(NYSE:CAE)(TSX:CAE) - CAE today reported revenue of $698.9 million for the first quarter of fiscal year 2018, compared with $651.6 million in the first quarter last year. First quarter net income attributable to equity holders from continuing operations was $63.8 million ($0.24 per share) compared to $68.7 million ($0.25 per share) last year, or $70.9 million ($0.26 per share) before specific items(2) last year.
First quarter operating profit was $97.8 million (14.0% of revenue) compared with $89.0 million (13.7% of revenue) in the first quarter last year. All financial information is in Canadian dollars unless otherwise indicated.
"Our progress in the first quarter supports our full year outlook, which remains unchanged," said Marc Parent, CAE's President and Chief Executive Officer. "We continue to enjoy good demand for CAE's solutions in a strong market environment. The new strategic developments with airlines announced today strengthen CAE's position in China and the ASEAN region, the fastest growing commercial aviation markets in the world. Underscoring our positive outlook, I am pleased to announce that CAE's Board of Directors has approved a one cent or 13% increase to CAE's quarterly dividend, which becomes nine cents per share, effective September 29, 2017."
Civil Aviation Training Solutions (Civil)
First quarter Civil revenue was $411.8 million, up 11% compared to the same quarter last year, and segment operating income was $73.1 million (17.8% of revenue), up 15% compared to the first quarter last year. First quarter Civil training centre utilization(6) was 78%. The first quarter includes the impact of the standardization of certain types of simulators on revenue recognition. Civil revenue and segment operating income, if adjusted (7)(8) for the impact of this change would have been $452.0 million and $83.7 million this quarter, respectively. The impact during the first quarter of fiscal year 2017 was minimal.
During the quarter, Civil signed training solutions contracts with an order intake(5) value of $400.4 million, including agreements for ab initio pilot training for Jet Airways in India, and business aviation pilot training for MHS Aviation and Elit'Avia in Europe. Also during the quarter, Civil sold 8 full-flight simulators.
The Civil book-to-sales(5) ratio was 0.97x for the quarter and 1.07x for the last 12 months. The Civil backlog at the end of the quarter was $3.2 billion.
Since the end of the quarter, Civil made further progress on CAE's vision to be the worldwide training partner of choice with new strategic developments involving airline customers in Asia.
CAE and Singapore Airlines have signed a Memorandum of Understanding to establish a joint venture (JV) to operate out of the Singapore Airlines Training Centre, near Changi Airport in Singapore. This agreement marks an important evolution in CAE's relationship with one of the world's premiere carriers and its subsidiaries. Once established, the JV will serve the training needs for Singapore Airlines, its subsidiaries, and other Boeing aircraft operators in the ASEAN region. The closing of the transaction is subject to execution of definitive transaction documents and customary closing conditions, including regulatory approvals.
In an agreement between CAE and China Southern Airlines, China Southern has acquired CAE's 49% equity stake in the Zhuhai Flight Training Centre (ZFTC) for US$96 million. The evolution of this relationship allows CAE greater flexibility to address the broader aviation training market in China and the ASEAN region, and the opportunity to align its capital investment with its strategic priorities. As part of the transaction, China Southern Airlines will outsource to CAE third-party airline training being conducted at ZFTC. CAE will continue to serve China Southern as its partner for training services support, ab initio pilot training, and for its simulation equipment needs.
In response to reports published by the media, CAE confirms it is in advanced discussions with AirAsia to conclude a sale and purchase agreement for CAE to acquire AirAsia's 50% share of the Asian Aviation Centre of Excellence Sdn. Bhd. JV. CAE's relationship with AirAsia began in 2004 and with this agreement, it would expand with a contract for all AirAsia training requirements and that of its affiliates, in support of all the aircraft types it operates for an extended term. The transaction is subject to the successful conclusion of a sale and purchase agreement between the parties.
Defence and Security (Defence)
First quarter Defence revenue was $263.2 million, up 2% compared to the same quarter last year and segment operating income was $26.3 million (10.0% of revenue), compared to $28.4 million (11.0% of revenue) in the first quarter last year.
During the quarter, Defence order intake was valued at $262.4 million. Notable wins include a Training Systems Integration contract with the UAE for a comprehensive training solution for the Predator XP and a contract from Airbus related to the in-service support of the C295W Fixed-Wing Search and Rescue training program in Canada. As well, Defence received a series of orders from Lockheed Martin involving C-130J fuselage trainers for the U.S. Air Force and U.S. Marine Corps. Also notable during the quarter, the first cohort of U.S. Army students to go through the new Initial Entry Fixed-Wing course at CAE's Dothan, Alabama training centre graduated to become Army fixed-wing aviators.
The Defence book-to-sales ratio was 1.00x for the quarter and 1.31x 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 $4.1 billion.
First quarter Healthcare revenue was $23.9 million compared to $22.7 million in the same quarter last year, and first quarter segment operating loss was $1.6 million compared to $0.1 million in the first quarter last year.
CAE Healthcare launched CAE Juno during the first quarter, with first deliveries expected during its second quarter. It is the first contemporary clinical skills manikin that meets requirements for fundamental nurse training - the largest segment of the healthcare education market. CAE Juno complements Healthcare's broad range of high-fidelity simulation solutions and innovations and meets an important need for affordable and modular solutions for nursing. Also during the quarter, Healthcare's, Anesthesia SimSTAT, a screen-based simulation training platform, was approved by the American Board of Anesthesiology for Maintenance of Certification in Anesthesiology credits.
Additional financial highlights
Free cash flow(10) from continuing operations was negative $37.9 million for the quarter compared to positive $15.5 million in the first quarter last year. The decrease in free cash flow results mainly from a higher investment in non-cash working capital and a decrease in cash provided by continuing operating activities, partially offset by higher dividends received from equity accounted investees. 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 $14.6 million, representing an effective tax rate of 18%, compared to nil for the first quarter last year. The tax rate in the first quarter of last year was impacted by the recognition of a deferred tax item, before which, the tax rate would have been 14%. This item had an approximate $0.04 impact on first quarter EPS last year.
Growth and maintenance capital expenditures(11) totaled $49.1 million this quarter.
Net debt(12) at the end of the quarter was $804.3 million for a net debt-to-total capital ratio(13) of 27.5%. This compares to net debt of $750.7 million and a net debt-to-total capital ratio of 26.5% at the end of the preceding quarter.
Return on capital employed(14) was 10.7% compared to 11.5% last year.
CAE will pay a dividend of nine cents per share effective September 29, 2017 to shareholders of record at the close of business on September 15, 2017.
During the three months ended June 30, 2017, CAE repurchased and cancelled a total of 123,300 common shares under the Normal Course Issuer Bid (NCIB), at a weighted average price of $21.93 per common share, for a total consideration of $2.7 million.
Management outlook for fiscal 2018 unchanged
CAE expects continued good growth in fiscal year 2018. In Civil, the Company expects to generate low-double digit percentage segment operating income growth as it makes more progress to penetrate the training market with its innovative solutions and maintains its leadership position in FFS sales. In Defence, the Company expects mid to high single-digit percentage growth as it begins to ramp up recently won programs from a record backlog and continues to win its fair share of opportunities in a stronger defence market. CAE expects Healthcare to resume growth this year, with increased sales coming from its opportunities pipeline and the launch of new products, which it expects to put it on course for long-term, double-digit growth. The Company expects lower capital intensity in fiscal 2018, with total capital expenditures expected to be in the range of $150 million (vs. $222.9 million in fiscal 2017), commensurate with market-led opportunities for accretive investment returns. 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 2017 MD&A.
Impact of the standardization of certain types of simulators on revenue recognition
CAE's process improvement program results in the standardization of certain types of commercial aircraft simulators. For standardized simulators, percentage-of-completion (POC) accounting is no longer appropriate and thus the Company began recognizing revenue upon completion for such simulators in fiscal 2017. To the extent that this impacts the reported performance and to facilitate comparability over the execution cycle period, management has provided the impact of this change on Civil revenue (Civil revenue - adjusted(7)) and Civil segment operating income (Civil segment operating income - adjusted(8)). These are non-GAAP measures.
Readers are strongly advised to view a more detailed discussion of our results by segment in the Management's Discussion and Analysis (MD&A) and CAE's consolidated interim financial statements which are posted on our website at www.cae.com/investors.
CAE's consolidated interim financial statements and MD&A for the quarter ended June 30, 2017 have been filed with the Canadian Securities Administrators on SEDAR (www.sedar.com) and are available on our website (www.cae.com). They have also been filed with the U.S. Securities and Exchange Commission and are available on their website (www.sec.gov). Holders of CAE's securities may also request a hard copy of the Company's consolidated financial statements and MD&A free of charge by contacting the Investor Relations Department (email@example.com).
Conference call Q1 FY2018
CAE President and CEO, Marc Parent; Sonya Branco, Vice President, Finance, and CFO; and Andrew Arnovitz, Vice President, Strategy and Investor Relations will conduct an earnings conference call today at 1:30 p.m. ET. The call is intended for analysts, institutional investors and the media. Participants can listen to the conference by dialling + 1 877 586 3392 or +1 416 981 9024. The conference call will also be audio webcast live for the public at www.cae.com.
CAE is a global leader in training for the civil aviation, defence and security, and healthcare markets. Backed by a 70-year record of industry firsts, we continue to help define global training standards with our innovative virtual-to-live training solutions to make flying safer, maintain defence force readiness and enhance patient safety. We have the broadest global presence in the industry, with over 8,500 employees, 160 sites and training locations in over 35 countries. Each year, we train more than 120,000 civil and defence crewmembers and thousands of healthcare professionals worldwide.