CAE reports strong Q2 result for fiscal 2016
CAE has reported revenue of $616.8 million for the second quarter of fiscal year 2016, representing a 17% increase over the second quarter last year. Second quarter net income attributable to equity holders from continuing operations was $75.3 million ($0.28 per share) vs. $42.0 million ($0.16 per share) last year.
Second quarter net income before specific items(4) was $47.7 million ($0.18 per share), up 14% from the same period last year. Specific items in the second quarter included $1.8 million (net after-tax) restructuring costs related to the process improvement program underway and a $29.4 million one-time tax item. All financial information is in Canadian dollars.
“I am pleased with our solid growth this quarter and the market’s receptivity to our innovative training solutions. We experienced a high level of order activity which enabled us to reach a new record $6.4 billion order backlog,” said Marc Parent, CAE’s President and Chief Executive Officer. “In Civil, we generated double-digit growth in operating income over last year and we maintained our leading market position. In Defence, we also had double-digit income growth and orders exceeded revenue for the third quarter in a row, affirming our recently renewed outlook for growth. Our progress in the second quarter positions us well to meet our positive outlook for the fiscal year.”
Civil Aviation Training Solutions (Civil)
Second quarter Civil revenue was $365.2 million, up 23% compared to the same quarter last year. Second quarter segment operating income was $50.1 million (13.7% of revenue), up 10% compared to the second quarter last year. Training centre utilization rate was 64% for the quarter.
During the quarter Civil signed a series of training solutions contracts spanning the broad range of CAE’s capabilities, including the sale of 16 full-flight simulators (FFSs) and training programs with airlines and aircraft operators valued at $481.9 million. These solutions address the entire career life cycle of professional pilots, from cadet to captain training, and also include cabin crew training, aviation personnel resourcing, training centre operations and post-delivery services. Examples include the sale of two Boeing 737 MAX FFSs to Air Canada, an A320 FFS sale to Airbus, a long-term services renewal with JetBlue Airways, and a new exclusive long-term pilot training contract with Eastern Air Lines. The Civil book-to-sales ratio was 1.32x for the quarter and 1.16x for the last 12 months. The second quarter Civil backlog reached a record $3.0 billion.
Defence and Security (Defence)
Revenue for Defence in the second quarter was $226.2 million, up 8% compared to the second quarter last year. Second quarter segment operating income was $28.4 million (12.6% of revenue), up 11% compared to the second quarter last year.
During the quarter, Defence signed notable contracts involving enduring platforms, including the U.S. Navy’s MH-60 Seahawk helicopter simulators and training systems, and a C-130J/LM-100J weapon systems trainer for Lockheed Martin. Defence also recorded orders involving integrated training systems with contract options exercised for a range of long-term training services programs including the U.S. Air Force MQ-1 Predator and MQ-9 Reaper, the U.S. Air Force KC-135 and the U.S. Navy T-44C, as well as service support for the German Air Force’s Eurofighter simulators. Defence also concluded the acquisition of Bombardier’s Military Aviation Training (BMAT) business, with integration currently underway. This makes CAE the prime contractor responsible for the NATO Flying Training in Canada (NFTC) program that produces qualified military fighter pilots for defence customers. In total, Defence received $318.8 million in orders this quarter, representing a book-to-sales ratio of 1.41x. The ratio for the last 12 months was 1.10x. Second quarter Defence backlog reached a record level $2.9 billion and was further augmented to $3.4 billion with the inclusion of backlog from the BMAT acquisition.
Revenue for Healthcare was $25.4 million in the second quarter, compared to $24.3 million last year. Second quarter segment operating income was $1.5 million (5.9% of revenue), compared to $1.8 million last year (7.4% of revenue).
During the quarter, CAE Healthcare sold products and services from its broad suite of solutions to healthcare providers, universities, emergency medical services, and defence forces worldwide. Highlights include a contract for a comprehensive suite of simulator and centre management solutions for the McGill University Health Centre to be used for research at the Centre for Innovative Medicine. As well, CAE Healthcare sold customized interventional simulators to medical device manufacturer, Abiomed, to train catheterization laboratory teams to use its Impella(R) heart pump. CAE Healthcare partnered with a key scientific society, the International Nursing Association for Clinical Simulation & Learning (INACSL), and together introduced the INACSL-CAE Healthcare Simulation Fellowship program for healthcare educators and professionals.
Additional financial highlights
Free cash flow from continuing operations was positive $101.7 million in the second quarter compared to negative $17.1 million in the second quarter last year. The increase was mainly due to a lower investment in non-cash working capital. Net cash provided by continuing operating activities and net cash used in investing activities was positive $65.5 million, compared to negative $84.4 million in the prior year.
Income tax recovery this quarter of $17.2 million was mainly attributable to the favourable settlement of tax oppositions in Canada with respect to the tax treatment of the sale of certain simulators, partially offset by the negative impact of certain tax audits. Excluding the effect of one-time items in the quarter, the income tax expense would have been $12.2 million, for an income tax rate of 21%. This compares to 24% for the second quarter last year. The lower rate is mainly due to a change in the mix of income from various jurisdictions.
Growth and maintenance capital expenditures totaled $25.2 million for the quarter compared to $35.8 million in the second quarter last year.
Net debt ended at $936.8 million this quarter, compared to $1,006.8 million last quarter. CAE’s net debt-to-total capital ratio was lower at 33.5% compared to last quarter.
Return on capital employed (ROCE) was 11% this quarter, compared to 10.3% last quarter and 10.7% for the second quarter last year.
CAE will pay a dividend of 7.5 cents per share effective December 31, 2015 to shareholders of record at the close of business on December 15, 2015.