Andrew Arnovitz – VP, Strategy and IR Marc Parent - Chief Executive Officer Stéphane Lefebvre - Chief Financial Officer.

Fadi Chamoun - BMO Capital Markets Cameron Doerksen - National Bank Financial Benoît Poirier - Desjardins Capital Markets Kevin Chiang - CIBC World Markets Turan Quettawala - Scotiabank.

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, Vice President, Investor Relations and Strategy. You may now proceed, Mr. Arnovitz..

Good afternoon, everyone and thank you for joining us today. Before we begin I need to read the following. Certain statements made during this conference, including, but not limited to, statements that are not historical facts, are forward-looking and are subject to important risks, uncertainties and assumptions.

These include statements about our activities, events and developments that we expect to or anticipate may occur in the future including, for example, statements about our vision, strategies, market trends and outlook, future revenues, capital spending, expansions and new initiatives, financial obligations and expected sales.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties associated with our business which may cause actual results in future periods to differ materially from results indicated in forward-looking statements.

While these statements are based on management's expectations and assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that we believe are reasonable and appropriate in the circumstances, listeners are cautioned not to place undue reliance on these forward-looking statements as there is a risk that they may not be accurate.

Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The forward-looking information and statements contained in this presentation are expressly qualified by this cautionary statement.

You will find more information about the risks and uncertainties associated with our business in our fourth quarter fiscal 2015 MD&A and in our annual information form for the year ended March 31, 2014. These documents have been filed with the Canadian Securities Commission and are available on our website at cae.com and on SEDAR.

They have also been filed with the U.S. Securities and Exchange Commission under Form 40-F and are available on EDGAR. Forward-looking statements in this conference represent our expectations as of today, May 26, 2015 and accordingly are subject to change after this date.

On the call with me this afternoon are Marc Parent, CAE’s President and Chief Executive Officer and Stéphane Lefebvre, our Chief Financial Officer. After comments from Marc and Stéphane, we will take questions from financial analysts and institutional investors.

Following the conclusion of that Q&A period, we will 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. As per custom, I will first review some of the highlights of the quarter as well as the fiscal year and then Stéphane will provide a more detailed summary of our financial results. I will then come back at the end of the call to discuss our outlook for the year ahead.

We met most of our strategic and financial objectives and overall, I'm pleased with our fourth quarter and fiscal year and 2015 performance. I'm especially pleased with the progress we have made to secure strategic training opportunities in each of our business.

New joint ventures with Japan Airlines and China Eastern Airlines, the startup of our Defense and Security training center in Brunei and comprehensive solutions deals in healthcare are all good examples that underscored a vision of a company to be the recognized global 'training partner of choice'.

For the quarter and for the year as a whole, we generated record revenues with higher operating profits and we reached a new record backlog. In civil, we met our goal for double digit revenue growth and a higher margin for the year, but we didn’t reached the higher peak margin in the fourth quarter as we expected.

The slower ramp up in peak margins was largely because of lower than expected simulator utilization in the last two months of the quarter in Europe and in South America, where we thought markets were on track to pick up more quickly than they actually did.

On the order front in Civil, we signed long-term training services agreements in the quarter with airlines and operators in the Americas, Asia Pacific and Europe, and we received 12 -- 10 full-flight simulator orders from customers including Southwest Airlines, WestJet Encore and China Airlines, bringing to 41 the total number of full-flight simulator sales.

In all, we received approximately $398 million in civil orders this quarter for a book-to-sales ratio of 1.08 times and for the last 12 months it was 1.17 times, a value which underscores our leading position in the market.

Civil backlog for the quarter was up significantly to $2.9 billion and now includes our share of the recently operationalized joint ventures with Japan Airlines. In Defense, we expected to be resilient and we are proud to have in fact delivered top and bottom line growth in a down defense market.

We signed defense contracts during the quarter across a broad range of geographies and platforms, including the provision of a C-130J weapon systems trainer for the US Air Force, M-346 simulators for the Italian Air Force, AW101 helicopter training devices for the Royal Navy, and AW139 helicopter simulator for Australia's Toll Group, and P-8 simulators for the Royal Australian Air Force.

In addition to selling new simulators, our defense customers continued to enhance and upgrade legacy training systems as they transitioned to more virtual training. We signed a range of upgrade contracts, including a major visual system upgrade on the Royal Canadian Air Force's CH-146 helicopter simulator.

In total, we won approximately $238 million in Defense orders this quarter, for a book-to-sales ratio of 1.01 times. The book-to-sales ratio for the last 12 months was 0.88 times and our fourth quarter Defense backlog was $2.5 billion.

Finally in healthcare, our strategy continued to bear fruit with strong revenue in operating income growth, further reaffirming our conviction in the potential for simulation based training solutions in healthcare. We gained more traction during the quarter, with our solutions approach, new products and enhanced global reach.

We book some larger training deals involving a broad range of our patient, surgical and ultrasound simulators, our simulation center management solution as well as our training and support services.

In the U.S., we sold patient simulators, simulation center management solutions and curriculum to customers including Southeastern University, and we sold our patient simulators and a range of other products including ultrasound simulators to customers in Southeast Asia, Eastern Europe and Africa.

We also continue to find synergies with defense this quarter with patient simulators ordered for the Australian defense forces. With that, I will now turn the call over to Stéphane..

Thank you, Marc and good afternoon everyone. Consolidated revenue for the quarter was up 10% over Q4 last year at $632 million and quarterly operating profit was up 22% to $105 million. This gave us an operating margin of 16.7% which is the 160 basis points better than same period last year.

Fourth quarter net income attributable to equity holders from continuing operations was $63 million or $0.24 per share. I would note that the effective tax rate in Q4 this year was 23% compared to only 15% last year. For the fiscal year, revenue increased 8% to $2.2 billion and operating profit grew 15% to $333 million.

The operating profit margin for the year expanded 90 basis points to 14.8%. Annual net income attributable to equity holders from continuing operations was $201 million or $0.76 per share and the effective tax rate for the year was 22% compared to only 13% last year.

We had a $142 million of free cash flow in the fourth quarter, up from $108 million in the fourth quarter last year, and for the year net cash provided by continuing operating activities after deducting net cash used in investing activities which takes into account all of our CapEx was $90 million, up 9% from the prior year.

We continue to execute on our three capital priorities namely targeted growth investments, higher current return for shareholders and deleveraging our balance sheet. Total capital expenditures were $41 million for the quarter and a $144 million for the year.

Growth capital expenditures represented two-thirds of the annual total, and maintenance the remainder.

Annual capital expenditures were 8% lower than the $157 million the year prior and given the investments we've already made to position the business, we expect total capital expenditures to be substantially lower again in fiscal 2016 at approximately $100 million.

Despite a significant translation increase from the lower Canadian dollar net debt decreased to $950 million as at March 31, 2015 compared to $972 million as at December 31, 2014.

Over the course of the fiscal year higher cash flow from operations and lower capital expenditures enabled us to further strengthen our balance sheet and so our net debt to total capital ratio was 36.3% as of March 31st.

Now looking at our segmented financial performance, in Civil, fourth quarter revenue was $368 million, up 14% compared to the prior year period and fourth quarter operating income was $62 million for a margin of 16.8%.

We had a gain on the disposal of some assets in the quarter which was offset by some negative FX impacts largely driven by a sharp drop in the Brazilian real in the last two months of the quarter and some other non-recurring expenses.

Annual Civil revenue was $1.3 billion, up 10% compared to prior year, while operating income was up 17% to $211 million giving us an operating margin of 16.3%. Training center utilization was 70% for the quarter and 68% for the year. In Defense revenue for the fourth quarter was $235 million, up 2% compared to last year.

Fourth quarter operating income was $40 million for an operating margin of 16.8%. Annual revenue was $857 million up 4% from the prior year and annual operating income was $116 million for an operating margin of 13.5%. In health care the revenue for the quarter was $29 million, up 34% compared to the same quarter last year.

Similar to recent second quarter when we saw some positive impact of higher volume of the healthcare margin the fourth quarter also demonstrated the potential for margin expansion once we get above to roughly $25 million quarterly revenue.

Fourth quarter operating income was up nearly 6 fold compared to last year at $4.1 million giving us a 14% margin. Annual revenue was $94 million, up 19% and annual operating income was up 4 fold to 6.7 million for the 7.1% operating margin. With that, I will turn the call back over to Marc, who will discuss the way forward. .

Thanks, Stéphane. As this is our year end call and because we recently completed our annual strategic review with CAE's Board of Directors I'll talk about the year ahead as well as provide some comments about our strategic orientation. As we look to fiscal 2016 and beyond we remained encouraged by our prospectus for growth, especially in training.

Last year we continue to demonstrate how the unique combination of CAE's comprehensive training solutions, global presence and know how in training makes CAE the ideal training partner of choice in all three of our markets and we see much more opportunity ahead for CAE to grow its position in the global training market.

We've made significant investments in recent years to build out the world's largest and broadest network of Civil Aviation Training Centers and our priorities are squarely focus on filling training center capacity and driving returns on those investments.

At the same time we’ll continue to selectively fund growth by investing with our partners in Lakshadeep with their perspective demand and we’ll continue to invest to support our business aviation customers.

We've already funded the majority of our growth investments which is the principle reason why we're able to substantially reduced total CapEx plans for fiscal 2016 to approximately 100 million.

We will also continue to strengthen our position by developing new solutions like our 7,000 series full-flight similar and innovative processes to become even more competitive and offer an even more compelling alternative to our customers.

The long term Civil Aviation market fundamentals remain strong notwithstanding the near term softness in Europe and South America. IATA predicts approximately 5% continued passenger traffic growth and we believe this is the overarching market driver for our solutions.

Whatever the rate of actual passenger growth there is no doubt the skies are becoming more crowded and safety remains paramount. And with nearly seven decade behind us the highest share of annual simulators sales and the largest customer installed base CAE's brand in safety is a well recognized the world over.

It's fair to say we are the go to provider for flight simulators and this is a position that we intend to protect by creating and even wider gap between the competition and CAE. We expect to see demand for about the same number of Civil Stimulators in fiscal 2016 as we did in fiscal 2015.

We've transform the company over a long period of time to become a globally recognized leader in training solutions. Because we believe this is where we can add the most value and it represents a very large market.

The total global Civil Aviation Training Market is nearly six times larger than the products market and this is where we believe we can make major strides to grow our business over the long term and fill our available capacity. We’ll continue to lead in the sale of stimulators and at the same time we’ll grow our share in training.

For the fiscal year ahead we expect to make more progress on this front with our training solutions and we expect to see annual Civil margins continue to expand from the 16.3% level reached this fiscal year.

In Defense, we proved that we can grow in a down defense market and we continue to expect modest revenue growth with operating margins in the 12% to 13% range. The rate of defense procurement is still challenging to forecast but we maintain a positive outlook based on a number of factors.

Our current submitted and pending proposals are in excess of $2.5 billion, which is a near all-time high for the company and our enhanced capabilities in integrated live, virtual and constructive training system opens up an even larger market potential for us longer term.

We see growth opportunities for CAE as defense forces transition from their legacy training systems to more virtual training, and we are also well positioned on enduring platforms with good geographic diversity.

And also giving us confidence is our solid $2.5 billion of backlog and the increasing proportion of our revenue coming from long-term recurring training and support services contract. And finally in healthcare, we draw on CAE strengths of unique comprehensive solutions and global presence.

We’ve gained more of a critical mass in fiscal 2015 and we expect to build on this base in year ahead. Our long-term aspiration for healthcare is to be a leader in an increasingly regulated market for simulation based training.

We think we have an excellent position and we continue to make in rows with medical device OEMs and medical societies to adopt the use of simulation and of course our training, accessing and certifying practitioners. We have good momentum in healthcare and we expect to see continued top and bottom line growth in the year ahead.

To summarize we look forward to increased success in fiscal year 2016. We’ll continue to invest to protect our leadership position in simulation products and we’re especially encouraged by the long-term potential for CAE as the leader in training solutions.

We expect growth in all segments for the year with performance continuing to follow CAE’s usual pattern involving a stronger second half of the fiscal year than the first. We put a lot of capital to work in recent years and we’re clearly positioned to fill capacity and harvest investment returns.

We expect that our continued profit growth together with substantially lower capital expenditures next year will yield higher returns on capital and looking beyond we believe our performance will continue to improve over the longer term as we bring our ‘training partner of choice vision’ to fruition.

Thank you for your attention and we’re ready to answer your questions.

Andrew?.

Operator, we’ll now open the lines to take questions from investors..

Thank you. [Operator Instructions] Our first question comes from the line of Fadi Chamoun with BMO Capital Markets. Please proceed..

Hi, good afternoon everyone. I wanted to just sort of drill a little bit on the sim margin on the Civil Aviation margin outlook.

So I’m thinking your throughput in the simulator manufacturing is probably going to be slightly down as you reduce some of the investments in your internal network and -- or could get more or less flat, but on the other hand you’re probably have improvements in utilization.

So, how should we think about the margins progressing, I know you're saying it should improve year-on-year, but can you put some number around that?.

I think -- history tells us to be careful about that, Fadi. But I think that we're very confident that it’s going to be higher and it's really going to come across from increase in training center utilization filing our available capacity across commercial and business aircraft simulators in the network.

At the same time we take -- we have had sustained high book to bills in the last couple of years. So, we are seeing more activity and then we have couple of -- we have more activities as well on the military side.

So there is more throughput going across the plans, so you do have more overhead absorption and factors like that, that increase your profitability or your gross margin of programs going through the plan.

At the same time, we do take some -- we temper our expectations with some anticipation of continued competitive pressure, which is, it remains intense on the product side and we're defending our market share against very aggressive competitors.

So all-in-all with that we're confident that the margins are going to increase and again those are factors which guide our expectation but clearly it's in the rising direction..

Okay.

On the CapEx, I mean it’s a pretty -- good outlook we're looking at now but I'm wondering how should we think about sustainable CapEx? I guess we're going to see maybe a period of year where you're growing into you network utilization rate, but how should we think about maintenance CapEx or not maintenance CapEx really, I guess CapEx in the context of [5%][ph] global traffic growth.

If you're growing more or less in line with global traffic, what should be the run rate for CapEx?.

I think, going back to the comments we're saying that, Fadi, we have already -- as you well know we've invested in that -- in creating the largest and most diversified geographically network of simulators in the world.

So, we spend a lot of money to create that network, we're getting the contracts, we have the contracts, we're in the mode of filling capacity.

When we look at where we are in the world, we think we're pretty happy with this training centers that we have, with the simulators we have in the network and as we've said previously, where we're focused now in terms of adding incremental CapEx, which is mainly simulators in our network, it's focused on a couple of areas, one is business aircraft and we think that there is remaining capacity growth in business aircraft and yields are good, in business aircraft.

And the other area we want to add simulators is -- as I said in my remarks to grow in lock step with our joint venture partners and those companies that we have associations with.

For example, we have joint venture with Indigo Airlines in Delhi, they're one of the fastest growing airlines in the world; AirAsia, for example, other airlines throughout the world are growing in a very fast rate, so, China Southern is another one in Zhuhai.

So as they are taking on aircrafts, we clearly are going to add simulators to those training centers -- or the joint venture training centers to match capacity.

But when we look -- having said all that, when we look at our CapEx requirements to continue to be able to serve those two particular markets which I've talked about, we're quite comfortable that between growth and the maintenance CapEx, $100 million is what we need to spend.

Now I'm not making any -- as I've always said, that would not include say, if we were able to convince a large airline to have a -- to outsource a complete training solution to us, where we would decide to buy simulators -- their simulator part.

Now that would be more of M&A deal and we've always said that but we don’t -- our -- to the longer extent to your question, we don't give guidance beyond this year, but we’ve clearly said that we're going to be less capital intensive over the next few years and as you see the $100 million that's what you're seeing, we prefunded a lot of the growth that we're seeing and I would expect that to continue.

So I wouldn't want to go out in any years here obviously because who knows what the markets in the world will bring, but based on the outlook of continued growth in civil aviation that we see, 4% or 5% overall every year, I think the kind of outlook that we have is one that’ll probably last more than a year.

Although I'm not going out too much more than a year..

Our next question comes from the line of Cameron Doerksen with National Bank Financial. Please proceed..

Yeah. Good afternoon. Question from me is on return on capital employed, I mean for the full year 10.4% and I'm sure you are not satisfied with that level.

And I guess, the reduced CapEx, is a good step in the right direction to helping that number, but I wonder if you can maybe just talk about what target you might have for that metric and maybe to ask it in other way, what do you think is kind of the minimum level that you would be -- consider to be acceptable?.

Well, Cameron this is Stéphane, we've -- you look at how with the level of investment that we've made in the past two-three years and for sure it diluted the return on capital employed, the acquisition of Oxford, the deployment of assets that we've made and I think I've said a few times the good news is that it was done at a time when our cost of fund went down as well, so we're able to preserve quite a good yield over and above our cost of fund above our WAC.

I think you see from our CapEx guidance, I think we’ve reached a point where we by and large invested a lot of money in that network and that will pace down the investment over the next -- at least this next year as we've said. So clearly, it will improve our return on capital employed.

So are we pleased with the level of capital and return on [ROIC] [ph] that we currently have? Well, we know it has to go up and it will. So, we're confident in improving our profit, we're confident in reducing our cap; we’re investing less than we’ve had in the past.

We said maybe a few times, that in terms of a longer term horizon, we'd like to, the business over the strategic plan period we'd like very much to reach a mid-teen type of [ROIC] [ph] and that’s what we've been -- we’ve had in the back of our mind in building our strategic plan over the foreseeable future, three to five years. .

Okay. That’s very helpful.

Maybe just a quick housekeeping item, I'm just wondering if you can talk about when the acquisition of the Bombardier's Military Training business going to close?.

Well, it's hard to predict right now, I mean we're going through various levels of approval that we have to. Some of them we don't control and it's underway, we don't see any show stoppers at all. But it's taking it's time unfortunately.

But certainly, I definitely expected it should be the first half for the year for sure but, we're talking about I’ve said, a number of approvals are required, again I don’t have -- I don’t control the timetable..

Thank you. Our next question comes from the line of Benoît Poirier with Desjardins Capital Markets. Please proceed..

Good afternoon, everyone. First question, there was a lot of non-recurring items in the quarter.

So just on the Civil side, I was just wondering whether the partial disposal of a certain interest in investment, we should expect something in the going forward in fiscal '16?.

Yes, Benoit this lots of accounting jargon, but in the end we've had in Q4 as we've had in many quarters in the past some gains from disposing some of our assets that were previously deployed in our training center and from accounting standpoint treated as a gain on disposal, so that's what they were, but you've seen that in the past we always have some every quarter.

So in Q4, I can use Q4 of last year as a proxy because we looked at the several margins in Q4 of last year as a target. In Q4 of fiscal '15 we’ve had about $7.5 million more gains in the Civil business than we typically have.

On the other hand I’ve mentioned in my remarks, we got some hit, one large ship actually that comes from the drop in the Brazilian real in the fourth quarter. We have operations in Brazil, Benoit and we’re using the USD as functional currency and the real dropped by 18% from Q3 to Q4, so that's a drastic drop in the short period of time.

We've had some cash and receivables in Brazil that was hit by the conversion of the real to the U.S. dollars and so that accounted about 4 million of hit, in the end of quarter. In addition to that again always in the Civil business, we've had about $3.5 million of what I would call non-recurring expenses.

This is mainly some termination benefits that we've paid out, a little bit of FX leakage in our product business, not that much, but little bit and some other provision right-offs in the quarter. So you look at $7.5 million of upside on one hand, but completely offset by nonrecurring cost on the other hand..

Okay, this is very good color Stéphane and just on the military side, could you quantify the investment tax credits that were claimed in Q4 and I know it's a seasonal, it's mostly done in Q4, but just want to have an idea of the magnitude..

No absolutely -- in Defense, if you go back to the financial statements, you will find the Company as a whole we've traded about 11 million of ITC to income on the investment tax credit. Again, if I average out what I would expect in the given quarter, I could have 4 million or 5 million to 6 million of ITC, normally that's what I would expect.

And so there has been -- call it 5 million of additional ITC that we've had in Q4 and this is all in the Defense. Now I call them ITC’s, they're actually they are R&D taxes credits but they're not the typical Canadian ITC. This is coming out of some program in the U.S.

and I mean good news for us is this is a program that we've seen and that will keep on benefiting going forward, not at the same order of magnitude that every quarter, but we'll continue to see some of those benefits in the future. The only thing that's peculiar what it is that the associated R&D cost is not all accounted in the R&D cost line.

There is some costs that are part of the some projects that we delivered to customer that are qualified technology for the purposes of that tax credit claim. And so there is -- yes, we've had higher ITC’s in the quarter but we've also had higher R&D expenses, so I can't give you a net-net impact of it, but it's certainly lower than $5 million..

Okay very good and last question before I get back in the queue, on the free cash flow side obviously it bodes well given the reduced CapEx for this year, so just wondering if you could comment about if there is any big working capital changes expected this year and if we should expect share buyback anytime soon given your strong free cash flow profile?.

Look I think we're pretty pleased with where we landed at least for Q4, I mean for the whole year we've had a slow start in terms of cash flow generating in H1 first half of the year, but we recovered some of that in Q3 and a lot of it in Q4.

And I've said in many remarks and I think talking more to people, a lot of people are looking into our cash flow net of all the investments in CapEx that we do and so I've logged that for the year at the cash flow statement if you -- the cash that we've generated from our operations minus all the investments that we’ve made.

The net is actually improved 9% over last year, now going forward with expected growth in our business on one hand and lower investment in CapEx; I think we're expecting stronger cash flow next year. We've had some investment in non-cash working cap in fiscal '15, about 70 million.

I would expect in fiscal '16 still to have some investment in non-cash working capital, probably not to that level though. But overall I think we're expecting strong cash flow in fiscal '16..

And to the question if I can add Benoît on the specific topic of share buyback I'm going to be like a broken record on this one but I think overall we’ll stay true to our capital allocation priorities that we set up a couple of years ago.

Which we'll and we'll continue to selectively fund growth and as we said well that's translates itself to about $100 million this year. I mean that of which is growth CapEx. Then we are going to continue to manage our balance sheet. We've been deleveraging, and that we're at zone that we like.

But we can clearly -- and I’ll defer to Stéphane where he want to go, but I think we've been happy about the 30% to 40% range and we're and the last one is just to heart of the question you ask as we are going to continue to look at returning cash to shareholders and so far we've increased the dividends for four years in a row, so clearly we have a pattern of doing that and I never guarantee we’ll do it, but clearly we have an established yield year or in terms of our pair ratio which all those it’s not a policy, I think you can see the trend that we have.

We haven't done any buybacks as you well know, but as we've said before -- it's not that we are opposed to it; it’s something that we look at continuously. But we don’t have a have a normal course issue right now, it’s not to say that we don’t, it’s something will look at..

Our next question comes from the line of Kevin Chiang with CIBC World Markets. Please proceed..

Hi. Thanks for taking my question. Maybe just a point of clarification on your previous remarks there, Marc. In terms of the leverage component to your priorities to cash flow.

Should I think about that migrating closer to 30%, just given the increasing free cash flow? Or are you happy with the 36% to 40% you've been hovering around recently?.

I've been over differed in my CFO, hold on..

Look I have to say we're very pleased with where we landed, especially after we did the Oxford acquisition or leverage was around 50%.

So with the amount of capital that we have continued to deploying in the business since then we're pleased with the results, And what it does -- and it really demonstrate the cash flow that we generate out of the training service business. I've given some sort of guidance that between 35% and 45% would be a very comfortable position to be in.

The fact that we are even more deleveraged at 36% gives us flexibility, as Marc said we have a number of priorities you've seen that going forward, we expect to invest less than what we did in the past, so it gives us more flexibility to do basically two things, continue deleveraging the balance sheet and return cash to our shareholders.

We started having received more seen on the market place for sourcing deals either in the Civil Market or the Defense Market, the number of contract that we are currently bidding on in Defense and I think that in case we win some of those contracts they may requires some investment and then we’ll have the balance sheet that's strong to capture those opportunities.

.

That's helpful. And just lastly from me, then. Your Civil training utilization rates have hit about a glass ceiling in around the 70% range. I know you expect that utilization to move higher as per your prepared remarks.

But can you provide any granularity in terms of what you think the incremental benefits in 2016 could be in terms of what that lift to utilization this year in terms of what you're expecting? And then can you remind me how you think of normalized utilization rates maybe over the next few years here? Given that a lot of your investments in these training centers are now complete?.

Well. I think it's hard to predict where utilization will wind up; history has proven that -- certainly I have been unable to predict it with any degree of certainty for sure because of so many circumstances that effect it.

What we are clear is that, to me there is no glass ceiling there is no reason at all the utilization would not increase and really what fuels that confidence is -- like demand is there, we have a good environment, traffic continues to grow, orders are good, we have the contracts in place with customers in the pipe.

We had two years in a row of book-to-bills higher than 1 not only in products but also sizable book-to-bills on the positive side in training. So those contracts that coming forward we have forecasted the customers and when you role all that up we definitely come up with a training utilization that’s higher than what we see today.

So I see no glass ceiling to this platform and the fact that matter is -- I will tell you there is a number of our training centers in the world that are operating above 100%. So while clearly some are operating on the lower end side, which gives you the average that you have, but it cleared is an average.

So look, it’s very hard for me to give you an absolute number except that I’m very confident that it will be higher. And there is a lot of operational leverage associated with that which is why we’re confident in margin progression as well..

Thank you. Our next question comes from the line of Turan Quettawala with Scotiabank. Please proceed..

Yes, good afternoon. I guess I have a quick follow-up to the same -- similar type of question here to Kevin's. If you look at the utilization over the last three years, it's sort of been in that 69%, 68% range. And I know there was some relocation that you guys did last year, just to get things -- the capacity more sorted out.

I guess my question is I know, Marc, you said that they're averaging out with some being higher than others. But what makes you change your -- traffic has been growing globally pretty much. I know some areas are weaker than others. But overall, traffic's been growing.

So what needs to change here for your utilization to go up?.

Well, I think couple of factors that really -- if I look at this year particularly, as you look at the previous year you’re exactly right; we had a number of things going on, a lot of movements. Well that’s last year and the year before but still substantial amount of movement. We’ve had some this year.

But if I look at just the past quarter, clearly what we saw is that it’s not an exact science. We provide -- we come up with the forecast based on what we think utilization will be based on looking at the contracts we have in placed with customers that need to train, if you remember this is a regulated business so customers have to train.

Now there is a degree of flexibility on how far they can push that out, but if I look at what happen specifically in this past quarter, what we look at it even as early February when we last talk to you, clearly we saw more utilization.

What happened specifically because of the specific situation within Brazil and specifically, and in Europe we saw airlines push out the training in few months and that’s what cause the drop in utilization. But again you can only do that so far.

And a lot of it was due to they didn't take the airplanes at the rate that they thought they were going to get them because just the economic conditions did not -- were not favorable for them to do that.

So I don’t think -- as we’re talking about factors that delay, to me it’s late, it’s not that it’s gone, it’s just delayed because as you said at outset, the demand is there, the environment is good, we have the contracts in place, I’m just repeating myself now. We have the customers in place.

We’ve established large joint ventures, if I look at new joint ventures that are going to operationalize like the one that we just did with Japan Airlines that’s going to increase things as well. So that’s all the factors that lead their confidence that they have..

Okay. Perfect. I guess maybe just a quick follow up there.

Is there something you guys can do internally to change that, or is it just more market dependent then?.

Well, we’re doing that, you would expect this all the time I mean at the end of the day to sell right, sell more, go get more revenue share.

I mean the interesting thing about training contrary to our products business, if you look at products business we have about 70% market share and that market itself is driven by largely the delivery of airplanes out of the major OEMs specifically Boeing and Airbus.

We’ve talked about this ratio, every 30 narrow bodies that takes a simulator to market, every 15 to 20 wide body, they takes the simulator to market and we derived about 70% market share. And if you go back last few years that correlation holds pretty well. Again we have 70% market share in that market.

Now if you look at training I think the interesting thing in training -- that’s what I was talking about that in my initial remarks on the call is, this the market that although we have the largest position in commercial aviation training in the world and the most globally diversified geographically.

The reality is we have about 25% market share, in the market that's growing itself. So, I think that there are two things that are drive us and that's -- by the way that market itself it's about six times larger as I mentioned in my remarks than the actual products market.

So for us, what we need to do and we're actively -- you could expect we are actively pushing to do is to increase sales to grow our position in training, i.e. capture market share beyond the 25% that we have.

At the same time, convincing airlines and business aircraft operators, big operators for example, big management companies in Europe for example to partner with us so we can solve their problems in training, i.e. become their training partner of choice.

So for us it's about more [wet] training and again saying 25% market share in a market which is six times larger than the products market. So, I think there is room for growth here..

Okay. Perfect. That's extremely helpful. Thank you very much. I guess maybe if I could ask one more on the Healthcare side. I know it's small, but you obviously had some really nice incremental margins here in the year.

Can you talk -- do you think that you could double again or so in 2016 as well? Is that a reasonable expectation, just based on the growth that you see out there?.

Look, all I’m saying is we're going to grow and we're going continue growing and I know that’s not saying much but this is a market that’s evolving. I would say that what we saw in Q4 is not a flash in the pan.

It's real growth, not driven by any individual special factor, I think we’ll continue to see solid growth and as we've said previously when you look at the margins, what we're seeing is exactly what we've talked about, as soon as we get over a certain amount of revenue -- you look at it anything about 25 million, we saw that both in Q2 and in Q4, we start gaining over -- I would call our recurring cost in SG&A and R&D.

So and then as I've always said our products in this market are very profitable on our gross margin levels, so what you get is a disproportional amount dropping to the bottom line and I've always said that from this market, we're going to get the margins that are not diluted to the rest of CAE and you saw that in this quarter.

So I think we're going to see more of this but it's a small business at the moment hard for me to predict it more than I have just in the statement, I just make, There's a lot of irons in the fire.

I'm very encouraged by not only the revenue that we've gone but even more to the point the traction we’ve started to get for some societies that are really starting to think hard about introducing simulation and simulation based training as the means of initial and recurrent certification of practitioners and we've always said that, that would blow the cover off the ball in this market.

So, in the meantime, we established the forward leadership position and I think we're growing top and bottom line as we expect to continue to do..

Operator, since we only have a few minutes left to the hour, I think we will conclude the Q&A session with investors at this point. And open the line to members of the media..

Thank you. [Operator Instructions]..

Alright operator, if there are no questions from members of the media, we will --. .

We do have one question from the line of [Julian Aksino] [ph] with The Canadian Press. Please proceed.

[Foreign Language].

[Foreign Language].

Okay, operator, I think that's all the time we have. We will conclude today's call. I wish to thank all the members of the media and the investment community for their participation on the call this afternoon and for their questions.

I would like to remind all participants that a copy of today's call can be found as a transcript of CAE's website at cae.com. Thank you..

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..