CGI Group, Inc. (GIB)

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CGI Group, Inc. (GIB)

F4Q2010 (Qtr End 09/30/10) Earnings Conference Call

November 9, 2010 9:00 AM ET


Lorne Gorber – SVP, Global Communications and IR

David Anderson – EVP and CFO

Michael Roach – President and CEO


Tom Liston – Versant Partners

Richard Tse – Cormark Securities

Mayer Yaghi – Desjardins Securities

Scott Penner – TD Newcrest

Paul Steep – Scotia Capital

Ralph Garcea – NCP Northland Capital Partners

Ralph Garcea – Northern Capital Partners

Del Warmington – Delaware Capital

Michael Urlacher – GMP Securities

Dushan Batrovic – Dundee Securities

Michael Abramsky – RBC Capital Markets

Eyal Ofir – Canaccord Genuity



Good morning ladies and gentlemen. Welcome to the CGI fourth quarter and 2010 results conference call.

I would now like to turn the meeting over to Mr. Lorne Gorber, Senior Vice President, Global Communications and Investor Relations. Please go ahead Mr. Gorber.

Lorne Gorber

Thank you and good morning everyone. With me to discuss CGI’s fourth quarter and fiscal 2010 results are Michael Roach, our President and CEO as well as David Anderson, Executive Vice President and CFO. This call is being broadcast on and recorded live at 9:00 am on Tuesday November 9, 2010.

Supplemental slides as well as the press release we issued earlier this morning are available for download along with our fiscal 2010 MD&A, audited financial statements and accompanying notes, all of which are being filed with both SEDAR and Edgar.

Please note that some statements made on the call may be 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 statements, whether as a result of new information, future events or otherwise.

The complete safe harbor statement is available in both our MD&A and press release as well as on We encourage our investors to read it and its entirety.

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 definitions of each of these non-GAAP performance indicators used in our reporting.

All of the figures expressed in this call are from continuing operations and in Canadian dollars unless otherwise noted.

I’ll turn the call over to David first to review the results for the fourth quarter and then he’ll pass it over to Mike who will discuss strategic highlights of both the quarter and the full year, given that we will be discussing both our scripted comments will be briefed in order to maximize the time we have for Q&A. David?

David Anderson

Thank you, Lorne and good morning.

In the fourth quarter, our revenue reached $1.01 billion representing an increase of 8.7% or $81 million from Q4 2009. Foreign exchange fluctuations negatively impacted revenue by $46.8 million or 5.1% compared with the same period last year. When adjusted FX, year-over-year growth, on a constant currency basis was 13.8%, included our (inaudible) results from August 17th today the transaction officially closed.

Our EBIT margin strengthened to 13.9% from 13.6% in the fourth quarter of 2009. This improvement was largely driven by our ongoing focus on operational excellence, including investments in tools and productivity initiatives.

Net earnings in Q4 2010 were $84.1 million or 1.7% better than the $82.6 million reported in Q4 of 2009.

Our earnings margin was 8.3%, representing an improvement of 60 basis points over Q4 of 2009. Diluted earnings per share were $0.30. This compares with $0.27 in the same period last year or an increase of 11.1%.

These results include one-time expenses of $16.7 related to the Stanley acquisition. Before these expenses, net earnings would have been $94.5 million and diluted earnings per share would have been $0.34 per share representing a year-over-year improvement of 14.4% and 25.9% respectively. The earnings margin would have been 9.4%.

We generated $158.5 million in cash from operations in the fourth quarter or 15.1% of revenue. Our DSO at the end of Q4 was 47 days. The year-over-year increase is attributable to the mid quarter closing of our Stanley transactions as we inherited all of their receivable work in progress, but only six weeks of revenue.

Excluding this transaction related anomaly, we are and expect to continue operating within our target level of 45 days.

Our long-term debt at the beginning of Q4 stood at $417.9 million. We drew down $800 million to pay for Stanley and repaid $193.2 million during the quarter leaving debt at September 30, 2010 of $1.15 billion.

This represented a net debt to capitalization ratio of 30.6%. At today’s market rate such levels yield an optimal weighted average cost of capital for the company.

In the quarter we continued buying back our stock acquiring 8.1 million shares of CGI for $123.4 million.

At year end, our return on equity was 16.4% while the return on invested capital was 16.3%.

Now I’ll turn over the call to Mike.

Michael Roach

Thank you David and good morning everyone. I am very pleased with our performance in Q4 and for all of fiscal 2010. The ongoing ability of our team to focus and execute with discipline in challenging market conditions has solidified our leadership position amongst our North American and European peers.

I’ll begin my remarks with a review of our fiscal 2010 performance by stakeholder. Let’s start with clients.

Feedback from our clients continues to be very encouraging and reinforces our fundamental belief that quality work equals more work. Against this standard we continue delivering our projects on time and on budget. Throughout the year we solicited and received direct feedback from approximately 2500 signed client assessments. On a 10-point scale, we scored 9.0 on overall satisfaction in fiscal 2010, but even more importantly we received a 9.2 on loyalty, suggesting clients will continue using CGI services and even recommend CGI to others. Client loyalty is important in any business but in our business it is essential.

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