CGI Inc. (GIBA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the CGI Annual General Meeting of Shareholders. I will now give the floor to Benoit Dubé, Executive Vice President, Legal and Economic Affairs and Corporate Secretary. The floor is yours, Mr. Dubé.

[Interpreted] Thank you. Good morning to you all. On behalf of the Board of Directors and management, I would like to welcome you to this Annual General Meeting of Shareholders. This year, in order to protect the health and safety of our shareholders, as well as that of all participants, our meeting will be held online via audio webcast. The meeting will be held in French and in English with simultaneous translation available. You can select the language of your choice under the webcast box located at the bottom left of your screen. The webcast platform enables all participants to attend the meeting virtually and allows shareholders to ask questions. In addition, registered shareholders and duly appointed proxy holders may vote during the formal portion of the meeting, if they have not already done so. Located in our press release of January 20, 2021, we will cover in this meeting the items of business on the agenda, followed by brief remarks by our executives. A review of the financial results of the company, as well as a discussion on our outlook, were presented earlier this morning by our CEO and CFO during a conference call that has been archived on our website. We encourage you to listen to it for more information about the company as we will not cover such topics in detail at this meeting. We would now like to draw your attention to the information on the screen. Our presentations and statements made during the meeting may be forward-looking and be subject to risks and uncertainties. Therefore, we recommend that you review and consider all relevant risk factors identified in our continuous disclosure documents and not place undue reliance on such statements. Since the meeting will take place virtually, we have established certain rules to ensure it runs smoothly. We remind you that only the persons whose names appeared in the register of shareholders at the close of business on Monday, December 7, 2020, our record date, and duly appointed proxy holders are entitled to vote at the meeting. Guests may attend the meeting but may not ask questions or vote. Please take note of the following in order to log in and record your vote. Registered shareholders must enter the 16-digit control number shown on their form of proxy. Proxy holders of nonregistered shareholders must enter the name of the designated person and the 8-digit designated person identification number that was provided to them. In both cases, when the time comes, you must click on the Vote Here button at the bottom right of your screen. It will be possible to vote at any time during the formal part of the meeting. You may therefore vote on each motion as it comes up or wait to vote on all motions after the last item on the agenda has been put to the vote. You will then have 1 minute to record your votes. You will be able to change your vote at any time up until the poll is closed. All votes entered by registered shareholders or duly appointed proxy holders at the meeting will be counted and added to those received by proxy. Shareholders and duly appointed proxy holders may submit questions at any time during the meeting by using the Ask A Question field located at the bottom left of your screen and then clicking Submit. When submitting a question, please provide your full name, and if applicable, any fund or person on whose behalf you are acting. We will address questions relating to specific items of business before the poll closes. Other relevant questions will be answered during the Q&A session following the adjournment of the formal business of the meeting. Any question that cannot be answered during the meeting will be posted online, along with the company's answer. I now invite Mr. Serge Godin, Founder and Executive Chairman of the Board, to open the meeting.

[Interpreted] Thank you, Benoit. Ladies and gentlemen, good morning. I would like to welcome everyone who is joining us today. We are very pleased to have you with us. Before I begin, I would like to introduce my colleagues who are joining us today: Julie Godin. Co-Chair of the Board, Executive Vice President, Strategic Planning and Corporate Development; George Schindler, President and Chief Executive Officer; François Boulanger, Executive Vice President and Chief Financial Officer; and Benoit Dubé. In accordance with the notice of meeting you received, we will deal with the following 4 items: one, the presentation of financial results for the year ended September 30, 2020; two, the election of directors; three, the appointment of the auditor; and four, the motion to adopt the resolution to amend the company bylaw. We will then have a shareholder present proposals. After which, we will end the meeting and invite questions from shareholders and proxy holders. Please note that I will act as Chair of the meeting, and Benoit Dubé will act as secretary. Benoit, have all notices and other relevant documents been sent to shareholders?

[Interpreted] Mr. Chairman, again, this year, the company made use of the Canadian notice-and-access rules for the delivery to shareholders of our management proxy circular, management's discussion and analysis, annual audited consolidated financial statements for the years ended September 30, 2020 and 2019, as well as other materials relating to the meeting. Instead of receiving paper copies of such documents, shareholders received the notice of Annual Meeting of Shareholders and notice of availability of meeting materials. This notice explains how to access the documents online, how to request a paper copy of such documents and presents the items of business for the meeting. Shareholders also received a voting instruction form or form of proxy. Broadridge, the service provider responsible for mailing our proxy materials, confirmed to the company that the materials relating to the meeting have been made available to shareholders entitled to vote. As secretary, I have placed a copy of the notice of meeting, the management proxy circular, the affidavit and other documents distributed in connection with this meeting in the meeting file.

[Interpreted] Thank you, Benoit. In accordance with Section 8 of the company's bylaw, I hereby appoint Leanne Branston and Rosemary Colakic of Broadridge to act as scrutineers for the meeting. I have been advised that based on the proxies received and on proxy holders and shareholders present on the webcast today, we have a quorum. I ask that the scrutineers please submit their report to the secretary as soon as it is ready so that it may then be placed in the meeting file. I also ask the secretary to place the minutes of the last General Meeting of Shareholders held on January 29, 2020, in the meeting file. The first item on the agenda is the presentation of the results for the fiscal year ended September 30, 2020, including the financial statements, auditor's report and management report. These documents were previously made available to shareholders through the notice-and-access procedures. In addition, a copy of these documents was sent to all shareholders who requested them. They are also available on cgi.com, as well as our webcast platform, under heading Meeting Documents -- Annual Report, and they have also been filed with the relevant regulatory authorities in Canada and the United States. Since you have had the opportunity to read them, I will ask the secretary to place these documents in the meeting file. The second item on the agenda is the election of directors. Before proceeding, I would like to acknowledge the contribution of Richard Evans, who has decided not to stand for reelection this year. On behalf of the Board of Directors and all of our members, I'd like to thank Dick warmly for his invaluable advice, counsel and leadership throughout the years, as well as for his remarkable contribution to CGI's success. I declare the nomination period now open. On the recommendation of the Corporate Governance Committee, the Board of Directors proposes that the following 16 nominees be elected as directors of the company. Our Board of Directors would, therefore, continue to be composed of a majority of independent directors. I am proud to introduce the nominees for election to our Board of Directors: Alain Bouchard, George Cope, Paule Doré, Julie Godin, Timothy Hearn, André Imbeau, Gilles Labbé, Michael Pedersen, Steve Poloz, Mary Powell, Alison Reed, Michael Roach, George Schindler, Kathy Waller, Joakim Westh and myself. Mary Powell and Steve Poloz are new nominees standing for election to our Board of Directors this year. Thank you both for your confidence. I request a motion for the nomination of these directors, please.

My name is [ Carla Lequile ], I am a CGI shareholder. I move that the 16 persons just mentioned by the Chair of the meeting be elected as directors of the company.

[Interpreted] Thank you, [ Madame Lequile ]. I would now ask for someone to second the motion, please.

My name is [ David Crandall ], and I am a CGI shareholder. I second the motion.

Thank you, [ Mr. Crandall ]. We are now ready to proceed to the vote. Please note that you are asked to vote for each of the 16 candidates proposed for election to our Board of Directors. [Voting]

[Interpreted] The appointment of the auditor is the next item on the agenda. The Board of Directors, on the recommendation of the Audit and Risk Management Committee, proposes that PricewaterhouseCoopers be reappointed as the company's auditor. I therefore request a motion for the appointment of the auditor, please.

My name is [ Andrew Leveque ], and I am a CGI shareholder. I propose that PricewaterhouseCoopers be appointed auditors of the company until the next Annual Meeting of Shareholders and that the Audit and Risk Management Committee be authorized to set their remuneration.

[Interpreted] Thank you, [ Mr. Leveque ]. I would now ask for someone to second the motion, please.

My name is [ Elias Rezaha ], and I'm a CGI shareholder. I second the motion.

Thank you, [ Mr. Rezaha ]. We are now ready to proceed to the vote. Please vote on the appointment of PricewaterhouseCoopers as CGI's auditor. [Voting]

The next item on the agenda is the adoption of a resolution approving CGI's amended and restated bylaw to allow meetings of shareholders to be held virtually. [Interpreted] The text of this resolution can be found in Appendix C of the management proxy circular. On December 8, 2020, the Board of Directors approved this amendment to the bylaw. I would ask for a motion to adopt the resolution, please.

My name is [ Carla Lequile ], and I am a CGI shareholder. I move the adoption of the resolution ratifying, confirming and approving the amended and restated bylaw set out in Appendix C of the management proxy circular.

[Interpreted] Thank you, [ Ms. Lequile ]. On to second the motion, please.

My name is [ Susan Balding ], and I am a CGI shareholder. I second the motion.

Thank you, [ Ms. Balding ]. I now invite you to vote on the adoption of the resolution, please. [Voting]

[Interpreted] Benoit, a question period will follow. But have we received any questions specifically regarding the agenda items at this time?

[Interpreted] Mr. Chair, I confirm that we have not received any questions regarding the agenda items.

[Interpreted] Thank you, Benoit. We have now covered all of the issues submitted to the formal part of the meeting. The poll on these items will close in 1 minute. If you have not already done so, please submit your vote now. We will now pause for 1 minute to allow you to vote on the resolutions, if you have not already done so. The poll is now closed. The scrutineers have confirmed the following preliminary results: all directors were elected with, on average, 98.4% of the votes cast; PricewaterhouseCoopers has been reappointed as auditor of the company with 99.87% of the votes cast; the resolution amending the bylaw has been approved with 99.37% of the votes cast. Therefore, all the resolutions have been approved. A report on the final results of the poll will be available on the SEDAR website, and a report on the final results of the election of directors will be published by press release. [Interpreted] The next item on the agenda concerns the motions submitted by MÉDAC. Four motions have been submitted and are set out in Appendix D of the management circular, along with the answers given by our Board of Directors. As indicated in the management circular, MÉDAC has agreed not to hold a vote on these motions. I would like to invite Mr. Willie Gagnon to come and make a short speech concerning the motions put forth by MÉDAC. The floor is yours, Mr. Gagnon.

Good morning, Mr. President -- Mr. Chair. Do you hear me well?

[Interpreted] Yes. Very well.

[Interpreted] Hello, my name is Willie Gagnon. I am here representing MÉDAC and representing the shareholders of the company. I've been here for 25 years, and we have been doing this for every company for which we are shareholders for the last 25 years, and CGI is one of those companies. We are very happy that CGI has integrated their reason for being in their company mandate. Is it -- as you can see on the Page 46 of the circular, we have a few examples also of this that have been done by other companies. For all these reasons, we have accepted not to require holding a vote on these motions since also CGI guaranteed our right to speak. And therefore, we did not decide to hold a vote on the virtual meetings and shareholders' rights on behalf of all shareholders. Also, there is the disclosure of results by class of shares, purpose and engagement, the advisory vote on compensation of senior executives. We have decided not to hold a vote. And with our consent, therefore, they will not be subject to a vote today. We have several companies who have not yet implemented these practices. But for CGI, we can put this behind us. As [ Mr. Michel ] was saying in Italian, "We would like to see this file closed." This may not be the year to do that, however, so thank you very much, Mr. Chair.

[Interpreted] Thank you very much, Mr. Gagnon. The formal part of our meeting has now ended, and I declare the shareholders' meeting closed. We are now pleased to share with you some observations on our last fiscal year, our results and our outlook for the future. Fiscal 2020 has been a unique year. The pandemic has had a devastating impact on public health with a ripple effect on economies around the world. Nothing in our 44-year history has had such far-reaching impact on our people, our clients and our operations. In the immediate aftermath of the pandemic declaration, we focused on the health of our consultants and professionals who rapidly pivoted to work remotely from home and quickly mobilize to ensure continuity of services to clients in a flexible and reliable manner. We would like to sincerely thank all of our clients for their trust and relentless support during this pandemic which we all hope will be over soon. We would also like to pay tribute to all of our CGI members for having been very prudent while continuing to be fully dedicated to their clients during this difficult time. Before we go to today's question, I would invite George to discuss the operational highlights of fiscal year 2020 and the first quarter of 2021; François, to review the annual and quarterly financial results; and Julie to provide our perspective on CGI's future and perenniality. Turning now to our CEO, George.

Thank you, Serge. As for CGI operations, inspired from lessons learned through past difficult times, all CGI teams around the world and right from the beginning of the crisis committed to managing our company with the end in mind to be stronger post pandemic. Unfortunately, we had to proceed with temporary layoffs in some countries. Local governments in such countries contributed in compensating at different degrees the affected consultants and professionals for their lost income. We were very touched when the majority of our leadership team around the world, including all of our Board of Directors, voluntarily agreed to a significant reduction of their compensation to help offset the furlough impact to our members. Over the past year, with more intensity over the last few months, we continued to deliver mission-critical technology and business process services to clients around the world and are helping them to reexamine their business value chains and ecosystems to accelerate digitization, achieve immediate cost savings and drive revenue growth. Understanding that clients are moving forward at various paces, we developed a comprehensive business approach to help them respond to unprecedented challenges, rebound effectively and reinvent new ways of working. In parallel, the pandemic gave us the opportunity to reflect on our company's resilience. Our annual results remain strong, especially when excluding slightly lower revenue and costs related to COVID-19. Such quality results already demonstrate a high degree of resilience. This is thanks to our proximity-based model, which embeds operations within clients' metro markets, a balanced revenue mix by economic sector at the company level and a good equilibrium between managed IT and IP-based services and project revenue. We are confident that CGI is positioned to be stronger post pandemic, and our strategic aspiration remains to double the size of the company over the next 5 to 7 years for the benefit of all our stakeholders. This morning, we announced that CGI started fiscal 2021 with strong results as our operational discipline and quality client delivery contributed to earnings growth. Our business pipeline continues to improve with bookings up 24% year-over-year. Our ability to offer relevant, timely and actionable insights to our clients, combined with our strong cash generation, will continue to drive profitable growth. Now our CFO, François, will present our annual financial performance for 2020 as well as highlights from the first quarter of 2021. François?

Thank you, George. For fiscal year 2020, revenue was $12.2 billion. On a constant currency basis, revenue was stable year-over-year. Bookings for the year totaled $11.8 billion or 97% of revenues. Our global backlog remained healthy at 1.9x revenue or $22.7 billion, the vast majority of which is comprised of long-term managed services engagements. Adjusted EBIT was $1.9 billion, representing a margin of 15.3% for the full fiscal year 2020, up 20 basis points from the previous year. And earnings were $1.1 billion for a margin of 9.2%, and diluted earnings per share were $4.20. When excluding acquisition, integration and restructuring-related expenses, net earnings for the year totaled $1.3 billion; and earnings per share were $4.89, $0.19 higher than last year, representing growth of 4%. For the full year, operating cash flows were $1.9 billion or 15.9% of revenues, an improvement of $305 million versus $1.6 billion last year. Throughout fiscal 2020, we made a number of accretive investments, $315 million back into our business, $267 million in acquisitions, and we invested $1 billion repurchasing 10.6 million CGI shares. As George mentioned, we announced this morning our first quarter fiscal 2021 results: revenue of $3 billion; adjusted EBIT of $496 million; and margin of 16.4%, up 19 basis points year-over-year; net earnings of $344 million, up 18.4% for a margin of 11.4%; diluted EPS of $1.32, up 24.5%; net earnings, excluding specific items, of $347 million; and diluted EPS of $1.33; cash provided by operating activities of $597 million, up 28%; and bookings of $3.4 billion or a book to bill of 112.5%. Looking ahead, we plan to utilize our strong cash position to drive growth in our business. I will now turn it over to our Co-Chair, Julie, to provide our perspective on CGI futures and perenniality. Julie?

Thank you, François. One thing is certain as we look ahead: Technology is core to how our clients create value for their customers and shareholders. As one of the few firms with the scale, reach, capabilities and commitment to be a partner of choice for clients, both locally and globally, we remain committed to executing our growth strategy while always seeking the best equilibrium for our 3 stakeholders: our clients, our consultants and professionals whom we call members, and obviously, you, our shareholders, all while embracing and supporting our communities. Maintaining this balance of interest is not only key to our resilience but also to our perenniality. On the topic of our communities, over the last year, we teamed with many local organizations across the globe to do our part in reducing the negative impact of the pandemic from advanced automation projects that help expedite patient care to volunteer activities that supported our community Today, I wanted to highlight one partnership that I am particularly proud of. 10 months ago, we supported the Montreal Heart Institute's COLCORONA clinical trial for the medication, colchicine. Last weekend, the institute announced a major scientific discovery following those trials, demonstrating that colchicine can reduce death by 44% and hospitalizations by 25%. This makes colchicine the world's first oral drug that could be used to treat nonhospitalized patients with COVID-19. CGI teams worked tirelessly to quickly build the digital onboarding and monitoring platform that help individuals securely register for this clinical study, a study that now will have significant positive impact on public health and reduce the suffering of millions of COVID-19 patients. Congratulations once again to the Montreal Heart Institute. As George mentioned, our leadership team spent time this year discussing and reflecting on CGI's resilience. Despite the challenges posed by the pandemic, we saw that our proven history, the way the company was designed and how we have continuously adapted over the years has strengthened CGI. Most importantly, we continue to see that our culture is at the heart of our resilience. It is our culture in action that makes the difference; our talented consultants and professionals around the world who are guided by our dream, driven by our vision, committed to our mission,and live by our values every day. We firmly believe that the best way to safeguard the long-term success of CGI is by remaining true to our culture and enabling it through ownership. When employees are owners, they have the right and responsibility to help shape the company, and they feel the accountability for delivering value for all stakeholders. Our performance in 2020 demonstrates this belief. So today, we can confidently say that CGI is stronger than ever. We are truly built to grow and last now and in the future. As I turn it over to Serge for your questions, we would like to sincerely thank all of you, our fellow shareholders, for your unwavering support and trust over the years. Rest assured that we will continue to make CGI one of the best business in IT consulting services companies in the world. Serge?

[Interpreted] Let us move on now to the question period. [Audio Gap] submit a question using the Ask a Question field located at the bottom left of the screen and clicking Submit. [Interpreted] Please note that questions may be asked in either English or French. I will read them in the language in which they were submitted. I will read the questions aloud and may answer them directly or direct them to a colleague. So we do have a first question. And after significant by share buybacks in 2020, can debt repayment apparently quite manageable through 2024? What consideration has been given to introducing paying a dividend? George, would you please answer that question?

Yes. Thank you, Serge, and thank you for the question. When we look at our cash allocation priorities, we like to start with the end in mind and here is how do we best get stock price appreciation. And based on historical analysis, our stock price appreciation is highly correlated to our earnings per share appreciation. So with that in mind, we look at where are the uses of our cash that would be most accretive to our earnings per share accretion. And when we look at that, we've done that analysis as well, investing in our own business through things like intellectual property and client contracts, that's the most accretive use of our cash for EPS accretion. Next is accretive acquisitions, and we're very disciplined on that. And after that, assuming we don't have debt payback, it is stock buyback. Now we believe dividends is an important way to potentially return shareholder value in the future. But given the opportunity in front of us and the higher EPS accretion and therefore higher stock appreciation, that's the analysis we just completed in coordination with the Board of Directors. Thank you for the question.

Thank you, George. I have a second question. I'll ask François to answer that. Will the success you have demonstrated in having team members work from home remotely resulted in material changes to how CGI conducts business post pandemic, including cost savings from less business travel and reduced office space rental to drive lower operating expenses? And can you quantify the amount of these recurring savings? François?

Yes. So thank you for the question. I'll start with the end, on the savings. As I indicated this morning, the -- if you're taking the EBIT margin, the EBIT margin did increase from 15.5% to last year to 16.4% this year, so 90 basis points increases in the EBIT. And like I was indicating, a portion of it is due to these lower discretionary expenses. Some of it is also because of the restructuring we did, but a part of it is based on these expenses that went down. For sure, we will do as much as possible, keeping these savings for the future. With technology -- with using more of the technology, we are -- we will be capable to find ways to reduce the travel on a recurring basis. But at the same time, we will follow our clients. And it's -- we still feel it's important that we are working together, that we're a strong believer that working -- the team needs to -- also needs to be saying that we need to work face-to-face. So while we will try to keep as much as possible all of these savings, for sure, some of it will be reinvested on to -- on the client development side.

[Interpreted] Thank you, François. I think -- I hope that answers the question. [Interpreted] I now have a question in French. It comes from Mr. Willie Gagnon from MÉDAC. Is CGI watching the content in their servers, if so, blocking content that goes against the law? So this is the law on the businesses and digital content. So we look into our role in our democratic society, and what is our role in the future. So I will answer this question. The answer is yes. We constantly monitor what's in our servers. And this being said, we are not a company that works in, let's -- shall I say, social media. So as far as that goes, we serve our clients' companies. So what the servers contain is information that is related to those companies, that is of mostly financial nature, of course, and identification information as well. So we are always monitoring it with all of the necessary tools to make sure of the veracity and quality of the information. We do subscribe to all of what you call the rules that were initiated in Europe that are called the GDPR rules or GDPR rules. So now I would like to thank you as members and shareholders to have tried to hit the Zero Net (sic) [ Net Zero ] objective by 2030 like you mentioned this morning. Can you please tell us about what are the measures that are put in place to reach that objective? Well, François, this is among your responsibilities. So could you please tell us a bit about that?

Yes. Thank you, and thank you for the question. We have a working team that we set up representing all our regions worldwide. And for the past year, since that team has been in place, they have worked on developing a strategy for, among other things, climate change to reduce our carbon emissions, for example. And as a company, as a corporation, we made the decision to set 2030 as our zero carbon Net Zero -- net date. So those are -- the working team is working on plans for our processing centers and everything, of course, like we were talking about this morning, in terms of travel, traveling internationally, how we can reduce that travel and therefore reduce our ecological footprint for our business offices as well. So these are the things that we're working on in the coming years to be able to reach our Net Zero objective for carbon emissions in 2030.

[Interpreted] Thank you François. I see that there are no further questions, so the question period is therefore now over. I wish to thank the members of our Board of Directors for their thoughtful advice and wise counsel throughout the year. [Interpreted] I also would like to thank our clients and our members and shareholders for their support and the trust that they continue to show us. Thank you so much for having been here. But as you know, in the past, and this has become a tradition, we have always invited you for a snack after the meeting. So obviously, that's not possible to do that this year. So we decided to nourish your mind instead. So that's why we would like to show you a short video on our brand image that we recently renewed. So I wish you an excellent end of the day and look forward to seeing you again. And once again, thank you so much for your trust. [Presentation] [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]