CAE Inc (CAE) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the CAE fourth quarter conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz. You may now proceed, Mr. Arnovitz.

Thank you and good afternoon, everyone. Thanks for joining us today. Before we begin, I need to read the following. Certain statements made during this conference including but not limited to statements that are not historical facts are forward-looking and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring or other special items or events that are announced or completed after the day of this conference including mergers, acquisitions or other business combinations and divestitures.

You will find more information about the risks and uncertainties associated with our business in the MD&A section of our annual report and annual information form for the year-ended March 31, 2007. These documents have been filed with the Canadian Securities Commission and are available on our website at CAE.com and on SEDAR. They have also been filed with the U.S. Securities and Exchange Commission under Form 40-F or are available on EDGAR. Forward-looking statements on this conference represent our expectations as of May 14, 2008, and are subject to change after this date. We do not anticipate or revise forward look information even if new information becomes available unless legislation requires us to do so. You should not place undue reliance on forward-looking statements.

Robert E. Brown, CAE's President and Chief Executive Officer; and Alain Raquepas, our Chief Financial Officer are participating in the call today. Following their remarks we will invite questions from financial analysts and institutional investors. Once we have concluded the question and answer period with analysts and institutional investors we will then invite questions from the media. For your convenience this conference call will be archived on CAE's website. Let ne now turn the call over to Bob.

Thank you Andrew, and thank you everyone for joining us today. I will begin with some remarks about our performance last year and then Alain will take you through our quarterly and annual results more specifically. Following that I will conclude with our outlook for the period ahead. In summary, we had a very good year. All segments of our business contributed to an overall strong performance. We experienced steady growth in revenue, earnings, and new order bookings in both the Military and Civil sectors. We continue to strengthen our financial position and we maintained a healthy level of diversification. Revenue increased 14% over the prior year to $1.4 billion. Approximately 60% of that was generated outside North America and revenues from high growth areas like Asia, the Middle East, and South America have grown by 25% year-over-year.

Annual earnings from continuing operations grew by 28% to reach $165 million which was matched by strong free cash flow of $173 million. Total order intake for the year was $1.7 billion which is up 14%. We previously announced in our year-end summary that our military segments concluded the year with more than $730 million in new orders. In fact, we booked $746 million in new military orders which is 25% more than the prior year. This gives us a solid base for the period ahead.

In Training and Services Civil, we were rewarded more than $450 million in new training contracts including new long term agreements with OEMs like Bombardier, Embraer, and SO. We also entered long term contracts to provide management and operation services to major airlines including Air Canada and Air Asia. The latter involves CAE taking responsibility for all of the airlines pilot training activity. We expanded our global training network to an average of 108 RSEU's up from 99 the prior year. Average revenue per simulator was $3.5 million.

In simulation product civil we announced orders for 37 full flight simulators from customers around the world. Since the start of the new fiscal year, we have announced another five simulator orders all from customers outside North America. In the combined military segments, our backlog reached $1.6 billion last year. We continue to demonstrate technology leadership and our ability to execute successfully on complex programs. We recently announced a contract to design a prototype simulator for the new P88 Poseidon. The maritime patrol and anti-submarine aircraft is being developed for the U.S. Navy and should find success with other militaries over the next decade. This follows our extensive know how on the P3C maritime patrol aircraft for which we were most recently awarded a contract by Korea Aerospace Industries to assist the Korean Navy. We announced another prototype order for Alenia Air Macky's new M346 fighter trainer aircraft. This contract adds to our portfolio of fast jet experience.

The Government of Canada qualified a CAE led team as the only team compliant for the C130J and CH47 air-crew training capability. That is expected to soon be required by Canada. We look forward to developing an industry leading solution with our partners.

We won a series of orders from various branches of the U.S. Military. Notably, from the U.S. Navy, which accounted for over 10% of our total military bookings this year. Other significant program wins involve training solutions for Australia on the NH90 as well as the Netherlands, Singapore, France, Germany, and the UK. With that I will ask Alain to take you through our financial results.

Thank you, Bob, and good afternoon, everyone. In the fourth quarter, consolidated revenue was $367 million, up 9% from last year. Consolidated revenue was $1.4 billion for the year, up 14% from last year. If the Canadian dollar had remained the same over the course of the year, revenue would have been 47 million higher. Earnings from continuing operations were $47 million or $0.19 per share in the fourth quarter, up 34% from last year which was $0.14 per share. For the year, earnings from continuing operations were $165 million or $0.65 per share up 28% from last year which was $0.51 per share. Net earnings were $35.6 million in the fourth quarter compared to $34.3 million in the same quarter last year. For the year, net earnings were $153 million compared to $127 million in the year before.

In Training and Services Civil, our average annualized revenue per simulator in the quarter was $3.8 million on the base of 110 revenue per equivalent unit. Our fourth quarter is usually the strongest for training demand. For the year, we generated $3.5 million of revenue per RSEU. Despite the strong Canadian dollar, revenue increased in the fourth quarter by 14% year-over-year because of higher utilization and the addition of nine more RSEU's. For the year, revenue increased by 13%. This quarter, Training and Services Civil operating income was $23.8 million providing an EBIT margin of 22.8% compared to $15.5 million or 16.7% margin in the last quarter and $21.3 million or 23.2% in the same period last year. The significant increase over the last quarter is mainly due to strong demand in our established training centers.

For the year, segment operating income was $73.5 million compared to $64.3 million the prior year. The higher volume would have translated into higher EBIT margin if not for the cost associated with the expansion of our network and the ramp up of new training programs. We expect this to improve as these new assets ramp up to their intended level.

In Simulation Products Civil, fourth quarter revenue increased by 9% year-over-year on higher order volume partly offset by a stronger Canadian dollar. Revenue was $435 million for the year which is 25% or $87 million higher than last year. Higher order volume throughout the year and the recognition of sales on some advanced build contributed to our performance. Our growth in same products Civil segment has essentially been commensurate with the growth in aircraft deliveries. Given the current aircraft backlog and the OEM stated production rate, we expect the future level of aircraft deliveries, to be sustained at about the current rate foy a number of years.

Fourth quarter segment operating income was up by 56% year-over-year on higher volume, better program execution and lower costs. For the year, segment operating income was $94.9 million which is 57% or [$34.5] million higher than last year. Same product Civil operating margin was 21.8% compared to 17.4% last year reflecting our positive sustained cost performance as well as a strong demand in volume. In our combined Military segments, revenue for the quarter was $156 million and our operating margin was 14%. For the year, revenue was $606 million and our operating margin was 13.7%.

The Military business was impacted this quarter by a customer contract change order resulting from a technology refresh clause. As part of the change order negotiation, the contract currency was aligned with the customer own currency. The resulting gain from this change order was partially offset by charges incurred on our cost reduction initiative in the reorganizing our Military operations. Overall these two events resulted in a net $3 million gain for the Military business. Although results from discontinued operation have no bearing on the current or future operational performance I would like to explain the loss of $11.4 million that we booked in the quarter. The majority of this amount comes from the write-off of the balance receivable of $8.5 million related to the sale in fiscal 2003 of assets from the saw mill division of our discontinued forestry unit. The buyer recently filed for bankruptcy and since recovery of this sum is now more uncertain, we wrote it off. The balance of the loss from discontinued operations this quarter comes from our divestiture of a non-core telecommunication business in Germany.

Capital expenditure totaled $48 million for the quarter and $190 million for the year. We expect to maintain about the same rate of CapEx in the new fiscal year, mainly in support of our growing training center network. We expect growth CapEx to account for about 75% of total CapEx. We generated $173 million of free cash flow as of the end of the year. We normally see fluctuation in the level of our working capital account which stands reverse somewhat at the start of each New Year. Notwithstanding, we believe our strong positive cash flow is a testament to the quality of our earnings.

Income taxes for the year were $69 million representing an effective tax rate of 30% compared to 28% for the same period last year. The rate was lower last year mainly because of a reduction in the valuation allowance in the UK. We expect the effective income tax rate for fiscal 2009 to be about 30%. Our consolidated backlog increased from 2.8 billion to $2.9 billion and our book to sale ratio reached 1.2 times sales for the quarter and 1.2 times sales for the trailing 12 month period. Thanks for your attention. I will now turn it back to you, Bob.

Thanks, Alain. We place a high degree of importance on maintaining our balanced business. We also recognize the value of balance in terms of delivering shareholder value. As you read in our release this morning, we are pleased to announce that CAE's Board of Directors has approved a threefold increase in our quarterly dividend. We are generating consistent growth in earnings and free cash flow and we are confident about our ability to face the future. We have the flexibility to pursue our growth initiatives and at the same time, consider additional ways to enhance shareholder value. Despite the current economic uncertainty and financial market volatility, the fundamentals of the aerospace and defense sector on balance remain positive, specifically in the areas involving CAE. Soaring oil prices, tighter credit markets and the economic gyrations are factors we consider carefully, but we believe the fundamental long term trend continues to support growth in air travel globally.

We have a number of initiatives under way to grow our base of business, particularly in the training and services area, and we are continuing to focus on reducing costs, developing new products, and maintaining our strong financial position. CAE's people are situated around the world and we are committed to sustaining our competitive position. Just this week, we reached a deal to renew the collective agreement of our Montreal Unionized employees for five years. We realized more than three years ago that to be the master of our own destiny, we needed to have a culture of continuous improvement and cost reduction. We restored profitability over a three year period that saw a precipitous rise in the Canadian dollar from $0.80 to par. Foreign exchange hedgings has given us additional time to adjust and we are continuously in pursuit of new efficiencies to help stay ahead of the stronger dollar.

In terms of the year ahead, we expect to see a continued high level of activity in all segments of our business. On the Civil side, we are coming off two back to back years of record aircraft orders. While few expect this pace to continue this year, Boeing and Airbus together have already announced nearly 740 aircraft orders in the first quarter which by any historical measure would already be a very good year. Backlogs for both commercial and business aircraft extend well past the end of the decade and we expect this to result in sustained high rates of aircraft deliveries, for the foreseeable future.

As Alain mentioned, demand for our commercial full flight simulators depends mostly on the volume and timing of aircraft deliveries. We will continue to maintain our discipline of ongoing after profitable business. We currently expect to receive approximately 34 orders for the year as a whole and as usual, we intend to update this estimate as the year progresses. In the past, CAE's fortunes have depended mainly on the ups and downs of the commercial simulator market. As of the year just ended, this segment accounted for only 30% of our business. Barring a major global economic downturn, we expect simulation product Civil to continue enjoying the benefits of an extended Aerospace cycle. The segments top line growth is limited by the number of aircraft to be delivered over a period of time. This is the main reason for broadening CAE's capabilities into the rapidly growing and much larger training and services segments. In recent years, we have also deliberately balanced our r interest between Civil and Military markets. And we have diversified our exposure geographically to capitalize on emerging markets and lessen our dependence on the mature legacy markets.

In Civil Training and Services, we had an average of 108 RSEU's last year and we expect this number to grow by slightly more than 10% in the new fiscal year and slightly more than that thereafter. As well, we should begin to see some of the more recently deployed simulators and new facilities begin to ramp up to their intended levels. We have begun the construction of our first training center in India and work is under way to expand a number of our other facilities. 43% of our revenue came from our Military business last year. Military provides a level of diversification that makes our earnings more defensive than is probably recognized. Given the long term gestation period for most Military programs, our performance trends are more easily identified over spans of four quarters or more. Going forward, we expect Military to become a more important contributor to our overall growth. We have made considerable progress in terms of positioning CAE on key programs and winning training solution contracts in major global markets. New Military order bookings of $746 million in 2008 compared to $596 million in 2007, most of this increase has come from Simulation Products Military orders which generally run about 24 to 30 months.

Over the past couple of years, orders in this segment have increased at an annual rate of more than 20%. We expect this rate of order activity to translate into higher revenue growth for our Military business overall. We have improved profitability in this area as well and we expect to sustain our annual EBIT margin at approximately 12 to 13%.

To sum up, we had another year of good performance and our employees worldwide should feel proud about their contribution. We believe that we are operating from a position of strength. Our solid financial condition gives us the flexibility to react quickly to changes in opportunities in the market. Our people share an entrepreneurial spirit and they are committed to taking CAE to the next level. Thank you for your attention and we're now ready to take questions.

Operator, we would now be pleased to take questions from Analysts and Institutional Investors. Following that, we'll take questions from the media.

Thank you. (OPERATOR INSTRUCTIONS) The first question is from Nick Morton from RBC Capital Markets.

Good afternoon. Bob, you mentioned the idea of creating shareholder value in additional ways. I wondered if you could expand on that?

Well, I think Nick, what we've been trying to do in the past, I think our plan very clearly is to continue in the standard ways that we have as it relates to investing specifically in the training services business, the simulators that we're adding into that business and I think as well that we plan on continuing to go forward with the bolt-on acquisition strategy that we've had in the past. I feel confident that we're going to be able to continue doing that again this year and we talked as well about the dividend that essentially we have restored to our pre-restructuring period of time and so I think the only idea or thought that we wanted to leave here is that we're going to continue on all of these things and we thought that the dividend was a good way to signal very clearly the financial health of the Company and as well our intention to find, to return to a more traditional way of also returning some value to the shareholder. It was nothing more than that.

Okay and what about the idea of using your knowledge to get into different areas to diversify your product line?

I think that we are being very disciplined and consider ourselves as really the only pure play in the market of modeling and simulation in both Civil and Defense. We don't intend to stray very far from that but we have been using some of our technology as it relates to going into the medical area and we've seen small gains there but again, I think I would emphasize that we really want to stay close to what we know and we think that there are many growth initiatives around the world that we can pursue that will allow us to grow our top line and virtually all of our businesses and it will also help us on the bottom line.

Thank you. Alain, just on the Project Phoenix, could you update us on what you expect in the next couple of years in the way of a contribution from that?

Yes. There's good disclosure, Nick, in the financial statement but essentially, the run rate quite similar to the one we got this year and last year, the program will still benefit for two, three, almost three years of funding. It was a six year program, so the same as this year in fact.

Is there a way of looking at it on an earnings per share contribution basis for fiscal '08?

I don't really think so, Nick. I think the thing here I think in the disclosure as you go back, CAE has had these programs for quite a period of time in the past that have gone through dip and other things of that kind and we've had repayment programs that we have been participating with in the government and there's a new program called the Sadie program that's there which if you look at the terms and conditions of the program that we currently have are almost exactly the same, so I think it's something that will continue, and no reason why it shouldn't continue into the future as it does for Pratt & Whitney, Bell and others, but I think that's basically all we can say.

That's great. Well, thank you very much. Great year.

Thank you.

Thank you. Your next question is from Cameron Doerksen from Versant Partners.

Good afternoon. I don't know if you mentioned this or not but the utilization rate in the training network in Q4?

I think it was about just over 80%, Cameron.

Okay. Just secondly, just wonder if you could maybe talk a bit about the training business on the split between I guess business aviation training and I guess airline related training? Do you have sort of a rough order of magnitude what the revenue split was for 2008 and what is your sort of target going forward with the investments that you're making in the network?

Andrew, do you have the split on revenue for 2008? What I can tell you is that a lot of our investments going forward are going to be focused on the business aircraft side as opposed to because we think that there's some catch up for us to do plus there's been a lot of aircraft relaunch so that's really answering the second part of your question, but on a historical basis, Andrew?

Yes, I mean, the contribution in Business Aviation training tends to be higher on a per simulator basis because it is web training, but on a consolidated basis, Cameron, we'll come back to you with that split. It's roughly equal and commercial is a bit larger but we'll come back to you with that.

Okay, that would be great. And then just third, quickly, have you seen any impact from the delays in the 787 program either with potential deliveries, with customers you already have or with potential orders from other 787 customers?

It really doesn't impact us that much. We tend to have contracts with people that as we complete the work we are paid for it and if you look at our order intake going forward, I think we have been pretty conservative in terms of what we include. I think it pretty well matches the delays that are out there and most of the airplanes that are being ordered are not right now in any event are the A320s, the 737, the more traditional aircraft.

Great. Thanks very much.

You're welcome.

Thank you. The next question is from David Tyerman from Scotia Capital.

Good afternoon. My first question is on the margins. The margins in the Civil simulator business and also the Training Civil were very high in the quarter, even if you back out the small unusual on the training side. Is there anything unusual in the quarter that you would not expect that to continue with the usual seasonality obviously on the Civil side? Or on the training side?

I think on the Civil SIM products business, we've always said that be careful in that, there are various things that can be in the margins and that we're trending more towards the 20% and it's a seasonal, that that's on the SIM products business. If you look then at the training business, it varies on a seasonal basis because in the summer they don't want to train as much. They want people are flying the aircraft much more so you see different things happening there but I think the margin performance that came from that is, you know, we're signing small incremental gain there and that's our goal going forward.

Okay, so just going back to the simulation side, simulator side, I think this is the third quarter in a row where you're miles above the 20% level. Are you just on a winning streak here or are you being incredibly conservative with the 20% number?

The way I would put it is that we're being prudent as we go forward and each quarter is different depending on the mix of simulators that we're going to have in there and I think that's basically where we are.

Okay and then my other question is on the $3 million Military net gain kind of unusual items. Could you give me the split between the two segments of that split?

You mean between the mid two Military slides?

Yes, please.

The 3 million net, I mean the gain was the same product Military and there was a little bit of paying and training services Military.

Right. I'm just trying to get an idea if I could calculate the margin excluding that?

The only thing I could say is the gain, the majority of the gain was in the same product.

I think that we would encourage you again to look at the Military market as -- Military margin as a single number and I think we have obtained a pretty good margin overall in that business and I think with what I've said today, we feel that we're going to be able to sustain that going forward which is different than what we sort of have been saying in the past.

So just to clarify that, the 12 to 13% annual EBIT that you mentioned, Bob, is that for all Military or Simulation Products Military?

That's all Military.

All Military.

Yes.

Okay, thank you.

Thank you. The next question is from Marko Pencak from GMP Securities.

Thank you. What's your cycle time on your series 5,000 simulators?

We really haven't revealed that, Marko, because it's a competitive tool we have, but it's very good.

Okay. Pardon me?

Shorter than the 7,000.

Yes, well I figured that, but okay.

It's quite good, anyway, please, next question.

Pricing. I ask you this often. Any movement in pricing at all up or down by various different businesses?

I would say Civil, pretty stable. I would say on the regionally depending on the region on the business aircraft side, you may see a slight increase but otherwise stable.

Okay. I think I'm good. Thank you.

Thank you.

Thank you. The next question is from Ihor Danyliuk from Merrill Lynch. Please go ahead.

Thank you, hi, Bob. With regards to the RSEU's, you increased from 99 to 108 going from '07 to 08. That kind of increase sort of nine units, is that, do you expect that to increase to continue in '09 and '10?

Yes.

So that's a reasonable estimate going forward?

Yes. I think if you look in my remarks you'll see that we expect that to increase again for '09 and '010 and that maybe slightly higher after that.

Okay. Thank you.

Thank you. The next question is from Tim James from TD Newcrest. Please go ahead.

Thank you. Can you provide us a bit of an update on what you're seeing in the market as far as the acceptance of MPL goes, in particular in Asia and Europe?

I think that it's coming along, I would say, incrementally gradually but we really don't see any big increases taking place there.

Following on that, in terms of the market in Asia and the pilot training market you've been very active building your presence there.

Yes.

What are you seeing on the competitive landscape? I know there's a number of players in the market that are targeting that as well. Is there anything in particular that sort of built into your strategy to deal with the growing presence of others in the market?

We don't see a lot of direct competition to ourselves. There are some others that are involved but we still see the airlines as being the major source of where a lot of the training is taking place. We're still seeing some people I think moving from the Military and I think, yes, I really couldn't say much more than that. I think that anybody that's building up right now, we aren't seeing any pushback. You basically can absorb or take in whatever and the system will basically handle it but so far there hasn't been any real indication that we're limited in the space that we have.

Okay, thanks very much.

You're welcome.

Thank you. The next question is from Chris Murray from CIBC World Markets. Please go ahead.

You there, Chris?

Yes. Sorry, can you hear me?

Yes, I can, yes.

Okay, thanks. Was wondering if you could give me some thoughts on the dividend increase and sort of the process internally in terms of the either the rate of increase or when you're going to do it? Maybe looking forward.

Okay. The process for doing it was a review of our financial position, the strength of the balance sheet. Our capability to be able to fund bolt on acquisitions going forward to support our CapEx program and that we felt that we had reached a turning point in terms of the Company and we felt that it was the appropriate time to put the dividend increase in place and I think we announced in the results that we have that we've put out that this dividend increase, I'm just looking for it here, so I think if you find in the press release, it will be increase of $0.03 per share on June 30, 2008, to shareholders of record at the close of business on June the 13th, 2008.

Okay. Now, I guess what I'm trying to get at is are you trying to target some particular pay out ratio to earnings or is this just something that you will review based on every years financial plans?

We're reviewing this basically annually as we look at, as we do our planning going forward.

The other question I have for you is back to the training services side. Looking at the deployed full fledged versus the RESU's is there anything that you can do to speed up upbringing basically the simulators into service quicker? You've got about 15% more deployed than actually operating kind of just doing a quick ratio. Was there anything you think you can do to speed that up or was there any flexibility you may have with that?

I think we want to be very careful in doing this, executing against our plan is extremely important. I think we built up a lot of credibility doing it and I think the plan that we've got right now to get them in the field, get them deployed is appropriate, maybe over time as we do more of these, we'll be able to come down the learning curve a little bit but I think for where we are right now, we're achieving a satisfactory result.

Okay, thank you very much.

You're welcome.

Thank you. The next question is from Ben Cherniavsky from Raymond James. Please go ahead.

Hi, guys, good year.

Thank you.

You mentioned, Bob, that you have negotiated contracts with Montreal Labor.

Yes.

Can you talk a little bit about what the terms were there, if there's anything material?

Yes, there's really nothing material. It's a five year agreement which I think is very good and it's a one-time payment that goes to them I think of, up front of $1,000. We had I think an approval rating just in excess of 70% which I think is very good and I think the increases are basically on an annualized basis are in line with the industry this year and, I would say the most, the best thing to come out of all of this is I think this is a vote of confidence in the Company and that everybody is working as hard as they can together in a very collaborative fashion to make sure that we come up with a system and a process and products to win and it's part of the change in culture that we've been trying to bring along for the last three and a half years of making sure that we control our own destiny and everybody who was a stake holder is very actively getting involved so I'm very pleased with the results for the employees and I'm very pleased with the result for the Company.

And what was during that process your observation of labors acknowledgement of or willingness to accept the structural changes that have taken place in Canadian manufacturing sector as a result of the higher Canadian collar? I mean, are they recognizing that you have to get more productivity out of your workforce to remain competitive and was any of that factored into some of the agreements you managed to negotiate?

I think that everybody in the Company, and it's not just the Unionized employees, it's everybody, realizes that we are in a very competitive business with big global competitors and we have over, on a regular basis, we have communications or meetings with all of our employees to tell people about what's happening in the marketplace, what the realities are, and the best way for us to be successful as a Company and the best way for people to secure their employment going forward is for all of us to collaborate and for all of us to find more ways to be innovative, to be efficient, and I think that we have been doing that when you look at the reduction in cycle times, you look at the reduction in our procured parts, if you look at the number of snags, our zero target in snags on shippings that we're basically achieving, all of that is testimony to the committment and involvement about the employees so I don't see it as people, everybody knows what's going on out there, everybody likes their association with the Company and everybody wants to be successful and everybody wants to have a job, so I think all of that is contributing to what's happening here.

And is that what gives you confidence in your ability to maintain your profitability as some of your hedge positions are going to wear off and that dynamic will change?

Well, we've gone from $0.80 to par. You can see in our notes that basically a lot of the hedges are disappearing going forward and we feel confident that with the time that we bought with those hedges that we're going to be able to replace that with productivity gains to allow us to continue to grow and give returns to shareholders.

Great. And one final question if I may. The Global Academy initiative was kick started I believe well over a year ago now. I know you had some targets in mind of revenues that might contribute and can you maybe give us an update on that specific initiative and where it is now relative to what you envisioned when it started?

Yes, it's coming along and I think we've got about a thousand cadets in the system now and it's basically progressing at the rate we had planned.

Okay. Thanks a lot.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS) The next question is from David Tyerman from Scotia Capital.

Yes, I just wanted to follow-up on SBC. So if I understand your comments correctly, it sounds like you think that the order rate will stabilize at a very high level given airliner production is going to be relatively stable. Does that imply then that you expect the backlog to stabilize too because I know the backlog went up last year despite relatively similar level of orders.

Yes, I wouldn't disagree with that statement, but again, we always emphasize this that the growth is going to come more from the Civil training and the growth is going to come more from the Military side of the business, so again, our broad diversified base and our geographic diversifications are going to help us a lot here.

Sure and then just on that Military side so is as you noted, Bob, the award growth as being very strong recently. Do you see that continuing or has it been usually strong in the last year or two?

I think it's been strong particularly the last couple of years. I think that as I mentioned before is because it's in the products area you're going to see, as opposed to services you're going to see more of that translate into revenue sooner which I think will be helpful to us and with what we can see right now, I think we see still a fairly strong order position coming forward in the year we're in.

Okay, so good pipeline it sounds like.

Yes, there's a lot of activity.

Okay, and then on the FX side I'm sorry if I missed this in the notes, but I was just trying to understand where you are in SBC on FX right now? I know you hedge everything as you do and those are rolling off I guess as you finish the projects. Where would you be roughly at this point?

Yes, I think we can actually refer you to the page.

Sure.

Do you got it, Alain?

Yes, there's the summary of our hedge position, David, is all well laid out at page 37 of the financial statement, so you can get a pretty good sense of what the forward rate on all of these contracts.

And I think it says, as I said before that the $25 million that we've had in hedges is basically where most of it is wearing off, has worn off so we've got to make up that difference going forward and as I've said before, we've taken actions to make sure we can continue to deliver to the shareholders.

So would that have been the case in the previous in Q4 or is it really hitting increasingly hard?

No. I think this has been a reality of life for us since we started the restructuring when we were at $0.80.

Right.

To where we are now, it's something that we have to continually adjust to all the time.

Right. And then on the Montreal Employee agreement, was there any significant impact on pension or OPEB there?

No.

Okay. And sorry I missed the CapEx number for the year.

About the same as this year.

Okay. And does that include any sale lease back purchases or do you have any plans on that side?

I don't, Alain?

No. At this stage, no. We do not intend to buyback any of the leases as I'm speaking to you.

Okay and the last question I had was just on the C130 and I guess the CH47. Could you just run us through where that is and any sense of what you'd think of timeliness?

Yes, we're just in the process of finalizing the RFP with the Government people and we're hopefully that some time this year we'll be in a position where we can get a contract finalization which follows the normal process on a contract of this size.

Great. Thank you.

Operator? I think we'll use the 10 minutes we have remaining in the call now to open up the lines to the media.

Certainly. (OPERATOR INSTRUCTIONS) The first question from the media is from (inaudible) from Bloomberg News.

Yes, good morning. Two questions. First if you could just reiterate if any of the impact that the delays with both Airbus and Boeing are having on your order backlog? It wasn't clear to me if that was having an impact or not.

No. We're not having an impact for either the 787 or the 380 at the current stage that we're at right now, most of our activity is is in the other products from these two companies.

Okay. And then secondly, you're just talking about bolt-on acquisitions. As you said there aren't too many competitors at the moment. Short of identifying who your actual targets are but can you just tell us a little bit more about where the possible acquirees might be? What kind of small targets are we talking ? What kind of companies and where?

I think that my comment on not having competitors related more to the pilot training where there are some activities, we're not really seeing an impact. It's more the bolt-on acquisitions is something that we've been doing for quite awhile and I think you would assume that the acquisition activity would be in the areas where we're looking for growth which would be in the Military modeling and simulation and would basically be in that area as we've done in the past. Nothing unusual.

Okay. And so what it seems as though is that in terms of the competition that's out there for civilian training, it's really the competition is almost sounds like it's dropping as more airlines and more training centers look to CAE to outsource that training role?

We're really not outsourcing our training role.

No, I'm sorry, they're looking to you as they outsource.

Yes, I think that basically, we have a situation here with the demand for pilots is so high that anybody who can put some initiative into place is going to have a high demand for those cadets coming out of the system. The demand in all areas of the world and particularly in the developing world for new pilots is very very high and so we feel confident that we're going to be able to grow our business but at the same time because it's an attractive field, other people are going to be there as well.

Okay, thanks a lot.

You're welcome.

Thank you. The next question is from [Ross Marowitz] from The Canadian Press. Please go ahead.

Yes, two things. First of all I'm wondering if you expect any impact from mergers of airlines in the United States?

Yes, the mergers of airlines I think, those are basically the legacy carriers and if you look at since 9/11, I think we've had four or five orders and most of them have come recently. There's clearly with the increase in the fuel price, the older aircraft specifically the MD80's are very, I don't think you can make money in operating them. It's very very difficult, so there clearly is a requirement to refleet but the talk of all of the mergers that are going on, it may delay some of the decisions to refleet so that's not something that's really been built very strongly into our plans going forward in the short to medium term.

Any idea of how long it may delay things and what impact?

Well, I don't know. People have been speculating for a long time what the U.S. legacy carriers are going to do to get organized and I think, I really think it's very hard to plan your business on that basis in the short-term and we have been building our business and focusing very much in Asia and Europe and the Middle East.

And secondly, I'm wondering about the dividend. From what I understand you're restoring it to the 2004 level ?

Correct.

Going forward are you looking at increasing that beyond that or are you looking at share buyback or how are you going to--?

We're always looking at ways to improve return for shareholder, but we don't have any plans at this time, but it's something that we continue to review on an annual basis.

Is the dividend, do you think a stronger message than share buyback or why did you not pursue that as an option?

Well, we felt at this time that the dividend increase was the best approach to take.

Okay, thank you.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS)

Operator if there are no more--.

There is one more question from [Monica Gucci] from Dow Jones. Please go ahead.

Yes, good afternoon. There's been recently some speculation that CAE may be a target for acquisition and just wondered if you could comment a little bit about whether there has been any interest in the Company.

Well, now, the only comment I can make is we're a Company that's widely held. With controlling shareholders so there's always going to be speculation but I think speculation is speculation and I don't, I think it's sort of a situation that you really don't comment unless there is something concrete that's out there and there's not.

Okay, thank you.

Thank you. There are no further questions. At this time, I would now like to turn the meeting back over to you.

Thank you I'd like to thank everyone for the time this afternoon for joining us on the conference call and to remind everyone a transcript of the call can be found on our website at CAE.Com.

Thank you, gentlemen. The conference call has now ended. Please disconnect your line at this time. We thank you for your participation, and have a great day.