Read more about our Q2 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 second quarter ended March 31, 2005. All figures are in Canadian dollars unless otherwise indicated.
Second Quarter Fiscal 2005 Highlights
- Revenue of $929.7 million was 29.9% higher than in the second quarter of fiscal 2004.
- Net earnings from continuing operations were 17.1% ahead of a year ago, at $53.6 million. Before the expensing of stock options, they were $57.5 million.
- Net earnings from continuing operations before the amortization of intangible assets was up 31.7%, reflecting the successful integration of AMS.
- The net earnings from continuing operations margin was 5.8%, ahead of 5.6% reported in the first quarter.
- Basic and diluted earnings per share from continuing operations were $0.12, based on a 10.0% greater weighted average number of shares outstanding than a year ago, when earnings per share were $0.11. Before the expensing of stock options, they were $0.13 per share.
- Cash provided by continuing operating activities was $77.9 million compared with $70.8 million a year ago.
- During the second quarter, CGI bought back 6,866,000 Class A subordinate shares, for a total consideration of $54.4 million, of which $49.6 million was disbursed in the quarter.
- CGI reduced long-term debt by $104.0 million, to $340.3 million, for a long-term debt-to-capitalization ratio of 12.0%. The Company's cash position was $142.9 million and its total credit facilities available were $729.2 million.
- At March 31, 2005, the backlog of signed contracts was $12.9 billion with a weighted average remaining contract term of 7.0 years.
"In the second quarter, we continued to achieve solid year-over-year revenue and earnings growth, and to generate healthy cash flow," said Serge Godin, chairman and CEO. "We have achieved the earnings per share accretiveness we sought from the integration of AMS, and now have a strengthened platform for achieving internal growth. Revenue ramped up as the quarter progressed and proposal activity for new contracts remained strong. We continue to apply our four pillars of growth strategy, with discipline, as this approach has proven that it delivers results."
FINANCIAL HIGHLIGHTS
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Second Quarter Results (See also: Q2 MD&A filed with Sedar & Edgar and available at www.cgi.com)
Revenue for the second quarter ended March 31, 2005 increased 29.9% to $929.7 million, from $715.5 million in the same quarter last year, and was 1.2% lower than the first quarter revenue of $941.0 million. The currency exchange rate, mainly between the Canadian and US dollars, had a negative impact of $24.6 million or 3.4% on revenue, compared with the previous year. Year-over-year, external growth reflecting the acquisition of American Management Systems in May 2004 was 33.7% while organic revenue was unchanged. Compared with the first quarter, external revenue was virtually unchanged while organic revenue was 2.0% lower, reflecting primarily an $18.7 million one-quarter shift in revenue from a large contract.
In the second quarter, revenue from long-term outsourcing contracts represented 53% of the Company's total revenue, including 41% from IT services and 12% from business process services, while project oriented consulting and systems integration work represented 47%. Geographically, clients in Canada represented 61% of revenue; clients in the US represented 31%; and in all other regions, 8%. Revenue from clients in the financial services sector represented 37% of total revenue; while government and healthcare represented 30%; telecommunications and utilities, 22%; retail and distribution, 6%; and manufacturing, 5%.
Earnings before interest, income taxes, entity subject to significant influence and discontinued operations ("adjusted EBIT" which is the same as "EBIT" reported in previous quarters) were $80.4 million in the second quarter, up 5.1% over last year's second quarter adjusted EBIT of $76.4 million, but 6.7% below first quarter adjusted EBIT of $86.2 million. The adjusted EBIT margin was 8.6% for the quarter, compared with 10.7% in last year's second quarter and 9.2% in the first quarter. On a year-over-year basis, the adjusted EBIT margin was largely impacted by the non-recurrence of a license sale which was completed last year and our temporary lower utilization rate tied to the contract noted above.
Net earnings from continuing operations in the second quarter increased 17.1% to $53.6 million or $0.12 per share from net earnings from continuing operations of $45.8 million or $0.11 per share in the same period of 2004, and increased from net earnings from continuing operations of $53.1 million or $0.12 per share in the first quarter of fiscal 2005. All per share data is on a basic and diluted basis, and there were 10.0% more average weighted shares outstanding than a year ago. The net earnings from continuing operations margin was 5.8% in the second quarter of 2005, higher than 5.6% in the previous quarter. For comparative purposes, under US GAAP CGI's net earnings from continuing operations was $0.13 per share in the second quarter and its net earnings from continuing operations margin was 6.2%.
Net earnings from continuing operations before the amortization of intangibles were $74.6 million in the second quarter of fiscal 2005, or 31.7% higher than the $56.6 million achieved in the same quarter a year ago and compared with $72.9 million in the previous quarter. 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 the operational effectiveness of the integration of acquisitions, notably, this year, AMS.
Net earnings including discontinued operations were $49.6 million ($0.11 per share) in the second quarter of 2005, compared with $45.6 million ($0.11 per share) a year ago and $53.3 million ($0.12 per share) in the previous quarter. During the quarter, as previously announced, CGI sold certain business process services assets.
The Company maintains a strong balance sheet. At March 31, 2005, cash and cash equivalents were $142.9 million, and the debt to capitalization ratio was 12.0%. Cash and cash equivalents during the quarter were reduced by $86.6 million after paying down $104 million of long-term debt, to $340.3 million, and buying back $54.5 million of Class A shares on the open market under the normal course issuer bid program. At quarter end, total credit facilities available amounted to $729.2 million.
Cash provided by continuing operating activities was $77.9 million in the second quarter of fiscal 2005, which compares with $70.8 million a year ago and $102.6 million in the previous quarter.
Days sales outstanding (DSOs) were reduced to 48 days at March 31, 2005, from 50 days in the previous quarter, mainly reflecting improved collection of our client receivables. In calculating DSOs, CGI subtracts the deferred revenue balance and the tax credits receivable from the accounts receivable and work in progress.
Share Buy Back Activity
Under the terms of the normal course issuer bid announced February 1, 2005, during the second quarter CGI bought back 6,866,000 Class A subordinate shares at an average price of $7.91, for a total consideration of $54.5 million, of which CGI paid $49.6 million in the quarter. 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.
Six Month Results
Revenue for the first six months of fiscal 2005 totaled $1,870.7 million, up 34.0% from revenue of $1,396.2 million reported in the same period a year ago. Net earnings from continuing operations totaled $106.7 million compared with $88.6 million a year ago. Basic and diluted earnings per share from continuing operations were $0.24, compared with $0.22 in the previous year adjusted to reflect the expensing of stock options. Cash provided by continuing operating activities was $180.5 million, compared with $163.8 million a year ago. For comparative purposes, under US GAAP CGI's net earnings from continuing operations were $0.26 per share in the first six months of fiscal 2005.
Guidance
CGI confirms the revenue and earnings guidance it previously provided for 2005, after adjusting revenue guidance to reflect the previously announced divestiture of operations and assets, with revenue of $50 million on an annualized basis. This represents revenue guidance now ranging between $3.85 billion and $4.10 billion, with no change to net earnings guidance of $0.52 to $0.56 per share. This outlook is based on the assumption that market conditions remain the same and that we will not experience delays in signing large outsourcing contracts.
Second Quarter Operating Highlights
During the quarter, CGI announced various contract signings, investments and operational initiatives. The Company:
- Secured contract bookings that included new contracts, extensions and renewals of $844.0 million.
- In the US, on January 18 announced that its AMS Advantage enterprise resource planning (ERP) solution had been selected by three additional governments: the State of Utah, San Bernardino County, California - the largest geographic county in the United States - and the City of Austin, Texas.
- Announced, on January 31, that the City of Dallas, Texas, Baltimore County and, Baltimore County Public Schools, will implement AMS Advantage® 3 to further streamline their business processes. AMS Advantage® 3 is a web-based Enterprise Resource Planning (ERP) suite specifically designed for governments and school systems.
- In Canada, on January 31 announced a renewal of its partnership with Yellow Pages Group Co., Canada's largest telephone directories publisher, for a seven-year contract.
- On March 10, CGI signed an asset sale agreement involving business process services with Open Solutions Inc. These pertained to CGI's US Services to Credit Unions business unit and its CyberSuite product line. Under the terms of the agreement, Open Solutions acquired these assets for approximately US$24 million in cash. The US Services to Credit Unions business unit reported revenue of approximately US$16 million.
- On March 8, CGI announced that it had entered into an agreement with Garda World for the sale of the principal assets of Keyfacts Enterprises Canada Inc. (Keyfacts), a wholly-owned business process services subsidiary of CGI, for a consideration of CDN$3.5 million. Additionally, CGI retained the working capital of Keyfacts valued at approximately CDN$4 million as at December 31, 2004. Keyfacts had total revenues of approximately CDN$16 million dollars. The sale was completed later in the quarter.
- On March 17, renewed, its partnership with the Canadian Payments Association (CPA), Canada's operator of clearing and settlement systems, for a ten-year contract valued at CDN$23 million.
Quarterly Conference Call
A conference call for the investment community will be held today, April 27, at 9:00 am (ET). Participants may access the call by dialing (877) 211-7911 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.
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 net earnings 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.
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 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
