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CGI Inc. (GIB)

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CGI Group, Inc. (GIB)

Q2 2018 Earnings Call

May 02, 2018 9:00 am ET

Executives

Lorne Gorber - CGI Group, Inc.

François Boulanger - CGI Group, Inc.

George D. Schindler - CGI Group, Inc.

Analysts

Steven Li - Raymond James Ltd.

Richard Tse - National Bank Financial, Inc.

Thanos Moschopoulos - BMO Capital Markets (Canada)

Maher Yaghi - Desjardins Securities, Inc.

Daniel Chan - TD Securities, Inc.

Robert Young - Canaccord Genuity Corp.

Paul Treiber - RBC Dominion Securities, Inc.

Stephanie Price - CIBC World Markets, Inc.

Ralph Garcea - Echelon Wealth Partners, Inc.

Paul Steep - Scotia Capital, Inc.

James Schneider - Goldman Sachs & Co. LLC

Presentation

Operator

Good morning ladies and gentlemen. Welcome to the CGI Second Quarter Fiscal 2018 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, Valerie, and good morning. With me to discuss CGI's second quarter fiscal 2018 results are George Schindler, our President and CEO; and François Boulanger, Executive Vice President and CFO. This call is being broadcast from cgi.com and recorded live from Paris at 03:00 PM local time or 09:00 AM Eastern Time on Wednesday May 2, 2018.

Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q2 MD&A, financial statements, and accompanying notes, all of which have been 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 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, and to refer to the risks and uncertainties section of our MD&A for a description of the risks that could affect the company. We are reporting our financial results in accordance with the International Financial Reporting Standards or IFRS.

As before, 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 it over to François now to review our Q2 financials and then George will comment on our operational highlights and our strategic outlook. François?

François Boulanger - CGI Group, Inc.

[Foreign Language] (02:09) I'm pleased to share our results for Q2 fiscal 2018. Revenue was CAD 3 billion an increase of CAD 226 million or 8.3% compared with last year. On a constant currency basis revenue grew 4.9%. Bookings in Q2 were CAD 3.5 billion or 119% of revenue driven by increases to the scope of services on renewals as well as the addition of new clients including TalkTalk in the UK, and SNCF in France, and MEYER WERFT in Germany. Over the last 12 months total bookings were CAD 12 billion or 108% of revenue. Adjusted EBIT was CAD 424 million a year-over-year increase of CAD 29 million and representing a margin of 14.4%. This compared with CAD 395 million or 14.5% for the same period last year.

During the quarter, we incurred cost of CAD 27.5 million related to our strategic restructuring. Through the end of March, we had expensed CAD 149 million against the plan. We are generating the planned benefits and expect to complete all remaining actions before year-end. The total investment will be CAD 185 million as we have ended up buying (03:46) additional opportunities through the implementation of our strategy as well as currency headwinds.

As a reminder the majority of the programs costs are focused on positioning CGI to capture the significant shift in demand across global markets as evidenced by our strong bookings this quarter. An approximately 15% of the CAD 185 million expense is related to the retirement of certain assets that are no longer needed in the implementation of our as-a-service delivery model.

Going forward, this will drive lower capital requirements in our infrastructure business allowing increased investments in areas such as our IP portfolio. We also incurred expenses of CAD 11 million in Q2 for the integration of Affecto and Paragon.

Turning to income tax, our effective rate in Q2 was 25.5% down from 27% last year largely the results of U.S. tax reform. We expect the tax rates for the full fiscal year to be between 24.5% and 26.5%.

Adjusting for integration and restructuring expenses net earnings grew to CAD 303 million in the second quarter, up CAD 28 million year-over-year, earnings per share on the same basis expanded by 14.3% to CAD 1.04 per diluted share, and net margin was 10.3% up 20 basis points from the year ago period.

On a GAAP basis, net earnings were CAD 274 million and EPS was CAD 0.94 up from CAD 0.90 in Q2 last year. Turning to cash, our operations generated CAD 426 million in the quarter or 14.4% of revenue despite payments of CAD 43 million related to the restructuring.

In the first half of 2018 our operations generated CAD 826 million an increase of CAD 120 million when compared to the same period last year. Over the last 12 months we generated CAD 1.5 billion or 13.2% of revenue representing just over CAD 5 in cash per share.

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