Message from the President

GRI G4-1

2016 will be marked by the profound renewal process undergone by Avibras. We initiated a major effort focused on strategic planning which, among other objectives, encompasses the reorganization of processes and remodeling corporate governance to leverage business, transform people and review processes in a structured and organized fashion.

A fundamental point in this transformation is to expand synergy within the company, improving the planning and execution of contracts. This was made necessary by the fact that we have never had as many active contracts at the same time as we did in 2016.

Moreover, we believe that this synergy will mitigate impacts on cash flow, generated mainly by the influence of seasonal factors on sales, by extending and scaling deliveries and receipts.

While this impressive number of contracts has practically quintupled our revenue in four years, it has also demanded a great deal of working capital, due to the need to hire additional manpower and acquire production inputs. This led to great pressure on the organization's cash flow, undoubtedly the major challenge faced during the year. We are proud to say that the efforts of each of our more than 1,800 employees enabled us to overcome this challenge, ending the year with net revenue of R$ 1.39 billion, Ebitda of R$ 424.8 million – representing an operating margin of 31% – and net income of R$ 254.9 million, equivalent to a net margin of 18%. These are important results, achieved with a great deal of hard work and dedication.

The transformation we are undergoing has boosted our delivery capacity, opening up new market niches. In Brazil, even though federal government budget restrictions might be limiting new orders, we are studying conditions that will enable negotiations. Additionally, we visualize new opportunities with the resumption of the Brazilian Space Program.

The overseas market continues to be the main driving force of our revenues, in particular due to the broad acceptance of the ASTROS system, a versatile product that permits constant updating, making it attractive in a situation in which technological modernization cycles are becoming shorter and shorter. However, we need to remain attentive to the strong competition from military powerhouses.

Innovation and technological excellence are fundamental for us to maintain our position among the major players in the defense market. To enable this, we have a highly qualified work force set on obtaining the best possible results.

"A fundamental point in our transformation in 2016 is to expand synergy between the projects being executed, made necessary by the fact that we have never had as many active contracts at the same time"

João Brasil Carvalho Leite
CEO

Our reorganization is also driven by sustainability. Avibras instituted a Sustainability Committee which provides full support for company governance and management, working to ensure focus on environmental, social and economic aspects to incorporate the generation and distribution of value into company strategy and day-to-day operations.

The essence of the Avibras culture is the constant pursuit of the best possible results through the dedication and engagement of all its employees. This indispensable base is underpinned by four pillars which have driven the company since its foundation more than 50 years ago by a group of engineers from the Instituto Tecnológico de Aeronáutica (ITA), including João Verdi Carvalho Leite. A pioneer in the aerospace sector, Avibras projected Brazil's presence in one of the most competitive markets worldwide - the Defense sector.

We are proud of our history and our growth, the result of the competence of our professionals, technological innovation and the quality of our products and services.

The course adopted involves investing in the sustainable development of Avibras to ensure a promising future for our people and all our stakeholders.

João Brasil Carvalho Leite
CEO