an important milestone of the first Praetor 600, jet delivered to the fleet launch operator, Flag Jets, in 2020. A very important customer that has chosen Finos and Praetors to expand its business in a multi-year deal that was signed in 2019. I would also like to highlight that the pandemic recovery is on its way in the executive aviation, as business jet operations are already back to over 90% of pre-pandemic levels with a strong momentum in 2021 for Embraer. So, on the slide eight, we go into some highlights for our defense and security business. During the year, we signed a contract with the Brazilian Navy as part of a consortium with Tyson Group to build four ships. with deliveries expected to happen between 2025 and 2028. This underscores our positioning as the true defense house of Brazil. We were also very happy to announce the sales of two C390 Millennium cargo transport and tanker aircraft to Hungary, closing our second export customer of these aircraft after Portugal. We also deliver two C390 aircraft to the Brazilian Air Force in 2020 and 16 A-29 Super Tucano to the clients around the world during the period. We also continue to work in 2020 with Brazilian Air Force to study development of a new light cargo aircraft with short takeoff and landing capabilities. In terms of profitability, defense and security was our most resilient business during the pandemic. As the revenue grew and our operating margin moved from the negative in 2019 to a mean single digit positive in 2020. Slide number nine, with respect to our services and support business highlights. Let me first say that the business was significantly impacted in the early days of the pandemic, as most commercial and business jets worldwide were stopped. But since then, service and support has shown an impressive and consistent improvement during 2020. The business continued to perform despite the impact of the pandemic. completing 11 conversion of a legacy 450s to a new Praetor 500 jet during the year. Also, service and support helped and supported our commercial airline customers to adapt their realities imposed by the pandemic, working to get E-jets modified and certified for our cargo transportation cabins. For the long term, we are proud that our AUGMA MRO business in Portugal was selected to become a new Pratt & Whitney authorized maintenance center for GTF engines in Europe. After some initial investment in the business, we are excited for the growth opportunity for Ogima to potentially triple in size in the next several years. Finally, We are optimistic for the future as we finish 2020 with service and support activities approaching pre-pandemic levels. Now let's go into more details on the quarterly and yearly financial results. On slide 11, we show our year-end backlog, which finished 2020 at $14.4 billion and declined mainly due to the impact of the pandemic on new orders, particularly in commercial aviation. Our total backlog fell around 15% in 2020, which compares favorably with our peers that face larger cancellations. It also highlights our high-quality customer backlog with very little speculative orders. We are also cautiously optimistic regarding a better order environment across all of our business in 2021. On slide 12, we turn to aircraft deliveries, which showed a stronger recovery in the new normal levels in the fourth quarter. We delivered a total of 44 commercial aircrafts in the year, with more than a half coming in the fourth quarter, and delivered a total of 86 executive jets in 2020, of which half came from the fourth quarter. The annual deliveries in commercial aviation were clearly impacted by the pandemic, while executive aviation deliveries was less affected. So moving to net revenue in slide 13. Embraer reported just under $3.8 billion in revenue for 2020, which was a 30% decline compared to 2019. As mentioned previously, declining commercial aviation and its related service were responsible for more than 80% of these reductions. Looking at the geographic split of our 2020 revenues, performance of North American European market has a direct impact on our business, as just over 80% of our 2020 revenues came from this region. Continued improvement on COVID cases, vaccine rollouts, and eventually improvements on passenger traffic give us optimism for the future. In slide 14, Embraer presented a significant cost control during the year of 2020 as part of its cultural transformation, as clearly shown in slide 14. Our total SG&A declined almost 30% in 2020, as compared to 2019. Excluding the bad dev provision of 62 million in 2020. This reduction is impressive and roughly in line with decline in sales for the year. Despite a large portion of the CSG&A expenses being fixed costs in nature. So, regarding adjusted BIT on slide 15. Embraer had a solid fourth quarter with one of the best levels of consolidated margin in recent years at 4.2% positive. This reflects not only the improvement in commercial and executive deliveries in the quarter, but also the improvements in defense and security and service and support stop lines, as well the benefits of cost control and the initial positive impacts of our restriction actions taken in September. Adjusted EBIT in the fourth quarter excludes a total of $27 million of positive net impacts coming from restructuring expenses, impairments, and bad debt provision. For the full year, we finished with adjusted EBIT of a loss of $101 million, representing an adjusted EBIT margin of minus 2.7%. This compares favorably with last year's breakeven level, despite a more than 30% decline in revenues caused largely by the COVID-19 pandemic. We expect higher profitability levels in the future years, as we continue to recover top-line growth and cost reduction initiatives are mostly permanent. For 2020, the adjusted BAT margin by segment was minus 7% at commercial, plus 8% executive, plus 6% defense, and 4% service and support, removing items and one-off impacts. Slide 16 shows our adjusted BTDA, which was positive 146 million in the fourth quarter, and also excluded the special items already mentioned in the previous slide. adjusted a BTDA margin for the fourth quarter was 7.9%. For 2020, despite the significant impacts that the pandemic had in our business, and with revenue dropping 30%, Embraer generated a positive adjusted BTDA of 82 million for the year, with an adjusted BTDA margin of 2.2%, which was very close to 2019 levels, despite a meaningful decline in revenues. On slide 17, we turn to the adjusted net income, which for the fourth quarter was a loss of $30 million and was better than the adjusted net loss of $93 million in the last year for the fourth quarter, despite lower revenue in the period. For the full year, Embraer reported adjusted net loss of $464 million, which was higher than 2019. driven by the lower operating income as well higher financial expenses. We believe that higher profitability in the coming years combined with lower financial expenses as we continue to recover the top line and improve our cash position will be important drivers for earnings rebound in the years ahead. Another lever we pulled during 2020 to reduce cash outflow was reduction of CAPEX and development spending that we show in slide 80. The total investment declined 60% to 203 million. Thought it's very important to note that none of our ongoing projects has been compromised in terms of timing. We are nearing the end of the development cycle for the C390 millennium. The E175E2 development continues to progress as expected and we continue to invest in our executive aviation segment to maintain the competitiveness with state-of-the-art products as we look to the future investments are likely to increase a little bit from 2020 levels but not in a significant way as our product portfolio is new, and any large investment will require strategic partners. We are also highly focused on improving free cash flow generation in the coming years. So, on slide 19, we show the company's free cash flow in 2019 and 20. We finished the year with a free cash flow usage of $990 million. But I'd like to highlight the strong cash generation in the fourth quarter of 725 million, which almost equalized the last year record free cash flow generation. Also, we promised to the market that the second half of the year would be breakeven free cash flow. And we actually beat that by generating almost 160 million of free cash flow in the second half. Cost control, improvements in deliveries, and more efficient use of working capital are all helped in the cash flow increase for the fourth quarter. We continue to work to deliver meaningful free cash flow improvements in 2021 versus 2020, as we gain further traction in our working capital initiatives, as well additional cost efficient in some revenue gains. Finally, on the slide 20, we showed the companies in strong liquidity position. As Embraer finished the year with nearly 2.8 billion in cash. Much improved from the previous quarter and similar to 2019 levels. We were successful in getting additional liquidity during 2020 via different finance sources. We have less than 10% of our debts coming due in the next 12 months and the average maturity of our debts is above 40 years with with that i will now turn the call over to francis for his closing remarks thank you as you could see from antonio's presentation the pandemic has meaningfully impacted the results of our business