CAE Inc (CAE) 2010 Q4 法說會逐字稿

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

Thank you and good afternoon, everyone. Thanks for joining us today. Before we begin, I need to read the following statement. 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 other 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 nonrecurring or special items or events that are announced or completed after the date 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, 2009.

These documents have been filed with the Canadian Securities Commission and are available on our website, CAE.com and on SEDAR. They have also been filed with the US Securities and Exchange Commission under form 40-F and are available on Edgar. Forward-looking statements in this conference represent our expectations as of today, May 13, 2010, and accordingly are subject to change after this date. We will not update or revise forward-looking information, even if new information becomes available unless legislation requires us to do so. You should not place undue reliance on forward-looking statements. On the call with me this afternoon are Marc Parent, CAE's President and Chief Executive Officer, and Alain Raquepas, our Chief Financial Officer. After comments from Mark and Alain, we will take questions from financial analysts and institutional investors. Following the conclusion of that Q&A period, we will open the call to members of the media. For your convenience, this conference call will be archived on CAE's website. Let me now turn the call over to Marc.

Thank you, Andrew, and good afternoon everyone joining us on the call. As we reflect on our results in the fiscal year 2010, CAE performed well despite what can be characterized as a very difficult civil aviation market. We maintained our leadership in civil aerospace in a tough and competitive environment. We won more than 70% of competed full flight simulator orders and we generated (inaudible) margins in civil overall, despite lower utilization in our training centers and lower revenue in our product segments. At the same time, we had double-digit growth in our defense business and received new orders that give us confidence that we can sustain that kind of momentum going forward. The period we have just been through was difficult, but it validated our diversification strategy. We saw more evidence of how we've become less vulnerable to the civil aviation market cycle. Now, more than half of CAE's revenues came from defense products and services.

About two-thirds of our civil business mix now involves a provision of training and services, which depends more on the installed base than on new aircraft deliveries. And about one-third of our revenues was generated in high growth markets, including Asia, the Middle East, and South America, which continued to do well during the downturn. Overall, we generated CAD396 million of revenue in the fourth quarter and CAD63 million of operating income for an operating margin of 16%. For the year we generated CAD1.5 billion of revenue and CAD230 million of operating income for a margin of 15%. This includes our restructuring of CAD34 million, before which our operating margin for the year was 17%. We had good cash flow performance in the quarter and for the year as a whole. We generated annual free cash flow of CAD179 million and net debt decrease on CAD285 million to CAD180 million.

Our balance sheet remains in good shape with adjusted net debt to capital of 23%. In training and services civil, we booked orders during the year with an expected value of CAD351 million. We reached an important milestone with the first multi-crew pilot license program with a contract from AirAsia, the world's largest A 320 operator. And we are proud to have been selected by the US Federal Aviation Administration to train its own pilots under a five year agreement. Emerging markets performed well despite the downturn. We signed a ten year contract renewal to train land pilots out of Santiago training center. The average annualized number of RCUs in our network during the year was 129, which is 11 more than the prior year. Utilization was about 65% in the fourth quarter and although this is in-line with the third quarter, we generated 11% more revenue mainly because of higher wet training volume.

In simulation products civil, we signed contracts worth CAD255 million, including 20 full flight simulators from customers mainly in Asia and the Middle East. This represents a competed market share of over 70%. On a combined basis, our two civil segments generated an operating margin of 17% last year. In the combined military segments, we generated CAD969 million of orders to backlog during the year, including a 20 year, CAD250 million training system contract for Canada CH 147 Chinook helicopter. The average size of our next 25 contracts was approximately CAD16 million, which shows the diversity of our order backlog. Included in the quarter was a contract with the Netherlands''s Ministry of Defense for our comprehensive academic training system for C 130 and KDC 10 aircraft. As well we entered a new six year agreement to continue providing maintenance and support services at the German Army Aviation School in Bueckeburg.

Together, our military segments generated 12% higher revenue this year, at CAD809 million, and an operating margin of approximately 17%. In new core markets we made more progress during the year to further diversify CAE by leveraging our core capabilities of modeling, simulation, and technical training into healthcare and mining. We entered a re-sharing agreement with [Invest Monty Beck] in support of our R&D investments in these new areas. And we made some small acquisitions to develop our capabilities in the healthcare field by giving us subject matter experts, products and channels of distribution. Following the end of the year we advanced our entry into the mining sector by acquiring Data Mine. With that, I will ask Alain to provide a more detailed look at our financials.

Thank you, Marc, and good afternoon, everyone. We concluded the year with a strong free cash flow performance. The ratio of our free cash flow over our net earning was about 124%, driven by a reversal in our noncash working capital in the fourth quarter and by good operating cash flow given the magnitude of the civil market downturn. This being said, we usually see an increase in working capital requirement at the start of every fiscal year and 2011 will be no exception. This is something that tends to improve as the year progresses. Along the lines of liquidity, we successfully negotiated the refinancing of our main credit lines right after year-end. Our new facility is a committed three year revolver of $450 million with an according feature to increase the amount up to $650 million. Last year we introduced measures to contend with the global recession and to size our business to the current and expected market conditions.

We completed in the fourth quarter our restructuring program for which we incurred a total charge of CAD34.1 million for the year, with the last CAD1.9 million in the fourth quarter. In addition to the restructuring, we introduced temporary measures, including a salary freeze and furlough days which are now under conclusion. As we move forward, we will have some additional costs as we reinstitute normal salary increases for employees and we do not foresee any more furlough days. These temporary measures amounted to about CAD12 million of savings last year. From a foreign exchange standpoint we saw significant moves in our main operating currencies, the US dollar, the Euro and the British pound, and even more so, since the start of the year. Revenue and income generated by our foreign subsidiaries is mostly self hedged and accordingly we do not hedge currency translation exposure that results from Canadian dollar reporting.

We have provided a currency sensitivity table in our annual MD&A which illustrates the approximate impact of a CAD0.01 change against these currencies. The continued strength of the Canadian dollar against its US counterpart and more recently against the Euro will continue to present challenges. We concluded the year with an average tax rate of 30% in the fourth quarter, which is not a bad number for planning purposes. Our net interest expense was CAD26 million, which we expect will increase in fiscal 2011 by about 10% to 15%, commensurate with the cost of that and our average expected credit usage. Finally, CapEx last year was about CAD130 million, which is a good estimate of what we expect in fiscal 2011. Maintenance CapEx should cut the (inaudible) to account for about CAD50 million of that total. Thank you and back to you, Marc.

Thanks, Alain. We are encouraged by the continued positive signs in civil aerospace that reaffirm the worst of the downturn is now behind us and the sector has begun to recover. In commercial air transport, growth in both passenger and cargo traffic has increased resulting in higher loads, but aircraft capacity is increasing at a slower rate and likely still be a while before the sector fully recoveries in that standpoint. Global demand for air travel declined significantly in the recent downturn, but we see it is already trending back toward long-term growth as global GDP recovers. Supporting this is the widely held view that the global fleet will need to double over the next two decades to meet travel demand. The possible effects of Government credit issues make the pace of recovery in Europe, in particular, a bit more elusive but long-term demand drivers remain in tact.

In commercial aviation, the expected recovery in global passenger traffic likely explains, in part, the positive news from Boeing and Airbus that they will increase production for both wide body and narrow body aircraft. These increases will take some time to implement and then ultimately translate into higher demand for training products and services, but to me this is just yet another sign that gives us reason for optimism. In business aviation, aircraft utilization improved again in March, so we feel pretty good that the bottom is behind us in this segment as well, as at a modest recovery is already underway. Aircraft utilization is still off about 20% from its 2007 peak, so full recovery will take some time and should be in-line with corporate profit growth and equity market performance.

The improved markets fundamentals that we have already seen and are seeing, currently seeing lead us to expect to sell slightly more than the 20 full flight simulators by March 31, 2011. As usual, we will provide updates to this estimate as the year progresses and opportunities become better defined. We have already announced two new sales, a Challenger 605 simulator to bombardier and a Dassault Falcon 900EX, 2000EX for Emirates CA flight training. Top pricing and lower production volume resulting from last year's market conditions will continue to affect us this year as we work our way through our civil simulation products backlog. The margin in our civil training and services segment should provide some relief, offset the lower products margin, especially since training services makes up two thirds of our total civil activity. That said, we are confident we can deliver an average annual operating margin in the mid teens in our combined civil products and services segment throughout this period.

The outlook for a combined military segment continues to be encouraging. Our continued strong ordering [gate] and a book to sales ratio of 1.20 times, adds to our confidence that we can maintain the 10% to 12% combined revenue growth and 15% operating margins. In addition to our backlog, the underlying drivers for more simulation based training in defense gives us reason to believe our growth in this area is sustainable over the longer term. Simulation based training is far less expensive and is often even more effective than live training using real aircraft. Government budgetary pressures serve to make the cost savings of simulation based training even more compelling. Our ability to work efficiently and effectively with governments and defense forces and our focus as a pure play simulation training Company should lead to more possibilities for outsourcing and training and maintenance services.

We have already demonstrated leadership in this area on a number of programs around the world, such as the operational training system provider program in Canada and we see more opportunities on this front. In addition, our experience in task performance on key growth platforms, including helicopters, such as the NE Shinny and the MH 60R, transports, such as the C130J, lead-in fighter trainers, such as the M 346, and maritime patrol aircraft, such as the new P8, help to underlie our growth assumptions for CAE's defense business. With that said, as the timing of Government contracts are never easy to predict, but we have a healthy pipeline of market opportunities ahead of us, which should continue to support our long-term revenue growth outlook. In our new core market activities we will continue to build our position. The healthcare and mining sectors meet our criteria for critical mission needs where the cost of failure is very high.

And like our core civil defense markets, customers in these sectors they value the capabilities that CAE can bring to improve the safety and efficiency of their operations. Although the market potentially in these areas is sufficiently large, that they can one day contribute materially to CAE, our new core market initiatives are still very much in their infancy. For CAE overall we are increasingly optimistic about the future. Patience will certainly still be required as the civil aerospace market works its way back from a profound downturn, but recovery is certainly underway. Ultimately we believe our combined civil business can achieve the kind of performance it did during the last cycle and we expect our defense business to continue to deliver good growth and profitability. Taken together, we believe CAE is in a good position to prosper in years ahead. Thank you for your attention and we are now ready to take your questions. Andrew, over to you.

Operator, we have the -- please take questions from analysts and institutional investors. Before we open the lines, let me first ask that in the interest of fairness that you please try to limit yourselves to a single one part question. If you have additional questions after that and if time permits, please feel free to reenter the queue.

(Operator Instructions) The first question is from Cameron Doerksen of Versant Partners, please go ahead.

Hi, good afternoon.

Afternoon.

A question on the military growth. You have again targeted sort of the double digit or 10% to 12%, I think you said, revenue growth for this year. I mean, how confident are you in that number given the strength in the Canadian dollar against a number of the currencies and what are the key programs, I guess, for this year specifically that are going to drive that growth?

I guess the short answer -- I am relatively confident. If I am giving any outlook it is going to be a mix of programs. Clearly, the programs that we won recently in Canada, you would think about the C 130, you think about the C 147 we just signed, and also what you have got to think about is what I said is the average order that we have, if you take those big ones out, I think the bulk of the next orders the averages is, what is it, CAD16 million. So I think that it is going to come from a number of sources, but 30 of those big ones will swing things a little bit toward more Canadian revenue this year.

Okay. Thank you.

Thank you. The next question is from Benoit Poirier of Desjardins Securities. Please go ahead.

Yes, good morning. My question is more related on your financial position. When I look at your debt to cap 23%, you have more than CAD300 million of cash on the balance sheet. How would you qualify your balance sheet right now? And what are your -- do you have any expectation to deploy this amount going forward?

Yes. Thank you. Well, I think that, as we have said in the past, throughout this downturn when for a while now that we have prided ourselves on the strong financial position that we have. And I think that's our plan. We want to remain in good financial position from that standpoint. We do, we are looking at the, we continue to look at potential acquisitions that we might make. This kind of position gives you opportunities and in this kind of market, when you have this kind of financial position, you can afford to look at opportunities where, that may open up and then we got our eyes open for that one. So I think we have, we would have ideas for use of that cash, but we would want to maintain the kind of financial, the relative financial position that we've had over the next, last certainly few years and I think any investments we have made, any larger ones would be in our core military civil market.

Okay. Thanks.

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

Thank you, good morning. Just wanted to ask you a quick question about the project Phoenix and the other R&D projects that you have underway. I believe project Phoenix and the funding you are receiving is winding down as some of these other ones maybe pick up. Is there any change significantly in the royalties that you will have or have to pay from project Phoenix? Will those be starting up in either of the next two fiscal years?

Yes, yes. Tim, it's Alain. So like you said, there's one of the program that has terminated last year and we will enter into the phase where we start to have to repay royalty on this partnership we have the Canadian Government. The other program, the what we call the Sideview program or the name we gave to it in the financial statement is Falcon, is just starting. So, yes, the royalty will slightly increase next year because we are starting to reap beyond on Phoenix.

Okay. Thank you very much.

Thank you. The next question is from Richard Stoneman of Dundee Securities. Please do ahead.

Good afternoon.

Hi, Richard.

Marc, would you expect the revenue in the civil equipment area to be at about the same level in fiscal 2011 as it was in 2010?

Well, I think it is -- if you look at what the -- it will depend on what the market does, Richard, to a large extent, how quickly will we see the recovery. If you look at what we think will happen, we are, our outlook is for more than 20 full flight simulators, so that by itself would lead to believe that your revenue, if anything, would be higher. But it will depend on really what happens in the overall market. How quickly will it recover materially in that segment. Thank you.

Thank you.

The next question is from David Tyerman of Canaccord Genuity . Please go ahead.

Good afternoon, gentlemen. A quick question on margins. If I look at the situation in margins, it looks like there's a fair bit of pressure right now. I think you cite pricing being worse in the backlog on the civil equipment side. It sounds like -- you had CAD12 million in savings last year that you won't have this year. It sounds like you are going to be paying royalties. So I am wondering, is this year going to be a more challenging year for margins than last year or is there enough volume somewhere in the mix to help out or cost cuts or whatever?

I assume you are looking at mainly civil there?

Yes.

I think what I would say is, what I qualified in my remarks that the product -- the most challenging period we saw is, I would largely think, behind us in the competitive environment that we were and coupled with the hedges wearing off that we gained when the Canadian dollar was relatively low last year. And that cycling its way through the backlog now. So to me and I see, what I see out there is a slight improvement in the relative pricing environment. It is still a challenging environment, there's no doubt, but throughout, if I look at this year I am pretty confident that we are going to be able to maintain mid-teens kind of EBIT margins when I look at the combined civil market. And really what you are looking at there is our training and services market, which remember is about two-thirds now of our overall civil business that is starting to recover.

It is slow and we will see the airlines have to start adding back airplanes, but if you look at the relative strength of the margins, especially when you consider what we just been through in terms of the bottom of the market. So if anything, I would think that you would be slightly better from that regard. So overall, you are repaying the mid-teens kind of EBIT's kind of outlook in our civil market.

Okay. Thank you.

Thank you. The next question is from Marko Pencak of GMP Securities, please go ahead.

Yes, just wanted to probe the civil equipment margins a little bit further as well. You commented in your MD&A about some of the, a new business strategy by Boeing in terms of charging you for a variety of things, which I guess is a new phenomenon, and I'd like to understand how that balances off versus your military business, because you obviously do get some benefit of spreading your overheads in your military business that flows through your Montreal facility. And then just when you look at your military backlog and the composition I am just curious, how much of that is actually flowing through Montreal versus other areas. I am just really trying to get a balance of the sort of the pros and cons here. Thanks.

Maybe Andrew to get it --I'm -- did lots at the end of your question, sorry. You are talking about what is effecting Montreal versus the other (inaudible)

Well, no, there's two things. There is one positive that could affect your business, I presume, is the fact that your military business is as strong as it is and the extent that you flow some of that business through your Montreal facility, some of the overheads of that facility get allocated to military and therefore, quote unquote, boost your civil margins, right.

Yes, correct.

So that's one thing that I just want to get some clarity on because with all of your military back I am just trying to understand how much of a benefit you might get from that affect. And then separately you comment about a change in business practice at Boeing where they're now charging simulator manufacturers for upgrades and changes and all of that stuff and I am just trying to understand how significant an impact on the negative that is.

Okay. I get it. Sorry. The first part of your question, I think you have got to look -- take a look at the impact on Montreal specifically, that will largely come from the products, sim products, military, whereas the, where we would record the build and the manufacture of equipment for the military, and that's built in the same factory, largely in the civil product in Montreal. So, the volume of business there, not in totality, but certainly a good proportion is the manufacturer, which, of course, would alleviate, provide some overhead absorption that would be reflected in Montreal. The second part, yes, we reflected that. Boeing has come out publicly with the new royalty schemes that they put out that -- now I think that what I say about that is our plans take that to account. Like I said, Boeing has come public on that.

Boeing has said in spirit that all manufacturers will be faced with the same impact of that. So our plans take into account. You have got to remember a lot of our business, our business costs comes from royalties or kind of other charges that we pay for intellectual property rights from OEMs. So this is Boeing themselves changing their scheme there and our plans take that into account.

Can you not get the airlines to pay for those?

Well,.

Your customers.

You are clearly getting into kind of competitive information here and our -- how we deal in pricing, what airlines themselves, but clearly, I wouldn't want to get too much more into detail on that.

Okay. Are you guys hedging the currency levels.

We hedge contracts when we get them. Maybe you want to elaborate.

Alain, there's no change in the proportion that you are hedging at current currency level.

No and the rate, the forward rate on whatever it is left as hedges contract, Marko, on the US side is at 108. So we still get a little bit of protection there completing the backlog.

Okay. Thanks.

Thank you. The next question is from Steve Riccio of Buy Side Research. Please go ahead.

Hi, guys. Within your civil training backlog, could you just give us an idea of what the mix is like. Is it more skewed toward wet or dry?

Typically -- well, all of the business here at fast training is wet. I don't know the exact breakdown. I think it will be, Alain, maybe you have more of a backdown but it will be proportional to the amount of simulators relative BAT versus CAT that we have in the network

I think another way to look at it, Steve, is that a lot of the business, aviation business that we do is more transactional and is not backlog. There are some larger operators that have longer term agreements with us on the business aviation side and those would fall into the category that Marc is describing. The others would be the commercial agreements that we have with our airlines customers.

Are there any new opportunities or increased opportunities for you to do more wet training with the commercial airlines.

I wouldn't say that I have seen a sea change there, but it is, from what we've seen before. But I would say there is more opportunities for airlines in this kind of downturn that we have seen another, yet another crisis that hit the airline industry. Some airlines are looking to see how do they make their costs more variable, which of course you are basically seeing your training partner, like us, fits right in. I have seen more opportunity. I wouldn't say though that I've seen like a radical sea change.

Okay. Thanks guys, good quarter.

Thank you.

Thank you. The next question is from Scott Rattee of Stonecap Securities. Please go ahead.

Hi, great. Thanks very much. Just a question with simulator products civil, but sort of the middle of the summer you had introduced the sort of financing vehicle there. I guess I was just sort of wondering is that still being sort of accessed? Has financing of the simulators been something where the access is sort of credit and stuff like that has improved?

Let me take that one. In fact we sat up the (inaudible) at the beginning of the fall. So the last few sales of last year on some of the opportunities we did bring a financing offer from the fund. Right now there's two transaction in process for that and we do intend to continue to use the vehicle to continue to help our customer that are looking for a financing or a leasing solution (inaudible).

Okay. And just it sort of sounds like from Marc's comments that the environment is improving. Do you actually think the reliance on that facility will sort of diminish this coming year?

Sorry. I just missed the beginning of your question.

Mark's comments seem to be optimistic at this point in time and I guess I was just wondering whether or not the reliance on that facility is expected to sort of diminish as we go into this next year.

It is just a tool. I know by the way it is not, its nonrecourse to CAE. They are our financing partners, so therefore we continue to put it in the offering for our customer. It might help to do a couple of transactions next year as the market is resuming. So it is a tool we are keeping in our portfolio for sure.

I don't see a dynamic change there in terms of the ability or the -- customers wanted to use that. I don't really see that changing.

That's great. Thank you very much, guys.

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

Good morning.

Morning, James.

Or I guess good afternoon for you. (laughter) I just wanted to go back to a question that was asked earlier about acquisitions and, Mark, you spoke about some of the things you might consider and I don't know, correct me if I am wrong, but I got the sense that your tone may be changing a little bit there. You sounded a little more open. I mean the message in the past certainly with Bob Brown around was more that if you were going do any acquisitions they would be tuck-unders. You wouldn't do any elephant hunting. Has that changed in this environment and given your balance sheet now are you starting to look at maybe some bigger opportunities?

Well, I think I would qualify that. To me it would be good to put our balance sheet a little bit more at work. That is what I would say. And the -- so elephant hunting is a big word, I would say. I would say we are open to the right opportunities if they come and we are actively, much more actively looking in a higher bracket than we've had. We qualified in the past these small acquisition, what do we call them, bolt-ons. Sorry, we had a non-GAAP word, bolt-on acquisitions. We are still going to look at those, particular to build some kind of market to access in some of our new core markets, as an example. But if I look at our core markets, if I look at military for example, if we see a opportunity that makes sense for the Company we could put our balance sheet at work, while still not being extravagant. We like the nice balance sheet. We like the (inaudible) gives us. We are looking more actively.

Great, that's helpful. Thanks very much.

Thank you. The next question is from Benoit Poirier of Desjardins Securities . Please go ahead.

Yes. So, just about upside civil and business, you made some very nice tuck-in acquisition on the medical and mining sectors. You also announced some nice development, but where are you right now at this point in terms of total employees related to those sectors? In terms of capital invested? And what type of expectations should we look at this year in terms of revenue contribution and also maybe profitable is it breakeven or more profitable in fiscal 2011.

I think that maybe the first to answer your question there is about 90 employees right now that we have in the business. The rest of your question is to me it really falls in the question that in the GAAP that is not material for CAE right now. We clearly want to make it material one day and that's what we are -- that's why we are in there, but we are at the infancy of that (inaudible) to start. And some of it, to be honest, if I think I look at healthcare, there's some sensitivity from a competitive standpoint. It is not relative to competitors. So I agree, wouldn't want to get too far down that road right now.

Okay. Perfect. And maybe one question for Alain, if I may. The IFRS, you put a lot of disclosure in the report. I know the implementation is in progress, but could you maybe give some, just the big lines with respect to the potential impact of the IFRS at this point, Alain.

Yes, you have seen the couple of pages that we bolted to the MD&A. I hope we have written it in a language that is comprehensible to everyone. We have tried to make an effort to simplify it. At this stage, Benoit, we do not see any major transformation on IFRS on what we do. And there's a couple of points that we thought would be worthy to note to the investor in the MD&A and as the year progress we going to give you more detail in term of the [quintum] of these changes. For instance, no surprise to everyone, leases will be all back on the balance sheet. It should not make a big difference to our investor community because we managed these leases like they were on balance sheet in the past. We have been transparent with our (inaudible) leases. But now IFRS are bringing them on balance sheet.

So that's one example of where we could be impacted. GVs are another one. There's discussion right now about potentially precluding under IFRS to get proportionate consolidation, but it won't be next year for sure. It is only a talk that potentially in fiscal '13 proportionate consolidation won't be impossible. So, these are the type of thing that we have described in the notes. And we can update you as the year progress on these changes, Benoit.

Okay. Thanks for the comments, Alain.

You're welcome

Operator, we would now like to use the time remaining to open the lines to members of the media conclude the session with investors.

(Operator Instructions) The first question is from Ross Marowits of The Canadian Press. Please go ahead.

Yes. I am wondering if you could try an update. You mentioned that the salary freeze for employees is finished and I think the days off are finished as of what date? And how many people did you end up downsizing by?

The actual number was close to what we talked about in the MD&A. It is the same number. It is about 600 personnel that we wound up doing overall in the Company. Last year, sorry. And the -- sorry, Ross, the first part of your question was what?

The salary freeze and days off.

Oh, yes. Well that's over being our financial year starts the first. So I mean it is off now.

Okay.

This financial year is normal salary progressed for employees.

In fact we blogged the news to the employee. So it is -- and the annual salary increases are made to May. So it is as we speak?

So people are getting increases now.

Yes and they well deserve when you consider performance that we've had in the timing. We have put those into place -- you remember last year it was a pretty dodgy environment. We -- I mean people were talking about even heaven forbid a depression at that time and so we took the steps at the time to protect the Company. All, everybody in the Company had those salary freezes and furlough days imposed on them. But I think what's very heartening is that because of the diversification that we had even though we had a pretty significant drop in our civil business because of our diversification in the military, you saw the big contracts we have been able to get, some big ones in Canada just in time. The Canadian Government would investment giving the troops what they need in terms of aircraft, really doing a great thing by reinvesting that money in Canadian companies allowed us to protect a lot of employees.

That plus the R&D that we have done, thanks to the R&D programs that we put into place with the Government of Canada. And Invest Monty Beck. So I am glad that this is behind us and it is not to say we are out of the woods. We are constantly remind that to employees, but yes, well deserved normal salary progression will be gladly given back to employees and I have sent a letter to all employees to that effect today.

What is the order of those increases?

We don't really get into that, Ross, ever.

Okay. And you talked 600 -- a year ago you talked about 700 including 600 in Montreal. Is that the number or is it 600 total?

700 total.

Okay, so 700.

I was talking more about the Canadian.

Okay, fair enough. And last thing is are you going be hiring people? What's the status of that going forward do you think.

The interesting thing is we have hired employees throughout and we still have open recs. We are currently, even though with the layoffs that is we have done, with normal hiring of different skills that we've had plus acquisitions, we are back up to approximately 7,000 employees now. And we have got open requisition because the Company is growing. If you think about military contracts, we have grown 10% to 12% revenue, so it requires people in Montreal and around the world to be able to execute those programs.

So net what are you down then?

We are about what right now. We are exactly 7050 employees, so net, what is that. That means a pendular slice in time. I think that we were, we went down to about 6500. So we are almost back to where we were. Obviously, different kind of mix of employees.

Okay.

And in some cases different location.

Okay. Great. Thanks a lot.

Thank you. The next question is from Marie Tyson of (inaudible). Please go ahead,.

(Speaking in foreign language).

(Speaking in foreign language).

Thank you. The next question is from Robert Gibbons of The Montreal Gazette. Please go ahead.

Just to be absolutely clear. The total of full simulators last year was 24. Did you say you will exceed that in the current year?

Yes. We -- actually we sold, Robert, 20 last year and this year we expect to sell more than that. That's what we expect, two more and that is my feeling at this moment.

Could you do the maximum, the record that you did maybe in 2008.

Yes, I think it was about 37. That's right, 37 exactly.

Yes, okay, thank you.

You're welcome.

Operator, thanks very much. That's all the time we have for this afternoon. I would like to thank all participants, investors and media, for joining us on the call and to remind everyone that a transcript of today's conference can be found at CAE's website at www.cae.com. Thank you.

Thank you. This concludes today's conference call. Please disconnect your lines at this time. We thank you for your participation.