CGI Group Inc. has announced actions this morning intended to strengthen its
competitive position in the global marketplace. CGI will eliminate approximately
1,000 positions this year, primarily located in Montreal and Toronto, of which
more than half are related to lower than expected BCE work volumes. The
remaining headcount reduction stems from other adjustments to CGI’s cost base
and includes reductions in global and corporate functions. Five hundred of the
total headcount reductions will be effective immediately while the remainder
will be completed by the end of the year. Finally, the acceleration and
expansion of CGI’s Global Delivery Model will partially offset the headcount
reductions by creating some 400 new jobs throughout its network of Centres of
Excellence.
“This announcement is an advancement of our 2006 operations
plan to enhance our competitive position and cost advantages,” said President
and CEO, Michael E. Roach. “Spurred by lower than expected revenue and
associated margin pressures from BCE in our second quarter, we are taking
measures to reduce the overall cost structure and accelerate our strategy to
further leverage our global delivery, which favors a mix of nearshore options
with offshore capabilities.”
“Excluding lower than expected revenue from
BCE, our business is stable. We continue to aggressively pursue a robust funnel
of opportunities in each vertical,” added Roach. “Our financial situation
remains healthy, with the balance sheet and cash flows to support profitable
growth associated with our Buy and Build strategy. The successful implementation
of this plan will further strengthen our financial performance.”
CGI
revenue from BCE
CGI’s second quarter revenue from BCE is now expected
to be significantly lower than anticipated on a sequential basis, decreasing at
a rate necessitating an immediate workforce reduction. CGI’s revenue from BCE is
currently tracking slightly below the 2006 minimum guaranteed business levels on
an annualized run rate basis. However, the Company remains confident that, based
on the amending agreement pertaining to various existing commercial agreements
between the parties, revenue from BCE will ramp up towards the minimum
guaranteed business levels as the year progresses.
The amending
agreement pertaining to existing commercial contracts between BCE and CGI were
announced in December 2005 and extended CGI’s mandate with BCE from June 2012 to
June 2016. Highlights of the amending agreement include:
• CGI’s Q1
FY2006: guaranteed minimum business levels of $120 million.
• 2006:
guaranteed minimum business levels of $400 million - parties committed to
negotiate in good faith to identify and incorporate additional work. The
parties’ expectations are that this negotiation would generate additional work
and associated revenue for CGI.
• 2006: Beyond 100 positions, the parties
will share in severance costs, with BCE’s maximum contribution capped at $10
million.
• 2007 & 2008: guaranteed minimum business levels of $425
million.
• 2006-2008: Failure to meet the minimum business levels would
result in the payment by BCE to CGI of 13.25% of the shortfall.
• 2009-2016:
BCE and CGI will work cooperatively and in good faith with the objective of
maintaining CGI’s portion of BCE’s IT spend (as defined in the agreements) at
not less than 30% for each of these years.
• BCE to encourage use of CGI as
an IS/IT service provider for any acquired business.
Acceleration and
Expansion of CGI’s Global Delivery Model
The Company will accelerate the
expansion of its Global Delivery Model, creating some 400 new jobs throughout
its network of Centres of Excellence. This will include more than 200 jobs
related to the BCE account moving to Atlantic Canada, of which 150 positions
will be located at a new Centre of Excellence to be established in Prince Edward
Island.
The balance of the new positions unrelated to BCE will be
created in India, where CGI is currently constructing a new facility in
Bangalore with the capacity to double its current Indian workforce. In addition
to these announcements, the Company continues to implement a new Centre of
Excellence in Russell County, Virginia which will add 300 positions to support
U.S. clients.
Program to yield $90 million in incremental annual
savings
As part of the Company’s 2006 operational plan, a review of the
overall cost structure and competitive position was initiated. In light of the
aforementioned catalysts, a decision was made to accelerate the entire
operational plan. In addition, each business unit and global function, including
corporate, was re-examined at granular levels. This exercise allowed the Company
to further reduce its overhead and increase the overall utilization rate of its
workforce. As a result, $90 million in incremental annualized savings were
identified across the organization, including each of the initiatives noted
above.
A pre-tax provision for severance and other initiatives totaling
$90 million will be taken over the remainder of fiscal 2006, for which the
Company expects a one-year payback. This amount is net of BCE’s $10 million
contribution to severance payments as per the recently amending agreement
pertaining to existing commercial contracts between BCE and CGI.
Through
the implementation of these actions, the Company is attempting to continue
gradually improving its bottom line performance.
“Over CGI’s 30-year
history of growth, periodic adjustments to our cost base have been necessary to
prepare the foundation for the next steps of our evolution towards becoming a
global leader,” said Founder and Executive Chairman Serge Godin. “These measures
reinforce our ability to build the critical mass necessary to compete globally
and further contribute to maintaining CGI’s position as one of the industry’s
best performers.”
Supporting affected members
In keeping with
its values, CGI will continue attempting to redeploy affected employees.
Individuals currently occupying positions which will be eliminated will receive
financial assistance and be given access to outplacement services.
“I am
saddened that, unfortunately, some CGI members will lose their jobs and I wish
to thank them for their contribution to the Company. We will do our utmost to
support them through this difficult transition period,” concluded Roach.
Conference Call
A conference call to discuss today’s
announcement will be held this morning, March 29, 2006, at 10:00 am (ET).
Participants may access the call by dialing (866) 540-8136 or through the
Internet at www.cgi.com. For those unable to participate on the live call, the
webcast will be archived at www.cgi.com.
About CGI
Founded in
1976, CGI Group Inc. is the 8th largest independent information technology and
business process services firm in the world. CGI and its affiliated companies
employ approximately 25,000 professionals. CGI provides end-to-end IT and
business process services to clients worldwide from offices in Canada, the
United States of America (“US”), Europe, Asia Pacific as well as from centers of
excellence in Canada, the US, Europe and India. CGI's annualized revenue run
rate is currently CDN$3.6 billion (US$3.1 billion) and at December 31, 2005,
CGI's order backlog was CDN$12.9 billion (US$11.1 billion), or $14.0 billion
(US$12 billion) including the BCE contract extensions signed in January 2006.
CGI’s shares are listed on the TSX (GIB.SV.A) and the NYSE (GIB) and are
included in the S&P/TSX Composite Index as well as the S&P/TSX Capped
Information Technology and MidCap Indices.
CGI 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, and may be “forward-looking information”
within the meaning of sections 138.3 and following of the Ontario Securities
Act. These statements represent CGI Group Inc.’s current 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 or forward looking information. Investors are cautioned against
placing undue reliance on forward looking statements or forward looking
information.
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 2005 Annual Report or
2005 Form 40-F filed with the SEC, the Company’s 2005 Annual Information Form
and in the Company’s MD&A for the first quarter of fiscal 2006 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 or forward looking information, which
speak only as of the date on which they are made. In particular, statements
relating to future performance are forward-looking statements and may be forward
looking information. Except as required by law, CGI disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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CGI:
Investor relations
Lorne Gorber
Vice-president, investor relations
Lorne.gorber@cgi.com
(514)
841-3355
Media relations
Eileen Murphy
Director, media
relations
Eileen.murphy@cgi.com
(514) 841-3430
