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CGI Group Inc. (NYSE: GIB; TSX: GIB.SV.A), a leading provider of end-to-end information technology and business process services, today reported unaudited results for its fourth quarter ended September 30, 2005 and for fiscal 2005. All figures are in Canadian dollars unless otherwise indicated.
Fiscal Year 2005 Highlights
- Revenue of $3,686.0 million was 17.0% higher than in fiscal 2004 and 20.5% higher on a constant currency basis.
- Net earnings from continuing operations increased 18.5% to $219.7 million compared with fiscal 2004.
- Basic and diluted earnings per share from continuing operations increased to $0.50, from $0.44 in fiscal 2004.
- The net earnings from continuing operations margin was 6.0%, compared with 5.9% a year ago.
- Cash net earnings increased 21.4% to $302.0 million or $0.69 per share compared with fiscal 2004.
- Cash provided by continuing operating activities increased by 108.7% to $479.7 million from 2004.
- The backlog of signed contracts at September 30, 2005 was $12.9 billion with a weighted average remaining contract term of 6.7 years.
- Contract bookings totaled $3.6 billion, compared with $3.0 billion in fiscal 2004.
- Under its normal course issuer bid, CGI bought back 14.9 million Class A subordinate shares for a total consideration of $116.4 million.
- At September 30, CGI's cash position was $240.5 million. Long-term debt was $249.7 million and the net debt to capitalization ratio was 0.3%.
Fourth Quarter Highlights
- Revenue was $904.8 million, 3.4% lower than in the fourth quarter of fiscal 2004, but essentially unchanged from one year ago on a constant currency basis.
- Net earnings from continuing operations were $56.4 million, compared with $52.9 million a year ago.
- Earnings per share from continuing operations were $0.13, compared with $0.12 in 2004.
- The net earnings from continuing operations margin was 6.2%, up from 6.0% in the third quarter and 5.6% in the fourth quarter of fiscal 2004.
- Cash net earnings were $77.5 million or $0.18 per share.
- Cash provided by continuing operating activities was $121.7 million.
- Contract bookings totaled $665.5 million.
"In the fourth quarter, we continued to generate strong cash flow and to improve profit margins on a year-over-year basis and also sequentially despite business seasonality during the summer months," said Serge Godin, chairman and CEO. "During the fiscal year, our ability to significantly increase operating cash flow enabled us to further strengthen our balance sheet while buying back CGI shares. We again achieved strong revenue and earnings growth and solid progress within our operations in each of our main geographies."
FINANCIAL HIGHLIGHTS
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* Note: Revenue figures for the fiscal 2005 and fiscal 2004 periods have been restated following a revised accounting interpretation which reduced revenue and applicable costs of services but had no impact on net earnings or cash flows. For comparative purposes, the reclassification amounts to $13.1 million and $52.9 million for the three-month and twelve-month periods ended September 30, 2004 and $40.7 million for the nine months ended September 30, 2005. Had it not been for this revised interpretation, fiscal 2005 and 2004 revenue would have been $3,740.5 million and $3,203.0 million, respectively. For additional details, please refer to the Financial Review section of the fourth quarter MD&A and Note 1 to the Financial Statements.
Fourth Quarter Results (See also: Q4 MD&A filed with Sedar & Edgar and available at www.cgi.com). Revenue for the fourth quarter ended September 30, 2005 totaled $904.8 million, compared with $936.9 million (restated as outlined in the note to the Financial Highlights table above) in the same quarter last year. Before the effect of the currency exchange rate mainly between the Canadian and US dollars, revenue was even with a year ago. Currency fluctuations reduced revenue by $31.8 million or 3.4%, compared with the previous year. Year-over-year, external growth was 1.2%, reflecting three niche acquisitions, while organic revenue growth was negative 1.3%. Revenue was reduced mainly by the previously announced termination, earlier in fiscal 2005, of a contract that was not meeting our profitability standards.
Earnings before interest, income taxes, entity subject to significant influence and discontinued operations ("adjusted EBIT") were $89.4 million in the fourth quarter, compared with $83.9 million in last year's fourth quarter. The adjusted EBIT margin was 9.9% for the quarter, up from 9.0% a year ago.
Net earnings from continuing operations in the fourth quarter increased 6.7% to $56.4 million or $0.13 per share from net earnings from continuing operations of $52.9 million or $0.12 per share in the same period of 2004. All per share data is on a basic and diluted basis, and there were 2.4% fewer average weighted shares outstanding than a year ago. The net earnings from continuing operations margin increased to 6.2% in the fourth quarter from 5.6% a year ago. For comparative purposes, under US generally accepted accounting principles (US GAAP) CGI's net earnings from continuing operations were $0.14 per share in the fourth quarter and its net earnings from continuing operations margin was 6.8%.
Cash net earnings, which are before the amortization of intangibles, were $77.5 million or $0.18 per share in the fourth quarter of fiscal 2005, compared with $75.3 million or $0.17 per share achieved in the same quarter a year ago. Cash net earnings in the quarter represented 8.6% of revenue, compared with 8.0% a year ago. Amortization of intangibles relates mainly to the value of internal software, business solutions and client relationships gained through acquisitions and new outsourcing contracts. Management believes that net earnings before the amortization of intangibles provides better visibility of our ability to generate cash.
Net earnings including discontinued operations were $55.8 million or $0.13 per share in the fourth quarter of 2005, compared with $52.9 million or $0.12 per share a year ago.
Fiscal 2005 Results
Revenue for fiscal 2005 totaled $3,686.0 million, up 17.0% from revenue of $3,150.1 million in fiscal 2004. Both revenue figures are revised as indicated above. Internal growth was 2.2% compared with fiscal 2004, while external growth was 18.3%, partially offset by the 3.5% negative impact of foreign currency fluctuations. Total bookings were $3.6 billion, compared with bookings of $3.0 billion in fiscal 2004.
Net earnings from continuing operations increased 18.5% to $219.7 million compared with $185.4 million a year ago. Basic and diluted earnings per share from continuing operations were $0.50, compared with $0.44 in the previous year, adjusted to reflect the expensing of stock options. The net earnings from continuing operations margin was 6.0% compared with 5.9% a year ago. For the year, the expensing of stock options which is required under Canadian generally accepted accounting principles (GAAP) represented $0.05 per share. For comparative purposes, under US GAAP CGI's net earnings from continuing operations were $0.55 per share in fiscal 2005, compared with $0.50 in fiscal 2004. Net earnings including discontinued operations increased 11.6% to $216.5 million or $0.49 per share from $194.0 million or $0.46 a year ago.
Cash net earnings, which are before the amortization of intangibles, increased by 21.4% to $302.0 million or $0.69 per share. This compares with cash net earnings of $248.8 million or $0.59 per share in fiscal 2004. The net cash earnings margin increased to 8.2% in fiscal 2005, from 7.9% in fiscal 2004.
Cash provided by continuing operating activities was $479.7 million in fiscal 2005, compared with $229.8 million a year ago.
The Company maintained a strong balance sheet. At September 30, 2005, cash and cash equivalents were $240.5 million. Long-term debt was $249.7 million and the net debt to capitalization ratio was 0.3%. At quarter end, total credit facilities available amounted to $817.8 million.
"Our long-term debt is now lower than it was prior to the AMS acquisition and our balance sheet is very strong. Our strong cash generation capabilities have made this possible and validate our ability to successfully execute our four-pillar growth strategy," said Mr. Godin.
Share Repurchase Program
Under the terms of the normal course issuer bid announced February 1, 2005, during fiscal 2005 CGI bought back 14,896,200 Class A subordinate shares at an average market price plus commission of $7.82, for an aggregate consideration of $116.4 million. The total Class A subordinate shares repurchased included 846,200 shares bought for cancellation at the end of the year; all of which were cancelled October 6, 2005. The issuer bid enables CGI to purchase on the open market, through the facilities of the Toronto Stock Exchange, up to 27,834,417 Class A subordinate shares for cancellation, by February 2, 2006.
Fourth Quarter Operating Highlights
During the quarter, CGI announced strategic contracts and investments. Bookings totaled $665.5 million. Transactions that we announced included:
- Union Bank of California (UBOC), the fourth largest commercial bank in California and one of the top 25 banks in the United States, chose CGI's Proponix solution to support the bank's domestic trade finance business. Proponix is a hosted, Web-based fully integrated trade finance platform that provides access to trade services technology as a service, enabling reduced costs and enhanced customer service.
- The acquisition of MPI Professionals. MPI was a privately-held, Manhattan-based consulting and systems integration firm with revenues of US$17 million and 80 senior-level professionals. MPI specialized in project management, compliance, convergence, risk management and straight-through processing for the financial services sector with a specific focus on capital markets.
- The acquisition of Silver Oak Solutions, a privately-held corporation with revenues of approximately US$23 million. Silver Oak was a leading provider of spend management solutions aimed at identifying, creating and sustaining measurable cost savings in procurement spending for clients in both the government and commercial sectors. It employs 100 senior-level professionals who serve clients from offices in Boston, New York, Philadelphia and San Francisco.
Market Outlook
"Most of the recent studies and surveys conducted by market research firms show that a larger proportion of corporations than previously will increase their information technology spending over the coming quarters, a trend which is good news for systems integration and consulting practices. In addition, the outsourcing outlook both for information technology and business process services remains strong," said Mr. Godin. "We believe that CGI is well positioned to continue to benefit from these favourable trends and remain a clear winner in its markets."
Demand for systems integration and consulting services in North America is expected to grow by approximately 4% to 5% annually, according to industry analysts. Demand growth for IT and business process services outsourcing is projected to be stronger.
In a study commissioned by CGI, market research firm IDC in 2004 found that IT spending not yet outsourced by organizations amounts to US$60 billion a year in Canada, US$682 billion a year in the US and US$476 billion a year in Western Europe. Regarding business process services, IDC found that the annual spending not yet outsourced amounts to US$80 billion a year in Canada, US$1.5 trillion in the US and US$480 billion in Western Europe. This is one estimate of the market potential, a portion of which will be outsourced over the coming years.
CGI's 2006-2008 business plan reaffirms its successful four pillar growth strategy, with CGI a consolidator in its industry through a balance of organic and external growth. While CGI already has critical mass in its main geographies, it will continue to increase its presence through acquisitions in selected metro markets where it sees the greatest potential to drive organic growth.
Use of Non-GAAP Financial Information
CGI reports its financial results in accordance with GAAP. However, we also use certain non-GAAP performance measures which include: adjusted earnings before interest, income taxes, entity subject to significant influence and discontinued operations ("adjusted EBIT") and net earnings from continuing operations before amortization of finite-life intangibles ("cash net earnings").
Management believes that these non-GAAP measures provide useful information to investors regarding the Company's financial condition and results of operations as they provide additional measures of its performance. Adjusted EBIT provides information that can be used to evaluate the effectiveness of our business from an operational perspective, exclusive of the costs to finance our activities and exclusive of income taxes, neither of which are directly relevant to the operations. Cash net earnings provides better visibility of our ability to generate cash from our assets. Amortization of finite life intangibles is a non-cash item that relates mainly to the estimated value of internal software, business solutions and customer relationships gained through acquisitions and new outsourcing contracts.
These non-GAAP financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. They should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures with GAAP financial statements is provided in the MD&A which is posted on CGI's website at www.cgi.com, and filed with SEDAR and EDGAR.
Quarterly Conference Call
A conference call for the investment community will be held today, November 2, 2005, at 9:00 am (ET). Participants may access the call by dialing (888) 575-8232 or through the Internet at www.cgi.com. Supporting slides for the call will also be available at www.cgi.com. For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.cgi.com.
Forward-Looking Statements
All statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of that term in Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. These statements represent CGI Group Inc.'s intentions, plans, expectations, and beliefs, and are subject to risks, uncertainties, and other factors, of which many are beyond the control of the Company. These factors could cause actual results to differ materially from such forward-looking statements.
These factors include and are not restricted to the timing and size of contracts, acquisitions and other corporate developments; the ability to attract and retain qualified employees; market competition in the rapidly-evolving information technology industry; general economic and business conditions, foreign exchange and other risks identified in the Management's Discussion and Analysis (MD&A) in CGI Group Inc.'s Annual Report or Form 40-F filed with the SEC, the Company's Annual Information Form and in the Company's MD&A for the fourth quarter of 2005 filed with the Canadian securities authorities, as well as assumptions regarding the foregoing. The words "believe", "estimate", "expect", "intend", "anticipate", "foresee", "plan", and similar expressions and variations thereof, identify certain of such forward-looking statements, which speak only as of the date on which they are made. In particular, statements relating to future performance are forward-looking statements. CGI disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements.
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For more information:
CGI Investor Relations
Jane Watson
Vice-president, investor relations
(416) 945-3616 or (514) 841-3238
Ronald White
Director, investor relations
(514) 841-3230
CGI Media Relations
Eileen Murphy
Director, media Relations
(514) 841-3430
