Fiscal 2020
results
Contents
1
Management’s Discussion and Analysis
67 Management’s and Auditors’ Reports
71
Consolidated Financial Statements
134 Shareholder Information
Management’s Discussion and Analysis
November 11, 2020
Basis of Presentation
This Management’s Discussion and Analysis of the Financial Position and Results of Operations (MD&A) is the responsibility
of management and has been reviewed and approved by the Board of Directors. This MD&A has been prepared in accordance
with the requirements of the Canadian Securities Administrators. The Board of Directors is ultimately responsible for reviewing
and approving the MD&A. The Board of Directors carries out this responsibility mainly through its Audit and Risk Management
Committee, which is appointed by the Board of Directors and is comprised entirely of independent and financially literate
directors.
Throughout this document, CGI Inc. is referred to as “CGI”, “we”, “our” or “Company”. This MD&A provides information
management believes is relevant to an assessment and understanding of the consolidated results of operations and financial
condition of the Company. This document should be read in conjunction with the audited consolidated financial statements
and the notes thereto for the years ended September 30, 2020 and 2019. CGI’s accounting policies are in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). All
dollar amounts are in Canadian dollars unless otherwise noted.
Materiality of Disclosures
This MD&A includes information we believe is material to investors. We consider something to be material if it results in, or
would reasonably be expected to result in, a significant change in the market price or value of our shares, or if it is likely that
a reasonable investor would consider the information to be important in making an investment decision.
Forward-Looking Statements
This MD&A contains “forward-looking information” within the meaning of Canadian securities laws and “forward-looking
statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other applicable
United States safe harbours. All such forward-looking information and statements are made and disclosed in reliance upon
the safe harbour provisions of applicable Canadian and United States securities laws. Forward-looking information and
statements include all information and statements regarding CGI’s intentions, plans, expectations, beliefs, objectives, future
performance, and strategy, as well as any other information or statements that relate to future events or circumstances and
which do not directly and exclusively relate to historical facts. Forward-looking information and statements often but not always
use words such as “believe”, “estimate”, “expect”, “intend”, “anticipate”, “foresee”, “plan”, “predict”, “project”, “aim”, “seek”,
“strive”, “potential”, “continue”, “target”, “may”, “might”, “could”, “should”, and similar expressions and variations thereof. These
information and statements are based on our perception of historic trends, current conditions and expected future
developments, as well as other assumptions, both general and specific, that we believe are appropriate in the circumstances.
Such information and statements are, however, by their very nature, subject to inherent risks and uncertainties, of which many
are beyond the control of the Company, and which give rise to the possibility that actual results could differ materially from
our expectations expressed in, or implied by, such forward-looking information or forward-looking statements. These risks and
uncertainties include but are not restricted to: risks related to the market such as the level of business activity of our clients,
which is affected by economic and political conditions, external risks (such as pandemics) and our ability to negotiate new
contracts; risks related to our industry such as competition and our ability to attract and retain qualified employees, to develop
and expand our services, to penetrate new markets, and to protect our intellectual property rights; risks related to our business
such as risks associated with our growth strategy, including the integration of new operations, financial and operational risks
inherent in worldwide operations, foreign exchange risks, income tax laws, our ability to negotiate favourable contractual terms,
to deliver our services and to collect receivables, and the reputational and financial risks attendant to cybersecurity breaches
and other incidents; as well as other risks identified or incorporated by reference in this MD&A and in other documents that
we make public, including our filings with the Canadian Securities Administrators (on SEDAR at www.sedar.com) and the U.S.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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FISCAL 2020 RESULTS — 1 ManageMent's Discussion anD analysis
Securities and Exchange Commission (on EDGAR at www.sec.gov). For a discussion of risks in response to the coronavirus
(COVID-19) pandemic, see Pandemic Risks in section 10.1.1. of the present document. Unless otherwise stated, the forward-
looking information and statements contained in this MD&A are made as of the date hereof and CGI disclaims any intention
or obligation to publicly update or revise any forward-looking information or forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by applicable law. While we believe that our assumptions
on which these forward-looking information and forward-looking statements are based were reasonable as at the date of this
MD&A, readers are cautioned not to place undue reliance on these forward-looking information or statements. Furthermore,
readers are reminded that forward-looking information and statements are presented for the sole purpose of assisting investors
and others in understanding our objectives, strategic priorities and business outlook as well as our anticipated operating
environment. Readers are cautioned that such information may not be appropriate for other purposes. Further information on
the risks that could cause our actual results to differ significantly from our current expectations may be found in section 10 -
Risk Environment, which is incorporated by reference in this cautionary statement. We also caution readers that the risks
described in the previously mentioned section and in other sections of this MD&A are not the only ones that could affect us.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a
material adverse effect on our financial position, financial performance, cash flows, business or reputation.
Non-GAAP and Key Performance Measures
The reader should note that the Company reports its financial results in accordance with IFRS. However, we use a combination
of financial measures, ratios, and non-GAAP measures to assess the Company’s performance. The non-GAAP measures
used in this MD&A do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable
to similar measures presented by other issuers. These measures should be considered as supplemental in nature and not as
a substitute for the related financial information prepared in accordance with IFRS.
The table below summarizes our non-GAAP measures and most relevant key performance measures:
Profitability
• Adjusted EBIT (non-GAAP) – is a measure of earnings excluding acquisition-related and integration
costs, restructuring costs, net finance costs and income tax expense. Management believes this measure
is useful to investors as it best reflects the performance of its activities and allows for better comparability
from period to period as well as to trend analysis. A reconciliation of the adjusted EBIT to its closest IFRS
measure can be found in section 3.7. of the present document.
• Adjusted EBIT margin (non-GAAP) – is obtained by dividing our adjusted EBIT by our revenues.
Management believes this measure is useful to investors as it best reflects the performance of its activities
and allows for better comparability from period to period as well as to trend analysis. A reconciliation of
the adjusted EBIT to its closest IFRS measure can be found in section 3.7. of the present document.
• Net earnings – is a measure of earnings generated for shareholders.
• Net earnings margin (non-GAAP) – is obtained by dividing our net earnings by our revenues. Management
believes a percentage of revenue measure is meaningful for better comparability from period to period.
• Diluted earnings per share (diluted EPS) – is a measure of earnings generated for shareholders on a
per share basis, assuming all dilutive elements are exercised.
• Net earnings excluding specific items (non-GAAP) – is a measure of net earnings excluding acquisition-
related and integration costs, restructuring costs and tax adjustments. Management believes this
measure is useful to investors as it best reflects the Company's performance and allows for better
comparability from period to period. A reconciliation of the net earnings excluding specific items to its
closest IFRS measure can be found in section 3.8.3. of the present document.
• Net earnings margin excluding specific items (non-GAAP) – is obtained by dividing our net earnings
excluding specific items by our revenues. Management believes this measure is useful to investors as
it best reflects the Company's performance and allows for better comparability from period to period. A
reconciliation of the net earnings excluding specific items to its closest IFRS measure can be found in
section 3.8.3. of the present document.
• Diluted earnings per share excluding specific items (non-GAAP) – is defined as the net earnings excluding
specific items on a per share basis. Management believes that this measure is useful to investors as it
best reflects the Company's performance on a per share basis and allows for better comparability from
period to period. The diluted earnings per share reported in accordance with IFRS can be found in section
3.8. of the present document while the basic and diluted earnings per share excluding specific items can
be found in section 3.8.3. of the present document.
Liquidity
• Cash provided by operating activities – is a measure of cash generated from managing our day-to-day
business operations. Management believes strong operating cash flow is indicative of financial flexibility,
allowing us to execute the Company's strategy.
• Days sales outstanding (DSO) (non-GAAP) – is the average number of days needed to convert our trade
receivables and work in progress into cash. DSO is obtained by subtracting deferred revenue from trade
accounts receivable and work in progress; the result is divided by our most recent quarter’s revenue
over 90 days. Management tracks this metric closely to ensure timely collection and healthy liquidity.
Management believes this measure is useful to investors as it demonstrates the Company's ability to
timely convert its trade receivables and work in progress into cash.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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2 Non-GAAP and Key Performance Measures
The reader should note that the Company reports its financial results in accordance with IFRS. However, we use a combination
of financial measures, ratios, and non-GAAP measures to assess the Company’s performance. The non-GAAP measures
used in this MD&A do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable
to similar measures presented by other issuers. These measures should be considered as supplemental in nature and not as
a substitute for the related financial information prepared in accordance with IFRS.
The table below summarizes our non-GAAP measures and most relevant key performance measures:
Profitability
• Adjusted EBIT (non-GAAP) – is a measure of earnings excluding acquisition-related and integration
costs, restructuring costs, net finance costs and income tax expense. Management believes this measure
is useful to investors as it best reflects the performance of its activities and allows for better comparability
from period to period as well as to trend analysis. A reconciliation of the adjusted EBIT to its closest IFRS
measure can be found in section 3.7. of the present document.
• Adjusted EBIT margin (non-GAAP) – is obtained by dividing our adjusted EBIT by our revenues.
Management believes this measure is useful to investors as it best reflects the performance of its activities
and allows for better comparability from period to period as well as to trend analysis. A reconciliation of
the adjusted EBIT to its closest IFRS measure can be found in section 3.7. of the present document.
• Net earnings – is a measure of earnings generated for shareholders.
• Net earnings margin (non-GAAP) – is obtained by dividing our net earnings by our revenues. Management
believes a percentage of revenue measure is meaningful for better comparability from period to period.
• Diluted earnings per share (diluted EPS) – is a measure of earnings generated for shareholders on a
per share basis, assuming all dilutive elements are exercised.
• Net earnings excluding specific items (non-GAAP) – is a measure of net earnings excluding acquisition-
related and integration costs, restructuring costs and tax adjustments. Management believes this
measure is useful to investors as it best reflects the Company's performance and allows for better
comparability from period to period. A reconciliation of the net earnings excluding specific items to its
closest IFRS measure can be found in section 3.8.3. of the present document.
• Net earnings margin excluding specific items (non-GAAP) – is obtained by dividing our net earnings
excluding specific items by our revenues. Management believes this measure is useful to investors as
it best reflects the Company's performance and allows for better comparability from period to period. A
reconciliation of the net earnings excluding specific items to its closest IFRS measure can be found in
section 3.8.3. of the present document.
• Diluted earnings per share excluding specific items (non-GAAP) – is defined as the net earnings excluding
specific items on a per share basis. Management believes that this measure is useful to investors as it
best reflects the Company's performance on a per share basis and allows for better comparability from
period to period. The diluted earnings per share reported in accordance with IFRS can be found in section
3.8. of the present document while the basic and diluted earnings per share excluding specific items can
be found in section 3.8.3. of the present document.
Liquidity
• Cash provided by operating activities – is a measure of cash generated from managing our day-to-day
business operations. Management believes strong operating cash flow is indicative of financial flexibility,
allowing us to execute the Company's strategy.
• Days sales outstanding (DSO) (non-GAAP) – is the average number of days needed to convert our trade
receivables and work in progress into cash. DSO is obtained by subtracting deferred revenue from trade
accounts receivable and work in progress; the result is divided by our most recent quarter’s revenue
over 90 days. Management tracks this metric closely to ensure timely collection and healthy liquidity.
Management believes this measure is useful to investors as it demonstrates the Company's ability to
timely convert its trade receivables and work in progress into cash.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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FISCAL 2020 RESULTS — 3 Change in Reporting Segments
Effective October 1, 2019, the Company realigned its management structure, resulting primarily in the creation of two new
operating segments, namely Scandinavia (Sweden, Denmark and Norway) and Finland, Poland and Baltics, collectively known
as Northern Europe in the prior fiscal year. As a result, the Company is now managed through nine operating segments,
namely: Western and Southern Europe (primarily France, Portugal and Belgium); United States (U.S.) Commercial and State
Government; Canada; U.S. Federal; United Kingdom (U.K.) and Australia; Central and Eastern Europe (primarily Germany
and the Netherlands); Scandinavia; Finland, Poland and Baltics; and Asia Pacific Global Delivery Centers of Excellence (mainly
India and Philippines) (Asia Pacific). This realignment of management structure also included, to a lesser extent, transfers of
some lines of business between our operating segments. The Company has retrospectively revised the segmented information
for the comparative period to conform to the new segmented information structure. Please refer to sections 3.4, 3.6, 5.4 and
5.5 of the present document and to note 29 of our audited consolidated financial statements for additional information on our
segments.
ManageMent's Discussion anD analysis
Growth
• Constant currency growth (non-GAAP) – is a measure of revenue growth before foreign currency
translation impacts. This growth is calculated by translating current period results in local currency using
the conversion rates in the equivalent period from the prior year. Management believes that it is helpful
to adjust revenue to exclude the impact of currency fluctuations to facilitate period-to-period comparisons
of business performance and that this measure is useful to investors for the same reason.
• Backlog (non-GAAP) – includes new contract wins, extensions and renewals (bookings (non-GAAP)),
adjusted for the backlog consumed during the period as a result of client work performed and adjustments
related to the volume, cancellation and the impact of foreign currencies to our existing contracts. Backlog
incorporates estimates from management that are subject to change. Management tracks this measure
as it is a key indicator of our best estimate of contracted revenue to be realized in the future and believes
that this measure is useful to investors for the same reason.
• Book-to-bill ratio (non-GAAP) – is a measure of the proportion of the value of our bookings to our revenue
in the period. This metric allows management to monitor the Company’s business development efforts
to ensure we grow our backlog and our business over time and management believes that this measure
is useful to investors for the same reason. Management's objective is to maintain a target ratio greater
than 100% over a trailing twelve-month period. Management believes that monitoring the Company's
bookings over a longer period is a more representative measure as the services and contract type, size
and timing of bookings could cause this measurement to fluctuate significantly if taken for only a three-
month period.
Capital
Structure
• Net debt (non-GAAP) – is obtained by subtracting from our debt and lease liabilities, our cash and cash
equivalents, short-term investments, long-term investments and adjusting for fair value of foreign currency
derivative financial instruments related to debt. Management uses the net debt metric to monitor the
Company's financial leverage and believes that this metric is useful to investors as it provides insight
into its financial strength. A reconciliation of net debt to its closest IFRS measure can be found in section
4.5. of the present document.
• Net debt to capitalization ratio (non-GAAP) – is a measure of our level of financial leverage and is obtained
by dividing the net debt by the sum of shareholder's equity and debt. Management uses the net debt to
capitalization ratio to monitor the proportion of debt versus capital used to finance the Company's
operations and to assess its financial strength. Management believes that this metric is useful to investors
for the same reasons.
• Return on equity (ROE) (non-GAAP) – is a measure of the rate of return on the ownership interest of
our shareholders and is calculated as the proportion of net earnings for the last 12 months over the last
four quarters' average shareholder's equity. Management looks at ROE to measure its efficiency at
generating net earnings for the Company’s shareholders and how well the Company uses the invested
funds to generate net earnings growth and believes that this measure is useful to investors for the same
reasons.
• Return on invested capital (ROIC) (non-GAAP) – is a measure of the Company’s efficiency at allocating
the capital under its control to profitable investments and is calculated as the proportion of the net earnings
excluding net finance costs after-tax for the last 12 months, over the last four quarters' average invested
capital, which is defined as the sum of shareholder's' equity and net debt. Management examines this
ratio to assess how well it is using its funds to generate returns and believes that this measure is useful
to investors for the same reason.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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4 Change in Reporting Segments
Effective October 1, 2019, the Company realigned its management structure, resulting primarily in the creation of two new
operating segments, namely Scandinavia (Sweden, Denmark and Norway) and Finland, Poland and Baltics, collectively known
as Northern Europe in the prior fiscal year. As a result, the Company is now managed through nine operating segments,
namely: Western and Southern Europe (primarily France, Portugal and Belgium); United States (U.S.) Commercial and State
Government; Canada; U.S. Federal; United Kingdom (U.K.) and Australia; Central and Eastern Europe (primarily Germany
and the Netherlands); Scandinavia; Finland, Poland and Baltics; and Asia Pacific Global Delivery Centers of Excellence (mainly
India and Philippines) (Asia Pacific). This realignment of management structure also included, to a lesser extent, transfers of
some lines of business between our operating segments. The Company has retrospectively revised the segmented information
for the comparative period to conform to the new segmented information structure. Please refer to sections 3.4, 3.6, 5.4 and
5.5 of the present document and to note 29 of our audited consolidated financial statements for additional information on our
segments.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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FISCAL 2020 RESULTS — 5 6.
Eight Quarter
A summary of the past eight quarters’ key performance measures and a discussion of the
Summary
factors that could impact our quarterly results.
Estimates
consolidated financial statements.
9.
Integrity of
Disclosure
A discussion of the existence of appropriate information systems, procedures and controls
to ensure that information used internally and disclosed externally is complete and reliable.
10. Risk Environment
10.1. Risks and Uncertainties
10.2. Legal Proceedings
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ManageMent's Discussion anD analysis
MD&A Objectives and Contents
In this document, we:
•
•
•
Provide a narrative explanation of the audited consolidated financial statements through the eyes of management;
Provide the context within which the audited consolidated financial statements should be analyzed, by giving enhanced
disclosure about the dynamics and trends of the Company’s business; and
7.
Changes in
Accounting Policies
A summary of the accounting standard changes.
Provide information to assist the reader in ascertaining the likelihood that past performance may be indicative of future
8.
Critical Accounting
A discussion of the critical accounting estimates made in the preparation of the audited
performance.
In order to achieve these objectives, this MD&A is presented in the following main sections:
Section
Contents
Pages
1.
Corporate
Overview
1.1. About CGI
1.2. Vision and Strategy
1.3. Competitive Environment
2.
Highlights and Key
Performance
Measures
2.1. Fiscal 2020 Year-Over-Year Highlights
2.2. Selected Yearly Information & Key Performance Measures
2.3. Stock Performance
2.4. Investments in Subsidiaries
2.5. Impact of the adoption of IFRS 16
2.6. COVID-19
3.
Financial Review
4.
Liquidity
5.
Fourth Quarter
Results
3.1. Bookings and Book-to-Bill Ratio
3.2. Foreign Exchange
3.3. Revenue Distribution
3.4. Revenue by Segment
3.5. Operating Expenses
3.6. Adjusted EBIT by Segment
3.7. Earnings Before Income Taxes
3.8. Net Earnings and Earnings Per Share
4.1. Consolidated Statements of Cash Flows
4.2. Capital Resources
4.3. Contractual Obligations
4.4. Financial Instruments and Hedging Transactions
4.5. Selected Measures of Capital Resources and Liquidity
4.6. Guarantees
4.7. Capability to Deliver Results
5.1. Bookings and Book-to-Bill Ratio
5.2. Foreign Exchange
5.3. Revenue Distribution
5.4. Revenue by Segment
5.5. Adjusted EBIT by Segment
5.6. Net Earnings and Earnings Per Share
5.7. Consolidated Statements of Cash Flows
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CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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6 MD&A Objectives and Contents
In this document, we:
•
•
•
performance.
Provide a narrative explanation of the audited consolidated financial statements through the eyes of management;
Provide the context within which the audited consolidated financial statements should be analyzed, by giving enhanced
disclosure about the dynamics and trends of the Company’s business; and
7.
Changes in
Accounting Policies
A summary of the accounting standard changes.
Provide information to assist the reader in ascertaining the likelihood that past performance may be indicative of future
8.
Critical Accounting
A discussion of the critical accounting estimates made in the preparation of the audited
6.
Eight Quarter
A summary of the past eight quarters’ key performance measures and a discussion of the
Summary
factors that could impact our quarterly results.
In order to achieve these objectives, this MD&A is presented in the following main sections:
Section
Contents
Pages
Estimates
consolidated financial statements.
9.
Integrity of
Disclosure
A discussion of the existence of appropriate information systems, procedures and controls
to ensure that information used internally and disclosed externally is complete and reliable.
10. Risk Environment
10.1. Risks and Uncertainties
10.2. Legal Proceedings
48
50
52
55
57
66
1.
Corporate
1.1. About CGI
Overview
1.2. Vision and Strategy
1.3. Competitive Environment
2.
Highlights and Key
2.1. Fiscal 2020 Year-Over-Year Highlights
2.2. Selected Yearly Information & Key Performance Measures
Performance
Measures
3.
Financial Review
3.1. Bookings and Book-to-Bill Ratio
2.3. Stock Performance
2.4. Investments in Subsidiaries
2.5. Impact of the adoption of IFRS 16
2.6. COVID-19
3.2. Foreign Exchange
3.3. Revenue Distribution
3.4. Revenue by Segment
3.5. Operating Expenses
3.6. Adjusted EBIT by Segment
3.7. Earnings Before Income Taxes
3.8. Net Earnings and Earnings Per Share
4.
Liquidity
4.1. Consolidated Statements of Cash Flows
4.2. Capital Resources
4.3. Contractual Obligations
4.4. Financial Instruments and Hedging Transactions
4.5. Selected Measures of Capital Resources and Liquidity
4.6. Guarantees
4.7. Capability to Deliver Results
5.
Fourth Quarter
5.1. Bookings and Book-to-Bill Ratio
Results
5.2. Foreign Exchange
5.3. Revenue Distribution
5.4. Revenue by Segment
5.5. Adjusted EBIT by Segment
5.6. Net Earnings and Earnings Per Share
5.7. Consolidated Statements of Cash Flows
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CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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FISCAL 2020 RESULTS — 7 ManageMent's Discussion anD analysis
1. Corporate Overview
1. Corporate Overview
1.1. ABOUT CGI
Founded in 1976 and headquartered in Montréal, Canada, CGI is among the largest information technology (IT) and business
consulting services firms in the world. The Company delivers a full range of services, including strategic IT and business
and enduring results.
consulting, systems integration, intellectual property and managed IT and business process services to help clients accelerate
We partner with clients to enable their business agility through a range of business and digital initiatives focused on human
digitization, achieve immediate cost savings, and drive revenue growth. CGI employs approximately 76,000 consultants and
capital and culture practices, process automation, and data analytics. Technology is a key element of the value chains of
professionals worldwide, whom are called members as they are also owners.
End-to-end services and solutions
CGI delivers end-to-end services that cover the full spectrum of technology delivery; from digital strategy and architecture to
solution design, development, integration, implementation, and operations. Our portfolio encompasses:
•
Strategic IT and business consulting and systems integration: CGI helps clients define their digital strategy
and roadmap, and advance their IT modernization initiatives through an agile, iterative approach that facilitates
innovation, connection and optimization of mission-critical systems to deliver enterprise-wide change.
• Managed IT and business process services: Our clients entrust us with full or partial responsibility for their IT
and business functions to help them become more agile and to build resilience into their technology supply chains.
In return, we deliver innovation, significant efficiency gains, and cost savings. Typical services in an end-to-end
infrastructure
engagement
include: application development,
integration and maintenance;
technology
management; and business process services, such as in collections and payroll management. Managed IT and
business process services contracts are long-term in nature, with a typical duration greater than five years, allowing
our clients to reinvest savings, alongside CGI, in their digital transformation.
•
Intellectual property (IP): Our IP portfolio includes approximately 175 business solutions, some of which are cross-
industry solutions. Designed in collaboration with clients, our IP solutions act as business accelerators for the
industries we serve. These include business solutions encompassing commercial software embedded within our
end-to-end-services, and digital enablers such as methodologies and frameworks to drive change across business
and IT processes.
Deep industry expertise
CGI has long standing and focused practices in all of its core industries, providing clients with a partner that is not only an
expert in IT, but also expert in their industries. This combination of business knowledge and digital technology expertise allows
us to help our clients navigate complex challenges and focus on how to create value. In the process, we evolve the services
and solutions we deliver within our targeted industries.
Our targeted industries include communications and media, banking, insurance, government, health & life sciences,
These first two pillars relate to driving profitable organic growth through the pursuit of contracts with new and existing clients
manufacturing, retail & consumer, transportation and logistics, energy and utilities and space. While these represent our go-
in our targeted industries. Successes in these pillars reflect the strength of our end-to-end portfolio of capabilities, the depth
to-market industry targets, we group these industries into the following for reporting purposes: government; manufacturing,
of expertise of our consultants in business and IT, and the appreciation of the proximity model by our clients, both existing
retail & distribution (MRD); financial services; communications & utilities; and health.
As the move toward digitization continues across industries, CGI partners with clients to help guide them in becoming customer
and potential.
Pillar 3: Metro market acquisitions
and citizen-centric digital organizations.
Applied innovation
At CGI, innovation happens across many interconnected fronts. It starts in our everyday work on client projects, where
thousands of innovations are applied daily. Through benchmark in-person interviews we conduct each year, business and
technology executives share their priorities with us, informing our own innovation investments and driving our client proximity
teams' focus on local client priorities.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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The third pillar focuses on growth through metro market acquisitions, complementing the proximity model, helping provide a
fuller range of end-to-end services. We identify metro market acquisitions through a strategic qualification process that
systematically searches for targets to strengthen our proximity model, leveraging strong local relationships with customers,
and enhancing our industry expertise, services and solutions.
Pillar 4: Large, transformational acquisitions
We also pursue large acquisitions to further expand our geographic presence and critical mass, which enables us to compete
for large managed IT and business process services contracts and broaden our client relationships. CGI will continue to be
a consolidator in the IT services industry by being active on both of these last pillars.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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Since 1976, CGI is a trusted partner in delivering innovative, client-inspired business services and solutions. We help develop,
innovate and protect the technology that enables clients to achieve their digital transformation goals faster, with reduced risk
organizations today. We help clients adopt and harmonize a number of technologies and services, such as cloud, automation,
and managed services, to build agility, elasticity, security and resiliency into their technology supply chains.
Digital engagement with customers and citizens has taken on new importance. We help clients evaluate their work culture,
organizational models, and performance management, as well as adopt modern collaboration and resilient business
Technology will continue to be at the heart of the future value chains that serve our clients’ consumers and citizens.
continuity plans.
Quality processes
CGI's clients expect consistency of service wherever and whenever they engage us. We have an outstanding track record of
on-time, within-budget delivery as a result of our commitment to excellence and our robust governance model - CGI's
Management Foundation. CGI's Management Foundation provides a common business language, frameworks and practices
for managing all operations consistently across the globe, driving a focus on continuous improvement. We also invest in
rigorous quality and service delivery standards (including ISO and Capability Maturity Model Integration (CMMI) certification
programs), as well as a comprehensive Client Satisfaction Assessment Program, with signed client assessments, to ensure
high satisfaction on an ongoing basis.
1.2. VISION AND STRATEGY
CGI is unique compared to most companies, as our vision is based on a dream: “To create an environment in which we enjoy
working together and, as owners, contribute to building a company we can be proud of.” This dream has motivated us since
our founding in 1976 and drives our vision: “To be a global, world-class end-to-end IT and business consulting services leader
helping our clients succeed.”
In pursuing our dream and vision, CGI has been highly disciplined throughout its history in executing a Build and Buy profitable
growth strategy comprised of four pillars that combine profitable organic growth (Build) and accretive acquisitions (Buy):
Pillar 1: Win, renew and extend contracts
Pillar 2: New large managed IT and business process services contracts
8 Since 1976, CGI is a trusted partner in delivering innovative, client-inspired business services and solutions. We help develop,
innovate and protect the technology that enables clients to achieve their digital transformation goals faster, with reduced risk
and enduring results.
We partner with clients to enable their business agility through a range of business and digital initiatives focused on human
capital and culture practices, process automation, and data analytics. Technology is a key element of the value chains of
organizations today. We help clients adopt and harmonize a number of technologies and services, such as cloud, automation,
and managed services, to build agility, elasticity, security and resiliency into their technology supply chains.
Digital engagement with customers and citizens has taken on new importance. We help clients evaluate their work culture,
organizational models, and performance management, as well as adopt modern collaboration and resilient business
continuity plans.
Technology will continue to be at the heart of the future value chains that serve our clients’ consumers and citizens.
Quality processes
CGI's clients expect consistency of service wherever and whenever they engage us. We have an outstanding track record of
on-time, within-budget delivery as a result of our commitment to excellence and our robust governance model - CGI's
Management Foundation. CGI's Management Foundation provides a common business language, frameworks and practices
for managing all operations consistently across the globe, driving a focus on continuous improvement. We also invest in
rigorous quality and service delivery standards (including ISO and Capability Maturity Model Integration (CMMI) certification
programs), as well as a comprehensive Client Satisfaction Assessment Program, with signed client assessments, to ensure
high satisfaction on an ongoing basis.
1.2. VISION AND STRATEGY
CGI is unique compared to most companies, as our vision is based on a dream: “To create an environment in which we enjoy
working together and, as owners, contribute to building a company we can be proud of.” This dream has motivated us since
our founding in 1976 and drives our vision: “To be a global, world-class end-to-end IT and business consulting services leader
helping our clients succeed.”
In pursuing our dream and vision, CGI has been highly disciplined throughout its history in executing a Build and Buy profitable
growth strategy comprised of four pillars that combine profitable organic growth (Build) and accretive acquisitions (Buy):
Pillar 1: Win, renew and extend contracts
Pillar 2: New large managed IT and business process services contracts
These first two pillars relate to driving profitable organic growth through the pursuit of contracts with new and existing clients
in our targeted industries. Successes in these pillars reflect the strength of our end-to-end portfolio of capabilities, the depth
of expertise of our consultants in business and IT, and the appreciation of the proximity model by our clients, both existing
and potential.
Pillar 3: Metro market acquisitions
The third pillar focuses on growth through metro market acquisitions, complementing the proximity model, helping provide a
fuller range of end-to-end services. We identify metro market acquisitions through a strategic qualification process that
systematically searches for targets to strengthen our proximity model, leveraging strong local relationships with customers,
and enhancing our industry expertise, services and solutions.
Pillar 4: Large, transformational acquisitions
We also pursue large acquisitions to further expand our geographic presence and critical mass, which enables us to compete
for large managed IT and business process services contracts and broaden our client relationships. CGI will continue to be
a consolidator in the IT services industry by being active on both of these last pillars.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page
9
FISCAL 2020 RESULTS — 9 ManageMent's Discussion anD analysis
Executing our strategy
Executing our strategy
Executing our strategy
Executing our strategy
Executing our strategy
Executing our strategy
Executing our strategy
Executing our strategy
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
delivery network to deliver the following benefits:
CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global
delivery network to deliver the following benefits:
delivery network to deliver the following benefits:
delivery network to deliver the following benefits:
delivery network to deliver the following benefits:
delivery network to deliver the following benefits:
delivery network to deliver the following benefits:
delivery network to deliver the following benefits:
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
• Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
partnership, and innovation. Our local CGI members speak our clients' language, understand their business environment,
and collaborate to meet their goals and advance their business.
and collaborate to meet their goals and advance their business.
and collaborate to meet their goals and advance their business.
and collaborate to meet their goals and advance their business.
and collaborate to meet their goals and advance their business.
and collaborate to meet their goals and advance their business.
and collaborate to meet their goals and advance their business.
and collaborate to meet their goals and advance their business.
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
• Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit
from our unique combination of industry domain and technology expertise within our global delivery model.
from our unique combination of industry domain and technology expertise within our global delivery model.
from our unique combination of industry domain and technology expertise within our global delivery model.
from our unique combination of industry domain and technology expertise within our global delivery model.
from our unique combination of industry domain and technology expertise within our global delivery model.
from our unique combination of industry domain and technology expertise within our global delivery model.
from our unique combination of industry domain and technology expertise within our global delivery model.
from our unique combination of industry domain and technology expertise within our global delivery model.
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
• Committed experts: One of our key strategic goals is to be our clients’ partner and expert of choice. To achieve this,
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
we invest in developing and recruiting professionals with extensive industry, business and in-demand technology expertise.
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
In addition, a majority of CGI consultants and professionals are also owners through our Share Purchase Plan, which,
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
combined with the Profit Participation Plan, provide an added level of commitment to the success of our clients.
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
• Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
has resulted in a consistent track record of on-time and within-budget project delivery. With regular reviews of engagements
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
and transparency at all levels, the company ensures that client objectives and its own targets are consistently followed at
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
all times. This thorough process enables CGI to generate continuous improvements for all stakeholders by applying
corrective measures as soon as they are required.
corrective measures as soon as they are required.
corrective measures as soon as they are required.
corrective measures as soon as they are required.
corrective measures as soon as they are required.
corrective measures as soon as they are required.
corrective measures as soon as they are required.
corrective measures as soon as they are required.
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
• Corporate social responsibility: Corporate social responsibility is one of CGI’s core values. Our business model is
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
designed to ensure that we are close to our clients and communities. At CGI, our members embrace our responsibilities
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
to contribute to the continuous improvement of the economic, social and environmental well-being of the communities in
which we live and work.
which we live and work.
which we live and work.
which we live and work.
which we live and work.
which we live and work.
which we live and work.
which we live and work.
1.3. COMPETITIVE ENVIRONMENT
1.3. COMPETITIVE ENVIRONMENT
1.3. COMPETITIVE ENVIRONMENT
1.3. COMPETITIVE ENVIRONMENT
1.3. COMPETITIVE ENVIRONMENT
1.3. COMPETITIVE ENVIRONMENT
1.3. COMPETITIVE ENVIRONMENT
1.3. COMPETITIVE ENVIRONMENT
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way.
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
also as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We are working with clients across
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
the launch of new products and services, and deliver efficiencies and cost savings.
the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive
the launch of new products and services, and deliver efficiencies and cost savings.
the launch of new products and services, and deliver efficiencies and cost savings.
the launch of new products and services, and deliver efficiencies and cost savings.
the launch of new products and services, and deliver efficiencies and cost savings.
the launch of new products and services, and deliver efficiencies and cost savings.
the launch of new products and services, and deliver efficiencies and cost savings.
the launch of new products and services, and deliver efficiencies and cost savings.
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
a variety of players, from metro market companies providing specialized services and software, to global, end-to-end IT service
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
the services we provide.
providers, to large consulting firms and government pure-plays. All of these players are competing to deliver some or all of
the services we provide.
the services we provide.
the services we provide.
the services we provide.
the services we provide.
the services we provide.
the services we provide.
Many factors distinguish the industry leaders, including the following:
Many factors distinguish the industry leaders, including the following:
Many factors distinguish the industry leaders, including the following:
Many factors distinguish the industry leaders, including the following:
Many factors distinguish the industry leaders, including the following:
Many factors distinguish the industry leaders, including the following:
Many factors distinguish the industry leaders, including the following:
Many factors distinguish the industry leaders, including the following:
• Depth and breadth of industry and technology expertise;
• Depth and breadth of industry and technology expertise;
• Depth and breadth of industry and technology expertise;
• Depth and breadth of industry and technology expertise;
• Depth and breadth of industry and technology expertise;
• Depth and breadth of industry and technology expertise;
• Depth and breadth of industry and technology expertise;
• Depth and breadth of industry and technology expertise;
• Local presence and strength of client relationships;
• Local presence and strength of client relationships;
• Local presence and strength of client relationships;
• Local presence and strength of client relationships;
• Local presence and strength of client relationships;
• Local presence and strength of client relationships;
• Local presence and strength of client relationships;
• Local presence and strength of client relationships;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Consistent, on-time, within-budget delivery everywhere the client operates;
• Breadth of digital IP solutions;
• Breadth of digital IP solutions;
• Breadth of digital IP solutions;
• Breadth of digital IP solutions;
• Breadth of digital IP solutions;
• Breadth of digital IP solutions;
• Breadth of digital IP solutions;
• Breadth of digital IP solutions;
• Ability to deliver practical innovation for measurable results;
• Ability to deliver practical innovation for measurable results;
• Ability to deliver practical innovation for measurable results;
• Ability to deliver practical innovation for measurable results;
• Ability to deliver practical innovation for measurable results;
• Ability to deliver practical innovation for measurable results;
• Ability to deliver practical innovation for measurable results;
• Ability to deliver practical innovation for measurable results;
• Total cost of services and value delivered; and
• Total cost of services and value delivered; and
• Total cost of services and value delivered; and
• Total cost of services and value delivered; and
• Total cost of services and value delivered; and
• Total cost of services and value delivered; and
• Total cost of services and value delivered; and
• Total cost of services and value delivered; and
• Unique global delivery network, including onshore, nearshore and offshore options.
• Unique global delivery network, including onshore, nearshore and offshore options.
• Unique global delivery network, including onshore, nearshore and offshore options.
• Unique global delivery network, including onshore, nearshore and offshore options.
• Unique global delivery network, including onshore, nearshore and offshore options.
• Unique global delivery network, including onshore, nearshore and offshore options.
• Unique global delivery network, including onshore, nearshore and offshore options.
• Unique global delivery network, including onshore, nearshore and offshore options.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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CGI is one of the leaders in the industry with respect to all of these factors. We are not only delivering all of the capabilities
clients need to compete in a digital world, but the immediate results and long-term value they expect. As the market dynamics
and industry trends continue to increase demand for enterprise solutions from global, end-to-end IT and business consulting
services firms, CGI is one of few firms with the scale, reach, and capabilities to meet clients’ enterprise needs.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 11
10 CGI is one of the leaders in the industry with respect to all of these factors. We are not only delivering all of the capabilities
clients need to compete in a digital world, but the immediate results and long-term value they expect. As the market dynamics
and industry trends continue to increase demand for enterprise solutions from global, end-to-end IT and business consulting
services firms, CGI is one of few firms with the scale, reach, and capabilities to meet clients’ enterprise needs.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 11
FISCAL 2020 RESULTS — 11 ManageMent's Discussion anD analysis
2. Highights and Key Performance Measures
2. Highlights and Key Performance Measures
2. Highlights and Key Performance Measures
2.1. FISCAL 2020 HIGHLIGHTS
2.1. FISCAL 2020 HIGHLIGHTS
2.2. SELECTED YEARLY INFORMATION & KEY PERFORMANCE MEASURES1
•
•
•
•
•
•
•
•
•
•
•
•
1
2
•
Revenue of $12.16 billion, up 0.4% and essentially stable in constant currency;
Revenue of $12.16 billion, up 0.4% and essentially stable in constant currency;
•
Adjusted EBIT1 of $1,862.9 million, up 2.1% ;
Adjusted EBIT1 of $1,862.9 million, up 2.1% ;
•
Adjusted EBIT margin1 of 15.3%, up 20 basis points;
Adjusted EBIT margin1 of 15.3%, up 20 basis points;
•
Net earnings of $1,117.9 million, down 11.5%;
Net earnings of $1,117.9 million, down 11.5%;
Net earnings, excluding specific items2 of $1,300.1 million, down 0.4%;
Net earnings, excluding specific items2 of $1,300.1 million, down 0.4%;
•
•
Net earnings margin of 9.2%, down 120 basis points;
Net earnings margin of 9.2%, down 120 basis points;
Net earnings margin, excluding specific items2 of 10.7%, down 10 basis points;
Net earnings margin, excluding specific items2 of 10.7%, down 10 basis points;
•
•
Diluted EPS of $4.20, down 7.7%;
Diluted EPS of $4.20, down 7.7%;
Diluted EPS, excluding specific items2, of $4.89, up 4.0%;
Diluted EPS, excluding specific items2, of $4.89, up 4.0%;
•
•
Cash provided by operating activities1 of $1,938.6 million, up 18.6%, representing 15.9% of revenue;
Cash provided by operating activities1 of $1,938.6 million, up 18.6%, representing 15.9% of revenue;
•
Bookings of $11.85 billion, or 97.4% of revenue; and,
Bookings of $11.85 billion, or 97.4% of revenue; and,
•
Backlog of $22.67 billion.
Backlog of $22.67 billion.
Includes the impact of the adoption of the IFRS 16 which is discussed in section 2.5. of the present document.
1
Includes the impact of the adoption of the IFRS 16 which is discussed in section 2.5. of the present document.
2
Specific items are comprised of acquisition-related, integration costs and restructuring costs net of tax, which are discussed in sections 3.7.1. and 3.7.2.
Specific items are comprised of acquisition-related, integration costs and restructuring costs net of tax, which are discussed in sections 3.7.1. and 3.7.2.
of the present document. Prior year also includes a tax adjustment, discussed in section 3.8.1.
of the present document. Prior year also includes a tax adjustment, discussed in section 3.8.1.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 12
Page 12
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 13
As at and for the years ended September 30,
2020
2019
2018
Change
2020 / 2019
Change
2019 / 2018
In millions of CAD unless otherwise noted
Growth
Revenue
Year-over-year revenue growth
Constant currency year-over-year revenue growth
12,164.1
12,111.2
11,506.8
0.4%
(0.1%)
22,673
11,848
97.4%
1,862.9
15.3%
1,117.9
9.2%
4.20
1,300.1
10.7%
4.89
1,938.6
15.9%
47
23.6%
16.0%
12.1%
1,709.5
15,550.4
4,030.6
Net earnings excluding specific items2
Net earnings margin excluding specific items
Diluted EPS excluding specific items (in dollars)2
Liquidity1
Cash provided by operating activities
Backlog
Bookings
Book-to-bill ratio
Profitability1
Adjusted EBIT2
Adjusted EBIT margin
Net earnings
Net earnings margin
Diluted EPS (in dollars)
As a % of revenue
Days sales outstanding
Capital structure1
Net debt
Net debt to capitalization ratio
Return on equity
Return on invested capital
Balance sheet1
Total assets
Long-term financial liabilities3
section 7.
1
2
3
Cash and cash equivalents, and short-term investments
5.3%
5.9%
22,611
12,646
104.4%
1,825.0
15.1%
1,263.2
10.4%
4.55
1,305.9
10.8%
4.70
1,633.9
13.5%
50
6.1%
4.6%
22,577
13,493
117.3%
1,701.7
14.8%
1,141.4
9.9%
3.95
1,210.7
10.5%
4.19
1,493.4
13.0%
52
2,777.9
2,117.2
1,640.8
22.9%
18.5%
15.1%
19.2%
17.3%
14.5%
223.7
184.1
12,621.7
11,919.1
2,236.0
1,530.1
52.9
(4.9%)
(6.0%)
62
(798)
(7.0%)
37.9
0.2%
(145.3)
(1.2%)
(0.35)
(5.8)
(0.1%)
0.19
304.7
2.4%
(3)
660.7
0.7%
(2.5%)
(3.0%)
1,485.8
2,928.7
1,794.6
604.4
(0.8%)
1.3%
34
(847)
(12.9%)
123.3
0.3%
121.8
0.5%
0.60
95.2
0.3%
0.51
140.5
0.5%
(2)
476.4
3.7%
1.2%
0.6%
39.6
702.6
705.9
As of the periods ending December 31, 2019, figures include the impact of the adoption of IFRS 16, while previous years are not restated as indicated in
Please refer to sections 3.7. and 3.8.3. of each year's respective MD&A for the reconciliation of non-GAAP financial measures for fiscal 2018 and 2019.
Long-term financial liabilities include the long-term portion of the debt, long-term lease liabilities and the long-term derivative financial instruments.
12 2.2. SELECTED YEARLY INFORMATION & KEY PERFORMANCE MEASURES1
As at and for the years ended September 30,
2020
2019
2018
Change
2020 / 2019
Change
2019 / 2018
In millions of CAD unless otherwise noted
Growth
Revenue
Year-over-year revenue growth
Constant currency year-over-year revenue growth
Backlog
Bookings
Book-to-bill ratio
Profitability1
Adjusted EBIT2
Adjusted EBIT margin
Net earnings
Net earnings margin
Diluted EPS (in dollars)
Net earnings excluding specific items2
Net earnings margin excluding specific items
Diluted EPS excluding specific items (in dollars)2
Liquidity1
Cash provided by operating activities
As a % of revenue
Days sales outstanding
Capital structure1
Net debt
Net debt to capitalization ratio
Return on equity
Return on invested capital
Balance sheet1
Cash and cash equivalents, and short-term investments
Total assets
Long-term financial liabilities3
12,164.1
12,111.2
11,506.8
0.4%
(0.1%)
22,673
11,848
97.4%
1,862.9
15.3%
1,117.9
9.2%
4.20
1,300.1
10.7%
4.89
1,938.6
15.9%
47
5.3%
5.9%
22,611
12,646
104.4%
1,825.0
15.1%
1,263.2
10.4%
4.55
1,305.9
10.8%
4.70
1,633.9
13.5%
50
6.1%
4.6%
22,577
13,493
117.3%
1,701.7
14.8%
1,141.4
9.9%
3.95
1,210.7
10.5%
4.19
1,493.4
13.0%
52
2,777.9
2,117.2
1,640.8
23.6%
16.0%
12.1%
1,709.5
15,550.4
4,030.6
22.9%
18.5%
15.1%
19.2%
17.3%
14.5%
223.7
184.1
12,621.7
11,919.1
2,236.0
1,530.1
52.9
(4.9%)
(6.0%)
62
(798)
(7.0%)
37.9
0.2%
(145.3)
(1.2%)
(0.35)
(5.8)
(0.1%)
0.19
304.7
2.4%
(3)
660.7
0.7%
(2.5%)
(3.0%)
1,485.8
2,928.7
1,794.6
604.4
(0.8%)
1.3%
34
(847)
(12.9%)
123.3
0.3%
121.8
0.5%
0.60
95.2
0.3%
0.51
140.5
0.5%
(2)
476.4
3.7%
1.2%
0.6%
39.6
702.6
705.9
1
2
3
As of the periods ending December 31, 2019, figures include the impact of the adoption of IFRS 16, while previous years are not restated as indicated in
section 7.
Please refer to sections 3.7. and 3.8.3. of each year's respective MD&A for the reconciliation of non-GAAP financial measures for fiscal 2018 and 2019.
Long-term financial liabilities include the long-term portion of the debt, long-term lease liabilities and the long-term derivative financial instruments.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 13
FISCAL 2020 RESULTS — 13 )
s
n
o
i
l
l
i
m
n
i
(
e
m
u
o
V
l
ManageMent's Discussion anD analysis
2.3. STOCK PERFORMANCE
2.3.2. Normal Course Issuer Bid (NCIB)
CGI Stock Price (TSX) for the Last Twelve Months
9
8
7
6
5
4
3
2
1
0
)
D
A
C
(
e
c
i
r
P
k
c
o
t
S
110.00
100.00
90.00
80.00
70.00
60.00
50.00
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Daily Trade Volume 1
Closing Price
2.3.1. Fiscal 2020 Trading Summary
CGI’s shares are listed on the Toronto Stock Exchange (TSX) (stock quote – GIB.A) and the New York Stock Exchange (NYSE)
(stock quote – GIB) and are included in key indices such as the S&P/TSX 60 Index.
TSX
Open:
High:
Low:
Close:
CDN average daily trading volumes1:
(CAD)
105.01
114.49
67.23
90.38
986,534
NYSE
Open:
High:
Low:
Close:
NYSE average daily trading volumes:
(USD)
79.00
87.13
46.32
67.77
240,724
1
Includes the average daily volumes of both the TSX and alternative trading systems.
On January 29, 2020, the Company’s Board of Directors authorized and subsequently received regulatory approval from the
TSX for the renewal of CGI's NCIB which allows for the purchase for cancellation of up to 20,149,100 Class A subordinate
voting shares (Class A Shares) representing 10% of the Company’s public float as of the close of business on January 22,
2020. Class A Shares may be purchased for cancellation under the NCIB commencing on February 6, 2020 until no later than
February 5, 2021, or on such earlier date when the Company has either acquired the maximum number of Class A Shares
allowable under the NCIB or elects to terminate the bid.
During the year ended September 30, 2020, the Company purchased for cancellation 10,605,464 Class A Shares for $1,043.5
million at a weighted average price of $98.39 under the previous and current NCIB. The purchased shares included 6,008,905
Class A Shares purchased for cancellation from Caisse de dépôt et de placement du Québec for cash consideration of $600.0
million. The purchase was made pursuant to an exemption order issued by the Autorité des marchés financiers and is considered
within the annual aggregate limit that the Company is entitled to purchase under its current NCIB.
As at September 30, 2020, the Company can purchase up to 10,037,936 Class A Shares for cancellation under the current
The following table provides a summary of the Capital Stock and Options Outstanding as at November 6, 2020:
NCIB.
2.3.3. Capital Stock and Options Outstanding
Capital Stock and Options Outstanding
Class A subordinate voting shares
Class B multiple voting shares
Options to purchase Class A subordinate voting shares
2.4. INVESTMENTS IN SUBSIDIARIES
As at November 6, 2020
229,981,039
28,945,706
8,849,802
On December 18, 2019, the Company acquired all of the outstanding shares of SCISYS Group Plc (SCISYS). SCISYS operates
in several sectors, with deep expertise and industry leading solutions in the space and defense sectors, as well as in the media
and broadcast news industries and is headquartered in Dublin, Ireland. This acquisition added approximately 670 professionals
to the Company, predominantly based in the U.K. and Germany.
On January 20, 2020, the Company acquired all of the outstanding shares of Meti Logiciels et Services SAS (Meti). Based in
France, Meti is specialized in the development of software solutions for the retail sector across Europe and works with some
of Europe's largest retailers. This acquisition added approximately 300 professionals to the Company.
On March 31, 2020, the Company acquired all of the outstanding shares of TeraThink Corporation (TeraThink). Headquartered
in Reston, Virginia, TeraThink is an information technology and management consulting firm providing digitization, enterprise
finance, risk management, and data analytics services to the U.S. federal government. The acquisition added approximately
250 professionals to the Company.
The Company completed these acquisitions for a total purchase price of approximately $273 million.
With significant strategic consulting, system integration and customer-centric digital innovation capabilities, these acquisitions
were made to complement CGI's proximity model and expertise across key sectors, including communications, retail, space
and defense and government.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 14
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 15
14
2.3.2. Normal Course Issuer Bid (NCIB)
On January 29, 2020, the Company’s Board of Directors authorized and subsequently received regulatory approval from the
TSX for the renewal of CGI's NCIB which allows for the purchase for cancellation of up to 20,149,100 Class A subordinate
voting shares (Class A Shares) representing 10% of the Company’s public float as of the close of business on January 22,
2020. Class A Shares may be purchased for cancellation under the NCIB commencing on February 6, 2020 until no later than
February 5, 2021, or on such earlier date when the Company has either acquired the maximum number of Class A Shares
allowable under the NCIB or elects to terminate the bid.
During the year ended September 30, 2020, the Company purchased for cancellation 10,605,464 Class A Shares for $1,043.5
million at a weighted average price of $98.39 under the previous and current NCIB. The purchased shares included 6,008,905
Class A Shares purchased for cancellation from Caisse de dépôt et de placement du Québec for cash consideration of $600.0
million. The purchase was made pursuant to an exemption order issued by the Autorité des marchés financiers and is considered
within the annual aggregate limit that the Company is entitled to purchase under its current NCIB.
As at September 30, 2020, the Company can purchase up to 10,037,936 Class A Shares for cancellation under the current
NCIB.
2.3.3. Capital Stock and Options Outstanding
The following table provides a summary of the Capital Stock and Options Outstanding as at November 6, 2020:
Capital Stock and Options Outstanding
Class A subordinate voting shares
Class B multiple voting shares
Options to purchase Class A subordinate voting shares
2.4. INVESTMENTS IN SUBSIDIARIES
As at November 6, 2020
229,981,039
28,945,706
8,849,802
On December 18, 2019, the Company acquired all of the outstanding shares of SCISYS Group Plc (SCISYS). SCISYS operates
in several sectors, with deep expertise and industry leading solutions in the space and defense sectors, as well as in the media
and broadcast news industries and is headquartered in Dublin, Ireland. This acquisition added approximately 670 professionals
to the Company, predominantly based in the U.K. and Germany.
On January 20, 2020, the Company acquired all of the outstanding shares of Meti Logiciels et Services SAS (Meti). Based in
France, Meti is specialized in the development of software solutions for the retail sector across Europe and works with some
of Europe's largest retailers. This acquisition added approximately 300 professionals to the Company.
On March 31, 2020, the Company acquired all of the outstanding shares of TeraThink Corporation (TeraThink). Headquartered
in Reston, Virginia, TeraThink is an information technology and management consulting firm providing digitization, enterprise
finance, risk management, and data analytics services to the U.S. federal government. The acquisition added approximately
250 professionals to the Company.
The Company completed these acquisitions for a total purchase price of approximately $273 million.
With significant strategic consulting, system integration and customer-centric digital innovation capabilities, these acquisitions
were made to complement CGI's proximity model and expertise across key sectors, including communications, retail, space
and defense and government.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 15
FISCAL 2020 RESULTS — 15 ManageMent's Discussion anD analysis
2.5. IMPACT OF THE ADOPTION OF IFRS 16
On October 1st, 2019, the Company adopted IFRS 16, Leases, which sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties in a lease agreement in replacement of International Accounting Standard
(IAS) 17, Leases (please refer to section 7 of the present document).
The impacts on the adoption date on the consolidated balance sheet are presented in note 3 of our audited consolidated
financial statements and consists primarily in the on-balance sheet recognition of our lease agreements of Right-of-use assets
and Lease liabilities.
For the year ended September 30, 2020, IFRS 16 adoption had an impact on our audited consolidated statements of earnings,
presenting a decrease in cost of services, selling and administrative of $195.8 million, an increase in depreciation of $158.0
million for a net impact on adjusted EBIT of $37.9 million (discussed in section 3.6.) which is partially offset by an increase in
finance costs of $32.0 million (discussed in section 3.7.3. of the present document).
In addition, section 4.1. of the present document presents the impact on the consolidated statement of cash flows which
increased our cash provided by operating activities by $165.3 million for the year ended September 30, 2020, with the offset
presented in cash used in financing activities. Section 4.5. of the present document presents the impacts to some of our
capital structure ratios.
Finally, the adoption of IFRS 16 doesn’t have an impact on the Company’s external covenants and conditions related to its
debts.
2.6. COVID-19
While we are unable to predict the extent to which the COVID-19 pandemic may adversely impact our operations and financial
performance in future quarters, our executive crisis management team and our network of local crisis management teams
continue to closely monitor the evolving COVID-19 pandemic, executing on our business continuity plan and working
collaboratively with our clients. We have established key guidelines and procedures related to security and access controls,
member health screening, member isolation and quarantine, and facility infrastructure, maintenance and cleaning, to ensure
that our workplace practices are in line with local government recommendations and requirements, as well as compliant with
the appropriate standards of safety, health, wellness and required workplace readiness certifications. As of today, most of our
members continue working remotely.
During the last two quarters of fiscal 2020, our revenues generally declined across our segments when compared to the same
period last year. We experienced reduced demand for our services during the COVID-19 pandemic due to the slowdown of
activities in some of our markets, particularly in the manufacturing, retail & distribution vertical market.
To mitigate the impacts of COVID-19 on our business, we have proactively implemented various cost reduction efforts to
adjust our costs based on our revenue level, such as implementing our restructuring plan and reducing travel related expenses
following government restrictions. Please refer to sections 3.4., 3.5.1., 3.6. and 3.7.2. for additional information.
The Company maintains a strong balance sheet and liquidity position. On April 2, 2020 the Company amended and restated
its two-year unsecured committed term loan credit facility (the 2020 Term Loan) for a total principal amount of US$1,250.0
million.
Our highest priority remains the health and safety of our members and providing service continuity for our clients. CGI’s
proximity-based business model and robust internal infrastructure limited the impact of confinement measures imposed in
several countries and allowed the majority of our members to work remotely, ensuring service continuity to our clients.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 16
3. Financial Review
3. Financial Review
3.1. BOOKINGS AND BOOK-TO-BILL RATIO
3.1. BOOKINGS AND BOOK-TO-BILL RATIO
during the year is as follows:
during the year is as follows:
Bookings for the year were $11.8 billion representing a book-to-bill ratio of 97.4%. The breakdown of the new bookings signed
Bookings for the year were $11.8 billion representing a book-to-bill ratio of 97.4%. The breakdown of the new bookings signed
Contract Type
Contract Type
A. Extensions, renewals
A. Extensions, renewals
and add-ons
and add-ons
B. New business
B. New business
Service Type
Service Type
75% A.
75% A.
System integration and
System integration and
consulting
51 % A.
51 % A.
Segment
Segment
U.S. Commercial and
State Government
U.S. Commercial and
State Government
Vertical Market
Vertical Market
17% A. Government
17% A. Government
49 % B. Western and Southern
49 % B. Western and Southern
16% B. MRD
16% B. MRD
25% B. Managed IT and
consulting
25% B. Managed IT and
Business Process
Services
Business Process
Services
Europe
Europe
U.S. Federal
U.S. Federal
Canada
Canada
Central and Eastern
Europe
Central and Eastern
Europe
U.K. and Australia
U.K. and Australia
Scandinavia
Scandinavia
Finland, Poland and
Baltics
Finland, Poland and
Baltics
C.
C.
D.
D.
E.
E.
F.
F.
G
G
H.
H.
11%
11%
11%
11%
7%
7%
15% C.
15% C.
Financial services
Financial services
12% D. Communications &
12% D. Communications &
utilities
utilities
11% E. Health
11% E. Health
Information regarding our bookings is a key indicator of the volume of our business over time. However, due to the timing and
Information regarding our bookings is a key indicator of the volume of our business over time. However, due to the timing and
transition period associated with managed IT and business process services contracts, the realization of revenue related to
transition period associated with managed IT and business process services contracts, the realization of revenue related to
these bookings may fluctuate from period to period. The values initially booked may change over time due to their variable
these bookings may fluctuate from period to period. The values initially booked may change over time due to their variable
attributes, including demand-driven usage, modifications in the scope of work to be performed caused by changes in client
attributes, including demand-driven usage, modifications in the scope of work to be performed caused by changes in client
requirements as well as termination clauses at the option of the client. As such, information regarding our bookings is not
requirements as well as termination clauses at the option of the client. As such, information regarding our bookings is not
comparable to, nor should it be substituted for, an analysis of our revenue. Management however believes that it is a key
comparable to, nor should it be substituted for, an analysis of our revenue. Management however believes that it is a key
indicator of potential future revenue.
indicator of potential future revenue.
The following table provides a summary of the bookings and book-to-bill ratio by segment:
The following table provides a summary of the bookings and book-to-bill ratio by segment:
Bookings for the year ended
Bookings for the year ended
September 30, 2020
Book-to-bill ratio for the year ended
Book-to-bill ratio for the year ended
September 30, 2020
September 30, 2020
September 30, 2020
In thousands of CAD except for percentages
In thousands of CAD except for percentages
Total CGI
Total CGI
Western and Southern Europe
Western and Southern Europe
U.S. Commercial and State Government
U.S. Commercial and State Government
Canada
Canada
U.S. Federal
U.S. Federal
U.K. and Australia
U.K. and Australia
Central and Eastern Europe
Central and Eastern Europe
Scandinavia
Scandinavia
Finland, Poland and Baltics
Finland, Poland and Baltics
11,847,704
11,847,704
1,860,234
1,860,234
2,027,383
2,027,383
1,443,508
1,443,508
1,747,090
1,747,090
1,308,393
1,308,393
1,341,408
1,341,408
1,290,579
1,290,579
829,109
829,109
36 %
36 %
23 %
23 %
21 %
21 %
13 %
13 %
7 %
7 %
97.4%
97.4%
97.2%
97.2%
106.3%
106.3%
78.9%
78.9%
100.7%
100.7%
83.4%
83.4%
107.5%
107.5%
111.5 %
111.5 %
103.1%
103.1%
Page 17
Page 17
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
16 3. Financial Review
3. Financial Review
3. Financial Review
3.1. BOOKINGS AND BOOK-TO-BILL RATIO
3.1. BOOKINGS AND BOOK-TO-BILL RATIO
Bookings for the year were $11.8 billion representing a book-to-bill ratio of 97.4%. The breakdown of the new bookings signed
Bookings for the year were $11.8 billion representing a book-to-bill ratio of 97.4%. The breakdown of the new bookings signed
during the year is as follows:
during the year is as follows:
B
A
Contract Type
Contract Type
A. Extensions, renewals
A. Extensions, renewals
and add-ons
and add-ons
B. New business
B. New business
B
A
Service Type
Service Type
H
A
B
G
F
E
C
D
Segment
Segment
E
D
C
A
B
Vertical Market
Vertical Market
75% A.
75% A.
25% B. Managed IT and
25% B. Managed IT and
System integration and
System integration and
consulting
consulting
Business Process
Services
Business Process
Services
51 % A.
51 % A.
U.S. Commercial and
State Government
U.S. Commercial and
State Government
49 % B. Western and Southern
49 % B. Western and Southern
Europe
Europe
U.S. Federal
U.S. Federal
Canada
Canada
C.
C.
D.
D.
E.
E.
F.
F.
G
G
H.
H.
Central and Eastern
Europe
Central and Eastern
Europe
U.K. and Australia
U.K. and Australia
Scandinavia
Scandinavia
Finland, Poland and
Baltics
Finland, Poland and
Baltics
36 %
36 %
23 %
23 %
21 %
21 %
13 %
13 %
7 %
7 %
17% A. Government
17% A. Government
16% B. MRD
16% B. MRD
Financial services
15% C.
15% C.
Financial services
12% D. Communications &
utilities
12% D. Communications &
utilities
11% E. Health
11% E. Health
11%
11%
11%
11%
7%
7%
Information regarding our bookings is a key indicator of the volume of our business over time. However, due to the timing and
Information regarding our bookings is a key indicator of the volume of our business over time. However, due to the timing and
transition period associated with managed IT and business process services contracts, the realization of revenue related to
transition period associated with managed IT and business process services contracts, the realization of revenue related to
these bookings may fluctuate from period to period. The values initially booked may change over time due to their variable
these bookings may fluctuate from period to period. The values initially booked may change over time due to their variable
attributes, including demand-driven usage, modifications in the scope of work to be performed caused by changes in client
attributes, including demand-driven usage, modifications in the scope of work to be performed caused by changes in client
requirements as well as termination clauses at the option of the client. As such, information regarding our bookings is not
requirements as well as termination clauses at the option of the client. As such, information regarding our bookings is not
comparable to, nor should it be substituted for, an analysis of our revenue. Management however believes that it is a key
comparable to, nor should it be substituted for, an analysis of our revenue. Management however believes that it is a key
indicator of potential future revenue.
indicator of potential future revenue.
The following table provides a summary of the bookings and book-to-bill ratio by segment:
The following table provides a summary of the bookings and book-to-bill ratio by segment:
In thousands of CAD except for percentages
In thousands of CAD except for percentages
Total CGI
Total CGI
Western and Southern Europe
Western and Southern Europe
U.S. Commercial and State Government
U.S. Commercial and State Government
Canada
Canada
U.S. Federal
U.S. Federal
U.K. and Australia
U.K. and Australia
Central and Eastern Europe
Central and Eastern Europe
Scandinavia
Scandinavia
Finland, Poland and Baltics
Finland, Poland and Baltics
Bookings for the year ended
September 30, 2020
Bookings for the year ended
September 30, 2020
11,847,704
11,847,704
1,860,234
1,860,234
2,027,383
2,027,383
1,443,508
1,443,508
1,747,090
1,747,090
1,308,393
1,308,393
1,341,408
1,341,408
1,290,579
1,290,579
829,109
829,109
Book-to-bill ratio for the year ended
September 30, 2020
Book-to-bill ratio for the year ended
September 30, 2020
97.4%
97.4%
97.2%
97.2%
106.3%
106.3%
78.9%
78.9%
100.7%
100.7%
83.4%
83.4%
107.5%
107.5%
111.5 %
111.5 %
103.1%
103.1%
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 17
Page 17
FISCAL 2020 RESULTS — 17 ManageMent's Discussion anD analysis
3.2. FOREIGN EXCHANGE
The Company operates globally and is exposed to changes in foreign currency rates. Accordingly, as prescribed by IFRS, we
value assets, liabilities and transactions that are measured in foreign currencies using various exchange rates. We report all
3.3. REVENUE DISTRIBUTION
3.3. REVENUE DISTRIBUTION
The following charts provide additional information regarding our revenue mix for the year:
The following charts provide additional information regarding our revenue mix for the year:
dollar amounts in Canadian dollars.
Closing foreign exchange rates
As at September 30,
U.S. dollar
Euro
Indian rupee
British pound
Swedish krona
Average foreign exchange rates
For the year ended September 30,
U.S. dollar
Euro
Indian rupee
British pound
Swedish krona
2020
1.3325
1.5622
0.0181
1.7216
0.1487
2020
1.3457
1.5075
0.0183
1.7152
0.1425
2019
Change
1.3246
1.4446
0.0188
1.6302
0.1347
0.6%
8.1%
(3.7%)
5.6%
10.4%
2019
Change
1.3270
1.4970
0.0188
1.6943
0.1426
1.4%
0.7%
(2.7%)
1.2%
(0.1%)
Service Type
Service Type
Client Geography
Client Geography
A.
A.
B.
B.
Managed IT and Business Process Services
Managed IT and Business Process Services
System integration and consulting
System integration and consulting
54% A. U.S.
54% A. U.S.
46% B. Canada
46% B. Canada
C. France
C. France
D. U.K.
D. U.K.
E. Sweden
E. Sweden
Finland
Finland
F.
F.
G. Germany
G. Germany
H. Rest of the world
H. Rest of the world
Vertical Market
Vertical Market
Government
Government
MRD
MRD
Financial services
Financial services
Communications & utilities
Communications & utilities
Health
Health
34%
34%
24%
24%
22%
22%
13%
13%
7%
7%
30% A.
30% A.
15% B.
15% B.
14% C.
14% C.
12% D.
12% D.
7% E.
7% E.
6%
6%
6%
6%
10%
10%
3.3.1. Client Concentration
3.3.1. Client Concentration
IFRS guidance on segment disclosures defines a single customer as a group of entities that are known to the reporting entity
IFRS guidance on segment disclosures defines a single customer as a group of entities that are known to the reporting entity
to be under common control. As a consequence, our work for the U.S. federal government including its various agencies
to be under common control. As a consequence, our work for the U.S. federal government including its various agencies
represented 13.8% of our revenue for Fiscal 2020 as compared to 12.8% for Fiscal 2019.
represented 13.8% of our revenue for Fiscal 2020 as compared to 12.8% for Fiscal 2019.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 18
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 19
Page 19
18 3.3. REVENUE DISTRIBUTION
3.3. REVENUE DISTRIBUTION
The following charts provide additional information regarding our revenue mix for the year:
The following charts provide additional information regarding our revenue mix for the year:
B
A
Service Type
Service Type
Managed IT and Business Process Services
Managed IT and Business Process Services
System integration and consulting
System integration and consulting
A.
A.
B.
B.
H
G
F
E
D
C
A
B
Client Geography
Client Geography
54% A. U.S.
54% A. U.S.
46% B. Canada
46% B. Canada
C. France
C. France
D. U.K.
D. U.K.
E. Sweden
E. Sweden
Finland
F.
Finland
F.
G. Germany
G. Germany
H. Rest of the world
H. Rest of the world
30% A.
30% A.
15% B.
15% B.
14% C.
14% C.
12% D.
12% D.
7% E.
7% E.
6%
6%
6%
6%
10%
10%
E
D
A
C
B
Vertical Market
Vertical Market
Government
Government
MRD
MRD
Financial services
Financial services
Communications & utilities
Communications & utilities
Health
Health
34%
34%
24%
24%
22%
22%
13%
13%
7%
7%
3.3.1. Client Concentration
3.3.1. Client Concentration
IFRS guidance on segment disclosures defines a single customer as a group of entities that are known to the reporting entity
IFRS guidance on segment disclosures defines a single customer as a group of entities that are known to the reporting entity
to be under common control. As a consequence, our work for the U.S. federal government including its various agencies
to be under common control. As a consequence, our work for the U.S. federal government including its various agencies
represented 13.8% of our revenue for Fiscal 2020 as compared to 12.8% for Fiscal 2019.
represented 13.8% of our revenue for Fiscal 2020 as compared to 12.8% for Fiscal 2019.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 19
Page 19
FISCAL 2020 RESULTS — 19 ManageMent's Discussion anD analysis
3.4. REVENUE BY SEGMENT
Our segments are reported based on where the client's work is delivered from within our geographic delivery model.
The table below provides a summary of the year-over-year changes in our revenue, in total and by segment before eliminations,
separately showing the impacts of foreign currency exchange rate variations between Fiscal 2020 and Fiscal 2019. The Fiscal
Revenue prior to foreign currency impact
606,252
81,959
13.5%
2019 revenue by segment was recorded reflecting the actual foreign exchange rates for that period. The foreign exchange
impact is the difference between the current period’s actual results and the same period’s results converted with the prior
year’s foreign exchange rates.
For the years ended September 30,
In thousands of CAD except for percentages
Total CGI revenue
Variation prior to foreign currency impact
Foreign currency impact
Variation over previous period
Western and Southern Europe
Revenue prior to foreign currency impact
Foreign currency impact
2020
2019
Change
$
%
12,164,115
12,111,236
52,879
0.4%
(0.1%)
0.5%
0.4%
For the year ended September 30, 2020, revenue was $12,164.1 million, an increase of $52.9 million, or 0.4% over the same
period last year. On a constant currency basis, revenue was essentially stable. Recent business acquisitions were offset by
the slowdown of activities, primarily in the MRD, financial services and communications & utilities vertical markets, mostly as
1,904,508
2,022,677
(118,169)
(5.8%)
decrease of $111.2 million or 5.5% over the same period last year. On a constant currency basis, revenue decreased by $118.2
6,969
million or 5.8%. The change in revenue was due to the slowdown of activities mainly within the financial services,
For the year ended September 30, 2020, revenue in our Western and Southern Europe segment was $1,911.5 million, a
Western and Southern Europe revenue
1,911,477
2,022,677
(111,200)
(5.5%)
communications and utilities and MRD vertical markets, primarily as a result of COVID-19. This was partially offset by the Meti
For the years ended September 30,
In thousands of CAD except for percentages
Asia Pacific
Foreign currency impact
Asia Pacific revenue
Eliminations
a result of COVID-19.
3.4.1. Western and Southern Europe
2020
2019
Change
$
%
688,211
(13,265)
674,946
606,252
68,694
(136,226)
(125,770)
(10,456)
11.3%
8.3%
U.S. Commercial and State Government
Revenue prior foreign currency impact
Foreign currency impact
U.S. Commercial and State Government revenue
Canada
1,836,637
26,830
1,834,917
1,720
0.1%
1,863,467
1,834,917
28,550
1.6%
Revenue prior to foreign currency impact
1,685,511
1,768,924
(83,413)
(4.7%)
758
1,686,269
1,768,924
(82,655)
(4.7%)
1,597,922
89,870
1,597,922
114,322
5.6%
7.2%
1,356,858
(14,010)
(1.0%)
3.4.3. Canada
1,687,792
24,452
1,712,244
1,342,848
15,621
1,358,469
1,356,858
1,611
1,205,805
1,166,486
39,319
6,391
0.1%
3.4%
3.9%
2.8%
0.8%
(21,747)
1,104,121
1,095,330
8,791
774,211
2,941
777,152
787,640
(13,429)
(1.7%)
787,640
(10,488)
(1.3%)
acquisition and growth within the government vertical market.
On a client geographic basis, the top two Western and Southern Europe vertical markets were MRD and financial services,
generating combined revenues of approximately $1,186 million for the year ended September 30, 2020.
3.4.2. U.S. Commercial and State Government
For the year ended September 30, 2020, revenue in our U.S. Commercial and State Government segment was $1,863.5
million, an increase of $28.6 million or 1.6% over the same period last year. On a constant currency basis, revenue increased
by $1.7 million or 0.1%. The increase was mainly due to growth within the financial services vertical market and the state and
local government market. This was in part offset by an adjustment due to a reevaluation of cost to complete on a project and
lower work volume within the communications & utilities vertical market.
On a client geographic basis, the top two U.S. Commercial and State Government vertical markets were financial services
and government, generating combined revenues of approximately $1,156 million for the year ended September 30, 2020.
For the year ended September 30, 2020, revenue in our Canada segment was $1,686.3 million, a decrease of $82.7 million
or 4.7% compared to the same period last year. On a constant currency basis, revenue decreased by $83.4 million or 4.7%.
The change was mainly due to the impact of COVID-19, lower work volumes and license sales within the financial services
vertical market and a higher proportion of client projects transferred to our global delivery centers of excellence in Asia-Pacific.
On a client geographic basis, the top two Canada vertical markets were financial services and communications & utilities,
generating combined revenues of approximately $1,138 million for the year ended September 30, 2020.
3.4.4. U.S. Federal
For the year ended September 30, 2020, revenue in our U.S. Federal segment was $1,712.2 million, an increase of $114.3
million or 7.2% over the same period last year. On a constant currency basis, revenue increased by $89.9 million or 5.6%.
The increase was driven by IP solutions, application support and cybersecurity services and recent business acquisitions.
This was partly offset by lower transaction volumes related to our IP business process services, mainly due to the impact of
the COVID-19 and adjustments on certain client contracts in the defense sector.
For the year ended September 30, 2020, 82% of revenues within the U.S. Federal segment were federal civilian based.
Foreign currency impact
Canada revenue
U.S. Federal
Revenue prior to foreign currency impact
Foreign currency impact
U.S. Federal revenue
U.K. and Australia
Revenue prior to foreign currency impact
Foreign currency impact
U.K. and Australia revenue
Central and Eastern Europe
Revenue prior to foreign currency impact
Foreign currency impact
Foreign currency impact
Scandinavia revenue
Finland, Poland and Baltics
Revenue prior to foreign currency impact
Foreign currency impact
Finland, Poland & Baltics revenue
Central and Eastern Europe revenue
1,212,196
1,166,486
45,710
Scandinavia
Revenue prior to foreign currency impact
1,125,868
1,095,330
30,538
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 20
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 21
20 For the years ended September 30,
In thousands of CAD except for percentages
Asia Pacific
Revenue prior to foreign currency impact
Foreign currency impact
Asia Pacific revenue
Eliminations
2020
2019
Change
$
%
688,211
(13,265)
674,946
606,252
81,959
13.5%
606,252
68,694
(136,226)
(125,770)
(10,456)
11.3%
8.3%
For the year ended September 30, 2020, revenue was $12,164.1 million, an increase of $52.9 million, or 0.4% over the same
period last year. On a constant currency basis, revenue was essentially stable. Recent business acquisitions were offset by
the slowdown of activities, primarily in the MRD, financial services and communications & utilities vertical markets, mostly as
a result of COVID-19.
3.4.1. Western and Southern Europe
For the year ended September 30, 2020, revenue in our Western and Southern Europe segment was $1,911.5 million, a
decrease of $111.2 million or 5.5% over the same period last year. On a constant currency basis, revenue decreased by $118.2
million or 5.8%. The change in revenue was due to the slowdown of activities mainly within the financial services,
communications and utilities and MRD vertical markets, primarily as a result of COVID-19. This was partially offset by the Meti
acquisition and growth within the government vertical market.
On a client geographic basis, the top two Western and Southern Europe vertical markets were MRD and financial services,
generating combined revenues of approximately $1,186 million for the year ended September 30, 2020.
3.4.2. U.S. Commercial and State Government
For the year ended September 30, 2020, revenue in our U.S. Commercial and State Government segment was $1,863.5
million, an increase of $28.6 million or 1.6% over the same period last year. On a constant currency basis, revenue increased
by $1.7 million or 0.1%. The increase was mainly due to growth within the financial services vertical market and the state and
local government market. This was in part offset by an adjustment due to a reevaluation of cost to complete on a project and
lower work volume within the communications & utilities vertical market.
On a client geographic basis, the top two U.S. Commercial and State Government vertical markets were financial services
and government, generating combined revenues of approximately $1,156 million for the year ended September 30, 2020.
3.4.3. Canada
For the year ended September 30, 2020, revenue in our Canada segment was $1,686.3 million, a decrease of $82.7 million
or 4.7% compared to the same period last year. On a constant currency basis, revenue decreased by $83.4 million or 4.7%.
The change was mainly due to the impact of COVID-19, lower work volumes and license sales within the financial services
vertical market and a higher proportion of client projects transferred to our global delivery centers of excellence in Asia-Pacific.
On a client geographic basis, the top two Canada vertical markets were financial services and communications & utilities,
generating combined revenues of approximately $1,138 million for the year ended September 30, 2020.
3.4.4. U.S. Federal
For the year ended September 30, 2020, revenue in our U.S. Federal segment was $1,712.2 million, an increase of $114.3
million or 7.2% over the same period last year. On a constant currency basis, revenue increased by $89.9 million or 5.6%.
The increase was driven by IP solutions, application support and cybersecurity services and recent business acquisitions.
This was partly offset by lower transaction volumes related to our IP business process services, mainly due to the impact of
the COVID-19 and adjustments on certain client contracts in the defense sector.
For the year ended September 30, 2020, 82% of revenues within the U.S. Federal segment were federal civilian based.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 21
FISCAL 2020 RESULTS — 21 ManageMent's Discussion anD analysis
3.4.5. U.K. and Australia
For the year ended September 30, 2020, revenue in our U.K. and Australia segment was $1,358.5 million, an increase of $1.6
million or 0.1% over the same period last year. On a constant currency basis, revenue decreased by $14.0 million or 1.0%.
The change was mainly due to the non-renewal of certain infrastructure contracts and the successful completion of the build
phase of a large project within the communications and utilities vertical market. This was mostly offset by growth within the
space, defense and intelligence sector, in part driven by the SCISYS acquisition.
On a client geographic basis, the top two U.K. and Australia vertical markets were government and communications & utilities,
generating combined revenues of approximately $1,108 million for the year ended September 30, 2020.
3.4.6. Central and Eastern Europe
For the year ended September 30, 2020, revenue in our Central and Eastern Europe segment was $1,212.2 million, an
increase of $45.7 million or 3.9% over the same period last year. On a constant currency basis, revenue increased by $39.3
million or 3.4%. The increase in revenue was primarily due to the Acando AB (Acando) and SCISYS acquisitions. This was
partially offset by the impact of COVID-19, mainly within the MRD and financial services vertical markets, and a higher proportion
of client projects transferred to our global delivery centers of excellence in Asia-Pacific.
On a client geographic basis, the top two Central and Eastern Europe vertical markets were MRD and communications &
utilities, generating combined revenues of approximately $800 million for the year ended September 30, 2020.
3.4.7. Scandinavia
For the year ended September 30, 2020, revenue in our Scandinavia segment was $1,104.1 million, an increase of $8.8 million
or 0.8% over the same period last year. On a constant currency basis, revenue increased by $30.5 million or 2.8%.The increase
was mainly driven by the Acando acquisition. This was in part offset by a slowdown of activities primarily within the MRD
vertical market, related to the impact of COVID-19, as well as the non-renewal of infrastructure contracts.
On a client geographic basis, the top two Scandinavia vertical markets were MRD and government, generating combined
revenues of approximately $870 million for the year ended September 30, 2020.
3.4.8. Finland, Poland and Baltics
For the year ended September 30, 2020, revenue in our Finland, Poland and Baltics segment was $777.2 million, a decrease
of $10.5 million or 1.3% over the same period last year. On a constant currency basis, revenue decreased by $13.4 million
or 1.7% due to the non-renewal of infrastructure contracts and the impact of COVID-19, in part offset by the Acando Acquisition.
On a client geographic basis, the top two Finland, Poland and Baltics vertical markets were government and financial services,
generating combined revenues of approximately $473 million for the year ended September 30, 2020.
3.4.9. Asia Pacific
For the year ended September 30, 2020, revenue in our Asia Pacific segment was $674.9 million, an increase of $68.7 million
or 11.3% over the same period last year. On a constant currency basis, revenue increased by $82.0 million or 13.5%. The
increase was mainly driven by the continued demand for our offshore delivery centers, predominantly within the financial
services and communications & utilities vertical markets.
3.5. OPERATING EXPENSES
For the years ended September 30,
In thousands of CAD except for percentages
2020
% of
Revenue
2019
% of
Revenue
$
%
Costs of services, selling and administrative
10,302,068
84.7% 10,284,007
84.9%
18,061
0.2%
Foreign exchange (gain) loss
(899)
0.0%
2,234
0.0%
(3,133)
(140.2%)
3.5.1. Costs of Services, Selling and Administrative
For the year ended September 30, 2020, costs of services, selling and administrative expenses amounted to $10,302.1 million,
an increase of $18.1 million over the same period last year. As a percentage of revenue, costs of services, selling and
administrative expenses decreased to 84.7% from 84.9%. As a percentage of revenue, costs of services increased compared
to the same period last year due to the impact of a lower proportion of IP license sales revenue and adjustments on client
contracts. This was partly offset by lower performance based compensation and planned synergies achieved through the
optimization and automation in our infrastructure business, as discussed in section 3.6. of the present document. As a
percentage of revenue, selling and administrative expenses improved compared to the same period last year mainly due to
actions taken to lower expenses in response to COVID-19 and lower performance based compensation.
During the year ended September 30, 2020, the translation of the results of our foreign operations from their local currencies
to the Canadian dollar unfavourably impacted costs by $50.3 million, partially offsetting the favourable translation impact of
$61.0 million on our revenue.
3.5.2. Foreign Exchange (Gain) Loss
During the year ended September 30, 2020, CGI incurred $0.9 million of foreign exchange gains, mainly driven by the timing
of payments combined with the volatility of foreign exchange rates. The Company, in addition to its natural hedges, uses
derivatives as a strategy to manage its exposure, to the extent possible.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 22
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 23
22 3.5. OPERATING EXPENSES
For the years ended September 30,
In thousands of CAD except for percentages
2020
% of
Revenue
2019
% of
Revenue
$
%
Costs of services, selling and administrative
10,302,068
84.7% 10,284,007
84.9%
18,061
0.2%
Foreign exchange (gain) loss
(899)
0.0%
2,234
0.0%
(3,133)
(140.2%)
3.5.1. Costs of Services, Selling and Administrative
For the year ended September 30, 2020, costs of services, selling and administrative expenses amounted to $10,302.1 million,
an increase of $18.1 million over the same period last year. As a percentage of revenue, costs of services, selling and
administrative expenses decreased to 84.7% from 84.9%. As a percentage of revenue, costs of services increased compared
to the same period last year due to the impact of a lower proportion of IP license sales revenue and adjustments on client
contracts. This was partly offset by lower performance based compensation and planned synergies achieved through the
optimization and automation in our infrastructure business, as discussed in section 3.6. of the present document. As a
percentage of revenue, selling and administrative expenses improved compared to the same period last year mainly due to
actions taken to lower expenses in response to COVID-19 and lower performance based compensation.
During the year ended September 30, 2020, the translation of the results of our foreign operations from their local currencies
to the Canadian dollar unfavourably impacted costs by $50.3 million, partially offsetting the favourable translation impact of
$61.0 million on our revenue.
3.5.2. Foreign Exchange (Gain) Loss
During the year ended September 30, 2020, CGI incurred $0.9 million of foreign exchange gains, mainly driven by the timing
of payments combined with the volatility of foreign exchange rates. The Company, in addition to its natural hedges, uses
derivatives as a strategy to manage its exposure, to the extent possible.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 23
FISCAL 2020 RESULTS — 23 ManageMent's Discussion anD analysis
3.6. ADJUSTED EBIT BY SEGMENT
For the years ended September 30,
In thousands of CAD except for percentages
Western and Southern Europe
As a percentage of segment revenue
U.S. Commercial and State Government
As a percentage of segment revenue
Canada
As a percentage of segment revenue
U.S. Federal
As a percentage of segment revenue
U.K. and Australia
As a percentage of segment revenue
Central and Eastern Europe
As a percentage of segment revenue
Scandinavia
As a percentage of segment revenue
Finland, Poland and Baltics
As a percentage of segment revenue
Asia Pacific
As a percentage of segment revenue
Adjusted EBIT
Adjusted EBIT margin
2020
2019
Change
$
%
3.6.4. U.S. Federal
due to synergies achieved through the optimization and modernization of our infrastructure business and the impact of the
adoption of IFRS 16. This was partly offset by the impact of lower IP license sales and service revenue.
264,009
13.8%
295,795
15.9%
364,424
21.6%
221,793
13.0%
215,924
15.9%
122,548
10.1%
57,231
5.2%
120,959
15.6%
200,263
29.7%
275,535
13.6%
333,210
18.2%
359,089
20.3%
230,054
14.4%
185,290
13.7%
100,244
8.6%
76,648
7.0%
118,771
15.1%
146,154
24.1%
(11,526)
(4.2%)
(37,415)
(11.2%)
5,335
1.5%
(8,261)
(3.6%)
For the year ended September 30, 2020, adjusted EBIT in the U.K. and Australia segment was $215.9 million, an increase of
30,634
16.5%
22,304
22.2%
(19,417)
(25.3%)
2,188
1.8%
54,109
37.0%
1,862,946
1,824,995
37,951
2.1%
15.3%
15.1%
For the year ended September 30, 2020, adjusted EBIT margin increased to 15.3% from 15.1% for the same period last year.
The increase was mainly due to lower performance based compensation, the $37.9 million impact of adoption of IFRS 16, as
well as synergies achieved through the optimization and modernization of our infrastructure business. This was partly offset
by adjustments on client contracts.
3.6.1. Western and Southern Europe
For the year ended September 30, 2020, adjusted EBIT in the Western and Southern Europe segment was $264.0 million, a
decrease of $11.5 million when compared to the same period last year. Adjusted EBIT margin increased to 13.8% from 13.6%,
primarily due to lower performance based compensation, a decrease in amortization of client relationships, and to a lesser
extent, the impact of the adoption of IFRS 16. This was partly offset by the slowdown of activities identified in the revenue
section, primarily as a result of COVID-19.
3.6.2. U.S. Commercial and State Government
For the year ended September 30, 2020, adjusted EBIT in the U.S. Commercial and State Government segment was $295.8
million, a decrease of $37.4 million when compared to the same period last year. Adjusted EBIT margin decreased to 15.9%
forward contracts.
from 18.2%. The change in adjusted EBIT margin was mainly due to the impact of lower IP sales and solution revenue and
an adjustment due to a reevaluation of cost to complete on a project. This was in part offset by lower discretionary expenses
and fringe benefits due to COVID-19.
3.6.3. Canada
For the year ended September 30, 2020, adjusted EBIT in the Canada segment was $364.4 million, an increase of $5.3 million
when compared to the same period last year. Adjusted EBIT margin increased to 21.6% from 20.3%. The increase was mainly
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 24
For the year ended September 30, 2020, adjusted EBIT in the U.S. Federal segment was $221.8 million, a decrease of $8.3
million when compared to the same period last year. Adjusted EBIT margin decreased to 13.0% from 14.4%. Adjusted EBIT
margin changed primarily due to lower business process services volumes, mostly related to COVID-19, lower profitability on
defense client contracts and a litigation provision. This was partly offset by the favourable impacts of both a contract settlement
and the adoption of IFRS 16.
3.6.5. U.K. and Australia
$30.6 million when compared to the same period last year. Adjusted EBIT margin increased to 15.9% from 13.7%, mainly due
to adjustments on client contracts and the impact of the U.K. court ruling on pensionable services, both in the prior year.
3.6.6. Central and Eastern Europe
For the year ended September 30, 2020, adjusted EBIT in the Central and Eastern Europe segment was $122.5 million, an
increase of $22.3 million when compared to the same period last year. Adjusted EBIT margin increased to 10.1% from 8.6%.
The increase in adjusted EBIT was driven by the benefits of synergies achieved through the integration of the prior year's
business acquisitions and lower performance based compensation. This was in part offset by the slowdown of activities in the
MRD vertical market, mostly related to COVID-19.
3.6.7. Scandinavia
For the year ended September 30, 2020, adjusted EBIT in the Scandinavia segment was $57.2 million, a decrease of $19.4
million when compared to the same period last year. Adjusted EBIT margin decreased to 5.2% from 7.0%. The change in
adjusted EBIT margin was mainly driven by a slowdown of activities, mostly related to COVID-19, the impact of excess capacity
in our Swedish infrastructure business and additional costs related to the ramp up of new contracts. This was in part offset
by the savings generated from the Restructuring Plan (see section 3.7.2. of the present document).
3.6.8. Finland, Poland and Baltics
For the year ended September 30, 2020 adjusted EBIT in our Finland, Poland and Baltics segment was $121.0 million, an
increase of $2.2 million, when compared to the same period last year. Adjusted EBIT margin increased to 15.6% from 15.1%
mainly due to lower discretionary expenses and the temporary payroll tax relief, both due to COVID-19, and lower performance
based compensation. This was in part offset by the impact of lower work volumes, also in part due to COVID-19.
3.6.9. Asia Pacific
For the year ended September 30, 2020, adjusted EBIT in the Asia Pacific segment was $200.3 million, an increase of $54.1
million when compared to the same period last year. Adjusted EBIT margin increased to 29.7% from 24.1%. The increase in
adjusted EBIT margin was mostly due to automation and other productivity improvements, cost reduction in transportation
and facilities due to the COVID-19 shutdown, the impact of the adoption of IFRS 16 and the favourable impact of our currency
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 25
24 due to synergies achieved through the optimization and modernization of our infrastructure business and the impact of the
adoption of IFRS 16. This was partly offset by the impact of lower IP license sales and service revenue.
3.6.4. U.S. Federal
For the year ended September 30, 2020, adjusted EBIT in the U.S. Federal segment was $221.8 million, a decrease of $8.3
million when compared to the same period last year. Adjusted EBIT margin decreased to 13.0% from 14.4%. Adjusted EBIT
margin changed primarily due to lower business process services volumes, mostly related to COVID-19, lower profitability on
defense client contracts and a litigation provision. This was partly offset by the favourable impacts of both a contract settlement
and the adoption of IFRS 16.
3.6.5. U.K. and Australia
For the year ended September 30, 2020, adjusted EBIT in the U.K. and Australia segment was $215.9 million, an increase of
$30.6 million when compared to the same period last year. Adjusted EBIT margin increased to 15.9% from 13.7%, mainly due
to adjustments on client contracts and the impact of the U.K. court ruling on pensionable services, both in the prior year.
3.6.6. Central and Eastern Europe
For the year ended September 30, 2020, adjusted EBIT in the Central and Eastern Europe segment was $122.5 million, an
increase of $22.3 million when compared to the same period last year. Adjusted EBIT margin increased to 10.1% from 8.6%.
The increase in adjusted EBIT was driven by the benefits of synergies achieved through the integration of the prior year's
business acquisitions and lower performance based compensation. This was in part offset by the slowdown of activities in the
MRD vertical market, mostly related to COVID-19.
3.6.7. Scandinavia
For the year ended September 30, 2020, adjusted EBIT in the Scandinavia segment was $57.2 million, a decrease of $19.4
million when compared to the same period last year. Adjusted EBIT margin decreased to 5.2% from 7.0%. The change in
adjusted EBIT margin was mainly driven by a slowdown of activities, mostly related to COVID-19, the impact of excess capacity
in our Swedish infrastructure business and additional costs related to the ramp up of new contracts. This was in part offset
by the savings generated from the Restructuring Plan (see section 3.7.2. of the present document).
3.6.8. Finland, Poland and Baltics
For the year ended September 30, 2020 adjusted EBIT in our Finland, Poland and Baltics segment was $121.0 million, an
increase of $2.2 million, when compared to the same period last year. Adjusted EBIT margin increased to 15.6% from 15.1%
mainly due to lower discretionary expenses and the temporary payroll tax relief, both due to COVID-19, and lower performance
based compensation. This was in part offset by the impact of lower work volumes, also in part due to COVID-19.
3.6.9. Asia Pacific
For the year ended September 30, 2020, adjusted EBIT in the Asia Pacific segment was $200.3 million, an increase of $54.1
million when compared to the same period last year. Adjusted EBIT margin increased to 29.7% from 24.1%. The increase in
adjusted EBIT margin was mostly due to automation and other productivity improvements, cost reduction in transportation
and facilities due to the COVID-19 shutdown, the impact of the adoption of IFRS 16 and the favourable impact of our currency
forward contracts.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 25
FISCAL 2020 RESULTS — 25 ManageMent's Discussion anD analysis
3.7. EARNINGS BEFORE INCOME TAXES
3.8. NET EARNINGS AND EARNINGS PER SHARE
The following table provides a reconciliation between our adjusted EBIT and earnings before income taxes, which is reported
The following table sets out the information supporting the earnings per share calculations:
Earnings before income taxes
1,516,267
12.5% 1,676,948
76,794
155,411
114,474
0.6%
1.3%
0.9%
77,417
—
70,630
0.6%
—
0.6%
13.8%
(623)
(0.8%)
155,411
43,844
(160,681)
—
62.1%
(9.6%)
in accordance with IFRS:
For the years ended September 30,
In thousands of CAD except for percentage
Adjusted EBIT
Minus the following items:
Acquisition-related and integration costs
Restructuring costs
Net finance costs
2020
% of
Revenue
2019
% of
Revenue
Change
$
%
1,862,946
15.3% 1,824,995
15.1%
37,951
2.1%
For the years ended September 30,
2020
2019
In thousands of CAD except for percentage and shares data
Earnings before income taxes
1,516,267
398,405
26.3%
1,117,862
9.2%
1,676,948
413,741
24.7%
1,263,207
10.4%
Change
$
(160,681)
(15,336)
%
(9.6%)
(3.7%)
(145,345)
(11.5%)
262,005,521
272,719,309
(10,713,788)
(3.9%)
4.27
4.20
4.63
4.55
(0.36)
(0.35)
(7.8%)
(7.7%)
Income tax expense
Effective tax rate
Net earnings
Net earnings margin
Weighted average number of shares outstanding
Class A subordinate voting shares and Class B
multiple voting shares (basic)
Class A subordinate voting shares and Class B
multiple voting shares (diluted)
Earnings per share (in dollars)
Basic
Diluted
3.8.1. Income Tax Expense
For the year ended September 30, 2020, income tax expense was $398.4 million compared to $413.7 million over the same
period last year, while our effective tax rate increased to 26.3% from 24.7%. The prior year effective tax rate was impacted
by a tax adjustment from a settlement with the German tax authorities where the Company booked $115.5 million of additional
corporate tax losses, and recorded a $18.5 million income tax recovery.
When excluding that tax adjustment and the tax effects from acquisition-related and integration costs and restructuring costs,
the effective tax rate would have been 25.6% for both financial years. The effective tax rate excluding specific items is a non-
GAAP measure that management believes is useful when comparing our performance to the prior year.
The table in section 3.8.3. shows the year-over-year comparison of the tax rate with the impact of specific items removed.
Based on the enacted rates at the end of Fiscal 2020 and our current business mix, we expect our effective tax rate before
any significant adjustments to be in the range of 25.0% to 27.0% in subsequent periods.
3.8.2. Weighted Average Number of Shares
For Fiscal 2020, CGI’s basic and diluted weighted average number of shares decreased compared to Fiscal 2019 due to the
impact of purchase for cancellation of Class A Shares, partly offset by the grant and the exercise of stock options. Please refer
to notes 19, 20 and 21 of our audited consolidated financial statements for additional information.
3.7.1. Acquisition-Related and Integration Costs
266,104,062
277,785,725
(11,681,663)
(4.2%)
For the year ended September 30, 2020, the Company incurred $76.8 million, for acquisition-related and integration costs,
acquisitions' integration towards the CGI operating model. These costs were mainly related to terminations of employment
and professional fees.
3.7.2. Restructuring Costs
During the year ended September 30, 2020, the Company incurred, as part of its cost reduction efforts in response to COVID-19,
restructuring costs related to terminations of employment, primarily in France, Canada and Germany. The initiative is expected
to help mitigate the adverse impacts of COVID-19.
During the year ended September 30, 2020, the Company also announced a restructuring plan (the Restructuring Plan),
mainly for the closure of our Brazil operations, the refocusing of the Portugal infrastructure business towards nearshore delivery
and the optimization of the Sweden infrastructure business. These actions generated benefits throughout Fiscal 2020, as
discussed in section 3.6. of the present document.
As a result, a total of $155.4 million was expensed during the year ended September 30, 2020.
3.7.3. Net Finance Costs
Net finance costs mainly include interest on our long-term debt. For the year ended September 30, 2020, the increase in net
finance costs of $43.8 million was mainly due to the recognition of $32.0 million of interest expense on leases liabilities upon
adoption of IFRS 16 and our 2020 Term Loan.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 26
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 27
26 3.8. NET EARNINGS AND EARNINGS PER SHARE
The following table sets out the information supporting the earnings per share calculations:
For the years ended September 30,
2020
2019
In thousands of CAD except for percentage and shares data
Earnings before income taxes
Income tax expense
Effective tax rate
Net earnings
Net earnings margin
Weighted average number of shares outstanding
Class A subordinate voting shares and Class B
multiple voting shares (basic)
Class A subordinate voting shares and Class B
multiple voting shares (diluted)
Earnings per share (in dollars)
Basic
Diluted
3.8.1. Income Tax Expense
1,516,267
398,405
26.3%
1,117,862
9.2%
1,676,948
413,741
24.7%
1,263,207
10.4%
Change
$
(160,681)
(15,336)
%
(9.6%)
(3.7%)
(145,345)
(11.5%)
262,005,521
272,719,309
(10,713,788)
(3.9%)
266,104,062
277,785,725
(11,681,663)
(4.2%)
4.27
4.20
4.63
4.55
(0.36)
(0.35)
(7.8%)
(7.7%)
For the year ended September 30, 2020, income tax expense was $398.4 million compared to $413.7 million over the same
period last year, while our effective tax rate increased to 26.3% from 24.7%. The prior year effective tax rate was impacted
by a tax adjustment from a settlement with the German tax authorities where the Company booked $115.5 million of additional
corporate tax losses, and recorded a $18.5 million income tax recovery.
When excluding that tax adjustment and the tax effects from acquisition-related and integration costs and restructuring costs,
the effective tax rate would have been 25.6% for both financial years. The effective tax rate excluding specific items is a non-
GAAP measure that management believes is useful when comparing our performance to the prior year.
The table in section 3.8.3. shows the year-over-year comparison of the tax rate with the impact of specific items removed.
Based on the enacted rates at the end of Fiscal 2020 and our current business mix, we expect our effective tax rate before
any significant adjustments to be in the range of 25.0% to 27.0% in subsequent periods.
3.8.2. Weighted Average Number of Shares
For Fiscal 2020, CGI’s basic and diluted weighted average number of shares decreased compared to Fiscal 2019 due to the
impact of purchase for cancellation of Class A Shares, partly offset by the grant and the exercise of stock options. Please refer
to notes 19, 20 and 21 of our audited consolidated financial statements for additional information.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 27
FISCAL 2020 RESULTS — 27 ManageMent's Discussion anD analysis
4. Liquidity
3.8.3. Net Earnings and Earnings per Share Excluding Specific Items
4.1. CONSOLIDATED STATEMENTS OF CASH FLOWS
Below is a table showing the year-over-year comparison excluding specific items namely, acquisition-related and integration
costs and restructuring costs.
For the years ended September 30,
In thousands of CAD except for percentages and shares data
Earnings before income taxes
Add back:
2020
2019
Change
$
%
1,516,267
1,676,948
(160,681)
(9.6%)
Acquisition-related and integration costs
Restructuring costs
76,794
155,411
77,417
—
Earnings before income taxes excluding specific items
1,748,472
1,754,365
(623)
155,411
(5,893)
(0.8%)
—
(0.3%)
Margin
Income tax expense
Effective tax rate
Add back:
Tax deduction on acquisition-related and integration costs
Impact on effective tax rate
Tax deduction on restructuring costs
Impact on effective tax rate
Tax adjustment
Impact on effective tax rate
Income tax expense excluding specific items
Effective tax rate excluding specific items
14.4%
14.5%
Cash provided by (used in) financing activities
94,172
(629,109)
398,405
26.3%
14,717
(0.3%)
35,278
(0.4%)
—
—
448,400
25.6%
413,741
24.7%
16,307
(0.2%)
—
—
18,451
1.1%
448,499
25.6%
(15,336)
(3.7%)
(1,590)
(9.8%)
35,278
—
(18,451)
(100.0%)
The following table provides a summary of the generation and use of cash from operating activities:
(99)
—%
For the years ended September 30,
2020
2019
Change
Net earnings excluding specific items
1,300,072
1,305,866
(5,794)
(0.4%)
Amortization, depreciation and impairment
Net earnings margin excluding specific items
10.7%
10.8%
Weighted average number of shares outstanding
Class A subordinate voting shares and Class B multiple
voting shares (basic)
262,005,521
272,719,309
Class A subordinate voting shares and Class B multiple
voting shares (diluted)
266,104,062
277,785,725
Earnings per share excluding specific items (in dollars)
Basic
Diluted
4.96
4.89
4.79
4.70
0.17
0.19
(3.9%)
(4.2%)
3.5%
4.0%
CGI’s growth is financed through a combination of cash flow from operations, drawing on our unsecured committed revolving
credit facility, the issuance of long-term debt, and the issuance of equity. One of our financial priorities is to maintain an optimal
level of liquidity through the active management of our assets and liabilities as well as our cash flows.
As at September 30, 2020, cash and cash equivalents were $1,708.0 million. The following table provides a summary of the
generation and use of cash for the years ended September 30, 2020 and 2019.
For the years ended September 30,
In thousands of CAD
Cash provided by operating activities
Cash used in investing activities
2020
2019
Change
1,938,556
(572,453)
1,633,919
(950,809)
304,637
378,356
723,281
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
33,879
1,494,154
(24,261)
29,740
58,140
1,464,414
4.1.1. Cash Provided by Operating Activities
For the year ended September 30, 2020, cash provided by operating activities was $1,938.6 million or 15.9% of revenue
compared to $1,633.9 million or 13.5% for the same period last year.
In thousands of CAD
Net earnings
Other adjustments1
items
liabilities
Other2
1
taxes.
1,117,862
1,263,207
(145,345)
565,692
392,301
173,391
36,838
34,662
2,176
1,720,392
1,690,170
30,222
12,193
(51,015)
218,164
(21,620)
(56,490)
(56,251)
33,813
5,475
274,415
1,938,556
1,633,919
304,637
Cash flow from operating activities before net change in non-cash working capital
Net change in non-cash working capital items:
Accounts receivable, work in progress and deferred revenue
256,986
21,859
235,127
Accounts payable and accrued liabilities, accrued compensation, provisions and long-term
Net change in non-cash working capital items
Cash provided by operating activities
Comprised of deferred income taxes, foreign exchange (gain) loss, loss on sale of business and share-based payment costs.
2 Comprised of prepaid expenses and other assets, long-term financial assets, retirement benefits obligations, derivative financial instruments and income
For the year ended September 30, 2020, the increase in our cash provided by operating activities was mostly due to higher
collection of receivables and the impact of $165.3 million coming from the change in presentation of the payment of leases
resulting from the adoption of IFRS 16. This was partially offset by the timing of payables.
The timing of our working capital inflows and outflows will always have an impact on the cash flow from operations.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 29
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 28
28 4. Liquidity
4. Liquidity
4.1. CONSOLIDATED STATEMENTS OF CASH FLOWS
CGI’s growth is financed through a combination of cash flow from operations, drawing on our unsecured committed revolving
credit facility, the issuance of long-term debt, and the issuance of equity. One of our financial priorities is to maintain an optimal
level of liquidity through the active management of our assets and liabilities as well as our cash flows.
As at September 30, 2020, cash and cash equivalents were $1,708.0 million. The following table provides a summary of the
generation and use of cash for the years ended September 30, 2020 and 2019.
For the years ended September 30,
In thousands of CAD
Cash provided by operating activities
Cash used in investing activities
2020
2019
Change
1,938,556
(572,453)
1,633,919
(950,809)
304,637
378,356
723,281
Cash provided by (used in) financing activities
94,172
(629,109)
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
33,879
1,494,154
(24,261)
29,740
58,140
1,464,414
4.1.1. Cash Provided by Operating Activities
For the year ended September 30, 2020, cash provided by operating activities was $1,938.6 million or 15.9% of revenue
compared to $1,633.9 million or 13.5% for the same period last year.
The following table provides a summary of the generation and use of cash from operating activities:
For the years ended September 30,
2020
2019
Change
In thousands of CAD
Net earnings
Amortization, depreciation and impairment
Other adjustments1
1,117,862
1,263,207
(145,345)
565,692
392,301
173,391
36,838
34,662
2,176
Cash flow from operating activities before net change in non-cash working capital
items
1,720,392
1,690,170
30,222
Net change in non-cash working capital items:
Accounts receivable, work in progress and deferred revenue
256,986
21,859
235,127
Accounts payable and accrued liabilities, accrued compensation, provisions and long-term
liabilities
Other2
Net change in non-cash working capital items
Cash provided by operating activities
12,193
(51,015)
218,164
(21,620)
(56,490)
(56,251)
33,813
5,475
274,415
1,938,556
1,633,919
304,637
Comprised of deferred income taxes, foreign exchange (gain) loss, loss on sale of business and share-based payment costs.
1
2 Comprised of prepaid expenses and other assets, long-term financial assets, retirement benefits obligations, derivative financial instruments and income
taxes.
For the year ended September 30, 2020, the increase in our cash provided by operating activities was mostly due to higher
collection of receivables and the impact of $165.3 million coming from the change in presentation of the payment of leases
resulting from the adoption of IFRS 16. This was partially offset by the timing of payables.
The timing of our working capital inflows and outflows will always have an impact on the cash flow from operations.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 29
FISCAL 2020 RESULTS — 29 ManageMent's Discussion anD analysis
4.1.2. Cash Used in Investing Activities
4.1.3. Cash Provided by (Used in) Financing Activities
For the year ended September 30, 2020, $572.5 million was used in investing activities while $950.8 million was used over
For the year ended September 30, 2020, $94.2 million was generated from financing activities while $629.1 million was used
the same periods last year.
over the same period last year.
The following table provides a summary of the use of cash from investing activities:
The following table provides a summary of the generation and use of cash from financing activities:
For the years ended September 30,
In thousands of CAD
Business acquisitions and Investment in Acando AB
Purchase of property, plant and equipment
Additions to contract costs
Additions to intangible assets
Net change in short-term investments and purchase of long-term investments
Cash used in investing activities
2020
2019
Change
(266,938)
(128,478)
(72,845)
(114,112)
9,920
(572,453)
(620,014)
(162,061)
(60,191)
(105,976)
(2,567)
(950,809)
353,076
33,583
(12,654)
(8,136)
12,487
378,356
The decrease of $378.4 million in cash used in investing activities during the year ended September 30, 2020 was mainly due
to the decrease in cash used in the prior year for the acquisition of Acando, as well as a decrease of investments in computer
Settlement of derivative financial instruments
equipment and leasehold improvements. This was partially offset by an increase of investment in business acquisitions.
For the years ended September 30,
In thousands of CAD
Net change in unsecured committed revolving credit facility
Payment of lease liabilities
Net change in long-term debt
Repayment of debt assumed from business acquisitions
Payment for remaining shares of Acando
Purchase of Class A subordinate voting shares held in trusts
2020
2019
Change
(334,370)
(175,320)
1,700,671
1,190,981
(28,281)
(23,123)
(55,287)
(3,903)
139,575
—
331,404
470,979
(2,141)
—
(30,740)
(554)
(473,945)
(175,320)
1,369,267
720,002
(26,140)
(23,123)
(24,547)
(3,349)
86,738
(6,300)
723,281
Purchase and cancellation of Class A subordinate voting shares
Issuance of Class A subordinate voting shares
Cash provided by (used in) financing activities
(1,043,517)
(1,130,255)
57,302
94,172
63,602
(629,109)
For the year ended September 30, 2020, the Company received through the 2020 Term Loan an amount of $1,764.7 million
(US$1,250.0 million), had a net repayment of $334.4 million under our unsecured committed revolving credit facility, made
scheduled repayments of senior unsecured notes in the amount of $65.9 million. In addition, we paid $175.3 million of lease
liabilities, of which $165.3 million is related to the adoption of IFRS 16, and used $28.3 million to repay debt assumed from
business acquisitions.
For the year ended September 30, 2019, the Company drew $139.6 million under the unsecured committed revolving credit
facility and entered into a five-year unsecured committed term loan credit facility of $670.0 million (swapped into euro currency)
which was in part used for the scheduled repayments of the Senior unsecured notes in the amount of $306.8 million, used to
invest in business acquisitions and in the purchase for cancellation of Class A Shares.
For the year ended September 30, 2020, the Company paid $23.1 million to acquire the remaining 3.9% of outstanding shares
of Acando.
For the year ended September 30, 2020, $55.3 million was used to purchase Class A Shares in connection with the Company's
Performance Share Unit Plans (PSU Plans) compared to $30.7 million during the year ended September 30, 2019. More
information concerning the PSU Plans can be found in note 20 of the audited consolidated financial statements.
For the year ended September 30, 2020, $1,043.5 million was used to pay for the purchase for cancellation of 10,605,464
Class A Shares. During the year ended September 30, 2019, $1,130.3 million was used to purchase 12,510,232 Class A
Shares for cancellation.
Finally, for the year ended September 30, 2020, we received $57.3 million in proceeds from the exercise of stock options,
compared to $63.6 million during the year ended September 30, 2019.
4.1.4. Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
For the year ended September 30, 2020, the effect of foreign exchange rate changes on cash and cash equivalents had a
favourable impact of $33.9 million. This amount had no effect on net earnings as it was recorded in other comprehensive
income.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 30
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 31
30 4.1.3. Cash Provided by (Used in) Financing Activities
For the year ended September 30, 2020, $94.2 million was generated from financing activities while $629.1 million was used
over the same period last year.
The following table provides a summary of the generation and use of cash from financing activities:
For the years ended September 30,
In thousands of CAD
Net change in unsecured committed revolving credit facility
Payment of lease liabilities
Net change in long-term debt
Repayment of debt assumed from business acquisitions
Payment for remaining shares of Acando
Purchase of Class A subordinate voting shares held in trusts
Settlement of derivative financial instruments
Purchase and cancellation of Class A subordinate voting shares
Issuance of Class A subordinate voting shares
Cash provided by (used in) financing activities
2020
2019
Change
(334,370)
(175,320)
1,700,671
1,190,981
(28,281)
(23,123)
(55,287)
(3,903)
139,575
—
331,404
470,979
(2,141)
—
(30,740)
(554)
(1,043,517)
(1,130,255)
57,302
94,172
63,602
(629,109)
(473,945)
(175,320)
1,369,267
720,002
(26,140)
(23,123)
(24,547)
(3,349)
86,738
(6,300)
723,281
For the year ended September 30, 2020, the Company received through the 2020 Term Loan an amount of $1,764.7 million
(US$1,250.0 million), had a net repayment of $334.4 million under our unsecured committed revolving credit facility, made
scheduled repayments of senior unsecured notes in the amount of $65.9 million. In addition, we paid $175.3 million of lease
liabilities, of which $165.3 million is related to the adoption of IFRS 16, and used $28.3 million to repay debt assumed from
business acquisitions.
For the year ended September 30, 2019, the Company drew $139.6 million under the unsecured committed revolving credit
facility and entered into a five-year unsecured committed term loan credit facility of $670.0 million (swapped into euro currency)
which was in part used for the scheduled repayments of the Senior unsecured notes in the amount of $306.8 million, used to
invest in business acquisitions and in the purchase for cancellation of Class A Shares.
For the year ended September 30, 2020, the Company paid $23.1 million to acquire the remaining 3.9% of outstanding shares
of Acando.
For the year ended September 30, 2020, $55.3 million was used to purchase Class A Shares in connection with the Company's
Performance Share Unit Plans (PSU Plans) compared to $30.7 million during the year ended September 30, 2019. More
information concerning the PSU Plans can be found in note 20 of the audited consolidated financial statements.
For the year ended September 30, 2020, $1,043.5 million was used to pay for the purchase for cancellation of 10,605,464
Class A Shares. During the year ended September 30, 2019, $1,130.3 million was used to purchase 12,510,232 Class A
Shares for cancellation.
Finally, for the year ended September 30, 2020, we received $57.3 million in proceeds from the exercise of stock options,
compared to $63.6 million during the year ended September 30, 2019.
4.1.4. Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
For the year ended September 30, 2020, the effect of foreign exchange rate changes on cash and cash equivalents had a
favourable impact of $33.9 million. This amount had no effect on net earnings as it was recorded in other comprehensive
income.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 31
FISCAL 2020 RESULTS — 31 ManageMent's Discussion anD analysis
4.2. CAPITAL RESOURCES
As at September 30, 2020
In thousands of CAD
Cash and cash equivalents
Short-term investments
Long-term investments
Unsecured committed revolving credit facility1
Total
Available
1,707,985
1,473
22,612
1,490,301
3,222,371
1
As at September 30, 2020, letters of credit in the amount of $9.7 million were outstanding against the $1.5 billion unsecured committed revolving credit
facility.
As at September 30, 2020, cash and cash equivalents and investments represented $1,732.1 million.
Cash equivalents include term deposits, all with maturities of 90 days or less. Short-term investments include money market
securities, with initial maturities ranging from 91 days to one year. Long-term investments include corporate and government
bonds with maturities ranging from one to five years, with a credit rating of A- or higher.
As at September 30, 2020, the aggregate amount of the capital resources available to the Company was $3,222.4 million.
The long-term debt agreements contain covenants, which require us to maintain certain financial ratios. As at September 30,
2020, CGI was in compliance with these covenants.
Total debt increased by $1,255.9 million to $3,587.1 million as at September 30, 2020 compared to $2,331.2 million as at
September 30, 2019. The variance was mainly due to the additional $1,764.7 million (US$1,250.0 million) received through
the 2020 Term Loan, partially offset by the change in the unsecured committed revolving credit facility of $334.4 million, by a
foreign exchange translation impact of $77.1 million and by scheduled repayments of the Senior unsecured notes in the amount
of $65.9 million.
As at September 30, 2020, CGI was showing a positive working capital2 of $1,280.2 million. The Company also had $1,490.3
million available under its unsecured committed revolving credit facility and is generating a significant level of cash, which
CGI's management currently considers will allow the Company to fund its operations while maintaining adequate levels of
liquidity.
The tax implications and impact related to the repatriation of cash will not materially affect the Company’s liquidity.
2 Working capital is defined as total current assets minus total current liabilities.
4.3. CONTRACTUAL OBLIGATIONS
We are committed under the terms of contractual obligations which have various expiration dates, primarily for the rental of
premises, computer equipment used in outsourcing contracts and long-term service agreements. For the year ended
September 30, 2020, the Company increased its commitments by $1,319.5 million mainly due to the increase of long-
term debt.
Commitment type
In thousands of CAD
Long-term debt
Estimated interest on long-term debt
Lease liabilities
Estimated interest on lease liabilities
Long-term service agreements and other
Total
Less than 1
year
1 - 3 years
3 - 5 years
More than 5
years
3,582,216
310,726
2,137,273
1,134,210
7
189,723
876,370
126,123
235,781
84,472
178,720
28,897
124,776
84,659
280,259
45,705
110,790
20,592
202,565
27,306
215
214,826
24,215
Total
5,010,213
727,591
2,658,686
1,384,888
239,048
4.4. FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS
We use various financial instruments to help us manage our exposure to fluctuations of foreign currency exchange rates and
interest rates. Please refer to note 3 and 32 of our audited consolidated financial statements for additional information on our
financial instruments and hedging transactions.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 32
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 33
32 4.3. CONTRACTUAL OBLIGATIONS
We are committed under the terms of contractual obligations which have various expiration dates, primarily for the rental of
premises, computer equipment used in outsourcing contracts and long-term service agreements. For the year ended
September 30, 2020, the Company increased its commitments by $1,319.5 million mainly due to the increase of long-
term debt.
Commitment type
In thousands of CAD
Long-term debt
Estimated interest on long-term debt
Lease liabilities
Estimated interest on lease liabilities
Long-term service agreements and other
Total
Less than 1
year
1 - 3 years
3 - 5 years
More than 5
years
3,582,216
310,726
2,137,273
1,134,210
7
189,723
876,370
126,123
235,781
84,472
178,720
28,897
124,776
84,659
280,259
45,705
110,790
20,592
202,565
27,306
215
214,826
24,215
Total
5,010,213
727,591
2,658,686
1,384,888
239,048
4.4. FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS
We use various financial instruments to help us manage our exposure to fluctuations of foreign currency exchange rates and
interest rates. Please refer to note 3 and 32 of our audited consolidated financial statements for additional information on our
financial instruments and hedging transactions.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 33
FISCAL 2020 RESULTS — 33 4.7. CAPABILITY TO DELIVER RESULTS
Despite the impact of COVID-19, as outlined in section 2.6 of the present document, CGI's management believes that the
Company has sufficient capital resources to support ongoing business operations and execute the Build and Buy growth
strategy. Our principal and most accretive uses of cash are: to invest in our business (procuring new large managed IT and
business process services contracts and developing business and IP solutions); to pursue accretive acquisitions; and to
purchase for cancellation Class A Shares and pay down debt. In terms of financing, we are well positioned to continue executing
our four-pillar growth strategy in Fiscal 2021.
To successfully implement the Company's strategy, CGI relies on a strong leadership team, supported by highly knowledgeable
members with relevant relationships and significant experience in both IT and our targeted industries. CGI fosters leadership
development through the CGI Leadership Institute ensuring continuity and knowledge transfer across the organization. For
key positions, a detailed succession plan is established and revised frequently.
As a Company built on human capital, our professionals and their knowledge are critical to delivering quality service to our
clients. Our human resources program allows us to attract and retain the best talent as it provides competitive compensation
and benefits, a favourable working environment, training programs and career development opportunities. Employee
satisfaction is monitored annually through a Company-wide survey. Also, a majority of our professionals are owners of CGI
ManageMent's Discussion anD analysis
4.5. SELECTED MEASURES OF CAPITAL RESOURCES AND LIQUIDITY
As at September 30,
2020
2019
In thousands of CAD except for percentages
Reconciliation between net debt and long-term debt including the current portion:
awarded the bid. We would also be liable for the performance bonds in the event of a default in the performance of our
obligations. As at September 30, 2020, we had committed a total of $32.1 million for these bonds. To the best of our knowledge,
we complied with our performance obligations under all service contracts for which there was a performance or bid bond, and
the ultimate liability, if any, incurred in connection with these guarantees would not have a material adverse effect on our
Net debt
Add back:
Cash and cash equivalents
Short-term investments
Long-term investments
Fair value of foreign currency derivative financial instruments related to debt
2,777,928
2,117,229
consolidated results of operations or financial condition.
1,707,985
1,473
22,612
(46,533)
213,831
9,889
24,596
(34,338)
Long-term debt (including the current portion) and lease liabilities1
4,463,465
2,331,207
Net debt to capitalization ratio
Return on equity
Return on invested capital
Days sales outstanding
1
23.6%
16.0%
12.1%
47
22.9%
18.5%
15.1%
50
As at September 30, 2020, long-term debt including the current portion was $3,587.1 million and lease liabilities were $876.4 million.
We use the net debt to capitalization ratio as an indication of our financial leverage in order to realize our Build and Buy strategy
(please refer to section 1.2 of the present document for additional information on our Build and Buy strategy). The net debt
to capitalization ratio increased to 23.6% in Fiscal 2020. When excluding the impact of the adoption of IFRS 16, the net debt
to capitalization ratio would have been 17.6% in Fiscal 2020 down from 22.9% in Fiscal 2019, mostly due to higher capitalization
mainly as a result of the 2020 Term Loan and a higher cash generation.
ROE is a measure of the return we are generating for our shareholders. ROE decreased to 16.0% in Fiscal 2020 from 18.5%
through our Share Purchase Plan which, along with the Profit Participation Plan, allow them to share Company successes,
in Fiscal 2019. When excluding the impact of IFRS 16, our ROE would have been 15.9% in Fiscal 2020. The decrease was
further aligning stakeholders interests.
mainly due to lower net earnings over the last four quarters.
In addition to capital resources and talent, CGI has established the Management Foundation encompassing governance
ROIC is a measure of the Company’s efficiency in allocating the capital under our control to profitable investments. The return
policies, organizational model and sophisticated management frameworks for its business units and corporate processes.
on invested capital ratio decreased to 12.1% in Fiscal 2020 from 15.1% in Fiscal 2019. When excluding the impact of IFRS
This robust governance model provides a common business language for managing all operations consistently across the
16, the ROIC ratio would have been 12.7%. The decrease in ROIC was mainly the result of lower net earnings excluding net
globe, driving a focus on continuous improvement. CGI’s operations maintain appropriate certifications in accordance with
finance costs after-tax over the last four quarters.
service requirements such as the ISO and the Capability Maturity Model Integration (CMMI) certification programs.
DSO decreased to 47 days at the end of Fiscal 2020 when compared to 50 days in Fiscal 2019. In calculating the DSO, we
subtract the deferred revenue balance from trade accounts receivable and work in progress; for that reason, the timing of
payments received from managed IT and business process services clients in advance of the work to be performed and the
timing of payments related to project milestones can affect the DSO. The Company maintains a target DSO of 45 days.
4.6. GUARANTEES
In the normal course of operations, we may enter into agreements to provide financial or performance assurances to third
parties on the sale of assets, business divestitures and guarantees on government and commercial contracts.
In connection with sales of assets and business divestitures, the Company may be required to pay counterparties for costs
and losses incurred as a result of breaches in our contractual obligations, representations and warranties, intellectual property
right infringement and litigation against counterparties, among others. While some of the agreements specify a maximum
potential exposure, others do not specify a maximum amount or limited period. It is not possible to reasonably estimate the
maximum amount that may have to be paid under such guarantees. The amounts are dependent upon the outcome of future
contingent events, the nature and likelihood of which cannot be determined at this time. The Company does not expect to
incur any potential payment in connection with these guarantees that could have a materially adverse effect on its audited
consolidated financial statements.
In the normal course of business, we may provide certain clients, principally governmental entities, with bid and performance
bonds. In general, we would only be liable for the amount of the bid bonds if we refuse to perform the project once we are
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 34
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 35
34 awarded the bid. We would also be liable for the performance bonds in the event of a default in the performance of our
obligations. As at September 30, 2020, we had committed a total of $32.1 million for these bonds. To the best of our knowledge,
we complied with our performance obligations under all service contracts for which there was a performance or bid bond, and
the ultimate liability, if any, incurred in connection with these guarantees would not have a material adverse effect on our
consolidated results of operations or financial condition.
4.7. CAPABILITY TO DELIVER RESULTS
Despite the impact of COVID-19, as outlined in section 2.6 of the present document, CGI's management believes that the
Company has sufficient capital resources to support ongoing business operations and execute the Build and Buy growth
strategy. Our principal and most accretive uses of cash are: to invest in our business (procuring new large managed IT and
business process services contracts and developing business and IP solutions); to pursue accretive acquisitions; and to
purchase for cancellation Class A Shares and pay down debt. In terms of financing, we are well positioned to continue executing
our four-pillar growth strategy in Fiscal 2021.
To successfully implement the Company's strategy, CGI relies on a strong leadership team, supported by highly knowledgeable
members with relevant relationships and significant experience in both IT and our targeted industries. CGI fosters leadership
development through the CGI Leadership Institute ensuring continuity and knowledge transfer across the organization. For
key positions, a detailed succession plan is established and revised frequently.
As a Company built on human capital, our professionals and their knowledge are critical to delivering quality service to our
clients. Our human resources program allows us to attract and retain the best talent as it provides competitive compensation
and benefits, a favourable working environment, training programs and career development opportunities. Employee
satisfaction is monitored annually through a Company-wide survey. Also, a majority of our professionals are owners of CGI
through our Share Purchase Plan which, along with the Profit Participation Plan, allow them to share Company successes,
further aligning stakeholders interests.
In addition to capital resources and talent, CGI has established the Management Foundation encompassing governance
policies, organizational model and sophisticated management frameworks for its business units and corporate processes.
This robust governance model provides a common business language for managing all operations consistently across the
globe, driving a focus on continuous improvement. CGI’s operations maintain appropriate certifications in accordance with
service requirements such as the ISO and the Capability Maturity Model Integration (CMMI) certification programs.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 35
FISCAL 2020 RESULTS — 35 5.2. FOREIGN EXCHANGE
dollar amounts in Canadian dollars.
Closing foreign exchange rates
As at September 30,
U.S. dollar
Euro
Indian rupee
British pound
Swedish krona
U.S. dollar
Euro
Indian rupee
British pound
Swedish krona
Average foreign exchange rates
ManageMent's Discussion anD analysis
5. Fourth Quarter Result (Unaudited)
Fourth Quarter Results (Unaudited)
Fourth Quarter Results (Unaudited)
5.
5.
5.1. BOOKINGS AND BOOK-TO-BILL RATIO
5.1. BOOKINGS AND BOOK-TO-BILL RATIO
Bookings for the quarter ended September 30, 2020 were $3.5 billion representing a book-to-bill ratio of 118.8%. The
breakdown of the new bookings signed during the quarter is as follows:
Bookings for the quarter ended September 30, 2020 were $3.5 billion representing a book-to-bill ratio of 118.8%. The
breakdown of the new bookings signed during the quarter is as follows:
The Company operates globally and is exposed to changes in foreign currency rates. Accordingly, as prescribed by IFRS, we
value assets, liabilities and transactions that are measured in foreign currencies using various exchange rates. We report all
B
A
B
A
Contract Type
Service Type
A
B
H
G
F
E
D
C
Segment
78 % A. Managed IT and
Service Type
57 % A. U.S. Federal
Segment
A. Extensions, renewals
Contract Type
and add-ons
A. Extensions, renewals
B. New business
and add-ons
B. New business
22 %
B.
B.
78 % A. Managed IT and
22 %
Business Process
Services
Business Process
Services
System integration and
consulting
System integration and
consulting
E
D
C
B
A
Vertical Market
A. Government
Vertical Market
26 %
14 % B.
26 %
A. Government
Financial Services
14 % B.
14 %
C. MRD
Financial Services
57 % A. U.S. Federal
B. U.S. Commercial and
State Government
B. U.S. Commercial and
U.K.and Australia
State Government
43 % C.
43 % C.
D. Canada
U.K.and Australia
13 % D
14 %
C. MRD
Health
E. Western and
D. Canada
Southern Europe
E. Western and
F. Central and Eastern
Southern Europe
Europe
F. Central and Eastern
G. Scandinavia
Europe
H. Finland, Poland and
G. Scandinavia
Baltics
H. Finland, Poland and
Baltics
11 % E
13 % D
11 % E
9 %
Communication &
Health
Utilities
Communication &
Utilities
7 %
9 %
6 %
7 %
6 %
42 %
42 %
26 %
26 %
16 %
16 %
8 %
8 %
8 %
8 %
For the three months ended September 30,
2019
Change
2020
1.3325
1.5622
0.0181
1.7216
0.1487
2020
1.3327
1.5579
0.0179
1.7215
0.1503
2019
Change
1.3246
1.4446
0.0188
1.6302
0.1347
1.3205
1.4689
0.0188
1.6285
0.1378
0.6%
8.1%
(3.7%)
5.6%
10.4%
0.9%
6.1%
(4.8%)
5.7%
9.1%
The following table provides a summary of the bookings and book-to-bill ratio by segment:
The following table provides a summary of the bookings and book-to-bill ratio by segment:
In thousands of CAD except for percentages
In thousands of CAD except for percentages
Total CGI
Total CGI
Western and Southern Europe
U.S. Commercial and State Government
Western and Southern Europe
Canada
U.S. Commercial and State Government
U.S. Federal
Canada
U.K. and Australia
U.S. Federal
Central and Eastern Europe
U.K. and Australia
Scandinavia
Central and Eastern Europe
Finland, Poland and Baltics
Scandinavia
Finland, Poland and Baltics
Bookings for the three
months ended
September 30, 2020
Bookings for the three
months ended
3,474,148
September 30, 2020
Bookings for the year
ended September 30,
2020
Bookings for the year
ended September 30,
11,847,704
2020
Book-to-bill ratio for
the year ended
September 30, 2020
Book-to-bill ratio for
the year ended
97.4 %
September 30, 2020
3,474,148
391,598
11,847,704
1,860,234
495,585
391,598
458,330
495,585
879,881
458,330
491,920
879,881
321,158
491,920
224,027
321,158
211,649
224,027
211,649
2,027,383
1,860,234
1,443,508
2,027,383
1,747,090
1,443,508
1,308,393
1,747,090
1,341,408
1,308,393
1,290,579
1,341,408
829,109
1,290,579
829,109
97.4 %
97.2 %
106.3 %
97.2 %
78.9 %
106.3 %
100.7 %
78.9 %
83.4 %
100.7 %
107.5 %
83.4 %
111.5 %
107.5 %
103.1 %
111.5 %
103.1 %
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 36
Page 36
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 37
36 5.2. FOREIGN EXCHANGE
The Company operates globally and is exposed to changes in foreign currency rates. Accordingly, as prescribed by IFRS, we
value assets, liabilities and transactions that are measured in foreign currencies using various exchange rates. We report all
dollar amounts in Canadian dollars.
Closing foreign exchange rates
As at September 30,
U.S. dollar
Euro
Indian rupee
British pound
Swedish krona
Average foreign exchange rates
For the three months ended September 30,
U.S. dollar
Euro
Indian rupee
British pound
Swedish krona
2020
1.3325
1.5622
0.0181
1.7216
0.1487
2020
1.3327
1.5579
0.0179
1.7215
0.1503
2019
Change
1.3246
1.4446
0.0188
1.6302
0.1347
0.6%
8.1%
(3.7%)
5.6%
10.4%
2019
Change
1.3205
1.4689
0.0188
1.6285
0.1378
0.9%
6.1%
(4.8%)
5.7%
9.1%
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 37
FISCAL 2020 RESULTS — 37 ManageMent's Discussion anD analysis
5.3. REVENUE DISTRIBUTION
5.3. REVENUE DISTRIBUTION
5.4. REVENUE BY SEGMENT
The following charts provide additional information regarding our revenue mix for the quarter ended September 30, 2020:
The following charts provide additional information regarding our revenue mix for the quarter ended September 30, 2020:
B
A
H
G
F
E
D
C
A
B
D
C
E
A
B
Service Type
Service Type
Client Geography
Client Geography
Vertical Market
Vertical Market
A. Managed IT and Business Process Services
A. Managed IT and Business Process Services
B.
B.
System integration and consulting
System integration and consulting
56% A.
56% A.
44% B.
44% B.
C.
C.
D.
D.
E.
E.
F.
F.
G.
G.
H.
H.
U.S.
U.S.
Canada
Canada
U.K.
U.K.
France
France
Germany
Germany
Sweden
Sweden
Finland
Finland
Rest of the world
Rest of the world
Government
Government
MRD
MRD
Financial services
Financial services
Communications & utilities
Communications & utilities
Health
Health
35%
35%
22%
22%
22%
22%
14%
14%
7%
7%
31% A.
31% A.
15% B.
15% B.
13% C.
13% C.
13% D.
13% D.
6% E.
6% E.
6%
6%
6%
6%
10%
10%
5.3.1. Client Concentration
5.3.1. Client Concentration
IFRS guidance on segment disclosures defines a single customer as a group of entities that are known to the reporting entity
IFRS guidance on segment disclosures defines a single customer as a group of entities that are known to the reporting entity
to be under common control. As a consequence, our work for the U.S. federal government including its various agencies
to be under common control. As a consequence, our work for the U.S. federal government including its various agencies
represented 14.5% of our revenue for Q4 2020 as compared to 13.7% for Q4 2019.
represented 14.5% of our revenue for Q4 2020 as compared to 13.7% for Q4 2019.
The following table provides a summary of the year-over-year changes in our revenue, in total and by segment, separately
showing the impacts of foreign currency exchange rate variations between the Q4 2020 and Q4 2019 periods. The Q4 2019
revenue by segment was recorded reflecting the actual average foreign exchange rates for that period. The foreign exchange
impact is the difference between the current period’s actual results and the current period’s results converted with the prior
Revenue prior to foreign currency impact
430,572
(34,329)
(8.0%)
Revenue prior to foreign currency impact
416,713
10,427
year’s average foreign exchange rates.
For the three months ended September 30,
In thousands of CAD except for percentages
Total CGI revenue
Variation prior to foreign currency impact
Foreign currency impact
Variation over previous period
Western and Southern Europe
Revenue prior to foreign currency impact
Foreign currency impact
Western and Southern Europe revenue
U.S. Commercial and State Government
Revenue prior to foreign currency impact
Foreign currency impact
U.S. Commercial and State Government
revenue
Canada
Foreign currency impact
Canada revenue
U.S. Federal
Foreign currency impact
U.S. Federal revenue
U.K. and Australia
Revenue prior to foreign currency impact
Foreign currency impact
U.K. and Australia revenue
Central and Eastern Europe
Revenue prior to foreign currency impact
Foreign currency impact
Central and Eastern Europe revenue
Scandinavia
Revenue prior to foreign currency impact
Foreign currency impact
Scandinavia revenue
Finland, Poland and Baltics
Revenue prior to foreign currency impact
Foreign currency impact
Finland, Poland & Baltics revenue
2020
2019
$
%
Change
2,925,560
2,959,230
(33,670)
(1.1%)
(4.5%)
3.4%
(1.1%)
407,659
25,405
433,064
456,549
4,822
461,371
396,243
512
396,755
427,140
4,236
431,376
328,405
19,068
347,473
289,263
17,577
306,840
218,593
15,597
234,190
167,945
10,467
178,412
475,297
(67,638)
(14.2%)
475,297
(42,233)
(8.9%)
447,527
9,022
2.0%
447,527
13,844
3.1%
430,572
(33,817)
(7.9%)
416,713
14,663
2.5%
3.5%
337,964
(9,559)
(2.8%)
337,964
9,509
2.8%
293,196
(3,933)
(1.3%)
293,196
13,644
4.7%
260,367
(41,774)
(16.0%)
260,367
(26,177)
(10.1%)
176,327
(8,382)
(4.8%)
176,327
2,085
1.2%
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 38
Page 38
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 39
38 5.4. REVENUE BY SEGMENT
The following table provides a summary of the year-over-year changes in our revenue, in total and by segment, separately
showing the impacts of foreign currency exchange rate variations between the Q4 2020 and Q4 2019 periods. The Q4 2019
revenue by segment was recorded reflecting the actual average foreign exchange rates for that period. The foreign exchange
impact is the difference between the current period’s actual results and the current period’s results converted with the prior
year’s average foreign exchange rates.
For the three months ended September 30,
2020
2019
$
%
Change
In thousands of CAD except for percentages
Total CGI revenue
Variation prior to foreign currency impact
Foreign currency impact
Variation over previous period
Western and Southern Europe
Revenue prior to foreign currency impact
Foreign currency impact
Western and Southern Europe revenue
U.S. Commercial and State Government
Revenue prior to foreign currency impact
Foreign currency impact
U.S. Commercial and State Government
revenue
Canada
Revenue prior to foreign currency impact
Foreign currency impact
Canada revenue
U.S. Federal
Revenue prior to foreign currency impact
Foreign currency impact
U.S. Federal revenue
U.K. and Australia
Revenue prior to foreign currency impact
Foreign currency impact
U.K. and Australia revenue
Central and Eastern Europe
Revenue prior to foreign currency impact
Foreign currency impact
Central and Eastern Europe revenue
Scandinavia
Revenue prior to foreign currency impact
Foreign currency impact
Scandinavia revenue
Finland, Poland and Baltics
Revenue prior to foreign currency impact
Foreign currency impact
Finland, Poland & Baltics revenue
2,925,560
2,959,230
(33,670)
(1.1%)
(4.5%)
3.4%
(1.1%)
407,659
25,405
433,064
456,549
4,822
461,371
396,243
512
396,755
427,140
4,236
431,376
328,405
19,068
347,473
289,263
17,577
306,840
218,593
15,597
234,190
167,945
10,467
178,412
475,297
(67,638)
(14.2%)
475,297
(42,233)
(8.9%)
447,527
9,022
2.0%
447,527
13,844
3.1%
430,572
(34,329)
(8.0%)
430,572
(33,817)
(7.9%)
416,713
10,427
416,713
14,663
2.5%
3.5%
337,964
(9,559)
(2.8%)
337,964
9,509
2.8%
293,196
(3,933)
(1.3%)
293,196
13,644
4.7%
260,367
(41,774)
(16.0%)
260,367
(26,177)
(10.1%)
176,327
(8,382)
(4.8%)
176,327
2,085
1.2%
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 39
FISCAL 2020 RESULTS — 39 ManageMent's Discussion anD analysis
For the three months ended September 30,
2020
2019
$
%
Change
5.4.5. U.K. and Australia
9.7%
1.1%
156,388
15,197
177,440
(5,855)
171,585
156,388
21,052
13.5%
(35,506)
(35,121)
(385)
In thousands of CAD except for percentages
Asia Pacific
Revenue prior to foreign currency impact
Foreign currency impact
Asia Pacific revenue
Eliminations
Revenue in our U.K. and Australia segment was $347.5 million in Q4 2020, an increase of $9.5 million or 2.8% over the same
period last year. On a constant currency basis, revenue decreased by $9.6 million or 2.8%. The change was mainly due to
the non-renewal of certain infrastructure contracts and the successful completion of the build phase of a large project within
the communications and utilities vertical market. This was partly offset by the SCISYS acquisition.
On a client geographic basis, the top two U.K. and Australia vertical markets were government and communications & utilities,
generating combined revenues of approximately $285 million for the three months ended September 30, 2020.
5.4.6. Central and Eastern Europe
Revenue in our Central and Eastern Europe segment was $306.8 million in Q4 2020, an increase of $13.6 million or 4.7%
over the same period last year. On a constant currency basis, revenue decreased by $3.9 million or 1.3%. The change in
revenue was mainly due to the impact of COVID-19, mainly within the MRD vertical market, and a higher proportion of client
projects transferred to our global delivery centers of excellence in Asia-Pacific. This was partially offset by the SCISYS
On a client geographic basis, the top two Central and Eastern Europe vertical markets were MRD and government, generating
combined revenues of approximately $202 million for the three months ended September 30, 2020.
acquisition.
5.4.7. Scandinavia
Revenue in our Scandinavia segment was $234.2 million, a decrease of $26.2 million or 10.1% over the same period last
year. On a constant currency basis, revenue decreased by $41.8 million or 16.0%. The decrease was mainly the result of a
slowdown of activities primarely within the MRD vertical market related to the impact of COVID-19, as well as the non-renewal
of infrastructure contracts.
On a client geographic basis, the top two Scandinavia vertical markets were MRD and government, generating combined
revenues of approximately $180 million for the three months ended September 30, 2020.
5.4.8. Finland, Poland and Baltics
Revenue in our Finland, Poland and Baltics segment was $178.4 million, an increase of $2.1 million or 1.2% over the same
period last year. On a constant currency basis, revenue decreased by $8.4 million or 4.8% mainly due to lower work volumes
in the government vertical market, projects completed in the financial services vertical market and the impact of COVID-19.
On a client geographic basis, the top two Finland, Poland and Baltics vertical markets were government and financial services,
generating combined revenues of approximately $109 million for the three months ended September 30, 2020.
5.4.9. Asia Pacific
We ended the fourth quarter of Fiscal 2020 with revenue of $2,925.6 million, a decrease of $33.7 million, or 1.1% when
compared to the same period of Fiscal 2019. On a constant currency basis, revenue decreased by $132.9 million or 4.5%.
Foreign currency rate fluctuations favourably impacted our revenue by $99.2 million or 3.4%. The change in revenue was
mainly due to the slowdown of activities, primarily in the MRD, financial services and communications & utilities vertical markets,
mostly as a result of COVID-19. This was partly offset by recent business acquisitions.
5.4.1. Western and Southern Europe
Revenue in our Western and Southern Europe segment was $433.1 million in Q4 2020, a decrease of $42.2 million or 8.9%
over the same period last year. On a constant currency basis, revenue decreased by $67.6 million or 14.2%. The change in
revenue was due to the slowdown of activities mainly within the financial services and MRD vertical markets, primarily as a
result of COVID-19. This was partially offset by the Meti acquisition.
On a client geographic basis, the top two Western and Southern Europe vertical markets were MRD and financial services,
generating combined revenues of approximately $266 million for the three months ended September 30, 2020.
5.4.2. U.S. Commercial and State Government
Revenue from our U.S. Commercial and State Government segment was $461.4 million in Q4 2020, an increase of $13.8
million or 3.1% compared to the same period last year. On a constant currency basis, revenue increased by $9.0 million or
2.0%. The increase was mainly driven by growth within the financial services vertical market, including higher IP sales and
service revenue. This was partly offset by an adjustment due to a reevaluation of cost to complete on a project and lower work
volume within the communications & utilities vertical market.
On a client geographic basis, the top two U.S. Commercial and State Government vertical markets were financial services
and government, generating combined revenues of approximately $279 million for the three months ended September 30,
2020.
5.4.3. Canada
Revenue in our Canada segment was $396.8 million in Q4 2020, a decrease of $33.8 million or 7.9% over the same period
last year. On a constant currency basis, revenue decreased by $34.3 million or 8.0%. The change was mainly due to the
impact of COVID-19, lower work volumes and license sales, all within the financial services vertical market, and a higher
Revenue in our Asia Pacific segment was $171.6 million, an increase of $15.2 million or 9.7% over the same period last year.
On a constant currency basis, revenue increased by $21.1 million or 13.5%. The increase was mainly driven by the continued
demand for our offshore delivery centers, predominantly within the financial services and communications & utilities vertical
proportion of client projects transferred to our global delivery centers of excellence in Asia-Pacific.
markets.
On a client geographic basis, the top two Canada vertical markets were financial services and communications & utilities,
generating combined revenues of approximately $281 million for the three months ended September 30, 2020.
5.4.4. U.S. Federal
Revenue in our U.S. Federal segment was $431.4 million in Q4 2020, an increase of $14.7 million or 3.5% over the same
period last year. On a constant currency basis, revenue increased by $10.4 million or 2.5%. The increase was driven by IP
solutions, application support and cybersecurity services as well as recent business acquisitions. This was partly offset by
lower transaction volumes related to our IP business process services, mainly due to the impact of the COVID-19 and certain
adjustments on client contracts.
For the three months ended September 30, 2020, 84% of revenues within the U.S. Federal segment were federal civilian
based.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 40
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 41
40 5.4.5. U.K. and Australia
Revenue in our U.K. and Australia segment was $347.5 million in Q4 2020, an increase of $9.5 million or 2.8% over the same
period last year. On a constant currency basis, revenue decreased by $9.6 million or 2.8%. The change was mainly due to
the non-renewal of certain infrastructure contracts and the successful completion of the build phase of a large project within
the communications and utilities vertical market. This was partly offset by the SCISYS acquisition.
On a client geographic basis, the top two U.K. and Australia vertical markets were government and communications & utilities,
generating combined revenues of approximately $285 million for the three months ended September 30, 2020.
5.4.6. Central and Eastern Europe
Revenue in our Central and Eastern Europe segment was $306.8 million in Q4 2020, an increase of $13.6 million or 4.7%
over the same period last year. On a constant currency basis, revenue decreased by $3.9 million or 1.3%. The change in
revenue was mainly due to the impact of COVID-19, mainly within the MRD vertical market, and a higher proportion of client
projects transferred to our global delivery centers of excellence in Asia-Pacific. This was partially offset by the SCISYS
acquisition.
On a client geographic basis, the top two Central and Eastern Europe vertical markets were MRD and government, generating
combined revenues of approximately $202 million for the three months ended September 30, 2020.
5.4.7. Scandinavia
Revenue in our Scandinavia segment was $234.2 million, a decrease of $26.2 million or 10.1% over the same period last
year. On a constant currency basis, revenue decreased by $41.8 million or 16.0%. The decrease was mainly the result of a
slowdown of activities primarely within the MRD vertical market related to the impact of COVID-19, as well as the non-renewal
of infrastructure contracts.
On a client geographic basis, the top two Scandinavia vertical markets were MRD and government, generating combined
revenues of approximately $180 million for the three months ended September 30, 2020.
5.4.8. Finland, Poland and Baltics
Revenue in our Finland, Poland and Baltics segment was $178.4 million, an increase of $2.1 million or 1.2% over the same
period last year. On a constant currency basis, revenue decreased by $8.4 million or 4.8% mainly due to lower work volumes
in the government vertical market, projects completed in the financial services vertical market and the impact of COVID-19.
On a client geographic basis, the top two Finland, Poland and Baltics vertical markets were government and financial services,
generating combined revenues of approximately $109 million for the three months ended September 30, 2020.
5.4.9. Asia Pacific
Revenue in our Asia Pacific segment was $171.6 million, an increase of $15.2 million or 9.7% over the same period last year.
On a constant currency basis, revenue increased by $21.1 million or 13.5%. The increase was mainly driven by the continued
demand for our offshore delivery centers, predominantly within the financial services and communications & utilities vertical
markets.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 41
FISCAL 2020 RESULTS — 41 ManageMent's Discussion anD analysis
5.5. ADJUSTED EBIT BY SEGMENT
For the three months ended September 30,
In thousands of CAD except for percentages
Western and Southern Europe
As a percentage of segment revenue
U.S. Commercial and State Government
As a percentage of segment revenue
Canada
As a percentage of segment revenue
U.S. Federal
As a percentage of segment revenue
U.K. and Australia
As a percentage of segment revenue
Central and Eastern Europe
As a percentage of segment revenue
Scandinavia
As a percentage of segment revenue
Finland, Poland and Baltics
As a percentage of segment revenue
Asia Pacific
As a percentage of segment revenue
Adjusted EBIT
Adjusted EBIT margin
2020
2019
$
%
Change
5.5.4. U.S. Federal
Adjusted EBIT in the U.S. Federal segment was $58.1 million in Q4 2020, a decrease of $1.4 million when compared to Q4
2019. Adjusted EBIT margin decreased to 13.5% from 14.3% in Q4 2019. The change in adjusted EBIT margin was primarily
due to lower profitability and adjustments on isolated client contracts in the defense sector and lower business process services
59,742
13.8%
66,474
14.4%
85,602
21.6%
58,073
13.5%
55,749
16.0%
38,223
12.5%
7,805
3.3%
32,931
18.5%
52,964
30.9%
74,832
15.7%
68,161
15.2%
98,107
22.8%
59,490
14.3%
44,230
13.1%
30,494
10.4%
11,835
4.5%
32,072
18.2%
38,236
24.4%
457,563
15.6%
457,457
15.5%
(15,090)
(20.2%)
(1,687)
(2.5%)
volumes, mostly related to COVID-19.
5.5.5. U.K. and Australia
(12,505)
(12.7%)
mainly due to the favourable impact of a renegotiation on a client contract, lower discretionary expenses due to COVID-19
(1,417)
(2.4%)
11,519
26.0%
7,729
25.3%
was in part offset by the slowdown of activities in the MRD vertical market, mostly related to COVID-19.
(4,030)
(34.1%)
859
2.7%
14,728
38.5%
106
—%
Adjusted EBIT for the quarter was $457.6 million a decrease of $0.1 million from Q4 2019. The adjusted EBIT margin increased
to 15.6% from 15.5% for the same period last year, mainly due to lower discretionary expenses due to COVID-19, synergies
achieved through the optimization and modernization of our infrastructure business, savings generated from the Restructuring
plan and the $8.5 million impact of adoption of IFRS 16. This was partly offset by adjustments on client contracts.
5.5.1. Western and Southern Europe
Adjusted EBIT in the Western and Southern Europe segment was $59.7 million in Q4 2020, a decrease of $15.1 million when
compared to Q4 2019. Adjusted EBIT margin decreased to 13.8% from 15.7% in Q4 2019, primarily due to the slowdown of
activities identified in the revenue section. This was partially offset by lower performance based compensation.
5.5.2. U.S. Commercial and State Government
Adjusted EBIT in the U.S. Commercial and State Government segment was $66.5 million in Q4 2020, a decrease of $1.7
million when compared to Q4 2019. Adjusted EBIT margin decreased to 14.4% from 15.2% in Q4 2019.The change in adjusted
EBIT margin was mainly due to an adjustment due to a reevaluation of cost to complete on a project and a litigation provision.
This was in part offset by the impact of higher IP sales and solution revenue and lower discretionary expenses and fringe
benefits due to COVID-19.
5.5.3. Canada
Adjusted EBIT in the Canada segment was $85.6 million in Q4 2020, a decrease of $12.5 million when compared to Q4 2019.
Adjusted EBIT margin decreased to 21.6% from 22.8% in Q4 2019. The change in adjusted EBIT margin was mainly due to
the impact of lower IP license sales and service revenue within the financial services vertical market and the reevaluations of
costs to complete on projects. This was partly offset by synergies achieved through the optimization and modernization of our
infrastructure business and the impact of the adoption of IFRS 16.
Adjusted EBIT in the U.K. and Australia segment was $55.7 million in Q4 2020, an increase of $11.5 million when compared
to Q4 2019. Adjusted EBIT margin increased to 16.0% from 13.1% in Q4 2019. The increase in adjusted EBIT margin was
and the impact of the adoption of IFRS 16.
5.5.6. Central and Eastern Europe
Adjusted EBIT in the Central and Eastern Europe segment was $38.2 million in Q4 2020, an increase of $7.7 million when
compared to Q4 2019. Adjusted EBIT margin increased to 12.5% from 10.4% in Q4 2019 due to the benefits of synergies
achieved through the integration of the prior year's business acquisitions and lower performance based compensation. This
5.5.7. Scandinavia
Adjusted EBIT in the Scandinavia segment was $7.8 million in Q4 2020, a decrease of $4.0 million when compared to Q4
2019. Adjusted EBIT margin decreased to 3.3% from 4.5% in Q4 2019. The change in adjusted EBIT margin was mainly driven
by a slowdown of activities, mostly related to COVID-19, in part offset by the savings generated from the Restructuring Plan
(see section 3.7.2. of the present document).
5.5.8. Finland, Poland and Baltics
Adjusted EBIT in our Finland, Poland and Baltics segment was $32.9 million, an increase of $0.9 million, when compared to
the same period last year. Adjusted EBIT margin increased to 18.5% from 18.2% mainly due to lower discretionary expenses
and the temporary payroll tax relief, both due to COVID-19. This was mainly offset by the impact of lower work volumes in
part due to COVID-19 and the prior year adjustments in performance based compensation accruals.
5.5.9. Asia Pacific
Adjusted EBIT in the Asia Pacific segment was $53.0 million in Q4 2020, an increase of $14.7 million when compared to Q4
2019, while the adjusted EBIT margin increased to 30.9% from 24.4% Q4 2019. The increase in adjusted EBIT margin was
mostly due to automation and other productivity improvements, predominantly within the financial services and communications
& utilities vertical markets, cost reduction in transportation and facilities due to the COVID-19 shutdown, the impact of the
adoption of IFRS 16 and the favourable impact of our currency forward contracts.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 42
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 43
42 5.5.4. U.S. Federal
Adjusted EBIT in the U.S. Federal segment was $58.1 million in Q4 2020, a decrease of $1.4 million when compared to Q4
2019. Adjusted EBIT margin decreased to 13.5% from 14.3% in Q4 2019. The change in adjusted EBIT margin was primarily
due to lower profitability and adjustments on isolated client contracts in the defense sector and lower business process services
volumes, mostly related to COVID-19.
5.5.5. U.K. and Australia
Adjusted EBIT in the U.K. and Australia segment was $55.7 million in Q4 2020, an increase of $11.5 million when compared
to Q4 2019. Adjusted EBIT margin increased to 16.0% from 13.1% in Q4 2019. The increase in adjusted EBIT margin was
mainly due to the favourable impact of a renegotiation on a client contract, lower discretionary expenses due to COVID-19
and the impact of the adoption of IFRS 16.
5.5.6. Central and Eastern Europe
Adjusted EBIT in the Central and Eastern Europe segment was $38.2 million in Q4 2020, an increase of $7.7 million when
compared to Q4 2019. Adjusted EBIT margin increased to 12.5% from 10.4% in Q4 2019 due to the benefits of synergies
achieved through the integration of the prior year's business acquisitions and lower performance based compensation. This
was in part offset by the slowdown of activities in the MRD vertical market, mostly related to COVID-19.
5.5.7. Scandinavia
Adjusted EBIT in the Scandinavia segment was $7.8 million in Q4 2020, a decrease of $4.0 million when compared to Q4
2019. Adjusted EBIT margin decreased to 3.3% from 4.5% in Q4 2019. The change in adjusted EBIT margin was mainly driven
by a slowdown of activities, mostly related to COVID-19, in part offset by the savings generated from the Restructuring Plan
(see section 3.7.2. of the present document).
5.5.8. Finland, Poland and Baltics
Adjusted EBIT in our Finland, Poland and Baltics segment was $32.9 million, an increase of $0.9 million, when compared to
the same period last year. Adjusted EBIT margin increased to 18.5% from 18.2% mainly due to lower discretionary expenses
and the temporary payroll tax relief, both due to COVID-19. This was mainly offset by the impact of lower work volumes in
part due to COVID-19 and the prior year adjustments in performance based compensation accruals.
5.5.9. Asia Pacific
Adjusted EBIT in the Asia Pacific segment was $53.0 million in Q4 2020, an increase of $14.7 million when compared to Q4
2019, while the adjusted EBIT margin increased to 30.9% from 24.4% Q4 2019. The increase in adjusted EBIT margin was
mostly due to automation and other productivity improvements, predominantly within the financial services and communications
& utilities vertical markets, cost reduction in transportation and facilities due to the COVID-19 shutdown, the impact of the
adoption of IFRS 16 and the favourable impact of our currency forward contracts.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 43
FISCAL 2020 RESULTS — 43 ManageMent's Discussion anD analysis
5.6. NET EARNINGS AND EARNINGS PER SHARE
5.6.1. Net Earnings and Earnings per Share Excluding Specific Items
The following table sets out the information supporting the earnings per share calculations:
Below is a table showing the year-over-year comparison excluding specific items, namely acquisition-related and integration
For the three months ended September 30,
In thousands of CAD except for percentage and shares data
Adjusted EBIT
Minus the following items:
Acquisition-related and integration costs
Restructuring costs
Net finance costs
Earnings before income taxes
Income tax expense
Effective tax rate
Net earnings
Margin
Weighted average number of shares
2020
2019
457,563
457,457
5,302
84,255
30,424
337,582
85,668
25.4%
251,914
8.6%
27,291
—
17,824
412,342
88,253
21.4%
324,089
11.0%
Change
$
106
%
0.0%
(21,989)
(80.6%)
84,255
12,600
(74,760)
(2,585)
—
70.7%
(18.1%)
(2.9%)
(72,175)
(22.3%)
Class A subordinate voting shares and Class B multiple voting shares
(basic)
258,210,169
268,135,727
Class A subordinate voting shares and Class B multiple voting shares
(diluted)
261,790,231
273,090,564
(3.7%)
(4.1%)
Earnings per share (in dollars)
Basic EPS
Diluted EPS
0.98
0.96
1.21
1.19
(0.23)
(0.23)
(19.0%)
(19.3%)
For Q4 2020, the income tax expense was $85.7 million compared to $88.3 million for the same period last year, while our
effective tax rate increased to 25.4% from 21.4%. During the quarter ended September 30, 2019, the Company settled with
the German tax authorities and booked $115.5 million of additional corporate tax losses and recorded a $18.5 million income
tax recovery. When excluding that tax adjustment and tax effects from acquisition-related and integration costs and restructuring
costs, the effective tax rate would have been 25.5% in Q4 2020, compared to 25.1% in Q4 2019. The increase in the effective
tax rate was mainly attributable to less non-taxable R&D tax credits in the U.S. partly offset by a different geographical
profitability mix mainly within our France and U.K. operations.
During the quarter, the Company did not purchase any Class A subordinate voting Shares for cancellation while 359,588 stock
options were exercised.
costs as well as restructuring costs :
For the three months ended September 30,
In thousands of CAD except for percentage and shares data
Earnings before income taxes
Add back:
Acquisition-related and integration costs
Restructuring costs
Earnings before income taxes excluding specific items
Income tax expense
Effective tax rate
Add back:
Tax deduction on acquisition-related and integration costs
Impact on effective tax rate
Tax deduction on restructuring costs
Impact on effective tax rate
Tax adjustment
Impact on effective tax rate
Income tax expense excluding specific items
Effective tax rate excluding specific items
Net earnings excluding specific items
Net earnings excluding specific items margin
Weighted average number of shares outstanding
2020
2019
$
%
Change
337,582
412,342
(74,760)
(18.1%)
5,302
84,255
427,139
85,668
25.4%
1,210
—
21,871
0.1%
—
—
108,749
25.5%
318,390
10.9%
27,291
—
439,633
88,253
21.4%
3,467
(0.5%)
—
—
18,451
4.2%
110,171
25.1%
329,462
11.1%
(21,989)
84,255
(12,494)
(2,585)
(80.6%)
—
(2.8%)
(2.9%)
(2,257)
(65.1%)
21,871
—
(1,422)
(1.3%)
(11,072)
(3.4%)
Class A subordinate voting shares and Class B multiple voting shares
258,210,169
268,135,727
Class A subordinate voting shares and Class B multiple voting shares
261,790,231
273,090,564
(3.7%)
(4.1%)
Earnings per share excluding specific items (in dollars)
1.23
1.22
1.23
1.21
—
0.01
—
0.8%
(basic)
(diluted)
Basic EPS
Diluted EPS
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 44
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 45
44 5.6.1. Net Earnings and Earnings per Share Excluding Specific Items
Below is a table showing the year-over-year comparison excluding specific items, namely acquisition-related and integration
costs as well as restructuring costs :
For the three months ended September 30,
In thousands of CAD except for percentage and shares data
Earnings before income taxes
Add back:
Acquisition-related and integration costs
Restructuring costs
Earnings before income taxes excluding specific items
Income tax expense
Effective tax rate
Add back:
Tax deduction on acquisition-related and integration costs
Impact on effective tax rate
Tax deduction on restructuring costs
Impact on effective tax rate
Tax adjustment
Impact on effective tax rate
Income tax expense excluding specific items
Effective tax rate excluding specific items
Net earnings excluding specific items
Net earnings excluding specific items margin
Weighted average number of shares outstanding
2020
2019
$
%
Change
337,582
412,342
(74,760)
(18.1%)
5,302
84,255
427,139
85,668
25.4%
1,210
—
21,871
0.1%
—
—
108,749
25.5%
318,390
10.9%
27,291
—
439,633
88,253
21.4%
3,467
(0.5%)
—
—
18,451
4.2%
110,171
25.1%
329,462
11.1%
(21,989)
84,255
(12,494)
(2,585)
(80.6%)
—
(2.8%)
(2.9%)
(2,257)
(65.1%)
21,871
—
(1,422)
(1.3%)
(11,072)
(3.4%)
Class A subordinate voting shares and Class B multiple voting shares
(basic)
258,210,169
268,135,727
Class A subordinate voting shares and Class B multiple voting shares
(diluted)
261,790,231
273,090,564
(3.7%)
(4.1%)
Earnings per share excluding specific items (in dollars)
Basic EPS
Diluted EPS
1.23
1.22
1.23
1.21
—
0.01
—
0.8%
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 45
FISCAL 2020 RESULTS — 45 ManageMent's Discussion anD analysis
5.7. CONSOLIDATED STATEMENTS OF CASH FLOWS
5.7.2. Cash Used in Investing Activities
As at September 30, 2020, cash and cash equivalents were $1,708.0 million. The following table provides a summary of the
For Q4 2020, $68.0 million was used in investing activities while $94.7 million was used in the prior year.
generation and use of cash and cash equivalents for the quarters ended September 30, 2020 and 2019.
The following table provides a summary of the generation and use of cash from investing activities:
For the three months ended September 30,
2020
2019
Change
For the three months ended September 30,
2020
2019
Change
In thousands of CAD
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
5.7.1. Cash Provided by Operating Activities
492,000
(67,996)
(90,724)
9,426
342,706
405,214
(94,730)
(307,835)
(13,969)
(11,320)
86,786
26,734
217,111
23,395
354,026
In thousands of CAD
Business acquisitions
Purchase of property, plant and equipment
Additions to contract costs
Additions to intangible assets
Net change in short-term investments and purchase of long-term investments
Cash used in investing activities
7,083
(31,513)
(19,166)
(29,410)
5,010
(67,996)
(14,876)
(41,592)
(12,679)
(26,421)
838
(94,730)
21,959
10,079
(6,487)
(2,989)
4,172
26,734
For Q4 2020, cash provided by operating activities was $492.0 million compared to $405.2 million in Q4 2019, or 16.8% of
The decrease of $26.7 million in cash used in investing activities during the three months ended September 30, 2020 was
revenue compared to 13.7% last year.
mainly due to the decrease in cash used for business acquisitions, as well as a decrease of investments in computer equipment.
The following table provides a summary of the generation and use of cash from operating activities.
This was partially offset by an increase in cash used in contract costs.
For the three months ended September 30,
2020
2019
Change
5.7.3. Cash Used in Financing Activities
In thousands of CAD
Net earnings
Amortization, depreciation and impairment
Other adjustments 1
Cash flow from operating activities before net change in non-cash
working capital items
Net change in non-cash working capital items:
Accounts receivable, work in progress and deferred revenue
Accounts payable and accrued liabilities, accrued compensation,
provisions and long-term liabilities
Other 2
Net change in non-cash working capital items
Cash provided by operating activities
251,914
152,459
22,957
427,330
151,583
(14,054)
(72,859)
64,670
492,000
324,089
97,155
6,971
428,215
74,308
(63,567)
(33,742)
(23,001)
405,214
(72,175)
55,304
15,986
(885)
77,275
49,513
(39,117)
87,671
86,786
1
2
Other adjustments are comprised of deferred income taxes, foreign exchange (gain) loss, loss on sale of business and share-based payment costs.
Comprised of prepaid expenses and other assets, long-term financial assets, retirement benefits obligations, derivative financial instruments and income
taxes.
For the three months ended September 30, 2020, the increase in our cash provided by operating activities was mostly due
to the timing of collection of receivables and the impact of $36.4 million coming from the change in presentation of the payment
of leases resulting from the adoption of IFRS 16. This was partially offset by repayments of government deferral programs
and the timing of income tax payments.
The timing of our working capital inflows and outflows will always have an impact on the cash flow from operations.
For the three months ended September 30,
2020
2019
Change
In thousands of CAD
Net change in unsecured committed revolving credit facility
Payment of lease liabilities
Net change in long-term debt
Repayment of debt assumed in a business acquisition
Settlement of derivative financial instruments
Purchase and cancellation of Class A subordinate voting shares held in trusts
Issuance of Class A subordinate voting shares
Cash used in financing activities
1
(39,820)
(57,613)
(97,432)
(38)
(3,903)
—
10,649
(90,724)
(95,119)
—
(123,446)
(218,565)
(767)
1,380
(106,143)
16,260
(307,835)
95,120
(39,820)
65,833
121,133
729
(5,283)
106,143
(5,611)
217,111
During Q4 2020, we used $57.6 million to reduce our outstanding long-term debt mainly driven by scheduled repayments on
Senior unsecured notes in the amount of $65.9 million, and we paid $39.8 million of lease liabilities, of which $36.4 million
were related to the adoption of IFRS 16. During Q4 2019, we used $123.4 million to reduce our outstanding long-term debt
mainly driven by scheduled repayments on Senior unsecured notes in the amount of $119.2 million and we repaid $95.1 million
on the Company's unsecured committed revolving credit facility.
During Q4 2020, we did not purchase Class A Shares for cancellation under the NCIB, while for the same period last year,
we used $106.1 million to purchase Class A Shares for cancellation under the NCIB.
In Q4 2020, we received $10.6 million in proceeds from the exercise of stock options, compared to $16.3 million during the
same period last year.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 46
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 47
46 5.7.2. Cash Used in Investing Activities
For Q4 2020, $68.0 million was used in investing activities while $94.7 million was used in the prior year.
The following table provides a summary of the generation and use of cash from investing activities:
For the three months ended September 30,
2020
2019
Change
In thousands of CAD
Business acquisitions
Purchase of property, plant and equipment
Additions to contract costs
Additions to intangible assets
Net change in short-term investments and purchase of long-term investments
Cash used in investing activities
7,083
(31,513)
(19,166)
(29,410)
5,010
(67,996)
(14,876)
(41,592)
(12,679)
(26,421)
838
(94,730)
21,959
10,079
(6,487)
(2,989)
4,172
26,734
The decrease of $26.7 million in cash used in investing activities during the three months ended September 30, 2020 was
mainly due to the decrease in cash used for business acquisitions, as well as a decrease of investments in computer equipment.
This was partially offset by an increase in cash used in contract costs.
5.7.3. Cash Used in Financing Activities
For the three months ended September 30,
In thousands of CAD
Net change in unsecured committed revolving credit facility
Payment of lease liabilities
Net change in long-term debt
Repayment of debt assumed in a business acquisition
Settlement of derivative financial instruments
Purchase and cancellation of Class A subordinate voting shares held in trusts
Issuance of Class A subordinate voting shares
Cash used in financing activities
2020
2019
Change
1
(39,820)
(57,613)
(97,432)
(38)
(3,903)
—
10,649
(90,724)
(95,119)
—
(123,446)
(218,565)
(767)
1,380
(106,143)
16,260
(307,835)
95,120
(39,820)
65,833
121,133
729
(5,283)
106,143
(5,611)
217,111
During Q4 2020, we used $57.6 million to reduce our outstanding long-term debt mainly driven by scheduled repayments on
Senior unsecured notes in the amount of $65.9 million, and we paid $39.8 million of lease liabilities, of which $36.4 million
were related to the adoption of IFRS 16. During Q4 2019, we used $123.4 million to reduce our outstanding long-term debt
mainly driven by scheduled repayments on Senior unsecured notes in the amount of $119.2 million and we repaid $95.1 million
on the Company's unsecured committed revolving credit facility.
During Q4 2020, we did not purchase Class A Shares for cancellation under the NCIB, while for the same period last year,
we used $106.1 million to purchase Class A Shares for cancellation under the NCIB.
In Q4 2020, we received $10.6 million in proceeds from the exercise of stock options, compared to $16.3 million during the
same period last year.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 47
FISCAL 2020 RESULTS — 47 ManageMent's Discussion anD analysis
6. Eight Quarter Summary (Unaudited)
Eight Quarter Summary (Unaudited)
6.
As at and for the three months ended,
In millions of CAD unless otherwise noted
Growth
Sep. 30,
2020
Jun. 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Dec. 31,
2018
and the timing of restructuring cost payments.
contracts and projects, the timing of the reimbursements for various tax credits as well as profit sharing payments to members
Revenue
2,925.6
3,052.7
3,131.1
3,054.7
2,959.2
3,119.8
3,068.3
2,963.9
Year-over-year revenue growth
(1.1%)
(2.2%)
2.0%
Constant currency year-over-year revenue
growth
(4.5%)
(3.5%)
3.0%
3.1%
4.8%
5.7%
7.7%
6.1%
6.6%
4.0%
4.7%
5.2%
4.5%
Backlog
Bookings
Book-to-bill ratio
Book-to-bill ratio trailing twelve months
Profitability1
Adjusted EBIT2
Adjusted EBIT margin
Net earnings
Net earnings margin
Diluted EPS (in dollars)
Net earnings excluding specific items2
Net earnings margin excluding specific items
Diluted EPS excluding specific items (in
dollars)2
Liquidity1
Cash provided by operating activities
As a % of revenue
Days sales outstanding
Capital structure1
Net debt
Net debt to capitalization ratio
Return on equity
Return on invested capital
Balance sheet1
22,673
3,474
22,295
22,994
22,292
22,611
22,418
22,947
23,338
2,841
2,783
2,749
3,409
2,951
3,255
3,031
118.8% 93.1%
88.9%
90.0% 115.2%
94.6%
106.1% 102.3%
97.4%
96.6%
97.0% 101.3% 104.4% 106.9% 112.9%
116.3%
457.6
15.6%
251.9
8.6%
0.96
318.4
10.9%
448.0
483.2
474.1
457.5
474.2
14.7%
15.4%
15.5%
15.5%
15.2%
260.9
8.5%
1.00
308.4
314.8
10.1%
1.18
338.4
290.2
9.5%
1.06
334.9
324.1
11.0%
1.19
329.5
309.4
9.9%
1.12
337.2
10.1%
10.8%
11.0%
11.1%
10.8%
454.1
14.8%
318.3
10.4%
1.14
324.5
10.6%
439.2
14.8%
311.5
10.5%
1.11
314.7
10.6%
1.22
1.18
1.26
1.23
1.21
1.22
1.17
1.12
492.0
16.8%
47
584.8
396.5
465.3
405.2
375.2
19.2%
12.7%
15.2%
13.7%
12.0%
48
51
49
50
52
462.0
15.1%
49
391.5
13.2%
54
2,777.9
3,243.5
3,792.3
2,810.6
2,117.2
2,336.1
1,597.3
1,738.7
23.6% 28.0%
16.0% 17.3%
12.1% 13.0%
34.8%
18.0%
13.9%
27.7%
18.0%
14.4%
22.9%
18.5%
15.1%
25.2%
18.1%
15.0%
17.4 %
17.7 %
14.9 %
19.1 %
17.3 %
14.5 %
Cash and cash equivalents, and short-term
investments
Total assets
Long-term financial liabilities3
1,709.5
1,371.1
314.0
223.2
223.7
225.2
544.0
406.1
15,550.4 15,343.3 14,597.2 13,863.6 12,621.7 12,813.9 12,709.4
12,872.5
4,030.6
4,363.5
3,889.1
2,766.3
2,236.0
2,421.3
2,007.3
2,070.9
1
2
3
As of the periods ending December 31, 2019, figures include the impact of the adoption of IFRS 16, while previous quarters are not restated as indicated in
section 7.
Please refer to sections 3.7. and 3.8.3. of each quarter's respective MD&A for the reconciliation of non-GAAP financial measures for the quarterly periods of
2019. For Fiscal 2019, please refer to sections 5.6. and 5.6.1. of each fiscal year's MD&A.
Long-term financial liabilities include the long-term portion of the debt, long-term lease liabilities and the long-term derivative financial instruments.
There are factors causing quarterly variances which may not be reflective of the Company’s future performance. There is
seasonality in system integration and consulting work, and the quarterly performance of these operations is impacted by
occurrences such as vacations and the number of statutory holidays in any given quarter. Managed IT and business process
services contracts are affected to a lesser extent by seasonality. Also, the workflow from some clients may fluctuate from
quarter to quarter based on their business cycle and the seasonality of their own operations. Further, the savings that we
generate for a client on a given managed IT and business process services contract may temporarily reduce our revenue
stream from this client, as these savings may not be immediately offset by additional work performed for this client.
Cash flow from operating activities could vary significantly from quarter to quarter depending on the timing of monthly payments
received from large clients, cash requirements associated with large acquisitions, managed IT and business process services
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 48
Foreign exchange fluctuations can also contribute to quarterly variances as our percentage of operations in foreign countries
evolves. The effect from these variances is primarily on our revenue and to a much lesser extent, on our margin as we benefit,
as much as possible, from natural hedges.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 49
48 contracts and projects, the timing of the reimbursements for various tax credits as well as profit sharing payments to members
and the timing of restructuring cost payments.
Foreign exchange fluctuations can also contribute to quarterly variances as our percentage of operations in foreign countries
evolves. The effect from these variances is primarily on our revenue and to a much lesser extent, on our margin as we benefit,
as much as possible, from natural hedges.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 49
FISCAL 2020 RESULTS — 49 ManageMent's Discussion anD analysis
7.
7. Changes in Accounting Policies
Changes in Accounting Policies
The audited consolidated financial statements for the year ended September 30, 2020 include all adjustments that CGI’s
For its hedges relationship, the Company assumes that the LIBOR interest rates used for the settlements on the debts and
management considers necessary for the fair presentation of its financial position, results of operations, and cash flows.
the swaps will continue to be available beyond the planned phase out date at the end of December 2021.
ADOPTION OF ACCOUNTING STANDARDS
The following standards have been adopted by the Company on October 1, 2019:
FUTURE ACCOUNTING STANDARD CHANGE
The following standards have been issued but are not yet effective as of September 30, 2020.
LIBOR reform with amendments to IFRS 9, IAS 29, IFRS 7 and IFRS 16
In August 2020, the IASB issued Interest Rate Benchmark Reform-Phase 2, which amends IFRS 9 Financial Instruments,
IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 16 Leases.
The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces
the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The standard will be effective on
October 1, 2021 for the Company. The Company is currently evaluating the impact of this standard on its financial statements.
IFRS 16 - Leases
In January 2016, the IASB issued IFRS 16, Leases, to set out the principles for the recognition, measurement, presentation
and disclosure of leases for both parties to a lease agreement. The standard supersedes IAS 17, Leases, and other leases
related interpretations, eliminates the lessee's classification of leases as either operating leases or finance leases and
introduces a single lessee accounting model. Lessees recognize a right-of-use asset representing its control of, and right to
use, the underlying asset and a lease liability representing its obligation to make future lease payments.The Company adopted
IFRS 16 using the modified retrospective method, with no restatement of comparative figures. The Company applied the new
standard to contracts that were classified as leases under IAS 17 at the date of initial application. The right-of-use assets were
recognized as if IFRS 16 had been applied since the commencement date for real estate leases. For all other leases, the
right-of-use assets were measured at an amount equal to the lease liability adjusted by the prepaid amount and the accrued
lease payment related to the lease in the balance sheet as at September 30, 2019.
The Company made use of the following practical expedients available on transition date: the definition of a lease, the use of
hindsight in determining the lease term, the exclusion of initial direct costs from the measurement of the right-of-use asset at
the transition date, the usage of a single incremental borrowing rate for a portfolio of leases with reasonably similar
characteristics and adjusting the right-of-use assets for any onerous lease provisions as an alternative to an impairment review.
The adoption of IFRS 16 resulted in a material increase to the Company’s assets and liabilities through the recognition of
right-of-use assets and lease liabilities. Please refer to note 3 of our audited consolidated financial statements for additional
information.
Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform
In September 2019, the IASB has amended some of its requirements to address the uncertainty arising from the planned
phasing out of interest-rate benchmarks such as interbank offered rates (IBORs). The amendments provide temporary relief
from applying specific hedge accounting requirements affected by the interest rate benchmark reform. The amendments
impact IFRS 9 Financial instruments, IAS 39 Financial instruments: Recognition and measurement and IFRS 7 Financial
instruments: Disclosures. The amendments come into effect for annual periods beginning on or after January 1, 2020 but
early adoption is permitted. The Company elected to early adopt the Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest
rate benchmark reform as at October 1, 2019 and applied retrospectively the reform to hedging relationship that existed on
the application date and to the amount accumulated in the cash flow hedge reserve at that date.
The Company has a debt expiring in December 2023 with a principal amount of US$500.0 million bearing interest based on
the 1 month USD LIBOR rate. The debt has a carrying value of $666.3 million as at September 30, 2020. The Company has
entered into cross-currency interest rate swaps with aggregate notional amounts of US$500.0 million maturing on the same
date as the debt (the hedging instruments) on which it receives interest based on the same 1 month USD LIBOR rate. The
cross-currency interest rate swaps were designated as cash flow hedge for the debt.
During the year ended September 30, 2020, the Company entered into the 2020 Term Loan for a total principal amount of US
$1,250.0 million, please refer to note 32 of our audited consolidated financial statements for additional information. The 2020
Term Loan expires in March 2022, bears interest based on the 1 month USD LIBOR rate and has a carrying value of $1,665.6
million as at September 30, 2020.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 50
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 51
50 For its hedges relationship, the Company assumes that the LIBOR interest rates used for the settlements on the debts and
the swaps will continue to be available beyond the planned phase out date at the end of December 2021.
FUTURE ACCOUNTING STANDARD CHANGE
The following standards have been issued but are not yet effective as of September 30, 2020.
LIBOR reform with amendments to IFRS 9, IAS 29, IFRS 7 and IFRS 16
In August 2020, the IASB issued Interest Rate Benchmark Reform-Phase 2, which amends IFRS 9 Financial Instruments,
IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 16 Leases.
The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces
the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The standard will be effective on
October 1, 2021 for the Company. The Company is currently evaluating the impact of this standard on its financial statements.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 51
FISCAL 2020 RESULTS — 51 ManageMent's Discussion anD analysis
8. Critical Accounting Estimates
8. Critical Accounting Estimates
The Company’s significant accounting policies are described in note 3 of the audited consolidated financial statements year
the total costs are forecasted to be higher than the total revenue, a provision for an onerous revenue-generating contract is
ended September 30, 2020. Certain of these accounting policies, listed below, require management to make accounting
estimates and judgements that affect the reported amounts of assets, liabilities and equity and the accompanying disclosures
at the date of the audited consolidated financial statements as well as the reported amounts of revenue and expenses during
recorded.
Goodwill impairment
the reporting period. These accounting estimates are considered critical because they require management to make subjective
The carrying value of goodwill is tested for impairment annually or if events or changes in circumstances indicate that the
and/or complex judgements that are inherently uncertain and because they could have a material impact on the presentation
carrying value may be impaired. In order to determine if a goodwill impairment test is required, management reviews different
of our financial condition, changes in financial condition or results of operations.
The uncertainties around the COVID-19 pandemic required the use of judgements and estimates which resulted in no material
factors on a quarterly basis such as changes in technological or market environment, changes in assumptions used to derive
the weighted average cost of capital and actual financial performance compared to planned performance.
impact, outside of restructuring costs, for the period ended September 30, 2020. The continued impact of COVID-19 could
The recoverable amount of each segment has been determined based on its value in use calculation, which includes estimates
generate, in future reporting periods, a significant risk of material adjustments to the following items listed below.
Areas impacted by estimates
Consolidated
balance
sheets
Consolidated statements of earnings
Revenue
Cost of
services,
selling and
administrative
Amortization
and
depreciation
Net finance
Costs
Income
taxes
Revenue recognition1
Goodwill impairment
Right-of-use assets
Business combinations
Income taxes
Litigation and claims
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
1
Affects the balance sheet through accounts receivable, work in progress and deferred revenue.
Discount Rate for leases
Revenue recognition
Relative selling price
If an arrangement involves the provision of multiple performance obligations, the total arrangement value is allocated to each
performance obligations based on its relative stand-alone selling price. At least on a yearly basis, the Company reviews its
best estimate of the stand-alone selling price which is established by using a reasonable range of prices for the various services
and solutions offered by the Company based on local market information available. Information used in determining the range
is mainly based on recent contracts signed and the economic environment. A change in the range could have a material impact
on the allocation of total arrangement value, and therefore on the amount and timing of revenue recognition.
System integration and consulting services under fixed-fee arrangements
Revenue from systems integration and consulting services under fixed-fee arrangements is recognized using the percentage-
of-completion method over time, as the Company has no alternative use for the asset created and has an enforceable right
to payment for performance completed to date. The Company primarily uses labour costs or labour hours to measure the
progress towards completion. Project managers monitor and reevaluate project forecasts on a monthly basis. Forecasts are
reviewed to consider factors such as: changes to the scope of the contracts, delays in reaching milestones and new complexities
in the project delivery. Forecasts can also be affected by market risks such as the availability and retention of qualified IT
professionals and/or the ability of the subcontractors to perform their obligation within agreed upon budget and timeframes.
To the extent that actual labour hours or labour costs could vary from estimates, adjustments to revenue following the review
of the costs to complete on projects are reflected in the period in which the facts that give rise to the revision occur. Whenever
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 52
about their future financial performance based on cash flows approved by management. However, factors such as our ability
to continue developing and expanding services offered to address emerging business demands and technology trends, a
lengthened sales cycle and our ability to hire and retain qualified IT professionals affect future cash flows, and actual results
might differ from future cash flows used in the goodwill impairment test. Key assumptions used in goodwill impairment testing
are presented in note 12 of the audited consolidated financial statements for the fiscal year ended September 30, 2020.
Historically, the Company has not recorded an impairment charge on goodwill.
Right-of-use assets
Estimates of the lease term
The Company estimates the lease term in order to calculate the value of the lease liability at the initial date of the lease.
Management uses judgement to determine the appropriate lease term based on the conditions of each lease. To determine
the term, the Company considers all factors that create economic incentives to exercise an extension or a termination option.
The extension or termination options are only included in the lease term if it is reasonably certain of being exercised.
Management considers all facts that create incentive to exercise an extension option or not to take a termination option
including leasehold improvements, significant modification of the underlying asset or a business decision.
The discount rate is used to determine the initial carrying amount of the lease liabilities and the right-of-use assets. The
Company estimates the incremental borrowing rate for each lease or portfolio of leased assets, as most of the implicit interest
rates in the leases are not readily determinable. To calculate the incremental borrowing rate, the Company considers its credit
worthiness, the term of the arrangement, any collateral received and the economic environment. The incremental borrowing
rates are subject to change mainly due to changes in the economic environment.
A change in the assumptions used to determine the lease term could result in a significant impact on the right-of-use assets
and the lease liabilities presented in the consolidated balance sheet as well as in the depreciation of the right-of-use assets
and interest expense on lease liabilities.
Business combinations
and the useful lives of the assets acquired.
recorded separately from goodwill.
Management makes assumptions when determining the acquisition-date fair values of the identifiable tangible and intangible
assets acquired and liabilities assumed which involve estimates, such as the forecasting of future cash flows, discount rates,
Additionally, management's judgement is required in determining whether an intangible asset is identifiable and should be
Changes in the above assumptions, estimates and judgements could affect our acquisition-date fair values and therefore
could have material impacts on our audited consolidated financial statements. These changes are recorded as part of the
purchase price allocation and therefore result in corresponding goodwill adjustments if they occurred during the measurement
period, which does not exceed one year. All other subsequent changes are recorded in our consolidated statement of earnings.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 53
52 the total costs are forecasted to be higher than the total revenue, a provision for an onerous revenue-generating contract is
recorded.
Goodwill impairment
The carrying value of goodwill is tested for impairment annually or if events or changes in circumstances indicate that the
carrying value may be impaired. In order to determine if a goodwill impairment test is required, management reviews different
factors on a quarterly basis such as changes in technological or market environment, changes in assumptions used to derive
the weighted average cost of capital and actual financial performance compared to planned performance.
The recoverable amount of each segment has been determined based on its value in use calculation, which includes estimates
about their future financial performance based on cash flows approved by management. However, factors such as our ability
to continue developing and expanding services offered to address emerging business demands and technology trends, a
lengthened sales cycle and our ability to hire and retain qualified IT professionals affect future cash flows, and actual results
might differ from future cash flows used in the goodwill impairment test. Key assumptions used in goodwill impairment testing
are presented in note 12 of the audited consolidated financial statements for the fiscal year ended September 30, 2020.
Historically, the Company has not recorded an impairment charge on goodwill.
Right-of-use assets
Estimates of the lease term
The Company estimates the lease term in order to calculate the value of the lease liability at the initial date of the lease.
Management uses judgement to determine the appropriate lease term based on the conditions of each lease. To determine
the term, the Company considers all factors that create economic incentives to exercise an extension or a termination option.
The extension or termination options are only included in the lease term if it is reasonably certain of being exercised.
Management considers all facts that create incentive to exercise an extension option or not to take a termination option
including leasehold improvements, significant modification of the underlying asset or a business decision.
Discount Rate for leases
The discount rate is used to determine the initial carrying amount of the lease liabilities and the right-of-use assets. The
Company estimates the incremental borrowing rate for each lease or portfolio of leased assets, as most of the implicit interest
rates in the leases are not readily determinable. To calculate the incremental borrowing rate, the Company considers its credit
worthiness, the term of the arrangement, any collateral received and the economic environment. The incremental borrowing
rates are subject to change mainly due to changes in the economic environment.
A change in the assumptions used to determine the lease term could result in a significant impact on the right-of-use assets
and the lease liabilities presented in the consolidated balance sheet as well as in the depreciation of the right-of-use assets
and interest expense on lease liabilities.
Business combinations
Management makes assumptions when determining the acquisition-date fair values of the identifiable tangible and intangible
assets acquired and liabilities assumed which involve estimates, such as the forecasting of future cash flows, discount rates,
and the useful lives of the assets acquired.
Additionally, management's judgement is required in determining whether an intangible asset is identifiable and should be
recorded separately from goodwill.
Changes in the above assumptions, estimates and judgements could affect our acquisition-date fair values and therefore
could have material impacts on our audited consolidated financial statements. These changes are recorded as part of the
purchase price allocation and therefore result in corresponding goodwill adjustments if they occurred during the measurement
period, which does not exceed one year. All other subsequent changes are recorded in our consolidated statement of earnings.
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 53
FISCAL 2020 RESULTS — 53 ManageMent's Discussion anD analysis
9.
Integrity of Disclosure
Income taxes
Deferred tax assets are recognized for unused tax losses and deductible temporary differences to the extent that it is probable
that taxable profit will be available for their utilization. The Company considers the analysis of forecast and future tax planning
strategies. Estimates of taxable profit are made based on the forecast by jurisdiction which are aligned with goodwill impairment
The Board of Directors has the responsibility under its charter and under the securities laws that govern CGI’s continuous
disclosure obligations to oversee CGI's compliance with its continuous and timely disclosure obligations, as well as the integrity
of the Company's internal controls and management information systems. The Board of Directors carries out this responsibility
mainly through its Audit and Risk Management Committee.
testing assumptions, on an undiscounted basis. In addition, management considers factors such as substantively enacted tax
The Audit and Risk Management Committee of CGI is composed entirely of independent directors who meet the independence
rates, the history of the taxable profits and availability of tax strategies. Due to the uncertainty and the variability of the factors
and experience requirements of National Instrument 52-110 adopted by the Canadian Securities Administrators as well as
mentioned above, deferred tax assets are subject to change. Management reviews its assumptions on a quarterly basis and
those of the New York Stock Exchange (NYSE) and the U.S. Securities and Exchange Commission. The role and responsibilities
adjusts the deferred tax assets when appropriate.
The Company is subject to income tax laws in numerous jurisdictions. Judgement is required in determining the worldwide
provision for income taxes as the determination of tax liabilities and assets involves uncertainties in the interpretation of
complex tax regulations and requires estimates and assumptions considering the existing facts and circumstances. The
Company provides for potential tax liabilities based on the most likely amount of the possible outcomes. Estimates are reviewed
each reporting period and updated, based on new information available, and could result in changes to the income tax liabilities
and deferred tax liabilities in the period in which such determinations are made.
Litigation and claims
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. The accrued litigation and legal claim provisions are based on historical
experience, current trends and other assumptions that are believed to be reasonable under the circumstances. Estimates
include the period in which the underlying cause of the claim occurred and the degree of probability of an unfavourable outcome.
Management reviews assumptions and facts surrounding outstanding litigation and claims on a quarterly basis, involves
external counsel when necessary and adjusts the provision accordingly. The Company has to be compliant with applicable
law in many jurisdictions which increases the complexity of determining the adequate provision following a litigation review.
Since the outcome of such litigation and claims is not predictable with assurance, those provisions are subject to change.
Adjustments to litigation and claims provisions are reflected in the period when the facts that give rise to an adjustment occur.
of the Audit and Risk Management Committee include: (i) reviewing public disclosure documents containing audited or
unaudited financial information concerning CGI; (ii) identifying and examining material financial and operating risks to which
the Company is exposed, reviewing the various policies and practices of the Company that are intended to manage those
risks, and reporting on a regular basis to the Board of Directors concerning risk management; (iii) reviewing and assessing
the effectiveness of CGI’s accounting policies and practices concerning financial reporting; (iv) reviewing and monitoring CGI’s
internal control procedures, programs and policies and assessing their adequacy and effectiveness; (v) reviewing the adequacy
of CGI’s internal audit resources including the mandate and objectives of the internal auditor; (vi) recommending to the Board
of Directors the appointment of the external auditor, assessing the external auditor’s independence, reviewing the terms of
their engagement, conducting an annual auditor's performance assessment, and pursuing ongoing discussions with them;
(vii) reviewing related party transactions in accordance with the rules of the NYSE and other applicable laws and regulations;
(viii) reviewing the audit procedures including the proposed scope of the external auditor's examinations; and (ix) performing
such other functions as are usually attributed to audit committees or as directed by the Board of Directors. In making its
recommendation to the Board of Directors in relation to the annual appointment of the external auditor, the Audit and Risk
Management Committee conducts an annual assessment of the external auditor's performance following the recommendations
of the Chartered Professional Accountants of Canada. The formal assessment is concluded in advance of the Annual General
Meeting of Shareholders and is conducted with the assistance of key CGI personnel.
The Company has established and maintains disclosure controls and procedures designed to provide reasonable assurance
that material information relating to the Company is made known to the Chief Executive Officer and the Chief Financial Officer
by others, particularly during the period in which annual and interim filings are prepared, and that information required to be
disclosed by the Company in its annual fillings, interim filings or other reports filed or submitted by the Company under Canadian
and U.S. securities laws is recorded, processed, summarized and reported within the time periods specified under those laws
and the related rules. As at September 30, 2020, management evaluated, under the supervision of and with the participation
of the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the Company’s disclosure controls and
procedures as defined under National Instrument 52-109 adopted by the Canadian Securities Administrators and in Rule 13
(a)-15(e) under the U.S. Securities Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as at
September 30, 2020.
The Company has also established and maintains internal control over financial reporting, as defined under National Instrument
52-109 and in Rule 13(a)-15(f) under the U.S. Securities Exchange Act of 1934, as amended. The Company’s internal control
over financial reporting is a process designed under the supervision of the Chief Executive Officer and the Chief Financial
Officer, and effected by management and other key CGI personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However,
because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely
basis. Management evaluated, under the supervision of and with the participation of the Chief Executive Officer and the Chief
Financial Officer, the effectiveness of the Company’s internal control over financial reporting as at September 30, 2020, based
on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that evaluation, management, under the supervision of and
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 55
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 54
54 9.
Integrity of Disclosure
9. Integrity of Disclosure
The Board of Directors has the responsibility under its charter and under the securities laws that govern CGI’s continuous
disclosure obligations to oversee CGI's compliance with its continuous and timely disclosure obligations, as well as the integrity
of the Company's internal controls and management information systems. The Board of Directors carries out this responsibility
mainly through its Audit and Risk Management Committee.
The Audit and Risk Management Committee of CGI is composed entirely of independent directors who meet the independence
and experience requirements of National Instrument 52-110 adopted by the Canadian Securities Administrators as well as
those of the New York Stock Exchange (NYSE) and the U.S. Securities and Exchange Commission. The role and responsibilities
of the Audit and Risk Management Committee include: (i) reviewing public disclosure documents containing audited or
unaudited financial information concerning CGI; (ii) identifying and examining material financial and operating risks to which
the Company is exposed, reviewing the various policies and practices of the Company that are intended to manage those
risks, and reporting on a regular basis to the Board of Directors concerning risk management; (iii) reviewing and assessing
the effectiveness of CGI’s accounting policies and practices concerning financial reporting; (iv) reviewing and monitoring CGI’s
internal control procedures, programs and policies and assessing their adequacy and effectiveness; (v) reviewing the adequacy
of CGI’s internal audit resources including the mandate and objectives of the internal auditor; (vi) recommending to the Board
of Directors the appointment of the external auditor, assessing the external auditor’s independence, reviewing the terms of
their engagement, conducting an annual auditor's performance assessment, and pursuing ongoing discussions with them;
(vii) reviewing related party transactions in accordance with the rules of the NYSE and other applicable laws and regulations;
(viii) reviewing the audit procedures including the proposed scope of the external auditor's examinations; and (ix) performing
such other functions as are usually attributed to audit committees or as directed by the Board of Directors. In making its
recommendation to the Board of Directors in relation to the annual appointment of the external auditor, the Audit and Risk
Management Committee conducts an annual assessment of the external auditor's performance following the recommendations
of the Chartered Professional Accountants of Canada. The formal assessment is concluded in advance of the Annual General
Meeting of Shareholders and is conducted with the assistance of key CGI personnel.
The Company has established and maintains disclosure controls and procedures designed to provide reasonable assurance
that material information relating to the Company is made known to the Chief Executive Officer and the Chief Financial Officer
by others, particularly during the period in which annual and interim filings are prepared, and that information required to be
disclosed by the Company in its annual fillings, interim filings or other reports filed or submitted by the Company under Canadian
and U.S. securities laws is recorded, processed, summarized and reported within the time periods specified under those laws
and the related rules. As at September 30, 2020, management evaluated, under the supervision of and with the participation
of the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the Company’s disclosure controls and
procedures as defined under National Instrument 52-109 adopted by the Canadian Securities Administrators and in Rule 13
(a)-15(e) under the U.S. Securities Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as at
September 30, 2020.
The Company has also established and maintains internal control over financial reporting, as defined under National Instrument
52-109 and in Rule 13(a)-15(f) under the U.S. Securities Exchange Act of 1934, as amended. The Company’s internal control
over financial reporting is a process designed under the supervision of the Chief Executive Officer and the Chief Financial
Officer, and effected by management and other key CGI personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. However,
because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely
basis. Management evaluated, under the supervision of and with the participation of the Chief Executive Officer and the Chief
Financial Officer, the effectiveness of the Company’s internal control over financial reporting as at September 30, 2020, based
on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that evaluation, management, under the supervision of and
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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FISCAL 2020 RESULTS — 55 ManageMent's Discussion anD analysis
with the participation of the Chief Executive Officer as well as the Chief Financial Officer concluded that the Company’s internal
10.1. RISKS AND UNCERTAINTIES
control over financial reporting was effective as at September 30, 2020.
While we are confident about our long-term prospects, a number of risks and uncertainties could affect our ability to achieve
our strategic vision and objectives for growth. The following risks and uncertainties should be considered when evaluating
10. Risk Environment
our potential as an investment.
10.1.1. External Risks
Economic and political risk
Economic and political conditions in the markets in which we operate have a bearing upon the results of our operations, directly
and through their effect on the level of business activity of our clients. We can neither predict the impact that current economic
and political conditions will have on our future revenue, nor predict changes in economic conditions or future political uncertainty.
The level of activity of our clients and potential clients may be affected by an economic downturn or political uncertainty. Clients
may cancel, reduce or defer existing contracts and delay entering into new engagements and may decide to undertake fewer
IT systems projects resulting in limited implementation of new technology and smaller engagements. Since there may be
fewer engagements, competition may increase and pricing for services may decline as competitors may decrease rates to
maintain or increase their market share in our industry and this may trigger pricing adjustments related to the benchmarking
obligations within our contracts. Economic downturns and political uncertainty makes it more difficult to meet business
objectives and may divert management’s attention and time from operating and growing our business. Our business, results
of operations and financial condition could be negatively affected as a result of these factors.
Other external risks
Additional external risks that could adversely impact the markets in which we operate, our industry and our business include
terrorism, armed conflict, labour or social unrest, criminal activity, regional and international hostilities and international
responses to these hostilities, and disease, illness or health emergencies that affect local, national or international economies.
Additionally, the potential impacts of climate change are unpredictable and natural disasters, sea-level rise, floods, droughts
or other weather-related events present additional external risks. Climate change risks can arise from physical risks (risks
related to the physical effects of climate change) and transition risks (risks related to regulatory, legal, technological and market
changes from a transition to a low-carbon economy) which may affect us or affect the financial viability of our clients leading
to a reduction of demand and loss of business from such clients. Each of these risks could negatively impact our business,
results of operation and financial condition.
Pandemic risks
A pandemic, including the COVID-19 pandemic, can create significant volatility and uncertainty and economic disruption. A
pandemic poses the risk that our members, clients, contractors and business partners may be prevented from conducting
business activities for an indefinite period, including the transmission of the disease or due to emergency measures or
restrictions that may be requested or mandated by governmental authorities. The COVID-19 pandemic has resulted in
governments worldwide enacting emergency measures to combat the spread of the virus, including the implementation of
travel bans, self-imposed quarantine periods and social distancing. Companies are also taking precautions, such as requiring
employees to work remotely, imposing travel restrictions and temporarily closing businesses. These emergency measures
and restrictions, and future measures and restrictions taken in response to the COVID-19 pandemic or other pandemics, have
and may cause, material disruptions to businesses globally and are likely to have an adverse impact on global economic
conditions and consumer confidence and spending, which could materially adversely affect our business. A pandemic, including
the COVID-19 pandemic, may affect the financial viability of our clients, and could cause them to exit certain business lines,
or change the terms on which they are willing to purchase services and solutions. Clients may also slow down decision-making,
delay planned work, seek to terminate existing agreements, not renew existing agreements or be unable to pay us in accordance
with the terms of existing agreements. As a result of increased remote working arrangements due to a pandemic, the exposure
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 56
56 10. Risk Environment
10. Risk Environment
10.1. RISKS AND UNCERTAINTIES
While we are confident about our long-term prospects, a number of risks and uncertainties could affect our ability to achieve
our strategic vision and objectives for growth. The following risks and uncertainties should be considered when evaluating
our potential as an investment.
10.1.1. External Risks
Economic and political risk
Economic and political conditions in the markets in which we operate have a bearing upon the results of our operations, directly
and through their effect on the level of business activity of our clients. We can neither predict the impact that current economic
and political conditions will have on our future revenue, nor predict changes in economic conditions or future political uncertainty.
The level of activity of our clients and potential clients may be affected by an economic downturn or political uncertainty. Clients
may cancel, reduce or defer existing contracts and delay entering into new engagements and may decide to undertake fewer
IT systems projects resulting in limited implementation of new technology and smaller engagements. Since there may be
fewer engagements, competition may increase and pricing for services may decline as competitors may decrease rates to
maintain or increase their market share in our industry and this may trigger pricing adjustments related to the benchmarking
obligations within our contracts. Economic downturns and political uncertainty makes it more difficult to meet business
objectives and may divert management’s attention and time from operating and growing our business. Our business, results
of operations and financial condition could be negatively affected as a result of these factors.
Other external risks
Additional external risks that could adversely impact the markets in which we operate, our industry and our business include
terrorism, armed conflict, labour or social unrest, criminal activity, regional and international hostilities and international
responses to these hostilities, and disease, illness or health emergencies that affect local, national or international economies.
Additionally, the potential impacts of climate change are unpredictable and natural disasters, sea-level rise, floods, droughts
or other weather-related events present additional external risks. Climate change risks can arise from physical risks (risks
related to the physical effects of climate change) and transition risks (risks related to regulatory, legal, technological and market
changes from a transition to a low-carbon economy) which may affect us or affect the financial viability of our clients leading
to a reduction of demand and loss of business from such clients. Each of these risks could negatively impact our business,
results of operation and financial condition.
Pandemic risks
A pandemic, including the COVID-19 pandemic, can create significant volatility and uncertainty and economic disruption. A
pandemic poses the risk that our members, clients, contractors and business partners may be prevented from conducting
business activities for an indefinite period, including the transmission of the disease or due to emergency measures or
restrictions that may be requested or mandated by governmental authorities. The COVID-19 pandemic has resulted in
governments worldwide enacting emergency measures to combat the spread of the virus, including the implementation of
travel bans, self-imposed quarantine periods and social distancing. Companies are also taking precautions, such as requiring
employees to work remotely, imposing travel restrictions and temporarily closing businesses. These emergency measures
and restrictions, and future measures and restrictions taken in response to the COVID-19 pandemic or other pandemics, have
and may cause, material disruptions to businesses globally and are likely to have an adverse impact on global economic
conditions and consumer confidence and spending, which could materially adversely affect our business. A pandemic, including
the COVID-19 pandemic, may affect the financial viability of our clients, and could cause them to exit certain business lines,
or change the terms on which they are willing to purchase services and solutions. Clients may also slow down decision-making,
delay planned work, seek to terminate existing agreements, not renew existing agreements or be unable to pay us in accordance
with the terms of existing agreements. As a result of increased remote working arrangements due to a pandemic, the exposure
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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FISCAL 2020 RESULTS — 57 ManageMent's Discussion anD analysis
to, and reliance on, networked systems and the internet can increase. This can lead to increased risk and frequency of
markets in which we operate are extremely competitive and there can be no assurance that we will succeed in developing
cybersecurity incidents. Cybersecurity incidents can result from unintentional events or deliberate attacks by insiders or third
and adapting our business in a timely manner nor that we will be able to penetrate new markets successfully. If we do not
parties, including cybercriminals, competitors, nation-states, and hacktivists. Any of these events could cause or contribute
keep pace, our ability to retain existing clients and gain new business may be adversely affected. This may result in pressure
to risk and uncertainty and could adversely affect our business, results of operations and financial condition.
on our revenue, net earnings and resulting cash flow from operations.
As a result of the COVID-19 pandemic, global equity and capital markets have experienced significant volatility and weakness.
Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic
conditions. The duration and impact of the COVID-19 pandemic are unknown at this time, as is the efficacy of the government
and central bank interventions. The extent to which the COVID-19 pandemic impacts our future business, including our
operations and the market for our securities, will depend on future developments, which are highly uncertain and cannot be
predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat
the COVID-19 pandemic. It is not possible to reliably estimate the length and severity of these developments or the negative
impact on our financial results, share price and financial condition in future periods. Many of the risks, uncertainties and other
risk factors identified are, and will be, amplified by the COVID-19 pandemic.
10.1.2. Risks Related to our Industry
The competition for contracts
Infringing on the intellectual property rights of others
Despite our efforts, the steps we take to ensure that our services and offerings do not infringe on the intellectual property
rights of third parties may not be adequate to prevent infringement and, as a result, claims may be asserted against us or our
clients. We enter into licensing agreements for the right to use intellectual property and may otherwise offer indemnities against
liability and damages arising from third-party claims of patent, copyright, trademark or trade secret infringement in respect of
our own intellectual property or software or other solutions developed for our clients. In some instances, the amount of these
indemnity claims could be greater than the revenue we receive from the client (see guarantees risk). Intellectual property
claims or litigation could be time-consuming and costly, harm our reputation, require us to enter into additional royalty or
licensing arrangements, or prevent us from providing some solutions or services. Any limitation on our ability to sell or use
solutions or services that incorporate software or technologies that are the subject of a claim could cause us to lose revenue-
generating opportunities or require us to incur additional expenses to modify solutions for future projects.
CGI operates in a global marketplace in which competition among providers of IT services is vigorous. Some of our competitors
Protecting our intellectual property rights
possess greater financial, marketing and sales resources, and larger geographic scope in certain parts of the world than we
Our success depends, in part, on our ability to protect our proprietary methodologies, processes, know-how, tools, techniques
do, which, in turn, provides them with additional leverage in the competition for contracts. In certain niche, regional or
and other intellectual property that we use to provide our services. Although CGI takes reasonable steps (e.g. available
metropolitan markets, we face smaller competitors with specialized capabilities who may be able to provide competing services
copyright protection and, in some cases, patent protection) to protect and enforce its intellectual property rights, there is no
with greater economic efficiency. Some of our competitors have more significant operations than we do in lower cost countries
assurance that such measures will be enforceable or adequate. The cost of enforcing our rights can be substantial and, in
that can serve as a platform from which to provide services worldwide on terms that may be more favourable. Increased
certain cases, may prove to be uneconomic. In addition, the laws of some countries in which we conduct business may offer
competition among IT services firms often results in corresponding pressure on prices. There can be no assurance that we
only limited intellectual property rights protection. Despite our efforts, the steps taken to protect our intellectual property may
will succeed in providing competitively priced services at levels of service and quality that will enable us to maintain and grow
not be adequate to prevent or deter infringement or other misappropriation of intellectual property, and we may not be able
our market share.
to detect unauthorized use of our intellectual property, or take appropriate steps to enforce our intellectual property rights.
We derive significant revenue from contracts awarded through competitive bidding processes, which limit the Company's
Benchmarking provisions within certain contracts
ability to negotiate certain contractual terms and conditions. Risks related to competitive bidding processes also involve
substantial cost and managerial time and effort spent by the Company to prepare bids and proposals for contracts that may
or may not be awarded to the Company, as well as expenses and delays that may arise if the Company's competitors protest
or challenge awards made to the Company pursuant to competitive bidding processes.
The availability and retention of qualified IT professionals
There is strong demand for qualified individuals in the IT industry. Hiring and retaining a sufficient amount of individuals with
the desired knowledge and skill set may be difficult. Therefore, it is important that we remain able to successfully attract and
retain highly qualified professionals and establish an effective succession plan. If our comprehensive programs aimed at
attracting and retaining qualified and dedicated professionals do not ensure that we have staff in sufficient numbers and with
Risks associated with our growth strategy
the appropriate training, expertise and suitable government security clearances required to serve the needs of our clients, we
may have to rely on subcontractors or transfers of staff to fill resulting gaps. If our succession plan fails to identify those with
potential or to develop these key individuals, we may be unable to replace key members who retire or leave the Company
and may be required to recruit and/or train new employees. This might result in lost revenue or increased costs, thereby putting
pressure on our net earnings.
The ability to continue developing and expanding service offerings to address emerging business demands and technology
trends
The rapid pace of change in all aspects of IT and the continually declining costs of acquiring and maintaining IT infrastructure
mean that we must anticipate changes in our clients’ needs. To do so, we must adapt our services and our solutions so that
we maintain and improve our competitive advantage and remain able to provide cost effective services and solutions. The
Some of our managed IT and business process services contracts contain clauses allowing our clients to externally benchmark
the pricing of agreed upon services against those offered by other providers in a peer comparison group. The uniqueness of
the client environment should be factored in and, if results indicate a difference outside the agreed upon tolerance, we may
be required to work with clients to reset the pricing for their services. There can be no assurance that benchmarks will produce
accurate or reliable data, including pricing data. This may result in pressure on our revenue, net earnings and resulting cash
flow from operations.
10.1.3. Risks Related to our Business
CGI’s Build and Buy strategy is founded on four pillars of growth: first, organic growth through smaller contract wins, renewals
and extensions in the areas of managed IT and business process services and system integration; second, the pursuit of new
large long-term managed IT and business process services contracts; third, acquisitions of smaller firms or niche players; and
fourth, large transformational acquisitions.
Our ability to achieve organic growth is affected by a number of factors outside of our control, including a lengthening of our
sales cycle for major managed IT and business process services contracts.
Our ability to grow through niche and transformational acquisitions requires that we identify suitable acquisition targets that
we correctly evaluate their potential as transactions that will meet our financial and operational objectives, and that we
successfully integrate them into our business. There can, however, be no assurance that we will be able to identify suitable
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
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CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 59
58 markets in which we operate are extremely competitive and there can be no assurance that we will succeed in developing
and adapting our business in a timely manner nor that we will be able to penetrate new markets successfully. If we do not
keep pace, our ability to retain existing clients and gain new business may be adversely affected. This may result in pressure
on our revenue, net earnings and resulting cash flow from operations.
Infringing on the intellectual property rights of others
Despite our efforts, the steps we take to ensure that our services and offerings do not infringe on the intellectual property
rights of third parties may not be adequate to prevent infringement and, as a result, claims may be asserted against us or our
clients. We enter into licensing agreements for the right to use intellectual property and may otherwise offer indemnities against
liability and damages arising from third-party claims of patent, copyright, trademark or trade secret infringement in respect of
our own intellectual property or software or other solutions developed for our clients. In some instances, the amount of these
indemnity claims could be greater than the revenue we receive from the client (see guarantees risk). Intellectual property
claims or litigation could be time-consuming and costly, harm our reputation, require us to enter into additional royalty or
licensing arrangements, or prevent us from providing some solutions or services. Any limitation on our ability to sell or use
solutions or services that incorporate software or technologies that are the subject of a claim could cause us to lose revenue-
generating opportunities or require us to incur additional expenses to modify solutions for future projects.
Protecting our intellectual property rights
Our success depends, in part, on our ability to protect our proprietary methodologies, processes, know-how, tools, techniques
and other intellectual property that we use to provide our services. Although CGI takes reasonable steps (e.g. available
copyright protection and, in some cases, patent protection) to protect and enforce its intellectual property rights, there is no
assurance that such measures will be enforceable or adequate. The cost of enforcing our rights can be substantial and, in
certain cases, may prove to be uneconomic. In addition, the laws of some countries in which we conduct business may offer
only limited intellectual property rights protection. Despite our efforts, the steps taken to protect our intellectual property may
not be adequate to prevent or deter infringement or other misappropriation of intellectual property, and we may not be able
to detect unauthorized use of our intellectual property, or take appropriate steps to enforce our intellectual property rights.
Benchmarking provisions within certain contracts
Some of our managed IT and business process services contracts contain clauses allowing our clients to externally benchmark
the pricing of agreed upon services against those offered by other providers in a peer comparison group. The uniqueness of
the client environment should be factored in and, if results indicate a difference outside the agreed upon tolerance, we may
be required to work with clients to reset the pricing for their services. There can be no assurance that benchmarks will produce
accurate or reliable data, including pricing data. This may result in pressure on our revenue, net earnings and resulting cash
flow from operations.
10.1.3. Risks Related to our Business
Risks associated with our growth strategy
CGI’s Build and Buy strategy is founded on four pillars of growth: first, organic growth through smaller contract wins, renewals
and extensions in the areas of managed IT and business process services and system integration; second, the pursuit of new
large long-term managed IT and business process services contracts; third, acquisitions of smaller firms or niche players; and
fourth, large transformational acquisitions.
Our ability to achieve organic growth is affected by a number of factors outside of our control, including a lengthening of our
sales cycle for major managed IT and business process services contracts.
Our ability to grow through niche and transformational acquisitions requires that we identify suitable acquisition targets that
we correctly evaluate their potential as transactions that will meet our financial and operational objectives, and that we
successfully integrate them into our business. There can, however, be no assurance that we will be able to identify suitable
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acquisition targets and consummate additional acquisitions that meet our economic thresholds, or that future acquisitions will
Our effective tax rate in the future could be adversely affected by challenges to intercompany transactions, changes in the
be successfully integrated into our operations and yield the tangible accretive value that had been expected.
value of deferred tax assets and liabilities, changes in tax law or in their interpretation or enforcement, changes in the mix of
If we are unable to implement our Build and Buy strategy, we will likely be unable to maintain our historic or expected growth
rates.
The variability of financial results
Our ability to maintain and increase our revenue is affected not only by our success in implementing our Build and Buy strategy,
but also by a number of other factors, which could cause the Company's financial results to fluctuate. These factors include:
(i) our ability to introduce and deliver new services and business solutions; (ii) our potential exposure to a lengthened sales
cycle; (iii) the cyclicality of the purchases of our technology services and solutions; (iv) the nature of our client’s business (for
example, if a client encounters financial difficulty (including as a result of external risks such as climate change or a pandemic),
it may be forced to cancel, reduce or defer existing contracts with us); and (v) the structure of our agreements with clients (for
example, some of CGI's agreements with clients contain clauses allowing the clients to benchmark the pricing of services
provided by CGI against the prices offered by other providers). These, and other factors, make it difficult to predict financial
results for any given period.
Business mix variations
The proportion of revenue that we generate from shorter-term system integration and consulting projects (SI&C), versus
revenue from long-term managed IT and business process services contracts, will fluctuate at times, affected by acquisitions
or other transactions. An increased exposure to revenue from SI&C projects may result in greater quarterly revenue variations,
as the revenue from SI&C projects does not provide long-term consistency in revenue.
The financial and operational risks inherent in worldwide operations
We manage operations in numerous countries around the world including offshore delivery centers. The scope of our operations
(including our offshore delivery centers) subjects us to issues that can negatively impact our operations, including: currency
fluctuations (see foreign exchange risk); the burden of complying with a wide variety of national and local laws (see regulatory
risk); the differences in and uncertainties arising from local business culture and practices; and political, social and economic
instability. Any or all of these risks could impact our global business operations and cause our profitability to decline.
Organizational challenges associated with our size
Our culture, standards, core values, internal controls and our policies need to be instilled across newly acquired businesses
as well as maintained within our existing operations. To effectively communicate and manage these standards throughout a
large global organization is both challenging and time consuming. Newly acquired businesses may be resistant to change
and may remain attached to past methods, standards and practices which may compromise our business agility in pursuing
opportunities. Cultural differences in various countries may also present barriers to introducing new ideas or aligning our vision
and strategy with the rest of the organization. If we cannot overcome these obstacles in maintaining a strategic bond throughout
the Company worldwide, we may not be able to achieve our growth and profitability objectives.
Taxes and tax credit programs
In estimating our income tax payable, management uses accounting principles to determine income tax positions that are
likely to be sustained by applicable tax authorities. However, there is no assurance that our tax benefits or tax liability will not
materially differ from our estimates or expectations. The tax legislation, regulation and interpretation that apply to our operations
are continually changing. In addition, future tax benefits and liabilities are dependent on factors that are inherently uncertain
and subject to change, including future earnings, future tax rates, and anticipated business mix in the various jurisdictions in
which we operate. Moreover, our tax returns are continually subject to review by applicable tax authorities and we are subject
to ongoing audits, investigations and tax proceedings in various jurisdictions. These tax authorities determine the actual
amounts of taxes payable or receivable, of any future tax benefits or liabilities and of income tax expense that we may ultimately
recognize. Tax authorities have disagreed and may in the future disagree with our income tax positions and are taking
increasingly aggressive positions in respect of income tax positions, including with respect to intercompany transactions.
earnings in countries with differing statutory tax rates, the expiration of tax benefits and changes in accounting principles. Tax
rates in the jurisdictions in which we operate may change as a result of shifting economic conditions and tax policies.
A number of countries in which the Company does business have implemented, or are considering implementing, changes
in relevant tax, accounting and other laws, regulations and interpretations and the overall tax environment has made it
increasingly challenging for multinational corporations to operate with certainty about taxation in many jurisdictions.
Any of the above factors could have a material adverse effect on our net income or cash flow by affecting our operations and
profitability, our effective tax rate, the availability of tax credits, the cost of the services we provide, and the availability of
deductions for operating losses.
Benefits obtained from government sponsored programs
We benefit from government sponsored programs designed to support research and development, labour and economic
growth in jurisdictions where we operate. Government programs reflect government policy and depend on various political
and economic factors. There can be no assurance that such government programs will continue to be available to the Company
in the future, or will not be reduced, amended or eliminated. Any future government program reductions or eliminations or
other amendments to the tax credit programs could increase operating or capital expenditures incurred by the Company and
have a material adverse effect on its net earnings or cash flow.
Credit risk with respect to accounts receivable and work in progress
In order to sustain our cash flow from operations, we must invoice and collect the amounts owed to us in an efficient and
timely manner. Although we maintain provisions to account for anticipated shortfalls in amounts collected from clients, the
provisions we take are based on management estimates and on our assessment of our clients’ creditworthiness which may
prove to be inadequate in the light of actual results. To the extent that we fail to perform our services in accordance with our
contracts and our clients’ reasonable expectations, and to the extent that we fail to invoice clients and to collect the amounts
owed to the Company for our services correctly in a timely manner, our collections could suffer, which could materially adversely
affect our revenue, net earnings and cash flow. In addition, a prolonged economic downturn may cause clients to curtail or
defer projects, impair their ability to pay for services already provided, and ultimately cause them to default on existing contracts,
in each case, causing a shortfall in revenue and impairing our future prospects.
Material developments regarding major commercial clients resulting from such causes as changes in financial condition,
mergers or business acquisitions
Consolidation among our clients resulting from mergers and acquisitions may result in loss or reduction of business when the
successor business’ IT needs are served by another service provider or are provided by the successor company’s own
personnel. Growth in a client’s IT needs resulting from acquisitions or operations may mean that we no longer have a sufficient
geographic scope or the critical mass to serve the client’s needs efficiently, resulting in the loss of the client’s business and
impairing our future prospects. There can be no assurance that we will be able to achieve the objectives of our growth strategy
in order to maintain and increase our geographic scope and critical mass in our targeted markets.
Early termination risk
If we should fail to deliver our services according to contractual agreements, some of our clients could elect to terminate
contracts before their agreed expiry date, which would result in a reduction of our earnings and cash flow and may impact the
value of our backlog of orders. In addition, a number of our managed IT and business process services contractual agreements
have termination for convenience and change of control clauses according to which a change in the client’s intentions or a
change in control of CGI could lead to a termination of these agreements. Early contract termination can also result from the
exercise of a legal right or when circumstances that are beyond our control or beyond the control of our client prevent the
contract from continuing. In cases of early termination, we may not be able to recover capitalized contract costs and we may
not be able to eliminate ongoing costs incurred to support the contract.
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60 Our effective tax rate in the future could be adversely affected by challenges to intercompany transactions, changes in the
value of deferred tax assets and liabilities, changes in tax law or in their interpretation or enforcement, changes in the mix of
earnings in countries with differing statutory tax rates, the expiration of tax benefits and changes in accounting principles. Tax
rates in the jurisdictions in which we operate may change as a result of shifting economic conditions and tax policies.
A number of countries in which the Company does business have implemented, or are considering implementing, changes
in relevant tax, accounting and other laws, regulations and interpretations and the overall tax environment has made it
increasingly challenging for multinational corporations to operate with certainty about taxation in many jurisdictions.
Any of the above factors could have a material adverse effect on our net income or cash flow by affecting our operations and
profitability, our effective tax rate, the availability of tax credits, the cost of the services we provide, and the availability of
deductions for operating losses.
Benefits obtained from government sponsored programs
We benefit from government sponsored programs designed to support research and development, labour and economic
growth in jurisdictions where we operate. Government programs reflect government policy and depend on various political
and economic factors. There can be no assurance that such government programs will continue to be available to the Company
in the future, or will not be reduced, amended or eliminated. Any future government program reductions or eliminations or
other amendments to the tax credit programs could increase operating or capital expenditures incurred by the Company and
have a material adverse effect on its net earnings or cash flow.
Credit risk with respect to accounts receivable and work in progress
In order to sustain our cash flow from operations, we must invoice and collect the amounts owed to us in an efficient and
timely manner. Although we maintain provisions to account for anticipated shortfalls in amounts collected from clients, the
provisions we take are based on management estimates and on our assessment of our clients’ creditworthiness which may
prove to be inadequate in the light of actual results. To the extent that we fail to perform our services in accordance with our
contracts and our clients’ reasonable expectations, and to the extent that we fail to invoice clients and to collect the amounts
owed to the Company for our services correctly in a timely manner, our collections could suffer, which could materially adversely
affect our revenue, net earnings and cash flow. In addition, a prolonged economic downturn may cause clients to curtail or
defer projects, impair their ability to pay for services already provided, and ultimately cause them to default on existing contracts,
in each case, causing a shortfall in revenue and impairing our future prospects.
Material developments regarding major commercial clients resulting from such causes as changes in financial condition,
mergers or business acquisitions
Consolidation among our clients resulting from mergers and acquisitions may result in loss or reduction of business when the
successor business’ IT needs are served by another service provider or are provided by the successor company’s own
personnel. Growth in a client’s IT needs resulting from acquisitions or operations may mean that we no longer have a sufficient
geographic scope or the critical mass to serve the client’s needs efficiently, resulting in the loss of the client’s business and
impairing our future prospects. There can be no assurance that we will be able to achieve the objectives of our growth strategy
in order to maintain and increase our geographic scope and critical mass in our targeted markets.
Early termination risk
If we should fail to deliver our services according to contractual agreements, some of our clients could elect to terminate
contracts before their agreed expiry date, which would result in a reduction of our earnings and cash flow and may impact the
value of our backlog of orders. In addition, a number of our managed IT and business process services contractual agreements
have termination for convenience and change of control clauses according to which a change in the client’s intentions or a
change in control of CGI could lead to a termination of these agreements. Early contract termination can also result from the
exercise of a legal right or when circumstances that are beyond our control or beyond the control of our client prevent the
contract from continuing. In cases of early termination, we may not be able to recover capitalized contract costs and we may
not be able to eliminate ongoing costs incurred to support the contract.
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Cost estimation risks
Client concentration risk
In order to generate acceptable margins, our pricing for services is dependent on our ability to accurately estimate the costs
and timing for completing projects or long-term managed IT and business process services contracts, which can be based
on a client's bid specification, sometimes in advance of the final determination of the full scope and design of the contract. In
addition, a significant portion of our project-oriented contracts are performed on a fixed-price basis. Billing for fixed-price
engagements is carried out in accordance with the contract terms agreed upon with our client, and revenue is recognized
based on the percentage of effort incurred to date in relation to the total estimated efforts to be incurred over the duration of
the respective contract. These estimates reflect our best judgement regarding the efficiencies of our methodologies and
professionals as we plan to apply them to the contracts in accordance with the CGI Client Partnership Management Framework
(CPMF), a framework that contains high standards of contract management to be applied throughout the Company. If we fail
agencies.
to apply the CPMF correctly or if we are unsuccessful in accurately estimating the time or resources required to fulfill our
obligations under a contract, or if unexpected factors, including those outside of our control, arise, there may be an impact on
costs or the delivery schedule which could have a material adverse effect on our expected net earnings.
Risks related to teaming agreements and subcontracts
We derive revenue from contracts where we enter into teaming agreements with other providers. In some teaming agreements
we are the prime contractor whereas in others we act as a subcontractor. In both cases, we rely on our relationships with other
providers to generate business and we expect to continue to do so in the foreseeable future. Where we act as prime contractor,
if we fail to maintain our relationships with other providers, we may have difficulty attracting suitable participants in our teaming
agreements. Similarly, where we act as subcontractor, if our relationships are impaired, other providers might reduce the work
they award to us, award that work to our competitors, or choose to offer the services directly to the client in order to compete
with our business. In either case, if we fail to maintain our relationship with these providers or if our relationship with these
providers is otherwise impaired, our business, prospects, financial condition and operating results could be materially adversely
affected.
Our partners’ ability to deliver on their commitments
Increasingly large and complex contracts may require that we rely on third party subcontractors including software and hardware
vendors to help us fulfill our commitments. Under such circumstances, our success depends on the ability of the third parties
to perform their obligations within agreed upon budgets and timeframes. If our partners fail to deliver, our ability to complete
the contract may be adversely affected, which could have an unfavourable impact on our profitability.
Guarantees risk
In the normal course of business, we enter into agreements that may provide for indemnification and guarantees to
counterparties in transactions such as consulting and managed IT and business process services, business divestitures, lease
agreements and financial obligations. These indemnification undertakings and guarantees may require us to compensate
counterparties for costs and losses incurred as a result of various events, including breaches of representations and warranties,
intellectual property right infringement, claims that may arise while providing services or as a result of litigation that may be
suffered by counterparties.
Risk related to human resources utilization rates
In order to maintain our net earnings, it is important that we maintain the appropriate availability of professional resources in
each of our geographies by having a high utilization rate while still being able to assign additional resources to new work.
Maintaining an efficient utilization rate requires us to forecast our need for professional resources accurately and to manage
recruitment activities, professional training programs, attrition rates and restructuring programs appropriately. To the extent
that we fail to do so, or to the extent that laws and regulations restrict our ability to do so, our utilization rates may be reduced;
thereby having an impact on our revenue and profitability. Conversely, we may find that we do not have sufficient resources
to deploy against new business opportunities in which case our ability to grow our revenue would suffer.
We derive a significant portion of our revenue from the services we provide to various U.S. federal government departments
and agencies. We expect that this will continue for the foreseeable future. There can be, however, no assurance that each
such U.S. federal government department and agency will continue to utilize our services to the same extent, or at all in the
future. In the event that a major U.S. federal government department or agency were to limit, reduce, or eliminate the business
it awards to us, we might be unable to recover the lost revenue with work from other U.S. federal government departments
or agencies or other clients, and our business, prospects, financial condition and operating results could be materially and
adversely affected. Although IFRS considers a national government and its departments and agencies as a single client, our
client base in the U.S. government economic sector is in fact diversified with contracts from many different departments and
Government business risk
Changes in government spending policies or budget priorities could directly affect our financial performance. Among the factors
that could harm our government contracting business are: the curtailment of governments’ use of consulting and IT services
firms; a significant decline in spending by governments in general, or by specific departments or agencies in particular; the
adoption of new legislation and/or actions affecting companies that provide services to governments; delays in the payment
of our invoices by government; and general economic and political conditions. These or other factors could cause government
agencies and departments to reduce their purchases under contracts, to exercise their right to terminate contracts, to issue
temporary stop work orders, or not to exercise options to renew contracts, any of which would cause us to lose future revenue.
Government spending reductions or budget cutbacks at these departments or agencies could materially harm our continued
performance under these contracts, or limit the awarding of additional contracts from these agencies.
Regulatory risk
Our global operations require us to be compliant with laws and regulations in many jurisdictions on matters such as: anti-
corruption, trade restrictions, immigration, taxation, securities, antitrust, data privacy, labour relations, and the environment,
amongst others. Complying with these diverse requirements worldwide is a challenge and consumes significant resources.
The laws and regulations frequently change and some may impose conflicting requirements which may expose us to penalties
for non-compliance and harm our reputation. Furthermore, in some jurisdictions, we may face the absence of effective laws
and regulations to protect our intellectual property rights and there may be restrictions on the movement of cash and other
assets, on the import and export of certain technologies, and on the repatriation of earnings. Any or all of these risks could
impact our global business operations and cause our profitability to decline.
Our business with the U.S. federal government departments and agencies also requires that we comply with complex laws
and regulations relating to government contracts. These laws and regulations relate to the integrity of the procurement process,
impose disclosure requirements, and address national security concerns, among other matters. For instance, we are routinely
subject to audits by U.S. government departments and agencies with respect to compliance with these rules. If we fail to
comply with these requirements we may incur penalties and sanctions, including contract termination, suspension of payments,
suspension or debarment from doing business with the federal government, and fines.
Legal claims made against our work
We create, implement and maintain IT solutions that are often critical to the operations of our clients’ business. Our ability to
complete large projects as expected could be adversely affected by unanticipated delays, renegotiations, and changing client
requirements or project delays. Also, our solutions may suffer from defects that adversely affect their performance; they may
not meet our clients’ requirements or may fail to perform in accordance with applicable service levels. Such problems could
subject us to legal liability, which could materially adversely affect our business, operating results and financial condition, and
may negatively affect our professional reputation. While we typically use reasonable efforts to include provisions in our contracts
which are designed to limit our exposure to legal claims relating to our services and the applications we develop, we may not
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62 Client concentration risk
We derive a significant portion of our revenue from the services we provide to various U.S. federal government departments
and agencies. We expect that this will continue for the foreseeable future. There can be, however, no assurance that each
such U.S. federal government department and agency will continue to utilize our services to the same extent, or at all in the
future. In the event that a major U.S. federal government department or agency were to limit, reduce, or eliminate the business
it awards to us, we might be unable to recover the lost revenue with work from other U.S. federal government departments
or agencies or other clients, and our business, prospects, financial condition and operating results could be materially and
adversely affected. Although IFRS considers a national government and its departments and agencies as a single client, our
client base in the U.S. government economic sector is in fact diversified with contracts from many different departments and
agencies.
Government business risk
Changes in government spending policies or budget priorities could directly affect our financial performance. Among the factors
that could harm our government contracting business are: the curtailment of governments’ use of consulting and IT services
firms; a significant decline in spending by governments in general, or by specific departments or agencies in particular; the
adoption of new legislation and/or actions affecting companies that provide services to governments; delays in the payment
of our invoices by government; and general economic and political conditions. These or other factors could cause government
agencies and departments to reduce their purchases under contracts, to exercise their right to terminate contracts, to issue
temporary stop work orders, or not to exercise options to renew contracts, any of which would cause us to lose future revenue.
Government spending reductions or budget cutbacks at these departments or agencies could materially harm our continued
performance under these contracts, or limit the awarding of additional contracts from these agencies.
Regulatory risk
Our global operations require us to be compliant with laws and regulations in many jurisdictions on matters such as: anti-
corruption, trade restrictions, immigration, taxation, securities, antitrust, data privacy, labour relations, and the environment,
amongst others. Complying with these diverse requirements worldwide is a challenge and consumes significant resources.
The laws and regulations frequently change and some may impose conflicting requirements which may expose us to penalties
for non-compliance and harm our reputation. Furthermore, in some jurisdictions, we may face the absence of effective laws
and regulations to protect our intellectual property rights and there may be restrictions on the movement of cash and other
assets, on the import and export of certain technologies, and on the repatriation of earnings. Any or all of these risks could
impact our global business operations and cause our profitability to decline.
Our business with the U.S. federal government departments and agencies also requires that we comply with complex laws
and regulations relating to government contracts. These laws and regulations relate to the integrity of the procurement process,
impose disclosure requirements, and address national security concerns, among other matters. For instance, we are routinely
subject to audits by U.S. government departments and agencies with respect to compliance with these rules. If we fail to
comply with these requirements we may incur penalties and sanctions, including contract termination, suspension of payments,
suspension or debarment from doing business with the federal government, and fines.
Legal claims made against our work
We create, implement and maintain IT solutions that are often critical to the operations of our clients’ business. Our ability to
complete large projects as expected could be adversely affected by unanticipated delays, renegotiations, and changing client
requirements or project delays. Also, our solutions may suffer from defects that adversely affect their performance; they may
not meet our clients’ requirements or may fail to perform in accordance with applicable service levels. Such problems could
subject us to legal liability, which could materially adversely affect our business, operating results and financial condition, and
may negatively affect our professional reputation. While we typically use reasonable efforts to include provisions in our contracts
which are designed to limit our exposure to legal claims relating to our services and the applications we develop, we may not
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FISCAL 2020 RESULTS — 63 ManageMent's Discussion anD analysis
always be able to include such provisions and, where we are successful, such provisions may not protect us adequately or
detect and respond to attempts to gain unauthorized access to information systems and networks; and (v) working with the
may not be enforceable under some circumstances or under the laws of some jurisdictions.
Data protection and infrastructure risks
Our business often requires that our clients’ applications and information, which may include their proprietary information and
personal information they manage, be processed and stored on our networks and systems, and in data centers that we
manage. We also process and store proprietary information relating to our business, and personal information relating to our
members. The Company is subject to numerous laws and regulations designed to protect information, such as the European
Union’s General Data Protection Regulation (GDPR), various laws and regulations in Canada, the U.S. and other countries
in which the Company operates governing the protection of health or other personally identifiable information and data privacy.
These laws and regulations are increasing in number and complexity and are being adopted and amended with greater
frequency, which results in greater compliance risk and cost. The potential financial penalties for non-compliance with these
laws and regulations have significantly increased with the adoption of the GDPR. The Company's Chief Data Protection Officer
oversees the Company's compliance with the laws that protect the privacy of personal information. The Company faces risks
inherent in protecting the security of such personal data which have grown in complexity, magnitude and frequency in recent
years. Digital information and equipment are subject to loss, theft or destruction, and services that we provide may become
temporarily unavailable as a result of those risks, or upon an equipment or system malfunction. The causes of such failures
include human error in the course of normal operations (including from advertent or inadvertent actions or inactions by our
members), maintenance and upgrading activities, as well as hacking, vandalism (including denial of service attacks and
computer viruses), theft, and unauthorized access, as well as power outages or surges, floods, fires, natural disasters and
many other causes. The measures that we take to protect against all information infrastructure risks, including both physical
and logical controls on access to premises and information may prove in some circumstances to be inadequate to prevent
the improper disclosure, loss, theft, misappropriation of, unauthorized access to, or destruction of client information, or service
interruptions. Such events may expose the Company to financial loss arising from the costs of remediation and those arising
from litigation from our clients and third parties (including under the laws that protect the privacy of personal information),
claims and damages, as well as expose the Company to government sanctions and damage to our brand and reputation.
Security and cybersecurity risks
In the current environment, the volume, velocity and creativity of security threats and cyber attacks continue to grow, this
includes criminal hackers, hacktivists, state sponsored organizations, industrial espionage, employee misconduct, and human
or technological error. As a worldwide IT and business consulting firm providing services to both the private and public sectors,
we process and store increasingly large amounts of data for our clients, including proprietary information and personal
information. Consequently, our business could be negatively impacted by physical and cyber threats, which could affect our
future sales and financial position or increase our costs and expenses.
An unauthorized disclosure of sensitive or confidential client or member information, including cyber-attacks or other security
breaches, could cause a loss of data, give rise to remediation or other expenses, expose us to liability under federal and state
laws, and subject us to litigation and investigations, which could have an adverse effect on our business, cash flows, financial
condition and results of operations. These security risks to the Company include potential attacks not only of our own solutions,
services and systems, but also those of our clients, contractors, business partners, vendors and other third parties. Any local
issue in a Business Unit could have a global impact on the entire Company , thus visibility and timely escalation on potential
issues are key.
The Company’s Chief Security Officer is responsible for overseeing the security of the Company. We seek to detect and
investigate all security incidents and to prevent their occurrence or recurrence, by: (i) developing and regularly reviewing
policies and standards related to information security, data privacy, physical security and business continuity; (ii) monitoring
the Company’s performance against these policies and standards; (iii) developing strategies intended to seek to mitigate the
Company’s risks, including through security trainings for all employees to increase awareness of potential cyber threats; (iv)
implementing security measures to ensure an appropriate level of control based on the nature of the information and the
inherent risks attached thereto, including through access management, security monitoring and testing to mitigate and help
industry and governments against cyber threats. However, because of the evolving nature and sophistication of these security
threats, there can be no assurance that our safeguards will detect or prevent the occurrence of material cyber breaches,
intrusions or attacks.
We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our
information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access,
misuse, computer viruses and other events that could have a security impact. If security protection does not evolve at the
same pace as threats, a growing gap on our level of protection will be created. Technology evolution and global trends like
digital transformation, cloud and mobile computing amongst others are disrupting the security operating model, thus security
should evolve to address new relevant security requirements and build new capabilities to address the changes. Increasing
detection and automated response capabilities are key to improve visibility and contain any negative potential impact.
Automating security processes and integrating with IT, business and security solutions could address shortage of technical
security staff and avoid introducing human intervention and errors.
Insider or employee cyber and security threats are increasingly a concern for all large companies, including ours. CGI is
continuously working to install new, and upgrade its existing, information technology systems and provide member awareness
training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent
possible, against cyber risks and security breaches. While CGI selects third-party vendors carefully, it does not control their
actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in
communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and
security breaches at a vendor could adversely affect the our ability to deliver solutions and services to our customers and
otherwise conduct business. Furthermore, while our liability insurance policy covers cyber risks, there is no assurance that
such insurance coverage will be sufficient in type or amount to cover the costs, damages, liabilities or losses that could result
from security breaches, cyber-attacks and other related breaches. As the cyber threat landscape evolves, the Company may
find it necessary to make further significant investments to protect data and infrastructure. Occurrence of any of the
aforementioned security threats could expose the Company, our clients or other third parties to potential liability, litigation, and
regulatory action, as well as the loss of client confidence, loss of existing or potential clients, loss of sensitive government
contracts, damage to brand and reputation, and other financial loss.
Risk of harm to our reputation
CGI’s reputation as a capable and trustworthy service provider and long-term business partner is key to our ability to compete
effectively in the market for IT services. The nature of our operations exposes us to the potential loss, unauthorized access
to, or destruction of our clients’ information, as well as temporary service interruptions. Depending on the nature of the
information or services, such events may have a negative impact on how the Company is perceived in the marketplace. Under
such circumstances, our ability to obtain new clients and retain existing clients could suffer with a resulting impact on our
revenue and net earnings.
Risks associated with the integration of new operations
The successful integration of new operations arising from our acquisition strategy or from large managed IT and business
process services contracts requires that a substantial amount of management time and attention be focused on integration
tasks. Management time that is devoted to integration activities may detract from management’s normal operations focus with
resulting pressure on the revenues and earnings from our existing operations. In addition, we may face complex and potentially
time-consuming challenges in implementing uniform standards, controls, procedures and policies across new operations when
harmonizing their activities with those of our existing business units. Integration activities can result in unanticipated operational
problems, expenses and liabilities. If we are not successful in executing our integration strategies in a timely and cost-effective
manner, we will have difficulty achieving our growth and profitability objectives.
Internal controls risks
Due to the inherent limitations of internal controls including the circumvention or overriding of controls, or fraud, there can only
be reasonable assurance that the Company’s internal controls will detect and prevent a misstatement. If the Company is
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 64
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 65
64 detect and respond to attempts to gain unauthorized access to information systems and networks; and (v) working with the
industry and governments against cyber threats. However, because of the evolving nature and sophistication of these security
threats, there can be no assurance that our safeguards will detect or prevent the occurrence of material cyber breaches,
intrusions or attacks.
We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our
information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access,
misuse, computer viruses and other events that could have a security impact. If security protection does not evolve at the
same pace as threats, a growing gap on our level of protection will be created. Technology evolution and global trends like
digital transformation, cloud and mobile computing amongst others are disrupting the security operating model, thus security
should evolve to address new relevant security requirements and build new capabilities to address the changes. Increasing
detection and automated response capabilities are key to improve visibility and contain any negative potential impact.
Automating security processes and integrating with IT, business and security solutions could address shortage of technical
security staff and avoid introducing human intervention and errors.
Insider or employee cyber and security threats are increasingly a concern for all large companies, including ours. CGI is
continuously working to install new, and upgrade its existing, information technology systems and provide member awareness
training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent
possible, against cyber risks and security breaches. While CGI selects third-party vendors carefully, it does not control their
actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in
communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and
security breaches at a vendor could adversely affect the our ability to deliver solutions and services to our customers and
otherwise conduct business. Furthermore, while our liability insurance policy covers cyber risks, there is no assurance that
such insurance coverage will be sufficient in type or amount to cover the costs, damages, liabilities or losses that could result
from security breaches, cyber-attacks and other related breaches. As the cyber threat landscape evolves, the Company may
find it necessary to make further significant investments to protect data and infrastructure. Occurrence of any of the
aforementioned security threats could expose the Company, our clients or other third parties to potential liability, litigation, and
regulatory action, as well as the loss of client confidence, loss of existing or potential clients, loss of sensitive government
contracts, damage to brand and reputation, and other financial loss.
Risk of harm to our reputation
CGI’s reputation as a capable and trustworthy service provider and long-term business partner is key to our ability to compete
effectively in the market for IT services. The nature of our operations exposes us to the potential loss, unauthorized access
to, or destruction of our clients’ information, as well as temporary service interruptions. Depending on the nature of the
information or services, such events may have a negative impact on how the Company is perceived in the marketplace. Under
such circumstances, our ability to obtain new clients and retain existing clients could suffer with a resulting impact on our
revenue and net earnings.
Risks associated with the integration of new operations
The successful integration of new operations arising from our acquisition strategy or from large managed IT and business
process services contracts requires that a substantial amount of management time and attention be focused on integration
tasks. Management time that is devoted to integration activities may detract from management’s normal operations focus with
resulting pressure on the revenues and earnings from our existing operations. In addition, we may face complex and potentially
time-consuming challenges in implementing uniform standards, controls, procedures and policies across new operations when
harmonizing their activities with those of our existing business units. Integration activities can result in unanticipated operational
problems, expenses and liabilities. If we are not successful in executing our integration strategies in a timely and cost-effective
manner, we will have difficulty achieving our growth and profitability objectives.
Internal controls risks
Due to the inherent limitations of internal controls including the circumvention or overriding of controls, or fraud, there can only
be reasonable assurance that the Company’s internal controls will detect and prevent a misstatement. If the Company is
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 65
FISCAL 2020 RESULTS — 65 ManageMent's Discussion anD analysis
unable to design, implement, monitor and maintain effective internal controls throughout its different business environments,
the efficiency of our operations might suffer, resulting in a decline in revenue and profitability, and the accuracy of our financial
reporting could be impaired.
Liquidity and funding risks
The Company’s future growth is contingent on the execution of its business strategy, which, in turn, is dependent on its ability
to grow the business organically as well as through business acquisitions. In the event we would need to raise additional funds
through equity or debt financing to fund any currently unidentified or unplanned future acquisitions and other growth
opportunities, there can be no assurance that such financing will be available in amounts and on terms acceptable to us. Our
ability to raise the required funding depends on the capacity of the capital markets to meet our equity and/or debt financing
needs in a timely fashion and on the basis of interest rates and/or share prices that are reasonable in the context of our
commercial objectives. Increasing interest rates, volatility in our share price, and the capacity of our current lenders to meet
our additional liquidity requirements are all factors that may have a material adverse effect on any acquisitions or growth
activities that we may, in the future, identify or plan. If we are unable to obtain the necessary funding, we may be unable to
achieve our growth objectives.
Foreign exchange risk
The majority of our revenue and costs are denominated in currencies other than the Canadian dollar. Foreign exchange
fluctuations impact the results of our operations as they are reported in Canadian dollars. This risk is partially mitigated by a
natural hedge in matching our costs with revenue denominated in the same currency and through the use of derivatives in
our global hedging strategy. However, as we continue our global expansion, natural hedges may begin to diminish and the
use of hedging contracts exposes us to the risk that financial institutions could fail to perform their obligations under our
hedging instruments. Furthermore, there can be no assurance that our hedging strategy and arrangements will offset the
impact of fluctuations in currency exchange rates, which could materially adversely affect our business revenues, results of
operations, financial condition or prospects. Other than the use of financial products to deliver on our hedging strategy, we
do not trade derivative financial instruments.
Our functional and reporting currency is the Canadian dollar. As such, our U.S., European and Asian investments, operations
and assets are exposed to net change in currency exchange rates. Volatility in exchange rates could have an adverse effect
on our business, financial condition and results of operations.
10.2. LEGAL PROCEEDINGS
The Company is involved in legal proceedings, audits, claims and litigation arising in the ordinary course of its business.
Certain of these matters seek damages in significant amounts. Although the outcome of such matters is not predictable with
assurance, the Company has no reason to believe that the disposition of any such current matter could reasonably be expected
to have a material adverse effect on the Company’s financial position, results of operations or the ability to carry on any of its
business activities.
Transfer Agent
Computershare Investor Services Inc.
(800) 564-6253
Investor Relations
Maher Yaghi
Vice-President, Investor Relations
Telephone: (514) 415-3651
maher.yaghi@cgi.com
1350 René-Lévesque Boulevard West
25th Floor
Montréal, Quebec
H3G 1T4
Canada
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 66
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 67
66 Management’s and Auditors’ Reports
MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
The management of CGI Inc. (the Company) is responsible for the preparation and integrity of the consolidated financial statements
and the Management’s Discussion and Analysis (MD&A). The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting Standards Board and necessarily
include some amounts that are based on management’s best estimates and judgement. Financial and operating data elsewhere
in the MD&A are consistent with that contained in the accompanying consolidated financial statements.
To fulfill its responsibility, management has developed, and continues to maintain, systems of internal controls reinforced by the
Company’s standards of conduct and ethics, as set out in written policies to ensure the reliability of the financial information and
to safeguard its assets. The Company’s internal control over financial reporting and consolidated financial statements are subject
to audit by an Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP, whose report follows.
PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm appointed by our shareholders upon the
recommendation of the Audit and Risk Management Committee of the Board of Directors, has performed an independent audit
of the consolidated balance sheets as at September 30, 2020 and 2019 and the related consolidated statements of earnings,
comprehensive income, changes in equity and cash flows for the years ended September 30, 2020 and 2019 and the effectiveness
of our internal control over financial reporting as at September 30, 2020.
Members of the Audit and Risk Management Committee of the Board of Directors, all of whom are independent of the Company,
meet regularly with PricewaterhouseCoopers LLP and with management to discuss internal controls in the financial reporting
process, auditing matters and financial reporting issues and formulate the appropriate recommendations to the Board of Directors.
PricewaterhouseCoopers LLP has full and unrestricted access to the Audit and Risk Management Committee. The consolidated
financial statements and MD&A have been reviewed and approved by the Board of Directors.
George D. Schindler
President and Chief Executive Officer
François Boulanger
Executive Vice-President and Chief Financial Officer
November 10, 2020
Computershare Investor Services Inc.
Transfer Agent
(800) 564-6253
Investor Relations
Maher Yaghi
Vice-President, Investor Relations
Telephone: (514) 415-3651
maher.yaghi@cgi.com
1350 René-Lévesque Boulevard West
25th Floor
Montréal, Quebec
H3G 1T4
Canada
CGI Inc. - Management's Discussion and Analysis for the year ended September 30, 2020
Page 67
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
1
FISCAL 2020 RESULTS — 67 consoliDateD financial stateMents
Management’s and Auditors’ Reports
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting is a process designed, under the supervision of and with the participation
of the President and Chief Executive Officer as well as the Executive Vice-President and Chief Financial Officer, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial
statements for external reporting purposes in accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB).
The Company’s internal control over financial reporting includes policies and procedures that:
- Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions
of the assets of the Company;
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with IFRS as issued by the IASB, and that receipts and expenditures are being made only in
accordance with authorizations of management and the directors of the Company; and,
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the Company’s consolidated financial statements.
All internal control systems have inherent limitations; therefore, even where internal control over financial reporting is determined
to be effective, it can provide only reasonable assurance. Projections of any evaluation of effectiveness to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management, under the supervision of and with the participation of the President and Chief Executive Officer as well as the
Executive Vice-President and Chief Financial Officer, conducted an assessment of the effectiveness of the Company’s internal
control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has
determined the Company’s internal control over financial reporting as at September 30, 2020 was effective.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2020 has been audited by
PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm, as stated in their report which appears herein.
George D. Schindler
President and Chief Executive Officer
François Boulanger
Executive Vice-President and Chief Financial Officer
November 10, 2020
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
2
68 Management’s and Auditors’ Reports
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of CGI Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CGI Inc. and its subsidiaries (together, the Company) as of
September 30, 2020 and 2019, and the related consolidated statements of earnings, comprehensive income, changes in equity
and cash flows for the years then ended, including the related notes (collectively referred to as the ''consolidated financial
statements''). We also have audited the Company's internal control over financial reporting as of September 30, 2020, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of September 30, 2020 and 2019, and its financial performance and its cash flows for the years then ended
in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September
30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases
on October 1, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on
the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
3
FISCAL 2020 RESULTS — 69 consoliDateD financial stateMents
Management’s and Auditors’ Reports
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
Definition and Limitations of Internal Control over Financial Reporting (continued)
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the Audit and Risk Management Committee of the Board
of Directors and that (i) relates to accounts or disclosures that are material to the consolidated financial statements; and (ii)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Estimates of total expected labour costs or total expected labour hours for systems integration and
consulting services under fixed-fee arrangements
As described in Notes 3 and 29 to the consolidated financial statements, the Company recognizes revenue for systems integration
and consulting services under fixed-fee arrangements using the percentage-of-completion method over time. For the year ended
on September 30, 2020, revenue from systems integration and consulting services under fixed-fee arrangements makes up a
portion of the revenue from systems integration and consulting services. The selection of the measure of progress towards
completion requires management judgment and is based on the nature of the services to be provided. As disclosed by management,
the Company relies on estimates of total expected labour costs or total expected labour hours to complete the service, which are
compared to labour costs or labour hours incurred to date, to arrive at an estimate of the percentage of revenue earned to date.
Management regularly reviews underlying estimates of total expected labour costs or total expected hours. Management has
disclosed that there are many factors that can affect the estimates of total expected labour costs or total expected labour hours,
including, but not limited to, changes to the scope of the contracts, delays in reaching milestones and new complexities in the
project delivery.
The principal considerations for our determination that performing procedures relating to Revenue Recognition - Estimates of
total expected labour costs or total expected labour hours for systems integration and consulting services under fixed-fee
arrangements is a critical audit matter are (i) there was significant judgment by management when developing the estimates of
total expected labour costs or total expected labour hours; and (ii) there were significant auditor judgment and effort in performing
procedures to evaluate the estimates of total expected labour costs or total expected labour hours, including the assessment of
management’s judgment about the Company’s ability to properly assess the factors that can affect the significant assumptions
related to the estimates of total expected labour costs or total expected labour hours to complete.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
revenue recognition process, including controls over the determination of estimates of total expected labour costs or total expected
labour hours. The procedures also included, among others, evaluating and testing management’s process, on a sample basis,
for determining the estimates of total expected labour costs or total expected labour hours which included evaluating the
reasonableness of significant assumptions, including the total expected labour costs or total expected labour hours to complete,
used by management by (i) testing total labour costs or total labour hours incurred to supporting evidence; (ii) performing a
comparison of the sum of total labour costs or labour hours incurred and the total expected labour costs or total expected labour
hours to complete to the originally estimated costs or hours; and; (iii) evaluating the process of the timely identification of factors
that can affect the total expected labour costs or total expected hours, including but not limited to, changes to the scope of the
contracts, delays in reaching milestones and new complexities in the project delivery.
/s/ PricewaterhouseCoopers LLP1
Montréal, Québec, Canada
November 10, 2020
We have served as the Company’s auditor since 2019.
1. FCPA auditor, FCA, public accountancy permit No. A115888
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
4
70 Consolidated Statements of Earnings
For the years ended September 30
(in thousands of Canadian dollars, except per share data)
Consolidated Statements of Earnings
Consolidated Statements of Earnings
For the years ended September 30
For the years ended September 30
(in thousands of Canadian dollars, except per share data)
(in thousands of Canadian dollars, except per share data)
Revenue
Operating expenses
Revenue
Revenue
Operating expenses
Operating expenses
Costs of services, selling and administrative
Costs of services, selling and administrative
Costs of services, selling and administrative
Acquisition-related and integration costs
Acquisition-related and integration costs
Acquisition-related and integration costs
Restructuring costs
Restructuring costs
Restructuring costs
Net finance costs
Net finance costs
Net finance costs
Foreign exchange (gain) loss
Foreign exchange (gain) loss
Foreign exchange (gain) loss
Earnings before income taxes
Earnings before income taxes
Earnings before income taxes
Income tax expense
Income tax expense
Income tax expense
Net earnings
Net earnings
Net earnings
Earnings per share
Earnings per share
Earnings per share
Basic earnings per share
Basic earnings per share
Basic earnings per share
Diluted earnings per share
Diluted earnings per share
Diluted earnings per share
See Notes to the Consolidated Financial Statements.
See Notes to the Consolidated Financial Statements.
See Notes to the Consolidated Financial Statements.
Notes
Notes
Notes
29
29
29
23
23
23
27c
27c
27c
25
26
25
25
26
26
16
16
16
21
21
21
21
21
21
2020
2020
2020
$
$
$
2019
2019
2019
$
$
$
12,164,115
12,164,115
12,164,115
12,111,236
12,111,236
12,111,236
10,302,068
10,302,068
10,302,068
10,284,007
10,284,007
10,284,007
76,794
76,794
76,794
155,411
155,411
155,411
114,474
114,474
114,474
(899)
(899)
(899)
10,647,848
10,647,848
10,647,848
1,516,267
1,516,267
1,516,267
398,405
398,405
398,405
1,117,862
1,117,862
1,117,862
77,417
77,417
77,417
—
—
—
70,630
70,630
70,630
2,234
2,234
2,234
10,434,288
10,434,288
10,434,288
1,676,948
1,676,948
1,676,948
413,741
413,741
413,741
1,263,207
1,263,207
1,263,207
4.27
4.27
4.27
4.20
4.20
4.20
4.63
4.63
4.63
4.55
4.55
4.55
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
5
5
5
FISCAL 2020 RESULTS — 71 consoliDateD financial stateMents
Consolidated Statements of Comprehensive Income
For the years ended September 30
(in thousands of Canadian dollars)
Net earnings
Items that will be reclassified subsequently to net earnings (net of income taxes):
2020
$
2019
$
1,117,862
1,263,207
Net unrealized gains (losses) on translating financial statements of foreign operations
406,445
(162,657)
Net gains on cross-currency swaps and on translating long-term debt designated as hedges
of net investments in foreign operations
Deferred gains (costs) of hedging on cross-currency swaps
Net unrealized (losses) gains on cash flow hedges
Net unrealized gains on financial assets at fair value through other comprehensive income
Items that will not be reclassified subsequently to net earnings (net of income taxes):
Net remeasurement (losses) gains on defined benefit plans
Other comprehensive income (loss)
Comprehensive income
See Notes to the Consolidated Financial Statements.
8,914
18,144
(30,091)
2,854
(37,250)
369,016
53,024
(4,091)
50,943
4,102
33,777
(24,902)
1,486,878
1,238,305
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
6
72 Consolidated Balance Sheets
Consolidated Balance Sheets
Consolidated Balance Sheets
As at September 30
As at September 30
As at September 30
(in thousands of Canadian dollars)
(in thousands of Canadian dollars)
(in thousands of Canadian dollars)
Consolidated Balance Sheets
As at September 30
(in thousands of Canadian dollars)
Notes
Notes
Notes
Notes
2020
2020
2020
2020
$
$
$
$
2019
2019
2019
2019
$
$
$
$
Assets
Assets
Assets
Assets
Current assets
Current assets
Current assets
Current assets
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents
Accounts receivable
Accounts receivable
Accounts receivable
Accounts receivable
Work in progress
Work in progress
Work in progress
Work in progress
Current financial assets
Current financial assets
Current financial assets
Current financial assets
Prepaid expenses and other current assets
Income taxes
Income taxes
Total current assets before funds held for clients
Total current assets before funds held for clients
Income taxes
Total current assets before funds held for clients
Income taxes
Total current assets before funds held for clients
Funds held for clients
Funds held for clients
Prepaid expenses and other current assets
Prepaid expenses and other current assets
Prepaid expenses and other current assets
Funds held for clients
Funds held for clients
Total current assets
Total current assets
Total current assets
Total current assets
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Right-of-use assets
Right-of-use assets
Right-of-use assets
Right-of-use assets
Contract costs
Contract costs
Contract costs
Contract costs
Intangible assets
Intangible assets
Intangible assets
Intangible assets
Other long-term assets
Other long-term assets
Other long-term assets
Other long-term assets
Long-term financial assets
Long-term financial assets
Long-term financial assets
Long-term financial assets
Deferred tax assets
Deferred tax assets
Deferred tax assets
Deferred tax assets
Goodwill
Goodwill
Goodwill
Goodwill
Liabilities
Liabilities
Liabilities
Liabilities
Current liabilities
Current liabilities
Current liabilities
Current liabilities
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Accrued compensation
Accrued compensation
Accrued compensation
Accrued compensation
Current derivative financial instruments
Current derivative financial instruments
Current derivative financial instruments
Current derivative financial instruments
Deferred revenue
Deferred revenue
Deferred revenue
Deferred revenue
Income taxes
Income taxes
Income taxes
Income taxes
Provisions
Provisions
Provisions
Provisions
Current portion of long-term debt
Current portion of long-term debt
Current portion of long-term debt
Current portion of long-term debt
Current portion of lease liabilities
Current portion of lease liabilities
Current portion of lease liabilities
Current portion of lease liabilities
Total current liabilities before clients’ funds obligations
Total current liabilities before clients’ funds obligations
Total current liabilities before clients’ funds obligations
Clients’ funds obligations
Clients’ funds obligations
Clients’ funds obligations
Clients’ funds obligations
Total current liabilities
Total current liabilities
Total current liabilities
Total current liabilities
Long-term income taxes
Long-term income taxes
Long-term income taxes
Long-term income taxes
Long-term provisions
Long-term provisions
Long-term provisions
Long-term provisions
Long-term debt
Long-term debt
Long-term debt
Long-term debt
Long-term lease liabilities
Long-term lease liabilities
Long-term lease liabilities
Long-term lease liabilities
Other long-term liabilities
Other long-term liabilities
Other long-term liabilities
Other long-term liabilities
Long-term derivative financial instruments
Long-term derivative financial instruments
Long-term derivative financial instruments
Long-term derivative financial instruments
Deferred tax liabilities
Deferred tax liabilities
Deferred tax liabilities
Deferred tax liabilities
Retirement benefits obligations
Retirement benefits obligations
Retirement benefits obligations
Retirement benefits obligations
Total current liabilities before clients’ funds obligations
Equity
Equity
Equity
Equity
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Accumulated other comprehensive income
Accumulated other comprehensive income
Accumulated other comprehensive income
Accumulated other comprehensive income
Capital stock
Capital stock
Capital stock
Capital stock
Contributed surplus
Contributed surplus
Contributed surplus
Contributed surplus
See Notes to the Consolidated Financial Statements.
See Notes to the Consolidated Financial Statements.
See Notes to the Consolidated Financial Statements.
See Notes to the Consolidated Financial Statements.
Approved by the Board of Directors
Approved by the Board of Directors
Approved by the Board of Directors
Approved by the Board of Directors
28e and 32
28e and 32
28e and 32
28e and 32
4 and 32
4 and 32
4 and 32
4 and 32
32
32
32
32
5
6
5
5
5
6
6
6
3 and 7
3 and 7
3 and 7
3 and 7
8
9
10
11
16
12
8
9
8
8
9
9
10
10
10
11
11
11
16
16
16
12
12
12
32
32
32
32
13
14
3
13
14
3
15
32
16
17
13
13
13
14
14
14
3
3
3
13
13
13
14
14
14
3
3
3
15
15
15
32
32
32
16
16
16
17
17
17
18
19
18
18
18
19
19
19
1,707,985
1,219,302
1,075,252
18,500
160,406
29,363
4,210,808
725,178
4,935,986
372,946
666,865
239,376
521,462
163,739
156,569
113,484
8,379,931
15,550,358
1,707,985
1,707,985
1,707,985
1,219,302
1,219,302
1,219,302
1,075,252
1,075,252
1,075,252
18,500
18,500
18,500
160,406
160,406
160,406
29,363
29,363
29,363
4,210,808
4,210,808
4,210,808
725,178
725,178
725,178
4,935,986
4,935,986
4,935,986
372,946
372,946
372,946
666,865
666,865
666,865
239,376
239,376
239,376
521,462
521,462
521,462
163,739
163,739
163,739
156,569
156,569
156,569
113,484
113,484
113,484
8,379,931
8,379,931
8,379,931
15,550,358
15,550,358
15,550,358
213,831
213,831
213,831
213,831
1,357,090
1,357,090
1,357,090
1,357,090
1,096,031
1,096,031
1,096,031
1,096,031
39,931
39,931
39,931
39,931
172,182
172,182
172,182
172,182
10,206
10,206
10,206
10,206
2,889,271
2,889,271
2,889,271
2,889,271
368,112
368,112
368,112
368,112
3,257,383
3,257,383
3,257,383
3,257,383
397,661
397,661
397,661
397,661
—
—
—
—
222,965
222,965
222,965
222,965
517,982
517,982
517,982
517,982
180,480
180,480
180,480
180,480
176,899
176,899
176,899
176,899
100,539
100,539
100,539
100,539
7,767,837
7,767,837
7,767,837
7,767,837
12,621,746
12,621,746
12,621,746
12,621,746
1,025,963
672,775
8,328
426,393
136,928
175,632
310,764
178,720
2,935,503
720,322
3,655,825
6,720
23,888
3,276,331
697,650
185,374
56,622
158,341
225,447
8,286,198
1,025,963
1,025,963
1,025,963
672,775
672,775
672,775
8,328
8,328
8,328
426,393
426,393
426,393
136,928
136,928
136,928
175,632
175,632
175,632
310,764
310,764
310,764
178,720
178,720
178,720
2,935,503
2,935,503
2,935,503
720,322
720,322
720,322
3,655,825
3,655,825
3,655,825
6,720
6,720
6,720
23,888
23,888
23,888
3,276,331
3,276,331
3,276,331
697,650
697,650
697,650
185,374
185,374
185,374
56,622
56,622
56,622
158,341
158,341
158,341
225,447
225,447
225,447
8,286,198
8,286,198
8,286,198
1,108,895
1,108,895
1,108,895
1,108,895
642,897
642,897
642,897
642,897
4,902
4,902
4,902
4,902
397,370
397,370
397,370
397,370
176,243
176,243
176,243
176,243
73,509
73,509
73,509
73,509
113,511
113,511
113,511
113,511
—
—
—
—
2,517,327
2,517,327
2,517,327
2,517,327
366,796
366,796
366,796
366,796
2,884,123
2,884,123
2,884,123
2,884,123
7,690
7,690
7,690
7,690
24,946
24,946
24,946
24,946
2,217,696
2,217,696
2,217,696
2,217,696
—
—
—
—
213,392
213,392
213,392
213,392
18,322
18,322
18,322
18,322
178,265
178,265
178,265
178,265
193,209
193,209
193,209
193,209
5,737,643
5,737,643
5,737,643
5,737,643
4,703,642
545,710
1,761,873
252,935
7,264,160
15,550,358
4,703,642
545,710
1,761,873
252,935
7,264,160
15,550,358
4,703,642
4,703,642
545,710
545,710
1,761,873
1,761,873
252,935
252,935
7,264,160
7,264,160
15,550,358
15,550,358
4,557,855
176,694
1,903,977
245,577
6,884,103
12,621,746
4,557,855
176,694
1,903,977
245,577
6,884,103
12,621,746
4,557,855
4,557,855
176,694
176,694
1,903,977
1,903,977
245,577
245,577
6,884,103
6,884,103
12,621,746
12,621,746
George D. Schindler
George D. Schindler
George D. Schindler
George D. Schindler
Serge Godin
Serge Godin
Serge Godin
Serge Godin
Director
Director
Director
Director
Director
Director
Director
Director
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
7
7
7
7
FISCAL 2020 RESULTS — 73 consoliDateD financial stateMents
Consolidated Statements of Changes in Equity
For the years ended September 30
(in thousands of Canadian dollars)
Balance as at September 30, 2019
Adoption of IFRS 16
Balance as at October 1, 2019
Net earnings
Other comprehensive income
Comprehensive income
Share-based payment costs
Income tax impact associated with stock options
Exercise of stock options
Exercise of performance share units
Purchase for cancellation of Class A subordinate voting shares
Purchase of Class A subordinate voting shares held in trusts
19
19
19
19
Notes
Retained
earnings
$
Accumulated
other
comprehensive
income
Capital
stock
Contributed
surplus
$
$
$
Total
equity
$
4,557,855
176,694
1,903,977
245,577
6,884,103
3
(93,873)
—
—
—
(93,873)
4,463,982
1,117,862
—
1,117,862
—
—
—
—
176,694
1,903,977
245,577
6,790,230
—
369,016
369,016
—
—
—
—
—
—
—
—
—
69,420
9,078
— 1,117,862
—
369,016
— 1,486,878
37,358
(8,653)
(12,269)
(9,078)
37,358
(8,653)
57,151
—
(878,202)
—
— (165,315)
—
(55,287)
— (1,043,517)
—
(55,287)
Balance as at September 30, 2020
4,703,642
545,710
1,761,873
252,935
7,264,160
Balance as at September 30, 2018
Net earnings
Other comprehensive loss
Comprehensive income (loss)
Share-based payment costs
Income tax impact associated with stock options
Exercise of stock options
Exercise of performance share units
Purchase for cancellation of Class A subordinate voting shares
Purchase of Class A subordinate voting shares held in trusts
Balance as at September 30, 2019
See Notes to the Consolidated Financial Statements.
Notes
19
19
19
19
Retained
earnings
$
4,251,424
1,263,207
—
1,263,207
—
—
—
—
Accumulated
other
comprehensive
income
Capital
stock
Contributed
surplus
$
$
$
Total
equity
$
201,596
2,018,592
213,195
6,684,807
—
(24,902)
(24,902)
—
—
—
—
—
—
—
—
—
77,773
7,651
— 1,263,207
—
(24,902)
— 1,238,305
39,440
14,663
(14,070)
(7,651)
39,440
14,663
63,703
—
(956,776)
—
— (169,299)
—
(30,740)
— (1,126,075)
—
(30,740)
4,557,855
176,694
1,903,977
245,577
6,884,103
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
8
74 Consolidated Statements of Cash Flows
For the years ended September 30
(in thousands of Canadian dollars)
Operating activities
Net earnings
Adjustments for:
Amortization, depreciation and impairment
Deferred income tax expense (recovery)
Foreign exchange (gain) loss
Share-based payment costs
Loss on sale of business
Net change in non-cash working capital items
Cash provided by operating activities
Investing activities
Net change in short-term investments
Business acquisitions (considering the bank overdraft assumed and cash acquired)
Investment in Acando AB
Proceeds from sale of business
Purchase of property, plant and equipment
Additions to contract costs
Additions to intangible assets
Purchase of long-term investments
Proceeds from sale of long-term investments
Cash used in investing activities
Financing activities
Net change in unsecured committed revolving credit facility
Increase of long-term debt
Repayment of long-term debt
Payment of lease liabilities
Repayment of debt assumed in business acquisitions
Payment for remaining shares of Acando
Settlement of derivative financial instruments
Purchase of Class A subordinate voting shares held in trusts
Purchase and cancellation of Class A subordinate voting shares
Issuance of Class A subordinate voting shares
Cash provided by (used in) financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary cash flow information (Note 28).
See Notes to the Consolidated Financial Statements.
Notes
2020
$
2019
$
1,117,862
1,263,207
24
16
28a
14 and 28c
28c
28c
28c
28c
27b
28c and 32
19
19
565,692
6,170
(7,956)
37,358
1,266
218,164
1,938,556
8,414
(269,585)
—
2,647
(128,478)
(72,845)
(114,112)
(10,594)
12,100
(572,453)
(334,370)
1,807,167
(106,496)
(175,320)
(28,281)
(23,123)
(3,903)
(55,287)
(1,043,517)
57,302
94,172
33,879
1,494,154
213,831
1,707,985
392,301
(8,297)
3,519
39,440
—
(56,251)
1,633,919
(9,889)
(480,366)
(140,248)
600
(162,061)
(60,191)
(105,976)
(523)
7,845
(950,809)
139,575
686,810
(355,406)
—
(2,141)
—
(554)
(30,740)
(1,130,255)
63,602
(629,109)
(24,261)
29,740
184,091
213,831
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
9
FISCAL 2020 RESULTS — 75 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
1.
Description of business
CGI Inc. (the Company), directly or through its subsidiaries, provides managed information technology (IT) and business process
services (BPS), systems integration and consulting, as well as the sale of software solutions to help clients effectively realize
their strategies and create added value. The Company was incorporated under Part IA of the Companies Act (Québec), predecessor
to the Business Corporations Act (Québec) which came into force on February 14, 2011 and its Class A subordinate voting shares
are publicly traded. The executive and registered office of the Company is situated at 1350 René-Lévesque Blvd. West, Montréal,
Québec, Canada, H3G 1T4.
2.
Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
The Company’s consolidated financial statements for the years ended September 30, 2020 and 2019 were authorized for issue
by the Board of Directors on November 10, 2020.
3.
Summary of significant accounting policies
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions
and balances have been eliminated on consolidation.
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed or has right to variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the relevant activities
of the entity. Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated until the date control
over the subsidiaries ceases.
BASIS OF MEASUREMENT
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and
liabilities, which have been measured at fair value as described below.
USE OF JUDGEMENTS AND ESTIMATES
The preparation of the consolidated financial statements requires management to make judgements and estimates that affect
the reported amounts of assets, liabilities, equity and the accompanying disclosures at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period. Because the use of judgements and
estimates is inherent in the financial reporting process, actual results could differ.
Significant judgements and estimates about the future and other major sources of estimation uncertainty at the end of the reporting
period could have a significant risk of causing a material adjustment to the carrying amounts of the following within the next
financial year: revenue recognition, deferred tax assets, estimated losses on revenue-generating contracts, goodwill impairment,
right-of-use assets, business combinations, provisions for uncertain tax treatments and litigation and claims.
The judgements, apart from those involving estimations, that have the most significant effect on the amounts recognized in the
consolidated financial statements are:
Revenue recognition of multiple deliverable arrangements
Assessing whether the deliverables within an arrangement are separate performance obligations requires judgement by
management. A deliverable is identified as a separate performance obligation if the customer benefits from it on its own or together
with resources that are readily available to the customer and if it is separately identifiable from the other deliverables in the
contract. The Company assesses if the deliverables are separately identifiable in the context of the contract by determining if it
is highly interrelated with other deliverables in the contract. If these criteria are not met, the deliverables are accounted for as a
combined performance obligation.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
10
76 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
USE OF JUDGEMENTS AND ESTIMATES (CONTINUED)
Deferred tax assets
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable income will be available
against which the losses can be utilized. Management judgement is required concerning uncertainties that exist with respect to
the timing of future taxable income required to recognize a deferred tax asset. The Company recognizes an income tax benefit
only when it is probable that the tax benefit will be realized in the future. In making this judgement, the Company assesses
forecasts and the availability of future tax planning strategies.
A description of estimates is included in the respective sections within the Notes to the Consolidated Financial Statements.
COVID-19 pandemic
For the year ended September 30, 2020, the Company assessed the impact of the uncertainties around the outbreak of the novel
strain of the coronavirus, specifically identified as COVID-19 pandemic, on its balance sheet carrying amounts. This review
required the use of judgements and estimates and resulted in no material impacts outside of the restructuring costs, refer to Note
25.
The future impact of COVID-19 uncertainties could generate, in future reporting periods, a significant risk of material adjustments
to the following: revenue recognition, deferred tax assets, estimated losses on revenue-generating contracts, impairment of
PP&E, right-of-use assets, intangible assets and goodwill and litigation and claims.
REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE
The Company generates revenue through the provision of managed IT and BPS, systems integration and consulting, as well as
the sale of software solutions as described in Note 1, Description of business.
The Company provides services and products under arrangements that contain various pricing mechanisms. The Company
accounts for a contract or a group of contracts when the following criteria are met: the parties to the contract have approved the
contract in which their rights, their obligations and the payment terms have been identified, the contract has commercial substance,
and the collectability of the consideration is probable.
A contract modification is a change in the scope or price of an existing revenue-generating customer contract. The Company
accounts for a contract modification as a separate contract when the scope of the contract increases because of the addition of
promised performance obligations and the price of the contract increases by an amount of consideration that reflects its stand-
alone selling prices. When the contract is not accounted for as a separate contract, the Company recognizes an adjustment to
revenue on the existing contract on a cumulative catch-up basis as at the date of the contract modification or, if the remaining
goods and services are distinct, the Company recognizes the remaining consideration prospectively.
Revenue is recognized when or as the Company satisfies a performance obligation by transferring a promise of good or service
to the customer and are measured at the amount of consideration the Company expects to be entitled to receive, including variable
consideration, such as, discounts, volume rebates, service-level penalties, and incentives. Variable consideration is estimated
using either the expected value method or most likely amount method and is included only to the extent it is highly probable that
a significant reversal of cumulative revenue recognized will not occur. In making this judgement, management will mostly consider
all information available at the time (historical, current and forecasted), the Company’s knowledge of the client or the industry,
the type of services to be delivered and the specific contractual terms of each arrangement.
Revenue from sales of third party vendor's products, such as software licenses, hardware or services is recorded on a gross
basis when the Company is a principal to the transaction and is recorded net of costs when the Company is acting as an agent
between the client and vendor. To determine whether the Company is a principal or an agent, it evaluates whether control is
obtained of the goods or services before they are transferred to the client. Factors generally considered include whether the
Company has the primary responsibility for providing the product or service, adds meaningful value to the vendor’s product or
service and has discretion establishing the price.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
11
FISCAL 2020 RESULTS — 77 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE (CONTINUED)
Relative stand-alone selling price
The Company’s arrangements often include a mix of the services and products as described below. If an arrangement involves
the provision of multiple performance obligations, the total arrangement value is allocated to each performance obligations based
on its relative stand-alone selling price. When estimating the stand-alone selling price of each performance obligations, the
Company maximizes the use of observable prices which are established using the Company’s prices for same or similar
deliverables. When observable prices are not available, the Company estimates stand-alone selling prices based on its best
estimate. The best estimate of the stand-alone selling price is the price at which the Company would normally expect to offer the
services or products and is established by considering a number of internal and external factors including, but not limited to,
geographies, the Company’s pricing policies, internal costs and margins. Additionally, in certain circumstances, the Company
may apply the residual approach when estimating the stand-alone price of software license products, for which the Company has
not yet established the price or has not previously sold on a stand-alone basis.
The appropriate revenue recognition method is applied for each performance obligation as described below.
Managed IT and business process services
Revenue from managed IT and business process services arrangements is generally recognized over time as the services are
provided at the contractual billings, which corresponds with the value provided to the client, unless there is a better measure of
performance or delivery.
Systems integration and consulting services
Revenue from systems integration and consulting services under time and material arrangements is recognized over time as the
services are rendered, and revenue under cost-based arrangements is recognized over time as reimbursable costs are incurred.
Contractual billings of such arrangements correspond with the value provided to the client, and therefore revenues are generally
recognized when amounts become billable.
Revenue from systems integration and consulting services under fixed-fee arrangements is recognized using the percentage-of-
completion method over time, as the Company has no alternative use for the asset created and has an enforceable right to
payment for performance completed to date. The Company primarily uses labour costs or labour hours to measure the progress
towards completion. This method relies on estimates of total expected labour costs or total expected labour hours to complete
the service, which are compared to labour costs or labour hours incurred to date, to arrive at an estimate of the percentage of
revenue earned to date. Factors considered in the estimates include: changes in scope of the contracts, delays in reaching
milestones, complexities in project delivery, availability and retention of qualified IT professionals and/or the ability of the
subcontractors to perform their obligation within agreed upon budget and timeframes. Management regularly reviews underlying
estimates of total expected labour costs or hours.
Software licenses
Most of the Company’s software license arrangements include other services such as implementation, customization and
maintenance. For these types of arrangements, revenue from a software license, when identified as a performance obligation,
is recognized at a point in time upon delivery. Otherwise when the software is significantly customized, integrated or modified, it
is combined with the implementation and customization services and is accounted for as described in the systems integration
and consulting services section above. Revenue from maintenance services for software licenses sold is recognized straight-line
over the term of the maintenance period.
Work in progress and deferred revenue
Amounts recognized as revenue in excess of billings are classified as work in progress. Amounts received in advance of the
performance of services or delivery of products are classified as deferred revenue. Work in progress and deferred revenue are
presented net on a contract by-contract basis. During the year ended September, 30 2020, the revenues recognized from the
short-term deferred revenue was not significantly different than what was presented as at September, 30 2019.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of unrestricted cash and short-term investments having a maturity of three months or less
from the date of purchase.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
12
78 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
SHORT-TERM INVESTMENTS
Short-term investments, comprise generally of term deposits, have remaining maturities over three months, but not more than
one year, at the date of purchase.
FUNDS HELD FOR CLIENTS AND CLIENTS’ FUNDS OBLIGATIONS
In connection with the Company’s payroll, tax filing and claims services, the Company collects funds for payment of payroll, taxes
and claims, temporarily holds such funds until payment is due, remits the funds to the clients’ employees, appropriate tax authorities
or claims holders, files tax returns and handles related regulatory correspondence and amendments. The funds held for clients
include cash and long-term bonds. The Company presents the funds held for clients and related obligations separately. Funds
held for clients are classified as current assets since, based upon management’s intentions, these funds are held solely for the
purpose of satisfying the clients’ funds obligations, which will be repaid within one year of the consolidated balance sheet date.
The market fluctuations affect the fair value of the long-term bonds. Due to those fluctuations, funds held for clients might not
equal to the clients' funds obligations.
Interest income earned and realized gains and losses on the disposal of bonds are recorded in revenue in the period that the
income is earned, as the collecting, holding and remitting of these funds are critical components of providing these services.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (PP&E), are recorded at cost and are depreciated over their estimated useful lives using the
straight-line method.
Buildings
Leasehold improvements
Furniture, fixtures and equipment
Computer equipment
LEASES
Lesser of the useful life or lease term
10 to 40 years
3 to 20 years
3 to 5 years
For the fiscal year ended September 30, 2020, under IFRS 16, Leases
When the Company enters into contractual agreements with suppliers or other parties, an assessment is performed to determine
if the contract contains a lease. The Company identified lease agreements under the following categories: Properties, Motor
vehicules and others as well as Computer equipment.
The Company identifies a lease if it conveys the right to control the use of an identified asset for a specific period in exchange
for a determined consideration. At inception, a right-of-use asset for the underlying asset and corresponding lease liability are
presented in the consolidated balance sheet measured on a present value basis except for short-term leases (expected term of
12 months or less) and leases with low value underlying asset for which payments are recorded as an expense on a straight-line
basis over the lease term.
The right-of-use assets are measured at initial lease liabilities adjusted by lease payments made before the commencement date,
indirect costs and cash incentives received. The right-of-use assets are depreciated on a straight-line basis over the expected
lease term of the underlying asset.
Lease liabilities are measured at present value of non-cancellable payments of the expected lease term, which are mostly made
of fixed payments of rent excluding maintenance fees; variable payments that are based on an index or a rate; amounts expected
to be payable as residual value guaranties and extension or termination option if reasonably certain to be exercised.
The Company estimates the lease term in order to calculate the value of the lease liability at the initial date of the lease. Management
uses judgement to determine the appropriate lease term based on the conditions of each lease. To determine the lease term, the
Company considers all factors that create economic incentives to exercise an extension or a termination option. The extension
or termination options are only included in the lease term if it is reasonably certain of being exercised. Management considers
all facts that create incentive to exercise an extension option or not to take a termination option including leasehold improvements,
significant modification of the underlying asset or a business decision.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
13
FISCAL 2020 RESULTS — 79 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
LEASES (CONTINUED)
Discount rate used in the present value calculation is the incremental borrowing rate unless the implicit interest rate in the lease
can be readily determined. The Company estimates the incremental borrowing rate for each lease or portfolio of leased assets,
as most of the implicit interest rates in the leases are not readily determinable. To calculate the incremental borrowing rate, the
Company considers its credit worthiness, the term of the arrangement, any collateral received and the economic environment.
The incremental borrowing rates are subject to change mainly due to changes in the economic environment.
The lease liabilities are subsequently adjusted to reflect interest on the lease liabilities and lease payments made. Lease liabilities
are remeasured (along with the corresponding adjustment to the right-of-use asset), whenever the following situations occur; a
modification in the lease term, a change in the assessment of an option to purchase, a modification in the residual guarantees
or in future lease payments due to a change of an index or rate tied to the payments.
CONTRACT COSTS
Contract costs are comprised primarily of transition costs incurred to implement long-term managed IT and business process
services contracts and incentives.
Transition costs
Transition costs consist mostly of costs associated with the installation of systems and processes, as well as conversion of the
client’s applications to the Company’s platforms incurred after the award of managed IT and business process services contracts.
Transition costs are comprised essentially of labour costs, including compensation and related fringe benefits, as well as
subcontractor costs.
Incentives
Occasionally, incentives are granted to clients upon the signing of managed IT and business process services contracts. These
incentives are granted in the form of cash payments.
Amortization of contract costs
Contract costs are amortized using the straight-line method over the period services are provided. Amortization of transition costs
is included in costs of services, selling and administrative and amortization of incentives is recorded as a reduction of revenue.
Impairment of contract costs
When a contract is not expected to be profitable, the estimated loss is first applied to impair the related capitalized contract costs.
The excess of the expected loss over the capitalized contract costs is recorded as onerous revenue-generating contracts in
provisions. If at a future date the contract returns to profitability, the previously recognized impairment loss must be reversed.
First the estimated losses on revenue-generating contracts must be reversed, and if there is still additional projected profitability
then any capitalized contract costs that were impaired must be reversed. The reversal of the impairment loss is limited so that
the carrying amount does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined,
net of amortization, had no impairment loss been recognized for the contract costs in prior years.
INTANGIBLE ASSETS
Intangible assets consist mainly of internal-use software, business solutions, software licenses and client relationships. Internal-
use software, business solutions and software licenses are recorded at cost. Internal-use software developed internally is
capitalized when it meets specific capitalization criteria related to technical and financial feasibility and when the Company
demonstrates its ability and intention to use it. Business solutions developed internally and marketed are capitalized when they
meet specific capitalization criteria related to technical, market and financial feasibility. Internal-use software, business solutions,
software licenses and client relationships acquired through business combinations are initially recorded at their fair value based
on the present value of expected future cash flows, which involves estimates, such as the forecasting of future cash flows and
discount rates.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
14
80 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
INTANGIBLE ASSETS (CONTINUED)
Amortization of intangible assets
The Company amortizes its intangible assets using the straight-line method over their estimated useful lives.
Internal-use software
Business solutions
Software licenses
Client relationships
2 to 7 years
2 to 10 years
3 to 8 years
2 to 10 years
IMPAIRMENT OF PP&E, RIGHT-OF-USE ASSETS, INTANGIBLE ASSETS AND GOODWILL
Timing of impairment testing
The carrying values of PP&E, right-of-use assets, intangible assets and goodwill are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may be impaired. The Company assesses at each reporting date
whether any such events or changes in circumstances exist. The carrying values of intangible assets not available for use are
tested for impairment annually as at September 30. Goodwill is tested for impairment annually during the fourth quarter of each
fiscal year.
Impairment testing
If any indication of impairment exists or when annual impairment testing for an asset is required, the Company estimates the
recoverable amount of the asset or cash-generating unit (CGU) to which the asset relates to determine the extent of any impairment
loss. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use (VIU) to
the Company. The Company mainly uses the VIU. In assessing the VIU, estimated future cash flows are discounted to their
present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account, if available.
If the recoverable amount of an asset or a CGU is estimated to be less than its carrying amount, the carrying amount is reduced
to its recoverable amount. An impairment loss is recognized immediately in the consolidated statements of earnings.
Goodwill acquired through business combinations is allocated to the CGU or group of CGUs that are expected to benefit from
acquired work force and synergies of the related business combination. The group of CGUs that benefit from the acquired work
force and synergies correspond to the Company’s operating segments. For goodwill impairment testing purposes, the group of
CGUs that represents the lowest level within the Company at which management monitors goodwill is the operating segment
level.
The recoverable amount of each operating segment has been determined based on the VIU calculation which includes estimates
about their future financial performance based on cash flows approved by management covering a period of five years. Key
assumptions used in the VIU calculations are the discount rate applied and the long-term growth rate of net operating cash flows.
In determining these assumptions, management has taken into consideration the current economic environment and its resulting
impact on expected growth and discount rates. The cash flow projections reflect management’s expectations of the operating
segment's operating performance and growth prospects in the operating segment’s market. The discount rate applied to an
operating segment is the weighted average cost of capital (WACC). Management considers factors such as country risk premium,
risk-free rate, size premium and cost of debt to derive the WACC. Impairment losses relating to goodwill cannot be reversed in
future periods.
For impaired assets, other than goodwill, an assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company
estimates the recoverable amount of the asset. A previously recognized impairment loss is reversed only if there has been a
change in the assumptions used to determine the recoverable amount of the asset since the last impairment loss was recognized.
The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior
years. Such reversal is recognized in the consolidated statements of earnings.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
15
FISCAL 2020 RESULTS — 81 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
LONG-TERM FINANCIAL ASSETS
Long-term investments presented in long-term financial assets are comprised of bonds which are presented as long-term based
on management’s intentions.
BUSINESS COMBINATIONS
The Company accounts for its business combinations using the acquisition method. Under this method, the consideration
transferred is measured at fair value. Acquisition-related and integration costs associated with the business combination are
expensed as incurred or when a present legal or constructive obligation exists. The Company recognizes goodwill as the excess
of the cost of the acquisition over the net identifiable tangible and intangible assets acquired and liabilities assumed at their
acquisition-date fair values. The goodwill recognized is composed of the future economic value associated to acquired work force
and synergies with the Company’s operations which are primarily due to reduction of costs and new business opportunities.
Management makes assumptions when determining the acquisition-date fair values of the identifiable tangible and intangible
assets acquired and liabilities assumed which involve estimates, such as the forecasting of future cash flows, discount rates, and
the useful lives of the assets acquired. Subsequent changes in fair values are recorded as part of the purchase price allocation
and therefore result in corresponding goodwill adjustments if they qualify as measurement period adjustments. The measurement
period is the period between the date of acquisition and the date where all significant information necessary to determine the fair
values is available, not to exceed 12 months. All other subsequent changes in estimates and judgements are recognized in the
consolidated statements of earnings.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of shares outstanding during the period. Diluted earnings
per share is determined using the treasury stock method to evaluate the dilutive effect of stock options and performance share
units (PSUs).
RESEARCH AND SOFTWARE DEVELOPMENT COSTS
Research costs are charged to earnings in the period in which they are incurred, net of related tax credits. Software development
costs related to internal-use software and business solutions are charged to earnings in the year they are incurred, net of related
tax credits, unless they meet specific capitalization criteria related to technical, market and financial feasibility as described in
the Intangible assets section above.
TAX CREDITS
The Company follows the income approach to account for research and development (R&D) and other tax credits, whereby
investment tax credits are recorded when there is a reasonable assurance that the assistance will be received and that the
Company will comply with all relevant conditions. Under this method, tax credits related to operating expenditures are recorded
as a reduction of the related expenses and recognized in the period in which the related expenditures are charged to earnings.
Tax credits related to capital expenditures are recorded as a reduction of the cost of the related assets. The tax credits recorded
are based on management's best estimates of amounts expected to be received and are subject to audit by the taxation authorities.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
16
82 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
INCOME TAXES
Income taxes are accounted for using the liability method of accounting.
Current income taxes are recognized with respect to the amounts expected to be paid or recovered under the tax rates and laws
that have been enacted or substantively enacted at the balance sheets date.
Deferred tax assets and liabilities are determined based on deductible or taxable temporary differences between the amounts
reported for consolidated financial statement purposes and tax values of the assets and liabilities using enacted or substantively
enacted tax rates that will be in effect for the year in which the differences are expected to be recovered or settled. Deferred tax
assets and liabilities are recognized in earnings, in other comprehensive income or in equity based on the classification of the
item to which they relate.
Deferred tax assets are recognized for unused tax losses and deductible temporary differences to the extent that it is probable
that taxable profit will be available against which the losses can be utilized. Once this assessment is made, the Company considers
the analysis of forecasts and future tax planning strategies. Estimates of taxable profit are made based on the forecast by
jurisdiction on an undiscounted basis. In addition, management considers factors such as substantively enacted tax rates, the
history of the taxable profits and availability of tax strategies.
The Company is subject to income tax laws in numerous jurisdictions. Judgement is required in determining the worldwide provision
for income taxes as the determination of tax liabilities and assets involves uncertainties in the interpretation of complex tax
regulations and requires estimates and assumptions considering the existing facts and circumstances. The Company provides
for potential tax liabilities based on the most likely amount of the possible outcomes. Estimates are reviewed each reporting period
and updated, based on new information available, and could result in changes to the income tax liabilities and deferred tax
liabilities in the period in which such determinations are made.
PROVISIONS
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate
can be made of the amount of the obligation. The Company’s provisions consist of liabilities for litigation and claims provisions
arising in the ordinary course of business, decommissioning liabilities for leases of office buildings, onerous supplier contracts
and onerous revenue-generating contracts. The Company also records restructuring provisions for termination of employment
costs related to specific initiatives and to the integration of its business acquisitions.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the
end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are discounted
using a current pre-tax rate when the impact of the time value of money is material. The increase in the provisions due to the
passage of time is recognized as finance costs.
The accrued litigation and legal claims provisions are based on historical experience, current trends and other assumptions that
are believed to be reasonable under the circumstances. Estimates include the period in which the underlying cause of the claim
occurred and the degree of probability of an unfavourable outcome.
Decommissioning liabilities pertain to leases of buildings where certain arrangements require premises to be returned to their
original state at the end of the lease term. The provision is determined using the present value of the estimated future cash
outflows.
Provisions for onerous supplier contracts are recorded when the unavoidable net cash flows from honoring the contract are
negative. The provision represents the lowest of the costs to fulfill the contract and the penalties to exit the contract.
Provisions for onerous revenue-generating contracts are recorded when unavoidable costs of fulfilling the contract exceed the
estimated total revenue from the contract. Management regularly reviews arrangement profitability and the underlying estimates.
Restructuring provisions are recognized when a detailed formal plan identifies the business or part of the business concerned,
the location and number of employees affected, a detailed estimate of the associated costs, appropriate timelines and has been
communicated to those affected by it.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
17
FISCAL 2020 RESULTS — 83 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
TRANSLATION OF FOREIGN CURRENCIES
The Company’s consolidated financial statements are presented in Canadian dollars, which is also the parent company’s functional
currency. Each entity in the Company determines its own functional currency and items included in the financial statements of
each entity are measured using that functional currency. Functional currency is the currency of the primary economic environment
in which the entity operates.
Foreign currency transactions and balances
Revenue, expenses and non-monetary assets and liabilities denominated in foreign currencies are recorded at the rate of exchange
prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at exchange
rates prevailing at the balance sheets date. Unrealized and realized translation gains and losses are reflected in the consolidated
statements of earnings.
Foreign operations
For foreign operations that have functional currencies different from the Company, assets and liabilities denominated in a foreign
currency are translated at exchange rates in effect at the balance sheets date. Revenue and expenses are translated at average
exchange rates prevailing during the period. Resulting unrealized gains or losses on translating financial statements of foreign
operations are reported in other comprehensive income.
For foreign operations with the same functional currency as the Company, monetary assets and liabilities are translated at the
exchange rates in effect at the balance sheets date and non-monetary assets and liabilities are translated at historical exchange
rates. Revenue and expenses are translated at average exchange rates during the period. Translation exchange gains or losses
of such operations are reflected in the consolidated statements of earnings.
SHARE-BASED PAYMENTS
Equity-settled plans
The Company operates equity-settled stock option and PSU plans under which the Company receives services from employees,
officers and directors as consideration for equity instruments.
The fair value of those share-based payments is established on the grant date using the Black-Scholes option pricing model for
the stock options and the closing price of Class A subordinate voting shares of the Company on the Toronto Stock Exchange
(TSX) for the PSUs. The number of stock options and PSUs expected to vest are estimated on the grant date and subsequently
revised on each reporting date. For stock options, the estimation of fair value requires making assumptions for the most appropriate
inputs to the valuation model including the expected life of the option and expected stock price volatility. The fair value of share-
based payments, adjusted for expectations related to performance conditions and forfeitures, are recognized as share-based
payment costs over the vesting period in earnings with a corresponding credit to contributed surplus on a graded-vesting basis
if they vest annually or on a straight-line basis if they vest at the end of the vesting period.
When stock options are exercised, any consideration paid is credited to capital stock and the recorded fair value of the stock
options is removed from contributed surplus and credited to capital stock. When PSUs are exercised, the recorded fair value of
PSUs is removed from contributed surplus and credited to capital stock.
Share purchase plan
The Company operates a share purchase plan for eligible employees. Under this plan, the Company matches the contributions
made by employees up to a maximum percentage of the employee's salary. The Company's contributions to the plan are recognized
in salaries and other member costs within costs of services, selling and administrative.
Cash-settled deferred share units
The Company operates a deferred share unit (DSU) plan to compensate the external members of the Board of Directors. The
expense is recognized within costs of services, selling and administrative for each DSU granted equal to the closing price of Class
A subordinate voting shares of the Company on the TSX at the date on which DSUs are awarded and a corresponding liability
is recorded in accrued compensation. After the grant date, the DSU liability is remeasured for subsequent changes in the fair
value of the Company's shares.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
18
84 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
FINANCIAL INSTRUMENTS
All financial instruments are initially measured at their fair value and are subsequently classified either at amortized cost, at fair
value through earnings (FVTE) or at fair value through other comprehensive income (FVOCI). Financial assets are classified
based on the Company’s management model of such instruments and their contractual cash flows they generate. Financial
liabilities are classified and measured at amortized cost, unless they are held for trading and classified as FVTE.
The Company has made the following classifications:
FVTE
Cash and cash equivalents, derivative financial instruments and deferred compensation plan assets within long-term financial
assets are measured at fair value at the end of each reporting period and the resulting gains or losses are recorded in the
consolidated statements of earnings.
Amortized Cost
Trade accounts receivable, cash included in funds held for clients, long-term receivables within long-term financial assets, accounts
payable and accrued liabilities, accrued compensation, long-term debt and clients’ funds obligations are measured at amortized
cost using the effective interest method. Financial assets classified at amortized cost are subject to impairment. For trade accounts
receivable and work in progress, the Company applies the simplified approach to measure expected credit losses, which requires
lifetime expected loss allowance to be recorded upon initial recognition of the financial assets.
FVOCI
Long-term bonds included in funds held for clients and in long-term investments within long-term financial assets are measured
at fair value through other comprehensive income and are subject to impairment for which the Company uses the low credit risk
exemption.
The unrealized gains and losses, net of applicable income taxes, are recorded in other comprehensive income. Interest income
measured using the effective interest method and realized gains and losses on derecognition are recorded in the consolidated
statements of earnings.
Transaction costs are comprised primarily of legal, accounting and other costs directly attributable to the issuance of the respective
financial assets. Transaction costs are capitalized to the cost of financial assets classified as other than FVTE.
Financial assets are derecognized if the contractual rights to the cash flows from the financial asset expire or the asset is transferred
and the transfer qualifies for derecognition as substantially all the risks and rewards of ownership of the financial asset have been
transferred.
Fair value hierarchy
Fair value measurements recognized on the balance sheets are classified in accordance with the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1, but that are observable for the asset or liability, either directly
or indirectly; and
Level 3: inputs for the asset or liability that are not based on observable market data.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS
The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency
exchange risks.
Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are
subsequently remeasured to their fair value at the end of each reporting date. The resulting gain or loss is recognized in the
consolidated statements of earnings, unless the derivative is designated and is effective as a hedging instrument, in which event
the timing of the recognition in the consolidated statements of earnings depends on the nature of the hedge relationship. The
cash flows of the hedging instruments are classified in the same manner as the cash flows of the item being hedged.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
19
FISCAL 2020 RESULTS — 85 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS (CONTINUED)
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the
Company wishes to apply hedge accounting and the risk management's objective and strategy for undertaking the hedge. The
documentation includes the identification of the nature of the risk being hedged, the economic relationship between the hedged
item and the hedging instruments which should not be dominated by credit risk, the hedge ratio consistent with the risk management
strategy pursued and how the Company will assess the effectiveness of the hedging relationship on an ongoing basis.
Management evaluates hedge effectiveness at inception of the hedge instrument and quarterly thereafter generally based on a
managed hedge ratio of 1:1. Hedge effectiveness is measured prospectively as the extent to which changes in the fair value or
cash flows of the derivative offsets the changes in the fair value or cash flows of the underlying hedged instrument or risk when
there is a significant mismatch between the terms of the hedging instrument and the hedged item. Any meaningful imbalance is
considered ineffectiveness in the hedge and accounted for accordingly in the consolidated statements of earnings.
Hedges of net investments in foreign operations
The Company uses cross-currency swaps and foreign currency denominated long-term debt to hedge portions of the Company’s
net investments in its U.S. and European operations. Foreign exchange translation gains or losses on the net investments and
the effective portions of gains or losses on instruments hedging the net investments are recorded in other comprehensive income.
Gains or losses relating to the ineffective portion are recognized in consolidated statements of earnings. When the hedged net
investment is disposed of, the relevant amount in other comprehensive income is transferred to earnings as part of the gain or
loss on disposal.
Cash flow hedges of future revenue and long-term debt
The majority of the Company’s revenue and costs are denominated in a currency other than the Canadian dollar. The risk of
foreign exchange fluctuations impacting the results is substantially mitigated by matching the Company’s costs with revenue
denominated in the same currency. In certain cases where there is a substantial imbalance for a specific currency, the Company
enters into foreign currency forward contracts to hedge the variability in the foreign currency exchange rates.
The Company also uses interest rate and cross-currency swaps to hedge either the cash flow exposure or the foreign exchange
exposure of the long-term debt.
The effective portion of the change in fair value of the derivative financial instruments is recognized in other comprehensive
income and the ineffective portion, if any, in the consolidated statements of earnings. The effective portion of the change in fair
value of the derivatives is reclassified out of other comprehensive income into the consolidated statements of earnings when the
hedged item is recognized in the consolidated statements of earnings.
Fair value hedges of Senior U.S. unsecured notes
The Company entered into interest rate swaps to hedge the fair value exposure of the issued fixed rate Senior U.S. unsecured
notes. Under the interest rate swaps, the Company receives a fixed rate of interest and pays interest at a variable rate on the
notional amount.
The changes in the fair value of the interest rate swaps are recognized in the consolidated statements of earnings as finance
costs. The changes in the fair value of the hedged items attributable to the risk hedged is recorded as part of the carrying value
of the Senior U.S. unsecured notes and are also recognized in the consolidated statements of earnings as finance costs. If the
hedged items are derecognized, the unamortized fair value is recognized immediately in the consolidated statements of earnings.
Cost of hedging
The Company has elected to account for forward element of forward contracts or foreign currency basis spread as costs of
hedging. In such cases, the deferred costs of hedging, net of applicable income taxes, are recognized as a separate component
of the accumulated other comprehensive income and reclassified in the consolidated statements of earnings when the hedged
item is recognized.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
20
86 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
EMPLOYEE BENEFITS
The Company operates both defined benefit and defined contribution post-employment benefit plans.
The cost of defined contribution plans is charged to the consolidated statements of earnings on the basis of contributions payable
by the Company during the year.
For defined benefit plans, the defined benefit obligations are calculated by independent actuaries using the projected unit credit
method. The retirement benefits obligations in the consolidated balance sheets represent the present value of the defined benefit
obligations as reduced by the fair value of plan assets. The retirement benefits assets are recognized to the extent that the
Company can benefit from refunds or a reduction in future contributions. Retirement benefits plans that are funded by the payment
of insurance premiums are treated as defined contribution plans unless the Company has an obligation either to pay the benefits
directly when they fall due or to pay further amounts if assets accumulated with the insurer do not cover all future employee
benefits. In such circumstances, the plan is treated as a defined benefit plan.
Insurance policies are treated as plan assets of a defined benefit plan if the proceeds of the policy:
-
-
-
Can only be used to fund employee benefits;
Are not available to the Company’s creditors; and
Either cannot be paid to the Company unless the proceeds represent surplus assets not needed to meet all the benefit
obligations or are a reimbursement for benefits already paid by the Company.
Insurance policies that do not meet the above criteria are treated as non-current investments and are held at fair value as long-
term financial assets in the consolidated balance sheets.
The actuarial valuations used to determine the cost of defined benefit pension plans and their present value involve making
assumptions about discount rates, future salary and pension increases, inflation rates and mortality. Any changes in these
assumptions will impact the carrying amount of pension obligations. In determining the appropriate discount rate, management
considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be
paid, and that have terms to maturity approximating the terms of the related pension liability.
The current service cost is recognized in the consolidated statements of earnings under costs of services, selling and administrative.
The net interest cost calculated by applying the discount rate to the net defined benefit liabilities or assets is recognized as net
finance cost or income. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefits that
relates to past services or the gains or losses on curtailment is recognized immediately in the consolidated statements of earnings.
The gains or losses on the settlement of a defined benefit plan are recognized when the settlement occurs.
Remeasurements on defined benefit plans include actuarial gains and losses, changes in the effect of the asset ceiling and the
return on plan assets, excluding the amount included in net interest on the net defined liabilities or assets. Remeasurements are
charged or credited to other comprehensive income in the period in which they arise.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
21
FISCAL 2020 RESULTS — 87 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
ADOPTION OF ACCOUNTING STANDARDS
The following standards have been adopted by the Company on October 1, 2019:
IFRS 16 - Leases
Adoption IFRS 16 - Leases
In January 2016, the IASB issued IFRS 16, Leases, to set out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a lease agreement. The standard supersedes IAS 17, Leases, and other leases related
interpretations, eliminates the lessee's classification of leases as either operating leases or finance leases and introduces a single
lessee accounting model. Lessees recognize a right-of-use asset representing its control of, and right to use, the underlying asset
and a lease liability representing its obligation to make future lease payments. The Company adopted IFRS 16 using the modified
retrospective method, with no restatement of comparative figures. The Company applied the new standard to contracts that were
classified as leases under IAS 17 at the date of initial application. The right-of-use assets were recognized as if IFRS 16 had
been applied since the commencement date for real estate leases. For all other leases, the right-of-use assets were measured
at an amount equal to the lease liability adjusted by the prepaid amount and the accrued lease payment related to the lease in
the balance sheet as at September 30, 2019.
The Company made use of the following practical expedients available on transition date: the definition of a lease, the use of
hindsight in determining the lease term, the exclusion of initial direct costs from the measurement of the right-of-use asset at the
transition date, the usage of a single incremental borrowing rate for a portfolio of leases with reasonably similar characteristics
and adjusting the right-of-use assets for any onerous lease provisions as an alternative to an impairment review.
Impacts at adoption date
The following table shows the impacts of the adoption of IFRS 16 on the Company’s consolidated balance sheet as of October
1, 2019:
Assets
Accounts receivable
Prepaid expenses and other current assets
Property, plant and equipment
Right-of-use assets
Other long-term assets
Deferred tax assets
Other assets
Liabilities
Accounts payable and accrued liabilities
Current portion of provisions
Current portion of long-term debt
Current portion of lease liabilities
Long-term provisions
Long-term debt
Long-term lease liabilities
Other long-term liabilities
Deferred tax liabilities
Other liabilities
Equity
Retained earnings
Other equity
Balance sheet as at
September 30, 2019
$
1,357,090
172,182
397,661
—
180,480
100,539
10,413,794
12,621,746
1,108,895
73,509
113,511
—
24,946
2,217,696
—
213,392
178,265
1,807,429
5,737,643
4,557,855
2,326,248
6,884,103
12,621,746
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
IFRS 16 adoption
$
3,319
(6,365)
(21,863)
701,346
607
14,778
—
691,822
(8,037)
(3,723)
(14,086)
172,402
(2,264)
(16,253)
739,123
(64,655)
(16,812)
—
785,695
(93,873)
—
(93,873)
691,822
Balance sheet
as at October 1, 2019
$
1,360,409
165,817
375,798
701,346
181,087
115,317
10,413,794
13,313,568
1,100,858
69,786
99,425
172,402
22,682
2,201,443
739,123
148,737
161,453
1,807,429
6,523,338
4,463,982
2,326,248
6,790,230
13,313,568
22
88 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
ADOPTION OF ACCOUNTING STANDARDS (CONTINUED)
IFRS 16 - Leases (continued)
Impacts at adoption date (continued)
Upon adoption of IFRS 16, all operating lease commitments that were presented in the Note 29 of the consolidated financial
statements as at September 30, 2019 were recognized as lease liabilities and are now presented in the balance sheet. The
Company used its incremental borrowing rates as at October 1, 2019 to measure lease liabilities. The weighted average incremental
borrowing rate was 3.69% at the initial application.
The following table reconciles operating lease commitments presented in the consolidated financial statements as at September
30, 2019 and the lease liabilities recognized on October 1, 2019:
Operating lease commitments as at September 30, 2019
Discounted using the weighted average incremental borrowing rate as at October 1, 2019
Finance lease obligations presented as at September 30, 2019
Termination options reasonably certain to be exercised
Extension options reasonably certain to be exercised
Lease liabilities recognized as at October 1, 2019
Current portion of lease liabilities
Long-term lease liabilities
Total lease liabilities recognized as at October 1, 2019
847,502
(96,638)
30,339
(22,748)
153,070
911,525
172,402
739,123
911,525
For the year ended September 30, 2020, the impacts of the application of IFRS 16 are a decrease in property costs of $195,848,000 ,
an increase in amortization and depreciation of $157,974,000, as well as an increase in finance costs of $31,957,000. In addition,
the cash provided by operating activities increased by $165,348,000, with the offset presented in the cash provided by (used in)
financing activities.
Accounting policies for the fiscal year ended September 30, 2019, under IAS 17, Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized in PP&E at an amount equal to the fair value of the leased assets or, if
lower, the present value of minimum lease payments at the inception of the lease, and then depreciated over the economic useful
life of the asset or lease term, whichever is shorter. The capital element of future lease payments is included in the consolidated
balance sheets within long-term debt. Interest is charged to the consolidated statements of earnings so as to achieve a constant
rate of interest on the remaining balance of the liability.
Lease payments under operating leases are charged to the consolidated statements of earnings on a straight-line basis over the
lease term. Operating lease incentives, typically for premises, are recognized as a reduction in rental expense over the lease
term.
The Company accrues provisions for onerous leases which consist of estimated costs associated with vacated premises. The
provisions reflect the present value of lease payments in excess of the expected sublease proceeds on the remaining term of
the lease.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
23
FISCAL 2020 RESULTS — 89 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
3.
Summary of significant accounting policies (continued)
ADOPTION OF ACCOUNTING STANDARDS (CONTINUED)
Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform
In September 2019, the IASB has amended some of its requirements to address the uncertainty arising from the planned phasing
out of interest-rate benchmarks such as interbank offered rates (IBORs). The amendments provide temporary relief from applying
specific hedge accounting requirements affected by the interest rate benchmark reform. The amendments impact IFRS 9 Financial
instruments, IAS 39 Financial instruments: Recognition and measurement and IFRS 7 Financial instruments: Disclosures. The
amendments come into effect for annual periods beginning on or after January 1, 2020 but early adoption is permitted. The
Company elected to early adopt the Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform as at October
1, 2019 and applied retrospectively the reform to hedging relationship that existed on the application date and to the amount
accumulated in the cash flow hedge reserve at that date.
The Company has a debt expiring in December 2023 with a principal amount of U.S.$500,000,000 bearing interest based on the
1 month USD LIBOR rate. The debt has a carrying value of $666,250,000 as at September 30, 2020. The Company has entered
into cross-currency interest rate swaps with aggregate notional amounts of U.S.$500,000,000 maturing on the same date as the
debt (the hedging instruments) on which it receives interest based on the same 1 month USD LIBOR rate. The cross-currency
interest rate swaps were designated as cash flow hedge for the debt.
During the year ended September 30, 2020, the Company entered into a two-year unsecured committed term loan credit facility
(the 2020 Term Loan) for a total principal amount of U.S.$1,250,000,000, refer to Note 32. The 2020 Term Loan expires in March
2022, bears interest based on the 1 month USD LIBOR rate and has a carrying value of $1,665,625,000 as at September 30,
2020.
For its hedges relationship, the Company assumes that the LIBOR interest rates used for the settlements on the debts and the
swaps will continue to be available beyond the planned phase out date at the end of December 2021.
FUTURE ACCOUNTING STANDARD CHANGES
The following standards have been issued but are not yet effective as of September 30, 2020.
LIBOR reform with amendments to IFRS 9, IAS 29, IFRS 7 and IFRS 16
In August 2020, the IASB issued Interest Rate Benchmark Reform-Phase 2, which amends IFRS 9 Financial Instruments, IAS
39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 16 Leases. The
amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the
old interest rate benchmark with an alternative benchmark rate as a result of the reform. The standard will be effective on October
1, 2021 for the Company. The Company is currently evaluating the impact of this standard on its financial statements.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
24
90 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
4. Accounts receivable
Trade (Note 32)
R&D and other tax credits1
Other
As at
September 30, 2020
As at
September 30, 2019
$
904,887
180,953
133,462
1,219,302
$
979,728
259,289
118,073
1,357,090
1
R&D and other tax credits were related to government programs in Canada, the United States, France, the United Kingdom and other countries.
5.
Funds held for clients
Cash
Long-term bonds (Note 32)
As at
September 30, 2020
As at
September 30, 2019
$
576,708
148,470
725,178
$
187,823
180,289
368,112
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
25
FISCAL 2020 RESULTS — 91 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
6.
Property, plant and equipment
Cost
As at September 30, 2019
Adoption of IFRS 16 (Note 3)
As at October 1, 2019
Additions
Additions - business acquisitions (Note 27a)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2020
Accumulated depreciation
As at September 30, 2019
Adoption of IFRS 16 (Note 3)
As at October 1, 2019
Depreciation expense (Note 24)
Impairment (Note 24)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2020
Net carrying amount as at September 30, 2020
Cost
As at September 30, 2018
Additions
Additions - business acquisitions (Note 27b)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2019
Accumulated depreciation
As at September 30, 2018
Depreciation expense (Note 24)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2019
Net carrying amount as at September 30, 2019
Land and
buildings
Leasehold
improvements
Furniture,
fixtures and
equipment
Computer
equipment
$
$
$
$
Total
$
58,614
—
58,614
5,759
12,730
—
2,178
79,281
16,961
—
16,961
1,895
—
—
1,268
20,124
59,157
224,559
—
224,559
28,188
1,013
180,638
(14,578)
166,060
12,225
2,683
714,629
1,178,440
(40,357)
(54,935)
674,272
1,123,505
79,057
2,474
125,229
18,900
(17,160)
(19,405)
(118,490)
(155,055)
4,942
241,542
139,726
—
139,726
24,965
—
3,656
165,219
118,672
(8,285)
110,387
14,240
—
24,578
35,354
661,891
1,147,933
505,420
(24,787)
480,633
115,490
1,035
780,779
(33,072)
747,707
156,590
1,035
(17,160)
(19,021)
(117,681)
(153,862)
3,041
150,572
90,970
2,454
108,060
57,159
16,754
496,231
165,660
23,517
774,987
372,946
Land and
buildings
Leasehold
improvements
Furniture,
fixtures and
equipment
$
$
$
204,888
40,915
5,320
(25,565)
(999)
164,634
19,568
981
(4,146)
(399)
Computer
equipment
$
686,499
104,887
1,374
(67,291)
(10,840)
Total
$
1,114,476
165,989
7,675
(97,002)
(12,698)
224,559
180,638
714,629
1,178,440
144,275
21,021
(25,099)
(471)
139,726
84,833
106,223
16,428
(3,836)
(143)
118,672
61,966
461,233
119,214
(67,223)
(7,804)
505,420
209,209
726,383
159,264
(96,158)
(8,710)
780,779
397,661
58,455
619
—
—
(460)
58,614
14,652
2,601
—
(292)
16,961
41,653
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
26
92 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
7.
Right-of-use assets
Cost
As at September 30, 2019
Adoption of IFRS 16 (Note 3)
As at October 1, 2019
Additions
Additions - business acquisitions (Note 27a)
Change in estimates and lease modifications
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2020
Accumulated depreciation
As at September 30, 2019
Adoption of IFRS 16 (Note 3)
As at October 1, 2019
Depreciation expense (Note 24)
Impairment (Note 24)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2020
Net carrying amount as at September 30, 2020
Properties
Motor vehicles and
others
Computer
equipment
$
—
1,070,987
1,070,987
59,556
11,859
(6,460)
(56,986)
45,302
1,124,258
—
546,537
546,537
127,931
8,361
(56,986)
24,028
649,871
474,387
$
—
230,707
230,707
56,976
—
—
(61,941)
8,234
233,976
—
69,381
69,381
33,140
—
(52,467)
2,803
52,857
181,119
$
—
40,357
40,357
2,390
—
—
(3,110)
1,328
40,965
—
24,787
24,787
7,168
—
(3,110)
761
29,606
11,359
Total
$
—
1,342,051
1,342,051
118,922
11,859
(6,460)
(122,037)
54,864
1,399,199
—
640,705
640,705
168,239
8,361
(112,563)
27,592
732,334
666,865
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
27
FISCAL 2020 RESULTS — 93 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
8.
Contract costs
Transition costs
Incentives
9.
Intangible assets
As at September 30, 2020
As at September 30, 2019
Accumulated
amortization
Net
carrying
amount
$
$
Cost
$
Accumulated
amortization
$
Net
carrying
amount
$
246,468
230,706
476,075
258,283
217,792
58,875
8,670
61,258
56,085
5,173
305,343
239,376
537,333
314,368
222,965
Cost
$
477,174
67,545
544,719
Internal-use
software
acquired
Internal-use
software
internally
developed
Business
solutions
acquired
Business
solutions
internally
developed
Software
licenses
Client
relationships
$
$
$
$
$
$
Total
$
Cost
As at September 30, 2019
99,204
123,289
81,028
511,384
221,510
1,095,339
2,131,754
Additions
Additions - business acquisitions (Note 27a)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2020
Accumulated amortization
As at September 30, 2019
Amortization expense (Note 24)
Impairment (Note 24)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2020
Net carrying amount as at September 30,
2020
929
—
(4,652)
1,419
96,900
80,467
7,336
—
(4,652)
1,280
84,431
9,861
—
229
—
88,900
10,738
—
110,657
—
507
47,303
47,810
(2,826)
(7,506)
(34,810)
(47,888)
(2,376)
(100,058)
974
131,298
2,527
76,278
5,541
5,505
47,596
63,562
571,015
190,372
1,187,862
2,253,725
69,095
12,986
—
79,907
317,846
159,591
906,866
1,613,772
316
—
41,928
10,633
26,411
68,401
—
—
157,378
10,633
(2,826)
(7,506)
(34,810)
(47,146)
(453)
(97,393)
490
79,745
2,453
75,170
2,525
3,600
37,525
47,873
338,122
142,456
1,012,339
1,732,263
12,469
51,553
1,108
232,893
47,916
175,523
521,462
Internal-use
software
acquired
Internal-use
software
internally
developed
Business
solutions
acquired
Business
solutions
internally
developed
Software
licenses
Client
relationships
$
$
$
$
$
$
Total
$
Cost
As at September 30, 2018
Additions
Additions - business acquisitions (Note 27b)
Disposals/retirements
Foreign currency translation adjustment
As at September 30, 2019
Accumulated amortization
As at September 30, 2018
Amortization expense (Note 24)
Disposals/retirements
Foreign currency translation adjustment
95,707
4,321
114,701
9,433
77
(436)
(465)
—
(326)
(519)
99,204
123,289
72,177
8,872
(436)
(146)
58,212
11,513
(326)
(304)
As at September 30, 2019
80,467
69,095
82,256
911
—
(803)
(1,336)
81,028
80,586
1,319
(803)
(1,195)
79,907
444,593
61,693
—
(46)
5,144
216,490
1,025,083
1,978,830
20,196
—
201
113,786
(13,281)
(2,096)
(24,321)
(19,209)
96,554
114,064
(39,213)
(18,481)
511,384
221,510
1,095,339
2,131,754
277,092
37,318
145,078
29,356
866,359
1,499,504
76,182
164,560
(46)
(13,247)
3,482
(1,596)
(24,321)
(11,354)
(39,179)
(11,113)
317,846
159,591
906,866
1,613,772
Net carrying amount as at September 30,
2019
18,737
54,194
1,121
193,538
61,919
188,473
517,982
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
28
94 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
10. Other long-term assets
Prepaid long-term maintenance agreements
Insurance contracts held to fund defined benefit pension and life assurance
arrangements - reimbursement rights (Note 17)
Retirement benefits assets (Note 17)
Deposits
Deferred financing fees
Other
11. Long-term financial assets
Deferred compensation plan assets (Notes 17 and 32)
Long-term investments (Note 32)
Long-term receivables
Long-term derivative financial instruments (Note 32)
As at
September 30, 2020
As at
September 30, 2019
$
17,567
24,033
86,127
13,312
3,408
19,292
$
20,532
23,879
96,620
13,999
3,798
21,652
163,739
180,480
As at
September 30, 2020
As at
September 30, 2019
$
73,156
22,612
20,623
40,178
156,569
$
62,627
24,596
18,034
71,642
176,899
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
29
FISCAL 2020 RESULTS — 95 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
12. Goodwill
Effective October 1, 2019, the Company realigned its management structure, resulting primarily in the creation of two new operating
segments, namely Scandinavia (Sweden, Denmark and Norway) and Finland, Poland and Baltics, collectively formerly known
as Northern Europe in the prior fiscal year. As a result, the Company is now managed through nine operating segments, namely:
Western and Southern Europe (primarily France, Portugal and Belgium); United States (U.S.) Commercial and State Government;
Canada; U.S. Federal; United Kingdom (U.K.) and Australia; Central and Eastern Europe (primarily Germany and Netherlands);
Scandinavia; Finland, Poland and Baltics; and Asia Pacific Global Delivery Centers of Excellence (mainly India and Philippines)
(Asia Pacific). This realignment of management structure also included, to a lesser extent, transfers of some lines of business
between our operating segments.
Due to the changes in operating segments and that CGUs correspond to the operating segments, the Company reallocated
goodwill to the revised CGUs using their relative fair value.
The operating segments reflect the fiscal year 2020 management structure and the way that the chief operating decision-maker,
who is the President and Chief Executive Officer of the Company, evaluates the business.
The Company completed the annual impairment test during the fourth quarter of the fiscal year 2020 and did not identify any
impairment.
The variations in goodwill were as follows:
Western
and
Southern
Europe
U.S.
Commercial
and State
Government Canada
U.S.
Federal
U.K. and
Australia
Central
and
Eastern
Europe Scandinavia
Finland,
Poland
and
Baltics
Asia
Pacific
$
$
$
$
$
$
$
$
$
Total
$
As at September 30, 2019
975,075
1,134,246 1,136,737
918,064
806,318
820,565
1,703,927
— 272,905 7,767,837
Business acquisitions (Note 27)
32,272
—
5,411
86,882
53,021
95,285
(6,604)
—
— 266,267
Goodwill reallocation
Sale of business
—
—
Foreign currency translation adjustment
81,752
6,324
—
6,737
— (6,324)
—
—
—
540
—
—
—
—
(613,472)
613,472
(3,411)
—
—
—
—
(3,411)
45,633
69,999
89,433
46,406
8,738
349,238
As at September 30, 2020
1,089,099
1,147,307 1,142,148
999,162
904,972
985,849
1,169,873
659,878 281,643 8,379,931
Key assumptions in goodwill impairment testing
The key assumptions for the CGUs are disclosed in the following tables for the years ended September 30:
2020
Pre-tax WACC
Long-term growth rate of net operating cash flows1
Western
and
Southern
Europe
U.S.
Commercial
and State
Government Canada
U.S.
Federal
U.K. and
Australia
Central
and
Eastern
Europe Scandinavia
Finland,
Poland
and
Baltics
%
11.2
1.7
%
9.3
2.0
%
9.6
2.0
%
8.5
2.0
%
9.3
2.0
%
10.2
1.9
%
10.0
1.9
%
10.8
1.7
Asia
Pacific
%
23.0
2.0
2019
Pre-tax WACC
Long-term growth rate of net operating cash flows1
1
The long-term growth rate is based on published industry research.
Western
and
Southern
Europe
U.S.
Commercial
and State
Government
Canada
U.S.
Federal
U.K. and
Australia
Central and
Eastern
Europe
Northern
Europe
Asia
Pacific
%
9.1
1.8
%
10.0
2.0
%
8.9
2.0
%
9.9
2.0
%
8.9
1.9
%
9.1
1.5
%
9.4
1.8
%
21.4
2.0
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
30
96 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
13. Provisions
As at September 30, 2019
Adoption of IFRS 16 (Note 3)
As at October 1, 2019
Additional provisions
Business acquisitions
Utilized amounts
Reversals of unused amounts
Discount rate adjustment and imputed
interest
Foreign currency translation adjusment
As at September 30, 2020
Current portion
Non-current portion
Restructuring1
Decommissioning
liabilities2
$
39,212
—
39,212
193,592
—
(119,331)
—
—
1,799
115,272
112,731
2,541
$
25,824
—
25,824
5,328
351
(3,667)
(3,006)
158
1,573
26,561
8,609
17,952
Others3
$
33,419
(5,987)
27,432
34,842
24,823
(24,091)
(6,532)
—
1,213
57,687
54,292
3,395
Total
$
98,455
(5,987)
92,468
233,762
25,174
(147,089)
(9,538)
158
4,585
199,520
175,632
23,888
1
2
3
See Note 25, Restructuring costs and Note 27c), Investments in subsidiaries.
As at September 30, 2020, the decommissioning liabilities were based on the expected cash flows of $27,390,000 and were discounted at a weighted average
rate of 0.59%. The timing of settlements of these obligations ranges between one and thirteen years as at September 30, 2020. The reversals of unused amounts
are mostly due to favourable settlements.
As at September 30, 2020, others included onerous revenue-generating contracts, onerous supplier contracts and litigation and claims.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
31
FISCAL 2020 RESULTS — 97 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
14. Long-term debt
Senior U.S. unsecured note repayable of $333,125 (U.S.$250,000) in December 20211
Senior unsecured notes repayable in September by tranches of $73,288 (U.S.$55,000)
in 2021, $399,750 (U.S.$300,000) in 2024, $266,500 (U.S.$200,000) in four yearly
repayments of U.S.$50,000 from 2021 to 2024 and $132,787 (€85,000) in 20212
Unsecured committed revolving credit facility3
Unsecured committed term loan credit facilities4
Obligations under finance leases repayable in blended monthly installments (maturing
at various dates until 2024, bearing a weighted average interest rate of 2.44% in
2019) (Note 3)
Other long-term debt
Current portion
As at
September 30, 2020
As at
September 30, 2019
$
339,682
872,283
—
2,330,288
—
44,842
3,587,095
310,764
3,276,331
$
332,533
924,021
334,370
661,939
30,339
48,005
2,331,207
113,511
2,217,696
1
2
As at September 30, 2020, an amount of $333,125,000 was borrowed, plus fair value adjustments relating to interest rate swaps designated as fair value hedges
of $6,470,000 and less financing fees. The private placement financing with U.S. institutional investors is comprised of one tranche of Senior U.S. unsecured note,
due in December 2021, with an interest rate of 4.99% (interest rate of 4.99% in 2019). The Senior U.S. unsecured note contains covenants that require the Company
to maintain certain financial ratios (Note 33). As at September 30, 2020, the Company was in compliance with these covenants.
As at September 30, 2020, an amount of $872,325,000 was borrowed, less financing fees. The private placement is comprised of three tranches of Senior U.S.
unsecured notes and one tranche of Senior euro unsecured note, with a weighted average maturity of 2.8 years and a weighted average interest rate of 3.64%
(3.66% in 2019). In September 2020, the Company repaid the third of the seven yearly scheduled repayments of U.S.$50,000,000 on a tranche of the Senior U.S.
unsecured notes for a total amount of $65,860,000 and settled the related cross-currency swaps (Note 32). The Senior unsecured notes contain covenants that
require the Company to maintain certain financial ratios (Note 33). As at September 30, 2020, the Company was in compliance with these covenants.
3 The Company has an unsecured committed revolving credit facility available for an amount of $1,500,000,000 that expires in December 2024. This facility bears
interest at bankers' acceptance, LIBOR or Canadian prime, plus a variable margin that is determined based on the Company's leverage ratio. As at September 30,
2020, there was no amount drawn upon this facility. An amount of $9,699,000 has been committed against this facility to cover various letters of credit issued for
clients and other parties. The unsecured committed revolving credit facility contains covenants that require the Company to maintain certain financial ratios (Note
33). As at September 30, 2020, the Company was in compliance with these covenants.
4 During the year ended September 30, 2020, the Company entered into the 2020 Term Loan for a total principal amount of U.S.$1,250,000,000 (Note 32). The
2020 Term Loan expires in March 2022, bears interest based on the 1 month USD LIBOR rate, plus a variable margin that is determined based on the Company's
leverage ratio. As at September 30, 2020, an amount of $1,665,625,000 was borrowed less financing fees with a weighted average interest rate of 0.16% and a
margin of 1.50%. In addition, the Company has an unsecured committed term loan credit facility for a notional amount of U.S.$500,000,000 expiring in December
2023. This facility bears interest based on the 1 month USD LIBOR rate, plus a variable margin that is determined based on the Company's leverage ratio. As at
September 30, 2020, an amount of $666,250,000 was borrowed less financing fees with a weighted average interest rate ratio of 0.16% and a margin of 1.00%.
The unsecured committed term loan credit facilities contains covenants that require the Company to maintain certain financial ratios (Note 33). As at September 30,
2020, the Company was in compliance with these covenants.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
32
98 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
15. Other long-term liabilities
Deferred revenue
Deferred compensation plan liabilities (Note 17)
Deferred rent (Note 3)
Other1
As at
September 30, 2020
As at
September 30, 2019
$
38,466
82,221
—
64,687
185,374
$
70,522
63,838
64,655
14,377
213,392
1
As at September 30, 2020, other is mainly composed of $48,299,000 in relation with the deferral of the employer side social security payments under the U.S.
Government Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
16.
Income taxes
Current income tax expense
Current income tax expense in respect of the current year
Adjustments recognized in the current year in relation to the income tax expense of prior years
Total current income tax expense
Deferred income tax expense (recovery)
Deferred income tax recovery relating to the origination and reversal of temporary differences
Deferred income tax (recovery) expense relating to changes in tax rates
Adjustments recognized in the current year in relation to the deferred income tax recovery of prior
years
Recognition of previously unrecognized temporary differences
Total deferred income tax expense (recovery)
Total income tax expense
Year ended September 30
2019
2020
$
$
416,563
(24,328)
392,235
(1,120)
(3,479)
10,769
—
6,170
398,405
439,972
(17,934)
422,038
(959)
784
—
(8,122)
(8,297)
413,741
The Company’s effective income tax rate differs from the combined Federal and Provincial Canadian statutory tax rate as follows:
Company's statutory tax rate
Effect of foreign tax rate differences
Final determination from agreements with tax authorities and expirations of statutes of limitations
Non-deductible and tax exempt items
Effect of integration-related costs
Minimum income tax charge
Changes in tax laws and rates
Effective income tax rate
Year ended September 30
2019
2020
%
26.5
(0.9)
(0.9)
0.2
0.7
0.9
(0.2)
26.3
%
26.6
(1.6)
(1.4)
0.2
0.1
0.8
—
24.7
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
33
FISCAL 2020 RESULTS — 99 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
16.
Income taxes (continued)
The continuity schedule of deferred tax balances is as follows:
As at
September
30, 2019
Adoption
of IFRS 16
(Note 3)
As at
October
1, 2020
$
$
$
67,926
(17,150)
50,776
59,163
45,407
17,904
—
—
—
59,163
45,407
17,904
Additions
from
business
acquisitions
$
47
886
—
60
Recognized
in earnings
$
12,819
(17,492)
(2,464)
(4,959)
Accounts payable and accrued
liabilities, provisions and other
long-term liabilities
Tax benefits on losses carried
forward
Accrued compensation
Retirement benefits obligations
Lease liabilities
—
231,562
231,562
3,751
(18,864)
PP&E, contract costs, intangible
assets and other long-term
assets
Right-of-use assets
Work in progress
Goodwill
Refundable tax credits on
salaries
Cash flow hedges
Other
(123,147)
— (123,147)
— (182,822)
(182,822)
(43,569)
(60,366)
(25,819)
(13,903)
(1,322)
—
—
—
—
—
(43,569)
(60,366)
(25,819)
(13,903)
(1,322)
(5,933)
(3,658)
170
(757)
—
—
1,354
(6,710)
21,133
9,532
(2,127)
3,095
(869)
736
Deferred taxes, net
(77,726)
31,590
(46,136)
(4,080)
(6,170)
Recognized
in other
comprehensive
income
Recognized
in equity
Foreign currency
translation
adjustment and
other
As at
September
30, 2020
$
(7)
—
—
8,282
—
—
—
—
—
—
13,773
1,095
23,143
$
—
—
(16,933)
—
—
—
—
—
—
—
—
—
$
$
573
64,208
3,671
1,410
1,879
6,548
46,228
27,420
23,166
222,997
(670)
(136,460)
(6,488)
(171,835)
(410)
(959)
—
524
(759)
(34,277)
(64,209)
(22,724)
(475)
1,104
(16,933)
5,319
(44,857)
As at
September
30, 2018
Additions from
business
acquisitions
Recognized in
earnings
$
$
$
Accounts payable and accrued
liabilities, provisions and other
long-term liabilities
Tax benefits on losses carried
forward
Accrued compensation
Retirement benefits obligations
Allowance for doubtful accounts
PP&E, contract costs, intangible
assets and other long-term
assets
Work in progress
Goodwill
Refundable tax credits on
salaries
Cash flow hedges
Other
Deferred taxes, net
78,177
62,415
34,887
25,418
(260)
(106,207)
(59,142)
(53,891)
(26,502)
12,398
(638)
(33,345)
(3,220)
—
18
—
—
(24,514)
—
—
—
—
76
(27,640)
(8,394)
(1,001)
3,995
(2,683)
260
7,788
16,010
(5,407)
683
(1,470)
(1,484)
8,297
Recognized
in other
comprehensive
income
Recognized in
equity
Foreign currency
translation
adjustment and
other
$
—
—
—
(4,324)
—
—
—
—
—
(25,290)
2,374
(27,240)
$
—
—
6,132
—
—
—
—
—
—
—
—
6,132
$
1,363
(2,251)
375
(507)
—
(214)
(437)
(1,068)
—
459
(1,650)
(3,930)
As at
September
30, 2019
$
67,926
59,163
45,407
17,904
—
(123,147)
(43,569)
(60,366)
(25,819)
(13,903)
(1,322)
(77,726)
The deferred tax balances are presented as follows in the consolidated balance sheets:
Deferred tax assets
Deferred tax liabilities
As at
September 30, 2020
As at
September 30, 2019
$
113,484
(158,341)
(44,857)
$
100,539
(178,265)
(77,726)
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
34
100 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
16.
Income taxes (continued)
As at September 30, 2020, the Company had $291,255,000 ($367,352,000 as at September 30, 2019) in operating tax losses
carried forward, of which $59,390,000 ($37,480,000 as at September 30, 2019) expire at various dates from 2029 to 2040 and
$231,865,000 ($329,872,000 as at September 30, 2019) have no expiry dates. As at September 30, 2020, a deferred income tax
asset of $41,380,000 ($54,814,000 as at September 30, 2019) has been recognized on $217,563,000 ($289,976,000 as at
September 30, 2019) of these losses. The deferred income tax assets are recognized only to the extent that it is probable that
taxable income will be available against which the unused tax losses can be utilized. As at September 30, 2020, the Company
had $31,639,000 ($29,287,000 as at September 30, 2019) of the unrecognized operating tax losses that will expire at various
dates from 2029 to 2032 and 42,053,000 ($48,089,000 as at September 30, 2019) that have no expiry date.
As at September 30, 2020, the Company had $485,546,000 ($471,772,000 as at September 30, 2019) in non-operating tax losses
carried forward that have no expiry dates. As at September 30, 2020, a deferred income tax asset of $4,848,000 ($4,349,000 as
at September 30, 2019) has been recognized on $19,436,000 ($18,151,000 as at September 30, 2019) of these losses. As at
September 30, 2020, the Company had $466,110,000 ($453,621,000 as at September 30, 2019) of unrecognized non-operating
tax losses.
As at September 30, 2020, the Company had $836,101,000 ($149,121,000 as at September 30, 2019) of cash and cash
equivalents held by foreign subsidiaries. The tax implications of the repatriation of cash and cash equivalents not considered
indefinitely reinvested have been accounted for and will not materially affect the Company’s liquidity. In addition, the Company
has not recorded deferred tax liabilities on undistributed earnings of $5,565,437,000 ($4,457,906,000 as at September 30, 2019)
coming from its foreign subsidiaries as they are considered indefinitely reinvested. Upon distribution of these earnings in the form
of dividends or otherwise, the Company may be subject to taxation.
On September 30, 2019, the Company recorded a deferred tax asset of $18,500,000 attributable to the recognition of additional
operating tax losses following a settlement with the German tax authority.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
35
FISCAL 2020 RESULTS — 101 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits
The Company operates various post-employment plans, including defined benefit and defined contribution pension plans as
well as other benefit plans for its employees.
DEFINED BENEFIT PLANS
The Company operates defined benefit pension plans primarily for the benefit of employees in the U.K., Germany and France,
with smaller plans in other countries. The benefits are based on pensionable salary and years of service and are funded with
assets held in separate funds.
The defined benefit plans expose the Company to interest risk, inflation risk, longevity risk, currency risk and market investment
risk.
The following description focuses mainly on plans registered in the U.K., Germany and France:
U.K.
In the U.K., the Company has three defined benefit pension plans, the CMG U.K. Pension Scheme, the Logica U.K. Pension &
Life Assurance Scheme and the Logica Defined Benefit Pension Plan.
The CMG U.K. Pension Scheme is closed to new members and is closed to further accrual of rights for existing members. The
Logica U.K. Pension & Life Assurance Scheme is still open but only for employees who come from the civil service with protected
pensions. The Logica Defined Benefit Pension Plan was created to mirror the Electricity Supply Pension Scheme and was created
for employees that worked for National Grid and Welsh Water with protected benefits.
Both the Logica U.K. Pension & Life Assurance Scheme and the Logica Defined Benefit Pension Plan are employer and employee
based contribution plans.
The trustees are the custodians of the defined benefit pension plans and are responsible for the plan administration, including
investment strategies. The trustees review periodically the investment and the asset allocation policies. As such, the CMG U.K.
Pension Scheme policy is to target an allocation up to a maximum of 70% to return-seeking assets such as equities; the Logica
U.K. Pension & Life Assurance Scheme policy is to invest 15% of the scheme assets in equities and 85% in bonds; and the Logica
Defined Benefit Pension Plan policy is to invest 30% of the plan assets in equities and 70% in bonds.
The U.K. Pensions Act 2004 requires that full formal actuarial valuations are carried out at least every three years to determine
the contributions that the Company should pay in order for the plan to meet its statutory objective, taking into account the assets
already held. In the interim years, the trustees need to obtain estimated funding updates unless the scheme has less than 100
members in total.
The latest funding actuarial valuations of the three defined benefit pension plans described above were performed as at September
30, 2018 and the results were finalized during the year ended September 30, 2020 with the following recommendations:
–
–
The actuarial valuation of the CMG U.K. Pension Scheme reported a deficit of $26,546,000. A new recovery plan was
proposed, and during fiscal 2020, the Company contributed a total amount of $12,432,000 to ensure that the funding
objectives of the scheme were met, and stopped the contributions on June 30, 2020 accordingly to the plan. The Company
also contributed an amount of $1,279,000 to cover administration expenses; and
The actuarial valuation of the Logica Defined Benefit Pension Plan specified that no supplementary contributions were
required after November 30, 2019 in order to reach the plan funding objectives. During fiscal 2020, the Company
contributed a total amount of $344,200 and then stopped the contributions.
Germany
In Germany, the Company has numerous defined benefit pension plans which are all closed to new members. In the majority of
the plans, upon retirement of employees, the benefits are in the form of a monthly pension and in a few plans, the employees
receive an indemnity in the form of a lump-sum payment. About one third of the plans are bound by the former Works Council
agreements. There are no mandatory funding requirements. The plans are funded by the contributions made by the Company.
In some plans, insurance policies are taken out to fund retirement benefit plans. These do not qualify as plan assets and are
presented as reimbursement rights, unless they are part of a reinsured support fund or are pledged to the employees.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
36
102 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits (continued)
DEFINED BENEFIT PLANS (CONTINUED)
France
In France, the retirement indemnities are provided in accordance with the Labour Code. Upon retirement, employees receive an
indemnity, depending on the salary and seniority in the Company, in the form of a lump-sum payment.
The following tables present amounts for post-employment benefits plans included in the consolidated balance sheets:
As at September 30, 2020
Defined benefit obligations
Fair value of plan assets
Fair value of reimbursement rights
Net asset (liability) recognized in the balance
sheet
Presented as:
Other long-term assets (Note 10)
Insurance contracts held to fund defined
benefit pension and life assurance
arrangements - reimbursement rights
Retirement benefits assets
Retirement benefits obligations
As at September 30, 2019
Defined benefit obligations
Fair value of plan assets
Fair value of reimbursement rights
Net asset (liability) recognized in the balance
sheet
Presented as:
Other long-term assets (Note 10)
Insurance contracts held to fund defined
benefit pension and life assurance
arrangements - reimbursement rights
Retirement benefits assets
Retirement benefits obligations
U.K.
$
Germany
France
$
$
Other
$
Total
$
(891,628)
(104,090)
(84,442)
(83,584)
(1,163,744)
977,137
85,509
—
12,766
(91,324)
22,505
692
(83,750)
—
33,829
(49,755)
1,528
1,024,424
(139,320)
24,033
85,509
(68,819)
(83,750)
(48,227)
(115,287)
—
22,505
85,509
—
85,509
—
(91,324)
(68,819)
—
—
1,528
618
24,033
86,127
(83,750)
(83,750)
(50,373)
(225,447)
(48,227)
(115,287)
U.K.
$
Germany
France
$
$
Other
$
Total
$
(812,179)
(101,298)
(58,048)
(73,059)
(1,044,584)
908,406
96,227
—
12,803
(88,495)
22,360
—
(58,048)
—
26,786
(46,273)
1,519
947,995
(96,589)
23,879
96,227
(66,135)
(58,048)
(44,754)
(72,710)
—
22,360
96,227
—
—
—
1,519
393
23,879
96,620
—
(88,495)
(58,048)
(46,666)
(193,209)
96,227
(66,135)
(58,048)
(44,754)
(72,710)
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
37
FISCAL 2020 RESULTS — 103 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits (continued)
DEFINED BENEFIT PLANS (CONTINUED)
Defined benefit obligations
As at September 30, 2019
Current service cost
Interest cost
Business acquisitions (Note 27a)
Actuarial losses (gains) due to change in
financial assumptions1
Actuarial losses due to change in
demographic assumptions1
Actuarial (gains) losses due to experience1
Plan participant contributions
Benefits paid from the plan
Benefits paid directly by employer
Foreign currency translation adjustment1
As at September 30, 2020
Defined benefit obligations of unfunded
plans
Defined benefit obligations of funded plans
As at September 30, 2020
Defined benefit obligations
As at September 30, 2018
Current service cost
Interest cost
Past service cost
Business acquisitions (Note 27b)
Actuarial losses due to change in financial
assumptions1
Actuarial gains due to change in
demographic assumptions1
Actuarial (gains) losses due to experience1
Plan participant contributions
Benefits paid from the plan
Benefits paid directly by employer
Foreign currency translation adjustment1
As at September 30, 2019
Defined benefit obligations of unfunded
plans
Defined benefit obligations of funded plans
As at September 30, 2019
1 Amounts recognized in other comprehensive income.
U.K.
$
Germany
France
$
$
Other
$
Total
$
812,179
101,298
58,048
73,059
1,044,584
1,060
15,253
—
776
576
—
36,135
(1,258)
17,671
(8,033)
91
(28,793)
—
46,065
891,628
—
891,628
891,628
U.K.
$
760,244
889
21,261
8,239
—
—
(530)
—
(1,645)
(2,787)
7,660
104,090
—
104,090
104,090
Germany
$
89,959
689
1,512
—
1,444
4,665
347
1,732
4,279
6,401
4,054
—
—
(454)
5,370
84,442
84,442
—
84,442
France
$
55,276
4,251
950
—
—
7,974
2,878
—
1,138
—
(1,374)
—
(2,426)
(1,832)
4,167
83,584
35,070
48,514
83,584
Other
$
58,594
6,547
3,558
—
6,550
14,475
19,054
1,732
40,294
24,072
(5,883)
91
(32,864)
(5,073)
63,262
1,163,744
119,512
1,044,232
1,163,744
Total
$
964,073
12,376
27,281
8,239
7,994
99,257
15,253
7,806
7,072
129,388
(6,947)
(16,773)
102
(25,395)
—
(28,698)
812,179
—
812,179
812,179
(292)
1,065
—
(263)
(4,020)
(4,049)
101,298
—
101,298
101,298
(6,667)
(11)
—
—
(1,248)
(2,309)
58,048
58,048
—
58,048
(1,802)
(1,389)
—
(3,228)
(1,831)
(1,012)
(15,708)
(17,108)
102
(28,886)
(7,099)
(36,068)
73,059
1,044,584
34,690
38,369
73,059
92,738
951,846
1,044,584
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
38
104 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits (continued)
DEFINED BENEFIT PLANS (CONTINUED)
Plan assets and reimbursement rights
As at September 30, 2019
Interest income on plan assets
Business acquisitions (Note 27a)
Employer contributions
Return on assets excluding interest income1
Plan participants contributions
Benefits paid from the plan
Benefits paid directly by employer
Administration expenses paid from the plan
Foreign currency translation adjustment1
As at September 30, 2020
Plan assets
Reimbursement rights
As at September 30, 2020
Plan assets and reimbursement rights
As at September 30, 2018
Interest income on plan assets
Employer contributions
Return on assets excluding interest income1
Plan participants contributions
Benefits paid from the plan
Benefits paid directly by employer
Administration expenses paid from the plan
Foreign currency translation adjustment1
As at September 30, 2019
Plan assets
Reimbursement rights
As at September 30, 2019
1 Amounts recognized in other comprehensive income.
U.K.
$
908,406
17,255
—
14,398
15,976
91
(28,793)
—
(1,189)
50,993
977,137
977,137
—
977,137
U.K.
$
787,550
22,271
24,430
133,821
102
(25,395)
Germany
France
$
35,163
204
—
2,430
46
—
(1,645)
(2,787)
—
1,860
35,271
12,766
22,505
35,271
Germany
$
36,420
620
2,765
(784)
—
(263)
$
—
3
664
454
—
—
—
(454)
—
25
692
692
—
692
France
$
—
—
1,248
—
—
—
—
(2,576)
(1,248)
(1,696)
(32,677)
908,406
908,406
—
908,406
—
(1,019)
35,163
12,803
22,360
35,163
—
—
—
—
—
—
Other
$
28,305
964
—
6,874
(396)
—
(2,426)
(1,831)
(58)
3,925
35,357
33,829
1,528
35,357
Other
$
22,903
2,425
7,025
669
—
(3,228)
(1,831)
(152)
494
28,305
26,786
1,519
28,305
Total
$
971,874
18,426
664
24,156
15,626
91
(32,864)
(5,072)
(1,247)
56,803
1,048,457
1,024,424
24,033
1,048,457
Total
$
846,873
25,316
35,468
133,706
102
(28,886)
(5,655)
(1,848)
(33,202)
971,874
947,995
23,879
971,874
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
39
FISCAL 2020 RESULTS — 105 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits (continued)
DEFINED BENEFIT PLANS (CONTINUED)
The plan assets at the end of the years consist of:
As at September 30, 2020
Quoted equities
Quoted bonds
Cash
Other1
As at September 30, 2019
Quoted equities
Quoted bonds
Cash
Other1
U.K.
$
472,318
93,003
52,230
359,586
977,137
U.K.
$
366,203
200,599
111,454
230,150
908,406
Germany
France
Other
$
—
—
—
12,766
12,766
$
—
—
—
692
692
$
—
—
88
33,741
33,829
Germany
France
Other
$
—
—
—
12,803
12,803
$
—
—
—
—
—
$
—
—
91
26,695
26,786
Total
$
472,318
93,003
52,318
406,785
1,024,424
Total
$
366,203
200,599
111,545
269,648
947,995
1
Other is mainly composed of various insurance policies and quoted investment funds to cover some of the defined benefit obligations.
Plan assets do not include any shares of the Company, property occupied by the Company or any other assets used by the
Company.
The following table summarizes the expense1 recognized in the consolidated statements of earnings:
Current service cost
Past service cost
Net interest on net defined benefit obligations or assets
Administration expenses
Year ended September 30
2019
2020
$
14,475
—
629
1,247
16,351
$
12,376
8,239
1,965
1,848
24,428
1
The expense was presented as costs of services, selling and administrative for an amount of $14,475,000 and as net finance costs for an amount of $1,876,000
(Note 26) ($20,615,000 and $3,813,000, respectively for the year ended September 30, 2019).
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
40
106 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits (continued)
DEFINED BENEFIT PLANS (CONTINUED)
Actuarial assumptions
The following are the principal actuarial assumptions (expressed as weighted averages). The assumed discount rates, future
salary and pension increases, inflation rates and mortality all have a significant effect on the accounting valuation.
As at September 30, 2020
Discount rate
Future salary increases
Future pension increases
Inflation rate
As at September 30, 2019
Discount rate
Future salary increases
Future pension increases
Inflation rate
U.K
%
1.53
2.84
2.82
2.84
U.K.
%
1.82
3.03
3.00
3.03
Germany
France
Other
%
0.65
2.50
1.50
2.00
%
0.65
3.79
—
2.00
Germany
France
%
0.56
2.50
1.50
2.00
%
0.56
3.29
—
2.00
%
3.11
1.51
2.51
0.08
Other
%
3.05
1.07
0.06
2.40
The average longevity over 65 of a member presently at age 45 and 65 are as follows:
As at September 30, 2020
Longevity at age 65 for current members
Males
Females
Longevity at age 45 for current members
Males
Females
As at September 30, 2019
Longevity at age 65 for current members
Males
Females
Longevity at age 45 for current members
Males
Females
U.K.
Germany
(in years)
21.8
23.7
23.2
25.3
20.0
23.0
24.0
26.0
U.K.
Germany
(in years)
21.8
23.1
23.6
25.2
20.0
23.0
24.0
26.0
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
41
FISCAL 2020 RESULTS — 107 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits (continued)
DEFINED BENEFIT PLANS (CONTINUED)
Actuarial assumptions (continued)
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience
in each country. Mortality assumptions for the most significant countries are based on the following post-retirement mortality tables
for the year ended September 30, 2020: (1) U.K.: 100% S2PxA (year of birth) plus CMI_2018 projections with 1.25% p.a. minimum
long term improvement rate, (2) Germany: Heubeck RT2018G and (3) France: INSEE TVTD 2014-2016.
The following tables show the sensitivity of the defined benefit obligations to changes in the principal actuarial assumptions:
As at September 30, 2020
Increase of 0.25% in the discount rate
Decrease of 0.25% in the discount rate
Salary increase of 0.25%
Salary decrease of 0.25%
Pension increase of 0.25%
Pension decrease of 0.25%
Increase of 0.25% in inflation rate
Decrease of 0.25% in inflation rate
Increase of one year in life expectancy
Decrease of one year in life expectancy
As at September 30, 2019
Increase of 0.25% in the discount rate
Decrease of 0.25% in the discount rate
Salary increase of 0.25%
Salary decrease of 0.25%
Pension increase of 0.25%
Pension decrease of 0.25%
Increase of 0.25% in inflation rate
Decrease of 0.25% in inflation rate
Increase of one year in life expectancy
Decrease of one year in life expectancy
U.K.
$
(36,622)
38,192
441
(437)
18,528
(18,132)
29,148
(28,207)
27,126
(26,843)
U.K.
$
(33,082)
34,484
408
(404)
16,758
(16,398)
26,342
(25,490)
20,884
(20,824)
Germany
$
(3,445)
3,632
36
(36)
1,598
(1,531)
1,598
(1,531)
3,615
(3,040)
Germany
$
(3,440)
3,632
56
(55)
1,601
(1,531)
1,601
(1,531)
3,325
(2,938)
France
$
(2,936)
3,079
3,091
(2,962)
—
—
3,091
(2,962)
558
(592)
France
$
(2,027)
2,126
2,132
(2,044)
—
—
2,132
(2,044)
384
(406)
The sensitivity analysis above has been based on a method that extrapolates the impact on the defined benefit obligations as a
result of reasonable changes in key assumptions occurring at the end of the year.
The weighted average duration of the defined benefit obligations are as follows:
U.K.
Germany
France
Other
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
Year ended September 30
2019
2020
(in years)
18
14
14
12
18
14
14
13
42
108 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
17. Employee benefits (continued)
DEFINED BENEFIT PLANS (CONTINUED)
The Company expects to contribute $7,903,000 to defined benefit plans during the next year, of which $1,657,000 relates to the
U.K. plans, and $6,246,000 relates to the other plans. The contributions will include funding payments and new benefit accruals.
DEFINED CONTRIBUTION PLANS
The Company also operates defined contribution pension plans. In some countries, contributions are made into the state pension
plans. The pension cost for defined contribution plans amounted to $228,998,000 in 2020 ($221,063,000 in 2019).
In addition, in Sweden, the Company contributes to a multi-employer plan, Alecta SE (Alecta) pension plan, which is a defined
benefit pension plan. This pension plan is classified as a defined contribution plan as sufficient information is not available to use
defined benefit accounting. Alecta lacks the possibility of establishing an exact distribution of assets and provisions to the respective
employers. The Company’s proportion of the total contributions to the plan is 0.40% and the Company’s proportion of the total
number of active members in the plan is 0.50%.
Alecta uses a collective funding ratio to determine the surplus or deficit in the pension plan. Any surplus or deficit in the plan will
affect the amount of future contributions payable. The collective funding is the difference between Alecta’s assets and the
commitments to the policy holders and insured individuals. The collective solvency is normally allowed to vary between 125%
and 175%. As at September 30, 2020, Alecta collective funding ratio was 144% (142% in 2019). The plan expense was $30,269,000
in 2020 ($32,512,000 in 2019). The Company expects to contribute $25,709,000 to the plan during the next year.
OTHER BENEFIT PLANS
As at September 30, 2020, the deferred compensation liability totaled $82,221,000 ($63,838,000 as at September 30, 2019)
(Note 15) and the deferred compensation assets totaled $73,156,000 ($62,627,000 as at September 30, 2019) (Note 11). The
deferred compensation liability is mainly related to plans covering some of its U.S. and German management. Some of the plans
include assets that will be used to fund the liabilities.
For the deferred compensation plan in the U.S., a trust was established so that the plan assets could be segregated; however,
the assets are subject to the Company’s general creditors in the case of bankruptcy. The assets composed of investments vary
with employees’ contributions and changes in the value of the investments. The change in liabilities associated with the plan is
equal to the change of the assets. The assets in the trust and the associated liabilities totaled $72,743,000 as at September 30,
2020 ($62,247,000 as at September 30, 2019).
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
43
FISCAL 2020 RESULTS — 109 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
18. Accumulated other comprehensive income
Items that will be reclassified subsequently to net earnings:
Net unrealized gains on translating financial statements of foreign operations, net of accumulated
income tax expense of $56,239 ($63,579 as at September 30, 2019)
1,002,804
596,358
As at
September 30, 2020
As at
September 30, 2019
$
$
Net losses on cross-currency swaps and on translating long-term debt designated as hedges of
net investments in foreign operations, net of accumulated income tax recovery of $63,692
($67,165 as at September 30, 2019)
Deferred gains (costs) of hedging on cross-currency swaps, net of accumulated income tax
expense of $4,049 (net of accumulated income tax recovery $1,113 as at September 30, 2019)
Net unrealized (losses) gains on cash flow hedges, net of accumulated income tax recovery of
$2,554 (net of accumulated income tax expense of $13,003 as at September 30, 2019)
Net unrealized gains on financial assets at fair value through other comprehensive income, net
of accumulated income tax expense of $1,291 ($352 as at September 30, 2019)
Items that will not be reclassified subsequently to net earnings:
Net remeasurement losses on defined benefit plans, net of accumulated income tax recovery
of $18,920 ($8,698 as at September 30, 2019)
(417,462)
(426,376)
14,053
(5,935)
4,340
(4,091)
24,157
1,486
(52,090)
545,710
(14,840)
176,694
For the year ended September 30, 2020, $5,616,000 of the net unrealized gains on cash flow hedges, net of income tax expense
of $1,648,000, previously recognized in other comprehensive income were reclassified in the consolidated statements of earnings
($8,306,000, net of income tax expense of $4,311,000, for the year ended September 30, 2019).
For the year ended September 30, 2020, $10,268,000 of the deferred gains of hedging on cross-currency swaps, net of income
tax expense of $3,702,000, were also reclassified in the consolidated statements of earnings (deferred costs of $5,203,000, net
of income tax recovery of $1,113,000, for the year ended September 30, 2019).
19. Capital stock
The Company's authorized share capital is comprised of an unlimited number, all without par value, of:
–
–
–
–
First preferred shares, issuable in series, carrying one vote per share, each series ranking equal with other series, but
prior to second preferred shares, Class A subordinate voting shares and Class B multiple voting shares with respect to
the payment of dividends;
Second preferred shares, issuable in series, non-voting, each series ranking equal with other series, but prior to Class
A subordinate voting shares and Class B multiple voting shares with respect to the payment of dividends;
Class A subordinate voting shares, carrying one vote per share, participating equally with Class B multiple voting shares
with respect to the payment of dividends and convertible into Class B multiple voting shares under certain conditions in
the event of certain takeover bids on Class B multiple voting shares; and
Class B multiple voting shares, carrying ten votes per share, participating equally with Class A subordinate voting shares
with respect to the payment of dividends and convertible at any time at the option of the holder into Class A subordinate
voting shares.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
44
110 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
19. Capital stock (continued)
For the fiscal years 2020 and 2019, the number of issued and outstanding Class A subordinate voting shares and Class B multiple
voting shares varied as follows:
As at September 30, 2018
Issued upon exercise of stock options1
PSUs exercised2
Purchased and cancelled3
Purchased and held in trusts4
As at September 30, 2019
Issued upon exercise of stock options1
PSUs exercised2
Purchased and cancelled3
Purchased and held in trusts4
Class A subordinate voting shares Class B multiple voting shares
Total
Number Carrying value
Number Carrying value
Number Carrying value
$
$
$
250,425,114
1,978,210
28,945,706
40,382
279,370,820
2,018,592
1,942,580
—
77,773
7,651
(12,510,232)
(169,299)
—
(30,740)
—
—
—
—
—
—
1,942,580
—
77,773
7,651
— (12,510,232)
(169,299)
—
—
(30,740)
239,857,462
1,863,595
28,945,706
40,382
268,803,168
1,903,977
1,438,877
—
69,420
9,078
(10,605,464)
(165,315)
—
(55,287)
—
—
—
—
—
—
1,438,877
—
69,420
9,078
— (10,605,464)
(165,315)
—
—
(55,287)
As at September 30, 2020
230,690,875
1,721,491
28,945,706
40,382
259,636,581
1,761,873
1
2
3
4
The carrying value of Class A subordinate voting shares includes $12,269,000 ($14,070,000 for the year ended September 30, 2019), which corresponds to a
reduction in contributed surplus representing the value of accumulated compensation costs associated with the stock options exercised during the year.
During the year ended September 30, 2020, 157,788 PSUs were exercised (160,694 during the year ended September 30, 2019) with a recorded value of $9,078,000
($7,651,000 during the year ended September 30, 2019) that was removed from contributed surplus. As at September 30, 2020, 1,243,022 Class A subordinate
voting shares were held in trusts under the PSU plans (875,480 as at September 30, 2019).
On January 29, 2020, the Company’s Board of Directors authorized and subsequently received the regulatory approval from the Toronto Stock Exchange (TSX),
for the renewal of the Normal Course Issuer Bid (NCIB) for the purchase for cancellation of up to 20,149,100 Class A subordinate voting shares on the open market
through the TSX, the New York Stock Exchange (NYSE) and/or alternative trading systems or otherwise pursuant to exemption orders issued by securities regulators.
The Class A subordinate voting shares are available for purchase for cancellation commencing on February 6, 2020 until no later than February 5, 2021, or on
such earlier date when the Company has either acquired the maximum number of Class A subordinate voting shares allowable under the NCIB or decided not to
make any further purchases for cancellation under it.
During the year ended September 30, 2020, the Company purchased for cancellation 6,008,905 Class A subordinate voting shares from the Caisse de dépôt et
placement du Québec for a cash consideration of $600,000,000 (5,158,362 and $500,000,000, respectively during the year ended September 30, 2019). The
excess of the purchase price over the carrying value in the amount of $471,455,000 was charged to retained earnings ($389,651,000 during the year ended
September 30, 2019). The purchase was made pursuant to an exemption order issued by the Autorité des marchés financiers and is considered within the annual
aggregate limit that the Company is entitled to purchase under its current NCIB.
In addition, during the year ended September 30, 2020, the Company purchased for cancellation 4,596,559 Class A subordinate voting shares (7,301,870 during
the year ended September 30, 2019) under its previous and current NCIB for a cash consideration of $443,517,000 ($626,075,000 during the year ended
September 30, 2019) and the excess of the purchase price over the carrying value in the amount of $406,747,000 ($567,125,000 during the year ended September 30,
2019) was charged to retained earnings.
During the year ended September 30, 2020, the trustees, in accordance with the terms of the PSU plans and Trust Agreements, purchased 525,331 Class A
subordinate voting shares of the Company on the open market (374,995 during the year ended September 30, 2019) for a cash consideration of $55,287,000
($30,740,000 during the year ended September 30, 2019).
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
45
FISCAL 2020 RESULTS — 111 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
20. Share-based payments
a) Stock options
Under the Company’s stock option plan, the Board of Directors may grant, at its discretion, stock options to purchase Class A
subordinate voting shares to certain employees, officers and directors of the Company and its subsidiaries. The exercise price
is established by the Board of Directors and is equal to the closing price of the Class A subordinate voting shares on the TSX on
the day preceding the date of the grant. Stock options generally vest over four years from the date of grant conditionally upon
achievement of performance objectives and must be exercised within a ten-year period, except in the event of retirement,
termination of employment or death. As at September 30, 2020, 24,442,509 Class A subordinate voting shares were reserved
for issuance under the stock option plan.
The following table presents information concerning the outstanding stock options granted by the Company:
Outstanding, beginning of year
Granted
Exercised (Note 19)
Forfeited
Expired
Outstanding, end of year
Exercisable, end of year
Number of options
2020
Weighted
average exercise
price per share
Number of options
2019
Weighted
average exercise
price per share
9,891,592
913,560
(1,438,877)
(431,223)
(955)
8,934,097
5,748,402
$
54.64
110.65
39.72
84.50
74.55
61.33
49.02
12,830,826
52,735
(1,942,580)
(1,045,783)
(3,606)
9,891,592
5,460,470
$
52.01
82.59
32.81
64.11
34.79
54.64
41.32
The weighted average share price at the date of exercise for stock options exercised in 2020 was $99.79 ($93.68 in 2019).
The following table summarizes information about the outstanding stock options granted by the Company as at September 30,
2020:
Range of
exercise price
Number of
options
$
14.48 to 38.79
1,945,743
39.47 to 50.94
52.63 to 63.72
67.04 to 87.65
102.79 to 110.73
1,356,156
3,235,718
1,523,387
873,093
8,934,097
Options outstanding
Options exercisable
Weighted
average
remaining
contractual life
(in years)
2.70
4.68
6.43
7.92
9.17
5.87
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
$
29.83
45.21
63.00
84.05
110.70
61.33
1,945,743
1,356,156
2,019,298
426,416
789
5,748,402
$
29.83
45.21
62.87
82.94
102.79
49.02
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
46
112 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
20. Share-based payments (continued)
a) Stock options (continued)
The weighted average fair value of stock options granted in the year and the weighted average assumptions used in the calculation
of their fair value on the date of grant using the Black-Scholes option pricing model were as follows:
Grant date fair value ($)
Dividend yield (%)
Expected volatility (%)1
Risk-free interest rate (%)
Expected life (years)
Exercise price ($)
Share price ($)
Year ended September 30
2019
2020
17.71
0.00
16.60
1.55
4.00
110.65
110.65
16.24
0.00
19.79
2.26
4.00
82.59
82.59
1
Expected volatility was determined using statistical formulas and based on the weekly historical average of closing daily share prices over the period of the expected
life of stock options.
b) Performance share units
The Company operates two PSU plans with similar terms and conditions. Under both plans, the Board of Directors may grant
PSUs to certain employees and officers which entitle them to receive one Class A subordinate voting share for each PSU. The
vesting performance conditions are determined by the Board of Directors at the time of each grant. PSUs expire on the business
day preceding December 31 of the third calendar year following the end of the fiscal year during which the PSU award was made,
except in the event of retirement, termination of employment or death. Conditionally upon achievement of performance objectives,
granted PSUs under the first plan vest annually over a period of four years from the date of the grant and granted PSUs under
the second plan vest at the end of the four-year period.
Class A subordinate voting shares purchased in connection with the PSU plans are held in trusts for the benefit of the participants.
The trusts, considered as structured entities, are consolidated in the Company’s consolidated financial statements with the cost
of the purchased shares recorded as a reduction of capital stock (Note 19).
The following table presents information concerning the number of outstanding PSUs granted by the Company:
Outstanding as at September 30, 2018
Granted1
Exercised (Note 19)
Forfeited
Outstanding as at September 30, 2019
Granted1
Exercised (Note 19)
Forfeited
Outstanding as at September 30, 2020
658,732
472,187
(160,694)
(108,740)
861,485
607,342
(157,788)
(79,569)
1,231,470
1
The PSUs granted in 2020 had a grant date fair value of $107.39 per unit ($83.24 in 2019).
c) Share purchase plan
Under the share purchase plan, the Company contributes an amount equal to a percentage of the employee's basic contribution,
up to a maximum of 3.50%. An employee may make additional contributions in excess of the basic contribution. However, the
Company does not match contributions in the case of such additional contributions. The employee and Company's contributions
are remitted to an independent plan administrator who purchases Class A subordinate voting shares on the open market on behalf
of the employee through either the TSX or NYSE.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
47
FISCAL 2020 RESULTS — 113 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
20. Share-based payments (continued)
d) Deferred share unit plan
External members of the Board of Directors (participants) are entitled to receive part or their entire retainer fee in DSUs. DSUs
are granted with immediate vesting and must be exercised no later than December 15 of the calendar year immediately following
the calendar year during which the participant ceases to act as a director. Each DSU entitles the holder to receive a cash payment
equal to the closing price of Class A subordinate voting shares on the TSX on the payment date. As at September 30, 2020, the
number of outstanding DSUs was 152,743 (137,571 DSUs as at September 30, 2019).
e) Share-based payment costs
The share-based payment expense recorded in costs of services, selling and administrative is as follows:
Stock options
PSUs
Share purchase plan
DSUs
21. Earnings per share
Year ended September 30
2019
2020
$
16,378
20,979
127,983
(607)
164,733
$
21,674
17,766
115,287
3,334
158,061
The following table sets forth the computation of basic and diluted earnings per share for the years ended September 30:
Weighted average
number of shares
outstanding1
Net earnings
$
Basic
1,117,862
262,005,521
2020
Earnings per
share Net earnings
$
$
4.27
1,263,207
Net effect of dilutive stock
options and PSUs2
1,117,862
4,098,541
266,104,062
4.20
1,263,207
Weighted average
number of shares
outstanding1
2019
Earnings per
share
272,719,309
5,066,415
277,785,724
$
4.63
4.55
1
2
During the year ended September 30, 2020, 10,605,464 Class A subordinate voting shares purchased for cancellation and 1,243,022 Class A subordinate voting
shares held in trust were excluded from the calculation of weighted average number of shares outstanding as of the date of transaction (12,460,232 and 875,480,
respectively during the year ended September 30, 2019).
The calculation of the diluted earnings per share excluded 876,213 stock options for the year ended September 30, 2020 (1,716,774 for the year ended September 30,
2019), as they were anti-dilutive.
22. Remaining performance obligations
Remaining performance obligations relates to Company’s performance obligations that are partially or fully unsatisfied under
fixed-fee arrangements.
The amount of the selling price allocated to remaining performance obligations as at September 30, 2020 is $824,854,000
($964,052,000 as at September 30, 2019) and is expected to be recognized as revenue within a weighted average of 1.4 years
(1.6 years as at September 30, 2019).
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
48
114 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
23. Costs of services, selling and administrative
Salaries and other member costs1
Professional fees and other contracted labour
Hardware, software and data center related costs
Property costs
Amortization, depreciation and impairment (Note 24)
Other operating expenses
1
Net of R&D and other tax credits of $160,335,000 in 2020 ($171,389,000 in 2019).
24. Amortization, depreciation and impairment
Depreciation of PP&E
Depreciation of right-of-use assets (Note 7)
(Note 6)
Impairment of right-of-use assets (Note 7)
Amortization of contract costs related to transition costs
Impairment of contract costs related to transition costs
Amortization of intangible assets (Note 9)
Impairment of intangible assets (Note 9)
Included in costs of services, selling and administrative (Note 23)
Amortization of contract costs related to incentives (presented as a reduction of revenue)
Amortization of deferred financing fees (presented in finance costs)
Amortization of premiums and discounts on investments related to funds held for clients
(presented net as a reduction of revenue)
Impairment of PP&E (presented in restructuring costs) (Note 6 and 25)
Impairment of right-of-use assets (presented in restructuring costs) (Note 7 and 25)
Year ended September 30
2019
2020
$
7,264,839
1,355,065
800,496
259,306
556,061
66,301
$
7,158,588
1,439,915
873,158
363,812
388,087
60,447
10,302,068
10,284,007
Year ended September 30
2019
2020
$
156,590
168,239
3,269
55,905
4,047
157,378
10,633
556,061
2,535
890
79
1,035
5,092
$
159,264
—
—
64,263
—
164,560
—
388,087
2,919
1,012
283
—
—
565,692
392,301
25.
Restructuring costs
During the year ended September 30, 2020, the Company incurred restructuring costs related to terminations of employment
primarily in France, Canada and Germany, in relation with the COVID-19 impacts.
During the year ended September 30, 2020, the Company also announced a restructuring plan mainly for the closure of the Brazil
operations, the refocusing of the Portugal infrastructure business towards nearshore delivery and the optimization of the Sweden
infrastructure business.
The Company recorded $155,411,000 of restructuring costs during the year ended September 30, 2020 (nil during the year ended
September 30, 2019).
This amount includes restructuring costs for terminations of employment of $144,202,000, accounted for in restructuring provisions,
impairment of PP&E of $1,035,000 (Notes 6 and 24), impairment of right-of-use assets of $5,092,000 (Note 24), as well as other
restructuring costs of $5,082,000.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
49
FISCAL 2020 RESULTS — 115 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
26. Net finance costs
Interest on long-term debt
Interest on lease liabilities (Note 3)
Net interest costs on net defined benefit obligations or assets (Note 17)
Other finance costs
Finance costs
Finance income
Year ended September 30
2019
2020
$
75,667
33,017
1,876
9,029
119,589
(5,115)
114,474
$
63,312
—
3,813
15,071
82,196
(11,566)
70,630
27.
Investments in subsidiaries
a) Business acquisitions realized in current fiscal year
The Company made the following significant acquisitions during the year ended September 30, 2020:
– On December 18, 2019, the Company acquired all of the outstanding shares of SCISYS Group Plc (SCISYS), for a
purchase price of $130,260,000. Predominantly based in United Kingdom and Germany, SCISYS operates in several
sectors, with deep expertise and industry leading solutions in the space and defense sectors, as well as in the media
and broadcast news industries, headquartered in Dublin, Ireland.
– On January 20, 2020, the Company acquired all of the outstanding shares of Meti Logiciels et Services SAS (Meti), for
a purchase price of $43,404,000. Based in France, Meti is specialized in the development of software solutions for the
retail sector across Europe and works with some of Europe's largest retailers.
– On March 31, 2020, the Company acquired all of the outstanding shares of TeraThink Corporation (TeraThink), for a
purchase price of $99,388,000. Based in the United States, TeraThink is an information technology and management
consulting firm providing digitization, enterprise finance, risk management, and data analytics services to the U.S. federal
government and is headquartered in Reston, Virginia.
The following table presents the fair value of assets acquired and liabilities assumed for all acquisitions based on the
acquisition-date fair values of the identifiable tangible and intangible assets acquired and liabilities assumed:
Current assets
PP&E (Note 6)
Right-of-use assets (Note 7)
Intangible assets (Note 9)
Goodwill1
Current liabilities
(Note 12)
Deferred tax liabilities
Retirement benefits
obligations (Note 17)
Long-term debt
Lease liabilities
Cash acquired
Net assets acquired
Consideration paid
1
SCISYS
$
28,461
16,893
3,362
16,837
144,712
(68,254)
(3,030)
—
(10,880)
(4,336)
123,765
6,495
130,260
130,260
TeraThink
$
14,227
1,369
4,228
19,025
86,642
(13,910)
—
—
(9,732)
(4,935)
96,914
2,474
99,388
99,388
Other
$
12,995
638
4,269
10,661
37,683
(14,414)
(1,507)
(1,068)
(122)
(4,321)
44,814
7,035
51,849
51,849
Total
$
55,683
18,900
11,859
46,523
269,037
(96,578)
(4,537)
(1,068)
(20,734)
(13,592)
265,493
16,004
281,497
281,497
The goodwill arising from the acquisitions mainly represents the future economic value associated to acquired work force and synergies with the Company’s
operations. As at September 30, 2020, $32,272,000 of the goodwill is included in the Western and Southern Europe operating segment, $5,411,000 in the Canada
operating segment, $86,642,000 in the U.S. Federal operating segment, $53,170,000 in the U.K and Australia operating segment and $91,542,000 in the Central
and Eastern Europe operating segment. The goodwill is only deductible for tax purposes for TeraThink.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
50
116 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
27.
Investments in subsidiaries (continued)
a) Business acquisitions realized in current fiscal year (continued)
The fair value of assets acquired and liabilities assumed for SCISYS, TeraThink and Meti are preliminary and are expected to be
completed as soon as management will have gathered all the information available and considered necessary in order to finalize
this allocation.
For the year ended September 30, 2020, the above significant acquisitions would have contributed approximately $250,000,000
of revenues and individually between 6.0% and 10.5% of earnings before acquisition-related and integration costs, and income
taxes to the financial results of the Company had the acquisition dates been October 1, 2019. These figures are indicative of the
actual contribution when considering the specific dates of acquisition.
With significant strategic consulting, system integration and customer-centric digital innovation capabilities, these acquisitions
were made to complement CGI's proximity model and expertise across key sectors, including communications, retail, space and
defense and government.
b) Business acquisitions realized in the prior fiscal year
The Company made the following acquisitions during the year ended September 30, 2019:
– On October 11, 2018, the Company acquired all outstanding shares of ckc AG (ckc), a specialized provider of agile
software development and management services, with a focus on the automotive sector, headquartered in Brunswick,
Germany.
– During the year, the Company acquired the control of Acando AB (Acando), a consulting services firm headquartered
in Stockholm, Sweden, through a step acquisition. In March 2019, the Company acquired 22.6% of the outstanding
shares of Acando which was accounted for as an investment in an associate using the equity method. On April 16, 2019,
the Company acquired control of Acando through the acquisition of an additional 71.1% of the outstanding shares under
a tender offer and by May 14, 2019, an additional 2.4% was acquired. The remaining 3.9% of the outstanding shares,
which are included in accounts payable and accrued liabilities in the consolidated balance sheet, were acquired on
October 11, 2019.
– On August 30, 2019, the Company acquired all outstanding shares of Annams Systems Corporation d/b/a Sunflower
Systems (Sunflower), a specialized provider of asset management software, solutions and services, headquartered in
San Ramon, California.
With strategic consulting, system integration and customer-centric digital innovation capabilities, these acquisitions were made
to complement CGI's proximity model and expertise across key sectors, including manufacturing, retail and government.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
51
FISCAL 2020 RESULTS — 117 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
27.
Investments in subsidiaries (continued)
b) Business acquisitions realized in the prior fiscal year (continued)
The following table presents the fair value of assets acquired and liabilities assumed for all the above acquisitions based on the
acquisition-date fair values of the identifiable tangible and intangible assets acquired and liabilities assumed. During the year
ended September 30, 2019, the Company finalized the fair value of assets acquired and liabilities assumed for ckc. The fair value
of assets acquired and liabilities assumed for Acando and Sunflower were preliminary.
Current assets
PP&E (Note 6)
Intangible assets (Note 9)
Goodwill1
Current liabilities
Deferred tax liabilities
Retirement benefits obligations (Note 17)
Long-term debt
Cash acquired
Net assets acquired
Consideration paid
Consideration payable
Acando
$
105,298
6,404
102,889
555,921
(120,746)
(25,966)
(6,550)
(9,828)
607,422
16,348
623,770
599,744
24,026
Other
$
14,674
1,271
9,855
31,916
(12,735)
(1,324)
(1,444)
—
42,213
(2,481)
39,732
37,738
1,994
Total
$
119,972
7,675
112,744
587,837
(133,481)
(27,290)
(7,994)
(9,828)
649,635
13,867
663,502
637,482
26,020
1
The goodwill arising from the acquisitions mainly represents the future economic value associated to acquired work force and synergies with the Company’s
operations. As at September 30, 2019, $465,209,000 of the goodwill is included in the Scandinavia operating segment, $90,943,000 in the Central and Eastern
Europe operating segment, $17,730,000 in the Finland, Poland and Baltics operating segment and $13,955,000 in the U.S. Federal operating segment. The goodwill
is only deductible for tax purposes for Sunflower.
During fiscal year 2019, the Company acquired 96.1% of the outstanding shares of Acando and the remaining 3.9% on October
11, 2019 for $23,123,000. During the year ended September 30, 2020, the Company finalized the fair value of assets acquired
and liabilities assumed for Acando and Sunflower with no significant adjustments.
c) Acquisition-related and integration costs
During the year ended September 30, 2020, the Company expensed $76,794,000, for acquisition-related and integration costs.
This amount includes acquisition-related costs of $6,545,000, and integration costs of $70,249,000. The acquisition-related costs
consist mainly of professional fees incurred for the acquisitions. The integration costs mainly include terminations of employment
of $49,390,000, accounted for in restructuring provisions, as well as other integration costs of $20,859,000.
During the year ended September 30, 2019, the Company expensed $77,417,000, for acquisition-related and integration costs.
This amount included acquisition-related costs of $1,992,000, and integration costs of $75,425,000. The acquisition-related costs
consist mainly of professional fees incurred for the acquisitions. The integration costs mainly include terminations of employment
of $56,268,000, accounted for in restructuring provisions, as well as other integration costs of $19,157,000.
d) Disposal
There was no significant disposal during the years ended September 30, 2020 and 2019.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
52
118 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
28. Supplementary cash flow information
a) Net change in non-cash working capital items is as follows for the years ended September 30:
Accounts receivable
Work in progress
Prepaid expenses and other assets
Long-term financial assets
Accounts payable and accrued liabilities
Accrued compensation
Deferred revenue
Provisions
Long-term liabilities
Retirement benefits obligations
Derivative financial instruments
Income taxes
2020
$
225,441
79,809
21,342
(12,081)
(106,828)
(17,472)
(48,264)
76,671
59,822
(4,022)
373
(56,627)
218,164
b) Non-cash operating and investing activities related to operations are as follows for the years ended September 30:
Operating activities
Accounts payable and accrued liabilities
Provisions
Investing activities
Purchase of PP&E
Additions, disposals/retirements and change in estimates and lease modifications of
right-of-use assets
Additions to intangible assets
2019
$
205,549
(161,031)
(22,238)
(3,547)
(54,822)
13,112
(22,659)
737
19,353
(2,814)
(271)
(27,620)
(56,251)
2019
$
14,573
2,512
17,085
2020
$
4,788
690
5,478
(4,698)
(14,913)
(102,584)
(780)
(108,062)
—
(14,267)
(29,180)
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
53
FISCAL 2020 RESULTS — 119 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
28. Supplementary cash flow information (continued)
c) Changes arising from financing activities are as follows for the years ended September 30:
Balance, beginning of year
Adoption of IFRS 16 (Note 3)
Balance as at October 1, 2019
Cash used in financing activities excluding equity
Net change in unsecured committed revolving credit
facility
Increase of long-term debt
Repayment of long-term debt and lease liabilities
Repayment of debt assumed in business acquisitions
Settlement of derivative financial instruments (Note 32)
Non-cash financing activities
Additions, disposals/retirements and change in estimates
and lease modifications of right-of-use assets (New
obligations under finance leases for 2019)
Additions through business acquisitions (Note 27)
Changes in foreign currency exchange rates
Other
Balance, end of year
Derivative
financial
instruments to
hedge long-term
debt
$
(29,894)
—
(29,894)
—
—
—
—
(3,903)
2020
Lease
liabilities
Long-term
debt
$
—
911,525
911,525
$
1,800,893
—
1,800,893
—
—
139,575
686,810
(175,320)
(355,406)
—
—
(2,141)
—
—
—
66,031
—
102,584
13,592
31,766
(7,777)
12,095
9,828
25,304
14,249
Long-term
debt
$
2,331,207
(30,339)
2,300,868
(334,370)
1,807,167
(106,496)
(28,281)
—
—
19,333
(77,126)
6,000
3,587,095
32,234
876,370
2,331,207
2019
Derivative
financial
instruments to
hedge long-term
debt
$
43,217
—
43,217
—
—
—
—
(554)
—
—
(72,557)
—
(29,894)
d) Interest paid and received and income taxes paid are classified within operating activities and are as follows for the years
ended September 30:
Interest paid
Interest received
Income taxes paid
e) Cash and cash equivalents consisted of unrestricted cash as at September 30, 2020 and 2019.
2020
$
180,453
5,116
390,867
2019
$
102,108
3,080
386,953
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
54
120 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
29. Segmented information
The following tables present information on the Company's operations based on its revised management structure. Segment
results are based on the location from which the services are delivered - the geographic delivery model. The Company has
retrospectively revised the segmented information for the comparative period to conform to the new segmented information
structure (Note 12).
Western
and
Southern
Europe
U.S.
Commercial
and State
Government
Canada
U.S.
Federal
U.K. and
Australia
Central
and
Eastern
Europe Scandinavia
Finland,
Poland
and
Baltics
Asia
Pacific Eliminations
$
$
$
$
$
$
$
$
$
$
Total
$
Year ended September 30, 2020
Segment revenue
1,911,477
1,863,467 1,686,269 1,712,244 1,358,469 1,212,196
1,104,121
777,152 674,946
(136,226) 12,164,115
Segment earnings before
acquisition-related and
integration costs, restructuring
costs, net finance costs and
income tax expense1
Acquisition-related and
integration costs (Note 27)
Restructuring costs (Note 25)
Net finance costs (Note 26)
Earnings before income taxes
264,009
295,795
364,424
221,793
215,924
122,548
57,231
120,959 200,263
— 1,862,946
(76,794)
(155,411)
(114,474)
1,516,267
1 Total amortization and depreciation of $558,675,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, U.K. and
Australia, Central and Eastern Europe, Scandinavia, Finland, Poland and Baltics and Asia Pacific segments is $64,084,000, $89,150,000, $69,921,000, $47,443,000,
$68,346,000, $84,592,000, $71,590,000, $39,055,000 and $24,494,000, respectively for the year ended September 30, 2020. Amortization includes impairments of $14,680,000
from business solutions and contract costs which are mainly included in U.S. Commercial and State Government for $3,396,000 of business solutions, Canada for $3,589,000
of business solutions and Finland, Poland and Baltics for $4,065,000 of contract costs and a business solution. These assets were no longer expected to generate future
economic benefits.
Western
and
Southern
Europe
U.S.
Commercial
and State
Government
Canada
U.S.
Federal
U.K. and
Australia
Central
and
Eastern
Europe Scandinavia
Finland,
Poland
and
Baltics
Asia
Pacific
Eliminations
$
$
$
$
$
$
$
$
$
$
Total
$
Year ended September 30, 2019
Segment revenue
2,022,677
1,834,917 1,768,924 1,597,922 1,356,858 1,166,486
1,095,330
787,640 606,252
(125,770) 12,111,236
Segment earnings before
acquisition-related and
integration costs, net finance
costs and income tax
expense1
Acquisition-related and
integration costs (Note 27)
Net finance costs (Note 26)
Earnings before income taxes
275,535
333,210
359,089
230,054
185,290
100,244
76,648
118,771 146,154
— 1,824,995
(77,417)
(70,630)
1,676,948
1 Total amortization and depreciation of $391,289,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, U.K. and
Australia, Central and Eastern Europe, Scandinavia, Finland, Poland and Baltics and Asia Pacific segments is $42,558,000, $73,647,000, $62,486,000, $27,433,000,
$67,110,000, $37,314,000, $26,534,000, $38,968,000 and $15,239,000, respectively for the year ended September 30, 2019.
The accounting policies of each operating segment are the same as those described in Note 3, Summary of significant accounting
policies. Intersegment revenue is priced as if the revenue was from third parties.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
55
FISCAL 2020 RESULTS — 121 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
29. Segmented information (continued)
GEOGRAPHIC INFORMATION
The following table provides external revenue information based on the client’s location which is different from the revenue
presented under operating segments, due to the intersegment revenue, for the years ended September 30:
Western and Southern Europe
France
Others
U.S.1
Canada
U.K. and Australia
U.K.
Australia
Central and Eastern Europe
Germany
Netherlands
Others
Scandinavia
Sweden
Others
Finland, Poland and Baltics
Finland
Others
Asia Pacific
Others
2020
$
1,672,355
239,053
1,911,408
2019
$
1,761,861
264,252
2,026,113
3,637,070
3,474,418
1,820,265
1,881,364
1,508,719
63,708
1,572,427
718,166
465,340
68,537
1,252,043
835,682
322,711
1,158,393
766,732
37,269
804,001
8,508
8,508
1,480,627
75,268
1,555,895
655,713
463,633
74,271
1,193,617
854,565
297,101
1,151,666
785,285
37,179
822,464
5,699
5,699
1
External revenue included in the U.S Commercial and State Government and U.S. Federal operating segments was $1,902,661,000 and $1,734,409,000,
respectively in 2020 ($1,853,154,000 and $1,621,264,000, respectively in 2019).
12,164,115
12,111,236
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
56
122 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
29. Segmented information (continued)
GEOGRAPHIC INFORMATION (CONTINUED)
The following table provides information for PP&E, right-of-use assets (only as at September 30, 2020), contract costs and
intangible assets based on their location:
U.S.
Canada
U.K.
France
Sweden
Finland
Germany
Netherlands
Rest of the world
As at
September 30, 2020
As at
September 30, 2019
$
487,698
412,469
138,391
137,307
162,506
93,948
107,809
64,551
195,970
$
367,415
292,291
103,803
45,501
125,987
46,828
47,800
22,187
86,796
1,800,649
1,138,608
INFORMATION ABOUT SERVICES
The following table provides revenue information based on services provided by the Company for the year ended
September 30:
Systems integration and consulting
Management of IT and business functions
MAJOR CLIENT INFORMATION
2020
$
5,554,622
6,609,493
12,164,115
2019
$
5,998,486
6,112,750
12,111,236
Contracts with the U.S. federal government and its various agencies, included within the U.S. Federal operating segment,
accounted for $1,675,326,000 and 13.8% of revenues for the year ended September 30, 2020 ($1,554,933,000 and 12.8% for
the year ended September 30, 2019).
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
57
FISCAL 2020 RESULTS — 123 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
30. Related party transactions
a) Transactions with subsidiaries and other related parties
Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation. The Company
owns 100% of the equity interests of its principal subsidiaries.
The Company’s principal subsidiaries whose revenues, based on the geographic delivery model, represent more than 3% of the
consolidated revenues are as follows:
Name of subsidiary
CGI Technologies and Solutions Inc.
CGI France SAS
CGI Federal Inc.
CGI IT UK Limited
CGI Information Systems and Management Consultants Inc.
Conseillers en gestion et informatique CGI Inc.
CGI Sverige AB
CGI Deutschland B.V. & Co KG
CGI Suomi Oy
CGI Information Systems and Management Consultants Private Limited
CGI Nederland BV
b) Compensation of key management personnel
Country of incorporation
United States
France
United States
United Kingdom
Canada
Canada
Sweden
Germany
Finland
India
Netherlands
Compensation of key management personnel, currently defined as the executive officers and the Board of Directors of the
Company, was as follows for the year ended September 30:
Short-term employee benefits
Share-based payments
2020
$
14,462
22,122
2019
$
22,185
23,991
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
58
124 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
31. Commitments, contingencies and guarantees
a) Commitments
As at September 30, 2020, the Company entered into long-term service agreements representing a total commitment of
$235,781,000. Minimum payments under these agreements are due as follows:
Less than one year
Between one and three years
Between three and five years
b) Contingencies
$
124,776
110,790
215
From time to time, the Company is involved in legal proceedings, audits, litigation and claims which primarily relate to tax exposure,
contractual disputes and employee claims arising in the ordinary course of its business. Certain of these matters seek damages
in significant amounts and will ultimately be resolved when one or more future events occur or fail to occur. Although the outcome
of such matters is not predictable with assurance, the Company has no reason to believe that the disposition of any such current
matter could reasonably be expected to have a materially adverse impact on the Company’s financial position, results of operations
or the ability to carry on any of its business activities. Claims for which there is a probable unfavourable outcome are recorded
in provisions.
In addition, the Company is engaged to provide services under contracts with various government agencies. Some of these
contracts are subject to extensive legal and regulatory requirements and, from time to time, government agencies investigate
whether the Company’s operations are being conducted in accordance with these requirements. Generally, the governments
agencies have the right to change the scope of, or terminate, these projects at its convenience. The termination or reduction in
the scope of a major government contract or project could have a materially adverse effect on the results of operations and the
financial condition of the Company.
c) Guarantees
Sale of assets and business divestitures
In connection with the sale of assets and business divestitures, the Company may be required to pay counterparties for costs
and losses incurred as the result of breaches in contractual obligations, representations and warranties, intellectual property right
infringement and litigation against counterparties, among others. While some of the agreements specify a maximum potential
exposure, others do not specify a maximum amount or limited period. It is not possible to reasonably estimate the maximum
amount that may have to be paid under such guarantees. The amounts are dependent upon the outcome of future contingent
events, the nature and likelihood of which cannot be determined at this time. No amount has been accrued in the consolidated
balance sheets relating to this type of indemnification as at September 30, 2020. The Company does not expect to incur any
potential payment in connection with these guarantees that could have a materially adverse effect on its consolidated financial
statements.
Other transactions
In the normal course of business, the Company may provide certain clients, principally governmental entities, with bid and
performance bonds. In general, the Company would only be liable for the amount of the bid bonds if the Company refuses to
perform the project once the bid is awarded. The Company would also be liable for the performance bonds in the event of default
in the performance of its obligations. As at September 30, 2020, the Company had committed a total of $32,130,000 of these
bonds. To the best of its knowledge, the Company is in compliance with its performance obligations under all service contracts
for which there is a bid or performance bond, and the ultimate liability, if any, incurred in connection with these guarantees, would
not have a materially adverse effect on the Company’s consolidated results of operations or financial condition.
Moreover, the Company has letters of credit for a total of $76,795,000 in addition to the letters of credit covered by the unsecured
committed revolving credit facility (Note 14). These guarantees are required in some of the Company’s contracts with customers.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
59
FISCAL 2020 RESULTS — 125 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
32. Financial instruments
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
Valuation techniques used to value financial instruments are as follows:
-
-
-
-
-
-
The fair value of Senior U.S. and euro unsecured notes, the unsecured committed revolving credit facility, the unsecured
committed term loan credit facilities and the other long-term debt is estimated by discounting expected cash flows at
rates currently offered to the Company for debts of the same remaining maturities and conditions;
The fair value of long-term bonds included in funds held for clients and in long-term investments is determined by
discounting the future cash flows using observable inputs, such as interest rate yield curves or credit spreads, or according
to similar transactions on an arm's-length basis;
The fair value of foreign currency forward contracts is determined using forward exchange rates at the end of the reporting
period;
The fair value of cross-currency swaps and interest rate swaps is determined based on market data (primarily yield
curves, exchange rates and interest rates) to calculate the present value of all estimated cash flows;
The fair value of cash and cash equivalents is determined using observable quotes; and
The fair value of deferred compensation plan assets within long-term financial assets is based on observable price
quotations and net assets values at the reporting date.
As at September 30, 2020, there were no changes in valuation techniques.
The following table presents the financial liabilities included in the long-term debt (Note 14) measured at amortized cost categorized
using the fair value hierarchy.
Level
Carrying amount
Fair value
Carrying amount
Fair value
As at September 30, 2020
As at September 30, 2019
Senior U.S. and euro unsecured notes
Obligations under finance leases
Other long-term debt
Level 2
Level 2
Level 2
$
$
$
$
1,211,965
1,297,632
1,256,554
1,330,809
—
44,842
—
43,536
30,339
48,005
29,792
46,743
1,256,807
1,341,168
1,334,898
1,407,344
For the remaining financial assets and liabilities measured at amortized cost, the carrying values approximate the fair values of
the financial instruments given their short term maturity.
During the year ended September 30, 2020, the Company entered into the 2020 Term Loan for a total principal amount of U.S.
$1,250,000,000. The 2020 Term Loan was designated as a hedge of a portion of the Company’s net investment in its U.S.
operations.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
60
126 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
32. Financial instruments (continued)
FAIR VALUE MEASUREMENTS (CONTINUED)
The following table presents financial assets and liabilities measured at fair value categorized using the fair value hierarchy:
Level
As at September 30, 2020
As at September 30, 2019
$
$
Financial assets
FVTE
Cash and cash equivalents
Deferred compensation plan assets (Note 11)
Level 2
Level 1
Derivative financial instruments designated as
hedging instruments
Current derivative financial instruments included in current
financial assets
Level 2
Cross-currency swaps
Foreign currency forward contracts
Long-term derivative financial instruments (Note 11)
Level 2
Cross-currency swaps
Foreign currency forward contracts
Interest rate swaps
FVOCI
Short-term investments included in current financial assets
Long-term bonds included in funds held for clients (Note 5)
Long-term investments (Note 11)
Financial liabilities
Derivative financial instruments designated as
hedging instruments
Current derivative financial instruments
Cross-currency swaps
Foreign currency forward contracts
Long-term derivative financial instruments
Cross-currency swaps
Foreign currency forward contracts
Level 2
Level 2
Level 2
Level 2
Level 2
1,707,985
73,156
1,781,141
—
17,027
25,362
8,636
6,180
57,205
1,473
148,470
22,612
172,555
5,320
3,008
52,275
4,347
64,950
213,831
62,627
276,458
4,243
25,799
45,193
25,069
1,380
101,684
9,889
180,289
24,596
214,774
2,982
1,920
16,560
1,762
23,224
There have been no transfers between Level 1 and Level 2 for the years ended September 30, 2020 and 2019.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
61
FISCAL 2020 RESULTS — 127 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
32. Financial instruments (continued)
MARKET RISK
Market risk incorporates a range of risks. Movements in risk factors, such as interest rate risk and currency risk, affect the fair
values of financial assets and liabilities.
Interest rate risk
The Company has interest rate swaps whereby the Company receives a fixed rate of interest and pays interest at a variable rate
of its Senior U.S. unsecured note. These swaps are being used to hedge the exposure to changes in the fair value of the debt.
The following table summarizes the fair value of theses swaps:
As at
September 30, 2020
As at
September 30, 2019
Interest rate swaps
Notional amount
Receive Rate
Pay Rate
Maturity
Fair value
Fair value hedges of Senior
U.S. unsecured note
U.S.$250,000
4.99%
LIBOR 1 month
+ 3.26%
December 2021
$
6,180
Fair value
$
1,380
Senior U.S. unsecured note with a carrying value of $339,682,000, includes an accumulated amount of fair value hedge
adjustments of $6,470,000 as at September 30, 2020.
In addition, the Company designates cross-currency interest rate swaps as cash flow hedges for changes in both interest rates
and foreign exchange rates of foreign currency denominated long-term debt as described below.
The Company is also exposed to interest rate risk on its unsecured committed revolving credit facility and on its 2020 Term Loan.
The Company analyzes its interest rate risk exposure on an ongoing basis using various scenarios to simulate refinancing or the
renewal of existing positions. Based on these scenarios, a change in the interest rate of 1% would not have had a significant
impact on net earnings.
Currency risk
The Company operates internationally and is exposed to risk from changes in foreign currency exchange rates. The Company
mitigates this risk principally through foreign currency denominated debt and derivative financial instruments, which includes
foreign currency forward contracts and cross-currency swaps.
The Company hedges a portion of the translation of the Company’s net investments in its U.S. and European operations into
Canadian dollar, with Senior U.S. and euro unsecured notes and the 2020 Term Loan. As of September 30, 2020, the Senior U.S.
and euro unsecured notes and the 2020 Term Loan of a carrying value of $2,316,639,000 and a nominal amount of $2,311,425,000
have been designated as hedging instruments to hedge portions of the Company’s net investments in its U.S. and European
operations.
The Company also hedges a portion of the translation of the Company’s net investments in its European operations with cross-
currency swaps.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
62
128 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
32. Financial instruments (continued)
MARKET RISK (CONTINUED)
Currency risk (continued)
The following tables summarize the cross-currency swap agreements that the Company had entered into in order to manage its
currency:
As at
September 30, 2020
As at
September 30, 2019
Receive Notional
Receive Rate Pay Notional
Pay rate
Maturity
Fair value
Fair value
Hedges of net investments in European operations
$374,200 From 3.40% to 3.81%
€240,800 From 2.10% to 2.51%
From September
2021 to 2024
$136,274 From 3.57% to 3.63%
£75,842 From 2.67% to 2.80% September 2024
$58,419 From 3.57% to 3.68% Skr371,900 From 2.12% to 2.18% September 2024
$
$
189
8,977
5,359
19,305
12,511
7,995
Hedges of net investments in European operations and cash flow hedges on unsecured committed term loan credit facility
U.S.$500,000
LIBOR 1 month +
1.00%
€443,381 From 1.13% to 1.17% December 2023
(45,599)
(3,627)
Cash flow hedges of Senior U.S. unsecured notes
U.S.$420,000 From 3.74% to 4.06%
$568,893 From 3.40% to 3.81%
From September
2021 to 2024
Total
(1,159)
(32,233)
(6,290)
29,894
During the year ended September 30, 2020, the Company settled cross-currency swaps with a notional amount of $69,300,000
for a net amount of $3,903,000. The related amounts recognized in accumulated other comprehensive income will be transferred
to earnings when the net investment is disposed of.
The Company enters into foreign currency forward contracts to hedge the variability in various foreign currency exchange rates
on future revenues. Hedging relationships are designated and documented at inception and quarterly effectiveness assessments
are performed during the year.
As at September 30, 2020, the Company held foreign currency forward contracts to hedge exposures to changes in foreign
currency, which have the following notional, average contract rates and maturities:
Foreign currency forward contracts
Notional
Less than one year More than one year
Fair value
Fair value
Average contract rates
As at
September 30, 2020
As at
September 30, 2019
USD/INR
CAD/INR
EUR/INR
GBP/INR
SEK/INR
EUR/GBP
EUR/MAD
EUR/CZK
EUR/SEK
Others
Total
U.S.$146,778
$288,942
€107,190
£86,833
Skr248,637
€39,291
€47,010
€27,456
€30,773
$74,054
75.30
57.94
91.92
100.26
8.61
0.90
11.60
26.09
10.45
80.89
61.59
95.77
105.18
8.79
0.90
11.46
26.69
10.70
$
2,473
6,196
4,731
4,522
477
(1,210)
2,534
(1,039)
120
(496)
18,308
$
1,498
11,687
14,985
11,929
3,945
(311)
4,416
243
(1,828)
622
47,186
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
63
FISCAL 2020 RESULTS — 129 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
32. Financial instruments (continued)
MARKET RISK (CONTINUED)
Currency risk (continued)
The following table details the Company's sensitivity to a 10% strengthening of the Swedish krona, the U.S. dollar, the euro and
the British pound foreign currency rates on net earnings and comprehensive income. The sensitivity analysis on net earnings
presents the impact of foreign currency denominated financial instruments and adjusts their translation at period end for a 10%
strengthening in foreign currency rates. The sensitivity analysis on other comprehensive income presents the impact of a 10%
strengthening in foreign currency rates on the fair value of foreign currency forward contracts designated as cash flow hedges
and on net investment hedges.
Swedish
krona impact
U.S. dollar
impact
euro
impact
$
317
$
1,215
$
190
2020
British
pound
impact
$
931
Swedish
krona impact
U.S. dollar
impact
$
$
875
2019
British
pound
impact
$
euro
impact
$
2,333
167
2,166
(11,047)
(233,182)
(116,136)
(29,080)
(7,724)
(65,034)
(109,838)
(24,736)
Increase in net
earnings
Decrease in other
comprehensive income
(loss)
LIQUIDITY RISK
Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive
cost. The Company’s activities are financed through a combination of the cash flows from operations, borrowing under existing
unsecured committed revolving credit facility, the issuance of debt and the issuance of equity. One of management’s primary
goals is to maintain an optimal level of liquidity through the active management of the assets and liabilities as well as the cash
flows. The Company regularly monitors its cash forecasts to ensure it has sufficient flexibility under its available liquidity to meet
its obligations.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
64
130 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
32. Financial instruments (continued)
LIQUIDITY RISK (CONTINUED)
The following tables summarize the carrying amount and the contractual maturities of both the interest and principal portion of
financial liabilities. All amounts contractually denominated in foreign currency are presented in Canadian dollar equivalent amounts
using the period-end spot rate or floating rate.
As at September 30, 2020
Carrying
amount
$
Contractual
cash flows
$
Less than
one year
$
Non-derivative financial liabilities
Accounts payable and accrued liabilities
Accrued compensation
1,025,963
672,775
Senior U.S. and euro unsecured notes
1,211,965
1,325,791
1,025,963
1,025,963
672,775
672,775
321,089
Between one
and
three years
Between
three and five
years
$
—
—
$
—
—
519,605
485,097
Unsecured committed term loan credit
facilities
Lease liabilities
Other long-term debt
Clients’ funds obligations
Derivative financial liabilities
2,330,288
876,370
44,842
720,322
2,400,927
1,002,493
45,221
720,322
35,869
1,696,940
207,617
38,240
720,322
325,964
5,387
—
668,118
229,871
1,587
—
Cash flow hedges of future revenue
6,694
Outflow
(Inflow)
Cross-currency swaps
Outflow
(Inflow)
Non deliverable forwards
Outflow
57,595
661
290,661
108,478
163,183
(299,279)
(107,621)
(169,846)
19,000
(21,812)
1,272,197
315,839
168,458
787,900
(1,232,774)
(311,715)
(163,025)
(758,034)
661
661
—
—
6,947,475
7,224,958
3,027,517
2,546,666
1,411,727
239,048
As at September 30, 2019
Non-derivative financial liabilities
Carrying
amount
$
Contractual
cash flows
$
Less than one
year
$
Accounts payable and accrued liabilities
1,108,895
1,108,895
1,108,895
Accrued compensation
642,897
642,897
Senior U.S. and euro unsecured notes
1,256,554
1,425,138
Unsecured committed revolving credit facility
Unsecured committed term loan credit facility
Obligations other than finance leases
Obligations under finance leases
Other long-term debt
Clients’ funds obligations
Derivative financial liabilities
334,370
661,939
14,295
30,339
33,710
378,298
747,921
14,609
31,245
34,181
366,796
366,796
366,796
642,897
116,613
10,493
19,677
10,938
14,534
22,719
Between one
and
three years
Between
three and five
years
$
—
—
738,987
20,986
40,804
3,558
16,172
8,885
—
$
—
—
569,538
346,819
687,440
113
539
1,986
—
Cash flow hedges of future revenue
3,682
Outflow
(Inflow)
Cross-currency swaps
19,542
Outflow
(Inflow)
224,440
(228,672)
97,993
(97,250)
126,447
(131,422)
—
—
1,160,635
91,857
250,763
818,015
(1,218,430)
(101,823)
(267,794)
(848,813)
4,473,019
4,687,953
2,304,339
807,386
1,575,637
591
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
65
Beyond
five years
$
—
—
—
—
239,041
7
—
—
—
—
—
—
Beyond
five years
$
—
—
—
—
—
—
—
591
—
—
—
—
—
FISCAL 2020 RESULTS — 131 consoliDateD financial stateMents
Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
32. Financial instruments (continued)
LIQUIDITY RISK (CONTINUED)
As at September 30, 2020, the Company held cash and cash equivalents, funds held for clients, short-term investments and
long-term investments of $2,457,248,000 ($616,428,000 as at September 30, 2019). The Company also had available
$1,490,301,000 in unsecured committed revolving credit facility ($1,155,369,000 as at September 30, 2019). As at September 30,
2020, trade accounts receivable amounted to $904,887,000 (Note 4) ($979,728,000 as at September 30, 2019). Given the
Company’s available liquid resources as compared to the timing of the payments of liabilities, management assesses the
Company’s liquidity risk to be low.
CREDIT RISK
The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when
due. Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash
equivalents, accounts receivable, work in progress, long-term investments and derivative financial instruments with a positive
fair value. The maximum exposure of credit risk is generally represented by the carrying amount of these items reported on the
consolidated balance sheets.
The Company is exposed to credit risk in connection with long-term investments through the possible inability of borrowers to
meet the terms of their obligations. The Company mitigates this risk by investing primarily in high credit quality corporate and
government bonds with a credit rating of A- or higher. The application of the low credit exemption had no material impact on the
Company's consolidated financial statements.
The Company has accounts receivable derived from clients engaged in various industries including government; manufacturing,
retail & distribution; financial services; communications & utilities; and health that are not concentrated in any specific geographic
area. These specific industries may be affected by economic factors that may impact trade accounts receivable. However,
management does not believe that the Company is subject to any significant credit risk in view of the Company’s large and
diversified client base and that any single industry or geographic region represents a significant credit risk to the Company.
Historically, the Company has not made any significant write-offs and had low bad debt ratios. The application of the simplified
approach to measure expected credit losses for trade accounts receivable and work in progress had no material impact on the
Company's consolidated financial statements.
The following table sets forth details of the age of trade accounts receivable that are past due:
Not past due
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 90 days
Allowance for doubtful accounts
2020
$
775,975
44,278
29,948
6,407
53,546
910,154
(5,267)
904,887
2019
$
793,387
96,106
23,125
17,392
54,192
984,202
(4,474)
979,728
In addition, the exposure to credit risk of cash and cash equivalents and derivatives financial instruments is limited given that the
Company deals mainly with a diverse group of high-grade financial institutions and that derivatives agreements are generally
subject to master netting agreements, such as the International Swaps and Derivatives Association, which provide for net
settlement of all outstanding contracts with the counterparty in case of an event of default.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
66
132 Notes to the Consolidated Financial Statements
For the years ended September 30, 2020 and 2019
(tabular amounts only are in thousands of Canadian dollars, except per share data)
33. Capital risk management
The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives
for growth. The main objectives of the Company’s risk management process are to ensure that risks are properly identified and
that the capital base is adequate in relation to these risks.
The Company manages its capital to ensure that there are adequate capital resources while maximizing the return to shareholders
through the optimization of the debt and equity balance. As at September 30, 2020, total managed capital was $13,459,695,000
($9,463,626,000 as at September 30, 2019). Managed capital consists of long-term debt, including the current portion (Note 14),
lease liabilities, cash and cash equivalents, short-term investments, long-term investments (Note 11) and shareholders’ equity.
The basis for the Company’s capital structure is dependent on the Company’s expected business growth and changes in the
business environment. When capital needs have been specified, the Company’s management proposes capital transactions for
the approval of the Company’s Audit and Risk Management Committee and Board of Directors. The capital risk policy remains
unchanged from prior periods.
The Company monitors its capital by reviewing various financial metrics, including the following:
-
-
Net Debt/Capitalization
Debt/EBITDA
Net debt, capitalization and EBITDA are additional measures. Net debt represents debt (including the current portion and the fair
value of foreign currency derivative financial instruments related to debt) less cash and cash equivalents, short-term investments
and long-term investments. Capitalization is shareholders’ equity plus debt. EBITDA is calculated as earnings from continuing
operations before finance costs, income taxes, depreciation, amortization, restructuring costs and acquisition-related and
integration costs. The Company believes that the results of the current internal ratios are consistent with its capital management
credit facility and unsecured committed revolving credit facilities. The ratios are as follows:
-
-
-
Leverage ratios, which are the ratio of total debt to EBITDA for its Senior U.S. and euro unsecured notes and the ratio
of total debt net of cash and cash equivalent investments to EBITDA for its unsecured committed revolving credit facility
and unsecured committed term loan credit facilities for the four most recent quarters1.
An interest and rent coverage ratio, which is the ratio of the EBITDAR for the four most recent quarters to the total finance
costs and the operating rentals in the same periods. EBITDAR is calculated as EBITDA before rent expense1.
In the case of the Senior U.S. and euro unsecured notes, a minimum net worth is required, whereby shareholders’ equity,
excluding foreign exchange translation adjustments included in accumulated other comprehensive income, cannot be
less than a specified threshold.
These ratios are calculated on a consolidated basis.
The Company is in compliance with these covenants and monitors them on an ongoing basis. The ratios are also reviewed
quarterly by the Company’s Audit and Risk Management Committee. The Company is not subject to any other externally imposed
capital requirements.
1
In the event of an acquisition, the available historical financial information of the acquired company will be used in the computation of the ratios.
CGI Inc. – Consolidated Financial Statements for the years ended September 30, 2020 and 2019
67
FISCAL 2020 RESULTS — 133 Shareholder Information
Shareholder information listing
Transfer agent
IPO: 1986
Toronto Stock Exchange, April 1992: GIB.A
New York Stock Exchange, October 1998: GIB
Number of shares outstanding as of September 30, 2020:
230,690,875 Class A subordinate voting shares
28,945,706 Class B shares
High/Low of share price from October 1, 2019
to September 30, 2020:
Computershare Trust Company of Canada
100 University Avenue, 8th floor
Toronto, Ontario M5J 2Y1
Telephone: 1 800 564-6253
www.investorcentre.com/service
Investor relations
For further information about the Company, additional copies of this
report, or other financial information, please contact:
High:
Low:
TSX (CDN$)
NYSE (U.S.$)
114.49
67.23
87.13
46.32
CGI Inc.
Investor Relations
Email: ir@cgi.com
Web: cgi.com/investors
1350 René-Lévesque Blvd West,
15th floor
Montréal, Quebec H3G 1T4
Canada
Tel.: 514-841-3200
Annual general meeting of shareholders
The Annual General Meeting of Shareholders will be conducted online
on January 27, 2021, at 11:00 a.m. (Eastern Standard Time) via live
audio webcast at www.virtualshareholdermeeting.com/CGI2020.
This year, shareholders will not be able to attend the Meeting in
person, but will have the opportunity to participate in real time
and vote at the Meeting online in the manner set forth in CGI’s
Management Proxy Circular, through a web-based platform,
regardless of their geographic location.
The certifications required by National Instrument 52-109
Certification of Disclosure in Issuers’ Annual and Interim Filings
whereby CGI’s Chief Executive Officer and Chief Financial Officer
certify the accuracy of the information contained in CGI’s Annual
Information Form, Annual Audited Consolidated Financial
Statements, and Annual Management’s Discussion and Analysis
are available on the Canadian Securities Administrators’ website
at www.sedar.com. Similar certifications required by Rule 13a-14(a)
of the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 are attached as exhibits to our
Form 40-F, which is available on EDGAR at www.sec.gov.
The certification required by Section 303A.12(c) of the NYSE
Listed Company Manual is also filed annually with the New York
Stock Exchange. CGI’s corporate governance practices conform
to those followed by U.S. domestic companies under New York
Stock Exchange listing standards. A summary of these
practices is provided in the report of the Corporate Governance
Committee contained in CGI’s Management Proxy Circular,
which is available on the Canadian Securities Administrators’
website at www.sedar.com, on EDGAR at www.edgar.com
and on CGI’s website at www.cgi.com.
Auditors
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