CAE Inc (CAE) 2013 Q4 法說會逐字稿

Good day, 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 proceed, Mr. Arnovitz.

Good afternoon, everyone, and thank you 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 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 other 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 our fourth quarter fiscal 2013 MD&A, and in Annual Information Form for the year ended March 31, 2012. These documents have been filed with the Canadian Securities Commissions and are available on our website at 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 16, 2013, and accordingly are subject to change after this date. We do 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 Stephane Lefebvre, our Chief Financial Officer. After comments from Marc and Stephane, we will take questions from financial analysts and institutional investors. Following the conclusion of that Q&A period, we will open the lines to members of the media.

Let me now turn the call over to Marc.

Thank you, Andrew, and good afternoon to everyone joining us on the call. As usual, I will go through some of the highlights of the quarter, and update our progress against some of the strategic imperatives we set for the year. And then, Stephane will then provide a detailed look at our segmented results. And I will come back at the end, to talk about the way forward.

Our results for the quarter and the year as a whole reflected the integration of acquisitions in Civil and in New Core Markets, as well as the restructuring actions we took in Civil and in Military. These activities caused some noise for us in terms of our results. But we met operational and strategic milestones that position us well for the year ahead and for the longer term. We maintained our leadership position overall, and although orders continue to be slower than we would like in Military, we have done very well in Civil.

On a combined basis, our backlog exceeded CAD4 billion for the first time in CAE's history, and a high proportion of that involved recurring services. Looking specifically at Civil, we acquired Oxford Aviation Academy to strengthen our leadership position in training by giving us a broader portfolio of solutions to offer our customers. The integration of Oxford has not been without its challenges, but we have made very good progress, having already realized half the targeted CAD22 million of cost synergies. In view of the consolidation in the Civil Training market, Oxford was strategically important for CAE to acquire. We have been focused on getting profitability and return on capital up, by eliminating cost overlaps and taking steps to improve asset utilization.

During the year, we took what we believed to be the best of Oxford's and CAE's people, and reduced our combined headcounts by 231 employees. As well, we closed and consolidated three redundant training locations. We closed our Heathrow location in the UK, Evora in Portugal, and one of our two locations in Brussels. We have also decided to consolidate two of our US ab initio flight schools which are located in Phoenix, Arizona. Across the total network, we have relocated 13 simulators, and 7 more are in the process of being moved.

These actions are already translating into better results, with nearly CAD13 million of segment operating income generated by Oxford operations since we bought the company. This is noteworthy, since it was nearly break-even when we took it over. In terms of revenue synergies, they have really only just begun to accrue, and will continue to build over the longer-term. Already we have attracted an increased share of wallet from our existing customers, who have embraced CAE's wider solutions offering, involving crew resourcing services as well as ab initio pilot training.

Civil aviation training is a regulated market. And overall, we are very pleased with our progress to enhance our position. With a book-to-sales ratio of 2.26 times in the fourth quarter, and 1.21 for the year, we have done well to build up our Civil training backlog. In Civil products, we had a good year as well, meeting our mid-30s full-flight simulator sales target. We sold 10 in the fourth quarter, and 35 for the year as a whole. CAE's brand and simulation-based training is backed by nearly seven decades of innovation, and we strive to be our customers' partner of choice. In a highly competitive market, we have maintained our leading position.

Now turning to Military, despite what has continued to be a challenging environment from an order standpoint, we continue to book orders around the globe involving enduring aircraft platforms like the C-130J Hercules transport and the MH-60Rs Seahawk helicopter. Orders in the quarter were made up of simulator products and updates in support of the US Navy and Air Force, the Royal Australian Navy, and the Israeli Air Force. In Military training and services, we won contracts to provide a range of maintenance and support services for customers including NATO, the US Air Force, the German Armed Forces, and the Taiwanese Air Force. Also during the quarter, we were awarded an additional contract as part of the KC-135 Aircrew Training Systems program, to provide operations and maintenance support involving the aircraft's boom operator trainers.

Book-to-sales in Military was 0.95 times in the quarter and 0.92 times for the year, which is lower than we would like, but demonstrates the resiliency of our business even when faced with widespread delays in procurements. From an operations standpoint, we made good progress in Military to adapt to the new realities of the European defense market. During the year we reduced our workforce, mainly in Germany, and the balance of layoffs which have already been provisioned will be carried out in the second half of this fiscal year.

In New Core Markets, we also did what we said we expected to do by delivering over CAD100 million of revenue -- CAD112 million to be exact -- and we achieved profitability. We developed new products in both healthcare and mining to expand our portfolio, and we have begun to see some synergies with our core Military and Civil businesses, in terms of technology and market reach.

During the quarter, in CAE Healthcare, we continued to make good progress penetrating global markets, with sales of our surgical patient and ultrasound simulators, as well as central management systems, to customers in Canada, the US, Australia, India, and Saudi Arabia.

In CAE Mining, we sold our mining planning software to customers in China and Russia, and our latest modeling software to customers in South Africa and Chile. We also received a contract to implement a complete suite of geological data management resource modeling and mining planning software to a gold mining company operating in Vietnam and Malaysia.

Before I turn the call over to Stephane, I would also add that I am pleased with our progress against the three capital allocation priorities we communicated this past year. We prioritized three things -- targeting investment in select growth opportunities, deleveraging our balance sheet post the Oxford acquisition, and enhancing cash returns for shareholders. Since then, we have continued to fund growth on a selective basis, our net debt is lower, and we have increased dividend as an expression of confidence in our business model.

With that, I will now turn the call over to Stephane.

Thank you, Marc, and good afternoon, everyone.

Consolidated revenue for the quarter was up 16% year-over-year at CAD587.9 million, and net income attributable to equity holders was CAD43.8 million or CAD0.17 per share. We had a CAD10.1 million after-tax impact from restructuring, integration and acquisition costs this quarter. And excluding these costs, net income attributable to equity holders was CAD53.9 million or CAD0.21 per share. For the year, consolidated revenue was up 16% at CAD2.2 billion, and net income attributable to equity holders was CAD139.4 million or CAD0.54 per share. Excluding the impact of restructuring, integration and acquisition costs, this was CAD190.7 million or CAD0.74 per share.

Income taxes this quarter were CAD7 million, representing an effective tax rate of 13%, compared to 26% last year. The lower effective tax rate was mainly due to the settlement of tax audits, as well as the mix of income from various jurisdictions. Excluding the effect of the one-time items in the quarter, the income tax expense would have been CAD11.5 million. The impact of these one-time items represents CAD0.02 of earnings per share in the fourth quarter, and combined with the one-time items that added CAD0.04 in the second quarter, these added CAD0.06 total to our earnings per share for the year.

In terms of cash performance, we had good free cash flow this quarter at positive CAD108.6 million, which results mainly from a reversal in non-cash working capital. We have been internally focused on improving our working capital efficiency, specifically getting at amounts tied up in unbilled sales or work in progress. For the year, free cash flow was at CAD118.9 million, for a conversion of net income of 83%. Our free cash flow is generally higher in the second half of the fiscal year, and we expect that to be the case again in fiscal 2014.

Capital expenditures totaled CAD32.4 million this quarter, including CAD29.5 million for growth, and CAD2.9 million for maintenance. For the year, CapEx was lower at CAD155.8 million, because of a targeted investment approach and CapEx synergies from the Oxford acquisition. Of that total CapEx, CAD121.2 million was for growth, and CAD34.6 million was for maintenance. Maintenance CapEx was lower, mainly because of the strategic repositioning of simulators within CAE's global network to optimize simulator configurations with customer requirements.

Net debt was CAD916.8 million as of March 31, 2013, compared with CAD965.4 million as of December 31, 2012. The additional borrowing required to make the acquisition of Oxford brought our net debt to total capital up to nearly 50%, from about one-third prior to the acquisition. We are comfortable with this degree of leverage, especially given the increased proportion of recurring revenue and cash flows we now have. But we said that our ideal structure involves about 40% net debt. We got this down to 45% in the quarter, so we are well on our way to reaching our target.

Now looking at our segmented financial performance. In our combined Civil segments, fourth quarter revenue increased 54% year over year, reaching CAD332 million. Simulation Products Civil revenue was higher sequentially, because we had some advanced simulator builds in the quarter which turned to revenue upon contract. Combined Civil operating income was up 22% to CAD54 million year over year, for an operating margin of 16.3%. Contributing to this overall Civil margin was a strong simulation product Civil margin of 17.2%. The higher than unusual product volume in the quarter and a favorable program mix largely explained this performance. For the year, combined Civil revenue increased 38%, reaching CAD1.16 billion, while combined operating income was up12% at CAD195.1 million.

The rate of revenue growth exceeded profit growth for a number of reasons. Approximately half of the revenue coming from Oxford involves crew sourcing, which is a low single-digit margin business. There were also a number of internal and external factors during the year that combined to affect both revenue and profitability of the Civil-based training business. These include some disruption caused by the integration of Oxford, lower demand for training in Europe due to recession, especially in countries like Spain; and the redeployment of 13 simulators within our global network, which affects revenue as they are ramped down and back up.

In addition to moving existing assets, we also launched 8 new training centres last year in support of growth, and we deployed 20 additional simulators which are also in the process of ramping up. The utilization rate in our training centres was 56% for the quarter, which is a reflection of these factors, and in a positive sense, demonstrate the resiliency of the business, which continues to be profitable even at these relatively lower levels of utilization.

In our combined Military segments, fourth quarter revenue was 15% lower year over year at CAD227 million, and we generated a 12.9% operating margin. Like last quarter, the operating margin benefited from a favorable mix of programs. We are still in the process of reducing costs in Europe with the ongoing execution of our restructuring in Germany. As Marc indicated earlier, the restructuring provision was already taken in fiscal 2013 for the additional layoffs to come. For the year, combined Military revenue was down 7%, and our operating margin was 13.6%. In New Core Markets, fourth quarter revenue was up 20% to CAD29 million, and operating income was CAD1.8 million. For the year, revenue was up 35% to CAD112 million, and operating income was CAD6.4 million.

Before we move on, I would like to provide a brief update on some of the changes in IFRS accounting standards, which affect us in fiscal year 2014 and onwards. Specifically, there are two changes that I wish to highlight, which deal with joint ventures and employee benefits obligations. The key takeaway is that these are changes in accounting policies, and not changes in economics of the fundamentals of the business. The overall impact on EPS is minimal.

But with respect to joint ventures, we previously accounted for them using proportionate consolidation, which meant consolidating results by individual line. Under the new standard, we must account for them under the equity method, meaning that I record our investment as a single line on the balance sheet, and our share of net income from joint ventures on one line of the P&L. This has no impact on overall profitability or earnings per share, but it does result in lower revenue. When applied to our fiscal 2013 results, the impact on EPS is nil, while revenue is CAD69.3 million lower.

As for employee benefits obligations, there is a change in how the interest costs of pension expenses is calculated, which results in a higher expense. In addition, the interest cost component will now be presented within the financing expense line of the income statement. For fiscal 2013, the impact of higher pension costs is CAD3.5 million, which represents a CAD0.01 impact on EPS.

With that, I will turn the call back over to you, Marc.

Thanks, Stephane.

We undertook a lot of activity in fiscal 2013, which put CAE in a stronger position for the future, and enables us to resume earnings growth in fiscal 2014. In Civil, the secular growth in global air travel, combined with the regulated reg requirement for aviation training gives further credence to the CAE investment thesis. The recession in Europe is affecting demand for air travel and the capacity being flown by airlines, but market drivers globally continue to be positive overall, though not as strong as last year. Effectively, worldwide passenger traffic growth as measured by revenue passenger kilometers for the first quarter of 2013 was 4.2%, down from 7.6% during the same period in 2012. If we break it down, emerging markets continued to lead with 6.8% growth, versus 10.7% last year. Passenger growth in North America slowed to 1.8% from 2.7%. And in Europe, the growth rate decelerated from 7.2% to 1.8% on the same basis.

In Civil training, the global diversity of our business means we will continue to see training demand vary by region and market segment. During the quarter, we saw the effects of recession in Europe on training demand, while emerging markets continued to outperform. As such, we continue to optimize the supply of training capacity with customer demand across our global training network. Oxford itself will be accretive to earnings in fiscal 2014, and we fully expect to realize the remaining half of our targeted CAD22 million of cost synergies during the year.

In products, high sustained levels of aircraft deliveries bode well for another strong year in full-flight simulator sales. The competitive field is sharp, which affects pricing, but we continue to adapt to a dynamic market, and we are confident that we will maintain our leading share. Overall, we remain focused on winning new business by strengthening our solutions approach, completing the integration of Oxford, ramping up new and redeployed assets, and finding ways to maintain and improve profitability.

In Military, our 2013 order bookings and CAD2.1 billion of backlog give us a decent start for fiscal 2014, but signing contracts remains the order of the day. Broad delays in US procurements continue to be a factor, but the fundamentals for CAE in the defense market remain attractive, and we expect to grow the business over the long term. We have a well-diversified business geographically, with over 50 national defense forces, and in terms of the broad range of programs we pursue. The average value of our top 20 contracts won this year was about CAD20 million, and looking forward, we see a similar profile. From an opportunities pipeline perspective, we currently have over CAD2 billion of proposals already submitted with customers. And as we said before, bidding on defense programs is costly. And we only bid where we believe we have a good chance of winning.

In New Core Markets, we expect continued double-digit growth as we ramp up our new products and expanded sales capabilities, and further realize synergies with our core. We found ways to leverage both the technology and global reach of our Civil and Military businesses, and we expect our initiatives to bear fruit in the period ahead.

To summarize, fiscal 2013 was a noisy year, but involved a number of measures to ensure our future growth and enhance the CAE investment thesis. We invested to reinforce our leadership in Civil aviation training, and we expect to continue building on our position in what is a regulated market, supported by positive secular trends in air travel. We took steps to adapt our Military business to new market realities, and we expect to continue demonstrating resiliency in the near-term and growth over the long-term. And in New Core Markets, we have been meeting our goals, and we expect continued success as we ramp up our new products and enhance sales capabilities.

Thank you for your attention, and we are now ready to take your questions. Andrew?

Operator, we would now be pleased to take questions from analysts and institutional investors. But before we open the lines, let me first ask, that in the interest of fairness, that you please limit yourselves to a single one-part question. If you have additional questions after that and time permits, please feel free to re-enter the queue.

Operator, we will take our first question.

Thank you.

(Operator Instructions)

Our first question comes from the line of David Newman with Cormark Securities. Please go ahead with your question.

Good afternoon, gentlemen.

Hi, David.

Just on the production of Civil sims in the quarter, I know Marc, sometimes you give that to us versus last year, what was -- what does that look like, and what does the pricing look like now? And maybe you can just talk a little about the Lockheed (inaudible) Sim-Industries and L-3, and how aggressive they may or may not be on pricing? Because we are hearing it is relatively tough out there?

Okay. Let me break those up. First question, I think we delivered nine simulators in the quarter, and 39 for the year as a whole.

Okay.

And pricing, look, pricing, as I said is sharp. I mean, clearly both those competitors are, they are trying to make their mark in the business, and they are investing and pricing reflects it. We have seen that before, and we are seeing it again. But overall, I think that we will be able to maintain -- we will be able to maintain our leadership in the market and that is going to be our target.

Having said that, it is -- we are going to be prudent. And a lot of our competitive strategy involves --pricing is certainly a factor and we have to be sharp, but in the end we try to differentiate our offering. And I think we are fairly successful in differentiating, in using our solutions approach. That is why you have heard me say in the past, we have been really guiding people to think about a combined Civil margin. Because a lot of cases we might want to -- as we give a bundled solution, sometimes you will be oriented more towards a solution in services, and -- or various types of products. And sometimes even involving pilots, to be able to have a competitive offer against companies that may not offer that full solution.

Okay. And if I just could squeeze a quick one in there. Do you see a move on right now of, we take care of our own kind of made in America with the loss of the KC-46 to Flight Safety, are you seeing a move on to kind of in-sourcing production into the US? I know you have a good presence down in Tampa. But maybe just a few thoughts on that?

No, I really don't see that. I believe -- clearly we are -- the only thing I can say is we are disappointed to have lost the KC-46. I think we really put a bid -- put a good bid in. And I think the customer is very smart. I think they were -- it was as we always expected, it was a very competitive competition. Clearly, there was five very credible, strong players in there competing for the business. And in the end, we scored, CAE, we scored the top of the range in all of the categories measured by the US Air Force procurement. And in the end, it became a price shootout. And I think that -- I don't see any evidence, or do I believe that there was any kind of nationalism play there.

Once again, do you think pricing is -- because these guys are just getting -- military guys are getting a little more desperate, that the pricing is getting more aggressive there as well.

You mean the -- ?

Yes, just overall, as guys get a little more desperate, that the pricing gets a little tougher.

Well, I think, look, there is no doubt that when you see a program like the KC-46, there is not that many around of that size.

Right, right.

So clearly, whoever gets it, gets a backlog that is going to last for a long time. And our view is to have -- that is a good margin, a good backlog is great. But a great backlog with not a great margin, you suffer with that a long time as well.

Right.

So we are prudent, and we would like to win it. But we didn't base our strategy or outlook -- anybody that has followed what I have said over the last few years, on one of the meetings or on this call, has said, that although I felt our chances were very good on that program, I certainly wouldn't have baked our full strategy and the outlook that we give, on winning that program. Purely because, I mean, there was going to be at least four, or now five competitors. So I think that reflects the situation.

But clearly, there is -- coming back to your question, everybody wants to win in the military, so everybody is try -- there is -- it is -- it does become, at some points like it was in KC-46, a price shootout. But I feel very good about our ability to win. As you go back, I mean, your question of nationalism, remember that we won the KC-135 -- (Multiple Speakers).

That's true.

-- contract. So that's a fairly big contract in itself. And we just got repeat orders in the quarter, involving the boom operator training. So we are adding onto that. So we are quite comfortable, although disappointed.

Yes. Okay. Thanks, Marc.

Our next question comes from the line of Cameron Doerksen with National Bank Financial. Please go ahead with your question.

Yes, thanks. Good afternoon.

Good afternoon, Cameron.

Question on the -- I guess on the outlook, specifically in Military. You have talked about the bid pipeline. And I guess, to some extent, Marc, the answer to this question is going to depend on how the timing of these awards come. But can you maybe just talk about what your expectation is for military revenue growth or declines in fiscal 2014?

Look, it is very hard to answer that question precisely, because I think you answered it yourself in saying, it all depends of order -- orders coming to fruition. And unfortunately, I don't give a lot of great outlook on that. But I think, what I said in my call is, I believe we will have resiliency in this market. So you can say, plus or minus, what we did this year, more plus than minus, I would say. So to me, we got a good backlog.

We are starting the year pretty close to where we were last year, in terms of what we have got booked. Again I look at, we have got CAD2.1 billion of orders that have -- that we have got proposals in, they are great proposals. So I fully expect that we will be able to sustain the business. I don't think we are going to shoot the lights out. But neither do I think we are going to go down that much.

Okay. And then just maybe if I could also squeeze in another quick one, just a similar vein, just on the full-flight simulator orders. You have typically do -- give us a number on what you expect for the coming year. I am just wondering if you could give us a rough number again?

Well, we usually give that in Q1, Cameron, and I am going to buy myself another quarter to do that, the Q1. I suspect it will be -- the production rates haven't really changed. They are still high. So I mean, you would expect that just -- going as an indication, it will be another strong year. Great. That's it from me. Thanks. Thank you.

Our next question comes from the line of Fadi Chamoun with BMO. Please go ahead with your question.

Hi. Also a question on the outlook. On the Civil aviation side, I mean, there is a few things going on here. You talked about redeployment of some sims, and the weak environment in Europe, the pricing environment is somewhat competitive I guess on the product side. But demand is getting better. Your utilization is low and probably rising, Oxford integration So can you give a sense -- if you shake all these things sort of going into the next 12 months, do you see scope for margins to improve? And do you still see that 19% target margin in Civil aviation in your eyesight?

Well, I think, Fadi, that you have highlighted exactly all the moving parts this year, that makes a precise answer difficult. I mean, clearly, you are right. I mean, the one I think you haven't highlighted there. But we, as I said on the -- on my remarks, I would expect that we would -- well, not to expect -- we will realize this extra CAD11 million range of cost synergies from Oxford. Because we are shutting the facilities down, so those costs will come forward as reductions. We will see higher volume. We have new simulators coming online. We have others that we moved, that will be moved, and now starting to earn revenue where they are at.

We have others that we are -- because of the situation in Europe, I mean, that has a bit of a compounded effect. In the one hand, it is more difficult. I have seen in Q4, there has been a reduction in activity in Europe. But really for us is -- that gives us -- our reaction to that, most likely is move more sims out of Europe into regions that -- where the demand is much higher. I mean, that has a short-term effect. It has a positive effect on capital deployment, because we are going to put sims anyway, so it probably offsets some capital.

But look, coming back to your question, I think, if you take all those factors, it makes a precise estimate of margin pretty difficult. But what I would tell you, my expectation, look, we said that 19% is -- with the market, at the top of the market in commercial and civil aviation coming back. And I think those assumptions are still intact as a combined Civil margin. I -- with all the factors we have, I don't think we are going to get there this year. I don't expect business aircraft to come back to that level. That is just a start.

But if I look at where we finish this year, I think we should do better than that. If you ask my best estimate of that -- this right now, I think you are talk -- I would say 17%, 18% on average, as a full year average. But targeted the -- targeted towards the back end of the year because -- precise -- mainly because we are going to continue to move sims. And the other factor is we talked about on the previous question is the competition. And that is a wild card that will, in the short-term could affect products margins. And if we put a -- bring a solutions approach to it, you might want to -- we might want to give a little bit on product margins towards a higher service margin.

But the service margin, of course, realizes itself over a matter of time, so it is not short-term. So, look, I think we will do a little bit better. I think this year we are in the 16% range. I think we should do better than that as an average for the year. Again, more back ended, but I don't think we will get to 19% this year.

Okay. The other question is of the same sort on the military side. So your book-to-bill is pretty on the weak side for the product, and stronger on the services side. Does this suggest that you maybe some -- unless you get some orders product-wise, you are probably going to see some pressure on the margins this year? Like how should we think about Military margin given that mix?

Well, Fadi, we have to get product orders. There is no doubt. Because as you well know, the product orders turn to revenue faster than service orders. So clearly, that is a strong focus of ours, is to get product orders. So, look, I mean, in the end, it depends what your assumptions are. At the moment, we are -- we feel we will be able to get the product orders to sustain the margins. But I think our previous margin outlook is probably -- Stephane, you want to add to it?

I look at what the kind of margins, Fadi, we generated in Mil this year at 13.5%, 13.6%. You may recall in the second quarter, and I have talked about it in my remarks, there were a few one-times that sustained the margin up. But if I remove all these one-times for the year, our Military margins really, the starting point is close to 12.5%. And the way I look at it is, you need two things to happen to get back to the kind of levels where we have been in the past.

The first thing is, obvious, restructuring the -- having the right cost base. And the second thing is the -- getting some more volume. Just in terms of trend, we -- I think we will expect margins to be higher on the product side, and a bit lower on the service side going forward. But if I look at where we finish the year, going back on my 12.5%. And we have benefited from good program mix especially in the second half of last year, I think that as you -- in order for us to get back to 15%-plus margin, you probably have a 2 percentage points related to adjusting our cost base, which we are in the process of doing. As we said, we are completing our restructuring in the first half of this year. And probably another 2 percentage points related to getting some volume in. But I think as a starting point, I think the way I look at my portfolio in Military today, we probably have a business that is running at anywhere between around 12% -- 11%, 12%, and about 2 percentage points when our business is fully restructured in Europe, another 2 percentage points with higher volume.

Okay. That's great. Thank you.

Our next question comes from the line of Benoit Poirier with Desjardins Securities. Please go ahead with your question.

Yes, good afternoon. Could you maybe provide some color about the implication of the bidding for the KC-46? I am just wondering if the costs were [incurred] already, if it negatively impacted your margin? Or if it will impact the margin in Q1? Thanks.

No, everything was expensed, Fadi -- or sorry, Benoit.

Okay. Perfect. Any comment about the magnitude of that cost?

We wouldn't disclose it, no. I wouldn't get into that. I mean, it is a big bid, so it obviously cost money, no doubt about that. But we -- that is competitive information we wouldn't want to give, Benoit.

Okay. Perfect. Thanks for the time.

You're welcome.

Our next question comes from the line of David Tyerman with Canaccord Genuity. Please go ahead with your question.

Good afternoon. A couple housekeeping questions. I was wondering if you could give us some thoughts on tax rate for fiscal '14 and CapEx for fiscal '14?

I can certainly do that, David. We -- so as you have seen, the tax rate -- and the way I think I would look at the tax rate this year, although 13% in the last quarter was very low as I explained, that resulted from good news for us, successful closure of some tax audits that we had in different parts of the world. And it provided a net benefit of about CAD0.02. So excluding that item, our tax rate in the fourth quarter would have been at 22%. Now if I take the whole year, and I carve out all the noise and the one-times that we had in the year, I get to a 24% tax rate. That is for fiscal year '13.

Now going forward, thinking about some of the dynamics that Marcus talked about with the -- our German operations being restructured next year, that is a high tax rate jurisdiction. So you -- I would expect a higher taxable income coming our way from Europe, in Germany, from Europe as well. From once the -- we get the cost synergies going in Oxford, we either -- we see some growth in the US which is a high tax rate jurisdiction as well. So I would expect a higher tax rate next year. I think 26%, 27% rate is a good number to use.

Okay. That's great. 26%, 27%.

Yes.

And the CapEx?

Well, CapEx, we finished at CAD155 million. I wouldn't expect that figure being very different next -- in the next year. We are -- there is still some moving parts in the number of sims that are being relocated. So we will update you, as we continue progressing that, going through that exercise. But I wouldn't expect a big increase in the -- in fiscal '14 from the CAD155 million that we finished at.

Okay. That's all very helpful. Thank you. And just one other quick question on the -- amortization of intangibles seemed to go up in a lot of categories in Q4, unusually high, SCC, TSM and New Core Markets. Was that just truing up of the year? And I am just wondering, how should we think about that when we are modeling?

No, I mean, it is a good point. I think -- I mean, we have -- we still are going through a ERP implementation. And we have achieved some successful milestones during the year. And as soon as we hit full implementation of some modules, we start depreciating the asset. So that is one part of it. The other part of it is obviously, the amortization of intangibles that we recorded as part of the Oxford acquisition. So there was nothing completely unusual in the amortization of intangibles in Q4. So I think it is a good proxy to use going forward.

And if I may, while I am on some of these items that I think are important for, to think about our profit level for next year. The interest line has moved as well, from the beginning of the year to the fourth quarter. We finished in the fourth quarter, I think the interest expense was CAD18 million. And this is really a good -- I think a good proxy going forward, simply because it factors in all the refinancing that we did during the year. So I would expect tax expense around CAD18 million, CAD19 million per quarter in interest expense in the -- per quarter in fiscal '14.

Thank you very much. Very helpful.

Okay.

Our next question comes from the line of Ron Epstein with Bank of America. Please go ahead with your question.

Hi, good afternoon, it's Elizabeth in for Ron today. Just one other housekeeping question. Did you touch on what restructuring expense would be in 2014?

In 2014?

Yes.

No, we -- I mean, we don't expect to have any in 2014. We have closed our restructuring expense in '13. And then we -- and there is still some restructuring activity, some people still have to -- some people will be leaving the Company in the first half of the year. Because it takes more time to complete the whole process with some of the employee unions in Europe, but we have provisioned for all that in fiscal '13.

Okay. Great. Thanks so much.

Operator, we do require the remaining time for members of the media. I would like to thank members of the investment community for joining us on the call. And I will be available after this call to follow up with anyone who may not have had their questions answered. So operator, would you please open the line to members of the media?

Absolutely.

(Operator Instructions)

There appears to be no questions.

Operator, if that is the case, then perhaps we could reopen the line to members of the investment community who may not have had their questions answered. Can you -- ?

Perfect. Yes, sir. We do have one more question from the line of Chris Murray with PI Financial Corp. Please go ahead with your question.

Thank you. I was wondering if you could talk a little about the success you had in the quarter with booking a pretty strong level of orders in training and services civil. And I was wondering, is this a --sort of an indicative trend? Or was there something special in the quarter that actually drove that level as high as it did?

Well, there is a number of -- won't delve into detail there but -- I think it is indicated, in the sense that there is a few of those that involved longer duration service type deals. And that is the kind of things we want to go after. We like to do that, part of a solutions offering. So I mean, when you get those, you are maybe getting a few years at once of revenues. So there you get a good backlog from that sense.

Okay. And I guess what I am trying to think of -- is that a function of letting you plan, either a higher utilization over the next little while, and maybe be able to plan the deployment of some of the Oxford assets more efficiently?

Yes, absolutely. Because really what it does is, gives you visibility of the anticipated train load in any one of your centres or simulators. So then you can count on the revenue being there, because you have already signed them up. So then it becomes -- I mean, the only variation then is, well, the airline may have signed up say, for three years of training. And when they send their pilots, might vary depending when they are flying the most or not. But by and large, it gives you a very good base of business to predict your level of activity.

And Chris, this is Stephane. If you look at the MD&A, you will see we disclosed a number of contracts signed in the quarter. And the, I mean, good news for us, they are really long-term by nature. So that is why you see a bigger value of order intake in the quarter.

And what would -- I mean, is there a way to kind of describe what maybe the average life of the contracts would be in aggregate?

Well, some of those contracts in Civil, and I will talk more generally, because I can't get into specifics for that, for some of the customers that we signed up. We have got some contracts that go for three years, could go for five in certain cases, even 10 years. So it is a bit of a mix of different terms.

Okay. Great. Thank you very much.

Our next question is a follow-up question from the line of David Tyerman with Canaccord Genuity. Please go ahead with your question.

Yes, just a broad question on the Military side and also the Civil simulator side. Cam asked a question, and I am going to kind of ask it in a broad sense. Are things -- we are now somewhat into sequestration now. Are things better, worse than say, a year ago? Is it murkier than the year before or clearer? Can you give us any sense of that? And then on the Civil equipment side, are we still in kind of a similar environment where we have been for the last couple of years, or is it getting more competitive? I am just wondering if you could just provide any further thoughts on those two areas?

I think sequester, look, I think sequester is -- was a big event. I think the actual cuts, the drastic cuts that people predict, I haven't seen them yet. Does it mean they won't come? No, I think we see activity -- you see all kinds of things. You see the US Air Force cancelling, literally grounding 18 fighter squadrons. You see the US Navy cancelling an aircraft carrier deployment. You see FAA closing down control towers. So there is no doubt there is an effect having out there.

Now for our business, we haven't really seen a big change in the level of business that we are doing. It has created more uncertainty on the order side, mainly because -- I said this last quarter there, some of the Civil contractors that are being laid off, are some of the people that actually administer the paperwork associated with provide -- of awarding contracts. So that is creating a disruption. But we have been living in a very uncertain kind of environment for the better part of two years. And as regards to the US Military procurements, we had continuous budget resolution. Remember, we had the whole debate about fiscal cliff that leads to sequestration. All of this has -- I think it is continuing the environment, and we will see. I mean, but in the end, I don't think it changes the outlook that we have given.

From a -- Civil sim -- a Civil business, I think as I mentioned, the statistics of passenger traffic are not as high as they were last year, but they are still high. They are historically high. But again, not as high as last year. So from that point of view, things are a bit lower, particularly in Europe. If I look at competitive, yes, it has gotten more competitive. There is no doubt in my mind, it has gotten more competitive. Different competitors, I would say more competitive than last year. But if I was to compare over the history that I have been here, we have seen a number of competitors over the period of time. So as an aggregate, I wouldn't say it is not competition levels that we haven't seen before, and that we think we can't be successful.

Right. Okay. That's very helpful. Thank you.

All right, operator, I would like to thank all participants for joining us on the call today. And again, I am available for follow-ups with investors and analysts. And, of course, transcript of today's remarks can be found shortly on CAE's website, CAE.com. Thanks again, and have a great afternoon.