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CAE reports first quarter 2011 earnings

August 11, 2010, Montreal - CAE today reported financial results for the first quarter ended June 30, 2010.


August 11, 2010
Carey Fredericks

Net earnings were C$39.4 million (C$0.15 per share), compared to C$27.2 million (C$0.11 per share) in the first quarter of last year, which included an after-tax restructuring charge of C$18.9 million (C$0.07 per share). Revenue was C$366.7 million, 4% lower compared to C$383.0 million in the first quarter last year. All financial information is in Canadian dollars.

"We are in the early stages of a market recovery and I am encouraged that in our first quarter we saw higher demand for civil training," said Marc Parent, CAE's President and Chief Executive Officer. "We are well positioned to benefit from the civil market recovery. We are also tracking toward another year of good order intake in our combined Military segments, anticipating 10-12% revenue growth."

Mr. Parent added, "We have been able to maintain good margins in difficult market conditions. Based on our confidence in CAE's business model and prospects, the Board of Directors has increased the quarterly dividend from $0.03 to $0.04 which will be paid on September 30, 2010 to shareholders of record at the close of business on September 15, 2010."

Earnings before interest and taxes(1) (EBIT) were $62.2 million, or 17.0% of revenue.

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Summary of consolidated results                                          
                                                                         
(amounts in millions, except                                             
 for operating margins)       Q1-2011  Q4-2010  Q3-2010  Q2-2010  Q1-2010
————————————————————————–
Revenue                      $  366.7    395.9    382.9    364.5    383.0
Total segment operating                                                  
 income                      $   62.2     64.9     64.6     62.3     72.3
Restructuring charge         $      –     (1.9)    (3.9)    (1.1)   (27.2)
Earnings before interest and                                             
 income taxes (EBIT)         $   62.2     63.0     60.7     61.2     45.1
As a % of revenue            %   17.0     15.9     15.9     16.8     11.8
Net earnings                 $   39.4     40.5     37.7     39.1     27.2
Backlog                      $3,106.1  3,042.8  2,917.1  3,034.8  3,278.2
————————————————————————–
————————————————————————–
 
Military segments

Revenue for our combined Military segments decreased 2% to $182.2 million compared to $185.2 million in the first quarter last year. Simulation products revenue was down 2% to $115.8 million, mainly as a result of the back-ended profile of this year's production and the lower contribution from some large programs we recently won that are still in early development. In addition, we faced unfavourable foreign exchange movements. In training and services, revenue was stable at $66.4 million. We had higher activity in the U.S. and Europe which was offset by negative currency translation.

Combined Military operating income was $31.8 million and operating margin was 17.5% compared to $34.8 million and 18.8%, respectively, in the first quarter last year.

Our rolling twelve-month results in the combined Military segments are more representative of the segments' performance as activity levels tend to vary between quarters. We continue to expect 10-12% revenue growth with 15% EBIT margins.

We received an order for a comprehensive CC-130J aircraft maintenance technician solution and in-service support for the Government of Canada and a C-130H full-mission simulator order for the Egyptian Air Force. As well, we were awarded a contract to perform a major upgrade on the Puma helicopter simulator located at CAE's training facility for the UK Royal Air Force. Combined new Military orders in the quarter totaled $276.0 million for a book-to-sales ratio of 1.51x. The ratio was 1.31x for the last 12 months.

Civil segments

Revenue for our combined Civil segments decreased 7% to $184.5 million compared to $197.8 million in the first quarter last year. This was due mainly to a 19% decline in simulation products revenue to $66.9 million, reflecting the lasting effects of the civil aerospace industry downturn. Our simulation products segment is bottoming as we work through a challenging backlog stemming from lower volumes and pricing. At the same time our training and services segment has begun to benefit from the civil aerospace recovery now underway. Revenue in training and services increased 3% to $117.6 million, notwithstanding the negative foreign exchange headwind, reflecting higher demand for training at our centres around the world.

Combined Civil operating income was $30.4 million and operating margin was 16.5% compared to $37.5 million and 19.0% in the first quarter last year.

We received $68.7 million in orders for simulation products including six full-flight simulators from aircraft manufacturers in support of their aircraft programs, a legacy airline in North America and a new customer in Asia. Book-to sales in simulation products was 1.03x. In training and services we booked orders to backlog with an expected value of $81.8 million.

New core markets

CAE Healthcare was awarded five contracts to supply its new CAE Owl(TM) simulation centre management system to Universite Laval, The Michener Institute for Applied Health Sciences, the University of Ottawa and the Hopital Sacre-Coeur de Montreal (HSCM). We also sold our first transthoracic echocardiography simulator, CAE VIMEDIX(TM) to the Beth Israel Deaconess Medical Center, a teaching hospital of Harvard Medical School.

In order to expand our entry into the mine simulation and optimization field we acquired Datamine, a company with an extensive product and consulting portfolio ranging from exploration data management and orebody modelling to mine planning and mine operations management.

Our New Core Market initiatives are part of our long-term strategy to leverage CAE's modelling, simulation and training capabilities in new markets that have the same imperative to reduce risks and enhance operational efficiency as the civil aviation and defence sectors, where CAE is a world leader.

Additional financial highlights

The effect of translating the results of our self-sustaining subsidiaries into Canadian dollars negatively impacted this quarter's revenue by $33.9 million and net earnings by $6.1 million, when compared to the first quarter of fiscal 2010.

Free cash flow(2) was negative $65.4 million. Change in non-cash working capital had a negative effect of $110.9 million, mainly as a result of lower accounts payable and higher receivables. We normally see lower free cash flow at the start of each fiscal year, which tends to improve as the year progresses.

Net debt(3) was $296.7 million at June 30, 2010, up $116.9 million from last quarter.