CGI Group, Inc. (GIB)

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CGI Group Inc. (GIB)

F1Q09 Earnings Call Transcript

January 27, 2009 at 9:30 am ET

Executives

Lorne Gorber - Vice President and Investor Relations

Michael Roach - President and Chief Executive Officer

David Anderson - Executive Vice President and Chief Financial Officer

Analysts

Richard Tse - National Bank Financial

Scott Penner - TD Newcrest

Paul Steep - Scotia Capital

Jason Kupferberg - UBS

Mike Abramsky - RBC Capital Market

Ralph Garcea - Haywood Securities Inc.

Steven Li - Raymond James

Eric Bernofsky - Desjardins Securities

Presentation

Operator

All participants please standby, your meeting is ready to begin.

Good morning ladies and gentlemen, welcome to the CGI first quarter 2009 result conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Lorne Gorber, Vice President, Global Communications and Investor Relations. Please go ahead Mr. Gorber.

Lorne Gorber

Thank you, Jenny and good morning everyone. With me to discuss the first quarter of fiscal 2009 are Michael Roach, our President and CEO and David Anderson, Executive Vice President and CFO. This call was being broadcast on CGI.com and recorded live at 9:30 am on January 27th.

Supplemental slides as well as the press release we issued earlier this morning are also available for download along with our Q1 MD&A, financial statement and accompanying notes, each of which are being filed with both SEDAR and Edgar. Please note that some statements made on the call maybe forward looking. Actual events or results may differ materially from those expressed or implied and CGI disclaims any intent or obligation to update or revise any forward looking statement whether it is a result of new information, future events or otherwise.

We report our financial results in accordance with Canadian GAAP, but we do discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definition of each non-GAAP performance indicators used in our reporting. All of the figures expressed on this call are from continuing operations and in Canadian dollar unless otherwise noted.

I will turn the call over to David first to review the quarter’s results and then to Michael to discuss strategic highlights of the quarter before making a few concluding remarks.

Before turning the call to David, a reminder that our annual meeting is scheduled for 11 AM this morning, so our comments will be brief to leave as much time as possible for Q&A but we will have to limit the call to about 45 minutes. David?

David Anderson

Thank you, Lorne, and good morning.

I am pleased to share the financial details of another good quarter. Quarterly revenue reached the $1 billion mark for the first time, an increase of $105 million or 11.7% compared with the same period a year ago.

Foreign currency fluctuations positively impacted revenue by 7.4%. EBIT margin remained strong at 11.4% compared with 11.8% in Q1 of 2008. This difference is largely related to a $5 million workforce adjustment in our Canadian operations completed in the first quarter and a $3.8 million currency charge related to the interest component on our hedged US dollar debt and the impact felt from unprecedented volatility in the Canadian US exchange rate.

We expect a portion of this FX charge to reverse in future quarters. Earnings were $79.5 million or 10.5% better than $71.9 million recorded in Q1 of 2008. Our net earnings margins continue to stand out among our North American and European peers, having reached 8% in the first quarter.

EPS was $0.26 per share. This compares with $0.22 in the same period last year, representing an increase of 18.2%. Our Q1 effective tax rate was 24.4%, compared with 27.5% in Q1 of 2008, which takes into account the onetime tax benefit in both the first quarter of this year and of last year. Excluding these impacts, our normalized effective tax rate going forward should be in the 32% to 34% range.

Now, let us turn our attention to the balance sheet. During the quarter we generated $79.2 million in cash from operations are $0.26 cash per diluted share. At 52 days, DSO was seven days higher than our 45-day target. This is largely due to the timing of milestone billings and some payments which spills over into Q2 as a result of an extended holiday period taken primarily by our clients in Canada. We continue to drive towards the achievement of the 45-day target level. To date, we have not been experiencing any pattern of deliberate slow paying amongst our clients.

At the end of this month, we will retire the first tranche of our US dollar senior unsecured notes for an amount of US$85 million. You may recall last year we pledged our US notes while currency was approximately at par. As a result, our payment this week is for $85.3 million Canadian dollars, representing a significant benefit for shareholders.

We finished Q1 with $216 million in cash and cash equivalents or $165.9 million higher than the fourth quarter of 2008. This increase was largely due to the hedging decision we made this quarter to protect the value of our foreign cash balances. We hedged US$100 million and 12 million euros by drawing down an equivalent of $144.7 million Canadian from our line of credit. We have since paid back $50.4 million.

This action had the effect of locking in approximately $20 million in foreign currency gains and had no effect on our net debt as the credit facility and the cash account both changed by the same amount. Accordingly, our net debt at the end of December was $259.5 million, for net debt, the capitalization ratio of 9.6%, leaving us with expanding and significant financial flexibility.

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