Bombardier Inc. Financial Report

Executive Summary

Bombardier Inc. is among the world’s leading manufacturers of trains and planes. It operates under four segments, including commercial aircraft, business aircraft, transportation, aerostructures, and engineering services (MacDonald, 2003). Employing over 69,500 skilled employees, the company provides efficient, enjoyable, and sustainable solutions in the transport sector. It boasts of over 75 engineering and production sites in 27 countries in North America, Europe, and Asia. The company has its headquarters in Montreal, Canada, and is considered a market leader in innovation and trendsetting. Amid many unforeseen challenges, Bombardier has stayed on course and continues to create a solid foundation for growth. 2018 was a year of progressive growth for Bombardier Inc., coupled with a commitment to the highest level of safety and ethical and environmental standards. The strong year-over-year financial performance in each of the four segments reaffirms that the company has in place the right mix of strategies and employees (MacDonald, 2003). The company remains hopeful of realizing its long-term vision of building the most innovative trains and planes in the world. Creating unmatched value for the customers and superior value for the shareholders is at the heart of Bombardier management.

The aim of this report is to outline the key financial aspects of Bombardier, including ratio analysis, the company’s financial position, and industry ratio comparisons. The report also gives proposals about corporate-level strategies that the company needs to adopt in order to become more competitive, position itself well in the market, and drive future growth.

Introduction

Founded in 1942 by Joseph-Armand Bombardier, the company has grown to become the leading manufacturer of planes and trains. It is a publicly-traded company whose common stock and preferred stock are traded on the Toronto Stock Exchange under the symbol BBD. As of 11^th December 2019, Bombardier’s stock price stood at 1.92 CAD, with a market capitalization of 4,688.79M. Today, Bombardier boasts of an experienced management team led by the group President, CEO, and director, Mr. Alain Bellemare. From a financial perspective, Bombardier was a much better company as of December 2018 compared to the previous year. Superior financial performance was mainly attributed to innovative products and effective cost-cutting structures (Annual Financial Report, 2018). The ability to take advantage of the global manufacturing footprint allowed the company to transfer advanced technology and better practices across its production sites. In addition, having adequate liquidity allowed the company to execute in fullness its strategic plan, including fulfilling financial obligations and refinancing back the facilities with short maturities. Delivering on transformation targets through cost restructuring and implementing other initiatives touching on direct and indirect costs was another great milestone in 2018.

The ability to enter into risk-sharing initiatives with global partners further allowed Bombardier to deploy capital in new programs to drive future growth effectively. Being able to understand the customers’ needs well and creating a portfolio of innovative products increased the market demand allowing the company to secure more strategic orders. Further, recruiting and sustaining a highly skilled team also helped the company to perform exceptionally in product development and strategic planning. Foreign exchange rates also remained relatively stable in 2018, creating competitive economic conditions at the global level. 2018 was characterized by a complete reshaping of the business, which streamlined the company’s portfolio and allowed it to focus more on improving each of the segments (Annual Financial Report, 2018). The next sections of the report summarize the specific performance indicators, including ratio analysis, financial position, and comparison with the industry standards. The analysis is based on Bombardier’s financial statements for the year ending 2018 versus the previous years.

Company’s Ratio Analysis

The current ratio is the most popular liquidity ratio that assesses the company’s ability to meet its short-term debt obligations. It shows whether the company is in a position to pay back the short-term debts using short-term assets. It is arrived at by dividing the company’s total current assets by its total current liabilities. According to Competitive comparison Report (2018), as of December 2018, Bomber’s current ratio stood at 1.0 compared to 1.06 in December 2017. Given that the acceptable current ratio ranges between 1 and 3, it suggests that Bombardier has a healthy current ratio. A higher current ratio is an indication of how healthy a company is in terms of paying its short-term obligations. A current ratio below 1 indicates that the company would not be in a position to pay off the debts if they matured at that point in time. Other things held constant, the creditors consider a higher current ratio to be better as it means that the company is more likely to pay off debts that are due in the next year. Although Bombardier’s current ratio dropped slightly in 2018 compared to the previous year, it does not mean that the company is on the verge of going bankrupt as it has many ways through which it can access finances.

Inventory turnover ratio is an efficiency ratio that shows how fast the company turns its inventory. A higher inventory turnover suggests that the company has a light inventory that incurs less on storage, write down, and inventory obsolescence. The cost of goods sold is divided by the total inventories to get the inventory turnover ratio. As of 2018, Bombardier reported an inventory turnover ratio of 3.56 compared to 3.68 in 2017 (Competitive comparison Report, 2018). Return on assets (ROA) is another popular efficiency ratio that assesses the company’s efficiency at generating income from the shareholders’ equity and liabilities. It shows how well an organization utilizes what it has in generating profits. It is calculated as net income divided by the total assets over the year. Bombardier’s return on assets as of December 2018 stood at 0.93 down from -2.07 in December 2017. The increase suggests that the company’s ability to generate profits from the shareholders’ equity and liabilities improved significantly in 2018 compared to the previous year.

Net margin is the most widely used ratio for evaluating the profitability of a company. Net income is expressed as a percentage of net revenues. Some analysts argue that it is not a reliable measure of profitability since the net income is prone to manipulation through adjusting components such as depreciation. However, the long-term trends in the net profit margin indicate the financial health of a company and the level of competitiveness. As of December 2018, Bombardier’s net profit margin stood at 1.43% down from -3.05% in December 2017 (Competitive comparison Report, 2018). Operating profit margin is another key profitability indicator. It is calculated by expressing the operating profit as a percentage of the net revenue. Bombardier’s operating profit margin grew from 3.46% in December 2017 to 5.57% in December 2018. The increase in net profit margin is an indication of growth in both the operating profit and net profit in 2018 compared to the previous year. It is also an indication of year-over-year growth in revenues.

Company’s Financial Situation

2018 was a year of massive progress at Bombardier as the company’s President and CEO put it. The consolidated revenues hit $16.2 billion mark for the year ended 31^st December 2018, representing a 3% growth (Annual Financial Report, 2018). The growth in sales was an indication of the continued demand for the company’s products and services. Over the same period, EBIT margin before special items grew by 6.3% from 4.5% in the previous year. Further, the company generated $182 million in free cash flows, which included proceeds from the sale of Downsview property amounting to $750 million and monetization of royalties. The company ended the year 2018 in a health financial position, with $3.2 billion in cash and cash equivalents.

Business Aircraft segment achieved a significant financial milestone in 2018 with the flagship of the largest Global 7500 aircraft. Given its unsurpassed performance for the year under review, the company expects Global 7500 to the key driver for growth over a couple of years (Annual Financial Report, 2018). EBIT before special items for Business Aircraft was in line with the plans for the year. In terms of deliveries, the segment performed exceptionally with a total of 137 aircraft (83 Challenger, 42 Global, and 12 Learjet). The continued growth contributed to a 14.3% increase in revenues (Annual Financial Report, 2018). Over the same period, the commercial Aircraft segment significantly restructured its portfolio. The aircraft deliveries and revenues for commercial aircraft segment were in line with the plans. The restructuring was in response to EBIT loss before special items of $157 million. The segment continues to focus on cost-cutting structure programs while actively participating in the regional market with well-established aircraft. 2019 started on a higher note with Bombardier announcing plans to explore further strategic options to return commercial aircraft segment to profitability.

Aerostructures and Engineering Services segment reported a $2.0 billion in revenues, representing a 21% increases compared to the previous year. Similarly, 2018 was a successful year for the transportation segment. It recorded orders amounting to $9.9 billion, indicating the increased demand for Bombardier’s products (Annual Financial Report, 2018). Further, the backlog hit the $34.5 billion mark as of December 2018. The backlog growth was attributed to the increased contract orders in line with the segment’s strategy of increasing speed-to-market. Transportation segment’s revenues grew to $8.9 billion, representing a 4% increase compared to the previous year. Over the same period, EBIT before special items rose to $750 million, representing 8.4% compared to 2017.

Industry Ratio Comparisons

In relation to the standard industry ratios, Bombardier has performed comparatively well in many areas. For example, Bombardier’s five-year average gross margin stood at 12.11% as of 31 December 2018 compared to the average industry ratio of 14.42. As Investing.com (2018) revealed, the gross margin over the 12 months period stood at 13.87% for the company compared to 12.72% for the whole industry. Whereas Bombardier’s current ratio stood at 1.0 over the twelve-month period, the current industry ratio was 1.41. Similarly, the company’s quick ratio was reported to be 0.65, falling slightly below the industry’s quick ratio of 0.66 (Investing.com, 2018). The asset turnover ratio over the twelve-month period for Bombardier was 0.61 compared to the industry’s asset turnover ratio of 0.74. Surprisingly, the company’s inventory turnover ratio for 2018 stood at 3.14, surpassing the industry’s inventory turnover ratio of 2.49. Bombardier’s return on assets ratio for the five-year period stood at -6.2% compared to the industry’s return on assets ratio of -1.8%. Finally, the Price-to-earnings ratio for the year stood at 13.43 compared to the industry’s P/E ratio of 15.44.

Recommendations for Improvement

Although Bombardier is the world’s number three civil aircraft manufacturer and the world’s number one train manufacturer, it still faces many challenges. Issues such as increased competition, low economic conditions, and globalization have had an impact on the demand for the company’s products (Grandmont-Gariboldi, 2014). Bombardier has responded to these issues by developing advanced mobility solutions. However, Bombardier needs to differentiate itself well from the competitors in order to sustain its position as a global leader. The company must continually keep an eye on the ever-changing customer needs and take advantage of the growing demand for planes and trains in emerging markets. Consequently, Bombardier must consider adopting a mix of development strategy and diversification strategy (Böhm, Eggert & Thiesbrummel, 2017). With these strategies, the company will be in a position to market its new products in the emerging markets while at the same time promoting the sale of the existing products in the new markets such as India. Bombardier must also continue investing deeply in research and development to sustain its reputation and to continue developing products that meet the highest ethical, safety, and environmental standards.

Conclusion

In conclusion, Bombardier continues to boast of a healthy financial position as demonstrated in the ratio analysis, financial situation, and in comparison with industry standards. The significant changes made in each of the four segments drive the future growth of the company and puts it ahead of the competitors. However, more improvements are needed, as suggested in the recommendations section of this report in order see further growth in revenues and profitability. If Bombardier implements these strategies both at the business and corporate level, it will sustain growth and maintain its current status as the global leader of rail transport and aerospace manufacturer.

References

Böhm, E., Eggert, A., & Thiesbrummel, C. (2017). Service transition: A viable option for manufacturing companies with deteriorating financial performance? Industrial Marketing Management, 60, 101-111.

Competitive comparison Report. (2018). Bombardier Inc. Ratio analysis. Retrieved from https://www.gurufocus.com/term/current_ratio/BDRBF/Current-Ratio/Bombardier

Annual Financial Report. (2018). Driving efficiency through the growth cycle. Retrieved from http://www.annualreports.com/HostedData/AnnualReports/PDF/TSX_BBD_2018.pdf

Grandmont-Gariboldi, N. (2014). The SOWT Model Revisited-The Case of Bombardier. The Journal of Human Resource and Adult Learning, 10(2), 42.

Investing.com. (2018). BBD ratios versus industry ration. Retrieved from https://www.investing.com/equities/bombardier-inc-ratios

MacDonald, L. (2003). The Bombardier story. Aircraft Engineering and Aerospace Technology, 75(2).

Appendices

All amounts in this press release are in U.S. dollars, unless otherwise indicated.

Amounts in tables are in millions except per share amounts, unless otherwise indicated.

SEGMENTED RESULTS AND HIGHLIGHTS

Business Aircraft

Commercial Aircraft

Aerostructures and Engineering Services

Transportation