CGI Group's CEO Discusses Q2 2012 Results - Earnings Call Transcript

CGI Group (GIB)

Q2 2012 Earnings Call

April 25, 2012 9:00 am ET

Executives

Lorne Gorber - Senior Vice-President of Global Communications & Investor Relations

R. David Anderson - Chief Financial Officer, Executive Vice President and Member of Disclosure Policy Committee

Michael E. Roach - Chief Executive Officer, President, Director and Member of Disclosure Policy Committee

Analysts

Tom Liston - Versant Partners Inc., Research Division

Thanos Moschopoulos - BMO Capital Markets Canada

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Richard Tse - Cormark Securities Inc., Research Division

Scott Penner - TD Securities Equity Research

Kris Thompson - National Bank Financial, Inc., Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Paul Treiber - RBC Capital Markets, LLC, Research Division

Maher Yaghi - Desjardins Securities Inc., Research Division

Michael Urlocker - GMP Securities L.P., Research Division

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the CGI Second Quarter 2012 Results Conference Call. I would now like to turn the meeting over to Mr. Lorne Gorber, Senior Vice President, Global Communications and Investor Relations. Please go ahead.

Lorne Gorber

Thank you, Jesse, and good morning. With me to discuss CGI's second quarter fiscal 2012 results are Michael Roach, our President and CEO; and David Anderson, Executive Vice President and CFO.

This call is being broadcast on cgi.com and recorded live at 9 a.m. on Wednesday, April 25, 2012.

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 are being filed with both SEDAR and EDGAR.

Please note that some statements made on the call may be 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 investors to read it in its entirety.

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 in Canadian dollars unless otherwise noted.

I'll turn the call over to David first to review the financial results for the second quarter, and then he'll pass it over to Mike, who will discuss operations and segment highlights before going to Q&A. David?

R. David Anderson

Thank you, Lorne, and good morning. I'm pleased to share the financial details of another good quarter. I'd like to remind you that this is our second quarter reporting under IFRS. Other than the adoption of the equity method of accounting for joint ventures, which I described last quarter, there were no other significant adjustments related to IFRS. In the second quarter, revenue was $1.07 billion, up 3.3% from Q1, the second sequential quarterly revenue increase this fiscal year. On a year-over-year basis, revenue was 4.1% or $45.9 million lower due to the previously disclosed items included in the year-ago period. These are, again, detailed in the MD&A. On a comparable basis, excluding these items, the year-over-year revenue growth was 3.4% or 2.6% on a constant currency basis. Adjusted EBIT was $156.4 million, and our EBIT margin improved by 110 basis points sequentially to 14.7%. Net earnings were $105.7 million, representing a net margin of 9.9% and diluted earnings per share of $0.40. For year-over-year comparison purposes, a favorable tax adjustment as well as other previously disclosed items have been removed from Q2 F2011. As a result, Q2 F2012 net earnings compares to $111.8 million or 10.1% in the year-ago period, and diluted earnings per share was $0.40.

Looking at the balance sheet, our DSO was 53 days in Q2 compared to the 43 days we posted for the year-ago quarter. The increase is due mainly to the impact and timing of milestone-based payments on some government projects. We generated $104.2 million of cash from operating activities compared with $192.4 million in the same period last year. Over the last 12 months, we have generated $533 million or $1.97 in cash per diluted share.

During the quarter, we booked $787 million in new contract wins, bringing the total bookings over the last 12 months to $5.1 billion for a book-to-bill of 124%. As usual, we continue to stress the importance of considering our performance on cash and bookings trends over a 12 -- sorry, over a trailing 12-month period. Including our current line of credit in place through fiscal 2016, we have approximately $1.3 billion in available liquidity plus an accordion feature of up to $750 million.

Our debt was reduced in the quarter by $77.3 million to a net debt of $795.3 million, representing a net debt-to-capitalization ratio of 24%. This compares to a peak of 31% following the Stanley acquisition in August 2010.

In the quarter, we acquired 1.6 million shares for $30 million at an average price of $19.30. Under the current NCIB program, which expires in February 2013, we can still purchase more than 21 million shares. At the end of Q2, our return on equity was 17.4%, while our return on invested capital was 12.5%. Now I'll turn the call over to Mike.

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