CGI Group, Inc. (GIB)

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CGI Group, Inc. (GIB)

F3Q09 (Qtr End 06/30/09) Earnings Call

July 29, 2009 09:00 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

Analyst

Jason Kupferberg - UBS

Tom Liston - Versant Partners

Steven Li - Raymond James

Richard Tse - National Bank Financial

Scott Penner - TD Newcrest

Mike Abramsky - RBC Capital Market

Paul Steep - Scotia Capital

Paul Lechem - CIBC World Markets

Eric Bernofsky - Desjardins Securities

Presentation

Operator

All participants please standby, your conference is about to begin. Good morning ladies and gentlemen, welcome to the CGI third quarter 2009 results 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, Valerie and good morning. With me to discuss the third 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 9:00 am on July 29th, 2009.

Supplemental slides as well as the press release we issued earlier this morning are also available for download along with our Q3 MD&A, financial statements 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 as 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 in Canadian dollar unless otherwise noted.

I will turn the call over to David first to review the quarter's results and then to Mike who will make a few remarks on the quarters strategic highlights, before going to Q&A.

David Anderson

Thank you, Lorne, and good morning.

I am pleased to share the financial details of another very good quarter. Quarterly revenue was 950.4 million, a sequential improvement of 2.7% at constant currency. Compared with the third quarter of 2008, revenue was essentially unchanged as foreign currency fluctuations positively impacted revenue by 4.5%. Despite current economic conditions, EBIT margins remained strong, improving to 11.9% compared with 11.7% in Q3 of 2008.

Net earnings in Q3 2009 were $76.5 million or 8.1% of revenue, generating diluted earnings per share of $0.25. This compares with an earnings margin from continuing operations of 7.5% and $0.22 in diluted earnings per share when excluding a one time tax benefit of $10.8 million recorded in the third quarter of 2008.

When adjusted for this one time item, we deliver significant bottom-line improvement year-over-year. Our Q3 effective tax rate was 31%, in line with our normalized tax rate of 31 to 33% compared with 23% in Q3 2008. Now let's turn our attention to the balance sheet. At the end of Q3, our DSO was 41 days, an improvement from 48 days in Q3 2008. The reduction of seven days serves as a good illustration of our effective and efficient credit collection processes as well as our clients continue satisfaction with CGI services.

We generated $170.9 million in cash from operations during Q3 or $0.55 in cash per share. This represents 18% of revenue and is a 61.4% increase year-over-year. Our net debt at the end of June was $15.9 million for net debt to capitalization ratio of 0.6% from the 15.6% one year ago. As you know, in February we renewed our normal course issuer bid through February 2010, which allows us to purchase 27 million shares over 12 months.

In Q3, we bought back and canceled 3.2 million shares as part of this program, investing $32.1 million. At the end of Q3, 2009, the company had access to liquidity of more than $1.6 billion, $272 million in cash and $1.35 billion available under our line of credit secured through 2012.

Our balance sheet combined with improved profitability has generated return on invested capital of 13.8%. All in all, we are pleased with the strength of our financial performance and health of our balance sheet as we continue pursuing profitable growth.

I will now turn the call over to Mike.

Michael Roach

Thank you, David, and good morning everyone. By any measure, quarter three was a very solid quarter and what we consider to be a strong and balanced year-to-date performance. We delivered excellent results through the first three quarters of fiscal 2009. Accordingly, I'd like to begin by highlighting our year-over-year performance after nine months. We have booked $3.5 billion in new contracts or 121% of revenue. In these booking we have secured some very strategic contracts with marquee clients representing global brand, each of which provides an opportunity to add on new follow on business.

Revenue was $2.9 billion, up 4.4%, net earnings improved to $234 million, up 6.5%, earnings per share of $0.75 up 12% and our net earnings margin of 8.1% remains the industry leader and demonstrates consistent execution of our business model. We generated $438 million in cash from operations, up 60.5%. Cash per share was a $1.41 up 68% and net debt went from $332 million to $15.9 million, a reduction of 95%. In addition and importantly, our clients satisfaction and client loyalty scores remain at record levels, our members accretion rate remains the lowest in the industry, while share ownership levels among our 26,000 members continues to grow. At approximately 85%, our members represents CGS single largest ownership block. We firmly believe this has positive ramifications for all stake holders.

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