Bombardier expects to boost dividend as revenues surge in five years

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 told an investors conference in New York on Thursday.

The Montreal-based maker of planes and trains said it expects to add US$10 billion to US$16 billion in new revenue, with up to US$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 (TSX:BBD.B) is expecting revenues will increase by 30 per cent to between US$22 billion and US$25 billion in 2015 mainly through the improved sales of existing products as demonstrated by its US$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.

“I feel much better about the CRJ outlook than I did a couple of years ago. The Q400 is still a concern but we see some opportunities ahead of us,” he told investment analysts.

Hachey foresees strong order potential for commercial planes in established markets like North America and emerging regions like China, and said refreshed and new business jets will help Bombardier to maintain its global leadership.

“I’m trying to convince you that our strategy will deliver growth,” he said, acknowledging that he’s made the same point for several years. But new aircraft take time to get to market and deliver results, Hachey added.

“We do anticipate significant growth in the next five to 10 years and it’s based on our new programs. Some of it is based obviously on the market coming back as well…but the bottom line is that most of the growth that we’re going to have is in new platforms that we’re introducing.”

Hachey said this year will be a turning point for the CSeries as the aircraft is expected to have its first test flight by the end of June.

Every time customers see the real plane and observes the progress changes their perception, he added about the program that is slated to deliver about US$5 billion of the annual revenue increase.

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.

On the Toronto Stock Exchange, Bombardier’s shares lost three cents at C$4.22 in afternoon trading.