BUSINESS

CAE Inc. Lays Off 300 As It Adjusts To European Military Budget Cuts

05/23/2012 09:53 EDT | Updated 07/23/2012 05:12 EDT
CP
MONTREAL - CAE Inc. is making the largest cut to its workforce in nearly three years by trimming 300 jobs as the flight simulator and training company adjusts to the impact of military budget cuts in Europe.

The Montreal-based company announced Wednesday that it is trimming about four per cent of its global workforce of 8,000 despite growing revenues and profits.

Most of the job cuts are in Germany, but 90 employees in Montreal were notified as of Wednesday they would no longer be needed. No engineering positions are affected. Most are general, administrative and support jobs.

CAE (TSX:CAE) said its pipeline of defence opportunities remains large as orders accelerate from high-growth regions like Asia and the Middle East.

However, European governments are cutting their military budgets resulting in lower business activity for CAE, which provides training services for their pilots.

"We are taking measures to refocus our resources and capabilities in response to this change in the defence market," CEO Marc Parent said during a conference call.

About half of CAE's workforce is located in Canada, including about 3,600 in Montreal and 200 in locations elsewhere in the province.

It will record a restructuring expense of about $25 million in the first half of fiscal 2013. About $8 million will be saved annually.

The layoffs are the largest since 700 workers were laid off in 2009 as part of its effort to trim costs amid the global recession.

Parent said CAE added about 250 employees in Quebec in the past year and raised employment in Montreal since 2005 by 27 per cent.

While refusing to rule out additional decisions if the U.S. defence budget is dramatically cut, Parent expects the company's total workforce will be higher next year as CAE adjusts to its growing backlog of work, especially in the civil aerospace sector.

"It's pretty hard to pick when you will get the orders but we had a record order intake in the U.S. this year...and I would expect that to continue in a difficult environment."

The company also announced Wednesday that Gene Colabatistto has been appointed to be group president of military simulation products, training and services. He replaces Martin Gagne who has decided to retire.

Overall, CAE's fourth-quarter profit rose to $53.2 million as it received higher revenue from its core civil and military operations as well as its new business segments.

The profit amounted to 21 cents per share, up from $45.5 million or 18 cents per share a year earlier.

Revenue was $506.7 million, nine per cent higher than $465.6 million a year earlier.

CAE was expected to earn 19 cents per share on $508 million of revenues in the fourth quarter, according to analysts polled by Thomson Reuters.

For the full year, it earned $180 million or 70 cents per share, compared with $160.3 million or 62 cents a year earlier. Excluding one-time items, adjusted profits were $183 million or 71 cents per share.

Revenues increased 12 per cent to $1.82 billion, up from $1.63 billion in fiscal 2011.

Parent said the company achieved a "solid performance" in the fourth quarter and full year, laying the foundation for future growth.

"We made significant moves in all of our business to further strengthen their positioning and growth potential," he added.

CAE's civil business, which manufactures and sells flight simulators used to train commercial pilots and provides training at centres around the world, generated $215.4 million of revenue, up nine per cent from a year earlier.

The military segment, which also provides training equipment and services to governments around the world, contributed $267.1 million of revenue — up four per cent from a year earlier.

CAE's relatively new mining and health-care segments contributed a total of $24.2 million in revenue for the quarter, up from $11.1 million last year.

Benoit Poirier of Desjardins Capital Markets said the results were "slightly below estimates" with "continued strength on the civil side but some softness on the military side."

The company's stock declined 18 cents to $10.13 in afternoon trading on the Toronto Stock Exchange.