Marc Parent - CEO Stéphane Lefebvre - CFO Andrew Arnovitz - VP, Strategy and IR.

Steve Arthur - RBC Capital Markets Cameron Doerksen - National Bank Financial Kevin Chiang - CIBC World Markets Benoît Poirier - Desjardins Capital Markets David Tyerman - Canaccord Genuity Inc. Konark Gupta - Macquarie Group.

Good day, ladies and gentlemen. Welcome to the CAE First Quarter Conference Call. Please be advised that this call is being recorded. I’d now like to turn the meeting over to Mr. Andrew Arnovitz. You may now proceed, Mr. Arnovitz..

Good afternoon, everyone and thank you for joining us today. Before we begin I 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 that 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, 2015 -- first quarter fiscal 2016 MD&A.

These documents have been filed with the Canadian Securities Commission and are available on our Web site at cae.com and on SEDAR. They have also been filed with the U.S. Securities Exchange Commission under Form 40-F and are available on EDGAR.

Forward-looking statements in this conference represent our expectations as of today, August 12, 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. I’ll first review some of the highlights of the quarter, and then Stéphane will provide additional details about our financial results.

I’ll then come back at the end of the call to discuss our outlook for the period ahead, including some of the benefits of our process improvement plan currently underway. We are off to a solid start to the new fiscal year in executing our strategy and meeting the growth and profitability milestones we established.

We had a good first quarter performance and we maintained our strong financial position. In Civil, we had a good pickup in training activity with 73% utilization of our training network this quarter and a 15% increase in operating income compared with the first quarter last year.

Civil’s operating margin was 17% for the quarter, which is up 100 basis points from last year. We signed training solutions agreements during the quarter that highlights some of our broad ranging capabilities.

The one contracts with customers including Southwest Airlines to reequip its entire fleet of full flight simulators with CAE’s state-of-the-art visual system. We also sold eight full flight simulators to airlines worldwide including a range of Airbus, Boeing and Bombardier aircraft types.

We extended our Multi-crew Pilot License first Officer program with Japan Airlines and we signed and renewed long-term agreements with easyJet, EVA Air, and Air China for first Officer and commercial pilot license training. In total, Civil received $288 million in orders this quarter, for book-to-sales ratio of 0.86x.

For the last 12 months, it was 1.09x. Our first quarter Civil backlog was $2.8 billion. Looking now at Defense, we have 8% higher operating income compared with the first quarter last year with a margin of 12% compared to 11.1% last year. We had robust order activity in Q1 which give us our second quarter in a row with a book-to-sales ratio above 1x.

We signed notable contracts involving enduring platforms and we make more progress on our strategy to pursue larger integrated training systems. Examples include a contract award for CAE to provide a comprehensive solution to train all future U.S Army’s fixed-wing pilots.

We also won a range of other U.S related contracts, including an order from Boeing to build P-8A Poseidon operational flight trainers for the U.S. Navy; and from Airbus Defense and Space for the UH-72A Lakota flight training devices for the U.S. Army.

As part of the U.S for military sales program, we were also awarded a contract by the U.S Navy for MH-60R Seahawk helicopter trainers for the Royal Australian Navy. In total, Defense received $270 million in orders this quarter for a book-to-sales ratio of 1.05x. The ratio was .95x in the last 12 months. First quarter Defense backlog was $2.6 billion.

And finally in healthcare, we had double-digit revenue and income growth compared to last year. We continue to innovate our offering.

During the quarter we sold patient, ultra sound, and surgical simulators, as well as our simulation center management solutions and courseware to a range of healthcare education and Defense customers in the United States, Eurasia, and the Middle East. With that, I’ll now turn the call over to Stéphane..

Thank you, Marc and good afternoon everyone. Consolidated revenue for the quarter was up 6% over Q1 last year at $557 million, while quarterly net income before restructuring costs was up 16% to $50.6 million or $0.19 per share.

Our effective tax rate was 18% this quarter compared to 21% last year, which reflects the change in a mix of income from various jurisdictions.

We began to implement this quarter a process improvement program to transform our processes and product offering to harness the technology investments we’ve made in recent years and ultimately to further strengthen our Company’s disposition.

We incurred net after tax restructuring costs of $5.7 million during the quarter and we anticipate approximately an additional $90 million after tax expenditure consistent mainly of severance and other related costs to bring the transformation to fruition. Transformation is expected to be substantially completed by the first half of fiscal 2017.

And with all new processes in place, we believe it will result in annualized savings in the range of approximately $15 million to $20 million thereafter depending a mix of programs. In line with our outlook, capital expenditures were substantially lower this quarter at $23.6 million compared to $39.7 million in the first quarter last year.

Our free cash flow was negative $61.2 million this quarter mainly attributable to high a investment in non-cash working capital typically seen in our first quarter. Our net cash provided by continuing operating activities after deducting net cash used in investing activities was negative $67.4 million, down $15.7 million from the prior year.

Net debt was 1.006 billion compared to $950 million last quarter, resulting in a net debt to total capital ratio at the end of Q1 up 36.6% underscoring the robustness of our balance sheet.

Before I turn the call back over to Marc, I’d add that subsequent to the end of the first quarter, we concluded the sale of our mining business to Constellation Software for $32 million with a potential earn out of another $10 million. We’ve since used the net proceeds of the sale to reduce our indebtedness under our revolving credit facility.

The result was an estimated loss on discontinued operations of $6 million, which will be reported in our second quarter results.

Considering the current state of the mining cycle, we’re pleased with the outcome and we believe that there is good strategic fit between Constellation and Datamine, the former CAE mining division which is in the long-term best interest of the business and its employees.

With that, I’ll turn the call back over to Marc, who will discuss the way forward..

Thanks, Stéphane. We are continuing to make good progress executing our strategy to address the larger training market with our unique comprehensive training solutions. In Civil, our sales activity remains high and we have an increased bid pipeline of training opportunities.

We continue to expect a comparable number of full flight simulator sales this year as we had last year and we expect higher margins for the current year driven primarily by higher utilization in our training centers.

In Defense, we also have a number of irons in the fire in our bid pipeline, evolving to training systems integration of our live, virtual, and constructive training capabilities. Our Defense bids outstanding are currently at $2.5 billion, which supports our outlook for growth.

Larger and more comprehensive training solutions take more time to bid to award; we are very encouraged by our progress so far. And by what we see ahead has potential to grow our business with increasingly stable and predictable sources of revenue.

And in healthcare, we again see a robust pipeline for a simulation, courseware, and center management solutions. We continue to expect good growth for the year with improved margins. CAE is in a position of strength in all three core markets.

Nevertheless they are highly competitive and we have a long history of innovation that enabled us to remain the market leader. In recent years, we’ve invested in refining and streamlining our technology, and we developed new flagship products like our 7000XRs series, full flight simulator.

That represents the most advanced and most reliable flight simulation capability on the market today. The process improvement plan that we just announced, and which will be underway over the next 12 months.

We'll bring about new production processes that enable us to become even more efficient in the way we engineer, manufacture, and deliver stimulators. This ultimately means that our current volumes we expect to reduce our workforce by a further 350 people out of 8000 worldwide over the next 12 months.

We'll do everything we can to mitigate the impact on those of our employees and their families who will unfortunately be affected by these changes. We see this as a necessary and logical step and CAE’s longer-term transformation in support of our overarching strategy to grow in a larger training market.

We are the go to provider for flight simulators and this is a position we intend to project. This process improvement program will help to create an even bigger gap between CAE and its competitors as they buy for a slice of the simulator products pie. Now looking at our capital allocation priorities, they remain unchanged.

We are maintaining a strong financial position as demonstrated by a healthy balance sheet. We look forward to increasing returns on capital, as we fill training Center capacity, under take a greater share of our customers training activity, and incrementally invest in accretive customer driven growth opportunities like outsourcing.

We also continue to prioritize current returns for shareholders. And I’m pleased that CAE's Board of Directors has approved another increase this year to CAE’s quarterly dividend. This marks our fifth dividend increase in the last five years and underscore our confidence in the business.

Thank you for your attention, and we are now ready to answer your questions. Operator, if you will, please open the lines now to financial analysts and institutional investors. Before you do so, I would ask that people limit themselves to a two part question. And if additional questions are necessary, please feel free to reenter the Q..

Thank you. [Operator Instructions] And our first question comes from the line of Steve Arthur with RBC. Please proceed with your question..

Great. Thank you very much. I guess just looking at the Civil margins; it looks like good progress this quarter coming in at around 17%. I suspect you don’t want to get into too much specifics, in terms of where that should track for the year.

Can you just give us some more color on the nature of the steps you’re taking operationally to drive utilization, to drive margins, and then over the longer term view, maybe three to five years, what kind of margin levels to see is reasonable target for this part of the business?.

Well, I think I will start Steve. Thank you. I mean, just the tactics and the strategies where we’re developing to implementing to improve the margins are really not differed, except for the process transformation plan that we’re communicating today.

And then it really involves just increasing the amount of utilization our training center and that’s really increasing the number of customers coming to train with us in our existing network of training centers, and incrementally going to airlines and convincing them to either in part or in a total to outsource shareholder operations.

Two of us, which will further increase the level of activity and then as we’ve always mentioned, the training center network if we increase the utilization of the existing centers, clearly there is a disproportionate amount of that revenue that goes to the bottom line, because you’re absorbing, more fixed costs.

Beyond that the changes we’re announcing today I think are important, because what they do is they put more distance between us and with our competitors.

In terms of -- first of all, the new products which we’ve announced before the 7000XR technology and simulator, which is being implemented in our plan now and will be over the next few months which is allowing us to be able to be much more efficient than even we were before, which I think we’re already efficient.

And that will translate into some extra value for us and our customers. And how that tracks forward, I think that maybe I don’t know if I want to pick that up.

Steve, as we -- as we’ve announced this morning, the process improvement project that we’ve -- we’re undertaking will provide about $15 million to $20 million of saving on an annualized basis, once the process improvement project is completed towards the second half of next fiscal year.

And you can -- the way to look at it is probably translate into a $0.03 to $0.04 additional EPS. So of course, a lot of that savings will make its way, well across all of our divisions, Civil and Defense. But a lot of it will go to additional business.

So, I mean, for us clearly we see this as an element and we will allow improving our margins over time..

I guess it’s a long-term view and objectives, but in the past we’ve talked kind of 20% ish type ranges is for the Civil business.

Is that still a reasonable look for the longer term?.

Yes, I think so, Steve. If you look at the -- just if you do the math $0.03 to $0.04 once the -- when we’re fully implemented over $1 billion, $1.2 billion of revenue that we’ve had in the business last year. So I get to pretty much the same place as you do in the longer term..

Okay. Thanks. I’ll requeue for some more questions. Thanks..

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

Yes, thanks. Good afternoon. I just wanted to come back on that issue with the margins and the process improvement plan here, which presumably I guess is in part to response to a more competitive environment out there.

I guess, I’m wondering what your thoughts are on weather we will actually see the savings show up in the bottom line or given the fact that maybe the full flight simulator business has become a little more commoditized, will that ultimately just be given away in lower prices given what’s going in a competitive environment..

Well, I think that the -- I will start with Cameron.

I think first of all, I will tell you this is not a response to what other people are doing, we -- I'd like to say we play our own game and the people play theirs, and I think that what we’re doing is continuing to do, what CAE is always done is continue to innovate, innovate our products and make sure that we continuously improve the way we do things.

And in this particular case, the U7000XR, product that we developed, allows us going forward as we deliver more and more 7000XR to be able to produce our simulators, engineer produce them, in a more efficient manner and that translates into the savings that we talked about.

And I think those savings we talked about, you heard with Stephan said, I would agree to 3% to 4% -- $0.3 to $0.4 incremental, all wells being equaled. I think we -- our assumption in that, I think you could take for granted that we’re assuming the competitive environment that we see today and talking about an incremental margin.

And, I guess, I think we will leave it at that..

Okay. So, it’s not your view though that the full flight simulator market has become more of a commodity market.

And you do believe that CAE can still differentiate itself with all the various product offerings that you have and the technology that you have?.

Absolutely, the simulator market is not a commodity market and we’re able to differentiate and that’s testimony by the market share that we get and still being able to deliver having combined with training business 17% margin. I don’t think that equates to commodity market..

Very good. That’s help for me. Thanks very much..

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

Hi. Good afternoon. I guess, I’m going to try one more question on this restructuring.

Just – is it fair to assume then this is going to come mainly from the Civil products business, is that right?.

Not totally. I mean, the big impetus is in Civil, Turan. But it has the -- it’s X on the military business as well, because I wont go through all of the details of this. Here is one example of what this does. We carry; we produce a number of different types of simulators today, by different type names that we provided.

Both in Civil and in military, this 7000XR product and the way we engineer it, allows us to transition to really have one product line.

The 7000XR which replies to the Civil business, which as you know have the bulk of the sales of simulators themselves, but that same simulator platform is okay in the great park is being used on military platform, like for example SU130J. So you’re going to get some of that benefit on the military business.

Obviously prorated the amount of simulators we do for the military. So you’re getting in both cases..

Got it. Okay. But it’s mainly products, obviously..

Yes, its products..

Okay.

And then, I guess, why is it taking so long to get it done maybe it’s a stupid question, but I mean, if you’re just taking -- if you’re just taking off people that can be done a lot quicker, right?.

Well, I think that what you’re -- this is not because of a reduction in volume. I mean, the fact is, we have an increased volume in going through our plants right now and we’re, even though we’ve reduced the amount of capital investment we’re still producing simulators for ourselves.

So this is not a result of us dropping production rates for example like that -- our markets are very good. So, really the changes that you’ll see, first of all, we’re not complete in changing all the processes that the 7000XRs allows us to do. Those will happen as we deliver more and more simulators with that product line.

There is a learning curve associated with that, that for example. So you will see those process changes translate into the savings as we complete the, as we go over the next 12 months..

Okay.

But I guess, there was a reduction in the number of people, correct? Is that sort of already done or?.

No, I think that the 350 that we -- the 350 that we have announced going forward.

Okay, we did have a restructuring that we quoted associated with people in the first quarter, but the 350 that are going forward that’s associated and that’s going to happen related to the process changes we’re making, that’s going to happen probably towards the end of this year and into the probably early to mid part of next year, that’s where the 12 months come from..

Okay. That’s helpful. Thank you very much..

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

Hi. Thanks for taking my question. Maybe I’ll just turn to your return on, on capital employed number. It was down modestly sequentially to 10.3%. When I look back historically call it five or six of the last seven years, Q1 has been your high point for the year, but given the strong start utilization, given some of the restructuring.

I was trying to get a sense of how you see this ROCE [ph] number trending through the year or you think the previous trends makes sense for fiscal 2016?.

Yes, Kevin this is Stéphane. When we submitted our Q4 results we’ve -- we said that we expect to see an improvement in our ROCE [ph], and this will come from two different sources. We’ve continued growing our business of course, and there’s going to be less investment in CapEx, deferred development cost and so on. We don’t change our guidance.

This is what we see today. I think what you’re referring to is you’ve seen quite a high increase in investment and non-cash working capital in this quarter, and it is the case menu every year in Q1. Q1 is a period where we have to release a lot of annual payments that go through our numbers in the first quarter.

So we’ve invested about $113 million in non-cash working cap at Q1. It is higher than our investment in Q1 last year, but quite frankly I think I said last -- at the call last time, I do see still some investment in non-cash working cap being necessary for this year as we grow the business.

But I don’t think that we’ll be investing more in the first half of the year than our investment in non-cash working cap the first half of last year. But the timing is just such that a lot of payments went through in Q1 this fiscal year and not in, spread over Q1 and Q2 last year, maybe just closing off on the ROCE [ph] itself.

The fact that the Canadian dollar moves down and continues to move down is a positive for us on the P&L side. But we also have to reval our balance sheet on a regular basis and so that plays put some pressure on the ROCE [ph] itself.

On the other hand, we continue burning down some of the hedges that we have put in place in the past, so the further down we go, we get to recognize to get revenue to more beneficial, the hedging rates than we had in the past.

So all in understand that you see some pressure in the ROCE [ph] in the -- in Q1 and in the near-term, but just to conclude as I said, we don’t change our guidance for improvement in ROCE [ph] this year..

That’s helpful. Maybe just a quick clarification point, on the $15 million to $20 million savings related to the restructuring.

Just trying to get a sense of how long it will take to realize that? Is that effectively in the first year, I guess starting from the second half of fiscal 2017 you would expect to start seeing those annual costs rolling through your P&L or could we see that actually earlier as you kind of progress through that restructuring?.

No, well the $15 million to $20 million is an annualized number, Kevin. And I guess, it will really ramp up as we -- well first of all complete the overall program which will be done by probably mid next week, and so we’ll see a part of that in fiscal ’17 -- mid next year.

So we’ll see some of the benefit in fiscal year ’17, not the entire $15 million, $20 million. And as we ramp up transforming, adapting our new processors to different platforms it will ramp up. So that’s why we got a range of $15 million to $20 million over time..

That’s it for me. Thank you..

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

Yes. Thank you very much, and good afternoon. Just to come back on the previous question about free cash. What should be the consumption or the usage in working cap this year? You mentioned that it would improve versus last year but -- and what would be kind of the sustainable level in the longer term, Stéphane..

Well, couple of two parts in your question. I think what we see as I said to Kevin, we’re not changing our guidance. I think what we see Benoît is, as the business continues growing and as there is in relative some more, more revenue coming out of our service business than product, we have to invest in non-cash working cap.

So I think every year as we continue growing there’ll always be some level of investment in non-cash working cap.

Just maybe more specifically on Q1 in this year, I think if I look back at the amount of money that we’ve invested in our non-cash working cap in the first half of last year and I don’t think that we’ll invest more than what we have in each one of last year. I think you’re familiar with the patterns.

Usually Q1 is, we see large investment in non-cash working cap due to a little bit of investment in non-cash working cap. Q2 a little bit of investment and then Q3, Q4 are reversal of non-cash working cap and that’s what I see as well for this year..

Okay. And second question, if we look at healthcare margin it’s been down versus a year ago. I was just wondering if you could provide more color about the seasonality and maybe what we should be looking going forward..

There is an element of seasonality in the business, Benoît. I mean we’ll look at it very much relative to the volume of business that the -- the business, that the healthcare business can get at around $24 million of top line. We would have expected a relatively good margin in the first quarter.

One thing that I think I should mention that affected the results in Q1 and I don’t think will affect the results going forward is that, we’ve changed the assembly line down in Sarasota from batch production to the one piece flow type of manufacturing process.

And I know that the, there’s a number of products that we sold in Q1 and we’re not -- we just ran out of time to deliver the products to our customers as a result of disruption that we’ve seen in the assembly line down in Sarasota. So that will be -- we’ll reverse going forward..

Okay, Stéphane.

And moving that assembly line to a one piece flow, what should be the impact on the margin, I would assume its positive as you grow the volume or?.

It is positive. When [indiscernible] product, the gross margin that these products generate, the volume is really the biggest driver here. So as we really sell some more and you see -- you’ve seen the impact that it has had in the fiscal year ’15 then you’ll see the margins improving going forward..

And Benoît, I would add -- I would add Benoît, there was a big reason why it changes manufacturing processes to set us up for larger scale, obviously we’re not satisfied with the -- although we made good progress and now we’ve increased our critical math, clearly we had ambitions for a larger business..

Okay, perfect. Thank you very much for the time. I’ll get back in the queue..

Our next question comes from the line of David Tyerman with Canaccord Genuity. Please proceed with your question..

Good afternoon gentlemen.

My first question just going back to the 20% EBIT margin for civil as a potential, is that a full year figure that you’re talking about?.

Yes, this is what we believe the business can eventually get to as EBIT margin for and going forward and yes, this will be on an annualized basis..

Okay.

So, given your program the process transformation plan, it sounds like 2018, fiscal ’18 would be the sort of timeframe that, that would be possible?.

Absolutely. I think you’re right..

Well, its Marc, obviously with the market being robust, I would say because the -- when we talked about 19% before, we always talked about continuing the assumption of a robust commercial market which we have today and in increasing -- continually increasing levels of activity in the business aircraft market which has been increasing albeit modestly..

Right. Okay, understood there. So just one to sort of correlate something here then. So my calculations are that, that’s maybe a 1% to 1.5% improvement in margin on civil if you got all of it in civil and it sounds like some of it goes to military. So you did 16% -- about 16% -- a little bit over 16% last year.

So it sounds like you’ve got quite a bit of margin expansion beyond just this program over the next couple of the years based on kind of what you’re seeing for your modeling.

Is that a fair assessment and what would be the drivers?.

It hasn’t changed.

So we’ve, I think except for this program which you just mentioned there, I think the rest mainly comes across as the same driver we talked about before is growing the utilization or existing training and that we’re continuing to grow share in the training market which is a bigger market and where, unlike these civil aviation products market where we have a 70% market share of selling simulators in actually delivering training we have about 25% in a much larger market.

So clearly our focus is to try to grow our share in that market and that’s where if we’re able to do that and throw more incremental revenue across those assets that’s where we see margin expansion which is what we’ve said here the last couple of years..

Exactly. Okay. Thank you very much.

Actually just one, the extra cost on the transformation program, was it $19 million more on top of what you spent so far?.

It is, and that’s a net of tax figure. So that compares to the $5.7 million that we’ve quoted for Q1..

Okay.

So, $19 million more to go after that?.

Correct..

Thank you..

Our next question comes from the line of Konark Gupta with Macquarie. Please proceed with your question..

Good morning, and thanks for taking my question. I just wanted to clarify one thing before I ask my question on the restructuring side that $19 million pre tax. What that amount is -- sorry, it’s after tax. What is the amount before tax? And what sort of timeframe are we looking at in terms of realizing that.

Is it like evenly distributed over the next three, four quarters or its backend loaded?.

Look, it’s an after tax number. You’ve seen [indiscernible] what we did is, some of the restructuring efforts will be done in Montreal in Canada, some outside of Canada. So we’ve been very specific on coming up with the exact precise tax impact. So that’s for the first part on your question. No, $19 million is an after tax.

And then for the second part, well as I think we said it, but the program will span over probably mid of next fiscal year and so we expect most of the effort or restructuring effort to be done in the end of this fiscal year and early fiscal year ’17..

Okay, that’s great. Thanks. So my question is on the training utilization side and the civil product side. Given where the business jet market is today and what kind of outlook we expect over the next couple of years, as you probably know some OEMs are kind of very cautious heading into 2016, some are reducing product generates.

So what sort of impact or what sort of outlook do you see for your simulation products and training network with respect to business jet?.

Well, I think business -- in terms of the impact of business aircraft on the product market essentially there is none, because there is no real sales of simulators for business aircraft. Really its -- business aircraft operators trained in our network of simulators. So it’s really, you’re talking about, it’s all in package training.

And really what affects, what is the market driver for our business and training is not delivery of aircraft out of the OEMs, it’s really the level of flying activity by a business aircraft operators around the world. So that’s really what you’re looking at and for -- to see our fortunes in that -- in the business aircraft world.

And I can tell you, right as we speak today levels of activity we’ve see was higher. As we expected, we expected modestly higher in relation to the higher level of business aircraft flying activity that we’ve seen. It hasn’t been uniform.

I think there is for example less activity, certainly that we’ve seen from operators in Russia as a result of new political activities happened here which you might expect. But other not, I think that we have been stable to growing in business jets..

So Marc, just to that point geographically, which kind of geographic locations are you sort of more exposed to business jet training.

If Russia, China and Brazil are kind of weak right now, are they sort of bulk of your training business jet training business or is it more like North America?.

Well look, our two largest training centers are in Dallas, which is the largest training center of business aircrafts in the world and we’re in New York in Moorestown, where we have a large training center there.

So clearly we derive a -- what I’d say disproportionate level of business aircraft revenue and earnings from our network in the United States. That is not to say we don’t do well in Europe based on our centers in the UK and in the Middle East. We do have activity in China as well.

So, I think the short answer is disproportionately the United States, and it’s normal, because where the bulk of the flying activity is..

Perfect. Thanks a lot for your answers. Thanks..

Our next question is a follow-up question from the line of Benoît Poirier with Desjardins Capital Markets. Please proceed with your question..

Yes. Thank you very much. So, at the AGM this morning you disclosed the training opportunity mentioning that you have only 25% of the $3 billion market. So I’m just wondering Marc, going forward what is the strategy on the civil equipment obviously market share is very wide.

Do you foresee any opportunities to buy some simulator fleet from some carriers or it’s mostly going to be done through emerging markets that need more of a kind of a full solution?.

Well, look I think the short answer is, there’ll be a combination of both. I mean clearly we’re trying, as level of flying activity increases we’re based on revenue passenger kilometer flying by airlines grows, our business grows with that, that’s number one.

We will seek to add simulators to support the growth of our joint venture partners, that’s what we said but that’s much higher -- much more highly accretive than for example the simulators we put in the past where it was more speculative in terms of investment, and we will as we are today and we’ve been successful for example, recently a company like Japan Airlines took attempt to partner with airlines, to put them to our source, partner all of their training activity with us and it doesn’t necessarily mean that we will take on their assets, but that if we decide to do it, it will because -- its because we feel that we had an accretive deal and would be good for CAE for longer term, because of long-term contracts.

But as said, look in the case of Japan Airlines we didn’t have to do that, and that was not part of the deal. So, I think it will depend, I guess is how I answer..

Okay.

And on the commercial training, given the economic uncertainty, have you started to see any weakness in the outside of North America in emerging market in Europe?.

Not more than we’ve seen in the past. We’ve seen -- we saw last year slow down in South America and we saw well, we haven’t, I guess we see no recovery in Europe and I don’t think we still see recovery in a large scale, although I would tell you activity has been better, but activity was just seasonal right now.

So I don’t, from our perspective the macro environment that’s affecting the flying activity has not adversely affected us and airlines are more profitable than they had been in a long time, so that’s good for us. So at the moment we don’t see any level of further to proving any real change that’s affecting -- negatively affecting our business..

Okay. Thanks very much, Marc..

Operator, we’ll now conclude the Q&A session with investors and financial analysts. I would note that, I’ll be available to take calls after this conference call, should there be any remaining questions. We will now want to use the last 15 minutes or so to open the line to members of the media for question-and-answer..

[Operator Instructions].

Okay, operator. If there are no more questions for today we will conclude the call. I want to thank all participants for joining us on the call earlier today during our annual general meeting as well during this specific call related to the first quarter.

I would remind participants that a transcript of today's discussion can be found on CAE’s Web site at cae.com. Thank you very much..

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..