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CGI Group, Inc. (GIB)

Q1 2017 Earnings Call

February 01, 2017 9:00 am ET

Executives

Lorne Gorber - CGI Group, Inc.

François Boulanger - CGI Group, Inc.

George D. Schindler - CGI Group, Inc.

Analysts

Richard Tse - National Bank Financial, Inc.

Steven Li - Raymond James Ltd.

Thanos Moschopoulos - BMO Capital Markets (Canada)

Amit Singh - Jefferies LLC

Paul Treiber - RBC Capital Markets

Phillip Huang - Barclays Capital Canada, Inc.

Stephanie Price - CIBC World Markets, Inc.

Maher Yaghi - Desjardins Securities, Inc.

Paul Steep - Scotia Capital, Inc.

Daniel Chan - TD Securities, Inc.

Robert Young - Canaccord Genuity Corp.

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the CGI First Quarter Fiscal 2017 Conference Call. I would now like to turn the meeting over to Mr. Lorne Gorber, Executive Vice President, Global Communications and Investors Relations. Please go ahead, Mr. Gorber.

Lorne Gorber - CGI Group, Inc.

Thank you, Melanie, and good morning. With me to discuss CGI's first quarter fiscal 2017 results are George Schindler, our President and CEO; and François Boulanger, Executive Vice President and CFO.

This call is being broadcast on cgi.com and recorded live at 9:00 AM Eastern Time on Wednesday, February 1, 2017. Supplemental slides as well as the press release we issued earlier this morning are available for download, along with our Q1 MD&A, 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 cgi.com. 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 before, we'll 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.

As most of you know, we're also hosting our AGM this morning. So, we're going to keep our comments brief in order to take as many questions as we can and to do so within the next 45 minutes. I'll turn it over to François first to review our Q1 financials and then George will comment on both strategic and operational highlights.

So, with that, François.

François Boulanger - CGI Group, Inc.

Thank you, Lorne, and good morning, everyone. I'm pleased to share our results for Q1 fiscal 2017. For the quarter, revenue was CAD 2.7 billion, up 3.7% on a constant currency basis and stable year-over-year, when considering the negative impact of CAD 107 million in currency fluctuations, mainly coming from the pound.

We booked CAD 3 billion during the first quarter, representing 111% of revenue with close to 40% coming from new business and with nearly CAD 1 billion from financial services clients. Over the last 12 months, total booking improved to CAD 11.5 billion for book-to-bill of 108%.

Adjusted EBIT was CAD 397 million, up 3.3% from last year, while our EBIT margin expanded by 50 basis points to 14.8%. The margin expansion was driven by an increased use of our global delivery network, additional R&D tax credit, and the favorable renegotiation of our loss-making contract in the UK. Our effective tax rate in Q1, excluding specific items, was 26.6%. We continue to expect a range of 27% to 29% for the full fiscal year.

During the quarter, CAD 3 million of integration costs were incurred related to the acquisition of Collaborative Consulting. We expect to incur approximately CAD 1 million of expenses this quarter to complete the integration. Excluding the Q1 integration costs, net earnings for the quarter were CAD 278 million, up 4.8% from last year, while net margin increased by 50 basis points to 10.4%. EPS excluding integration costs were CAD 0.90 per diluted share, up from CAD 0.84 last year. On a GAAP basis, net earnings were CAD 276 million, up 16% from Q1 2016. EPS was CAD 0.89, up 18.7% from CAD 0.75 last year.

Turning to cash, our operations generated CAD 350 million in the first quarter or 13.1% of revenue. Over the last 12 months, we have generated CAD 1.4 billion or CAD 4.36 per share. We continue to use our cash in the most accretive ways. In addition to investing back into our own business, primarily our IP, we also acquired Collaborative Consulting midway through to the quarter for US$113 million or CAD 151 million.

Invested CAD 315 million buying back 5.1 million shares and made a scheduled long-term debt payment of CAD 114 million to finish Q1 with net debt of CAD 1.5 billion or CAD 82 million lower than last year. As a result, net debt to capitalization was 18.2%.

We continue to view share buybacks as an accretive use of cash. As such, this morning our board of directors approved the extension of our NCIB until February 2018. This will give us the flexibility to purchase 21.2 million shares over the next 12 months.

Under the current NCIB, we have invested CAD 777 million, repurchasing 13 million shares at an average price of CAD 58.83. With our revolving credit facility fully accessible and over CAD 300 million in cash, we have more than CAD 1.8 billion in readily available liquidity and access to more as needed in order to invest in our Build and Buy strategy.

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