CGI Group, Inc. (GIB)

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CGI Group (GIB)

F4Q 2012 Earnings Call

November 28, 2012 9:00 am ET


Lorne Gorber - Senior Vice-President of Global Communications & Investor Relations

David R. Anderson - Chief Financial Officer and Executive Vice President

Michael E. Roach - Chief Executive Officer, President and Director


Tom Liston - Cantor Fitzgerald Canada Corporation, Research Division

Scott Penner - TD Securities Equity Research

Richard Tse - Cormark Securities Inc., Research Division

Thanos Moschopoulos - BMO Capital Markets Canada

Stephanie Price - CIBC World Markets Inc., Research Division

Steven Li - Raymond James Ltd., Research Division

Paul Treiber - RBC Capital Markets, LLC, Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Kris Thompson - National Bank Financial, Inc., Research Division

Ralph Garcea - NCP Northland Capital Partners Inc., Research Division

Maher Yaghi - Desjardins Securities Inc., Research Division

Michael Urlocker - GMP Securities L.P., Research Division



Good morning, ladies and gentlemen. Welcome to the CGI Fourth Quarter 2012 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, Valerie, and good morning. With me to discuss CGI's fourth quarter and fiscal 2012 results are Michael Roach, our President and CEO; and David Anderson, Executive Vice President and CFO. This call is being broadcast on and recorded live at 9 a.m. on Wednesday, November 28, 2012. The press release we issued earlier this morning is available for download along with our fiscal 2012 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 statement, 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 in its entirety.

We are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. As usual, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted.

I'll turn the call over to David first to review the results both with and without the impact of Logica. Then he'll pass it over to Mike, who will discuss the strategic and operational highlights of both the quarter and the full year. Our scripted portion will be a little longer than usual in order to provide maximum visibility on our operational performance, as well as the various moving pieces related to the Q4 acquisition of Logica. We'll still leave ample time for Q&A. So with that, David?

David R. Anderson

Thank you, Lorne, and good morning. Before we get in the specific results, I'd like to review 2 quick but important items. First, a reminder that this is our first fiscal year reporting under IFRS. CGI transitioned from Canadian GAAP to IFRS at the beginning of fiscal 2012, adjusting the financial results of the previous year to reflect this adoption.

Although the change resulted in several adjustments or reclassification to our consolidated financial statements, such as the way we accounted for joint ventures or the way we disclosed amortization on the P&L, it did not materially impact the underlying cash flows or profitability trends, our revenue recognition practices, our debt covenants or compensation arrangements. Note 33 to the financial statement contains a detailed description and a reconciliation of the key accounts involved in the migration from Canadian GAAP to IFRS. As a note, our financials prior to 2011 are reported under Canadian GAAP.

I also want to take a minute on the BAR or Business Acquisition Report filed on November 5. Our preference would have been to release this report at the same time as our financial results in order to provide a little more content. However, we needed to comply with a 75-day reporting deadline, which resulted in the November 5 filing required by Canadian securities regulators. This filing consisted of 3 parts. The first was the audited financial statements of Logica dated December 2011, as reported by them last spring, with no changes. The second were Logica's interim financial statements for the 6 months ended June 30, 2012 before our transaction was finalized, and the third were CGI's performance statement, giving effect to the transaction for the period ending June 30, 2012. The intended purpose is to describe the acquired business and to provide insight into the financial impact of the acquisition.

The information was compiled according to a set of prescribed rules that simply took the historical information, adjusted it for the harmonization of accounting policies and practices between the 2 firms and adjusting, as appropriate, the values of the opening balance sheet to reflect fair value. It did not take into account any savings of bringing the 2 companies together or any synergies of applying CGI's management approach to the operations of Logica.

In the interest of time, I will address 2 points that generated most of the questions coming from this filing. The first was the reduction in the revenue run rate for the 6 months ending June 30. Clearly, the general market conditions within Europe resulted in some softness, as evidenced by peer results for the same period, and of course, there's the sideways drift that always occurs or almost always occurs in a targeted company between the announcement date and the closing date. As we did not own the company during this period, we were not in a position to communicate with the employees or with the clients, so we focused on a rapid closing in an effort to address this uncertainty.

The second area of interest was the accruals and provisions that were recognized during the 6 months ending June 30. Let's run through them. An amount of GBP 92 million was recorded for the settlement of a VAT claim, as well as one for social security taxes. The court returned its verdict on the VAT claim last spring, while the tax authorities delivered its assessment on the social security taxes. These were onetime items and are now behind us. There was also provision taken for other claims in the amount of GBP 34 million. Most were project delivery issues having surfaced during this period for which we are actively engaged to rectify. Then there was a GBP 139 million provision taken for expected future losses and write-offs on in-flight contracts. Simply put, we reviewed the cost to complete Logica's fixed-price contract using the same screen that we use for CGI. We then decided it was necessary to recognize forecasted cost overruns and penalties across a number of projects.

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