CAE Inc. Q2 Fiscal 2009 Financial Summary
Business Context and Reporting Period
CAE Inc. (NYSE: CGT; TSX: CAE) reported financial results for the second quarter of fiscal year 2009, ended September 30, 2008. The company is a global leader in simulation and modeling technologies for civil aviation and defense. All financial figures are presented in Canadian dollars unless otherwise noted.
Key Financial Metrics
| Metric | Q2 2009 | Q2 2008 | Change |
|---|---|---|---|
| Revenue | $406.7 million | $353.9 million | +15% |
| EBIT | $75.5 million | $62.1 million | +22% |
| EBIT Margin | 18.6% | 17.5% | +110 bps |
| Earnings from Continuing Ops | $48.9 million | $39.0 million | +25% |
| Net Earnings | $48.7 million | $38.9 million | +25% |
| Diluted EPS | $0.19 | $0.15 | +27% |
| Free Cash Flow | $43.2 million | $35.3 million | +$7.9 million |
| Net Debt | $256.5 million | N/A | Up $2.0M QoQ |
| Backlog | $2,741.8 million | $2,513.3 million | +9% |
Material Changes and Segment Performance
Consolidated revenue increased 15% year-over-year, driven by growth across all segments. Earnings from continuing operations rose 25% to $48.9 million. The effective tax rate was 30%.
- Training & Services/Civil (TS/C): Revenue grew 20% to $108.0 million, aided by new RSEUs and acquisitions (Sabena Flight Academy, Flightscape). Operating income increased 31% to $19.1 million.
- Simulation Products/Civil (SP/C): Revenue rose 2% to $114.3 million. Operating income declined 11% to $23.4 million due to less beneficial hedging rates and reduced government cost-sharing benefits compared to the prior year.
- Military Segments: Combined revenue reached $184.4 million with a 17.9% operating margin.
- Simulation Products/Military (SP/M): Revenue surged 30% to $126.0 million, driven by NH90 and C-130 programs. Operating income jumped 61% to $21.6 million.
- Training & Services/Military (TS/M): Revenue increased 7% to $58.4 million. Operating income rose 44% to $11.4 million.
Backlog increased to $2.742 billion, supported by $389.8 million in new orders, partially offset by revenue recognition and foreign exchange fluctuations.
Outlook, Management Commentary, and Risks
CEO Robert E. Brown highlighted the company's conservative capital structure and geographic diversification as key strengths in the current economic environment. Marc Parent was appointed Executive Vice President and COO to drive synergies across business segments.
- Guidance: The company expects the effective income tax rate for fiscal 2009 to remain approximately 30%. For the Simulation Products/Civil segment, management forecasts approximately 34 full-flight simulator (FFS) orders for the full year, subject to update.
- Cash Flow: Free cash flow improved due to lower maintenance capital expenditures, though net cash from operations decreased due to higher investment in working capital and increased dividends.
- Dividends: A quarterly dividend of $0.03 per share is declared, payable December 31, 2008.
- Risks: Forward-looking statements are subject to risks including economic conditions, foreign exchange fluctuations, and changes in defense spending. The filing notes that results may differ materially from predictions.
Investor Verification Checklist
- Verify the impact of foreign exchange fluctuations on the $89.2 million backlog reduction and overall earnings.
- Confirm the sustainability of the 30% revenue growth in the Military Simulation Products segment given the specific contract mix (NH90, C-130).
- Monitor the "less beneficial hedging rates" cited as a drag on Civil Simulation Products margins.
- Review the increase in non-cash working capital investment that reduced net cash provided by operating activities.
- Assess the integration progress of Sabena Flight Academy and Flightscape in the Civil Training segment.