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CAE appeals for patience in health-care segment as it unveils fetal simulator

MONTREAL - CAE's core flight simulator and training businesses is improving but its chief executive appealed for investor patience with its health-care segment, which recently launched a maternal fetal simulator.

The life-like robot of a pregnant woman — aimed at helping train health-care professionals in handling complicated deliveries — displays vital signs and responses during labour and delivery scenarios, including breech and fetal distress.

"There's nothing else out there on the market, which not only is a good revenue driver for CAE, but it's going to have a societal benefit of improving the way that people are prepared to deal with abnormalities during birth," CEO Marc Parent said during a conference call Tuesday to discuss CAE's third-quarter results.

Developed with leading maternal fetal educators in the U.S. and biomedical engineers at the University of Porto in Portugal, the simulator was recently launched at the world's largest annual conference dedicated to health-care simulation.

The unit holds promise because a recent U.S. government study reported a 75 per cent increase in serious maternal complications, such as heart attack or stroke, during or after childbirth between 1998 and 2009.

CAE conceded that sales and margins at its new health-care and mining division stalled in the third quarter as operating income decreased 17.6 per cent to $1.4 million on $29.7 million of revenues.

But Parent said improvements will come from the millions of dollars in R&D investments in new products in the segment.

"Let's have a little patience here, . . . I see this trending positive as these new products come out," he told analysts.

He said the Montreal-based company is focused on using simulation to improve the quality of patient care, as it has done with military and civil flight training.

CAE (TSX:CAE) earned $46.1 million in its fiscal third quarter, up 23 per cent from a year ago when it absorbed millions of dollars in restructuring and acquisition costs.

The company earned 18 cents per share for the period ended Dec. 31, up from 14 cents per share a year earlier. Last year's $37.5 million in net income attributable to equity holders included $13.4 million in one-time costs.

Overall, CAE's third-quarter revenues grew to $513.6 million, up 2.5 per cent from a year earlier, with increases at both its civil and military divisions.

CAE was expected to earn 17 cents per share in profits on $533 million of revenues in the quarter, according to analysts polled by Thomson Reuters.

Its civil aerospace segment had $45.2 million in operating income on $282.1 million of revenue, compared with $46.1 million on $273.4 million a year ago.

It received 12 full-flight simulator orders in the quarter and three more in the fourth quarter, which ends March 31, bringing the total for the year to a record 43 units, with two months remaining in its fiscal year.

Cameron Doerksen of National Bank Financial said the training segment's margins had improved but were still below forecasts.

"We believe that this segment should be generating margins of 15 per cent or better and we continue to expect further improvement as newly installed simulators ramp up," he wrote in a report.

On the military side, operating income increased 22 per cent to $31 million, from $25.4 million a year ago, as revenue grew two per cent to $201.8 million.

Parent said the recently approved U.S. budget is bringing clarity to American military spending priorities.

CAE has submitted more bids this fiscal year than all of last year and expects to maintain its win rate despite increased competition.

"Our business...is a nice solution in the time of budget cuts," he said, noting that the cost of simulation-based training is just 10 per cent of training on real aircraft.

On the Toronto Stock Exchange, CAE's shares closed up 49 cents, or 3.53 per cent, at $14.39 on Tuesday.

Follow @RossMarowits on Twitter.

The Canadian Press


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