CAE reports first quarter fiscal 2021 results

$50 million annual savings
Subsequent to the end of the first quarter, CAE announced that it would be taking additional measures to best serve the market by optimizing its global asset base and footprint, adapting its global workforce and adjusting its business to correspond with the expected lower level of demand for certain of its products and services. These measures also include the introduction and acceleration of new digitally enhanced processes.  

$100 million over the next 12 months, consisting mainly of real estate costs, asset relocations and other direct costs related to the optimization of our footprint and employee termination benefits.

$50 million annually starting in fiscal year 2022.

June 2020, all previously closed training locations had re-opened, however several locations remained operating at reduced capacities. In addition to the disruptions to Civil’s training centre network, Civil was also required to suspend the manufacture of simulator products at its main facility.

$248.0 million, down 48% compared to the same quarter last year. Segment operating loss was $97.9 million compared to a segment operating income of $98.6 million (20.6% of revenue) in the first quarter last year. First quarter segment operating loss before specific items was $16.2 million, down 116% compared to the first quarter last year. During the quarter, Civil delivered 2 full-flight simulators (FFSs)⁽⁷⁾ to customers and first quarter Civil training centre utilization⁽⁸⁾ was 33%. Utilization averaged 41% in June and has since continued to be approximately 40%.

https://www.airside.aero/).” data-reactid=”42″>During the quarter, Civil signed training solutions contracts valued at $193.5 million, including a contract for an Airbus A320 FFS for China Express, a four-year training agreement with Alitalia, a 5-year training agreement with Boeing to support Boeing’s ab initio Pilot Development Program, a five-year training agreement with WAMOS Air, a five-year training agreement with long term business aviation partner, SC Aviation and a two-year business aviation training agreement with Air Hamburg. We also introduced new virtual service offerings to support our customers as a response to border restrictions arising from the COVID 19 pandemic, including offering remote support for the installation, acceptance and qualification of FFSs, obtaining FAA and other Civil Aviation Authority approvals for virtual training in certain of our flight training organizations, and developing remote instructor operating station solutions for live instructor interactions during training sessions. Also, as a product of our digital innovation, we launched instructor-led online courses for aviation maintenance training and CAE Airside, a new digital platform that provides training and career resources to pilots grounded due to COVID-19. The platform features articles and tools that were created on the subjects that matter the most to thousands of pilots surveyed around the world during this pandemic (https://www.airside.aero/).

$4.5 billion.

$280.2 million, down 13% compared to the same quarter last year and segment operating loss was $9.2 million compared to a segment operating income of $15.1 million (4.7% of revenue) in the first quarter last year. First quarter segment operating income before specific items was $17.3 million (6.2% of revenue), up 15% compared to the first quarter last year.

$201.3 million, including contracts to provide the U.S. Air Force with upgrades and enhancements to both the KC-135 and C-130H aircrew training system programs and to continue providing a range of in-service support solutions for the Royal Canadian Air Force’s CF-18 aircraft. Other notable contracts include providing Airbus Defence and Space with support for the development of new and upgraded training capabilities for Germany’s Eurofighter program. Defence also received orders to continue providing maintenance and support services for the Royal Navy Merlin helicopter training systems.

$4.0 billion. The Defence pipeline remains strong with some $5 billion of bids and proposals pending customer decisions.

$22.3 million, down 19% compared to $27.5 million in the same quarter last year, and first quarter segment operating loss was $3.2 million, compared to a loss of $2.8 million in the first quarter last year.

Canada, and is currently under contract, to design, manufacture and supply 10,000 ventilators to help save lives of COVID-19 patients. The majority of CAE Air1 ventilator deliveries are expected in the second half of fiscal 2021.

$108.2 million during the first quarter of fiscal 2021 relating mainly to impairment charges on property, plant and equipment, intangible assets, and certain financial assets as a result of the continued negative impacts of the COVID-19 pandemic.

$36.9 million for the quarter, compared to $137.8 million in the first quarter last year. Free cash flow was negative $92.7 million for the quarter compared to negative $102.1 million in the first quarter last year. The increase in free cash flow was mainly due to a lower investment in non-cash working capital, lower dividends paid and lower maintenance capital expenditures. CAE expects to generate negative free cash flow in the first half of the fiscal year, resulting from the acute pandemic impacts on demand and operations, and a seasonally higher level of investment in non-cash working capital accounts. The Company expects positive free cash flow in the second half of the fiscal year.

$35.4 million, representing an effective tax rate of 24%, compared to 17% for the first quarter last year. The tax rate was higher due to the impact of impairment charges on non-financial assets incurred in relation to the COVID-19 pandemic, partially offset by the change in the mix of income from various jurisdictions. Excluding the effect of the impairments, the income tax rate would have been 20% this quarter.

$18.0 million this quarter.

$2,407.5 million for a net debt-to-capital ratio⁽¹²⁾ of 50.7%. This compares to net debt of $2,365.7 million and a net debt-to-capital ratio of 47.8% at the end of the preceding quarter.

$50 million of annual recurring cost savings starting in fiscal year 2022, from initiatives including the introduction and acceleration of new digitally enhanced processes and the optimization of CAE’s global asset base and footprint. At the same time, CAE is maintaining its investment and focus on technological innovation to reimagine the customer experience and broaden its aperture to revolutionize training and operational support solutions. As our core end markets recover, the “new normal” that emerges could present novel challenges for our customers. We believe certain trends will arise in greater force post-COVID-19, such as e-learning, remote work, the imperative on safety, and the digital transformation and virtualization of the physical world. CAE’s core capabilities align very well with these future needs and we will make use of the current period to further strengthen our technological expertise. We are leaning forward to capture more organic growth by leveraging our leading edge understanding of man-to-complex-machine interfaces, and we continue to assert our leadership in three attractive markets with long-term secular tailwinds, namely civil aviation, defence and security, and healthcare. We are seeing excellent customer receptivity to our recent new technology developments in the areas of machine learning-enabled data analytics, remote delivery and virtual reality/augmented reality and we will be driving forward to excel on these fronts, now more than ever.

$50 million for the first six months of fiscal year 2021. CAE’s training operations are inherently highly cash generative and can continue to be cash flow positive, even at low levels of utilization. However, the combination of sharply lower demand and the COVID-19-related disruptions to CAE’s operations are expected to result in negative free cash flow for the Company in the first half of the fiscal year. Looking beyond, CAE expects to generate positive free cash flow in the second half of the year.

Dan Gelston will become CAE’s Group President, Defence and Security, transitioning from Heidi Wood, CAE’s Executive Vice President, Business Development & Growth Initiatives, the business unit’s current interim leader. Dan brings a wealth of experience as a proven leader with more than 20 years of experience in the U.S. military, intelligence community and the global defence industry. He will be assuming his new role with CAE based in Washington, D.C., effective August 24, 2020. In the current fiscal year, COVID-19-related issues are slowing Defence’s progress toward program milestones on work in backlog, including for some of its more complex contracts. The pandemic has also led to delays in contract awards globally, and the structural effects of low oil prices has further impacted the rate of expected contract awards in the Middle East. More recently, the surge of new COVID-19 cases in the U.S. has impacted our ability to deliver training services from certain of our facilities. Although Defence continues to be hampered in fiscal year 2021 in the current environment, the long-term outlook for Defence continues to be for growth, supported by a large addressable market for its innovative solutions and the realization of the benefits of its new leadership and strengthened organization.

Management’s expectations are based on the prevailing market conditions, the timing and degree of easing of global COVID-19-related mobility restrictions, and customer receptivity to CAE’s training and operational support solutions as well as material assumptions contained in this press release, quarterly MD&A and in CAE’s fiscal year 2020 MD&A.

June 26, 2020. In addition to full coverage of CAE’s societal impact as part of the COVID-19 pandemic, the report highlights CAE’s environmental leadership. With the rise in importance of climate change as a systemic global issue, CAE has taken action and announced in FY20 that it would become carbon neutral by the end of Summer 2020. This goal will be achieved by purchasing Renewable Energy Certificates and Carbon Offset Certificates for the fuel used for all the live training flights of CAE’s academies, for energy consumption in each location worldwide and for business air travel of all employees. CAE’s long-term strategy to achieve carbon neutrality is to reduce the carbon emissions at the source and projects have been identified and are currently in an exploration phase. CAE has also created a Climate Change Committee to evaluate and integrate risks and opportunities into its business strategy. In order to enhance its disclosure transparency, CAE has reported on Task Force on Climate-related Financial Disclosures (TCFD) recommendations for the first time.

FY20 Annual Activity and Corporate Social Responsibility Report.” data-reactid=”72″>To learn more about CAE’s corporate sustainability roadmap and achievements, refer to CAE’s FY20 Annual Activity and Corporate Social Responsibility Report.

www.cae.com/investors.” data-reactid=”73″>Detailed information
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 financial statements which are posted on our website at www.cae.com/investors.

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 printed copy of the Company’s consolidated financial statements and MD&A free of charge by contacting Investor Relations ([email protected]).” data-reactid=”74″>CAE’s consolidated financial statements and MD&A for the quarter ended June 30, 2020 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 printed copy of the Company’s consolidated financial statements and MD&A free of charge by contacting Investor Relations ([email protected]).

www.cae.com.” data-reactid=”75″>Conference call Q1 FY2021
Marc Parent, CAE President and CEO; 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 high technology company, at the leading edge of digital immersion, providing solutions to make the world a safer place. Backed by a record of more than 70 years of industry firsts, we continue to reimagine the customer experience and revolutionize training and operational support solutions in civil aviation, defence and security, and healthcare. We are the partner of choice to customers worldwide who operate in complex, high-stakes and largely regulated environments, where successful outcomes are critical. Testament to our customers’ ongoing needs for our solutions, over 60 percent of CAE’s revenue is recurring in nature. We have the broadest global presence in our industry, with approximately 10,000 employees, 160 sites and training locations in over 35 countries.

August 12, 2020 and, accordingly, are subject to change after such date. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The forward-looking information and statements contained in this press release are expressly qualified by this cautionary statement. Except as otherwise indicated by CAE, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may occur after August 12, 2020. The financial impact of these transactions and special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business. Forward-looking statements are presented in this press release for the purpose of assisting investors and others in understanding certain key elements of our expected fiscal 2021 financial results and in obtaining a better understanding of our anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

March 31, 2020. Given the impact of the changing circumstances surrounding the COVID-19 pandemic and the related response from CAE, governments, regulatory authorities, businesses and customers, there is inherently more uncertainty associated with CAE’s assumptions. Accordingly, the assumptions outlined in this press release and, consequently, the forward-looking statements based on such assumptions, may turn out to be inaccurate.

www.sedar.com) and with the U.S. Securities and Exchange Commission (available at www.sec.gov). The fiscal year 2020 MD&A is also available at www.cae.com. Any one or more of the factors set out in CAE’s MD&A may be exacerbated by the growing COVID-19 outbreak and may have a significantly more severe impact on CAE’s business, results of operations and financial condition than in the absence of such outbreak. Accordingly, readers are cautioned that any of the disclosed risks could have a material adverse effect on our forward-looking statements. We caution that the disclosed list of risk factors is not exhaustive and other factors could also adversely affect our results.” data-reactid=”82″>Material risks
Important risk factors that could cause actual results or events to differ materially from those expressed in or implied by our forward-looking statements are set out in CAE’s MD&A for the year ended March 31, 2020 filed by CAE with the Canadian Securities Administrators (available at www.sedar.com) and with the U.S. Securities and Exchange Commission (available at www.sec.gov). The fiscal year 2020 MD&A is also available at www.cae.com. Any one or more of the factors set out in CAE’s MD&A may be exacerbated by the growing COVID-19 outbreak and may have a significantly more severe impact on CAE’s business, results of operations and financial condition than in the absence of such outbreak. Accordingly, readers are cautioned that any of the disclosed risks could have a material adverse effect on our forward-looking statements. We caution that the disclosed list of risk factors is not exhaustive and other factors could also adversely affect our results.

Order intake is a non-GAAP measure that represents the expected value of orders we have received:

• |For the Civil Aviation Training Solutions segment, we consider an item part of our order intake when we have a legally binding commercial agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract. Additionally, expected future revenues from customers under short-term and long-term training contracts are included when these customers commit to pay us training fees, or when we reasonably expect the revenue to be generated;
• |For the Defence and Security segment, we consider an item part of our order intake when we have a legally binding commercial agreement with a client that includes enough detail about each party’s obligations to form the basis for a contract. Defence and Security contracts are usually executed over a long-term period but some of them must be renewed each year. For this segment, we only include a contract item in order intake when the customer has authorized the contract item and has received funding for it;
• For the Healthcare segment, order intake is typically converted into revenue within one year, therefore we assume that order intake is equal to revenue.

The book-to-sales ratio is the total orders divided by total revenue in a given period.

Total backlog is a non-GAAP measure that represents expected future revenues and includes obligated backlog, joint venture backlog and unfunded backlog and options:

• Obligated backlog represents the value of our order intake not yet executed and is calculated by adding the order intake of the current period to the balance of the obligated backlog at the end of the previous fiscal year, subtracting the revenue recognized in the current period and adding or subtracting backlog adjustments. If the amount of an order already recognized in a previous fiscal year is modified, the backlog is revised through adjustments;
• Joint venture backlog is obligated backlog that represents the expected value of our share of orders that our joint ventures have received but have not yet executed. Joint venture backlog is determined on the same basis as obligated backlog described above;
• Unfunded backlog represents firm Defence and Security orders we have received but have not yet executed and for which funding authorization has not yet been obtained. Options are included in backlog when there is a high probability of being exercised, but indefinite-delivery/indefinite-quantity (ID/IQ) contracts are excluded. When an option is exercised, it is considered order intake in that period and it is removed from unfunded backlog and options.

www.cae.com) and on SEDAR (www.sedar.com).” data-reactid=”108″>For non-GAAP and other financial measures monitored by CAE, please refer to CAE’s MD&A filed with the Canadian Securities Administrators available on our website (www.cae.com) and on SEDAR (www.sedar.com).

Consolidated Statement of Comprehensive (Loss) Income
(Unaudited) Three months ended June 30 (amounts in millions of Canadian dollars)		2020		2019
Net (loss) income	$	(110.0)	$	63.0
Items that may be reclassified to net (loss) income
Foreign currency exchange differences on translation of foreign operations	$	(105.9)	$	(69.3)
Reclassification to income of foreign currency exchange differences		(5.8)		(1.9)
Net gain on cash flow hedges		30.3		12.5
Reclassification to income of losses on cash flow hedges		(5.0)		(0.7)
Net gain on hedges of net investment in foreign operations		47.1		22.5
Income taxes		(7.4)		(0.8)
	$	(46.7)	$	(37.7)
Items that will never be reclassified to net (loss) income
Remeasurement of defined benefit pension plan obligations	$	(123.0)	$	(43.6)
Net loss on financial assets carried at fair value through OCI		(0.1)		(0.1)
Income taxes		32.3		11.5
	$	(90.8)	$	(32.2)
Other comprehensive loss	$	(137.5)	$	(69.9)
Total comprehensive loss	$	(247.5)	$	(6.9)
Attributable to:
Equity holders of the Company	$	(245.7)	$	(7.1)
Non-controlling interests		(1.8)		0.2
Consolidated Statement of Financial Position
(Unaudited)		June 30		March 31
(amounts in millions of Canadian dollars)		2020		2020
Assets
Cash and cash equivalents	$	363.3	$	946.5
Accounts receivable		517.5		566.1
Contract assets		536.3		569.3
Inventories		670.7		616.2
Prepayments		59.2		55.1
Income taxes recoverable		32.1		30.4
Derivative financial assets		25.0		25.0
Total current assets	$	2,204.1	$	2,808.6
Property, plant and equipment		2,007.8		2,154.0
Right-of-use assets		370.3		395.9
Intangible assets		1,974.9		2,056.5
Investment in equity accounted investees		428.0		460.6
Deferred tax assets		105.6		84.5
Derivative financial assets		11.6		13.1
Other non-current assets		507.2		510.4
Total assets	$	7,609.5	$	8,483.6
Liabilities and equity
Accounts payable and accrued liabilities	$	825.5	$	934.4
Provisions		27.8		29.2
Income taxes payable		25.1		26.4
Contract liabilities		740.5		746.2
Current portion of long-term debt		219.0		206.2
Derivative financial liabilities		52.3		119.9
Total current liabilities	$	1,890.2	$	2,062.3
Provisions		28.1		28.6
Long-term debt		2,551.8		3,106.0
Royalty obligations		134.9		141.1
Employee benefits obligations		340.1		212.8
Deferred tax liabilities		104.9		150.6
Derivative financial liabilities		7.9		12.8
Other non-current liabilities		212.3		191.1
Total liabilities	$	5,270.2	$	5,905.3
Equity
Share capital	$	682.0	$	679.5
Contributed surplus		32.9		26.9
Accumulated other comprehensive income		148.8		193.2
Retained earnings		1,388.8		1,590.1
Equity attributable to equity holders of the Company	$	2,252.5	$	2,489.7
Non-controlling interests		86.8		88.6
Total equity	$	2,339.3	$	2,578.3
Total liabilities and equity	$	7,609.5	$	8,483.6