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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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 now proceed, Mr. Arnovitz.
Good afternoon, everyone, and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook for fiscal year 2019, and answers to questions contain forward-looking statements. These forward-looking statements represent our expectations as of today, May 25, 2018, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties.Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risks, factors and assumptions that may affect future results is contained in CAE's annual MD&A available on our corporate website, and in our filings with the Canadian Securities Administrators on SEDAR and the U.S. Securities and Exchange Commission on EDGAR.On the call with me this afternoon are Marc Parent, CAE's President and Chief Executive Officer; and Sonya Branco, our Chief Financial Officer. After remarks from Marc and Sonya, we will take questions from financial analysts and institutional investors.Following the conclusion of that Q&A period, we'll open the call to questions from members of the media. For your added convenience, we've posted a presentation on CAE's website to accompany this discussion of our performance and outlook. It provides some highlights of the adoption by CAE of the new revenue standard, IFRS 15.You can download this document entitled Supplemental Q4 FY 2018 Presentation at www.cae.com/investors. 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'll first discuss some highlights of the quarter and then the year, and then Sonya will review the detailed financials.I'll come back at the end to comment on our outlook for the new fiscal year.We had strong results in the fourth quarter and the full year having delivered on our growth outlook in all of our segments. I'm especially pleased with the increased momentum we've gained from our training strategy as underscored by a record $3.9 billion order intake for the year and a record $7.8 billion backlog.We grew earnings per share by 8% over last year and we made good progress on our return targets with return on capital employed growing to above 12%, all in all, a very good performance.Looking specifically at Civil, we booked $545 million of orders during the quarter for a 1.2x books to sales ratio, including long-term trading services in Europe and the Americas and the sale of 5 more full-flight simulators.For the year, Civil booked a record $2.3 billion in orders for a 1.44x book to sales ratio, giving it a record backlog of $4 billion, which is 21% higher than last year. This is a good indication of a considerable momentum we've gained just in the last year towards realizing our vision to be the recognized global training partner of choice.Orders for the year included 50 full-flight simulator sales and comprehensive long-term training agreements with airlines including AirAsia, Jazz Aviation, Air Transat and Virgin Atlantic just to name a few. As well as business aviation, Civil won long-term training contracts with customers worldwide, including Elit'Avia and Flexjet.Overall for the year, Civil grew segment operating income by 12%, and filled its training centers to 76% utilization.Turning to Defence. During the quarter, we booked orders for $435 million, including a -- sorry, representing a 1.5x books to sales ratio.Notable wins included a training systems integration contract for a comprehensive NH90 helicopter training solution for the Qatar Emiri Air Force, and an S-70B Seahawk helicopter training system for the Brazilian Navy as part of a U.S. foreign military sale.Highlighting the recurring nature of our Defence business, we are also awarded a contract to extend the provision of King Air 350 simulator service to the Royal Australian Air Force, and the U.S. Navy issued additional orders under the MH-60R/S Tech Refresh and Procurement of Simulators program.For the year, Defence orders included a contract extension to continue providing air crew training services to the U.K. Ministry of Defence at CAE's Medium Support Helicopter Aircrew Training Facility, and a contract to provide the UAE Air Force with a comprehensive training center for its remotely piloted aircraft. Both contracts highlight CAE's continued success to bid and win as a global training services integrator.Defence orders for the year reached a record $1.4 billion and a 1.3x books to sales ratio. And our Defence backlog reached a healthy $3.9 billion.And finally in Healthcare, we returned to growth this year and we accomplished a number of strategic objectives to enable higher growth beyond. We further developed sales and distribution, and we launched a series of innovative products.CAE Juno, our clinical skills manikin for nursing was very well received by customers, and we also introduced LucinaAR, the world's first augmented reality childbirth simulator. We made good inroads as a thought leader with the release of anesthesia sim stat, a screen-based simulation approved by the American Board of Anesthesiology for maintenance of certification credits. And we formed a new partnership with the American Heart Association for the delivery of lifesaving AACE courses in certain markets. We also leveraged CAE's expertise and augmented reality with innovative training solutions for medical device OEM, Medtronic and Abiomed.These examples define CAE as the innovation leader in simulation-based healthcare training and education.With that, I'll now turn the call over to Sonya, who'll provide a detailed look at our financial performance. I'll return at the end of the call to comment on the outlook. Sonya?
Thank you, Marc, and good afternoon, everyone. Consolidated revenue for the fourth quarter was up 6% to $780.7 million, and quarterly net income was $100.1 million or $0.37 per share, which is up 19% compared to $0.31 in the fourth quarter last year before specific items.For the year, consolidated revenue was up 5% to $2.8 billion, and annual net income was $347 million or $1.29 per share. Excluding the impacts of the income tax recovery related to the U.S. tax reform and net gains on strategic transactions involving our Asian joint venture, net income would have been $297.3 million or $1.11 per share. This compares to net income last year of $278.4 million or $1.03 per share before specific items.On this basis, annual EPS was up 8%. We generated $117.3 million of free cash flow in the quarter and $288.9 million for the year, which represents an annual cash conversion rate of 97%, excluding the impact of the aforementioned items. This is in line with our annual average conversion target of 100%.In fiscal 2018, we generated higher earnings, which converted into higher cash provided by continuing operating activities. This was partially offset by investment in noncash working capital in support of our growth and mainly as a result of timing on accounts payable and work in progress. Overall, a good year from a cash flow standpoint, and we expect to continue our focus on improving noncash working capital efficiency in the year ahead.Uses of cash involved funding, capital expenditures for $57.4 million in the fourth quarter and $173.9 million for the year, mainly for the deployment of new simulators to our global network in support of customer-led growth opportunities.This figure also includes the acquisition of existing simulators from third parties. In line with the customer-driven accretive investment opportunities that we see in fiscal 2019, we expect to deploy about $200 million of CapEx, mainly in support of growing customer training outsourcings.In terms of relative capital intensity, CAE's annual CapEx has continued to decrease as a ratio of total operating cash flow. Our existing asset base generates a high level of recurring cash flow. And in addition, the simulators we've deployed to our network in support of growth over the last 5 years have typically ramped up within about 24 months to generate accretive incremental returns and free cash flow.In other uses of cash, it included the distribution of $89.9 million in dividends for the year. In addition, we repurchased and canceled approximately 2.1 million common shares under the NCIB program during the year for another $44.8 million.In all, between the dividends and share buybacks, CAE returned a $134.7 million to shareholders during fiscal 2018, which represents a 10% increase over last year.Looking at capital returns, we saw significant increase on return on capital employed to 12.3% from 11.2% last year. As well, CAE's financial position became even stronger with net debt of $649.4 million at the end of March for a net debt to total capital ratio of 21.5%. This is down from $750.7 million or 26.5% of total capital at the end of last year.Income taxes were $13.7 million this quarter for an effective tax rate of 12%. This compares to 17% in the fourth quarter last year. The decrease from last year was mainly due to a change in the mix of income in various jurisdictions, mainly from the recognition of deferred tax assets due to our increased profitability in certain European countries.Excluding the effect of this item, the income tax rate would have been 23% this quarter. For the year, excluding the impact related to the U.S. tax reform, the recognition of deferred tax assets and net gains on strategic transactions relating to our Asian joint venture, the effective tax rate would have been 21%.Now turning to our segmented performance. In Civil, fourth quarter revenue was up 9% year-over-year to $455.2 million and operating income was up 14% to $95.7 million for a margin of 21%.For the year, Civil revenue was up 5% to $1.63 billion, and operating income before the net gains on the strategic transactions relating to our Asian joint venture was up 12% to $306.2 million for an annual margin of 18.8%.In Defence, fourth quarter revenue was $290.4 million, was up 3% over Q4 last year, while operating income was up 17% to $38.7 million for an operating margin of 13.3%.For the year, Defence revenue was up 5% to $1.09 billion and operating income was up 6% to $127.7 million, representing a margin of 11.8%.And in Healthcare, fourth quarter revenue was $35.1 million, up from $34.2 million in Q4 last year. Healthcare segment operating income was $6.7 million or 19.1% of revenue in the quarter compared to $4.1 million or 12% of revenue in Q4 of last year.For the year, Healthcare revenue was $115.2 million, up from $110.7 million and segment operating income was $8.8 million, up from $6.6 million last year.Before I turn the call back over to Marc, I'll say a few words about the new accounting standard IFRS 15, relating to revenue from contracts with customers, which CAE adopted as of April 1, 2018.This standard changes the way that we recognize revenue for certain customer contracts. Impacting mainly the timing of revenue recognized for Civil simulator products, which are currently accounted for using the percentage of completion method. Under the new standard, revenue for these products will instead be recognized upon completion.This change impacts the timing of contract revenue on profit recognition, which may result in some quarterly volatility. But there will be no change to milestone payments and cash flows from contracts.The impacts of IFRS 15 on our fiscal 2018 results can be found in Note 2 of our annual consolidated financial statement and in our supplemental Q4 FY 2018 presentation.For the fiscal year 2018, the net impact of the new standard was a $0.01 deferral of EPS.With that, I will ask Marc to discuss the way forward.
Thanks, Sonya. CAE continues to benefit from steady secular tailwinds in each of our 3 core markets of Civil, Defence and Healthcare. And we're well positioned for sustainable profitable growth.The macroenvironment is highly supportive and just as encouraging, if not more so, is a momentum we currently have in the market as a credible training partner for our customers.As we look to the year ahead, we expect CAE to exceed the growth rate of our end markets, as our large pipeline translates into even more opportunities for market share gains and new customer partnerships.In Civil, the market fundamentals are well supported by continued passenger traffic growth and an expanding global in-service fleet of aircraft.So far in 2018, we've seen continued high rates of commercial passenger traffic growth, especially in high-growth regions like Asia Pacific, where CAE is highly active as a training partner.The Gulf continues to be well in excess of the long-term global average of about 4%.Pilot training demand is fundamentally driven by regulations, governing of flight crews, who operate the global in-service fleet and incrementally by the large number of new pilots, who need to be trained over the next decade.I remain highly encouraged by CAE's prospects in this environment. CAE is a pure play training services company that's well defined as an innovation leader with the largest and broadest global training network and the most comprehensive offering of cadet to captain training solutions.We're harnessing the latest in augmented and virtual reality and the power of digital with new data-driven solutions. For example, we commercialized CAE Rise in fiscal 2018 to provide our training customers with a powerful new tool capable of objective pilot assessments and providing much deeper training insights than previously thought possible.We currently have an active pipeline of airline outsourcing opportunities, and I believe our well-differentiated position gives us even greater potential for more long-term recurring training partnerships for CAE.Commercial aircraft deliveries drive full-flight simulator sales, and with major commercial aircraft OEMs still delivering aircraft at high rates, we expect continued good demand for our products and to maintain our leadership position. We sold 50 full-flight simulators again last year, and we're off to a good start in the first couple of months of the new fiscal year with our first 10 already sold.In business aviation, we've been doing very well to address the existing market. And I'm encouraged by the signs of improvement we've continued to see with increasing business jet utilization. CAE is well positioned to provide its customers with an excellent experience and to continue gaining market share.For Civil overall, the year ahead looks bright, and we expect to continue generating low double-digit percentage operating income growth as current momentum for our innovative training solutions translates into market share gains and new customer partnerships in commercial and business aviation training.In Defence, the macroenvironment is also highly supportive with governments around the world placing a high priority on mission readiness and looking for outsourcing alternatives, involving industry partners like CAE for the creation and maintenance of critical operations personnel.Hereto, we're seeing increased momentum as we continue to convert our large bid pipeline into orders. We believe CAE is well positioned to continue growing its share as a training systems integrator inside of a $17 billion market.Current bids and proposals, pending customer decisions, is currently as high as ever at over $4.5 billion. Last year, we continued to demonstrate our ability to bid and win as a top-tier training systems integrator, and we're already off to a solid start in fiscal 2019 with a recent win of a 5-year, $150 million contract to support U.S. Navy pilot training.We'll be providing instructors at 5 naval air stations to support primary, intermediate and advanced pilot training for U.S. Navy, Marine Corps and Coast Guard aviators using a combination of simulators and the T-6B Texan turboprops and the T-45C Goshawk jet aircraft.This is yet another strategic win for us, demonstrating the Navy's recognition of CAE as a world-class provider of comprehensive training solutions and services.We expect a positive momentum in Defence to translate into mid- to high single-digit percentage operating income growth in fiscal 2019, as we deliver on contracts in our backlog and continue to win our fair share of orders from a large pipeline.And finally in Healthcare, we expect to resume double-digit growth this year with the benefits of our broader market reach and expanded products offering. As well, we have a development pipeline of innovative solutions, which we'll continue to launch during the year to increase CAE's share in relatively large segments like nursing. We maintain a positive view of CAE Healthcare's long-term potential, as the use of simulation expands for education and training. And we remain confident that Healthcare will become a more significant part of CAE's overall business.In summary, CAE has the benefit of an increasingly recurring base of business and significant headroom for long-term profitable growth inside markets that are themselves experiencing secular tailwinds.Our strategy and training is working well, and we have the momentum to continue growing at a superior rate to our end markets. We take great confidence in the strength of our position as an innovation leader, and increasingly the recognition of CAE by customers as the global training partner of choice.With that, I thank you for your attention, and we're now ready to answer your questions.
Thank you, Marc. Operator, we would now be pleased to take questions from analysts and institutional investors.
[Operator Instructions] And we'll get to our first question on the line from the line of Fadi Chamoun with BMO Capital Markets.
I wanted to ask, first, on the Civil side, the guidance, is this off of the base of restated EBIT base of $311 million?
Yes. So the guidance is based on the normalized, which excludes the transactions during the year and restated for IFRS 15. So all of the guidance that we've provided is on an apples-to-apples basis, so on the restated FY 2018 numbers.
Okay. And so I mean, this year, you've had a pretty decent conversion from revenue to operating income in Civil. I think, revenue growth 5%, operating income growth was 12%, and almost twice the conversion was seen in the prior 3 years. Was there something specific helping this year? And just secondly, related to that, what can this segment do in operating margin, ultimately, as you continue to benefit from the strong cycle? Can we see a 20%, 21%, like what's the possibility on the operating margin in this segment?
Well, a lot of it comes from the utilization, I think, increased utilization, Fadi, that does it. You look at, for example, 82% back in this latest quarter. And that, obviously, has an effect as we throw more revenue at sort of quasi fixed-cost assets. The other thing that comes into play which holds promise for margins in the future is the yield, the extra yield provided by throwing more revenue off the same assets and not only realization, but by us doing wet training. And that's a goal we've had, and we've been successful this year. And finally, mix, mix is a big issue, because we have a number of components in the business depending on, utilization comes from business aircraft rather than commercial. And even in commercial, there's different parts of the world. And so there's a lot of things that play in and that explains that, most of them positive this year as you have seen. And yes, I think, for the future, I think we just basically take it to our outlook in terms of the income growth. That's really what we should focus on. Not that margin is not important, we're quite happy with those margins, but I think, we really hang our hat on SOI percentage growth itself, because we have a better view on that one with any precision. And really that's really what comes into play on when you look at return on capital employed, of course.
Okay. Just 1 quick one on the CapEx. I mean, you've generated more cash flow in the last couple of years than what the market opportunities to reinvest have been, and your balance sheet is pretty strong at this point. Are you seeing more opportunities to grow or to invest for growth? Or is there kind of an opportunity here to look at distribution a little bit differently in the next year?
Well, I mean, our priorities don't change, which is always like growth is #2 -- is #1. And your answer to, I see more opportunities? Yes, and accretive opportunities. I mean, we -- and we look at them specifically on that. And I think our results on the return on capital employed growth proves that we're focusing on that accretive nature. And yes, we see more opportunities out there. I see -- I think I signaled that before but I'm seeing more of an appetite for airlines, specifically, to want to turn over more of their training to us specifically. And I see -- I don't see that abating. So I think there will be opportunities for us. But sometimes, they're episodic, right? We can't predict exactly when we might close them. But on a large -- on a macro base, I think there's opportunities for us to do that, and of course, still maintain the kind of distribution that although we never really guarantees. But you've seen our pattern on distribution, on cash returns to shareholders now with the dividend and the buybacks that we've done. I don't see any reason to expect that. We would change that materially. But we'll see, depending on how successful we are, on deploying that cash. We had -- we'll hold our powder to dry, and take it when we get to that point. But coming back to it, there are opportunities in market for us to deploy that capital accretively.
And just if I add, Fadi, so like Marc said, we continue to see good market opportunities. And the assets that we have deployed so far in the last few years, that are market-led, have ramped up quite quickly to generate accretive return, support growth and just add to the recurring cash flow generation. So to the extent we continue to see that, we'll continue to do so to invest. And we often look at the CapEx as an absolute number, absolute value. But the company has grown. And if we look at it from a capital intensity perspective, the CapEx as a proportion of operating cash flows, the intensity actually is decreasing, right? And so invested and growth continues to be our first priority. Of course, we always balance it with a view on the return for shareholders. And as Marc mentioned, pretty good track record there with 7 years of dividend increase from NCIB in the year. And $135 million of cash return to the shareholders this year, which is a 10% increase year-over-year.
We'll go to our next question on the line from the line of Kevin Chiang with CIBC.
Maybe just following on Fadi's question there around where margins can go. You spoke about the opportunity to improve yields shifting from dry hours to wet hours. With the utilization at 82%, are you finding it -- are you able to accelerate that shift, I guess, to improve that yield, given your utilization is so high now? Or are you able to push it? Or is it more fluid and it kind of comes and goes, depending what the customer chooses from your service offering?
Well, I think it does. We -- I mean, 82% is high. Can it get higher? I guess, theoretically, yes. Because 100%, we define 100% depending on the market like 6,000 hours in commercial aircraft, for example, 4,500 hours on business aircraft a year. But I can tell you and I've said this in the past that some of our training centers are operating significantly above 100%. So is it possible? Yes. But, of course, our training centers are recently distributed all over the world. And we've had a pretty good market. So it really depends on how the market continues to grow across the world. That really is part of the answer on utilization. And more than that as well as you were saying, yes, just in your question, the mix of customers, like, for example, business aviation, in the past -- and if we go back, I mean, business aviation is a bit -- is a little bit better than we've seen in the past, recent past anyway. But it's still nowhere near the level it was prior to financial crisis of 2008. So if you see -- if we see business aircraft coming back in any material way, then that could have a quite significant benefit to not necessarily margin growth, yes, but operating income growth.
That's helpful. And maybe just a quick one for me on Healthcare. I noted some of your disclosure, you talked about a lower R&D is helping boost operating income. Should I read that as a sign that you've hit a maybe a maturity level within your product profile there? And maybe conversely a sign that fiscal 2019, we should start seeing maybe a more significant improvement in profitability within Healthcare? Is that something we can look forward to over the next, kind of, 12 to 18 months?
Well, we're focusing on growth on -- in Healthcare. That hasn't changed. We believe the potential for the market is significantly larger than the business we have today, the market opportunity. And a lot of it has to do with gaining share in the markets that really hold a large pool of value today, that's being served today, like, for example, nursing. So we've launched new products, CAE Juno, specifically. That -- that's -- the market receptivity to that product has been very good. To your question about R&D, no, we haven't taken our foot off the pedal. We continue to invest both there and in SG&A, mainly sales force marketing, expenses to continue to grow the business. But with top line growth, bottom line growth will come, because as I've said in the past that the margin of the products we have is very good. I would say so. We have room to do both top and bottom, and that's our expectation.
And then to add to that, so the R&D expense did go down a little bit this year. But it really is a reflection of the cycle we were in with some of our product development. So you'll note that the capitalized R&D is higher because we were in development mode, because we did launch quite a few products this year. So that R&D expense did go down. But what I would argue is that it got replaced or -- with added investment in our product launch, expenses, marketing and also on the SG&A and our sales force incentive to launch these new products.
We'll get to our next question on the line from the line of Cameron Doerksen with National Bank Financial.
Just a follow up on Kevin's question on the Healthcare. I think one of the things you cited also in the margin in Q4 was a remeasurement of royalty obligation. I'm just wondering if you can describe what that impact was? And I guess, what I'm trying to get a sense of is, what is kind of a more normalized margin for Healthcare at this type of revenue level at $35 million, because obviously, revenue is going to continue to track higher? And I want to get a sense of where the margins can go?
Yes. So there was a benefit in the quarter from a kind of onetime lower royalty expense. So there was a bit of a benefit in the quarter. But over the year as I just mentioned, we did invest a lot of onetime costs in SG&A and product launches. So over the year, the benefit is basically neutralized. So the way that I would look at it is over the annual year, the growth in revenue and the growth in SOI is a little bit more indicative. But of course, this is a business that has pretty good gross margin. And so we are continuing to invest in products and launches and SG&A. But as we grow volume, we should see that dropping to the bottom line and to the SOI.
Okay. Just second quick question on, I guess, on Defence. I mean, obviously, there's a terrific pipeline of opportunities there for you. I'm just wondering if you can maybe just talk about any potential sort of larger longer-term training contracts that you have currently that might be up for rebid. Is there anything that's at risk in the current revenue stream on Defence for this year?
We have a number that'll come out over the next few months. When I say next few months, 1.5 year approximately. There are specific coming up, I can think of. And I have to look at detail here. But I think the KC-135 contract is coming up over the next couple years, I'm not sure what day. Also, the training that we do for the unmanned air vehicles, the Predator, the Reaper, that's up for rebid in, I think, in the next year, next few months, I believe. The -- I'm just consulting my notes as we go here. But actually, I'm just told that KC-135 is not this year. Predator, Reaper is this year. So those are the ones I can think of. But having said that, we think we have a pretty good shot to have the incumbents on those programs. And -- but it will be competitive, there's no doubt about that. Because they're good contracts. But at the same time, there's a lot of contracts that are -- they are coming up for bid in other areas, like, for example, just pick one, the C-17 in the United States, that's coming up. And we -- as I said, we have about $4.5 billion of active bids that are -- have been submitted, and we're waiting for decisions on those. Yes, I think you take all of that basically is the nucleus of the outlook that we have for Defence this year.
We'll get to our next question on the line from the line of Turan Quettawala with Scotiabank.
I guess, I wanted to just ask firstly on the gains. Is it possible, Sonya, to divide those up between the segments?
So not much in the quarter. In fact, we had -- in that other gains and losses, we had bit of a headwind with FX. The most significant item was essentially a gain on the disposal of an asset in Civil and from our network to a customer. And that we regularly meet customer needs either through new simulators, kind of partial builds, of course, custom or some of our networks. So we consider it part of our normal course operation. It's simply accounted for other fixed assets rather than inventory. So that would be the larger item.
That's helpful. No, I understand that. I am just trying to figure out the segment numbers there. That's helpful. And I guess, maybe just 1 more question for me here in terms of, as you look at the outlook here and we look at sort of all the segments, things seem to be really doing really well on all the segments for the most part. Marc, is there something that you're worried about in terms of a risk? What's -- what do you think could go wrong here potentially?
Well, I mean, obviously, by giving in the outlook for a public company, I'm pretty confident in the outlook, obviously, but there's always risk. There is the risk of the usual ones of competition. I mean -- and for example, I was just talking on the previous question with Cameron on the Defence bids, I mean, yes, we have active bids. But although, we have a very large backlog, there's still a -- not an insignificant portion of the SOI that we'll have to generate this year that got to come from the wins we will win this year. So clearly, we have to win them. But we -- having said that, talking about both sides of my mouth, if you like it, we have backup plans to make sure we do. So that's part of the risk, I would say, on -- otherwise, there's competition in -- nice competition in Civil as well. There are lot of players that see the same market as we do, so they'll be aggressive. And there's price competition. So those are the usual ones. So we expect that we're going to be continuing to be able to win our fair share. And I think barring any black swan events that we can't control, I think it's mainly competition that is the real issue here.
And we'll proceed to our next question on the line from the line of Benoit Poirier with Desjardins Capital Markets.
Just to come back on the bidding proposal, I mean, it's been up from $4 billion to $4.5 billion. Could you talk a little bit about the mix inside? Just to want to get a better understanding, the mix between equipment and services. I know the focus is on TSI, but trying to gauge whether we could see some margin expansion from the 11.8% EBIT margin you achieve in fiscal '18?
I don't have the exact -- and actually, the number, of course, closer. And I think we said $4.5 billion, but it's more $4.7 billion, I mean, within that spitting distance there in terms of the bids we have out there. look, I can't really know -- I can't tell you offhand with precision right now but maybe we'll get back to you on the -- and in fact, I really don't know if we haven't put that out but this could be in products and services that we...
Yes, I think, Benoit, you should assume that it's going to profile pretty much like the other TSI deals that we have brought in and as examples. Where there is usually a long sort of long-tail services component. And it's one of the reasons why really our guidance, our outlook continues to be based on operating income dollar growth as opposed to margin specifically because depending on how these programs flow through in product service mix will be as much or more of a determinant of margin percentage than anything else. And as we look at our backlog in aggregate in Defence, it's probably about a 12% backlog if you could process it all at once, which you can't. And so the variations you see from quarter-to-quarter are really described mainly by the differences in product service mix.
I see. Okay. That's interesting. And when we look at Civil, you finished the year with 50 orders and you're off a good start. So any thoughts about what type of numbers we could expect for the full year in fiscal '19, Marc?
At this point, I'd say, look -- precising my answer, I would say the dynamics haven't changed. It's really the -- we expect to continue to win, to be leader in this market, like, I will say 60%, 70% market share. We do like to make money off when we sell it -- when we sell these, so that's why I'm saying 60% to 70%. But it's really based -- the catalyst here, as you know, is really the production rates at the OEMs. And the production rates at OEMs are still very high. And they have -- they are not going to change materially during this year. So I'd expect in the 40s. That's what I would expect at this juncture. I can't give you a lot more precision on that because a lot of it depends on multiyear purchasing, like some of the ones we won last year are sims that people are ordering that -- they are going to cover for next 3 years. So depending on the mix of customers we have, it really depends on, are they buying for the next couple of years, or they're buying for next 10. So that's what really would depend. So -- but at the moment, I think last year, we pretty much said that, and we rather stay on the right side of that answer, if you know what I mean.
Okay. Okay. Perfect. And lastly, when we look at the U.S., it seems that there was pretty nice opportunities in 2018 looking at the T-X, the MQ-25 Boeing also with [ demand ]. So I was wondering whether you could talk a little bit how CAE is position on those opportunities? And whether it's part of the $4.7 billion proposal out there that you talked about?
Well, I don't want to get into the -- too much detail of what's in that because some of it is confidential that we don't actually say what we did on it in all cases. I would tell you it's all -- it's very international, it's not only United States. Although the pipeline of opportunities in the United States, obviously, is very good because this -- the U.S. is the biggest defense market in the world and it -- the budget's just been announced. And it's the largest budget they've had. So that's all very good. And another noteworthy thing is, I think, we'll -- CAE now has -- is now able to bid on top-secret programs, which we haven't bid in the past as a result of us recently obtaining, what's called, a proxy, which really allows us to go after, again, top-secret program. So that opens up another part of the market for us that we haven't really been able to access before. So I think that will be good for us.
Okay. And lastly, in terms of, I mean, the financial leverage, obviously, you finished the year on the strong note. The focus, obviously, it's on growth. You highlighted the CapEx guidance for this year. But when we look at the free cash flow generation also, should we assume that the debt levels will go down much further still in fiscal '19? Or any opportunities to, let's say, deploy capital outside the $200 million you're looking to invest in fiscal '19?
I'll let Sonya provide a more detailed answer on the leverage. But look, we see growth. I mean, the $200 million is based on our assessments of the opportunities that we have imminently in front of us right now, either that we've approved, that we've launched or that has a very likelihood of happening. Now over the next few months, I can see other things happening. If we get, for example, a big opportunity for outsourcing an airline, and that makes sense to us that -- well, may increase our CapEx, so it's just an example. So with that, I'll maybe turn over to Sonya. Want to add anything?
Yes. Just to add, we continually -- this is our best view of our opportunities, but as they firm up or as additional ones come up, there could be opportunities for additional CapEx whether it's straight up CapEx in outsourcing or we continue to have conversations on a good pipeline of outsourcing. And that we treat kind of like M&As, right? So that affords us that flexibility, should it be under JV format or otherwise to deploy some capital to secure some larger outsourcings.
[Operator Instructions] We'll get to our next question on the line from the line of Tim James with TD Securities.
Just a couple of quick clarifications maybe from you, Sonya. The $200 million in CapEx planned for fiscal '19, does that include any amounts for capitalized development cost? Or is that in addition to that $200 million?
So the capitalized development cost would be an addition. The CapEx is really mostly deployments of simulators to support client demand and growing outsourcings.
Okay. And then returning to an earlier question that you had in regard to the Civil operating earnings growth guidance for fiscal '19, you indicated it was based on an adjusted fiscal '18 applying IFRS 15. But when you say an adjusted, does that mean -- I mean, there were a number of significant onetime benefits in the operating earnings in Civil in fiscal '18. Is that included in the base upon which we should think about that growth rate?
No. So there's 2 elements. So restated for the 2018 IFRS impacts but also normalized out. And we've provided that deal -- that detail in the supplemental presentation. So there's the normalized number that removes the impacts of those transactions during the year. So the outlook is on the normalized basis.
Okay. Great. Then, Marc, just you were commenting earlier regarding the opportunity that still exists in kind of where the business aircraft training market is. Could you just generally characterize the utilization of your business jet training sims? And I'm trying to understand if the opportunity for growth and maybe at some point to return to, sort of, historic levels, does that require putting more sims into the network? Or are the existing business jet training simulators in the network underutilized and you can, sort of, increase the revenue that you get from those assets without investing in additional assets?
Well, I think, both. I think there is a level of -- I think, it's very rare, although there are some that are full definitely in terms of the especially some of the most recent models. Some older models may not be as full but they're quite profitable, because, for example, they're down the depreciation curve. So -- but there is definitely opportunity to add more business jet sims for sure. And that's -- that I think that we've added some and I think we will continue to add some to cater for the increased demand that we see out there in business aircraft. And I think that if I look at the utilization of business aircraft itself, it doesn't give you the whole story because it -- I think you got to look at other metrics that are -- that I think tell us that there's still a lot of growth potential to bring us back to anywhere near we were on -- in -- prior to 2008, like, for example, the -- I think the -- prior to 2008, I think business jets were operating north of 500 hours a year. And I think now they're operating on average about north of like 300, 350 hours a year. So I maybe precisely wrong on those numbers, but you get an idea of the difference. So if you get to any kind of utilization for aircraft higher -- and we now have a pretty significant impact because obviously, you need more pilots.
Okay. That's helpful. So maybe just to follow on that and if we think about eventually, at some point in time, your business jet training revenue stream or training hours getting back to that pre-2008 level, can you do that with the existing asset base? Or would there be some incremental investment required to support that historic level at pre-2008 level of activity?
No, we'll probably add some. We have still the ones we got. We'll probably add some just because there's more airplanes out there of newer models, and we'll require more sims, there's no doubt in my mind.
Okay. And then just a final question. Ended the quarter with over $600 million in cash, and you kind of touched on the leverage in your capital priorities. I'm just thinking forward over the long term here, am I correct in assuming that kind of having that amount of cash on the balance sheet is more than you would ideally like to hold over the long term? Or is that level sort of appropriate do you feel for the business?
To be flippant, I like it, Sonya doesn't. But no, look, our priority is growth. I'll let -- Sonya just talked about it. So we see opportunities, but we'll be -- we're focused on accretiveness, and we've been successful at that. And the opportunities don't come, as you say. They don't come necessarily. We don't have the luxury of deciding exactly sometimes when they will happen, when customers want to do it, when they present themselves and whether or not they will be the good opportunity for us to be accretive. But going back to what I said, we see those opportunities. And increasingly, we see our priority -- we used to have a priority. The priority was to delever it. So it is no longer a priority. You want to add anything, Sonya?
Yes. Well, we'll always maintain a solid financial position. But I think we're in a -- we have the financial flexibility to be able to invest profitably in accretive opportunities. And I think we've proved with investments that we have done that they are successful, they're market-led. The market continues to be demand and opportunities. And to the extent that they are accretive to earnings, returns and cash flows, I think, we have the opportunities to deploy that cash into more capital.
Operator, that's all the time we seem to have for analysts and investors. I do want to use the last bit of time we have here for members of the media, if there are any questions from members of the media.
[Operator Instructions] Mr. Arnovitz, we seem to have no questions queued up at this time from the media.
Okay. Well, I want to take this occasion to thank everybody who joined us today on the call and to remind you that transcript of the call will be made available on CAE's website at cae.com. Thank you.
Thank you. And ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you disconnect your lines. Have a good day, everyone.