CAE Inc. (CAE) Earnings Call Transcript & Summary

Good morning, folks. If I could just ask everybody to find their seats, please? Wow, the room became so quiet all at once. Well, good morning. And I'm Andrew Arnovitz, for those of you that I have not met before. I'm Senior Vice President, Investor Relations and Enterprise Risk Management at CAE. I can't tell you how great it is, almost surreal, to be in front of a room full of people again. And I want to welcome you to CAE's Investor Day 2022, which was really supposed to be CAE's Investor Day 2020. But as we were in 2020, our only alternative was to do this virtually. And taking a queue from Tom Cruise and Top Gun, we decided that the little screen really wouldn't do justice to what we have here, so we decided to delay. And so here we are. And we'll, of course, draw your attention to our disclaimer about forward-looking statements. So speakers today will provide some forward-looking information that you shouldn't place undue reliance on without reading these disclaimers as well as some targets. So I'll draw your attention to that, for those who are joining us on the livecast and here in person. For the agenda this morning. So we'll hear from Marc Parent; Sonya Branco; the group presidents. And each one of them will provide a bit of a perspective on CAE's journey over the past several years, but really focusing on all the things that we've done as a company over the last 2 years, specifically, to ensure that CAE emerges from the pandemic a bigger, stronger and more profitable company than it's ever been before. And I would really encourage you to listen to the presenters today and think about CAE through that lens as you're contemplating how the company will perform through the remainder of a cyclical recovery and the secular growth that we expect to enjoy beyond. At the end of the session, after the formal presentations, the full team will come up here to take your questions. So we'll do a Q&A session together. And so we look forward to having good interaction with folks in the room as well as taking questions from people who are watching the livecast. So before I call Marc Parent up to the podium to kick things off, we would like to show you a quick corporate video really to set the tone. Thank you. [Presentation]

I'm sure you saw that tagline, "Moments that matter." That's what we do at CAE. We prepare you for the moments that matter, whether you're a pilot, flying an airplane and losing your engine at critical speed on take off, whether you're a soldier performing a critical mission, whether you're a surgeon doing a life-saving procedure for the first time, we prepare you for those moments that matter. That's what we do at CAE. So thanks for being here this morning. I really, really love the fact that so many of you have taken time out of your busy schedule to hear our story, and I can tell you [Audio Gap] with you. I can tell you very frankly that I've been CEO for this company for the last 13 years, and I have never been more excited about the future of this company and the opportunity to lead it. And I hope that as you hear the stories today, and after a lot of the comments I heard from you this morning and last night, if you come away as half as excited as I am, I think we'll be doing pretty good. So let's go right into it. What do we do at CAE? Well, here's how we go to market, go around [ the corners ]. In Civil Aviation, what do we do? Well, we're the largest provider of civil aviation training in the world, the largest network in the world. That's commercial aircraft, business aircraft, helicopter training, unmatched scale across the globe, with literally customers everywhere. We're the leading provider of simulation equipment in the world. We do crew, maintenance training, the whole gamut, from cadets, to captains. And what you'll hear us talk about today is how really uniquely positioned we are for both secular and cyclical growth as the market recovers. In Defence and Security, the L3Harris deal that we did last year was truly transformational, positioning us as the #2 training and simulation provider in the world and perhaps, even more importantly, is that we are the only global pure-play, platform-agnostic training and simulation company in the world, with capabilities in all 5 battle-based domains. And you'll hear from Dan Gelston how critical that is and how [ it aligns ] us, puts us to the mission of the U.S. government and their allies in defense. And that positions us for strong above-market growth in years to come. And in Healthcare, we're very well-positioned. We're #2 in a very attractive market, #2 [ largest provider of ] medical simulation equipment for training that involves patient simulators, some of them that you see outside. If you haven't seen them, really, I invite you to go see them at the break because they're nothing short of fantastic, there's nothing like seeing to really gather how fantastic those tools are and how great they can be as training tools. E-learning solutions, and across the organization, we're increasingly providing digital and software tools to do things like efficient flight planning through optimized crew routings, digitizing aircrews ,schedules ,optimizing airline operations, airport operations. So what you're seeing us do and the best example of that is Sabre, the recent acquisition that we've done. -- is we are leveraging our huge global scale and our very deep customer relationships in a way that is dramatically increasing our total available market. And that's -- we're really positive about that, obviously. So let's just go back memory lane just a little bit. CAE has had an amazing evolution over the last 20 years. If you were to look at us 20 years ago, -- what you would have seen us as a company doing less than $1 billion, essentially a simulation provider to the world's airlines. And with that, fairly concentrated in North America and in Europe. And what you have seen on the defense side is us providing simulation products to the world's militaries outside of the United States where we weren't present. You fast forward to today, -- the transformation has been amazing. We've invested both organically and inorganically to grow our training network across the world, leveraging the position that we have today is the largest civil aviation training company in the world, with literally locations and customers literally everywhere, giving us really unmatched scale. It defends a couple of smart and large acquisitions as well as organic growth throughout the year has yielded really the powerhouse franchise that we have to date, we're very well positioned. I said, and aligned to the priorities as I said, of the United States government and its allies across the world as they prepare for their mission, which Dan Gelston will take you through in some detail today. Over time, we expanded into health care. We expanded into broader solutions in civil aviation like providing cadets largest provider of cadets in the world, great timing at a time that pilots are in great demand, rate to supplying actually trained captains to world airlines and everything in between. That's where we provide expanding into maintenance training. There's a global source of maintenance technicians as well. No surprise there. And finally you've seen us recently expanding in flight services into digitally provided tools for the world's airlines. So -- when you look at what this means for us now is we've gone from what we were a product-centric somewhat regionally concentrated, very cyclical company to -- with 90% of our revenue at that time coming from products to a company now with much, much more revenue, obviously, much more diversified and with much less variability in our revenues because now 60% of revenue comes from services, services Argo training and related services. and with some of the highest EBITDA margins in the whole industry. And as well, just repeating myself slightly, with huge amounts of customer and geographical diversification. And of course, much, much more scale. So completely transformed company a very attractive profile in today's market. Now if I was to talk from a customer standpoint,and what that evolution is marked by ,I'd point -- it's a story of really 2 mega trend lines that you'll see across our whole business and presentations today. And how we interact with customers kind of looks what like I'm showing on this slide. If you go on the left, showing civil aviation, I'll give you a case story here of 3 airlines. Nick will show you more later. And the story here, I picked 3 airlines. The numbers are real, just took the individual names out. But if you take those 3 airlines, you could have any one of our customers and the stories will look very, very similar. And what you've seen us do over the last 10 years is expand our revenue dramatically and diversify, diversify from product-centric to services, training and related products and services. That's what you see as done, dramatically increases in diversification -- diversifying our source of revenue. In defense, we've done exactly the same thing, which diversifying across the gamut in terms of the product and service that we offer to our strategic government customers and OEMs -- and I would tell you that those 2 -- actually, what the second megatrend, which goes with this is leveraging technology over the broad global scale that we have. And I would tell you that most -- single most important reason that we're able to do this and Argo be so sticky with our customers is that we keep the customers' mission at the center of everything that we do at CAE. That's who we are as a company. That's what our people do day in and day out. Let me talk technology because you can't talk CAE without talking technology. It's in our DNA. That's who we are. And we've always been at the forefront of the technology curve, leveraging to lead our markets and expand business with our customers, always ahead of that. Whether it be evolution of visual systems over the year, the adoption of commercial off-the-shelf technology, which certainly I lived at the beginning of my tenure to cloud adoption to AR/VR -- we've always been at the leading edge, and we're continuing today, and I'll give you some of the examples. -- just going into it, what are some of the technologies today that we're investing in to make sure that we have the best pilots, the best soldiers, the best health care practitioners that the world has ever seen. Just some of the examples. The adoption of AI, data analytics, what we're doing here -- and we've been aggressively doing this and still do it in now is transform all of our simulators around the world into IoT devices, sending us back data real time to the cloud, leveraging AI, leveraging machine learning for data and analytics, providing -- with that, we're able to provide unique data-driven insights to our customers, which, of course, are very valuable. And now we're layering on biometrics, investment by biometrics that we're leveraging from our investments in technology on the military side, giving us really unique insights into the whole human experience as regards to training. You can well imagine what you can unlock in terms of understanding what pilots or other practitioners doing if you're monitoring their biometrics, their heart rate, where their eyes are looking. That's very, very important. But the technology to do that is breakthrough and giving us fantastic insights, again, very valuable to our customers, both on the civil and the defense side. Maybe I'll take just a side bar on this one. A lot of you know I'm a pilot, which is great because it makes me the ultimate undercover boss. And I'm actually Nick Leontidis . When he comes up here, I'm his worst nightmare, because I go into our training centers in Dallas every 6 months, and if you've been there -- those of you who saw the training center yesterday here, it has 15 simulators and it's pretty big. Right about that, the one in Dallas has got 40 simulators in the same building. So I go in on the weekend with Jeans and a T-shirt with a customer badge. Nobody has won the wiser who I am. So I get to experience our product, firsthand, what simulators are used for those moments that matter. It's a really good continuous improvement measure. I can tell you that the feedback I give. But the reason I tell you that is because I've been a poses I was 17, that's a few years ago. And still today, how we measure pilots? How we measure the experience of pilots, is through flight hours. How many hours you got? You got 200 hours, you've got 500 hours, you got 10,000 hours. I think it doesn't take too much of a stroke imagination to figure out. That's a pretty darn flawed metric because I can tell you, take a U.S. Navy pilot. He's landing at 200 hours on an aircraft carrier. That's probably the most difficult flying that exists in the world that is doing that 200 hours. And somebody would say at 200 hours, it doesn't [ win ]. So why is that important? Why is that important is because I had a conversation a few years ago with an [ CM ] Airlines CEO ,friend of very senior our CEO in the industry. And there had been an accident. And we were talking about it and you say, Mark, how could this happen? We had very, very senior pilots with tens of thousands of hours, and yet they did this, how would it be possible? So he says, "Couldn't you with all the trainees that you do, couldn't you give us a better way to assess the skills and the proficiency of our pilots other than flight hours. I said, Yes, yes, we can do that. And that was the genesis for what you'll hear Nick talk about today and Dan talk about called CAE Rise, remember that acronym because to me, we're on the cusp of a revolution in this regard into data-driven objective assessments of aircrew. And that becomes particularly important as transportation -- airline transportation continues to expand, pilots are getting scarcer, pilots are getting younger, pilots getting less experienced and it comes from places in the world that have not grown with the same experience of flight schools and every quarter we have. So data-driven insights are critical and are being adopted led by CAE. And of course, there's a whole host of technologies I can talk about that are really exciting that we're adopting. Just talk about AR/VR. AR/VR, everybody's talking about AR/VR. I invite -- have you see -- if you haven't seen what we do with AR/VR and we're really creating breakthrough products and services using AR/VR and augmented reality, where basically, we're using it to not only for being able to dramatically save costs in terms of training, but also increase the efficacy of trade. And that, by the way, doesn't just apply to pilots, can apply to maintenance tech issues. As I said, there's a shortage there as well, can apply to nurses and other health care practitioners. You'll hear how do you see, there's a shortage there as well. We need to reduce the time it takes to train nurses as just one example. So those tools that we're developing, we can leverage them simultaneously across all of our businesses. And why not other areas of focus, other markets in years to come. That's a potential. We're focused now, but potential is there. So to me, the bottom line would there's no -- as I said, there's no shortage of amazing technology that we can invest in. I see. Now it's not to say the last 2 years haven't had their load of challenges. Like all of our peers, COVID presented huge headwinds to our business. But once we picked ourselves all off the floor back in March 2020, we decided to play offense. Personally, I always say, if you want to look for opportunity, look for the train wreck. And we can all agree that this is one heck of a train wreck. So what do we do? Just a few of the highlights. We did 9 accretive M&A deals during the pandemic. We stripped $70 million of costs out of our cost structure. We invested nearly $500 million of growth CapEx. All at the same time as protecting and serving our communities, developing and deploying 10,000 life-saving ventilators where we never developed ventilators in our life. Live to it like that, we do it. We did it for humanitarian reason. We got it certified in Canada, in the United States, demonstrating the expertise of CAE, our deep knowledge of the markets that we're in, specifically health care in that regard. We led the way initiated the vaccination effort in a province of Quebec. We threw our efforts, 10% of the population of Quebec was vaccinated ,initiative that we started where businesses got involved, free of charge contributing to personnel, contributing their facilities, again, to help in the vaccination effort with the result that we have. Obviously, doing wonders for our brand. and the engagement of our employees, which, by the way, through all of this, but the most -- the deepest time in this whole episode back in March 2020, when again, 90% of the world's airliners were grounded overnight. We were nearly breakeven in that quarter, and we've been cash flow positive every single quarter after that. So I think we were pretty good port in the storm as well. And through all of this, all of this today, after everything, we're not out of it totally, employee engagement, this company has never been higher. 13,000 people. That takes something. I mean, this -- what we've done the last couple of years has been to be nothing short of amazing. And I can tell you, I will be forever indebted and thankful for what our employees have done during this time. As you can imagine, like for all of us, was very, very difficult from a personal and a business standpoint for everyone. Now looking forward, when you look at our markets, there's very, very reason for us to have a strong optimism about growth. I mean, let's just talk about civil aviation, IATA is predicting that this year, air traffic levels, pass-through transportation will be still a 1/3 down from 2019 levels. There's a lot of talk about and opinions about the shape of that recovery, the pace of that recovery. But I think we get all agreed that people are getting back on planes. Anybody is flown here, which a lot of you have flown here, know that. We're back to have extremely high levels in the United States. Europe is catching up in a very big way, and Asia Pacific is coming, places like Singapore are open up now as our guests from Singapore can attest. That's happening. Now I think we all agree that there's not only a lot of growth coming back, cyclical growth coming back here. But think about the fact that I don't think that 2019, as we're using as a reference prior to pandemic,that should not be our goal. -- because last I heard, that GDP has grown during the intervening years during the pandemic. So there's going to be compounded growth to be had here just to catch back up. And two things need to happen. Two things are required to make those passenger flights happen. Fuel and trained pilots. And consider the fact that at CAE, we train more of the latter than anyone else in the world. Our own forecast shows that our long-term forecast we had actually prior to COVID shows that 4% of new pilots are required per year ,CAGR of 4% every single year -- well, actually, 4% every single year are required to be brought into the business just to cater for retirements. But that's in a steady state. That's a normal situation. And I think we -- again, I think everybody has seen that the 2 years in that -- during the pandemic has not been normal in any way, shape or form with accelerated retirements across the whole industry, compounding the factor, the effect that yielding what we see today of shortage of pilot and demand for pilots that will last for years to come to be able to cater and meet that demand. If you go to defense and security, in defense and security, you pick your number. This is before Ukraine, defense budgets were forecast to go at 3% to 4%. I know by you, but I saw Japan go up to 7.8% yesterday. So it's variable around the world. There's no doubt, defense budget is going up. Now in the areas more importantly for us in the areas of focus that we have, and you'll hear, Dan Gelston talk a lot about that this morning, the budgets are going up much more dramatically. You'll hear an acronym that Dan will talk about, but at the bottom here, JADC2. JADC2, we're very exposed to that. That's going up by 30%. For -- in line with the priorities of the U.S. government. So we'll go through some examples but bottom we're seeing the science that for us to be able -- in defense to grow at above market rate. And finally, in health care, we see 12% CAGR just in the -- over the next 5 years in the market that we serve, which is the basic simulation market. And you'll hear Heidi talk there's other factors that might yield to even the better prospects than that. So bottom line is that our markets are showing us plenty of avenues for strong growth in years ahead. Part of the reason that, obviously, that we get confidence in our growth is the investments that we've made over the last couple of years. We haven't been standing still, as I mentioned, in terms of growth CapEx that we're delivering. Just in business aviation alone in a market that is structurally stronger than it was before. I predict that, that will continue. It's had a strong V-shaped recovery ,Business Aviation is 25% up as we speak right now year-over-year in the FAA world. It's up in Europe as well. We are deploying 3 new business aviation training centers like the one you saw yesterday in Las Vegas and Singapore and Savannah after opening up another one or actually breaking ground on one last November with our joint venture partner, Directional Capital in Orlando. We're making those investments in our core civil aviation commercial market, you hear Nick talk about, we deployed over 20 -- actually 21 new full-flight simulators deployed with both existing customers on the airline side, and new airline, just to cater for the global demand in pilots. As well, we're continuing -- I mentioned the technology investments, technology investments we're focusing on is developing synthetic environments. Dan is going to talk a lot about that today. And we're demonstrating those synthetic environments, those digital twins of the world, these artificial worlds where people can practice, exercise and conduct real emissions and we're demonstrating that exhibition trade shows around the world. And finally, you'll hear Nick talk about the fact that we are becoming the partner of choice for the leading OEMs in the exciting eVTOL market or urban air mobility market, a very exciting market, which basically is having actually a big meat in Bettonville right as we speak, where we have personnel there. Of course, the Gulf has not only been inorganic -- organic -- as I said, we've invested with 9 accretive M&A deals during the pandemic. And of course, some of them you've heard about like L3 Harris, like the recent Sabre acquisition that we've done, that invite you to have a look at the demos out in the hall again, I think you'll get a very good idea of what we're doing there as you look at those demos. But there's a lot more Think about the acquisition we did TRU, for example, on the bottom. That's a competitor on the products market, located literally 3 doors down from us in Montreal ,making the consolidation effort pretty straightforward and integration not too difficult. Same applies to FSC. FSC as great company was a competitor of ours in Amsterdam, again, fits in perfectly providing us new customers as well and fitting it perfectly into our network optimization efforts would yield some of the massive savings that we have out of our cost structure. And we made technology investments like Merlot and RB Group, investment in digital that we really are early forays into world of flight services culminating in the acquisition of Sabre just recently. And we invest as well into maintenance training with global jet here in New York. We invested in Medicor on the medical side. And finally, SkyWarrior for avenues [ shared ] military pilot training with the United States. I could get off the stage without talking about our track record on ESG. I am super excited and proud of the fantastic role that we have played in leading the way in aerospace defense on ESG. I mean just talk about that we fulfilled the promise that we had made that I had made to become the -- we fulfill it during the pandemic to become the first Canadian aerospace company to become carbon neutral and we have been ever since making the investments required to do that. Hugely proud of the progress that we made on diversity and equity and inclusion. And the one that probably one initiatives I talked about that most proud of a -- proud of is the women in flight program, CAE women in flight program, where we underwrite the whole cost of the training, which is quite significant, as you might imagine, to take deserving young women from no experience to airline type rating and then with our partner airlines giving him a job as airline, doing our part to fill the inequity that is that still exists today that only 5% of the world's airline pilots are women. If you want to look for pilots, well, there's an avenue right there. So intercity kids as well, that kind of initiatives. And finally, we're incredibly proud of the role that we play in helping our military customers defend freedom, extremely proud of that. So if I wrap it up before I turn it over to the -- to Nick and the group presidents, let me just go through -- I think some of the takeaways that I think that you will get yourselves, I believe, as you listen through the whole presentation today. In civil aviation, no exaggeration that we're extremely well positioned for strong cyclical and secular growth as the market recovers. And think about the fact that we're entering that up cycle at near record margins, but plenty of room to grow beyond that. In defense security, the L3 Harris deal was truly transformational, aligning us as a pure play directly in line with the priorities of the U.S. government and its allies. Positioning us again for above-market growth and associated margin expansion. And in health care, very well situated in attractive growth markets totally aligned with CAE's core values, our missions, our technology. And across the business, you're going to see our continued push into technology dramatically changing our business and opportunity sets. There's really no shortage, a places to invest, a places to grow. So we're supremely excited, of our growth prospects of the business. And I'm hoping that today that you'll share that enthusiast. Thank you.

Mark, thank you very much for that great overview. And now we'll call Nick Leontidis, Group President of Civil Aviation to come and share with us his views on what the future looks like. Thank you, Nick.

Okay. Good morning, everybody. My name is Nick Leontidis. I've been with CAE for 34 years. When the last 9 in the position that I'm in right now, leading the civil team. Just a quick comment. My -- I feel very privileged to be part of this company for 30 years, and really be a part of the transformation that CAE has been on for all these years. And just to give you how profound that transformation has been, when I joined the company, we had 600 employees in simulation. Roll the clock forward 30 years, there's 13,000. So it's been an amazing journey, and I've been blessed really to be part of that transformation. Now looking at Civil and just really following up what you've seen from Mark in terms of our capabilities, the value proposition for Civil is 4 things. We sell -- we are the market leader in training equipment. It's the business that we've been in the longest, and we are the standard in the industry. I always tell people-- if I look at customers, I mean, every customer would rather have a CAE simulator, if they can. We have the largest aviation training business in the world. We -- and I'll show you later, we have training centers all over the world to cater to airlines and business aircraft operators, we provide aviation operation services, which is things like crew resourcing. We lease pilots to airlines. We provide technical services to airlines and to leasing companies. And finally, we provide technology services. And the main core of that business is our newest business is the operation support. They have operations, technologies that airlines use to be able to run their business efficiently and to run their business effectively. So we serve all the markets, commercial business, helicopter, and I'll speak a little bit at the end about the advanced air mobility market. Now digging in a little bit deeper in equipment. The equipment is a business where very similar to other industries, we provide the aviation equipment itself. We provide all kinds of aftermarket services updates, upgrades, spares, anything to do with maintaining these simulators, our 25-year long-life devices and customers need a lot of support to be able to keep them. And then finally, we provide technology and I'll get into that a little bit in the next -- on the next slide. Now how does this equipment all fit together? Why do people buy simulators, why do they buy FTDs. So really, there's a regulated training footprint that is effectively actioned by most of airlines of the world, most corporate operators. You learn in the classroom and we provide all the technology for you to learn. Your practice in a fixed training device, and we provide technologies to allow pilots to be able to practice how the aircraft works. And then finally, we provide [indiscernible] where they learn how to fly. So every one of these devices, we are a market leader. We provide on every aircraft type, every model of training device -- and we allow the customers and the pilots to advance their skills to become more proficient and to become safer pilots ultimately for -- and do their job. Now we've coined the term Cadet-to-Captain, CAE goes beyond just pilot, airline pilot training or corporate training, we can take people off the street and assess them, and assess their competencies for ultimately becoming a pilot. We can select them and license them in multiple jurisdictions, as you can imagine. Licensing in Europe is different to licensing in North America is different to licensing in other parts of the world. We can do all the flight training. We have flying operations in the U.S. and in Australia, where people can actually do all of their flying and then finally, we can do experience building. As you know, in some jurisdictions like the United States, there's a 1,500-hour rule. You do not get a license until you accumulate 1,500 hours. So we have programs where graduates of our flight schools can become instructors, they can accumulate their hours and then ultimately go to the airline when they're -- when they have completed the hour building. We can train you, we can titrate you on an aircraft, and then we can give you to the airline for service. So effectively, we have many, and I'll get into a couple of these case studies. We have many customers where we take them all the way through the value chain. And up until that student becomes a first officer on an A320 or 737-- he's our responsibility, and then he's handed over to the airline. Now another, I think, pretty interesting statistic here is the global footprint was a journey that we started many, many years ago. Why did we need a global footprint? The cost of training is really twofold. It is the actual costs of coming to the training center and all of the inefficiencies of travel and expense and for airlines. So the one of the value drivers for CAE is to place training centers at customer locations that allows airlines to be as efficient as they can be on some of those costs. Over the years, we capture customers. We've grown the business. So when you look back 10 years, we've doubled the number of simulators today, we operate over 300 simulators in the network and we have 70 training locations. And we've pretty much now covered most of the world and really are looking at expansion only in areas where we are today. We train about 1 million hours. This is a number that we're back to now that we were at in 2020. And that will -- that equates to about 135,000 pilots. So when you look at the chart, I'm going to show you in a couple of charts from now, the world has about 350,000 pilots. So CAE has a significant amount of touch points with pilots by training about 135,000 a year. One of the avenues that we've been able to grow the business and be a partner that airlines want us to be is by deepening and being more flexible on the partnerships. We have customers who have joint ventures, we have customers who are completely outsourced. We have customers who want us to run their back office and their technical services. And we have customers who want basically a seamless cadet-to-captain solution. So all of these customers have different stories The beauty of the offering that CAE has is we can offer it in pieces. We can offer it altogether. And we can really cater -- tailor the solution to what the customer needs and the operational requirements that they have. I thought -- we thought it would be a good idea to show you a couple of case studies, just to refer back to what Mark showed in terms of how we've grown these relationships over time. So AirAsia, many of you know, Malaysia-based carrier had started in about 2000 -- 2001, they operated 5737 classics, but had an order for about 300 Airbuses. We went to them. They initially chose to buy their own equipment to set up their own training center. We rolled the clock forward a few years. We formed a joint venture with that same training center really to address the growth needs that they had and also to address some of the broader market opportunities that existed. And then finally, in 2017, having experienced with us for almost 16 or 17 years, they decided basically to sell off their portion of the training center, sign a very long-term agreement with us and effectively train in this case, pilot, cabin crew, maintenance technicians for gambit. So basically, everybody that AirAsia employees in pilot and cabin crew in all of their subsidiaries comes to Malaysia and gets trained there by CAE. Avianca, we skipped a step. We -- they were a product customer for many, many years. And then basically, in 2018, listen to a proposal where we would outsource their training and buy out their capacity -- their training center in Bogota and signed a multiyear agreement with us and effectively now they will train with us for the next 15 years. And then finally, Singapore Airlines very similar to -- very similar to where we are with AirAsia in the middle. So today in Singapore, we have a joint venture that supports the airline's training and supports the broader market that's available to us and that has also parlayed into Sabre. Singapore Airlines is one of our biggest customers in our flight operations solutions. And then finally, easyJet, completely different story, easyJet has a philosophy of variable cost. We used to train them in the training operations over time. In 2018, we signed an agreement where we built -- if you go to Gatwick today, one portion of the Gatwick Training Center is an easyJet campus. We occupy 10 simulators for this customer. It's a massive airline. And in 2019, we signed an additional agreement to supply pilots over the next 5 years. It's a 1,000 pilots that they'll get from us in the next 5 years. So really a great anchor customer in London and a great anchor customer in Milan as well. Now switching gears a little bit into the market. You saw Mark spoke about the market and where we're going. So there's no question the market has rebounded. In Business Aircraft, we're way above -- we're way above where we were in 2019. A number of flight hour records are being broken right now by these business aircraft operators. You can't buy an airplane. You can't do anything for -- if you decide to start now. We've seen 50% more flights in 1 year, 3x the orders. And definitely, we see a strong growth CAGR over the next 3 years. Now we're not talking about 10 years or 15 years over the next 3 years that we're in. Commercial, again, very similar. There's no question the rebound this year. The U.S. is on fire. The airline has a lot of publicity around that. They're hiring, they're growing their capacity, they're relying on us. So we're certainly in the thick of it. Europe is starting to look good. I just mentioned easyJet as one example of a bellwether of an airline that if they're occupying that type of capacity means that they have some optimism in the future. And then finally, Asia, over the last 3 or 4 weeks, we've seen a number of restrictions being lifted. We've seen a number of airlines start to build capacity. And so I think we see good GGR on the commercial side, we see very good CAGR on the business side. So we have a lot of evidence that things are rebounding back. Now one of the secular dynamics that is specific to us is pilot. In 2019, we put out an outlook report that said that we're going to need 264,000 pilots over the next 10 years. Where -- why do we need that many pilots? Well, a lot of retirement, pilots in the airline world have to retire -- have a mandatory retirement age. Pilots in the corporate aviation world just retire at some point because the they want to retire. 264,000 pilots means there's a lot of demand. There will be a lot of demand for capacity that we can provide to train people, new pilots, but also when people retire in a system where their structure around what happens when that senior pilot retires, the airlines call it bumping. We see a lot of -- we will see a lot of churn in the system where a senior pilot is retired and a junior pilot enters the system and everybody moves up the channel. And every single one of those moves is a training event for CAE. So part of what you hear and read about training bubbles and training is because a lot of airlines have a structure around who goes where after somebody retires. For us, all of this is very good. COVID has kind of exacerbated that a little bit because some people have left the system early and are not planning to come back. And so that, again, has been -- will be a positive outcome for us because the demand for pilots will just get stronger. Now as Mark showed in one of his charts, we haven't been sitting still in terms of activities over the last 2 years, 6 of the M&A deals that we've shown so far have come from Civil. One was -- excuse me, 2 were consolidations, 1 was capability, 1 was expansion of market. So we announced 3 training centers -- we consolidated 9 others. We took out a significant amount of cost out of the business on a permanent basis, and I'll talk about a little bit about that later. We've deployed 21 new simulators. Our order intake last year was $2 billion, and we sold 48 simulators. So from our perspective, when you look at most of this, what you see is pretty much, I would say, a normal year or at least a year, which is getting very close to normal. We're also investing in technology. Part of the strategy of acquiring Sabre and some of the other acquisitions and the investments we're making in Rise is to build a digital ecosystem that we can provide to our airline customers and our partners to make them more efficient, to make them more effective and obviously, to make us more important to them in their day of operation. I have just 1 slide on Rise, and I know many of you and speaking to Terry, who is doing all that. I understand there's been a lot of good questions about what this is and how the markets reacted and how the customers -- Rise is a -- it's a data-driven next-generation platform that gives real-time analytics for performance. So it measures pilots, performance and compares it to what the optimal should be. And it provides information to all the constituents. So re-grading is the instructor. So the instructor has better tools to be able to instruct, metrics-based insights is for the pilot. So the pilot can see how he's doing when it compares himself to what he should do. Analytics is for management. So they want to know how the pilots are doing and if there are any areas of risk that they need to adapt training programs. So everybody gets something in the system, and it allows the ability to be able to react and act more proactively to make changes to the training programs. And then leveraging our acquisition. So Sabre provides us another step-up in terms of our ability to provide operational support solutions to our customers. And I won't go into each one, but just to give you one example of what the value proposition of these technologies is. So flight management, the value proposition is fuel savings. So when a customer acquires our technology, what they're buying really is a more efficient way to plan their flights. And you see the 0.75% of fuel savings. So 0.75% doesn't sound a lot, but if you consider the amount of fuel and the cost of fuel that we start to hear these days, the amount of dollars that this saves them is significant. And by the way, one of the other aspects of this is fuel savings means less carbon emissions in the.. So it's a great benefit to the airline to acquire these technologies and then to have us to acquire improvements as we continue to evolve the capabilities in these systems. And then finally, we are participating, as Mark mentioned earlier, in the [ CVT ] market. There's a number of OEMs out there that we're building relationships with. And I thought I'd just give you without getting into a lot of the detail, what are we doing? So right now, these aircraft are mainly in certification. We're able to provide precertification capabilities. So this is technologies that allow them to be able to more effectively certify these aircraft. And this is capabilities that we brought from our experiences with some of our other OEM clients. We bring operational readiness solutions. So of course, we're a curriculum, workforce, training, everything to do with how they're going to stand up a training program. You need a training program in order to certify the aircraft. It's a very -- and then finally, we have some -- I thought it was interesting. We have a good collaboration with our defense colleagues, technologies and defense around remotely piloted, there are a couple of these vehicles that are planned to be remotely piloted, and we're gaining traction there as well because these OEMs are also in advanced stages of development. So -- it's a growth opportunity for us. It's something that we're going to cultivate relationships. I've shown you some of the technology and some of the training devices. There are some new training devices that we're designing to cater to this market. to be able to do this effectively and economically. And we'll see how this goes. So really, in summary, our -- there's no question our industry is rebounding. Business aircraft, much more aggressively commercial aircraft, definitely many parts of the world have rebounded. We have great growth drivers. We spoke about pilots. We spoke about opening border restrictions. Double-digit growth in passenger traffic is going to be with us for the next 3 years, and the world is going to need a lot of pilots. So -- and we're positioned as a market leader. We are the market leader in this market. So we think we're poised to be able to capture our fair share and more of that market. We've optimized the network. We have increased our addressable market through the acquisition of Sabre. And we're going to leverage these technology differentiators that I've spoken about to better position us as the preferred choice for our customers. We've taken out the cost. We see the revenue and the utilization stronger and therefore, we're optimistic that the margins that we're going to look at going forward are going to be even stronger than what they were at prepandemic. Thank you.

Thank you, Nick, for providing us with those exciting perspectives on Civil. I'd now ask Dan Gelston, who's our Group President of Defense and Security to share with us some thoughts about the business.

Thank you, Andrew. The nature of defense and therefore, defense training has changed. In the wake of 9/11, there was a paradigm shift for the United States and its allies from preparing for a post-cold war conflict, to actually fighting an asymmetric war. I know this very well as I experienced it firsthand, at the time of 9/11, I was actually commanding a tank training unit in Fort Knox, Kentucky. And then through that transitionary training, applied all those lessons learned to make it through the next near half decade of participating in that asymmetric war. Now nearly 20 years later, that pendulum is swinging back. That paradigm shift is going from a counterterrorism-focused asymmetric war primarily on the ground back to preparing for something referred to as the near peer fight, think of China or Russia. And that drives 5 clear requirements for our defense customers, both in the United States and internationally. First, exactly what I said, we're pivoting from fighting a war to training for a potential conflict. Next, we're expanding from primarily focusing on the ground tier to focusing on all 5 battle space domains that Mark touched on. Why? You train how you may have to fight and certainly a much more sophisticated potential adversary like China is not just going to fight on the ground, it's going to be an [ air C ] space cyber. Next, to prepare for that potential conflict, a lot of new and different equipment platforms are going to be needed, particularly ones that have range and stealth capability, much more advanced than what we needed to use, particularly in the air and space against a much less sophisticated asymmetric threat. Those more sophisticated future platforms are going to bring with it much higher classification levels to work with, simulate and train on. When you take those 4 aspects together, it drives you towards a much greater need for our customers to have synthetic environments because training across all 5 domains, the cost, the complexity, the fact that some platforms are not quite available yet and the classification makes it nearly impossible to do this with the regularity of real assets that you need to be properly trained. You have to do it in synthetic environments. I joined CAE D&S in the heart of the pandemic almost 2 years ago. And I saw an incredible opportunity to shape a pure-play business that could address all 5 of these immediate customer requirements. If you read Jim Collins good to great, that hedgehog concept continued through my mind. But I realize, in order to accomplish this, some inorganic help was needed, particularly for the classifications and the domain spread. That inorganic acquisition has happened, and the integration is in full swing. Actually, Mark had been looking at L3 Harris military training for upwards of a decade, having come from a different part of L3 Harris, I was quite familiar with the potential of this business and the synergies that can provide CAE D&S. So I'm proud to say that through this integration, we are realizing the vision I had in coming to the company, and that is the world's leading platform agnostic training and simulation pure play, ensuring mission readiness by integrating solutions across all 5 domains. Those words were purposely selected and I hope over the next 18 or so minutes to illustrate why each one of those words is so meaningful. We're going to take this vision statement to aggressively pursue 2 markets. You see them training and simulation, our traditional core market as well as an adjacent space of mission operations and our discriminator besides that vision statement in addressing this market is really our technology. Mark touched on a little bit of it, integrating secure architectures and adaptive learning. Now this is a defense brief, so my apologies, but we're going to have some acronyms. I'll try to limit it and not quizy at the end of my 20 minutes. But if I can ask you to focus on maybe 3, that will come back up in the presentation. I can remember, Vista, a C4ISR product coming from L3Harris military training legacy, SCARS, a major prime contract of ours and then ALE adaptive learning environment, be rather key in the next few slides. We've achieved the vision statement now positioning, how do we capitalize on these higher-growth markets and what are they? Mark had mentioned a generally accepted CAGR of about 4% in U.S. and allied defense markets. February 24, invasion of Ukraine is certainly going to move those in an upwards direction. We're already seeing it in places like Japan and Germany and the United States. But that's not really what is exciting here is the portions of those budgets underneath that we are focused on that have much greater growth potential, training in synthetic environments, mid- to high single digits, integrated secure common architecture. And as Mark mentioned, JADC2, quite a mouthful joint all-domain command and control, the ability to work across all domains in a coordinated continuous effort. You break that down into our addressable markets in the core, about $14 billion of addressable market that training and simulation that really lends itself to the air domain, 75%, not surprisingly, aligns very well with the legacy capability of CAE D&S, predominantly in the air domain. But note, space and cyber, the 2 newest domains are rapidly accelerating. We're sitting at about 11% now, and I don't doubt that, that will double in the near future. Hence, our focus on expanding across those domains to include space and cyber. In the adjacent market, now addressable with the integration of L3Harris military training, products like Vista that I mentioned, the C4ISR product, we now have access to a much larger $24 billion market. with particularly exciting work at places like the research labs and DARPA, you may be familiar, designing the highly classified future of training and simulation. And with products like Vista and work like the common operating picture we do for USSOCOM, getting inside the decision cycle of defense forces moving beyond training into that preparation and execution of command and control of our forces. I don't think any quote sums it up better than [ Jarock ], which is the organization that defines the priorities for the U.S. defense budget. When they say integrated modeling and simulation solutions across all domains is exactly what the DoD needs. And I will humbly submit that no company can better provide the products and services those customers need than D&S. We have competition. Let's look a little deeper into it. You can see #2 position by revenue is D&S. We're surrounded by OEMs. The largest is a company familiar to you, has a lot to do with the F-35, and that's why their position is there. That said, those OEMs are really refocusing their energies, their IRAD. They're getting back to their core markets, doing what they do best, building the best platforms in the world and keeping them flying or sailing or what. They're moving away from the vertical integration of the last decade and starting to partner more and more on training and simulation and other non-core activities. This is where the platform agnostic position comes in because I can partner with all of those OEMs because I will never be competing with them on building a F-35 or a submarine or a tank. They're very limited in the partnership they're going to do with the other OEMs because, obviously, they are partners. And as we go forward, the advanced development, particularly of these classified platforms require simulation to be done simultaneously with those designs. You can imagine, pretty challenging to open those kimonos with competitors. You do have other large and midsize as well in the market space, but they have challenges when it comes to integrating solutions across all 5 domains and they don't have the worldwide reach. Lastly, you do have a small business, no question. There's always small business set asides in advanced markets. But as training moves from pure services in many regards to a bundled services plus technology solution that increases the effectiveness and the efficiency small business is going to struggle there. They obviously don't have the IRAD and the engineering horsepower to insert high-level technology. So as you'll see, our now 5,700 employees, most importantly of which 4,100 cleared and over 1,700 engineers, I think, perfectly positions D&S to capture exciting top line growth in this market. That top line growth will always depend on staying at the cutting edge of mission readiness technology. And that's what these 1,700-plus engineers will do as well as leveraging the technologies out of Montreal and Civil and Health Care. We're really focusing on 3 technology areas as our key discriminators. First, bringing together AL, adaptive learning environment from legacy L3Harris military training, combined with Rise and this technology, you're going to get to experience here in the demos. That is solving pilot shortage issues, speeding proficiency of training through that adaptive nature and overall revolutionizing a digital training solution. It's also being integrated between the United States and our international activities. We're taking technologies done for places like USSOCOM and the common operating picture in the United States and melding that with our international work started a few years ago in Montreal and now really advancing in NATO in the U.K. and Europe on single synthetic environments, bringing those together gets us inside that decision-making cycle, solving speed to decision in multi-domain environments for next-generation situational awareness. But these 2 technologies couldn't advance at the rate and capacity our customers need without a foundation ,without underlying technology. And that comes from the -- hopefully, one of the last acronyms, the SCARS contract. It's a near $1 billion prime contract that provides the hybrid cloud-based cyber secured network architecture for the United States Air Force, connecting all 2,400 plus of their simulators -- so the Air Force can train across all synthetic domains around the world no matter where they are and the enemy is none the wiser -- not only are we doing this for the Air Force, but we look to expand this to space to the C domain and others as well as use it internally to advance our own capabilities and cross work, particularly in engineering spaces. That ability is going to facilitate the key technologies across the bottom of this slide is about half a dozen of them that our customers require, which really continues the story of the larger, more capable enterprise that D&S is now. In fact, this is already yielding results in FY '22, obviously, ending at the end of March, D&S, one prime competitive contracts across all 5 domains. I would love to foot stop that. I'm very proud of that fact. In fact, now, D&S trains every single U.S. DoD pilot; Air Force, Army, Navy, Marines, even the Coast Guard. This progress isn't in just the United States. It's also international. A couple of months ago, we won against a 60-year German incumbent, the [ Avianca ] training and a true one CAE effort with help from civil, help from L3Harris military training in Germany for the Luftwaffe. In fact, inside of 3 months, that contract is already up and training pilots and just in time. We won major awards in land and sea. And yes, you read that right as much as it pains me as a land army guy, the big win in land was for the Air Force the land and the win and sea, that was actually for the Army. But that speaks to the multi-domain environment our defense forces are now training in. And speaking of sea, we are now rounding out our capabilities and active contracts across all 3 legs of the nuclear triad. This is especially important as we move towards this near-peer threat challenge, because the recap budget in the United States for the nuclear triad is 1/3 of $1 trillion, yes, that's trillion with a t over the next couple of decades. And we are the key modeling simulation and training partner for that triad. I'd be remiss if I didn't mention, we also won our first competitive prime contracts in space and cyber and kind of put on top of it, the intelligence community. It's not a domain, but that's particularly exciting because we now lead modeling and simulation for the National Geospatial Intelligence Agency ,the Intel community, my old world from uniform. And that encompasses capability, research and development and move forward technology across all 5 domains in one contract. Larger and more capable is also accelerating our future. This top line growth is very exciting. And over the next couple of slides, I'm going to dive into a bit more of these specific areas that portend well to growth. The key certainly, a larger, more diverse talent base, access to strategic markets through increased cleared employees with the acquisition, but it's the integration here that is really the magic that classic acquisition hope of 1 plus 1 equaling 3. But as I'm constantly reminded by Mark, he looks at it and says, Dan, 1 and 1 looks more like 11 to me. It's good to have a boss that constantly drives you to greater heights. And we are doing this through increasing our addressable market. I'll touch on prime positions on things called IDIQ vehicles. moving up the value chain, some real exciting progress when it comes to how we partner with our OEMs and a scale to pursue bigger opportunities both in size and in quantity. And then I'll finish up and really starting to look at the progress in our financials that this is flowing through to. In fact, FY '22 was the first year since FY '18, the D&S was above 1 book-to-bill. We achieved 1.2x with fantastic quarter-over-quarter progress. So first, let's look at these IDIQs. I understand this is an acronym salad. Don't have to worry specifically about the details, maybe look them up later. That concept is really what is important here. Think of these IDIQs as hunting licenses. And you want as many hunting licenses and as big as possible to ensure you go after the most big game and your growth goals. And we are doing that. In fact, post acquisition, I now have 6x the size, if you will, of hunting license, ceiling that I had prior to the acquisition. This is key because it gives us direct access to the customer and helps drive our future. It also is very critical in times of quick turn need of our customers, like February 24, the invasion of Ukraine or end-of-year sweet funds, you'll hear a lot about that come September-ish, August, September at the end of particularly the U.S. budget cycle. That helps drive our future. Speaking of driving our destiny, moving up the value chain again, is extremely important in this top line growth story and process. Pre-acquisition, D&S was a niche subcontractor. We did about $150 million a year in revenue as a subcontractor to our OEM partners. We have now flipped that relationship on its head. Industry is recognizing our move to being a prime integrator and you see it in these numbers, our pipeline, our potential with OEMs going forward is now at $800 million versus $150 million but more exciting, if you break down that $800 million is that $500 million of the $800 million, D&S is prime in the OEM, the platform provider is a subcontractor. In fact, many times on that OEM's very own platform. This is a true shift in the nature of our valued partnerships with these OEMs, especially as we drive forward with all these new platforms that will secure decades and decades of more work. And again, it helps drive our destiny, direct access to the customer contract control ,being in charge of our future versus a flow down subcontract -- so this hunting license, I want to go after bigger game and more of it. And that's the IDIQs and individual larger contracts. And we're already seeing that in our pipeline. Prior to the acquisition, our average prime bid was $20 million. That number is now 5x. Our average prime bid is $100 million, significantly larger in size. But add to that story, there's now significantly more of those opportunities. Prior to the acquisition, D&S averaged approximately 1 large bid a year, $100-plus million life cycle value. In our pipeline, we now have [ 13 ] a year. It's pretty hard to grow the top line significantly of a business already knocking on the door of $2 million, taking $20 million bites. But taking a dozen plus $100 million ,up to $1 billion-plus bites and winning your fair share of them or more really moves the needle. It's going after that trophy game, and this is a key. And lastly, it's not just in the air tier, these opportunities are across all 5 domains, again, solidifying us as that platform agnostic, pure-play and training and simulation that can integrate solutions, whether you're looking at space, ground, cyber, sea, you name it. So I'm going to spend some time on this slide because this is really where the rubber meets the road. The top line growth is key to our multiyear recovery in this business, this progress, but to have a multiplicative effect, I need to grow the top line and the bottom line, ensure that every extra dollar of order has more pennies of profit associated with it. In order to do this, the integration is key. And when I think of integration of acquired businesses, I have 5 priorities. Quickly, strategy, structure, process, people and incentives. I'll break it down. An appropriate strategy for the growth of the business and increasing margins, we've got it. You then have to create a structure that supports that strategy, a structure without the right processes and tools isn't going to be as efficient and effective as it should be. And of course, no structure no matter how good the tools are works without great people and a great culture. And then lastly, you need incentives to drive the right behaviors within that business by those people. We're accomplishing this. We're starting from the top down, and I'll touch on the leadership team. Leadership sets the tone, sets the culture. And I think we have a very appropriately diverse leadership team post the acquisition. In fact, it's quite balanced. 1/3 legacy CAE, 1/3 legacy L3Harris military training and 1/3 new blood fresh eyes. They're driving a culture with me. Now culture is a softer metric. It's a little harder to put a number on ,outside of a feeling, particularly the outsiders. So I was looking for a metric, a KPI and the one that I believe is the most accurate is retention of senior leaders within the acquired business. When I say senior leaders, I'm thinking kind of director level and above. there where the rubber meets the road, where the strategy meets execution. How many of those one year into this acquisition are still with D&S, 97%, 67 out of 69, the best number I've ever had, very proud of it and the multiple integrations I've done over my career. Not surprisingly, great strategy, great structure, working on the process and tools driving a good culture. We're seeing the impact to the business starting to flow through our financials. Our synergies are on track. We had announced run rate of $35 million to $45 million a year, not just on the cost side, but also on the revenue side, we've identified over $2 billion worth of new opportunity, particularly prime integration opportunity that we can now chase because of our bigger size scale capability clearances, all that goodness we have from the integration. That's flowing through to the orders. I showed the 1.2x, but that's on a much bigger base, you have to think about it. 1.2x is equaling $1.9 billion in actual orders in FY '22 an all-time record. And that all-time record is also in backlog and in proposals pending award with our customers. Probably best to show this progression quarter-over-quarter as you dive into FY '22. You can see we started at 0.5x book-to-bill and made it to 1.6x, revenue, a little less than $300 million to nearly $500 million. That's exactly the progression we need for this multiyear effort. But let's face it, you're not going to overcome COVID in 3 years of less than book-to-bill of one overnight. This takes time to profitably refill that backlog. We're doing that but it is a progression. At the same time, over the next year, I've got some very key integration milestones to complete. Absolutely essential for the long-term health, profitability and growth of this business but they're going to take time and attention. The ones that come off the top of my head would be ERP integration, we're taking 5 enterprise resource planning tools into one. We're moving off of completing the transition service agreement with the former parent L3Harris. And we're streamlining our myriad of IT, particularly with the classified and our special security agreement regulations we have to follow systems into one. And in doing that, along with this orders momentum is the key to this multiyear progression of the business. I'm particularly excited about it. So in summary, I truly believe D&S is a transformed business and is in a position to outpace our peers in the market and significantly improve margins. We've got the right growth drivers. We've got the right positioning and looking ahead, those orders, which I am very excited and confident in, hopefully, that came through are the leading indicator. In fact, I think this leads to a future worthy of standing on the shoulders of giants. You may not know, but post-acquisition, now all 3 founding fathers of training and simulation, the amount rushmore of our business, if you will, reside under one roof. Ken Patrick of CAE Luther [ Singen Reflectone ] our legacy Tampa-based CAE defense business and now Ed link of Link L3Harris' military training business stretching back all the way to the 1920s. Together, those 3 legacy businesses encompass nearly 25 of millennia of training and simulation experience. One that I'm confident will lead us to a fantastic 75 more years plus in D&S. Thank you.

Dan, thanks so much for giving us such great clarity of your vision for D&S and for your military precision, you had until 10 a.m. you're spot on. I'd now like to call Heidi Wood, our Group President of Healthcare and to get a sense of well, how we're making a difference in terms of preparing people for the moments that matter in health care. So Heidi, over to you. Great.

Thank you very much. So Dan and Nick have been talking to us about how we are a world leader in training professionals, and we are leaders in these capabilities we are leaders in creating synthetic environments where professionals can train, and we have that capability likewise in the health care arena. We are -- have sorry about that. We are great -- we have great leadership in the health care arena that we'd like to be able to show you. And I want to share a little bit about what we do. We are Sorry, a little bit nervous here. We have the capabilities with our health care arena to train our -- we are -- I'm sorry about this. Let me go back to my notes to -- thank you. A little bit of a rocky start, everybody. We're the world leader in training professionals where safety is paramount, and we create synthetic environments using technology that enable extremely high fidelity training to produce superior outcomes. Now we know that we can -- we want to be able to have that capability in the civil aviation world, and we also want to be able to do that in defense. But there's a third sector where we want the best trained professionals to make us all safer, and that's in the health care arena. And not all of us are going to get a chance to fly in an F-35 and not all of us get a chance to interact with commercial pilots where we -- many of us travel, but we don't intersect with the pilots. But I would -- it's safe to say that every one of us in this room that when we are in the situation where we are in danger, and we -- have a dire medical need, we're going to want the best trained professionals to be helping us out. It's safe to say that we are capable in the health care arena and that we are going to be growing in a way that's very exciting. We're the world leader in health care training. And when Mark talked about the moments that mattered, that we are the leader in the medical moments that matter. So let us explain a little bit about why we're well positioned in a high-growth market. When you look at our end-user markets, 94% of our sales are to nurses, doctors and emergency medical technicians. If you break out our capabilities into 4 major sectors, there's patient simulators where we do high-fidelity simulators, medium and low fidelity simulators. We're also a leader in child birth and neonatal care training, and we're a leader as well in anesthesia. And in software and digital solutions, we have ultrasound capabilities, cardiac and e-learning. And we're the largest player in the market in simulation center and operations management. And then we also have a number of other capabilities in simulation equipment as well as CPR certification. I want to give you a feel about some of our capabilities in that range in the pediatric simulation world and in our digital and as well as our other capabilities. We have the broadest suite of capabilities of pediatric patient simulation in the world. When you look at, we have adult simulators, we have pediatric capabilities. We have trauma care. We have skills trainers so that people -- nurses can practice drawing blood so that they can develop those skills and competencies -- and we're particularly strong in nursing areas, both in the nursing simulators with Juno as well as in childbirth practice, where not only can nurses practice the regular childbirth methodology, but also for those 1 in 1 million instances where they need to be practiced. And an anesthesiologist. We have the world's leading HPS simulator that takes in oxygen and expel CO2 that you can take -- you can administer drugs and medication to it, and it has a physiology that responds just like human beings that enable anesthesiologists to practice. If you were to imagine ,if you were -- if you were to imagine yourself in a situation where you need and you needed to go under general anesthetic, you would want those anesthesiologists to have a chance to practice several times over before they were to turn to you. In digital, we're a leader in ultrasound with our popular Vimedix product. If you were to look outside, we'd encourage you to take a look and play with those capabilities there. We are a leader in that in ultrasound training, and that's going to be a fast-growing market in the next coming years. We're the #1 player in simulation lab management. And in cardiac training, we have exciting capabilities with our CathLabVR. I just want to give you an illustration of what we're able to do with our CathLab, for example. When -- if you imagine if an infant were born with a severe cardiac problem and desperately in need of surgery. We make a digital twin of that infant's heart so that the cardiac surgeons and the nurses can practice as a team together then practice over and over until they're ready to go into the operating room and practice on that and engage in surgery with that infant where you may only get one time to get it right. In e-learning, we do hundreds of thousands of modules that enable the students to learn in a way that's adaptive to the ways that they particularly learn. And in other areas where we are strong, we have CPR certifications. We make simulated equipment for hospitals as well -- for hospital simulated equipment as well as operating room equipment. And we made custom courses for people as well. So I want to talk a little bit about where health care sits because we stand within the mosaic of some very powerful fundamental trends that are going to intensify over the coming years. First, starting with Medical Air. We have 250,000 people die every year in the United States through medical error. According to CDC, that's 3% and that according to CDC, that's the third leading cause of death in the United States. That would tell us that we need to have more well trained health care professionals and yet what I'm out to show you is that situation is actually getting worse and not better. In fact, worldwide, we have a shortage of nurses there's 6 million shortage of nurses worldwide. And that shortage is going to get worse because since COVID, we've had a departure of 17 million health care professionals and that workforce attrition is going to intensify the need that we have for superior training in health care. And yet, we're not seeing any efficiency in the ways that health care professionals are trained. In fact, in the last 100 years, there's been no improvement in the time required to become a registered nurse. And that situation is resulting in a loss of ICU beds -- of 6 ICU beds a day. And again, as we stare into the future and think about how the world is going to change with the aging of Americans with -- given the baby boomers, we see that the population of those over 65 is going to grow from 16% and today to over 22% by the end of this decade. All of that means that we're going to start to have increasingly demand in our core market of simulation and training. We have an attractive market today of about $1.7 billion, and we think that grows at about a 12% per year growth rate to being about $3 billion by the middle of this decade. But that's not all of the picture. What's even more exciting perhaps, is what we see in the adjacent market right next to our core market. With the medical education market is a very attractive $45 billion market. And we see the lines blurring between medical education -- medical simulation and the medical education market. And the reason why, is that simulation and training is becoming more and more accepted as the medical education -- in the medical education field. And we see ourselves penetrating that in an aggressive way, through a combination of our technology as well as through our partnerships. And let me just give you a stat that explains why that is so compelling. We believe that we can take 5 or 6 hours of classic training and condense that into 1 hour, with 65% greater retention. With those kinds of compelling stats, we believe that the medical education market is going to be increasingly more receptive to what can be done in the training and simulation world. So I want to peel back, we just talked about this nursing shortage, which is distressing in and of itself, and yet, I want to talk a little bit about what -- some other elements that is making this even further intensified. Why are we talking about nurses? Because they are 37% of all the health care professional field. They are the heart and soul of what make health care work. And yet, what's happening within the nursing community is quite worrisome. The turnover rate in 2019 was 16%, and today, it's 27% and rising. So we're seeing a significant disruption in the nursing market, and that's getting even worse because we're seeing a growing aging of the nurses out there today, with over 53% of nurses above 50 years old. And in terms of nurses that are over 65, about 24% of nurses are going to be over 65 by the end of next year. Think about that. That's 1 out of every 4 nurses. And so these trends, up against this rising need for health care, both with the aging of the population as well as these elective procedures that we've seen postponed in the last [ couple of ] years, we think that, that demand is going to get even higher. And yet, when -- a recent survey, taken of nurses, greater than 20% of the current workforce plans to retire by 2025. So I want to talk about another phenomenon that's happening that again augurs for greater growth in this market. Pre-COVID, only 17 states accepted simulation as part of the clinical education hours. There was a certain amount of headwind that our industry was facing in terms of resistance to accepting training and simulation for what we -- for accepting training and simulation. And yet, what we're seeing now, post-COVID, is that every state has introduced or passed legislation permitting simulation training as part of clinical hours. That augurs for a significant uptick in demand. We're not seeing it yet, but we do expect that that's going to be possible. So let's talk a little bit about what we've been doing operationally to get ourselves on solid footing so that we can take advantage of the strong strategy for growth that we see going forward. We've had excellent progress recently. Our fiscal year sales in FY '22 are up 25%. Our order book is up $55 million, which is the greatest order book we've ever seen. We shipped 1,250 patient simulators, a 22% increase from FY '20. And likewise, our number of products shipped is up 31% compared to where we were in pre-pandemic levels. And what the team and I are most proud of is that we -- our quality improvement is up 48% versus where we were 8 months ago. Now quality is a cornerstone of what we're able to do with our customers to engender customer loyalty and delight them. And this focus, we think, again, augurs well for us going forward. So we're on a multiyear journey to accelerate growth and profitability. And what we've been doing recently has really put us on a solid springboard to be able to take advantage of the exciting strategy that we have ahead. We're going -- embarking on it in sort of a 2-part way in terms of growing in the next few years to grow our revenue and profitability and then also, in parallel, growing on our strategy to be able to take advantage of the medical education market. If we focus on where we are today, most of our sales are in the hardware arena, with less than 10% of our sales coming from digital. But we are embarking on a 2-part phase to grow that. One is we have a growing mix of high-margin digital sales. And secondly, we're adding new levers for profitable growth. We are scaling our operations. We have made investments to optimize operations, supply chain. We're improving on our design for manufacturability to increase our efficiencies and lowering our costs on our products as well as embarking on improved customer service. We're focusing our sales force on flagship product sales, which is high-margin, high-revenue products. And so their sales quotas are not just flat quotas, but we also look for them to be focusing on those flagship products. We are embarking nowadays on growing our Software as a Service and our e-commerce capabilities. In addition, we're growing our task trainers, which are high-margin businesses. And we are also focusing the engineering team on recurring revenue streams so that as we design, we design with the recurring revenue capabilities in mind, so that we can continue to grow from [ a landslide chart ] on our revenues. And that should lead, in the next coming years, to us being increasingly digital in our sales, which should again raise our margins. And in the meantime, again, the longer-term strategy is that we're executing on our tech road map to build -- and we're building partnerships so that we can access this exciting $45 billion medical education market. So let's talk a little bit about what we're doing with digital because, again, we think the potential going forward is really quite exciting. I just want to give you a couple of stats to help you see what we've been able to do. We have 2 million in data points captured in the virtual operating rooms. We have 600,000 simulation procedure video recordings. We have 650 simulation management systems installations. All of that in data is enabling us to enrich our technology and our offerings to our customers, which we think is going to accelerate going forward. We are able to make advancements in artificial intelligence and machine learning to [ enable-ize ] adaptive learning. We're making great progress in hybrid cloud solutions, where we combine in-person and remote training for our simulation centers. And also, if you own the data analytics, that's the gold, and we intend to goldmine these capabilities by -- with increased use of these data analytics to enhance our student performance and to elevate our education standards. So in summary, we think this Healthcare is a great business. We have -- we are the second-largest player in a fast-growing market, bolstered by long-lived tailwinds. We hope you've seen that we have -- we're increasing statewide acceptance of simulation training. We think that could accelerate demand. And we see an intensifying nursing shortage, which could further accelerate demand going forward, beyond the 12%, that we're estimating the market could grow in. In terms of CAE positioning, we've been accelerating our growth in digital. We see that as favorable to CAE Healthcare. None of our competitors have a technology parent the way that we have with CAE. And that enables us to have strong competitive differentiators that we intend to extend in the years ahead. And we're going to be investing to attract -- to grow ourselves in the medical education market. And looking ahead, we expect to grow Healthcare faster than the underlying market. We see benefits of volume, scale and efficiencies taking hold. And we're leveraging digital to drive margin expansion. And so to conclude, as we think about growing our Healthcare business and imagine our revenue is growing 2x, 5x, maybe even 10x in size, the thing to ask yourself is how many more lives will be saved. Thanks very much.

Thank you very much, Heidi. So before we hear from Sonya Branco to tell us about how we think about capital and to show some of our performance in terms of organic and inorganic capital deployment, we're going to take a break now until [ 10 to the hour ]. It will be an opportunity for you to get out into the hallways and try some of the great demos that you've heard the team talking about. So we'll see you back here at [ 10 to ]. Thank you. [Break]

Okay, folks. I would ask you to please come and find your seats, so we can maintain this military precision we have. Thanks very much to everyone for finding their seats. I didn't want this to go on too much longer because Dan Gelston was getting a big ego with the swarm around him. So -- but certainly, a lot of interest in the many areas of the business. Maybe if I could ask the CEO to find his seat, Marc? All right. Well, fantastic. So I now want to welcome Sonya Branco, our CFO, to the podium, again, to tell us about how we've been deploying capital, how we think about capital deployment and also to reflect on some of the outlook and maybe longer-range targets that we have in view. So Sonya, up to you.

Thanks, Andrew, and good morning, everyone. As we heard from Marc and the group presidents, CAE is in a unique set of opportunities of -- significant growth opportunities ahead of us. So an exciting place to be. And what I would like to walk you through is really how do we look at these from a capital allocation perspective, our track record, and how does it inform the view of the future for us. So CAE was already a growth company pre-pandemic. We were outpacing our markets. And so what this market disruption did, obviously a significant headwind, but it allowed us to go into the offense. And with the moves that we made externally, both on extending and expanding our positioning in the market and internally creating greater resiliency and efficiency, it provides even more opportunities, secular opportunities, whether they're on the organic, M&A or innovation fronts. And so with that pipeline that we see and our track record, this is why, within capital allocations, growth opportunities and investing in these growth opportunities remain our #1 capital allocation priority. So if I look at it from a high level, so effective capital deployment has been an important part of our history, our success and very much an important part of our future. From a capital allocation perspective, our approach is a balanced one. However, we have a priority towards growth. So with the market opportunities and the pipeline that we see, we have the opportunity to really lean in and continue to identify, invest in these growth opportunities, with the financial rate profiles and also -- the financial profiles and also the alignment with our strategic operations and our strategic priorities. And what this delivers as it has in the past is outpacing market growth and accretive returns. Now we want to invest in growth, but we also want to maintain a sound balance sheet: one, to protect against any unforeseen shocks or downturns; but also, to provide the financial flexibility to be able to act with agility and proactively when the right opportunities present themselves. So if I had to describe CAE and our stance, I talked -- I would say that we're patient, value-driven investors now. That might be a little counterintuitive, given the level of activity that we've done, with 9 acquisitions in the last 18 months. But if you look at a layer deeper, most of the acquisitions that we closed out were properties that we had been tracking and monitoring for some time, [ and sometimes ], years and really kind of looking for that right value range and the right conditions. So the pandemic had a lot of effects, but really, one of the unique elements was to open up a unique window where it aligned [ sale ] conditions, value parameters for us to be able to act proactively, decisively, deliberately, to capture these great assets and close on these to transactions, some of them transformational. So while we balance investing in accretive growth, a strong balance sheet, we also balance that with shareholder returns. And our view is that dividends are avenues for the excess free cash flows once in a steady-state environment. So if we go a layer deeper, what are the criteria that we look at, that we use, when making capital deployment decisions. On the strategic element, Marc and the group presidents spoke about our strategic priorities. And so, of course, when we're looking at investments, we're looking to strengthen our competitive position, expand our TAM, but also expand our reach with customers and our capabilities. So as we saw on Marc's slides, on Nick's slides, ultimately expanding the reach with our customers and even leveraging those capabilities across our customer base, is a model that we've been very successful at. From a financial perspective, accretive growth to earnings and returns, and we favor recurring revenues with a high cash-generative profile. So we saw 60% of our services -- of our revenue with services. When we look at investments, we are looking to be additive and to drive higher services, which means higher recurring and usually very good cash flows along with it. And if you look at our history, and looking back, we've been able to really fulfill those strategic priorities, but also deliver on the financial ones. And I'll walk through a few examples over the next few slides. First off, organic investments. Now this is concentrated mainly on simulator deployments within our Civil network to deliver on long-term training contracts. Now this is the best example of growth compounding that CAE demonstrates. So what this chart -- lots of numbers on it, but what this chart illustrates is really the incremental return of the deployments, the simulated deployments that we've made over the last 5 years. And what it demonstrates is 3 things: one, these simulator deployments consistently deliver 20% to 30% accretive returns within 2 to 3 years. So highly accretive in a short period of time. Now this is even more compelling when you think about the fact that these are long-term assets, operating 7 days a week, day in, day out for at least 25 years, right? So highly accretive long-term assets. Then lastly, what I'd add is that these returns are really a good proxy for cash generation as well. So strong recurring free cash flow generation that adds to the free cash flow of the corporation, new cash flow to fuel new investments of assets like these. Now why? What's the reason for this? The reason that we can deliver this type of accretive investments within that short period of time is because these investments are customer-led. Every simulator deployment has an anchor customer and a contract to go along with it. And really, ultimately, what it is, is an illustration of CAE capturing the market share and extending the reach with that customer and that customer's journey like Nick and Marc spoke about. And so ultimately, looking forward with the market just really at the starting stages of its recovery and the opportunities that we see ahead, there's a lot of active pipeline and opportunities to continue to deploy this. And frankly, at 20% to 30% returns within a couple of years, this is one of the most compelling areas for CAE to continue to invest in. If we look at the inorganic and the M&A side of things, we'll walk through a few case studies. Now I spoke about our value-driven discipline. One element that I wanted to also illustrate and that's a little bit different is that more often than not, a lot of our acquisitions are carve-outs of businesses that operate within larger operations and businesses, properties that are not necessarily core to the sellers but that are core to CAE. And what does that mean is that not only does that make us the natural buyer, but also it allows us to have a greater impact on value generation. So these are the types of properties that we look for and that we really like. So I'll walk through a couple of case studies starting on the Civil side. First, the Bombardier Business Aircraft Training acquisition, a great acquisition for our business jet operations. Not only expanding our portfolio addressable market, it hits all of the strategic criteria. But we also knew those operations quite well because we were colocated in the same premises and in fact, even sharing some cross-functional operation support. So if I look at it from an integration perspective and the risk level, it wasn't that risky a proposition because ultimately, integration was basically changing the locks and maybe removing a couple of doors. From a financial perspective, strong recurring cash generation and frankly, aligned with the profiles of the organic deployments that I just showed you on the last slide. From a margin expansion perspective, it's accretive by 200 basis points to the Civil margins. Now when we announced the acquisition, we had estimated publicly that it would be accretive by 100 to 150 basis points. Well, we beat that. AirCentre, Sabre AirCentre, a more recent acquisition, once again, opens up greater access to $2 billion of incremental market to the civil aviation market. And from a financial perspective, software-based business. So the attributes that we like are long-duration contracts, high contract renewal rates, also recurring revenue and highly cash-generative and accretive margins. These are all the financial dynamics that we look to reinforce. Now still relatively early in the integration, but going well, great customer reception. And we've had 1 month of reports of results in our FY '22 results and off to a good and accretive start. On the Defense side, a couple of examples on the Defense side. Of course, L3Harris Military Training, the largest acquisition that we've done in our history and another great example of a property that we looked at for many, many years and looking for the right value and conditions to act. And when the opportunity presented itself, we acted with agility and speed to be able to seize that opportunity. And it's been transformational for Defense. Dan spoke into it. He spoke about the strategic and the operating benefits, probably add just a few financial elements, immediately accretive and really good cash flow generation. And for the first 9 months of -- since its acquisition, it's been accretive for 150 basis points to the Defense margins. Now the other one I wanted to highlight is the [ CAE MAD ] acquisition in 2015. Now I realize the others are in the billions and hundreds of millions. This is really only or a smaller deal at barely $20 million, but it's had a disproportionate impact and really a great example of how we can use inorganic to launch and accelerate a whole new business stream within our segments. So ultimately, here, on its own, it stands as a great performance acquisition. In itself, this acquisition has driven $700 million of backlog since acquisition. That's for $20 million, and it's been accretive to the Defense margins. So great stats just on its own, but we don't stop there because really, this provided a launching pad, the experience and the capabilities for us to expand across our global customer network. So with this program and the experience that came along with it and the capabilities, we were able to bid and win the U.S. Army fixed-wing contract. And so that was then our first foray into live training in the USA. And since then, we've leveraged all of this to become best-in-class provider for not only the U.S. Army, the Air Force, the U.S. Navy, the Marines and just recently, the German Air Force with that win against the 60-year incumbent that Dan mentioned. So really, this is a great example of how we can leverage capabilities and scale and expand that across our customer base. This is not just a civil dynamic but really one that we do across all our businesses, and that's core to CAE. From a cash generation perspective, our business model is highly cash-generative, and we look for investments with the same profile. We target 100% conversion of net income to free cash flow. And as you can see, we've consistently delivered on those targets. We can also see on the chart is a track record and history of investing, successfully integrating the M&A and the acquisitions that we've done and then generating that profit and cash flow to be able to fuel the new investments. What we see also is really that helps us on the leverage ratios, keeping it within a relatively tight range and in periods after periods of larger investments and acquisitions, the ability and the history of quickly delevering while continuing to invest. And this is something we expect to continue going forward. Now moving on beyond the capital allocation and everything that we've done externally, focused a lot on the internal as well. The pandemic was an opportunity to really be laser-focused on costs, on processes and optimizing operations. Now before the pandemic, we were growing high utilization rates. The opportunity was not necessarily there to drive these kinds of efficiencies because they would have disrupted customers and disrupted revenues, which obviously would be a significant cost. So when COVID hit and volume went down, this was the opportunity to go on the offense and drive a high level of efficiencies. What did we do? We consolidated 9 training centers across the world. So not only driving network optimization, footprint reduction but not exiting any markets or impacting customers. So for example, we used to have 4 training centers in the U.K., been consolidated into 2 centers of excellence for CAT and for BAT. In Amsterdam, we had 3. We acquired FSC. That added another 4 locations in the City of Amsterdam then optimized to one training center. So ultimately, this at the same time as relocating 50 simulators across the world. And that's without skipping a beat, without impacting customers and without disrupting revenues. So what does that translate to? It translates into reduction of hard costs, leases, all of footprint-related, real estate-related ancillary costs. But it also drives added staffing efficiencies in the training centers and also provided a moment to design and deliver a better customer experience for our customers. Now seeing as COVID has changed the way we work, so hybrid is now a reality. So we continue with that focus on footprint optimization. And to date, we've consolidated or reduced 20% of our office leases footprint, 10% on warehousing space. So this is all high-level examples of cost reductions that really resulted in $70 million of permanent cost reductions. So this on the higher end of the range of what we had shared with you guys, a payback period of 2.5 years. And in fact, this doesn't even include the benefits of the capital efficiency that came out of the relocations. So where we took simulators out of Europe and Asia, and transferred and relocated them to the U.S. to capture that new demand from the faster recovery that we saw in the U.S. So not only did we cut $70 million of costs, drive better capital efficiency but drove new revenues out of existing capital. So a lot of great focus on internally making us stronger and contributing to margin expansion. So in summary, a few takeaways that I'd like to leave with you guys. So a proven track record of deploying effective, efficient capital not only organically, but successful integration of acquisitions; achieving above-market revenue growth and high cash generation profile; and all through that, while focusing and driving growth investment, we did that by maintaining a sound financial position, and we expect to continue to do so. So looking ahead, we see a unique set of growth opportunities. And these secular growth opportunities, along with the cyclical opportunities that we see ahead, will contribute to above-market revenue growth and margin expansions to higher than past peaks. What does this translate in terms of hard numbers? Well, I'll speak to 1 year ahead, some of the highlights of the outlook that we just shared last week, mid-30% consolidated adjusted segment operating income growth. And in line with our cash-generative profile, we expect to continue to deliver free cash flow conversion of about 100%. Now looking further out, we target mid-20% EPS growth over the next 3 years. Now underlying these targets are 3 things. On the Civil side, double-digit revenue growth and new peak margins. Now historically, the peak margins for Nick and his team have been 22%, and we expect to exceed that. On the Defense side, Marc said it, Dan said it. The indicator, the market indicator to monitor is order intake. And as we continue the transformation of Defense business, and as those orders and bids translate into revenues and growth over the periods ahead, this will deliver and target above-industry growth and low double-digit margins. And in Healthcare, backed by our current track record, we target double-digit growth and expanding margins as we bring this business to scale. So great, strong growth potential. I share Marc's optimism to -- across the 3 businesses to be able to deliver and then culminating in a superior EPS growth of mid-20% over the next 3 years for a bigger, stronger and more profitable CAE. Thank you.

Thanks very much, Sonya. And certainly, I think you've demonstrated where the rubber hits the road in terms of bringing the whole story together. I now want to ask the executive team to join Marc and me up here in front, and we'll open up to a Q&A session. We'll take questions from the room as well as questions from people joining the live webcast. You can use that platform to register questions or the Socio app itself. So we're ready to take first question from the floor. Sure. We have microphones, yes. Thank you.

It's Matt Lee from Canaccord. I just wanted to ask about the margin profile of the larger contracts that you're trying to take on the bids in the Defense business. Is that generally a better margin kind of contract than what you currently have? Or is it maybe a little bit more competitive?

I'll turn it over to Dan. Dan, why don't you take that one?

Happy to. The key to these larger contracts is that positioned as a prime integrator, they are more complex, they are more classified, and those discriminators and barriers to entry typically create a situation that you have a higher return on sales than you would for a subcontractor role for something that's maybe a bit more service-oriented than something that has product and services with those barriers to entry. So I'd say the general trend and certainly the focus we're working on is higher return. I also mentioned incentives. We're driving incentives that modify behavior and ensuring that incentives for our capture personnel as well as our execution, our P&L personnel, are both tied to performing on that contract at bid-approved profitability versus what can happen, let's face it, it's pretty easy to sell $1 for $0.90, just chasing the order and not caring if you're a business developer how that will actually be executed profitably. Tying them together with coinciding incentives is the key to that.

And Dan, if I'll just add, I think I'm mic-ed. You can jump in. But scale, size, volume, a greater product exposure, deleveraging of these contracts on an international stage as we saw in some of these examples, and international generally has a higher return on sales. So these elements will all contribute to that pathway to the low double-digit margins that we spoke about.

Fadi?

Yes. So I have just a couple of questions. Maybe first on the aviation side. If I go back to pre-pandemic typically, you were able to deliver like 13% SOI relative to sales. And currently, as of the end of last year, you had $4.2 billion of capital employed. You had $314 million of SOI. That's about 11.5% of return to sales. Do you envision yourself getting back to that 13%? And over what time frame potentially you can get back to that kind of SOI? And the second question -- and my #2 question's maybe on the military side. Dan presented kind of the strategy and the L3Harris, how it would basically fit with the other. Are you looking at other M&A or technology or any additions, tuck-in or otherwise, in the military side still to complete that? Or are you happy with the framework you have right now to go to market with?

Sonya, you want to take the first one?

I'll take the first one. Yes. So Fadi, you said return on sales, but I assume it's return on capital employed that you're speaking to, right? So first, I think a couple of dynamics. We're -- great results Q4 for the year, but I think we're still very far off from a steady state from disruptive environment. So right now, we're seeing a few things on the return on capital, and it's one fact that we're not necessarily at a steady state. And so there's a certain level of capital intensity on the Civil side. But on the converse, it's got a high level of operating leverage, which we've now enhanced with a lot of this cost restructuring. So as the recovery and the elements of growth come in, you'll see there's a disproportionate addition to the return on capital employed. And second, a bit of a headwind is all of this activity that we've done, great because we've captured long-term value at good valuations that drive -- basically capitalize on this disruption to create long-term value. But there's probably close to $2 billion worth of capital employed, and that will take a bit of time to ramp up as we kind of drive the synergies and the benefits of that acquisition. So those are kind of the, okay, elements that you're working through. But ultimately, yes, all of this deployment of capital and so on and capturing our growth opportunities not only to drive growth, but to drive accretive growth and growing the return on capital basically back to the double-digit realm as we continue to invest. As you know, if we were to stop all capital deployment right now, that return on capital would go through the roof, but we would leave so much opportunity on the table. And I don't think that's the right balance. The balance is to continue to invest in the right things with the right accretive financial returns but also -- and seeing that progression on the return on capital.

Dan, do you want to take that?

Certainly. Obviously, it's somewhat limited, how much I can speak on M&A strategy, but I'll put it this way. All 5 domains was in emphasis today. When you look at the L3Harris acquisition, they augmented us in the traditional domains of land, air and sea. And they really gave us entree into space and cyber, the 2 newer domains. When I look at growth in space and cyber, we pointed out 11% and growing. I see space as new enough and close enough to our traditional air tier, space command being borne out of the Air Force that we should be able to grow that organically. And I see that progress, particularly with our first competitive win and some other pursuits that we've engaged in. Cyber is nearly about 15 years old as a battle space domain. It is more established. It's had its bumps and starts. But I would say when I look at cyber to be a major player, kind of a Jack Welch, you want to be sort of 1 or 2 in each space, and that's the end state. That would be more challenging because it's more established without inorganic support. So that would be an area we'd look at. I think the business has proved with L3Harris, I mentioned that Marc had been looking at it for a decade. Patient, strategic buyer when the time is right. I would advocate that, that would be the area when the time is right, potentially to augment the portfolio.

The only thing I might add, Fadi, as sure as you can well surmise is that we don't need to do anything to accomplish the forecast we put in front of you today. It's not a question of lacking capabilities, this is augmenting to go to the even next level. So that applies to the business as a whole.

Sir?

Konark Gupta from Scotiabank. So I really have 2 questions here. Maybe the first one for Dan and Marc, if you want to take it. Like it's pretty counterintuitive to imagine services being lower margin in any business, right? And Defense tends to be that. So a, why is that, why is services are lower margin than products in Defense? And then can you do something structurally in the Defense business to narrow the gap or divergence between services and products margins such that like you cannot control the mix, obviously, over time, right, from period to period. So can you sustainably have double-digit margin regardless of the mix between services and products? So that's my number one. And for Sonya, you talked about the 3-year outlook, and that's great to see that. But you didn't talk about a lot on leverage ratio and maybe the dividend aspirations in that 3-year time frame. So any thoughts there?

Dan?

Yes, traditionally, particularly in the U.S., services are lower margin, particularly when you think services as pure providing of people, typically on a military base. Mid- to high single digits is what is allowed, sometimes required by these different government contracts in the United States. Fundamentally, it's much lower risk. There's not IRAD. There's not that complexity. You have the ability now that it's an established market to come in and many times just provide back similar staffing that was there. So sometimes, if it's pure services, it becomes a wrap rate game and who can drive to the bottom, not of interest to me. We obviously want to move up in the return on sales. So how do you change that dynamic? International always has higher return. There's more complexity there because many times you have to use indigenous forces or employment or a transfer of technology in the process. So as Sonya pointed out, moving more of the portfolio to international back to a balance of about 50-50 is a key. But the product versus service portfolio mix has 2 aspects to it. When D&S was much smaller, but in double digits, it was about 60% product, 40% service, not surprisingly, heavy product bias. Product, mid-teens, high teens at times. Not surprisingly, they were in the low double digits. Through COVID, 3 years less than 1 book-to-bill, that bias flipped to 60% services, 40% product. Part of the degradation story of those margins down to 7%, 8%. I can tell you last year, if you look at our order book, it was still 60% services, 40% product. As we look at our pipeline going forward, that has flipped again, pipeline, but that has flipped by a 60% product, 40% service, exactly the direction we want to go and much more international. But the last key besides just pure product mix is this concept of bundling. The governments, particularly in the United States, are moving away from just pure services. I just want instructors to realizing, hey, it's 2022. These instructors can be a lot more effective if they have, let's say, biometric-enabled advanced digital training solutions like some of the stuff you're seeing out there to be much more efficient, much more adaptive in their training. So it's bundling those services contracts to make them more complex and technology-heavy. They may still technically fall in the services bucket, but that gives the complexity and the barriers to entry that it's not a race to the bottom anymore. You have true discriminators that not many else -- not many other companies can compete with us on and therefore, drive your margins up.

Okay. Thanks, Konark. So on the first question for debt, I mean, what we've guided to and kind of historically live within is a certain range on net debt to capital around 35% to 45%. Whether we've been on the higher end or lower end of that, that's generally the range that we live in. And so I wouldn't see a big change in that, and that equates to kind of maintaining an investment-grade profile. So that's what I would expect going forward. No major changes on that front. And on the dividends, as I mentioned in the presentation, still very much a part of our capital allocation priorities, but it's still a very uncertain world out there. In fact, quite a few variables still out there. So we're really ultimately looking for a more steady-state environment in order to kind of assess the level of free cash flow, excess free cash flow and then the introduction of dividends back into the capital allocation mix.

Okay. Benoit Poirier from Desjardins. And just to come back on the first question about the return on capital employed, you laid out a great color about the 3-year financial target with 17% margin. Would the 17% would allow you to get back to a return on capital employed of around 13% down the road in about 3 years, Sonya?

So what we spoke about on the 17% was really kind of what we saw as a point in time when we see kind of more of a recovery, right? So that's not necessarily equating to that 3-year guidance, so could be higher and so on. So ultimately, with the guidance that we've given on the consolidated target, it does show a good progression on the return on capital as we see operating leverage from the recovery and from the growth investments that we've made and also all the synergies and the ramp-up of the acquisitions as well.

Okay. And I have a second question about the crew management business. Obviously, you were able to strengthen your capabilities throughout the pandemic with a great acquisition. You've been talking about a TAM of 2.4 billion, and obviously, market share for CAE is still relatively small in that big market. So could you talk about where you see your market share evolving with now all the capabilities that you have in this great market?

I'll kick it off, Benoit. And maybe I'll ask Pascal who's in charge of that business and then Nick to give additional color. Look, as we said, we're very excited about the business, extremely complementary. When you think about where we are in the business overall in Civil Aviation, I mean, we already cover every solution from cadet to captain, maintenance section, the whole crew. And Nick talked about some of the examples like we do it, just pick one airline, AirAsia, but there's lots of airlines like that. So now what you see us moving further vertically integrated into the broader crew ecosystem. That's what we're doing here. And there's tons of opportunity in that. The largest one, of course, increases our total addressable market in a market where the customers themselves, I can tell you, the CEOs of the airlines are extremely receptive of CAE going into that market because it's essential to their day of life operations. So before I talk about organic growth, we got to do what we have to do here [ right and forward ]. It's -- this is a carve-out. We do well at carve-outs. That's one of the reasons that we could buy it at the value we did. We're putting a lot of capital in it to make sure that we do what we always do: apply technology to differentiate. That's the goal. You heard Nick talk about it's an efficiency play. Just give it 0.1% of the time, that's just going to key to organic growth. That's going to be the key. Inorganically, we'll see. I mean, we're not focused on that now. It's a market that -- about 4 players. Let's see. But this business is kind of just use an analogy. It's kind of like your ERPs that we have in a lot of our companies, right? I mean, changing ERPs is like corporate root canal. We don't really want to do it unless we really have to, unless we get a compelling reason to do it. But neither do we want to wind up with an orphan system that nobody is investing in us. That's where we come in. That's the play, okay? Apply -- integrate the business, which Pascal is doing, make sure we apply our technology to increase the efficiency of that system, provide the customer delight that CAE is associated with it and the people that we have. And I think great things happen from there. But maybe that's my color. Pascal, would you like to add a little bit more in terms of...

Yes, like you said, Marc, there's 4 main players, but it's highly segmented. And when you span across crew management, flight management movement, which is the op center, there's a lot of providers that are touching this. So very few have a platform as we do, okay? Very few of them are fully providing an integrated platform and call it a data lake where you can leverage insight, how do you compare your operation to the other airlines and so on and really get more profit out of it. So this is important. The market share is about 25%. So there's room to grow at this level in all aspects of those solutions. But when you look at what Marc has said, meeting customer, the reception is actually amazing. Why? Because when we say we're coming with a crew management system, we know about crew management. And it's also about crew engagement, which is key. We all talked about pilot demand and so on is how do you make sure that the airlines is managing their crew, the collective agreement properly and providing tools to the pilots to obviously manage their life during the course of their career, which is extremely important, so.

And just a last point I'll say is that -- I should have said it when I was talking. What is really exciting, particularly exciting, I talked about the evolution of our company over the last 20 years. What you're seeing us do now, you've seen us move from being a products-heavy partner to the world airline to a training partner, expanding to all aspects. What you're seeing is the -- now is a technology partner to the airline, complementing what we do as an essential provider to them that is critical on their day of operations, just like training is. Next question. Yes, sir? Mic over here.

Maybe it's me. Kevin from CIBC just right down the middle here. Maybe just looking at your 3-year forecast, does this just assume kind of a broader macro recovery? Are you assuming any additional like revenue synergies from cross-selling, which seemed to be an opportunity with some of the acquisitions you've made? Or is that upside to some of these targets you have here on a 3-year target?

I'll just say it's banked into all what you saw today. Everything you saw today is banked in. So it assumes in terms of the recovery of the market is based -- on the Civil side is based essentially on the IATA forecast. So that's what we model on. And Defense, you heard what Dan said with regards to budget. Those are macro assumptions, but do you want to add anything?

Yes. No, absolutely. That's really the -- one of the largest underpinnings is the IATA recovery curve. That's really an underpinning -- an important underpinning. And relatively stable macroeconomic conditions, no major shocks and so on. So those are integral to the assumptions that we're making.

Okay. And I guess I'd be interested to know how much like these ESG metrics you've talked about in this presentation and some of the things outside play a role in your bidding. So like the fuel consumption savings on the commercial side. I think, Dan, you talked about simulation helping reduce fuel consumption as you move from a simulated training environment to a live training environment. Are these variables that are key to the decision-making when they decide to go with you or another product? Or are they kind of nice to haves at this moment in time when you're bidding on these contracts?

I'll open it up. To me, ESG is a critical factor to anybody going forward to our company. I think there are increasingly parameters across the business where customers are requiring commitments with regards to ESG on all aspects of it, diversity being one. We see that. We impose that on our own suppliers as just an example. But maybe Helene, who's the Chief Sustainability Officer, maybe expand on the subject.

Yes, of course, we are the Scope 3 of our customers, right? So we are part of the value chain, and therefore, we're part of the solution. So when we speak to our customers, whether the airlines or even the defense forces, increasingly, they are interested in seeing how we can help them. So that fuel efficiency that we can bring definitely will make a difference because all the airlines have huge Scope 1 with their fuel. And therefore, they're looking at tangible ways to actually reduce their emissions. We're seeing to -- for your question, we're seeing more and more in bids whether it's from airlines or even defense forces, an environment and climate change action portion of it. So yes, customers are paying attention. We're part of the solution. Of course, with simulation-based training, we avoid carbon. So in civil aviation, it's quite clear, 5 million tons of carbon that we avoid every year. But defense forces are starting to pay attention and think about it. When we can convince an allied force to actually train on simulation-based training, it's more efficient. It's -- and of course, it can reduce their carbon significantly. And in some bids, we're seeing some questions related to environment and carbon in defense bids as well. And we think we're uniquely positioned to make a huge difference on ESG. So increasingly, these metrics and the actions that we're taking matter. And they matter for a customer, they matter for us, they matter for the planet, of course. And we're very proud to be carbon neutral. So right now, carbon neutral means that we're compensating our Scope 1 and Scope 2 emissions. All of our sites, and you know that we are present all over the world. We have almost 200 sites. All of our sites either use renewable energy or are covered by renewable energy certificates. And we've built in that incentive because we are compensating our residual carbon. We built in an incentive to reduce carbon at the source. That's why we're going to have some electric aircraft in our fleet as well to reduce our Scope 1 emissions. So we think we're a leader. We want to do even more, and we're part of the solution for our customers.

Just to add on that, though, a little-known fact is that in Civil Aviation, all of our pilots training and recurrent training is done in a simulator. The first time you go into real aircraft is with passengers in the back. Now 1 of the 2 is not his first time, but nevertheless. So all of it is there. So you can say like when you compare that with Defense, Defense, that is not the case nor should it ever be the case. But there's still a lot of room as you expand the fidelity, some of the things that you see out on the hall and the realism on real-world missions, there's still plenty of room to expand the use of simulation for defense forces around the world. And greenhouse gas reduction is a driver of that. Yes, sir?

It's Byron Callan, Capital Alpha Partners. Two more questions for Dan. Hate to keep you in the hot seat, but this is probably more an attitudinal question, but you see with Ukraine this transfer of Western military equipment, a need to really rapidly train Ukrainian forces. And I just wonder, a, is that a business opportunity longer term because this is probably not going to be a problem that goes away anytime soon. And then can you articulate a little bit more about what you're looking at in JADC2? What is the opportunity there for CAE?

Certainly, thank you for the question. When you think of defense capability, the word capability is very specific. We've got a former TRADOC commander on our parent Board, the Inc. Board, General David Perkins. And he illustrates this very well. It's equipment plus trained personnel to utilize that equipment that equals true capability. I think the Ukraine invasion is a perfect example of only having one piece of that equation, the equipment, but the training, particularly on the Russian side, has lacked and have had a surprising amount of difficulty as a result. I think that is fair to say. So training is a big portion of it. That said, the outcropping of the invasion, the immediate requirement was, as it always is, beans and bullets. It's the missiles. It's -- that had to get over there. Orders were flowing February 25, the day after the invasion. The training is a bit lagging. I'm tracking 3 distinct opportunities flowing right out of Ukraine. At this point in time, I can talk about one of them, and that's Germany just announcing with their $100 billion infusion and commitment to get to 2% of their GDP for NATO on defense spending, announced the CH-47, 66 planes, multigenerational platform. And in that announcement, we were announced as their training and simulation provider. It's going to take a little time. It's a foreign military sales. It's got to get to Boeing and then get to us. But that is a win directly out of Ukraine. So we are seeing that flow, not that you want to take advantage of a crisis. But the reality is we do training and full preparation to make sure this stuff will not happen or those already engaged have a much better chance of coming home. So that is absolutely key. The second question, JADC2. So it is an overarching commitment, particularly driven out of the Army. I had mentioned the MCS/COP, so that is the Mission Command System/Common Operational Picture contract we won. That is right in the heart of JADC2. There was over 100 competitors to start, downselect to 30, downselect to 10, finally winning. CAE was the winner. The incumbent that we beat as well as every other known name in that process was one that you'll readily recognize. And I think it's fair to say it was a bit of a surprise that CAE won this. What does that do? It's a single pane of glass -- think of yourself as a special operations commander, that infuses either synthetic or real-time feeds from all 5 domains to help that commander make the timely decisions to be more effective in the mission and get more of the good guys home at the end. And that $140 million-plus contract is, in the second phase, going to infuse artificial intelligence to help that decision-making process, again, moving out of pure training into the decision-making mission operation support. That AI will analyze courses of action. If you go this way, casualty rate of x. If you go this way, casualty rate of y. Most dangerous course of action, most probable course of enemy action, all that analysis. The growth there is that SOCOM is always a lead buyer. They're seen as the first, the most willing to take whatever technology is available now and put it on the battlefield, kind of like a scrum mentality in the IT world, if you will. Try it, see if it works. If it doesn't, you scrap it quickly, but if it does, they will proliferate it. And then all the other services will follow SOCOM. So we've got big aspirations with SOCOM to take this product and others related to the intelligence community, to the Navy, to the Army, even international partners like the U.K. Example of that would be the intelligence win Beyond 3D at NGA. That was tied because NGA, National Geospatial Intelligence Agency, is feeding a lot of this information into the SOCOM solution. Obviously, overhead imagery is the primary. And that coordination helped lead us to the wins, and we're already seeing that expansion.

I think I'm just going to jump in here with a question from the platform. The question is to what extent is the global pilot shortage possibly a headwind for growth in your business? How are you addressing that? And is it having any impact on your ability to attract and retain instructors?

Do you want to go ahead take it, Nick?

Sure. You can hear me? I don't think the pilot shortage, it's a headwind. I think it's a tailwind because obviously, we -- our business is to train pilots. And therefore, to the extent that there is a lag in terms of building people up to the point where they can start working for an airline, then I think -- we think it's a tailwind.

And then on instructors, Nick?

Well, instructors, so if you look at our demographics of instructors, we kind of dip into a [ certainly ] different pool. For those of you who came to New Jersey last couple of days, our instructor pool are either people that have retired from flying and have decided that they'd like a second career as an instructor or younger people who have a different lifestyle, made a lifestyle decision and are more interested in instructing and sometimes go back to flying for a few years and come back. So for us, it's an issue always because our instructors are also attracted -- attractive to other airlines or to our competitor on the [ corporate ] side. But I would say, by and large, we keep the pipeline going. And we can find a lot of suitable candidates to do the job. It's something that is just part of our existence at the moment.

Maybe the only thing I would add is that as part of our evolution, again, I always go back to that. It's when you start focusing -- the last time we did Investor Day, it was in 2016. The reason we did it because there was something new to say. Look, at that time, it was announcing the trading strategy. Today, the reason we're gathering is because like we did 9 acquisitions, and we did a lot of things in COVID. So it was time to speak to you as a group rather than just have an analyst call. So going back to when we -- 2015, we announced -- or 2016, we announced our training strategy, how we were basically going to expand our training strategy. So we -- and our vision was all about that, and I think we did a pretty good job of doing it as results show. And the reason I'm highlighting that, it's not when you set out a vision out there and say, we're going to do that, then you have to start thinking, okay, what does that future look like, okay? Well, much bigger training, and we did that. But then you have to start thinking what are the artifacts that -- what would we look like if we were there? And you start breaking it out, what's critical to making that happen? So right off the bat, it doesn't take a genius, certainly [ me as a pilot, no one ] could answer the question. Well, if you want to be the best training company in the world, you better have the best instructors in the world because pilots, [ some might say ], they basically determine their training by instructors. Think about it. In your own life, you probably had a favorite teacher. So when you're a pilot and you go through, your license -- every 6 months, you're license is on the line. That's what [indiscernible] is, you want to have the world's best instructor. So we have had a tremendous era of focus on making sure that we attract, retain and develop the world's best instructors. That's critical because it's a great question. And right now, yes, as Nick said, there's flying jobs everywhere. So -- but if you look -- if we we're to look at our turnover in instructors, it's higher than it was, you would expect that. But we're quite confident that we can continue to, again, retain the amount of instructors and attract more because, as Nick said, there's a lot of retirements that have happened. Well, that's good because it stimulates the amount of pilots required in a short amount of time. That's good for us. That's the tailwind. Another tailwind to take it the other way is that these pilots that have retired, a lot of them want to apply as instructors. So we have a pool out there to go to after. Long story short, but it's something we really, really, really focused on as a company, both on the civil and on the military side.

It's Tim James here with TD Securities. I have 2 questions for Dan. The first question is you look at your capabilities now across the 5 domains, as you think about the pipeline that you have in front of you today and the future pipeline, will there be the need or the opportunity for some more strategic opportunities? And what I'm wondering is, do you get more aggressive in winning certain opportunities that may be in your pipeline because you think they're important to sort of further build up your position in those domains?

We have something called our bowling chart, something, obviously, I can't share publicly, but it takes us out to FY '27 with discrete qualified opportunities, predominantly prime opportunities that are those needle movers I talked about. They're across all 5 domains. They are more complex. They're bigger. They are those big game, that trophy hunting we're looking after. I've got to balance those pursuits with the fact that we also need to grow the bottom line as well as pursue top line. So I think we've really got a nice focus on the fact that we're going after more discriminated work, therefore, higher margins because of higher barriers to entry, whether it's classification or technology or whatever that is versus just saying, I need the biggest jobs possible. And I'm going to throw something at the wall and hope it sticks. Typically, that would be a more services-oriented, and it's a race to the bottom. That's not something we're interested in. That said, are there key stepping stone contracts, particularly in the space and cyber domains that would be a leapfrog for us if we were to win, particularly in those newer entries that CAE's name has just really exploded onto the scene? Yes. Are they going to be decremental to our ROS, our current ROS? Absolutely not. Everything has to build -- be a building block. But there's a few that strategically, certainly, we're saying, "Hey, we really want this because it's a space or a cyber." And then the big one coming after it, it gives us that past performance, that connection to the customer, whatever that is strategically to continue to move the needle forward.

Okay. My second question is somewhat related, Dan. I'm wondering if you can talk through in your view, what are the keys to a successful bid process? And I'm sort of thinking about success in terms of ensuring that when CAE delivers on a contract that the costs come in line with what you anticipated during the bid process. What are really the key factors in making sure that you meet your anticipated costs? And maybe if you can talk about differences in risk in product contracts versus services contracts.

Yes. Could you just -- I'm struggling to identify...

Tim.

Thank you so much. You're right behind his head, like just an ethereal voice coming at me. Where is this? So now I can be polite and actually address you eye to eye. So life cycle management is the key here. In fact, I've established a program management professional portion of the business under Paul Curtis, a direct report of mine. He runs all operations and program management. And what that does, if you're familiar with something called gate reviews or phase reviews, it starts from identifying the opportunity, business development, qualifying and starting the strategy business capture moving into something called Phase 3, which are bid proposals and approvals, particularly looking at risk and profitability. And that gets into your bids and proposals, your B&P team, and then it starts moving into the execution post win, lessons learned and then execution all through gate 7, which is closeout. So that rigor established best practices across the business is really helping us because traditionally, particularly in international, you had much smaller pockets, 100 people in Australia, 100 people in Germany, 50 in the Middle East. And because it wasn't at the level of tapping into the synergies and the best practices of the whole organization, it was a small team, sometimes kind of going in on its own. Australia, it's halfway around the world, it's sort of challenging. So Todd Bryer, my Head of Business Development and Capture, is specifically ensuring he is tied to Paul Curtis and following the standard set of best practices through that whole process to ensure it is a winnable but achievable profit level at the bid and then tying that on the execution side to make sure the program managers who are also signing off, say, "Yes, we can execute at this number." I've shared with a few of you, pretty easy to sell $1 at $0.90. That's going to be the knee jerk for a capture person who's only looking at the orders numbers. You got to look at the whole orders through cash process and make sure we're successful through the entire process. The second part of your question, sorry, I was so busy trying to find you.

That was it.

That was it?

Just maybe just taking that a step further, any significant differences between products versus services?

Yes. Traditionally, it's the risk profile. I mean products, it's heavy IRAD, a lot of engineering work, higher rates. You build it, and they may or may not come. And not surprisingly, on the Civil side, that's a lot of that model, and it's key also to their services. I probably should qualify that services in Defense are a bit different from how you would think of services on Nick's side because Nick's is all incorporated. It's the technology plus the instructors and the building and all of that. Services, many times traditionally in the Defense side is really just the body. So I don't want to belittle it. It's important work. It's good work. It keeps you close to the customer. It's easily forecastable. But the reality is, it's much lower risk, and there's not a heavy IRAD. There's not a heavy amount of overhead and discriminators involved with that until you really start blending the 2. And honestly, looking maybe a bit more like the Civil business, where it's not just the talent that you're providing, but it's also the discriminated technology. And that's a key part of sort of fusing services and product in the services play to move up the discriminator level, the classification level, get more barriers to entry, get more profit and then obviously kind of balance again the mix of product and services and as Sonya pointed out, the mix of U.S. versus international. All those keys, along with focus on cost and synergies, are going to get us to those double digits.

Elizabeth Grenfell from BofA. I had a couple of questions. The first one is, within the M&A strategy, where do you see the biggest opportunities for investment? And then on the Defense side, again, what kind of headwinds are you potentially seeing as a Canadian company selling into the U.S. defense market? And what are you doing to offset those headwinds?

I'll take the first part and I'll turn it over to Dan. But in the U.S., we're a U.S. company. And there's -- if you look at the kind of contracts we have, think about some of what Dan shared, the type of program, the secrecy, the inherent secrecy of those programs. There's absolutely no issue of where we're headquartered. Maybe just add to it, Dan.

Yes, there is -- not to get too geeky on U.S. security, but there's something called FOCI mitigation, foreign ownership, control or influence. Essentially, think of like BAE Systems, we are the same. When you have a non-U.S. parent that does classified work in the United States in the military arena, you have to have something called a firewall. Ours is a Special Security Agreement, SSA. I happen to have spent most of my time, most of my career at BAE Systems, 7 years, in these SSA-, FOCI-mitigated companies. So the downfall, the risk, if you will, is any firewall. If it's a wall and not a fence, it can be a barrier, particularly to trust and gaining synergies between the parent and the U.S. business. So I think that's absolutely key to ensure we get the goodness of those economies of scale, tap into the engineering talent, the supply chain synergies, all of that, you got to make sure it's a fence, follow all the rules but really a trust across the executive management team is the first step. And I think looking at the acquisition of a highly classified business, the largest one in the history of CAE speaks to that level of trust that the subordinate U.S. SSA business has with its parent. And then as far as selling as a Canadian business either into the United States or internationally, to be honest, I see it as an advantage. By law, we are recognized with FOCI mitigation because we are an independent U.S. business as a U.S. business. So by America, all that stuff, there's no difference between CAE and Lockheed Martin, Raytheon, whatever. Internationally, I see it actually as a real advantage because let's face it. A lot of international partners want that Western defense tech. But sometimes, they chafe a bit at having to buy it from big brother United States. We tend to be brash and poke people in the eye and all that good stuff. Canadians, and I can now really say this firsthand, are just better people. I mean, they're just much nicer. So I'll be honest. I mean -- and I've got a guy named Marc-Olivier, he speaks 4 languages fluently. I mean, just European to the T, based in Montreal, tremendous asset for me that runs all my international. And it's easier many times for them to buy from the friendly cousin Canada, still North America, than sometimes having to get it from the United States. So we kind of almost play both sides of the fence on that. And I think it's a real advantage.

Maybe I know there's an [indiscernible] question, but I think if you look at some of the expertise we have as a result of that, I mean, we have -- for FOCI mitigation, we have a dedicated U.S. Board. And it's a special -- under the Special Security Agreement. And that Board is -- we have a huge honor that it's being chaired by Chairman Mac Thornberry. And if anybody knows who Mac Thornberry, I invite you look him up, but it was like over nearly 3 decades in the U.S. Congress and was the Head of the House Armed Services Committee for like 7 years, in that ballpark, head of a security company. So pretty good person, somebody who was cleared on absolute everything as leading our SSA Board. On our parent Board, Dan talked about General Perkins, who was U.S. Army 4-star Head of TRADOC, which is also do with training -- establishing training document for the United States Army. And most recently, you might have seen joining CAE on the CAE's Fiduciary Board as well, Pat Shanahan, who was the U.S. Secretary of Defense. So I think we're well rounded with the expertise to understand the markets we're in as a Canadian-headquartered company. With regard to M&A, just getting to it, look, we always have a pipeline. And you saw what Sonya was saying, we're very strict about any M&A, it has to meet our criteria. I think we've demonstrated that the value that we bring and all the deals we did, the 9, they bring much more than monetary advantages, and there's all kinds of others. We talked about how we created, we took the $20 million acquisition of Bombardier's military business over the past few years to a business worth hundreds of billions in terms of backlog and where it got us to the U.S. defense department. So there's -- we're always looking, but I think we gave you a forecast today in terms of what our priorities are, at least in the near term in terms of deleveraging. That's what we're focused on. We take a lot of big bites here. We have a lot of work to do. So it's not to say we're not looking. But in the end, the -- if we do, do deals, and it might be, if the criteria comes in, and it's like a lot of them we see during COVID, is it -- if there's a generational opportunity or something is very accretive, and we can do it, we'll take a look at it. And -- but the thing I could tell you is we will remain very, very strict with regard to it has to meet our M&A criteria.

Noah.

Noah Poponak from Goldman. I had a few questions. First, in Civil, Nick, in the pilot demand slide that you have here, you have significantly less growth shown here on the business jet side compared to the airline pilot side. It's actually relatively almost flat over a decade. And you've declared here that you see a structural uplift in that market, and it's obviously very strong right now. So if you could speak to why you've laid that view out. And then there's also a much larger chunk of replacement on the business jet side. I'm curious what's behind that.

Maybe I'll start with the second half. The replacement on the business jet side is very high because the age demographic is much higher. So the anticipation is that you'll see a lot more people leaving the system just because of age. In terms of the growth, you're right. The forecast was built -- that forecast was built about a year ago. So this is a 2019 to '29. So it probably is a little bit lower than what potentially we would look at today just in terms of growth of flight hours and growth in the fleet in terms of new deliveries. So it's something that we currently update. So we're probably a little understated there. But nevertheless, it is only going to get better than what you see there.

Okay. Dan, I had a question in your business. Recognizing you've laid out a lot of ways that the profitability can improve going forward, I'm a little surprised the margins have not already been much better just from the immediate scale and synergy opportunity you have. And I think in the disclosure from the last quarter, the legacy L3 margin actually went down considerably sequentially. I know it's 1 quarter, but it kind of stood out. What am I missing there? I mean, is there a lot of investment upfront in addition to the synergy? Or why hasn't -- why haven't we seen more margin trajectory already?

Yes, happy to take the question. On the legacy CAE, you obviously have the COVID as well as 3 years of less than 1 book-to-bill impact. So we've talked about the flip of product to services being primarily services. But really, when you're attempting to grow a business and you have less than 1 book-to-bill for 3 years, you're eating up particularly the profitable work in that backlog. So I kind of describe it as a lump in a snake. And that's just got to get through the snake. As you rapidly look to bring in more orders than you have revenue, not only to grow, but particularly to have that profitable work, and it's a process that you will continually wean. But you pull a little bit on that profit early, like you put stuff on order if it's a product base, maybe you do advanced work ahead of time. So as soon as the order comes in, you can bill, things of that effect to start improving that profit line and then basically get the boat up on the plane. We've been very pleased. I mean, if you look in most ways, L3Harris in FY '22 military training, we're about 1/3, 1/3, 1/3 in everything you look at to include profitability. But you have to consider, we only had them for 3 quarters of the year. So they were outweighted. But they particularly have had challenges with their highly profitable foreign military sales on things like F-16 and F-18 because of COVID. So the challenge is they haven't lost anything, but there's significant delays in multiple countries where they've been announced as the winner, they know it's coming. And honestly, I was expecting it to be filling in their backlog 6, 9 months ago. And we're still waiting on some of these to come through. So it's just a bit more of a lag on their side due to COVID.

Okay. If I could just round out the segments with a question on Healthcare. Heidi, you've been in the seat, I think, entirely during COVID. And so changing a sales effort is hard to do in a pandemic. And you're able to lay out a very convincing case for why the technology and the service offering here can really help in that market. But obviously, it's been $100 million and change for CAE for a long time, excluding the ventilators. And so I guess just bigger picture, how much can you change in the customer convincing sales process or what is the hurdle to get the customer to see the case you're laying out here for how much value you can add?

Thanks a lot, Noah, for the question. Actually, it's pretty exciting to answer it to you because the fact that we were able to grow 25% year-over-year despite COVID because that was a significant headwind for us. Many of the universities were close to us. The hospitals we're at, we didn't have access to. So the sales force just, I would say, brute force effort just continued to push hard. Now we go from a headwind to a tailwind. We've reenergized our Head of Sales. So now we have new Head of Sales structure. We've expanded our divisions from 22 sales territories to 27. And we added a new Head of Marketing, and we're energizing the marketing department. So with the results that you've seen has just been us limping along, I would say, with a headwind and our sales force ramping up. As we head into FY '23 and beyond, you're going to see the 1-2 punch of what our sales force is able to do now that we're being driven more effectively and more direct -- deterministically and our marketing efforts start to pick up. So that's why we're so bullish that we're going to be able to grow at least as fast as what the underlying industry is doing. And again, that is attractive, just at 12% with all of the other -- without the legislation elements starting to kick in, without the nursing shortage effect really starting to become manifest. But that's, again, Noah, thanks for the question, why we believe very well in what we're going to be able to do on the top line.

So Mike Derchin at Derchin Airline Research. A fabulous presentation both yesterday and today, by the way. Excellent. Question is about the future of new aircraft. Boeing, I think, lunch has been eaten by Airbus' A321neo and on the narrow-body side, has really taken over the lead. And Boeing has not made any moves yet to develop a new narrow-body single-aisle aircraft. I'm wondering what your thoughts are as the future of Boeing's new aircraft. Is there perhaps a 797 out there in the horizon in the near future?

Well, I think you're honestly going to have to ask them that question. But I'm quite confident that we're going to see aircraft manufacturers such as Boeing continue to invest in their product line. That's what they do, right? And on the Defense side, there are -- Boeing's characterized as a national treasure. They're required to be around. So I'm quite confident that they'll do what they have to do to grow, ensure the success of their business, just like we're going to do. We'll play our game and be a partner to them.

Okay.

Thanks for your praise.

Yes. Thanks very much, everyone, for the questions. So if you have any other thoughts or questions, of course, please do reach out to me and the team. Be very happy to get back to you on those. Marc, any closing thoughts that you want to leave us with before we convene the session?

Well only again repeating how pleased we are that you have made the time to come here. As I said, we are absolutely delighted. I'm sure you saw the telling our story. What I always said, and hopefully, you've got the sense of the excitement that we have for the growth of the business. And the thing I would leave you with is what I always leave with my team is, to me, the best is in front of us. So thank you very much for coming, and have a great day. Thank you.

For those who want to stay on and have lunch with us, and of course, the demos will be running as well.

That's great.