CGI Group expects tax changes in U.S. and Europe will add $40 million to profits

CGI Group expects tax changes in U.S. and Europe will add $40 million to profits
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MONTREAL — CGI Group Inc. expects that global tax changes, particularly in the United States, will increase its profit this year by about $40 million or about four per cent of last year’s net earnings.

Most of the gain comes from Washington’s move to cut the U.S. corporate tax rate to 21 per cent from 35 per cent and a one-time repatriation tax rate.

There has also been a tax cut in Belgium to 25 per cent. Both are partially offset by a five per cent corporate surtax imposed in France.

“This is going to have a significant impact on us, because we have 30 per cent of our business in the United States,” chief financial officer Francois Boulanger told shareholders at the company’s annual meeting.

The Montreal-based IT company’s effective tax rate in the first quarter was 16.3 per cent. Excluding a one-time $34 million net benefit recognized in the quarter, the rate was 26 per cent.

CGI said it expects the full-year tax rate will decrease to between 24.5 and 26.5 per cent from 27 to 29 per cent previously.

The United States was its largest market, ahead of Canada, which accounted for 16 per cent of revenues in the first quarter.

CGI said it sees large opportunities for growth by the U.S. federal government despite the ongoing threat of a shutdown.

There was little impact from the recent brief shutdown but another closure could be more challenging if it is long, which few predict, CEO George Schindler earlier told analysts during a conference call.

However, he said some spending isn’t dependent on a new budget or is obligatory. The company prepared for the last shutdown by doing work ahead of time.

Schindler noted that U.S. sequestration, which includes automatic spending cuts, slowed federal bookings and growth for awhile.

“That has stabilized. It’s early days to determine what will or won’t have an impact on our business moving forward.”

Nonetheless he said federal government demand is higher mainly for modernization to save money and improve customer service.

CGI said Wednesday it earned $285.3 million or 98 cents per diluted share in its first quarter, up from $275.7 million or 89 cents per share a year earlier.

Revenue for the quarter ended Dec. 31 totalled $2.82 billion, up from $2.68 billion.

Compared with last year, CGI said revenue was up 4.9 per cent in constant currency as foreign exchange fluctuations helped boost revenue by $10.1 million.

Excluding specific items, CGI said it earned $288.0 million or 99 cents per diluted share for the quarter, up from $277.6 million or 90 cents per diluted share a year earlier.

The company was expected to post adjusted profits of 97 cents per share on $2.78 billion of revenues.

CGI provides technology and business consulting services around the world.

Follow @RossMarowits on Twitter.

 

Companies in this story: (TSX:GIB.A)

 

Ross Marowits, The Canadian Press

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