- Earnings(1) up 48% year over year to $271M on $3.6B revenues
- Free cash flow usage(2) improved by $125M, 25% year over year
- ~$900M net proceeds expected mainly from the sale of non-core assets: Q Series program and Business Aircraft’s flight and technical training activities(3)
- Global 7500(4) certified by Transport Canada and the FAA; on track for entry into service before year end
- Enterprise-wide productivity initiatives launched, expected to generate $250M in annual recurring savings by 2021(3)
- 2018 guidance(3) updated: Revenues ~$16.5B; EBIT(1) ~$1B; and free cash flow(2) breakeven ±$150M, including net proceeds from Downsview sale
- 2019 guidance(3) provided: Revenues targeted to grow by ~10%; EBIT(1) targeted to increase by ~20% with improved cash generation
Bombardier (TSX: BBD.B) today reported its third quarter 2018 results marked by strong earnings growth. The Company also announced a number of strategic actions, including the launch of an enterprise-wide productivity program. This program is expected to generate annual savings of $250 million at full run rate, which we expect by 2021. Bombardier reached definitive agreements for the sale of non-core assets and the monetization of royalties, which is expected to generate approximately $900 million in net proceeds, increasing financial flexibility as the Company approaches the final – deleveraging – phase of its turnaround plan. Other highlights in the quarter include the certification of the Global 7500 business jet, paving the way for the aircraft’s entry into service in December 2018, and marking the end of the Company’s heavy investment cycle.
“With our heavy investment cycle now completed, we continue to make solid progress executing our turnaround plan,” said Alain Bellemare, President and Chief Executive Officer, Bombardier Inc. “With today’s announcements we have set in motion the next round of actions necessary to unleash the full potential of the Bombardier portfolio. During the earnings and cash flow building phase of our turnaround, we will continue to be proactive in focusing and streamlining the organization, and disciplined in the allocation of capital. I am very proud of what we have accomplished, and very excited about our future.”
For the quarter, Bombardier’s revenues reached $3.6 billion, representing 3% organic growth year over year, from Transportation, Business Aircraft and Aerostructures, as the Company deconsolidated revenues from the C Series program following the closing of the Airbus partnership. For the full year, Bombardier expects revenues of approximately $16.5 billion, at the low end of its guidance range.
The Company delivered strong profitability in the third quarter, achieving its best quarterly performance in years. EBIT before special items(2) grew 48% year over year to $271 million, and the Company remains on track to reach the top end of its guidance for the full year of approximately $1.0 billion. Over the same period, EBIT margin before special items(2) increased by 260 basis points to 7.4%, as margins(5) continued to trend above 8% at Transportation, Business Aircraft and Aerostructures. At Commercial Aircraft, EBIT before special items was near the breakeven point due to the deconsolidation of C Series losses net of the associated equity pick-up.
Free cash flow usage for the quarter was $370 million, an improvement of 25% year over year. Cash usage in the third quarter was driven by working capital build-up at Transportation, as the Company continues to work through the intense delivery phase. This will carry through the fourth quarter, and is targeted to largely recover in 2019. As a result, Bombardier is adjusting its free cash flow guidance for 2018 to include the Downsview proceeds. With this, the Company still expects reported free cash flow for the full year to be breakeven plus or minus $150 million.
Focusing the Portfolio, Divesting Non-Core Assets
Bombardier also announced today the sale of a number of non-core assets, in line with its strategy of focusing on growth opportunities in its Transportation, Business Aircraft and Aerostructures segments. The Company entered into definitive agreements for (i) the sale of the Q Series aircraft program and de Havilland trademark to a wholly owned subsidiary of Longview Aviation Capital Corp. for approximately $300 million; and (ii) the sale of Business Aircraft’s flight and technical training activities to CAE and the monetization of royalties for approximately $800 million.
Both transactions are expected to close by the second half of 2019, following the usual regulatory approvals. Net proceeds from the transactions are expected to be approximately $900 million after the assumption of certain liabilities, fees, and closing adjustments.
Streamlining the Organization
Bombardier also launched a new enterprise-wide productivity program to further streamline, lean out and simplify the Company. The initiative includes two actions. First, with the heavy aerospace investment phase successfully completed, Bombardier will right-size and redeploy its central aerospace engineering team. Key engineering team members will be redeployed to the business segments, with the largest group moving to Business Aircraft, to ensure they have all the necessary capabilities for future business jet development programs.
Bombardier will also establish a new Advanced Technologies Office (ATO), which will be led by François Caza, who has been appointed Bombardier’s Chief Technology Officer. The ATO will focus on systems design and engineering, including applying experience from Bombardier’s aerospace programs to its rail transportation business.
In addition to right-sizing and redeploying central engineering, Bombardier has launched a company-wide restructuring initiative focused on optimizing production and management processes, flattening management structures and further reducing indirect costs.
Collectively, these actions will result in a reduction of approximately 5,000 positions across the organization over the next 12 to 18 months, leading to annualized savings of approximately $250 million at full run rate, which we expect by 2021. Bombardier anticipates recording a restructuring charge in 2019 of approximately the same amount as special items.(3)
In parallel, the Company continued to strengthen its leadership team, with the appointment of Sam Abdelmalek as Chief Transformation and Supply Chain Officer in October. Bombardier also announced today that Danny Di Perna has been appointed President, Aerostructures and Engineering Services (BAES), effective immediately. Michael Ryan will assume the role of Chief Operating Officer for BAES. Together, they will focus on accelerating productivity, achieving world-class financial and operational performance, and delivering on the Company’s growth potential.
Introducing 2019 Guidance
With the numerous portfolio announcements made today, Bombardier introduced its guidance for the 2019 fiscal year. Revenues are targeted to grow by approximately 10% to $18 billion or more, as deliveries of the Global 7500 business jet accelerate. Profitability is anticipated to grow at a faster pace, with EBIT before special items targeted to grow by approximately 20% to a range of $1.15 billion to $1.25 billion, and EBITDA before special items(2) anticipated to increase by approximately 30% to a range of $1.65 billion to $1.8 billion.
Bombardier is targeting to achieve free cash flow generation in the range of $250 million to $500 million, which is anticipated to be offset by the $250 million restructuring charge mentioned above, as well as a $250 million contingency to reflect the working capital volatility as the Company progresses through its intense growth phase at Business Aircraft and Transportation. Accordingly, free cash flow guidance for 2019 is targeting breakeven plus or minus $250 million.
Bombardier is also reaffirming its 2020 financial targets, even after the divestiture of the Q Series program and Business Aircraft’s flight and technical training activities. Further details on the Company’s financial performance and growth opportunities will be provided at Bombardier’s Investor Day on Thursday, December 6, 2018.
SEGMENTED RESULTS AND HIGHLIGHTS
- Business Aircraft’s third quarter performance shows solid execution on deliveries and sales, continued growth in the aftermarket, as well as the certification of the Global 7500 aircraft, the largest and longest range business jet in the industry.
- Transport Canada Type Certification of the Global 7500 aircraft was awarded on September 27, 2018, followed by FAA type certification, paving the way for entry into service in December 2018.
- Third quarter net order intake was strong, growing the backlog to $14.3 billion. Interest continues to grow in the Global family, including the new Global 5500 and Global 6500 aircraft offering.(4)
- During the quarter, revenues totalled $1.1 billion on 31 deliveries including a strong mix of medium sized aircraft. With 96 deliveries year-to-date, this represents more than 70% of planned deliveries for the year, tracking to full year guidance on deliveries and revenue.
- EBIT margin before special items during the quarter continued to trend above 8% driven by seasonal changes in aircraft mix, with year-to-date EBIT margin before special items of 8.5%.
- Subsequent to the quarter, on October 15, 2018, the Global 5500 and Global 6500 aircraft program completed 70% of total flight test hours required for certification, tracking to entry into service at the end of 2019.
- On October 3, 2018, we announced a further expansion of our service network with a new centre in Miami. Planned for inauguration in 2020, the new 300,000 sq. ft. centre will benefit our U.S. and Latin American customers and continue to fuel our growth.
- On November 7, 2018, the Corporation entered into a definitive agreement to sell its activities consisting of flight and technical training for Bombardier Business Aircraft carried out principally in training centers located in Montréal, Québec, and Dallas, Texas to CAE, a long-time Bombardier training partner. This transaction provides Bombardier’s Business Aircraft customers the benefit of CAE’s training expertise, while Bombardier focuses on aircraft development and services. Concurrently with the sale, Bombardier and CAE have entered into an agreement to extend their Authorized Training Provider (ATP) relationship whereby CAE will prepay all royalties under the agreement. Combined, the total value of both transactions is $800 million, including $645 million for the sale of the training activities. Net of fees, liabilities and normal closing adjustments, we expect net proceeds of approximately $650 million. Closing of the sale transaction is expected by the second half of 2019, subject to customary closing conditions and regulatory approvals.
- Starting July 1, 2018, following the closing of the C Series Partnership formed by Airbus (50.01%), Bombardier (33.55%) and Investissement Québec (16.44%), Commercial Aircraft deconsolidated CSALP from its results and replaced it by its share of CSALP’s net loss. As such, during the quarter, revenues decreased by $259 million mainly as the result of the deconsolidation.
- EBIT for the quarter was near breakeven, a significant improvement as we deconsolidated CSALP results and recognized our share of CSALP’s net loss resulting in an equity pickup of $13 million. Further Bombardier invested $85 million in CSALP during the quarter in exchange for non-voting units of the partnership against its commitment of up to $225 million by year end.
- CRJ Series and Q400 deliveries for the quarter totalled 5 aircraft, while net orders totalled 11 aircraft.
- On November 7, 2018, the Corporation entered into a definitive agreement for the sale of the Q Series aircraft program assets, including aftermarket operations, to a wholly owned subsidiary of Longview Aviation Capital Corp., for gross proceeds of approximately $300 million. The agreement covers all assets and intellectual property and Type Certificates associated with the Dash 8 Series 100, 200 and 300 as well as the Q400 program operations at the Downsview manufacturing facility in Ontario, Canada. The transaction is expected to close by the second half of 2019, subject to customary closing conditions and regulatory approvals. Net proceeds for this transaction are expected at approximately $250 million net of fees, liabilities and normal closing adjustments.
- Following the closing of the Airbus partnership on the C Series aircraft program earlier this year, and the agreement to sell the Q400 program announced on November 7, 2018, our full attention is turning to the CRJ program. As we continue to actively participate in the regional aircraft market with our established, scope compliant aircraft, our focus is on reducing cost and increasing volumes while optimizing the aftermarket for the approximately 1,500 CRJ’s in service around the world today. As we look to return the CRJ to profitability, we will also explore strategic options for the program.
Aerostructures and Engineering Services
- Revenues increased by 23% year over year, driven by Aerostructures’ position as a key supplier to the A220 and Global 7500 aircraft growth programs.
- EBIT before special items increased by 33% year over year supported by the revenue growth. The 8.4% EBIT margin before special items for the quarter reflects the continued ramp-up of the A220 and Global 7500 component production as well as the new contractual relationship with Airbus on the A220.
- Intersegment revenue for the quarter represented 62% of the total revenues compared to 80% for the first half of the year. This decrease reflects Revenues from CSALP becoming external sales starting on July 1, 2018.
- On November 8, 2018, Danny Di Perna has been appointed President Aerostructures & Engineering Services. Danny brings more than 30 years of aerospace and industrial experience with a proven track record in improving operational efficiency. Michael Ryan will assume the role of Chief Operating Officer.
- Revenues in the third quarter totalled $2.1 billion, delivering 2% organic growth offset by an unfavourable currency impact. With the continued ramp-up of major projects initiated in 2017, we are seeing sustained growth across all segments, on track to full year guidance of approximately $9.0 billion.
- EBIT before special items in the quarter was in line with the prior year at $187 million. For the quarter the margin was 8.7%, or 8.6% on a year-to-date basis, which continued to trend towards the greater than 8.5% margin guidance for the year.
- As we work through an accelerated train delivery cycle following significant working capital investments made since mid-2017, we carried at the end of the third quarter greater than anticipated working capital.
- The $33.9 billion backlog at the end of the quarter is driven by the 1.0 book-to-bill ratio(12) on a year-to-date basis, net of unfavourable currency impact.
With over 69,500 employees across four business segments, Bombardier is a global leader in the transportation industry, creating innovative and game-changing planes and trains. Our products and services provide world-class transportation experiences that set new standards in passenger comfort, energy efficiency, reliability and safety.
Headquartered in Montreal, Canada, Bombardier has production and engineering sites in 28 countries across the segments of Transportation, Business Aircraft, Commercial Aircraft and Aerostructures and Engineering Services. Bombardier shares are traded on the Toronto Stock Exchange (BBD). In the fiscal year ended December 31, 2017, Bombardier posted revenues of $16.2 billion. News and information are available at bombardier.com or follow us on Twitter @Bombardier.
Bombardier, CRJ, CRJ Series, CS100, CS300, C Series, Global, Global 5500, Global 6500, Global 7500, Q400 and Q Series are trademarks of Bombardier Inc. or its subsidiaries.
Manager, Media Relations and Public Affairs
+514 861 9481
Vice President, Investor Relations
+514 861 5727
The Management’s Discussion and Analysis and the Interim Consolidated Financial Statements are available at ir.bombardier.com.
bps: basis points
nmf: information not meaningful
- Earnings and EBIT refer to EBIT before special items. Non-GAAP financial measures. See Caution regarding non-GAAP measures at the end of this press release.
- Non-GAAP financial measures. See Caution regarding non-GAAP measures at the end of this press release.
- See the forward-looking statements disclaimer.
- Currently under development. See the Global 5500, Global 6500, Global 7500 and Global 8000 aircraft disclaimer at the end of this press release.
- Margin refers to EBIT margin before special items. Non-GAAP financial measure. See Caution regarding non-GAAP measures at the end of this press release.
- Due to the adoption of IFRS 15, Revenue from contracts with customers. Refer to the Accounting and reporting developments section in Other in the Corporation’s MD&A of the third quarterly report for the quarter ended September 30, 2018 for details regarding restatements of comparative period figures.
- Defined as cash and cash equivalents plus the amount available under revolving credit facilities.
- Cash and cash equivalents as at December 31, 2017 include the cash reclassified as asset held for sale. Refer to the strategic partnership section in Commercial Aircraft, Note 11 - Cash and cash equivalents and Note 19 - Disposal of a business in the Corporation’s Consolidated financial statements for more details on the transaction as well as the accounting treatment.
- Ratio of new orders received over aircraft deliveries, in units, excluding C Series aircraft orders and deliveries.
- Excluding 115 and 233 firm orders of CS100 and CS300 aircraft respectively for the comparative period of 2017. Subsequent to the C Series Partnership closing, Airbus rebranded CS100 and CS300 as A220-100 and A220-300, respectively.
- Subsequent to the end of this quarter, the Corporation cancelled two Q400 orders totalling 8 aircraft.
- Ratio of new orders over revenues.
- Including share of income from joint ventures and associates amounting to $22 million for the three-month period ended September 30, 2018 ($52 million for the three-month period ended September 30, 2017).
CAUTION REGARDING NON-GAAP MEASURES
This press release is based on reported earnings in accordance with International Financial Reporting Standards (IFRS). Reference to generally accepted accounting principles (GAAP) means IFRS, unless indicated otherwise. This press release is also based on non-GAAP financial measures including EBITDA, EBIT before special items and EBITDA before special items, adjusted net income, adjusted earnings per share and free cash flow. These non-GAAP measures are mainly derived from the consolidated financial statements but do not have standardized meanings prescribed by IFRS; therefore, others using these terms may define them differently. Management believes that providing certain non-GAAP performance measures, in addition to IFRS measures, provides users of our Financial Report with enhanced understanding of our results and related trends and increases the transparency and clarity of the core results of our business. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections in Overview and each reporting segments’ Analysis of results sections in the Corporation’s MD&A for definitions of these metrics and reconciliations to the most comparable IFRS measures.
This press release includes forward-looking statements, which may involve, but are not limited to: statements with respect to our objectives, guidance in respect of various financial metrics and sources of contribution thereto, targets, goals, priorities, market and strategies, financial position, market position, capabilities, competitive strengths, beliefs, prospects, plans, expectations, anticipations, estimates and intentions; general economic and business outlook, prospects and trends of an industry; expected growth in demand for products and services; product development, including projected design, characteristics, capacity or performance; expected or scheduled entry-into-service of products and services, orders, deliveries, testing, lead times, certifications and project execution in general; competitive position; the expected impact of the legislative and regulatory environment and legal proceedings on our business and operations; strength of capital profile and balance sheet, creditworthiness, available liquidities and capital resources, expected financial requirements and ongoing review of strategic and financial alternatives; the introduction of productivity enhancements and restructuring initiatives and anticipated costs, intended benefits and timing thereof; the expected continued expansion of the business aircraft aftermarket; the objectives and financial targets underlying our transformation plan and the timing and progress in execution thereof, including the anticipated business transition to cash generation; expectations and timing regarding an opportunistic redemption of CDPQ’s investment in BT Holdco; intentions regarding the CRJ program; the funding and liquidity of C Series Aircraft Limited Partnership (CSALP); the impact and expected benefits of the transaction with Airbus, on our operations, infrastructure, capabilities, development, growth and other opportunities and prospects, geographic reach, scale, assets and program value, footprint, financial condition, access to capital and overall strategy; and the impact of such transaction on our balance sheet and liquidity position. As it relates to the strategic actions and proposed sale of the Q Series Aircraft program and Business Aircraft’s flight and technical training activities discussed herein, this press release also contains forward-looking statements with respect to: the expected terms, conditions, and timing for completion thereof; the respective anticipated proceeds and use thereof, related costs and expenses, as well as the anticipated benefits of such actions and transactions; and the fact that closing of these transactions will be conditioned on certain events occurring, including the receipt of necessary regulatory approval.
Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may”, “will”, “shall”, “can”, “expect”, “estimate”, “intend”, “anticipate”, “plan”, “foresee”, “believe”, “continue”, “maintain” or “align”, the negative of these terms, variations of them or similar terminology. Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key elements of our current objectives, strategic priorities, expectations and plans, and in obtaining a better understanding of our business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
By their nature, forward-looking statements require management to make assumptions and are subject to important known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecast results set forth in forward-looking statements. While management considers these assumptions to be reasonable and appropriate based on information currently available, there is risk that they may not be accurate. The assumptions underlying the forward-looking statements made in this press release in relation to the transaction with Airbus include the following material assumptions: the accuracy of our analyses and business case including estimated cash flows and revenues over the expected life of the program and thereafter; aircraft prices, unit costs and deliveries gradually improving during the acceleration phase; assumptions regarding the strength and quality of Airbus’ scale, reach, sales, marketing and support networks, supply chain and operational expertise, and customer relationships; the fulfilment and performance by each party of its obligations pursuant to the transaction agreement and future commercial agreements and absence of significant inefficiencies or other issues in connection therewith; the realization of the anticipated benefits and synergies of the transaction in the timeframe anticipated; our ability to continue with our funding plan of CSALP and to fund, if required, any cash shortfalls; adequacy of cash planning and management and project funding; and the accuracy of our assessment of anticipated growth drivers and sector trends. The assumptions underlying the forward-looking statements made in this press release in relation to the strategic actions and proposed sale of the Q Series Aircraft program and Business Aircraft’s flight and technical training activities discussed herein include the following material assumptions: the satisfaction of all conditions of closing and the successful completion of such strategic actions and transactions within the anticipated timeframe, including receipt of regulatory approvals. For additional information with respect to the assumptions underlying the forward-looking statements made in this press release, including as relates to 2018 guidance, refer to the Strategic Priorities and Guidance and forward-looking statements sections in Overview and in each reportable segment of our financial report for the fiscal year ended December 31, 2017. For additional information with respect to the assumptions underlying the forward-looking statements relating to 2019 guidance, refer to the assumptions for 2019 guidance in this press release.
With respect to the transaction with Airbus specifically, certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to: reliance on our analyses and business case including estimated cash flows and revenues over the expected life of the program and thereafter; the occurrence of an event, change or other development having an adverse effect on Airbus’ scale and reach, sales, marketing or support networks, supply chain, operations, or customer relationships; the failure by either party to satisfy and perform its obligations pursuant to the transaction agreement and future commercial agreements and/or significant inefficiencies or other issues arising in connection therewith; the failure to realize, in the timeframe anticipated or at all, the anticipated benefits and synergies of the transaction; risks associated with our ability to continue with our funding plan of CSALP and to fund, if required, the cash shortfalls; inadequacy of cash planning and management and project funding; and reliance on our assessment of anticipated growth drivers and sector trends. Certain other factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, risks associated with general economic conditions, risks associated with our business environment (such as risks associated with “Brexit”, the financial condition of the airline industry, business aircraft customers, and the rail industry; trade policy; increased competition; political instability and force majeure events or natural disasters), operational risks (such as risks related to developing new products and services; development of new business; the certification and homologation of products and services; fixed-price and fixed-term commitments and production and project execution; pressures on cash flows and capital expenditures based on project-cycle fluctuations and seasonality; our ability to successfully implement and execute our strategy, transformation plan, productivity enhancements and restructuring initiatives; doing business with partners; product performance warranty and casualty claim losses; regulatory and legal proceedings; environmental, health and safety risks; dependence on certain customers and suppliers; human resources; reliance on information systems; reliance on and protection of intellectual property rights; and adequacy of insurance coverage), financing risks (such as risks related to liquidity and access to capital markets; retirement benefit plan risk; exposure to credit risk; substantial existing debt and interest payment requirements; certain restrictive debt covenants and minimum cash levels; financing support provided for the benefit of certain customers; and reliance on government support), market risks (such as risks related to foreign currency fluctuations; changing interest rates; decreases in residual values; increases in commodity prices; and inflation rate fluctuations). For more details, see the Risks and uncertainties section in Other in the MD&A of our financial report for the fiscal year ended December 31, 2017. With respect to the strategic actions and proposed sale of the Q Series Aircraft program and Business Aircraft’s flight and technical training activities discussed herein specifically, certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to: the failure to receive or delay in receiving regulatory approvals, or otherwise satisfy the conditions to the completion of such strategic actions and transactions or delay in completing and uncertainty regarding the length of time required to complete such strategic actions and transactions, and the funds and benefits thereof not being available to Bombardier in the time frame anticipated or at all; alternate sources of funding that would be used to replace the anticipated proceeds and savings from such strategic actions and transactions, as the case may be, may not be available when needed, or on desirable terms. Accordingly, there can be no assurance that the proposed strategic actions and/or proposed sale of the Q Series Aircraft program and Business Aircraft’s flight and technical training activities will occur or that the anticipated benefits will be realized in their entirety, in part or at all. There can also be no assurance that the intended benefits from the productivity enhancements and restructuring initiatives discussed herein will be realized in their entirety, in part or at all, or on the completion, the form, or the timing of a BT Holdco buy-back.
Readers are cautioned that the foregoing list of factors that may affect future growth, results and performance is not exhaustive and undue reliance should not be placed on forward-looking statements. Other risks and uncertainties not presently known to us or that we presently believe are not material could also cause actual results or events to differ materially from those expressed or implied in our forward-looking statements. In addition, there can be no assurance that the anticipated strategic benefits and operational, competitive and cost synergies of the transaction with Airbus will be realized in their entirety, in part or at all. The forward-looking statements set forth herein reflect management’s expectations as at the date of this press release and are subject to change after such date. Unless otherwise required by applicable securities laws, we expressly disclaim any intention, and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
The Global 5500, Global 6500, Global 7500 and Global 8000 aircraft are currently under development, and as such are subject to changes in family strategy, branding, capacity, performance, design and/or systems. All specifications and data are approximate, may change without notice and are subject to certain operating rules, assumptions and other conditions. This press release does not constitute an offer, commitment, representation, guarantee or warranty of any kind.