© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
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. Please go ahead.
Thank you. 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 FY '22 and answers to questions contain forward-looking statements. These forward-looking statements represent our expectations as of today, May 19, 2021, 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 risk 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'll 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. Let me now turn the call over to Marc.
Thank you, Andrew, and good afternoon to everyone joining us on the call. Before getting into our results, I'll first share some of my reflections on how we've been managing through the maelstrom of COVID-19 and where I believe CAE is now situated some 14 months later. Sonya will provide details about our financial performance and the restructuring program that we have underway. And then I'll come back at the end of the presentation to comment on our outlook.Looking back on the fiscal year, CAE demonstrated tremendous mettle and resiliency in confronting the challenges of COVID-19 in highly innovative ways and without ever skipping a beat in terms of the critical support that we provide to customers worldwide. At the same time, as we rapidly learn to adapt to a new normal, we leaned in and fundamentally strengthened the company for the future. We took extraordinary steps to protect CAE, our employees and our customers, and I'm extremely proud of our performance and the nobility in which all of us at CAE rose up under such exceptional circumstances. We also secured our future by harnessing our one CAE culture and seized on several strategic growth opportunities drawn from expanded pipeline.We made important progress through the year to significantly enhance CAE's position for future growth. The added financial flexibility from our capital raises has enabled a succession of 5 highly strategic acquisitions that we announced over the course of the last 6 months. We expanded our ability to address the civil training market by acquiring flight simulation company in Europe and true simulation and training, Canada and North America. And we accelerated our expansion in the software-enabled civil aviation services with our acquisition of Merlot and RB Group. The latter too helped to solidify our industrial technology leadership and further expand our already large addressable markets.We also announced a major opportunity in defense with our definitive agreement to acquire L3Harris’ military training business, which will significantly accelerate our defense growth strategy and align us more closely with national defense priorities. We expect to close the acquisition in the second half of the calendar year.Over the course of the year, we also accomplished a lot organically and internally to strengthen our position. We launched new digitally enabled products and business processes, put a comprehensive program in place to structurally lower our cost base, and we bolstered key talent. The combination of these recent initiatives gives us greater potential than ever for higher growth and profitability in the years ahead.Turning to the results. Up against the sharp challenges of COVID-19, I'm especially pleased with what we've been able to deliver in the fiscal year. In the face of the biggest ever shock in the history of civil aviation and major disruptions across the defense and health care markets, CAE rebounded to quarterly profitability and positive free cash flow after only our first quarter when the brunt of the pandemic hit us. We believed early on that the year was going to be characterized as a tale of two halves, and the second half was indeed stronger, and the positive momentum of our recovery has continued throughout the year and into this latest fourth quarter.On a consolidated basis, we generated $0.22 absolute earnings per share in the quarter and $0.47 adjusted EPS for the year. Order intake was $928 million for the quarter and $2.7 billion for the year, giving us a solid backlog of $8.2 billion. This, to me, is strikingly positive when considering that global air travel dropped by approximately 90% at the peak of the crisis and hundreds of millions of dollars in expected defense contract slipped into next year or beyond.With the measures that we implemented and the resiliency inherent to our business, we also generated strong annual free cash flow of $347 million. This in and of itself, makes an important statement about CAE as a sustainable growth company in addition to the positive investment attributes including secular tailwinds, a cash-generative profile, CAE has also proven once again to be a safe port in the storm.Now turning to some of the segment highlights. In civil, average training center utilization continued to edge higher, reaching 55% in the fourth quarter and we saw sequentially higher adjusted segment operating income margins. We delivered 14 full flight simulators in the quarter and despite market and logistical challenges, we delivered 36 full flight simulators for the year in the civil business. We also continued to win new orders with $386 million booked in the quarter and annual orders totaling $1.3 billion, including comprehensive long-term training agreements with airlines, cargo operators and business jet operators worldwide and 11 full flight simulator sales for the year. Civil finished this year with a backlog of $4.3 billion.In defense, orders of $370 million in the quarter gave us a book to sales ratio above 1.1 for the first time in the last 5 quarters. And even with significant expected orders moving out of the fiscal year, defense order bookings reached $1.1 billion for a $3.9 billion defense backlog. Despite having to contend with COVID-19 headwinds in defense, especially in international markets, we stabilized the business and made excellent progress to position it for future profitable growth. During the year, we secured all of our foundational recompetes, and we won significant new competitions in our core markets and expanded our position in digital immersion, operational support and security.CAE's mission is to lead at the frontier of digital immersion with high-tech training and operational support solutions to make the world a safer place. And a prime example of that is how we're positioning defense for the future and bringing our mission to fruition. An example of that being our recent win of a flagship program in the United States called the United States Special Operations Command, or USSOCOM, to lead the integration and architecture development efforts for the special operations forces global situational awareness initiative. I really want to underscore the significance of 2 defense of our fiscal '21 wins. And in particular, this USSOCOM program, and I'll comment more on them in my outlook.Turning finally to Healthcare. We completed deliveries of the CAE Air1 ventilators during the quarter and we reached record level quarterly revenue even before the contribution from ventilators. Our ventilator initiative was an important humanitarian effort that had the added benefits of generating incremental cash flow and providing employment during a time of crisis. And the speed and effectiveness with which we developed and delivered the CAE Air1 is a testament to the unique combination of CAE's agility, our deep subject matter expertise in health care and the vast industrial and technological capabilities of the company.During the year, Healthcare continued to bolster its position as the innovation leader in simulation based health care, education and training through the launch of new AI-enhanced training tools and digital management solutions in support of our customers' training needs during the COVID-19 pandemic. We also launched CAE SimEquip simulated medical equipment, and we continued to develop transformative digital training solutions for OEMs and leading medical device companies, including Edwards Lifesciences and Cordis, a cardinal health company.With that, I'll now turn the call over to Sonya, who will provide a detailed look at our financial performance. I'll return at the end of the call to comment on our outlook. Sonya?
Thank you, Marc, and good afternoon, everyone. We continued to see good sequential performance improvements in the fourth quarter. Consolidated revenue of $894.3 million was up 7% compared to the third quarter and is 8% lower compared to the fourth quarter last year.Adjusted segment operating income was $106.2 million compared to $97.2 million in Q3 and $193.9 million last year. Quarterly adjusted net income was $63.2 million or $0.22 per share compared to $0.22 in Q3 and $0.46 in the fourth quarter last year. For the year, consolidated revenue was down 18% to $3 billion and adjusted segment operating income was down 52% to $280.6 million. Annual adjusted net income was $127.1 million or $0.47 per share, which is down 65% compared to $1.34 last year. Our disclosure this quarter provides the impact of the Canadian Emergency Wage Subsidy and other COVID-19 government support programs. We have highlighted the impact on some key metrics.During the period, we carried higher employee costs than we would otherwise have been carrying as amounts received from the COVID-19 government support program either flowed through directly to employees according to the objective of the subsidy program and the way they were designed in certain countries or the amounts were offset by the increased costs we incurred in removing some of our initial cost-saving measures, including eliminating salary reductions and bringing back employees who were previously placed on furloughs or reduced work weeks.As such, we have been operating with higher expenses than we would have in the absence of CEWS. And so the impacts of the government support programs are almost entirely neutralized. Our global training operations are especially cash-generative in nature. Net cash provided by operating activities was $174.6 million for the quarter compared to $246.3 million in the fourth quarter last year. And for the year, we generated $366.6 million from operating activities compared to $545.1 million last year.We had a strong free cash flow in the quarter of $170.6 million and $346.8 million for the year, which compares to $351.2 million last year. We continue to target an average conversion of net income to free cash flow of 100%. Uses of cash involved funding capital expenditures for $50.5 million in the fourth quarter and $107.6 million for the year, in line with our outlook of total CapEx of approximately $100 million for the year. Our growth CapEx is directly linked to our opportunities to invest incremental capital with attractive returns and free cash flow. With our current view of attractive market led expansion investment opportunities, we expect total capital expenditures to more than double in fiscal year 2022 versus the prior year. Income tax recovery this quarter was $3.2 million, representing a negative effective tax rate of 21% compared to an effective tax rate of 25% for the fourth quarter of fiscal 2020. Tax rate was low because of the restructuring costs we incurred this quarter. Excluding the effect of these elements, the income tax rate would have been 16% this quarter and 19% for the year.Net debt was $1.4 billion at the end of March for a net debt to total capital ratio of 30.7%. This compares to $2.4 billion or 47.8% of total capital at the end of last year. Net debt to adjusted EBITDA was 2.38x at the end of the quarter. All told between cash and available credit, we have approximately $2.7 billion of available liquidity.CAE's liquidity was further enhanced with the completion in March of a marketed cross-border public offering of common shares for gross proceeds of $358.5 million. As at March 31, 2021, we had a higher cash balance on hand from our recent equity issuances, and these proceeds will be used to fund the proposed L3Harris military training business acquisition and other potential growth investments in our pipeline. On the restructuring front, we are continuing to make good progress. The program is enabling CAE to best serve the market by optimizing our global asset base and footprint, adapting our global workforce and adjusting our business to correspond with the expected level of demand and structural efficiencies that we'll be enduring. While maintaining our presence in all markets, we've made excellent progress consolidating our global footprint for greater efficiencies and to better serve our customers. In the U.K., we have consolidated 5 locations into 3. In Europe, we're in the process of consolidating 17 training locations into 13 in addition to optimizing certain remaining locations. And in South America, we are moving from 6 to 4 locations. We began executing our restructuring program in the second quarter. And as at the end of March, we have incurred a total of $124.0 million of restructuring, integration and acquisition expenses for the entire year. In fiscal year '22, we expect to incur approximately $50 million in additional restructuring expenses related to this approximate $170 million program. We continue to expect to realize significant annual recurring cost savings, wrapping up to a run rate of approximately $65 million to $70 million by the end of the new fiscal year.Now turning to our segmented performance. In civil, fourth quarter revenue was down 6% compared to the preceding quarter and down 36% year-over-year to $388.2 million. I would note that revenue is generally not the most representative metric for civil, given that there is no recognition of our share of revenue from the large number of joint ventures that we operate around the world. And in fact, part of the utilization increase that we saw in the quarter was the result of stronger performance in regions where we operate under joint ventures. Civil performance is better represented by adjusted segment operating income, which is up 7% sequentially and down 57% year-over-year to $66.6 million for a margin of 17.2%.For the year, civil revenue was down 35% to $1.4 billion and adjusted segment operating income was down 66% to $164.3 million for an annual margin of 11.6%. The civil book to sales ratio for the quarter was 0.99x, and for the year is 0.89x. In defense, fourth quarter revenue of $334.4 million was up 12% compared to the preceding quarter and down 2% over Q4 last year. And adjusted segment operating income was up 4% over the preceding third quarter and down 42% over last year to $23.2 million for an operating margin of 6.9%.For the year, defense revenue was down 9% to $1.2 billion, and adjusted segment operating income was down 24% to $87 million, representing a margin of 7.1%. The defense book to sales ratio for the quarter was 1.11x, and for the year was 0.91x.And in Healthcare, fourth quarter revenue was $171.7 million up 42% from the preceding quarter and 411% from $33.6 million in Q4 last year. Adjusted segment operating income was $16.4 million in the quarter compared to $12.9 million in the preceding quarter and $100,000 in Q4 last year. For the year, Healthcare revenue was $351.9 million, up from $124.5 million and adjusted segment operating income was $29.3 million, representing an increase of $32.8 million compared to a segment operating loss of $3.5 million last year. For comparative purposes, the CAE Air1 ventilators contract with the Canadian government contributed $130 million to the fourth quarter revenue and $230.6 million for the year.With that, I will ask Marc to discuss the way forward.
Thanks, Sonya. As we look to the period ahead, I'm highly encouraged by all that we've done to reinforce CAE's base over the last year and to expand our horizons for long-term sustainable growth. True to our vision to be the partner of choice, we exercise great agility and collaboration as one CAE to quickly and effectively protect our employees and our customers, which has engendered even greater loyalty and engagement. And like few other companies, throughout the turmoil, we executed a series of 5 highly strategic acquisitions. We raised equity and fundamentally repositioned the company for the future, while at the same time, launching new products, investing into new growth adjacencies and structurally lowering our cost structure. CAE is indeed a unique company with a highly talented team and a shared culture of innovation. I expect that we'll continue to make important strides to enhance CAE's position for future growth. We're focused on the successful integration of our 4 civil acquisitions and our closing acquisition of the L3Harris military training business. We look forward to realizing the very significant potential of the combined business to better serve the needs of our customers. And at the same time, we've ensured that we continue to have the financial flexibility and the bandwidth to cultivate a large pipeline of sustainable growth opportunities, including the deployment of expansion capital in highly accretive and sustainable areas like training and to expand our reach and strengthen our position as an industrial technology leader.We're leaning in and focusing on the long term, bolstering our standing as the global market leader in our field through the application of advanced technologies and by expanding the aperture of our market reach. And we're continuing to invest and seize capabilities to revolutionize our customers' training and critical operations and increase market share with digitally immersive solutions. In the short term, we continue to expect to trend positively. And there's little doubt that with all that we've done in recent months internally and externally to enhance our position, we'll see strong growth for CAE in the fiscal year 2022. The exact slope of CAE's recovery to pre-pandemic levels and beyond is dependent on the timing and the rate at which travel restrictions and quarantines can be safely lifted and normal activities resume in our end markets.The global rollout of vaccines to combat COVID-19 is highly encouraging, and I believe that the summer months will be very telling. This is especially the case, obviously, for civil, where we believe that there's considerable pent-up demand for air travel, and we're already seeing this manifest in regions like the United States where domestic air travel is ramping up strongly. We're also highly encouraged by our prospects for renewed growth and profitability in defense, the extent of which is in -- in the current fiscal year will depend on, among other initiatives, to the potential timing of closing of the L3Harris military training business acquisition. Taking all of those variables into account, we expect to have greater clarity and be in a position to provide a more precise growth outlook for fiscal year 2022 when we report our first quarter results in August.And as we look further out, I'm more confident than ever before in CAE's future. Our strategy and positioning are very well aligned with a post COVID-19 business and geopolitical landscape. We'd expect a secular trends favorable for all 3 of our business segments. Greater willingness to outsource training by airlines, higher expected pilot demand and strong growth in business jet travel are enduring positives for the Civil business. The paradigm shift from asymmetric to near-peer threats and recognition of the sharply increased need for digitally immersion-based synthetic solutions in national defense are tailwinds that favor CEA's defense business. And Healthcare is poised to leverage opportunities presented by a growing awareness and appreciation of simulation and training to make health care safer.If we look specifically at Civil, we continue to see training demand proceeding to return to air travel as airline capacity and the associated crews are prepared to reenter service. Domestic air travel is coming back faster, especially in regions with a more advanced ramp-up of vaccinations while cross-border and transcontinental operations are lagging as they're more tied to the easing of travel restrictions.In the United States, we currently have requests and indications that pilot hiring will resume in the next couple of quarters, and we're already hiring instructors in support of our regional aircraft customers. We expect to continue expanding our market share and securing new customer partnerships, drawn from a large pipeline of airline prospects. We've made very good progress on last year having signed exclusive training agreements for supplemental training capacity on narrow-body aircraft with 6 customers, including major airlines in the Americas and aircraft OEMs as well, which is often an initial step towards a more comprehensive outsourcing. We've also signed exclusive training agreements with 6 new startup airlines that have elected to bypass the in-source training model all together.Our growth in commercial aviation training in fiscal year 2022 will come from these new partnerships, additional partnerships that we expect to conclude from our pipeline and, of course, the general improvement in-flight activities involving existing customers as restrictions ease. We also expect to see the benefits of the lower structural cost base that we've achieved as the recurring savings ramp up towards the end of the year.In business aviation training, flying activity has recovered much faster than commercial. And with levels of demand in the United States nearly back to 2019 levels, this bodes very well for training demand in this highly important segment of the civil training market. Civil full flight simulator sales are driven by new aircraft deliveries. And while the total market remains small at present, we expect to maintain our leading share of available full flight simulator sales. We still have the benefit of a large backlog of customer-funded full flight simulator orders, and we expect to substantially deliver this backlog over the next couple of years, including upwards of 30 in fiscal year 2022.Over the last couple of years, we've been steadily unifying the digital flight operations ecosystem with the goal of delivering a holistic suite of solutions designed to improve operations and enhance the crew experience, while further increasing our large addressable market in Civil. Our vision began in 2018 with the acquisition of Pelesys, an aviation training courseware developer and publisher with one of the most comprehensive training and compliance systems in the industry. And we expanded on this vision with the launch of CAE Rise, our predictive management and training visibility system.And in the period ahead, we're going to continue to expand our reach beyond pilot training solutions into the rapidly growing market for digitally enabled crew optimization services. The acquisition of Merlot and RB Group are building blocks that allow CAE to provide an end-to-end offering of crew performance software that extends from training through optimized crew operations and is unique in the industry. We're also positioning in the advanced air mobility market, which we believe will become another secular driver for pilot training and demand for CEA's expertise in modeling and simulation.Last week, we announced that CAE had been selected by Jaunt Air Mobility to lead the design and development of the Jaunt Aircraft Systems Integration Lab for the company's new all electrical -- all-electric vertical take-off and landing aircraft, the Journey aircraft. By leveraging CAE's extensive experience in high fidelity simulation, we're going to work hand-in-hand with Jaunt to bring best-in-class simulation modeling to the aircraft development program from the inception of this program.In defense, at the same time, as we stabilize the defense business in fiscal '21, we positioned the business for future profitable growth. And I'm encouraged by our new competitive wins and large pipeline of programs that specifically call upon CEA's expertise in the synthetic domain. Importantly, as I introduced in my opening comments, defense won all of its foundational recompetes, including the U.S. Air Force KC-135 Aircrew Training Systems contract, which also in this contract, adds training support services for the Air National Guard boom operator simulation systems. We also secured a critical follow-on for the U.S. Navy T-44C in structural services. These wins underscore the strength of our recurring base of core programs in defense. And new fiscal '21 competitive wins in our core markets add to that base, including United States Advanced Helicopter Flight Training Services and the France, Germany C-130J Training solutions. We also signed agreements with Boeing to provide P-8A training support services for the United Kingdom Royal Air Force and with General Atomics to continue the development of a comprehensive synthetic training system for the U.K. Protector remotely piloted aircraft program.The Protector is General Atomics' first major MQ-9B sale, their next-generation platform, which is expected to sell hundreds worldwide with CAE providing its training support. We also expanded our position in the security market with an agreement for United States customs and border protection aircraft pilot training services, and we added to our customer base at our Alabama based Dothan Training Center with the provision of training for the Irish Air Corps.Defense also expanded its position in digital immersion with notable wins, including the United States Air Force Advanced Battle Management System and the U.K. Single Synthetic Environment. The announcement earlier this week of our selection by the United States Special Operations Command for the soft global situational awareness initiative is strategically noteworthy. After a highly competitive process, beginning with over 100 companies, including some of the largest defense OEMs and Silicon Valley entrants, CAE was awarded USD 135 million contract to deliver the scalable next-generation mission command system that unifies the special operations forces enterprise through the creation of an integrated common operational picture, called the Mission Command Systems Common Operational Picture or MCSCOP. This system will deliver enhanced global situational awareness to the U.S. special operators around the world. CAE's digital ecosystem solution leverages our world-class modeling simulation expertise beyond training by integrating data analytics, artificial intelligence and digital immersion technologies into a synthetic environment to create a powerful tool for analysis, planning and decision support. This technology is a critical enabler for United States and allied forces to successfully train and operate across all 5 battlespace domains, a mandate that's laid out in the U.S. National Defense strategy.Our priorities in defense are focused on the long-term in investing in our leading position as a training and mission support partner with leading-edge capabilities in digital immersion. We're also enhancing our position by laying the groundwork to strategically team with major OEMs on next-generation platforms. And with our expertise in integration of live, virtual and constructive training, along with capabilities to address missions and operations support, we believe that we will make significant inroads in the broader defense market in the years ahead. Defense is well positioned to capture business around the world, accelerated with the expanded capability and customer set following the expected close of the L3Harris Military Training acquisition.And lastly, in Healthcare, we're capitalizing on a greater market appreciation of the benefits of health care simulation training to improve safety and to help save lives. I continue to be encouraged by what our new team has been able to do, and I look forward to gaining sustainable scale with our innovative solutions to make health care safer. Health care has been and continues to be an important dimension of CEA's social profile. And CAE has been -- has recently spearheaded the industry for vaccination coalition by gathering support for companies and their CEOs across Canada. The goal of the coalition was to accelerate mass vaccination through the private sector at no cost to governments to restart the economy as soon as possible.CAE converted 12,000 square feet of conference rooms into a world-class operational vaccination center, which opened on April 26. In addition to the critical role it serves in the ramp-up of vaccinations in Québec, it's really a great example of CAE's corporate citizenship and a source of great pride for all of us at CAE.In summary, a year and 2 months after the pandemic began, the investment thesis for CAE is more compelling than ever. And I strongly believe that we'll achieve new heights in growth and profitability in years ahead as we bring to fruition our recent acquisitions, our new digital product, our expansion investment, our bolstered leadership and our operational efficiencies.And with that, thank you for your attention. We're now ready to answer your questions.
Thank you, Marc. Operator, we'll now open the lines to members of the financial community.
[Operator Instructions] The first question comes from Fadi Chamoun of BMO.
A couple of questions. First, on the CapEx. You're indicating more than doubling versus $100 million. First, can you kind of give us a framework, like is this something based on what you have in the pipeline? If you can narrow down that kind of guidance a little bit, is it something in like $200 million to $250 million? And more importantly, where are you seeing these opportunities to deploy more capital? I mean looking at your utilization rate, which is more of a consolidated number, it looks like you have a lot of room to grow into, but I'm just curious where these opportunities to grow are showing up.
If you don't mind, some of that I'm going to be a bit circumspect because of competitive reasons. But I think broadly, where we feel confident in that CapEx number is because we're seeing the opportunities that we've had with conversations with customers, both on commercial and business aircraft, where we can deploy asset simulators, either to, if you like, I talked about overflow agreements on commercial aircraft.So you might not have seen a complete outsourcing, but you've seen a lot -- what we've seen, though, is we've secured, as I said in the remarks, a number of agreements with airlines that we -- if we deploy the capital, we can basically get overflow agreements that can be converted to a long-term training contracts, especially on narrow-body aircraft. At the same time, in business aviation, we see quite an attractive opportunity in a number of locations to deploy business aviation assets. And of course, both of those generate some of the best returns. This growth CapEx that is 20%, 30% incremental return on capital employed after a very short amount of time. So we'll invest in those every day of the week. Sonya, do you want to add something?
Yes. I'd just add. So in the review -- in the continual review of our capacity, we absolutely redeploy assets if -- first and foremost before issuing new CapEx. But opportunities like Marc mentioned, they vary by platforms, right? So the overall utilization metrics is probably not the best. And so where we see demand in our pipeline and secured, like Marc said, it drives nicely accretive returns, 23% range within the first 2 years of deployment. So essentially, that leads us to the guidance, which essentially will set at about more than double this year's CapEx.
Okay. My second question is on the restructuring and the cost savings associated with it. How much of the savings have you realized in '21? And I'm just curious kind of if you have a way for us to think about how those savings play out into 2022. You're saying that by the end of the year, the exit rate would be $65 million to $70 million of cost savings. So what would you expect in terms of contribution for the year overall from those cost savings?
Yes. So as we said, it's going to ramp up during the year. We started to see some savings, but I think it's really going to start kicking in, in FY '22, and ramping up to, like you said, around $65 million to $70 million by the end of the year. So this will be more back-ended into the second half. And we're really kind of progressing quite well. As I mentioned in my remarks, we're essentially completed in the U.K. going from 5 training centers to 3 and closed out some centers and so on. So that's savings that will kick in as of now and so on, some elements in Europe still underway in South America. But essentially, what we'll see is a ramp-up quarter-to-quarter with a heavier ponderance in second half as we kind of finalize some of these and reaching about $65 million to $70 million by the end of the year.
The next question comes from Konark Gupta of Scotia Capital.
So maybe the first one on Civil. I wanted to ask you, the revenue on SOI, excluding government support, were softer than what you saw in Q3 despite utilization rate and simulator deliveries increasing sequentially. I guess joint venture accounting obviously creates some noise here, but can you share any color on SOI decline sequentially including perhaps any impact of asset relocation as you restructure or any kind of revenue mix on simulators, pricing as well as product services mix?
I can start it off. I think revenue is never a perfect metric in the Civil business, or actually in all of our business, but it's certainly in a quarter, but I think you're seeing -- what you're seeing, part of this in terms of the sequential revenue story, it's a nuance in our business that nearly 50% of our business they are accounted as JVs, which doesn't show up on revenue. So the majority of the JVs that we have, happen to be outside of the Americas. And that's what we've seen in this quarter relative to previously is where we've seen the biggest sequential pickup in trends.So again, you're not seeing that revenue pickup, you're seeing in an SOI, but you're not seeing it. So that's one [indiscernible] there. At the same time, as Sonya talked about all of the moves that we're making in terms of achieving and restructuring benefits, a lot of that involves moving simulators around. And we're taking advantage of the period that we're in where obviously, training is at lower levels than it would be in a steady state. So we're taking that opportunity to move those simulators around. So you're not going to see any revenue from those at the same time. And frankly, and there is mix as well. There's mix. There always is, but there's mix in this quarter. But you want to add anything to it, Sonya?
Yes. So to speak to the utilization, it did climb from 50% to 55%, and we saw some improvement in the Americas. But a lot of the progression was in certain regions where we do have more joint ventures, like the Middle East, right? So what is said is contributed to the SOI growth. And just to just to kind of correct you or clarify, there was sequential SOI growth of 7% quarter-over-quarter. And that's why we usually indicated that this is the best metric on the civil side because it captures everything. So that increase in joint ventures translated in quarterly pickup in SOI. And that's also one of the elements that's driving the margin improvement.On the revenue side, like Marc mentioned, a bit of disturbance because we do have -- we did take the opportunity and the advantage to relocate several -- a lot of these simulators so that we can finalize certain regions like the U.K. and so on and progress on the savings. And so that disturbed revenue for a bit. But ultimately, we saw the contributions flow through on SOI with that sequential increase to $66 million from $62 million. And on the margin, that joint venture was a bit of a driver because it has the SOI without the revenue. And also on the product side, we did have a good margin mix on the deliveries that we had in the quarter.
I was actually referring to the SOI decline, excluding the government support programs, but I guess, as you pointed out before on the call, there's also kind of costs associated with the COVID, right? So that might make sense.
Yes. So on that front, Konark, just -- I guess it's a new element. It's not necessarily new. We've been disclosing the government support program since the beginning of the fiscal year. The update this quarter is that we've added new non-GAAP measures to kind of reflect the impact, I guess, to give it more visibility and to incorporate some new reporting guidances and so on. But what we look at is the adjusted SOI because this metric, so it shows the contribution benefit, but doesn't show the adjustments of the heightened operating costs that we've incurred, which is essentially neutralizing all the government programs. So we should look at it on the adjusted SOI basis, and on that basis, it grew quarter-over-quarter.
Right. Let me just pile on that because I know it's a confusion there. I think it's a very important quarter, that when we look at the profitability of the civil business, with all the noise that is there, the number that we use to manage the business is that 17.2% adjusted SOI margin. And that's versus 50 -- it was 50% in Q3. That's really what we're looking at to manage the business. And going forward, there's going to be less of this noise because CEWS just won't be there. So I think -- I mean, you can use that as the benchmark to measure our progress going forward.
That makes perfect sense. And my second question is on free cash flow. So I think the commentary you made and the disclosures of also free cash flow conversion continues to be 100% almost on net income this year. Now conversion was obviously significantly higher last year because the CapEx was down. But how should we think about your free cash flow generation ability this year compared to pre-pandemic levels? And if you can comment on the CapEx to Fadi's question, how much should we expect for growth CapEx versus maintenance CapEx in your guidance?
Yes. For the total CapEx, I think we'll stick to the guidance that we provided, that overall, it will be more than double this year in total. And I think you can use past trends to kind of split out maintenance and CapEx. I think those will hold true. In terms of free cash flow, I think in this very tumultuous year, we've really demonstrated how cash-generative this business is even at very low levels of activity. And so ultimately, we've always targeted in the past, 100% conversion of free cash flow, and we'll do so again for FY '22.
The next question comes from Noah Poponak of Goldman Sachs.
Just to make sure I have the new -- or additional disclosure around the margins correct. Marc, would you expect the Civil segment margin, the 17.2% you were just referring to, would you expect to see continued sequential improvement from here from that level even as the government support programs roll out?
I think on this SOI level, definitely, we would expect continued growth in that number just because we're going to throw -- we're going to be throwing more revenue quasi fixed assets. I mean the only thing I'll say there is you've got to watch -- I mean, we're in a funny kind of market, obviously, because of COVID, but typically, what you would see in the summer months, as you see, where airlines are flying more, they are not training as much, so you see seasonal effect. That will probably be less pronounced this year. But on a run rate basis, definitely, as your volume increases in the next few quarters, you're going to see SOI pickup from the volume of activity for the restructuring activities that we put forward. So there's no doubt about that.
Yes. So on a financial basis, the government programs and the heightened operating expenses essentially neutralized. And so minimal financial impact now on a net basis for the year. And so the adjusted SOI is really the basis on which we're providing the guidance and so on. And so ultimately, what this program allowed us to do is keep employees on through the worst of the pandemic. And where volume of activity has returned, we have the employees to operate and serve our customers; and where it hasn't, we've made the required reduction. And so the growth or the guidance that we're giving is on the adjusted metrics. Now the margin can fluctuate based on mix, but that's the base.
Right. So Sonya, what you're saying is it's not just that you have the government programs, and then you also have just other cost and disruption and that we should adjust for one, but not the other. What you're saying is there's cost in the system that you otherwise would have been able to manage, that you're just not managing because you have the government support and so we should think of those as neutralizing?
Correct.
Okay. Could you elaborate on what you saw in the utilization rate within Civil by large commercial aerospace versus business jet and maybe a little bit more about geography?
Yes. Business aircraft is doing pretty good. As I've said, the U.S. in terms of flying activity, it's pretty much back to COVID-19 levels, which is quite astounding, which is really -- yes, prior to -- going back to 2019. So you can expect that, that's resulting in some pretty good training activity in our civil training center. It's a bit slower in Europe because of all the continuing lockdowns in Europe, mainly people have less ability to fly. But even that's recovered faster than you see in commercial aviation -- sorry, in -- yes, in commercial aviation, just slower than United States. If I go around commercial aviation, it's -- we're a worldwide business.So your question, I think, is apropos. Because really, the big pickup for us will be when the big pickup occurs throughout the world. But what we're seeing regionally is like in the United States, for commercial aircraft, we're actually starting to see utilization match pre-pandemic levels. We're actually adding capacity and we're hiring structures to support training with a lot of airlines and our flight school classes are now looking to resume and it really pull force this summer. And with the voluntary furloughs that occurred over the past year in the United States, the airlines are seeing a higher need for future pilots as they really need to eventually replace everyone that's left and they can no longer be called back.We're seeing -- we talked about this training bubble before. We're starting to see that, but it depends on which geography you're in. In countries where we saw a sudden halt in operations and training, we're seeing spikes in our training center utilization as the airlines rush to get their pilots return again. A good example of that was recently in Colombia, where we really -- we're working really hard. I tell you, we're above 100% in our training center to support specifically Avianca that decided to get all their pilots current again. And obviously, it depends on the timing, but we're going to see this happen. To me, across most of the locations where there was pretty drastic lockdowns. If you look at, again, going regionally, you see India. Our utilization, notwithstanding the drastic situation that you see, which is horrific in terms of the deaths coming from COVID-19, the utilization in February was over 90% just as the domestic market was making recovery. Obviously, that slowed down for good reasons. But -- and if I can go around the world, but you're really -- if you were to basically look at where the remaining lockdowns are, where you have travel restrictions, then basically, you're seeing a subdued level of training activity. And where you're not, like in the United States, you're seeing people return to travel quite hardly and I'm very encouraged by that. And I think that will show up in our numbers over the next few quarters, no doubt about that.
So Marc, if you were -- it sounds like if you were able to disaggregate that 55 in training related to domestic U.S. or something, a region and type of flying like that, that strong, the utilization rate for you is pretty much back to pre-pandemic. And it's just that the utilization rate in domestic places that still have a lockdown or related to cross-border is still below the 55.
Pretty much, pretty much because, again, the other factor to look at is that really what picked up is narrow-body, domestic travel. And again, that's what's picked up in United States. So the statement you just said, I would agree with. What's still pretty slow is wide-body, oceanic because, again, of the restrictions, and I think that will be slower. But I think the statement you make is correct.
The next question comes from Tim James of TD Securities.
Just my first question. Marc, you kind of touched on earlier in your commentary about -- yes, I think about some of the kind of opportunities for commercial airlines that may be looking to outsource training and that's always been kind of an opportunity for CAE. I'm just wondering if you can kind of update us on now as we kind of come out of the pandemic any kind of areas where you see more regional opportunities? Or maybe just the way customers are thinking about this and if the pandemic has influenced their thinking and if it's really going to kind of accelerate some of that outsourcing? And just any additional color.
I think that I see the same thing that I talked about previously before. There's much more conversations. We're still at a state where the majority of the world barring, like I said, perhaps the United States are still really dealing with severe restrictions. Look at the situation in Canada, I don't need to describe that to you because you live here. But the fact is airlines, in a large part of the world, are still really trying to figure out what their fleet mix is going to be. So if you don't know what your fleet mix is going to be, a number of narrow bodies versus wide-body, the kind of routes that you'll be flying, it's pretty difficult to really decide on what you can outsource.The old adages I've used this example before, we don't outsource a mess and that's because either 1 of the 2 things are going to happen. Either you're going to pay too much or us in CAE, we're not going to make a good deal because we don't have a good basis on which to base an outsourcing agreement. But I think that I take comfort by the fact, as I mentioned, that perversely, COVID-19 has been a great time to start an airline for a number of reasons as I don't need to highlight. So of this -- we secured contracts with 6 start-up airlines that are going straight to basically to the position that, of course, we project is to say, why would you start a training operation when we can provide a turnkey solution for you, so for 6 of those start-up airlines that we were doing.And at the same time, we've deployed training in our various centers and in customer centers with simulator with long-term overflow contracts, whereas before -- and that's really airlines saying, hey, I'm not going to invest necessarily in the asset, but I'm going to sign a contract with you and because I really don't know what I want to flex. I don't know what the demand is necessarily going to be, but I need to maintain that optionality so that I can seize the upside in the market. And that's attractive because that always is the genesis for outsourcing because our business model, I think you follow us for a long time, you've seen it, it's always enter to a relationship, whether it be a simulator, whether it be running their training center, doing some training overflow and more and more expanding our relationship, expanding our wallet share with customers. So I feel very good about that. And I -- again, lots of conversations, but I'm a patient man, but I'm quite confident that, that patience will pay off.
Okay. That's helpful. And then just my second question, I'm thinking about kind of the upcoming fiscal year and some of the acquisitions, well, I guess, in particular, 1 or 2 acquisitions that you've made in the civil space and the new simulators that you've got in the network. Is there a need to or will you be continuing to kind of relocate, move simulators around this year? And am I correct in thinking it's kind of a good time to be doing that because utilization is still relatively low whereas if you were sort of running flat out, it would be a bit more disruptive? Or are you kind of at the point now where you feel pretty good with the location of [indiscernible]
No, we've been doing that. The big part -- or a big part of our restructuring program is exactly that, Tim. And as I mentioned, we've done a lot of that in the fourth quarter, we're going to do some more. But I think that's going to calm down. And that's where really you're going to see a lot of the restructuring savings come from because we're taking advantage of exactly the fact that there's reduced level of activity to be able do those moves, so you don't have to do it in a steady state. So absolutely right.
The next question comes from Cameron Doerksen of National Bank Financial.
Just really one question for me, and it's, I guess, around the foreign exchange and the fact that we've seen the Canadian dollar strengthen a fair bit here in the last few months. I guess, in the past, this has been kind of a net negative from a, I guess, a revenue growth perspective. But Sonya, maybe you can sort of remind us of the FX impact on CAE and whether that's changed from where it was a couple of years ago. And also if you have any sort of sensitivity around FX changes and what that means to either operating income or to EPS?
Yes. So you're right. It is a bit of a headwind, largely as a result of the translation. And so obviously, it really depends on where the revenues are and so on, so the sensitivity evolves. But ultimately, what I use as a rule of thumb is $0.01 on the USD CAD, the whole year is about $2.5 million of SOI impact.
Okay. So $2.5 million SOI, okay. Okay.
On the translations.
On -- just on translations. So the -- in training centers, especially, I guess, the revenue and the costs would generally be aligned?
That's right. So margins would be similar, but the translation would come into a lower Canadian dollar equivalent.
The next question comes from Kevin Chiang of CIBC.
Maybe just a clarification question. Marc, you talked about what you're seeing from a utilization perspective by market and a lot of it is being driven by, I guess, a level of openness, those respective economies have. But wondering, as some countries look at how quickly demand has improved or air traffic demand has improved in short order. And looking at the U.S., I think we're seeing a pretty strong rebound here. Are you seeing airlines in the market that are more locked down, potentially accelerating their training efforts to maybe prevent any bottlenecks if they think that their own domestic air traffic trends could experience a similar surge like the U.S. airlines have seen in the past few months here? Or are they waiting for more clarity before making that type of training decision?
It depends. It depends. I think I was making -- highlighting in the question from Noah. We're seeing that, like, for example, in South America, I was using the example that Avianca really decided to get all their pilots trained. So we had a bubble there where we're operating at north of 100% in our training center in Colombia. And so that's an example here. Right now, if you look at some of the countries, Chile is in full lockdown; Brazil, no surprise, still battling very high cases. So we're going to see -- so necessarily the flying activity isn't there. We're seeing airlines hunkering down. But that will come back. And when that comes back, I would fully expect that we're going to see similar kind of story that we saw in Colombia.Asia Pacific, many countries have, if you just read the newspapers, right, that many countries have pulled back on opening up the green channels that they had due to what's happening in India. Malaysia declared a national -- nationwide lockdown again. So if you look at our utilization numbers overall, you can well imagine that we're a key partner to AirAsia, which is the Southwest Airlines, if you like, of Southeast Asia. And so you can well imagine if that Malaysia is locked down, then we're not doing too much there. I talked about India, what's happening. We have been high in India, but that's coming back down.So not surprisingly -- I don't think -- I think it's a pretty mixed situation over there. In Europe, we've seen -- basically, it's a day-by-day situation, and I was encouraged to see some opening up recently that were -- that they're telegraphing that they'll allow some tourist travel within Europe right now. So that's a very good positive. We see -- I can go around, I can go on and on. And you see Portugal's possibly lifting as early as May 17. But I tell that if those lifts happen, it's going to be slow. And I think airlines have been cautious in terms of their training activity.But then you go to other areas, like, for example, Japan, where Japan Airlines has never missed a beat. That training center is operating at very high levels because they've taken the tact that they're going to take basically the opportunity throughout just to maintain their pilots fully trained. Overall, I think if you look at our business, in aggregate, I think what we've said before is look at the IATA growth -- we're not getting ahead of the IATA growth path that's predicted. But having said that, I am very encouraged by the level of flying activity that I see in the United States. And I think that will be reflected. I don't think anybody is going to take flying for granted anymore.
No, that's a fair comment and great color. And maybe just a clarification point. Within health care, the CAE Air1 ventilator, you've completed the deliveries in the fiscal fourth quarter. Is there a reason why you can't sell that to other governments or other hospitals? Is there a reason why this is kind of a nonrecurring revenue stream? Or is this something you can actively sell to other customers here?
Well, I think what you're seeing here is our discipline. We remain focused to what we're good at. And what you saw specifically with the example of ventilator is -- what you're seeing is what CAE can do. And I always point it that way. I think the fantastic subject matter expertise that we have in health care where we understand everything to do with the training for intubation and everything to do with the use of ventilators. So we were able to seize that subject matter expertise.And considering the crisis that existed at the time for the use of ventilator, marry that up with the core competencies at CAE of systems engineering, software, the global sourcing that we have and put that all together and produce in an absolute record of time, not only produce them at a high rate, but invent them because there was no ventilators available, and there was obviously no parts available. So we went from scratch. So you saw an example of what we can do.So with regards to your question about moving forward, we took a conscious decision basically saying that, well, if we look at the market going forward, yes, we can do that, and maybe we can get some result. But I think with the -- what's happened in the pandemic, a lot of people now produce a lot of ventilators, including typical producers of ventilators across the world. OEMs are producing ventilators. And there's -- at the moment, I think there's a glut overall. I mean, obviously, there's some shortages in key areas like, for example, tragically in India, for example.But what you're seeing is overall, there's going to be a lot more ventilators on a steady state that is actually required. And going forward, do we really want to be competing against established players producing ventilators? And we've selected no. And what we'd rather do, though, is to -- again, using our subject matter expertise, to partner with those companies in producing simulation based training associated with that. And really, that, we think, is a much better way forward.
I appreciate the color there. And kudos on opening up the vaccination center in Québec.
The next question comes from Benoit Poirier of Desjardins.
Just for defense, when we look at the adjusted operating margin reached 2% or 6.9% with government subsidies, which is down from almost 12% a year ago, while revenue were only down 2%. So could you maybe provide some color on what drove the decline? And how should we expect defense margins to recover from these levels?
I think the first number, just the same as we've talked about, with the margins similar to 17.2% in Civil, I think use the higher number, that's the number you should be looking at. Because, again, for the reasons that we talked about the costs that are being offset by the government program. So we talked about before those issues. They haven't changed really, Benoit. The fact is, if you look at the fact that our book-to-bill has been below 1 for the last 5 quarters and which has changed this quarter, by the way, in a quite nice way, and I expect that to continue. So you take the lack of orders, particularly product orders, because they tend to be higher margin, number one.And the fact is you're eating off your margins. So as -- you're eating off your backlog. So as you eat off your backlog, you still have a lot of costs. So those are -- in the end of the day, you have to be absorbed. That's number one. The other thing is our mix has changed over the past few years to more service contracts. They tend to be lower margin. We have had a host of COVID related issues in defense, particularly internationally. U.S. has been less affected. But having said that, it has been affected. And I'll just give you an example.A quarter before it was like our Tampa training center, which trains C-130 crews, a large part of the customers that come to that Tampa training center are overseas customers. And because of that, that tends to be a higher-margin operation for that reason. But the customers haven't been able to show up because they haven't been able to travel. So that's been quite a bit of a headwind all year. But internationally, what's happened is we've real issues in regards to basically access to customers, access to facilities due to lockdowns overall. So all of those factors explain where we're at.Going forward, I mean, the COVID-related issues themselves are abating. We still have some like we access the customers in the Middle East, for example, is still difficult. So programs are still difficult, and we are basically executing those programs as we speak. But again, I'm very encouraged by couple of things. Number one is the orders that we're signing, the volume of those orders that we're signing. We're getting back on the positive. The fact that again, what I should have said at the outset is, and as mentioned in my remarks, we have about $800 million of orders that we expected to sign in the past year and going into this year, that's little bit pushed to right because we've had, literally, these have been delayed largely to due to COVID because although defense forces themselves, that is obviously an essential service, they've kept operational. But large cases that people that would support putting orders, contracts in place, just haven't been there or certainly nonforce and that's caused the delays.That's going to catch up over the next few quarters. At the same time, we've used the opportunity during this COVID crisis to make the investments broadly as a company to make sure that we come out of this as a COVID winner. That includes operational efficiencies in defense. Some of that is captured in a restructuring service -- the restructuring that you see. So that -- part of that $65 million to $70 million will be reflected in the defense. So I guess long answer to show that margins should be going up. And I fully expect us to get north of -- the north or at least in the low double digits before too long.And of course, everything, gets increased once we do the L3 acquisition, the L3Harris acquisition because on a typical basis, they were operating at a higher-margin than we are with a concentration of more products than services and a much stickier kind of backlog because the programs they have. So that will improve things as well.
Yes. And with respect to defense, how much visibility do you have for fiscal '22, which -- I mean what is already in the backlog to meet your growth ambition? And following L3, what would be the breakdown between equipment and services in terms of mix for defense?
Well, I think we haven't provided much visibility on what we see this year for good reasons because we don't -- well, it's not that we don't have visibility of our existing programs in defense, but it's really in terms of the -- when we expect the closing of the L3Harris acquisition will occur. I think I would point to the fact that the book-to-bill this quarter of 1.1, I think that basically starts to tell you that we're getting good coverage of order intake to revenue to what we really need. So in terms of -- well, actually, in fact, when I look at the numbers, we actually have, going into the year, the highest percentage backlog, the percentage of revenue to [indiscernible] we have the highest percent of -- in our backlog already than I've seen in recent history. If you know what I mean? The coverage.
The next question comes from Ron Epstein, Bank of America Merrill Lynch.
Maybe changing gears just a little bit here. There's been a lot of focus lately on urban air mobility, and the market has been supportive of many of the different companies developing these vehicles. But maybe one of the long tent poles is who are going to fly these things. So my question to you is, have you been approached yet? Or are you in conversations with any of the urban air mobility companies or other companies that want to operate those vehicles on a strategy around training pilots, at least for the time period before those things go autonomous, which might be quite some time?
Absolutely. Absolutely. I personally believe that this is going to be definitely a good part of the market in the future. You're guess as to when that happens is as good as mine, but I certainly believe there's some estimates that are out there that [indiscernible] needing about, in the nature of our estimate, 60,000 pilots by 2030. For us, we're very much involved in that space. I can tell you, they have these specialized meetings of everybody who's in the industry, including all of these companies that are producing these various eVTOL devices. I was at the last one, which was just prior to COVID that was in Dallas, it was called Texas UP.So I can tell you I was visiting myself just last week, with 1 very strong contender, Beta Aviation. I was with their CEO and their team in Burlington, Vermont just last week and very impressed with what they're doing. We're partnering with them on going forward. And just -- we announced that we're doing this with Jaunt, as I mentioned in my remarks, other -- I won't go through all of them because some of them are competitively sensitive. They don't want us to talk about it, but you will -- I think you can be rest assured that we're involved with pretty much the whole ecosystem right now.As usual, we would take our role that we want to be, if you like, OEM agnostic. So we want to be able to serve the industry. We serve them not only in training pilots, but also help them in actual design and certification of the aircraft, which we're doing, as I mentioned, the contract that we signed with Jaunt, is for helping them do, if you like, they call it in industry parlance, the iron bird, with software-in-the-loop. So basically, where you can fly a vehicle using software way before you ever fly the real aircraft and you prove out all the software interfaces. And you can actually certify components of the design using -- well, flying it, if you like, virtually. So again, we're very much part of that. And because I think it's going to be part of the future, it's an exciting part. I can tell you that being an aviation geek my whole life. I mean, this is where aviation was in the 30s, where you have a whole bunch of people developing aircraft, it's just like it's the wild west out there. It's quite exciting. But we'll be part of it.
Thank you. Operator, I think that's all the time that we have today for investors. Before we open the lines to the media, Marc will say a few words in French. So Marc, [Foreign Language]
[Foreign Language]
[Operator Instructions] The first question comes from Andrea [indiscernible]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
Operator, I think that's all the time we have for this afternoon. I know we went a bit longer than we usually do, but great quarter and certainly lots of great questions. I want to thank all participants from the investment community and members of media. And I would remind participants that a transcript of today's call can be found on CAE's website as well as a link to the replay. Thank you very much.
Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.