Read more about our Q3 F2005 financial results (XLS)
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 third quarter ended June 30, 2005. All figures are in Canadian dollars unless otherwise indicated.
Third Quarter Fiscal 2005 Highlights
- Revenue was $951.2 million, 11.0% higher than in the third quarter of fiscal 2004 and 14.6% higher on a constant dollar basis. Revenue for the first nine months was 25.2% higher.
- Net earnings from continuing operations were 28.8% ahead of a year ago, at $56.6 million.
- Basic and diluted earnings per share from continuing operations increased 26.5% to $0.13, based on a 1.8% greater weighted average number of shares outstanding than a year ago when earnings per share were $0.10.
- Cash net earnings from continuing operations increased 25.4% to $77.3 million or $0.18 per share.
- The net earnings from continuing operations margin was 6.0%, up from 5.8% reported in the second quarter.
- Cash provided by continuing operating activities increased to $188.5 million, from $68.6 million a year ago. Year-to-date operating cash flow was $357.9 million.
- Contract bookings, including new contracts, extensions and renewals, totaled $1,025.0 million in the quarter. Bookings for the first nine months were $2,907.0 million, 24.6% ahead of a year ago.
- At June 30, 2005, the backlog of signed contracts was $12.9 billion with a weighted average remaining contract term of 6.9 years.
- During the third quarter, CGI bought back 3,036,900 Class A subordinate shares, for a total consideration of $21.4 million.
- Long-term debt was reduced by $90.0 million, to $258.2 million, resulting in a net debt to capitalization ratio of 1.8% and a long-term debt to capitalization ratio of 9.2%. At quarter end, the Company's cash position was $212.0 million and its total credit facilities available were $817.9 million.
"I am pleased to report that in the latest quarter we achieved strong revenue, earnings per share and cash flow from continuing operations, reflecting increased business in all three geographies - Canada, the US and Europe-Asia Pacific - and continuing improvement in operating efficiencies," said Serge Godin, chairman and CEO. "Third quarter growth in net earnings from continuing operations significantly outpaced revenue growth, at 28.8% and 11.0% respectively. We experienced good traction in winning new business, with contract bookings of $1,025.0 million. These results demonstrate effective team work within and between business units as we focus on delivering the best of CGI to each of our clients. Our strong cash flow enabled us to further strengthen our balance sheet, already among the strongest in the industry. We are well positioned operationally and financially to continue to achieve strong, profitable growth, by pursuing our four pillar growth strategy."
FINANCIAL HIGHLIGHTS
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Third Quarter Results (See also: Q3 MD&A filed with Sedar & Edgar and available at www.cgi.com).
Revenue for the third quarter ended June 30, 2005 increased 11.0% to $951.2 million, from $856.9 million in the same quarter last year. In constant dollars, revenue increased 14.6% to $981.8 million, before the effect of the currency exchange rate, mainly between the Canadian and US dollars, which reduced revenue by $30.6 million or 3.6%, compared with the previous year. Year-over-year, external growth was 10.0%, reflecting the acquisition of American Management Systems ("AMS") in May 2004, while organic revenue growth was 4.6%.
In the third quarter, revenue from long-term outsourcing contracts represented 55% of the Company's total revenue, including 42% from IT services and 13% from business process services ("BPS"), while project oriented consulting and systems integration work represented 45%. Geographically, clients in Canada represented 62% of revenue; clients in the US represented 31%; and in Europe and Asia Pacific, 7%. Revenue from clients in the financial services sector represented 34% of total revenue; while government and healthcare represented 29%; telecommunications and utilities, 23%; manufacturing, retail and distribution, 14%.
Earnings before interest, income taxes, entity subject to significant influence and discontinued operations ("adjusted EBIT") were $90.2 million in the third quarter, up 17.8% over last year's third quarter adjusted EBIT of $76.6 million. The adjusted EBIT margin was 9.5% for the quarter, compared with 8.9% in last year's third quarter.
Net earnings from continuing operations in the third quarter increased 28.8% to $56.6 million or $0.13 per share from net earnings from continuing operations of $44.0 million or $0.10 per share in the same period of 2004. For the quarter, the expensing of stock options represented $0.01 per share. All per share data is on a basic and diluted basis, and there were 1.8% more average weighted shares outstanding than a year ago. The net earnings from continuing operations margin increased to 6.0% in the third quarter, from 5.8% in the previous quarter. For comparative purposes, under US GAAP CGI's net earnings from continuing operations were $0.14 per share in the third quarter and its net earnings from continuing operations margin was 6.5%.
Cash net earnings from continuing operations, which are before the amortization of intangibles, were $77.3 million in the third quarter of fiscal 2005, 25.4% higher than the $61.6 million achieved in the same quarter a year ago. Cash net earnings per share were $0.18 in the third quarter, compared with $0.14 a year ago. Amortization of intangibles is a non-cash item that 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 from our assets.
Net earnings including discontinued operations were $57.8 million ($0.13 per share) in the third quarter of 2005, compared with $53.0 million ($0.12 per share) a year ago.
Cash provided by continuing operating activities increased significantly in the third quarter, to $188.5 million from $68.6 million a year ago. For the first nine months, operating cash flow was $357.9 million.
The Company maintains a strong balance sheet. At June 30, 2005, cash and cash equivalents were $212.0 million. Cash and cash equivalents during the quarter were after disbursements of $90.0 million to further reduce debt and $26.4 million to buy back Class A shares on the open market under the normal course issuer bid program (including $4.8 million to settle second quarter share purchases that closed in the third quarter). At quarter end, total credit facilities available amounted to $817.9 million.
During the first nine months of fiscal 2005, the company repaid $207.6 million of debt, bought back shares totaling $75.8 million under the normal course issuer bid program, and disbursed a total of $35.7 million for a number of one-time items related to the AMS acquisition.
"During this fiscal year, we have paid back most of the debt incurred to acquire AMS and achieved a balance sheet that is stronger than prior to the AMS acquisition. Our strong cash generation capabilities have made this possible and validate our ability to successfully execute our growth strategy," said Mr. Godin.
Days sales outstanding (DSOs) were reduced to 46 days at June 30, 2005, from 61 days in the same quarter one year ago.
Share Buy Back Activity
Under the terms of the normal course issuer bid announced February 1, 2005, during the third quarter CGI bought back 3,036,900 Class A subordinate shares at an average market price of $7.01 plus commission, for an aggregate consideration of $21.4 million. 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. Since the launch of the program, CGI acquired a total of 9,902,900 Class A shares, for a total consideration of $75.8 million.
Nine Month Results
Revenue for the first nine months of fiscal 2005 total $2,821.9 million, up 25.2% from revenue of $2,253.0 million reported in the same period a year ago. Internal growth over the same period of last year was 3.6%, while external growth was 25.1%, partially offset by the 3.5% impact of foreign currency fluctuations. Total bookings were $2,907.0 million, 24.6% more than bookings of $2,333.0 million achieved in the first three quarters of fiscal 2004.
Net earnings from continuing operations totaled $163.3 million compared with $132.5 million a year ago. Basic and diluted earnings per share from continuing operations were $0.37, compared with $0.32 in the previous year adjusted to reflect the expensing of stock options. Cash net earnings were $224.5 million or $0.51 per share, compared with $173.9 million or $0.42 per share in the first nine months of fiscal 2004. Cash provided by continuing operating activities was $357.9 million, compared with $232.4 million a year ago. For comparative purposes, under US GAAP CGI's net earnings from continuing operations were $0.40 per share in the first nine months of fiscal 2005.
Third Quarter Operating Highlights
During the quarter, CGI announced various strategic contracts, investments and operational initiatives. The Company secured bookings that included new contracts, extensions and renewals of $1,025.0 million. Contracts that we announced included:
- In the US, on May 25, the extension of our relationship with Los Angeles County, the largest county in the US, via a five-year US$33 million renewal and upgrade contract for the Advantage 3? financial management solution. This supplemented a previous agreement, which included the implementation of the County's core financial system. Los Angeles County has been a CGI-AMS client since 1986.
- On June 1, a two-year contract renewal to administer multi-family housing contracts throughout the state of Ohio for the US Department of Housing and Urban Development (HUD). The two-year renewal is valued at over US $22 million.
- On June 13, the selection of AMS Advantage 3? by the Commonwealth of Kentucky, adding another state government to a growing list of public sector clients implementing this market leading Enterprise Resource Planning solution.
- On June 29, the signing of a US$14.5 million contract with the Centers for Medicare & Medicaid Services (CMS) to be the prime contractor to develop and support its Payment Reconciliation System (PRS). CMS is the federal agency within the U.S. Department of Health and Human Services (HHS) responsible for the Medicare, Medicaid and the State Children's Health Insurance Program (SCHIP) programs.
- In Canada, on June 6, the signing of a 10-year, end-to-end IT (information technology) outsourcing contract with Uni-Select Inc., a leading distributor of aftermarket auto parts in North America, valued at $35 million. As part of the contract, CGI will manage all infrastructure support, applications support and special IT projects.
- On June 30, we signed a US$166 million contract with John Hancock that was effective July 1, 2005. We will be responsible for infrastructure management services including mainframe and mid-range equipment, data storage and recovery, document management as well as professional services to transform the delivery platforms.
Fiscal 2005 Guidance
CGI expects to achieve approximately 17% growth in revenue and net earnings from continuing operations in fiscal 2005. This represents a slight decrease from previous guidance, due to the timing of the closing of new large outsourcing contracts and to the timing of the revenue ramp up of recently announced outsourcing contracts. This guidance assumes that market conditions will remain the same and is based on current foreign exchange rates.
Use of Canadian Non-GAAP Financial Information
CGI reports its financial results in accordance with Canadian generally accepted accounting principles (GAAP). However, in order to allow investors to compare CGI's performance with that of its North American peers, this press release also includes certain non-GAAP financial measures which do not have any standardized meaning prescribed by Canadian GAAP but which management believes are useful in evaluating CGI's operations. These non-GAAP financial measures are unlikely to be comparable to similar measures presented by other issuers and should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.
Non-GAAP measures in this release include earnings before interest, income taxes, entity subject to significant influence and discontinued operations (adjusted EBIT); and cash net earnings from continuing operations, which are net earnings from continuing operations before amortization of intangibles.
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, July 27, at 9:00 am (ET). Participants may access the call by dialing (877) 783-7570 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 third 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 growth 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
