Cae : Remarks (English Version)

Annual meeting of shareholders 2018

Speakers:

Mr. Marc Parent, President and Chief Executive Officer

Ms. Sonya Branco, Vice President, Finance, and Chief Financial Officer

Tuesday, August 14, 2018

Montreal

English copy

TOWARDS NEW HORIZONS IN TRAINING

Thank you Mr. President.

Good morning ladies and gentlemen,

Greetings everyone,

Welcome to our headquarters. It gives me great pleasure to welcome you here once again forCAE's Annual Meetingof shareholders.

More than ever, CAE leads the industry as thetraining partner of choicefor an ever growing number of airlines, defence forces and healthcare professionals. Every year, we train more than 120,000 pilots and we work with more than 300 airlines and major business-aircraft operators as well as more than 50 defence forces.

Our training network, the largest in the world, has more than 65 training centres and flight schools. We are present in 35 countries on four continents.

Taking a look at our financial results for fiscal 2018, it's quite clear that we are on a strong growthcurve!

We've hadthe best year yet in our seven-decade history!

We generated record revenue and order intake and we ended the year with a record backlog. We have reason to be proud of our work and what we have achieved.

InCivil Aviation, our orders were at an all-time high. Following an extensive process improvement program, our flight simulators are more competitive than ever. We sold 50 full-flight simulators, once again leading the market with one of our best years ever.

In training, we increased our momentum. We signed comprehensive long-term training agreements with AirAsia, Jazz Aviation, Air Transat and Virgin Atlantic Airways, to name a few. We also won long-term training contracts with business aviation customers worldwide, including Elit'Avia andFlexjet.

Among other highlights, we inaugurated new training centres in Minneapolis, in the U.S., and in South Korea. We acquired AirAsia's share of the Asian Aviation Centre of Excellence and signed an agreement to establish a joint venture training facility in Singapore-which we finalized this month. Wealso launched both CAE Rise™, our newest pilot training innovation, and the CAE Master Pilot Training Program for business aviation pilots. We are the leaders in civil aviation training because we continuously innovate to open up new horizons in training.

InDefence & Security, our Training Systems Integration capabilities and robust bid pipeline drove historically high orders for the third consecutive year and generated a healthy backlog.

The Royal Australian Air Force, the U.S. Navy and the U.K. Ministry of Defence extended their training contracts with us. We signed contracts to deliver comprehensive helicopter training systems for both the Brazilian Navy and the Qatar Emiri Air Force, and an end-to-end training centre for remotely piloted aircraft for the UAE Air Force.

We also delivered the world's highest fidelity PredatorMission Trainer to the Italian Air Force, a simulator we jointly developed with General Atomics.

We continued to strengthen our reputation as a training systems integrator of choice for defence and security forces around the world. Customers are increasingly turning to us for our flexibility and our wealth of experience operating and delivering training across a range of business models.

InHealthcare, we returned to growth in fiscal 2018. Our innovative training solutions also brought us prestigious awards and strengthened our position as a leader in simulation-based healthcare education and training.CAE LucinaAR, the world's first childbirth simulator with augmented reality, and the CAE VimedixAR ultrasound simulator, both make use of the Microsoft HoloLens to transform the way we train healthcare professionals. The work of our engineers to develop these products is so impressivethat Microsoft itself uses CAE'sultrasound simulator to showcase the HoloLens capabilities at its headquarters in Redmond, Washington.

This year, CAE Healthcare launched CAE Juno, a clinical skills manikin for nurses, thesector'slargest market in the field. We also signed new partnerships with professional medical associations and institutes, increasing our reach and ability to help improve patient outcomes worldwide.

A good measure of acompany's valueis to ask thequestion: "howdoes it contribute to society?"At CAE, our mission is ultimately about making the world safer. We work hard every day to fulfill our mission: ensure that flights aresafer, prepare defence forcesfor their missionsand help medical personnelsave lives.

In addition to sustainable and profitable financial performance, investors expect companies likeours to model social responsibility and to benefit society. I'm proud to say we are such a company, and we believe CAE's noble purpose and profits go hand-in-hand.

As an example of our leadership, we have launched a diversity and inclusion program for our employees, and at the recent Farnborough Airshow, we introduced theCAE Women in Flight scholarshipprogram, demonstrating our commitment to promoting the advancement of women in the aviation industry. Women currently represent less than 5% of civil aviation pilots and instructors, and given the industry challenges, it is important to be tapping into the wider talent pool.CAE's program encouragespassionate and exceptional women to accomplish their goal of becoming professional pilots.

And this year, we raised the bar in social responsibility. We defined the next phases of our Corporate Social Responsibility journey and established a 5-year plan that will help us make our world an even safer, cleaner and better place for all.

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NowI'dlike to ask Sonya Branco, our Chief Financial Officer, to provide us with an overview of our financial results.

Sonya Branco, Vice President, Finance and CFO

Good morning ladies and gentlemen.

CAE had astrongfinancial performance in fiscal 2018.

For the year, consolidated revenue was up 5% to $2.8 billion, and net income was $297.3 million or $1.11 per share, excluding the impacts of the income tax recovery related to the U.S. tax reform and net gains on strategic transactions involving our Asian joint ventures. This compares to net income the year prior of $278.4 million or $1.03 per share, before specific items. On this basis, annual EPS was up 8%.

We received orders valued at $3.86 billion for a record total backlog of $7.8 billion.

Once again, Civil led our growth with year-over-year revenue increasing by 5% to $1.6 billion and segment operating income growing 12% to $306.2 million, for an operating margin of 18.8%, excluding the impact of the net gains related to our Asian joint ventures. We also booked record orders valued at $2.3 billion.

In Defence, we generated revenue of $1.09 billion, up 5% compared to the prior year. Our segment operating income rose 6% to $127.7 million for an operating margin of 11.8%. We received total orders of $1.4 billion for a book-to-sales ratio of 1.29x, marking the third consecutive year that annual orders exceeded revenue.

In Healthcare, revenue was up 4% to 115.2 million, and segment operating income was $8.8 million versus $6.6 million the previous year.

Overall for CAE, our strong operational performance translated into a good year from a cash flow standpoint. We generated $288.9 million free cash flow for the year, which represents a cash conversion rate of 97%, excluding the impacts of the items mentioned earlier. This is in line with our annual average conversion target of 100%.

We delivered on our outlookin fiscal 2018. We're well positioned to pursue customer-driven, accretive investment opportunities in fiscal 2019, and beyond, to continue our growth.

And now let's briefly look at our financial results for the first quarter of 2019.

Progress made in the first quarter is in line with our outlook for the year, which remains unchanged.

We continue to benefit from sustained demand for the solutions offered by CAE in a strong market. Overall, our firstquarter revenue increased by 10% compared with the previous year's first