Bombardier expects dividend boost as revenues surge in five years
Increase in sales volumes, better pricing and lower costs should help improve operating margins
NEW YORK—Bombardier says it is positioned to nearly double its annual revenues over the next five years and generate enough cash to boost its dividend and restore its investment grade credit rating.
The transportation giant made the claim at an investors conference in New York.
The Montreal-based maker of planes and trains said it expects to add $10-billion to $16-billion in new revenue, with up to $12-billion coming from a recovery in demand for its existing planes and the contribution from new designs such as the CSeries.
An increase in sales volumes, better pricing and lower costs should also help to improve its operating margins in both the aerospace and railway divisions, it told analysts.
Chief executive Pierre Beaudoin said this year will be a turning point for the company as new products begin to be delivered and it starts to reduce the massive investment it has devoted to product development.
“We are planning a significant revenue growth and we have made the investments to get that revenue growth,” he said during a webcast of the meeting.
Bombardier is expecting revenues will increase by 30 per cent to between $22- and $25-billion in 2015 mainly through the improved sales of existing products as demonstrated by its $66.7-billion order backlog.
That will be followed in subsequent years with the ramp up of sales from new business and commercial aircraft along with growth opportunities around the world for railway products and services.
The company also expects the added revenues will be accompanied by profit margins increasing three to four percentage points from the five per cent level achieved last year.
Beaudoin said Bombardier’s priorities are to use its increased cash flow to restore its investment grade credit rating and to increase its annual dividend beyond 10 cents per share.
“We’ll keep the dividend in line with what you see for an industrial company so there are plans to raise the dividends to keep it up with the yields that you see in industrial companies.”
David Tyerman of Canaccord Genuity said the investor day was mainly to remind investors about Bombardier’s huge potential over the next few years but said dividend hikes will likely have to wait at least until 2016.
“It’s a longer term thing and I would fully expect that at that point you would see the dividends rise, but it’s so far out,” he said in an interview.
Aerospace president Guy Hachey said that Bombardier will increase the production rate of its regional jets to meet its backlog demand and said it is looking at offering a cheaper Q400 to better compete against rival ATR.
Bombardier still expects to have 300 orders from 20 to 30 customers by the time it enters into service in June 2014 and has just a few production slots available in 2016.
It currently plans to produce 120 aircraft per year but can expand that level.
Earlier, Transportation president Andre Navarri said he expects Chinese orders will soon resume with the appointment of new leaders and still sees strong demand in Northern Europe despite financial challenges.