ECONOMIC OUTLOOK

In 2017, Brazil’s Gross Domestic Product (GDP) grew by 1.0% compared with the previous year, and the unemployment rate, measured by the PNAD (Continuous National Household Sample Survey), remained virtually stable in the same comparison (11.8% and 12.0%, respectively).

Inflation, as measured by the IPCA Index, was 2.9%, down from 6.3% in 2016. Controlled prices rose by 8.0%, while uncontrolled prices increased by 1.3%.

Industrial production ended the year with an accumulated growth of 2.5%, driven by the automotive sector, according to the PIM-PF monthly physical production survey published by the Instituto Brasileiro de Geografia e Estatística (IBGE).

Against this backdrop, Avibras ended the year with robust results: net revenues increased by 20% compared with the previous year, totalling R$1,672,060,000. At R$518 million, Ebitda was 22% higher than in 2016, with margin at 31%.

2018 is expected to be demanding for Avibras, which is projecting a drop in revenues in function of its natural business cycle, while it addresses the challenge of consolidating the financial stability achieved in 2017 and maintaining its bold investment plan.

SECTOR OVERVIEW

The study entitled “The value chain and the social and economic importance of the defence and security industry in Brazil”, published by the Fundação Instituto de Pesquisas Econômicas (Fipe) and approved by Professor Delfim Neto, describes the social and economic importance of the defence sector and its contributions to Brazilian society.

The survey showed that the defence and security complex had a GDP of approximately R$202 billion in 2014, which corresponded to 3.7% of the Brazilian GDP that year. Defence and security activities accounted for the largest share of this revenue, amounting to around 54% of the total.

The study presents key indicators, such as direct and indirect multipliers in production and employment, as well as the impacts on the Brazilian economy of the projected investments in the National Defence White Book (LBDN). Armed forces investment projects position the industry in the forefront of technological innovation (medium-high/high technology and market). This has an innovation spill over effect on the Brazilian economy and also drives important research and development (R&D) advances that benefit a number of different industries.

Not only do the activities of the Defence and Security Complex result in significant gains for the country, they promote research and technological development within Brazil, benefiting other sectors with the creation of jobs and the development of high added value products for export markets.

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Not only did Avibras achieve exceptional results in 2017, it managed to alleviate the pressure on its working capital which had been exacerbated the previous year by the need to acquire production inputs and hire workers. This enabled the company to puts its accounts in order and form a reserve for 2018, a year which will be very challenging for the company.

The reorganization of processes and renegotiation of contracts, the main challenges in reducing the pressure on working capital, were executed successfully. Regaining the trust of the suppliers was another challenge that was effectively overcome, leading to a reduction of 44% in the balance of advances and 42% in inventory levels.

The resolution of its financial and fiscal commitments also enabled greater predictability in cash flow. 90% of the company’s revenue was derived from the overseas market during the year. Although only approximately 10% of Avibras’s total revenues came from contracts with Brazilian customers, a large part of these involved the development of new products which will be essential for the company’s future.

Increasing the backlog of contracts, another target for the year, was also undertaken successfully. This has increased from US$262 million in 2018 to US$619 million in 2022, due mainly to new sales and the rescheduling of a contract which should have come into force in 2017 but was postponed until January 2018. The results for the year are presented below.

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Avibras has a positive economic impact on Brazil’s development. It is based in one of the key technology hubs in Latin America and generates more than 1,700 direct and over 4,000 indirect jobs. 203-2