CAE nets a 6% revenue increase over last year's Q1
CAE hasreported revenue of $557.0 million for the first quarter of fiscal year 2016, representing a 6% increase from the first quarter last year. First quarter net income attributable to equity holders from continuing operations was $44.9 million ($0.17 per share) vs. $43.8 million ($0.17 per share) last year.
Excluding $5.7 million (net after-tax) restructuring costs incurred this quarter related to the transformation of CAE's production processes and product offering currently underway, net income before restructuring costs was $50.6 million ($0.19 per share), up 16% from the same period last year. All financial information is in Canadian dollars.
"We're off to a solid start to the fiscal year with a good first quarter performance and a new process improvement program underway to further strengthen our competitive position," said Marc Parent, CAE's President and Chief Executive Officer. "In Civil we had a higher margin on higher utilization of our training network and we had a double-digit increase in operating income over last year. We also had higher operating income in Defence, with robust order activity supporting our outlook for growth. We maintained our strong financial position, and I am pleased to announce that CAE's Board of Directors has approved a half cent increase to CAE's quarterly dividend, which becomes 7.5 cents per share, effective September 30, 2015. This marks our fifth increase in as many years and underscores our confidence in the business."
Civil Aviation Training Solutions (Civil)
First quarter Civil revenue was $336.2 million, up 9% compared to the same quarter last year. First quarter operating income was $57.0 million (17.0% of revenue), up 15% compared to the first quarter last year. Training centre utilization was 73% for the quarter.
During the quarter Civil signed training solutions agreements with customers including Southwest Airlines to re-equip its entire full-flight simulator (FFS) fleet with CAE Tropos(TM) 6000XR visual systems and it sold eight FFSs to airlines worldwide involving a range of Airbus, Boeing and Bombardier aircraft types. Civil extended its Multi-crew Pilot License (MPL) First Officer Program with Japan Airlines for cadet training, and also signed and renewed long term agreements with airlines including easyJet, EVA Air and Air China for First Officer and Commercial Pilot License training. In total, Civil received $288.3 million in orders this quarter for a book-to-sales ratio of 0.86x. The ratio for the last 12 months was 1.09x. First quarter Civil backlog was $2.8 billion, including CAE's share of joint ventures.
Defence and Security (Defence)
Revenue for Defence in the first quarter was $196.9 million, stable compared to the first quarter last year. First quarter operating income was $23.6 million (12.0% of revenue), up 8% compared to $21.9 million (11.1% of revenue) last year.
During the quarter, Defence signed notable contracts involving enduring platforms and integrated training systems. They include a comprehensive solution to train all future U.S. Army fixed-wing pilots, a contract from Boeing to build P-8A Poseidon operational flight trainers for the U.S. Navy, and a contract from Airbus Defence and Space for UH-72A Lakota flight training devices for the U.S. Army. As part of the U.S. foreign military sale program, Defence was also awarded a contract by the U.S. Navy for MH-60R Seahawk helicopter trainers for the Royal Australian Navy. In total, Defence received $207.3 million in orders this quarter, representing a book-to-sales ratio of 1.05x. The ratio for the last 12 months was 0.95x. First quarter Defence backlog was $2.6 billion, including CAE's share of joint ventures and unfunded backlog.
Revenue for Healthcare was $23.9 million in the first quarter, up 23% compared to the same quarter last year. First quarter operating income was $0.6 million (2.5% of revenue), compared to $0.3 million last year (1.5% of revenue).
During the quarter, Healthcare sold patient, ultrasound and surgical simulators, as well as its simulation centre management solutions and courseware to a range of healthcare education and defence customers in the U.S., Eurasia and the Middle East. Healthcare also continued to innovate its product offering with the release of a tablet-operated, facilitator-driven software called CAE Vivo, which enables facilitators to have full remote control over CAE's patient simulators' physiology and responses.
Additional financial highlights
Free cash flow from continuing operations was negative $61.2 million in the first quarter compared to negative $20.9 million in the first quarter last year. The decrease was mainly attributable to a higher investment in non-cash working capital and lower cash from continuing operating activities. Net cash used in continuing operating activities and net cash used in investing activities was $67.4 million, compared to $51.7 million in the prior year.
Income taxes this quarter were $9.8 million, representing an effective tax rate of 18% compared to 21% in the first quarter last year. The lower rate this year was mainly attributable to a change in the mix of income from various jurisdictions.
Growth and maintenance capital expenditures totaled $23.6 million for the quarter compared to $39.7 million in the first quarter last year.
Net debt ended at $1,006.8 million this quarter, compared to $949.6 million last quarter. CAE's net debt-to-total capital ratio was at 36.6%.
CAE will pay a dividend of 7.5 cents per share effective September 30, 2015 to shareholders of record at the close of business on September 15, 2015.
Subsequent to the end of the first quarter, CAE concluded the sale of its mining business, known as Datamine, to Constellation Software. CAE Mining's financial results have been reported as part of CAE's discontinued operations in its consolidated financial statements for the past year.
Management outlook for fiscal 2016
The Company's outlook for growth and operating margins remains consistent with that given at the end of the last fiscal year. CAE continues to expect growth in fiscal 2016 across all business segments, with a stronger second half of the fiscal year. In Civil, the Company expects annual operating margins to improve from the 16.3% level reached last year on higher training utilization, and to have FFS unit sales in the range of the fiscal 2015 number. In Defence, it expects modest growth with operating margins in the 12-13% range. CAE continues to anticipate higher returns on capital employed going forward as it fills training centre capacity, undertakes a greater share of its customers' training activities, and incrementally invests in accretive, customer-driven growth opportunities.
Strengthening competitive position
To further enhance its competitive position, CAE began to implement this quarter a process improvement plan to transform its production processes and product offering. The Company anticipates an additional approximate $19 million (after-tax) expenditure, consisting primarily of severance and other related costs to bring the transformation to fruition. The transformation is expected to be substantially completed by the first half of fiscal 2017, and with all new processes in place, it is expected to result in approximately $15 million to $20 million of annualized cost savings thereafter, depending on product mix.
"By leveraging our new technologies, including the CAE 7000XR Series full-flight simulator, we have launched a new program this quarter to transform and streamline our processes and product offering for the future. With it, CAE will become even more efficient in the way it engineers, manufactures and delivers its simulators. This will ensure that CAE maintains a strong leadership position in a highly dynamic market and will create an even wider gap between CAE and its competitors," said Marc Parent, President and Chief Executive Officer. "Based on our current volume of business, we expect this to impact approximately a further 350 people out of our worldwide workforce of 8,000 over the next 12 months. We will do everything we can to mitigate the impact on those of our employees and their families who will unfortunately be affected by these changes."
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