CAE reports first quarter fiscal 2020 results and 10% dividend increase

CAE today reported revenue of $825.6 million for the first quarter of fiscal 2020, compared with $722.0 million in the first quarter last year. First quarter net income attributable to equity holders was $61.5 million ($0.23 per share) compared to $69.4 million ($0.26 per share) last year. Net income before specific items(3) in the first quarter of fiscal 2020 was $63.2 million ($0.24 per share).

First quarter segment operating income(4) was $110.9 million (13.4% of revenue) compared with $98.5 million (13.6% of revenue) in the first quarter of last year. Segment operating income before specific items(5) in the first quarter of fiscal 2020 was $113.3 million (13.7% of revenue). All financial information is in Canadian dollars unless otherwise indicated.

"CAE had a good start to the fiscal year with 14 percent revenue growth, 15 percent higher operating income, and over $940 million of orders for a $9.4 billion backlog," said Marc Parent, CAE's President and Chief Executive Officer. "Performance was led by Civil, which delivered 29 percent operating income growth and showed continued strong demand for CAE's innovative training solutions. The Bombardier Business Aircraft Training Business integration is progressing well, and we signed long-term training contracts with airline partners including LATAM, SAS and Air Europa. In Defence, we had strong top-line growth and lower operating income, which reflect quarterly variability and an income growth profile more heavily weighted to the second-half of the year. The Defence pipeline remained strong with over $4.2 billion of bids and proposals pending customer decisions. In Healthcare, revenue momentum from new products and an expanded salesforce continued into the first quarter. As we look to the remainder of the fiscal year, our outlook for CAE's annual growth remains unchanged. In keeping with our capital allocation priorities, and underscoring our positive long-term view, I am pleased to announce that CAE's Board of Directors has approved a one cent or 10% increase to CAE's quarterly dividend, which becomes 11 cents per share, effective September 30, 2019. This represents CAE's ninth consecutive dividend increase in as many years."

First quarter Civil revenue was $477.6 million, up 11% compared to the same quarter last year. Segment operating income was $98.6 million (20.6% of revenue) compared to $78.3 million (18.2% of revenue) in the first quarter last year. First quarter segment operating income before specific items was $101.0 million (21.1% of revenue), up 29% compared to the first quarter last year. First quarter Civil training centre utilization(6) was 76%.

During the quarter, Civil signed training solutions contracts valued at $693.8 million, including multi-year pilot training agreements with airlines including LATAM, SAS and Air Europa; and a new 5-year pilot training contract with Philippines AirAsia, which incorporates the highly innovative and data-driven CAE RiseTM Training System. Civil sold nine full-flight simulators (FFSs) during the quarter, including three to Southwest Airlines for the Boeing 737MAX, one to Korean Air for the Airbus A330, and one to Hawaiian Airlines for the Boeing 787.

The Civil book-to-sales ratio was 1.45x for the quarter and 1.54x for the last 12 months. The Civil backlog at the end of the quarter was a $5.1 billion.

First quarter Defence revenue was $320.5 million, up 19% compared to the same quarter last year and segment operating income was $15.1 million (4.7% of revenue), down 30% compared to the first quarter last year, reflecting quarterly variability and an income growth profile more heavily weighted to the second-half of the year.

During the quarter, Defence booked orders for $219.5 million, including contracts with Lockheed Martin for C-130J simulators for the U.S. Air Force and U.S. Marine Corps. Other notable orders include a contract with L3 MAS to continue providing in-service support for the Royal Canadian Air Force's CF-18 aircraft, and contracts to upgrade the German Eurofighter and Tornado aircraft simulators. New awards also included contracts for Naval training solutions for the Canadian Surface Combatant program and upgrades to the Swedish Navy's Naval Warfare Training System.

The Defence book-to-sales ratio was 0.68x for the quarter and 0.83x for the last 12 months (excluding contract options). The Defence backlog, including options and CAE's interest in joint ventures, at the end of the quarter was $4.3 billion. The Defence pipeline remains strong with over $4.2 billion of bids and proposals pending customer decisions.

First quarter Healthcare revenue was $27.5 million compared to $22.8 million in the same quarter last year, and first quarter segment operating loss was $2.8 million, compared to a loss of $1.3 million in the first quarter last year.

Healthcare announced a new CAE Centre of Excellence for simulation-based education at ESPA-Montreal, the first healthcare education and industry partnership devised to impact patient care in Quebec, Canada. As well, during the quarter, Healthcare delivered a custom simulator to Baylis Medical to support its cardiovascular transseptal puncture systems for physicians. As well, it collaborated with the Canadian Association of Schools of Nursing to develop courseware packages for student nurses that can be practiced with the CAE Juno manikin.

Free cash flow(8) was negative $102.1 million for the quarter compared to negative $85.8 million in the first quarter last year. The decrease in free cash flow results mainly from a higher investment in non-cash working capital, partially offset by an increase in cash provided by operating activities and lower maintenance capital expenditures. CAE usually sees a higher level of investment in non-cash working capital accounts during the first half of the fiscal year and tends to see a portion of these investments reverse in the second half.

Income taxes this quarter were $13.0 million, representing an effective tax rate of 17%, compared to 13% for the first quarter last year. The tax rate was higher due to the impact of tax audits in Canada last year, partially offset by a change in the mix of income from various jurisdictions.

Net finance expense this quarter was $34.9 million, $18.9 million higher than the first quarter of fiscal 2019, mainly from higher interest on long-term debt due to the issuance of unsecured senior notes in the fourth quarter of fiscal 2019 to fund the acquisition of the Bombardier BAT business, and higher interest on lease liabilities as a result of the adoption of IFRS 16.

Growth and maintenance capital expenditures(9) totaled $89.0 million this quarter.

Net debt(10) at the end of the quarter was $2,312.7 million for a net debt-to-capital ratio(11) of 49.4%. This compares to net debt of $1,882.2 million and a net debt-to-capital ratio of 43.9% at the end of the preceding quarter. Excluding the impacts of the adoption of IFRS 16, net debt would have been $2,058.4 million this quarter for a net debt-to-capital ratio of 46.3%.

Return on capital employed (ROCE)(12) was 11.9% this quarter compared to 12.6% in the first quarter last year, before specific items. Excluding the impacts of the adoption of IFRS 16, ROCE before specific items would have been 12.0% this quarter.

CAE will pay a dividend of 11 cents per share effective September 30, 2019 to shareholders of record at the close of business on September 13, 2019.

During the three months ended June 30, 2019, CAE repurchased and cancelled a total of 58,131 common shares under the Normal Course Issuer Bid (NCIB), at a weighted average price of $34.41 per common share, for a total consideration of $2.0 million.

CAE's core markets benefit from secular growth and the Company expects to continue exceeding underlying market growth in fiscal year 2020. In Civil, the Company expects to continue building on its positive momentum in training, increasing market share and securing new customer partnerships with its innovative training solutions. Civil expects operating income to grow in the upper 20 percent range on continued strong demand for its training solutions, including maintaining a leading share of FFS sales, and the integration of the recently acquired Bombardier BAT business. In Defence, the Company expects mid to high single-digit percentage operating income growth as it delivers from backlog and continues to win opportunities from a large pipeline. CAE expects Healthcare to achieve double-digit growth under its new leadership, expanded salesforce, and the continued launch of innovative products. Funding growth opportunities remains CAE's top capital allocation priority and continues to be driven by and supportive of growing customer training outsourcings in its large core markets. The Company prioritizes market-led capital investments that offer sustainable and profitable growth and accretive returns and support its strategy to be the recognized worldwide training partner of choice. CAE currently expects total annual capital expenditures to increase modestly, by approximately 10 to 15 percent, in fiscal 2020, primarily to keep pace with growing demand for training services from its existing customers and to secure new long-term customer contracts. Management's expectations are based on the prevailing positive market conditions and customer receptivity to CAE's training solutions as well as material assumptions contained in this press release, quarterly MD&A and in CAE's fiscal year 2019 MD&A.

CAE creates significant value for customers, shareholders, and its employees. CAE products and services contribute to improvements in aviation safety, ensure defence forces are mission-ready, and help medical professionals save lives-a noble purpose that is a source of pride for CAE's more than 10,000 employees worldwide. As the largest civil aviation training company in the world, and the only pure‑play aviation training company, it has an unwavering customer focus and commitment to innovation. CAE also plays an important role developing talent in its industry. "Women account for less than 5 percent of the global pilot pool and yet over 300,000 new pilots will be needed in civil aviation over the next decade," said Marc Parent. "As the aviation training leader, we take it upon ourselves to ensure the industry accesses the full available talent pool. Among several exciting CAE initiatives, we launched the CAE Women in Flight scholarship to encourage more women to consider becoming pilots." Bolstering talent is one of CAE's top strategic priorities and the Company continually strives to be an employer of choice, ensuring that it engages and attracts the best people. Among several programs, CAE launched a Diversity and Inclusion initiative aimed firstly at gender balance. The objective is to ensure that women at CAE can realize their full potential as equal partners with men in the workforce and have every opportunity for advancement. CAE was selected for the 2019 Bloomberg Gender-Equality Index, which highlights 230 firms globally that are considered trailblazers in their commitment to transparency in workplace gender reporting.