CGI Inc. (GIB)

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CGI Group, Inc. (GIB)

Q4 2017 Earnings Call

November 08, 2017 9:00 am ET


Lorne Gorber - CGI Group, Inc.

François Boulanger - CGI Group, Inc.

George D. Schindler - CGI Group, Inc.


Maher Yaghi - Desjardins Securities, Inc.

Richard Tse - National Bank Financial, Inc. (Broker)

Daniel Chan - TD Securities, Inc.

Phillip Huang - Barclays Capital Canada, Inc.

Thanos Moschopoulos - BMO Capital Markets (Canada)

James Schneider - Goldman Sachs & Co. LLC

Paul Steep - Scotia Capital, Inc.

Robert Young - Canaccord Genuity Corp.

Robert Peters - Cormark Securities, Inc.

Stephanie Price - CIBC World Markets, Inc.



Good morning, ladies and gentlemen. Welcome to the CGI Fourth Quarter and Fiscal 2017 Conference Call.

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

Lorne Gorber - CGI Group, Inc.

Thank you, Hugo, and good morning. With me to discuss CGI's fourth quarter and fiscal 2017 results are George Schindler, President and Chief Executive Officer; and François Boulanger, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 a.m. on Wednesday, November 8, 2017.

Supporting slides as well as the press release, financial statements and MD&A issued earlier this morning are available on cgi.com and filed with both SEDAR and EDGAR.

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 on cgi.com and included in this morning's disclosures. 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, however, we will also discuss non-GAAP performance measures which should be reviewed 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 it over to François first to review our Q4 and full-year financial performance and then George will comment on the highlights of fiscal 2017 and provide our strategic and operational outlook.

So with that, François?

François Boulanger - CGI Group, Inc.

Thank you, Lorne, and good morning, everyone. I'm pleased to share the results for our fourth quarter and fiscal 2017. Q4 revenue of CAD 2.6 billion grew by 2.5% year-over-year at constant currency. On a GAAP basis, growth was 1% as currency negatively impacted revenue by CAD 39 million mostly due to the U.S. dollar and British pound.

For fiscal 2017, revenue was CAD 10.8 billion, up 4.3% at constant currency, of which 2.8% was organic. IP-related services grew to 23% of revenue in Q4 and made up 22% of global revenue for the full year, up from 21% in fiscal 2016. Bookings were CAD 2.9 billion for the quarter and book-to-bill came in at 112%. For fiscal 2017, bookings totaled CAD 11.3 billion or 104% of revenue.

Adjusted EBIT in Q4 increased to CAD 396 million for a margin of 15.2%, stable year-over-year. For the fiscal year, EBIT was CAD 1.6 billion for a margin of 14.6%. Our effective tax rate in Q4 was 27.5% compared with 27.3% last year.

In our fiscal 2018 plan, we continue to expect a range of 27% to 29%. However, if, for example, the tax bill recently introduced in the U.S. Congress were to become policy in 2018, our overall tax rate would go down by approximately 300 basis points.

On a GAAP basis, net earnings were CAD 208 million for the fourth quarter and EPS was CAD 0.70 compared with CAD 0.89 last year due to the previously announced restructuring initiative. As planned, we expensed CAD 88.6 million or 54% of the total CAD 165 million. We remain on track to realize the related benefits starting in Q1 and throughout fiscal 2018.

In addition, we expensed CAD 3 million to complete three successful integrations in the U.S. as part of our metro market growth plan; ECS in Denver, CTS in Birmingham and Summa in Pittsburgh. Excluding these items, net earnings were CAD 276 million for a margin of 10.6% and EPS of CAD 0.93. This compares favorably to CAD 274 million and an EPS of CAD 0.89 a year ago.

For the full fiscal year, excluding specific items, net earnings were CAD 1.1 billion for a net margin of 10.2% and an earnings per share of CAD 3.65, or CAD 0.19 higher than last year. Cash generated from operations in the fourth quarter was CAD 352 million, including initial disbursements associated with restructuring.

On a full-year basis, operating cash flow improved to CAD 1.4 billion or 12.5% of revenue. DSO at the end of September was 47 days compared with 44 days last year, mainly due to the timing of milestone billing. In the quarter, we continued making accretive investments. We paid for Summa Technologies and we invested CAD 564 million buying back 9 million of our shares.

We financed these investments using cash on hand and by drawing CAD 200 million from our revolving credit facility. As a result, at the end of September, net debt stood at CAD 1.7 billion, up CAD 416 million compared with last year, and yield a net debt-to-capitalization of 21.5%.

Read the rest of this transcript for free on seekingalpha.com