CGI Reports Solid First Quarter 2005 Results

CGI Reports Solid First Quarter 2005 Results

Revenue up 37.4%, net earnings up 25.4%, and strong cash flow

MONTREAL, Feb. 1 /PRNewswire-FirstCall/ -- CGI Group Inc. (NYSE: GIB; TSX: GIB.SV.A), a leading provider of end-to-end information technology and business process services, today reported unaudited results for its first quarter ended December 31, 2004. All figures are in Canadian dollars unless otherwise indicated.

First Quarter Fiscal 2005 Highlights

- Revenue of $950.3 million was 37.4% higher than in the first quarter
of fiscal 2004.
- Cash provided by continuing operating activities increased to
$103.7 million from $93.7 million a year ago.
- Net earnings after the expensing of stock options increased 25.4% to
$53.3 million from $42.5 million in the first quarter of fiscal 2004.
- The net earnings margin was 5.6%, below 6.1% in the first quarter of
fiscal 2004 due to the acquisition of AMS but above 5.5% the previous
quarter.
- Basic and diluted earnings per share of $0.12 were up over basic and
diluted earnings per share of $0.11 reported in last year's first
quarter. Excluding the expensing of stock options, earnings per share
would have been $0.13 in the first quarter compared with $0.12 last
year.
- The EBIT margin was 9.1%, compared with 10.6% in the previous year and
8.8% in the previous quarter. The integration of American Management
Systems ("AMS") was largely completed in the fiscal 2005 first quarter.
- The backlog of signed contracts at December 31, 2004 was $13.0 billion
with a weighted average remaining contract term of 7.0 years.
- The current pipeline of bids for large outsourcing contracts being
reviewed by potential clients remains at $7 billion.



"We are pleased to report continuing strong year-over-year growth in revenue and net earnings, as well as solid cash flow," said Serge Godin, chairman and CEO. "On a sequential basis, we expect revenue, profitability and organic growth to continue to increase as proposals in our sales funnel and pipeline become signed contracts and as we have achieved further synergies from AMS. Operations and teams of CGI and the former AMS have been blended, achieving the cost reductions and earnings accretiveness targeted by the integration program."

"Going forward, we will continue to apply our four pillars of growth strategy, with discipline, as this approach has proven that it delivers results," Mr. Godin added. "We see growing demand for services in all our markets and are focused on leveraging our increased critical mass in the US, Europe and Asia-Pacific while continuing to capitalize on new business opportunities in Canada."

<<
FINANCIAL HIGHLIGHTS

3 months ended 3 months ended
In millions of CDN$ except margin December 31 September 30
and share data amounts
2004 2003 2004
-------------------------------------------------------------------------
Revenue $ 950.3 $ 691.6 $ 959.2
Net earnings from continuing
operations $ 53.3 $ 42.9 $ 52.9
Net earnings $ 53.3 $ 42.5 $ 52.9
-------------------------------------------------------------------------
Cash provided by continuing
operating activities $ 103.7 $ 93.7 $ (3.6)
-------------------------------------------------------------------------
Net earnings from continuing
operations margin 5.6% 6.2% 5.5%
-------------------------------------------------------------------------
Net earnings margin 5.6% 6.1% 5.5%
-------------------------------------------------------------------------
Basic and diluted earnings per
share from continuing operations $ 0.12 $ 0.11 $ 0.12
-------------------------------------------------------------------------
Basic and diluted earnings per share $ 0.12 $ 0.11 $ 0.12
-------------------------------------------------------------------------
Basic and diluted earnings per share
before the expensing of stock
options $ 0.13 $ 0.12 $ 0.13
-------------------------------------------------------------------------
Order backlog $13,013 $12,207 $12,965
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

First Quarter Results (See also: Q1 MD&A filed with Sedar & Edgar and
available at www.cgi.com )



Revenue for the first quarter ended December 31, 2004 increased 37.4% to $950.3 million, from $691.6 million in the same quarter last year, and was down 0.9% sequentially from fourth quarter revenue of $959.2 million. The currency exchange rate, mainly between the Canadian and US dollars, had a negative impact of $23.4 million or 2.4% on revenue, compared with the previous quarter. Year-over-year organic revenue growth, excluding the impact of currency fluctuation, was 6.2%.

In the first quarter, revenue from long-term outsourcing contracts represented 57% of the Company's total revenue, including 44% from IT services and 13% from business processing services, while project oriented consulting and systems integration work represented 43%. Geographically, clients in Canada represented 61% of revenue; clients in the US represented 31%; and in all other regions, 8%. Revenue from clients in the financial services sector represented 38% of total revenue; while government and healthcare represented 27%; telecommunications and utilities, 23%; retail and distribution, 8%; and manufacturing, 4%.

CGI began expensing stock options in the first quarter of fiscal 2005, in accordance with Canadian GAAP. Earnings and cash flow amounts for fiscal 2004 have been adjusted for comparison purposes.

Earnings before interest, income taxes, entity subject to significant influence and discontinued operations ("EBIT") was $86.6 million in the first quarter, up 18.1% over last year's first quarter EBIT of $73.3 million, and up 3.2% over fourth quarter EBIT of $84.0 million. The EBIT margin was 9.1% for the quarter, compared with 10.6 % in last year's first quarter and 8.8% in the fourth quarter. On a year-over-year basis, the EBIT margin was reduced by the lower margins of AMS' business activities. The sequential improvement in the EBIT margin reflects the profitability generated by new business, offset partially by the currency impact on our integrated foreign operations.

Net earnings in the first quarter increased 25.4% to $53.3 million from net earnings of $42.5 million in the same period of 2004, and increased marginally from net earnings of $52.9 million in the fourth quarter. Compared with the first quarter of fiscal 2004 when there were discontinued operations, net earnings from continuing operations in the first quarter increased 24.4% from net earnings from continuing operations that quarter. The net earnings margin was 5.6% in the first quarter, compared with 6.1% last year and 5.5% in the fourth quarter. Basic and diluted earnings per share were $0.12 in the first quarter, against basic and diluted earnings per share of $0.11 in last year's first quarter and $0.12 in the fourth quarter. Excluding the expensing of stock options, earnings per share would have been $0.13 in the first quarter compared with $0.13 in the previous quarter and $0.12 a year ago.

Cash provided by continuing operating activities was $103.7 million in the first quarter of fiscal 2005, compared with $93.7 million a year ago, and negative $3.6 million in the previous quarter.

The Company maintained a strong balance sheet. At December 31, 2004, cash and cash equivalents were $229.6 million. The long-term debt to capitalization ratio was 15.2%. Days sales outstanding (DSOs) were reduced to 50 days at December 31, 2004, from 53 days in the previous quarter, mainly reflecting improved collection of our client receivables.

In January 2005, CGI announced that it had increased its credit facilities to $800 million, from $515 million previously, to support its growth strategy. The Company concluded a five-year unsecured revolving credit facilities on more favorable terms and conditions than the previous facilities, through an international banking syndicate. At quarter end, total credit facilities available amounted to $621.7 million.

First Quarter Operating Highlights

During the quarter, CGI announced various contract signings, investments and operational initiatives. The Company:

- Secured contract bookings that included new contracts, extensions and
renewals of $998.1 million.
- Announced the signing of several contracts with the Centers for
Medicare & Medicaid Services (CMS) totaling over US$100 million. CMS is
the federal agency within the U.S. Department of Health and Human
Services (HHS) responsible for the Medicare, Medicaid and the State
Children's Health Insurance Program (SCHIP) programs.
- Completed the acquisition of AGTI. Since December 6, 2000 CGI had held
a 49% equity position in AGTI. AGTI was a privately-held, Montreal-
based information technology (IT) consulting company with revenues of
CDN$50 million. The transaction closed on December 1st, 2004.
- Announced that it was one of 12 companies selected to provide
information technology support services under the U.S. Department of
Justice's Information Technology Support Services (ITSS-3) contract.
Work will be done under ITSS-3, a multiple-agency, indefinite delivery
indefinite quantity (IDIQ) contract, through competitively awarded task
orders potentially worth US$980 million over the duration of the
seven-year contract.
- Announced it had been selected by the Canadian International
Development Agency (CIDA) for a four-year managed services contract
valued at CDN$15.8 million. CIDA is the federal agency charged with
planning and implementing most of Canada's sustainable development
programs in developing countries.
- Announced that the Canada Revenue Agency, the federal body that
administers tax laws and several social and economic programs delivered
through the tax system, had chosen CGI for a multi-year, multi-million
dollar systems integration and consulting contract.

Guidance



Based on information known today about market conditions and demand for CGI's services, the Company maintains its guidance for fiscal 2005 that it provided November 9, 2004.

Quarterly Conference Call

A conference call for the investment community will be held today, February 1, at 9:30 am (ET). Participants may access the call by dialing (800) 564-3880 or through the Internet at www.cgi.com . Supporting slides for the call will also be available at www.cgi.com. For those unable to participate on the live call, a webcast and copy of the slides will be archived at www.cgi.com .

Annual General Meeting

Also today, CGI will host its fiscal 2004 Annual General Meeting at the Hilton Montreal Bonaventure Hotel in Montreal at 11:00 am (ET). For those who are unable to attend in person, the Company will simultaneously webcast the meeting and management presentation in a live video format from its website at www.cgi.com .

Forward-Looking Statements

All statements in this press release that do not directly and exclusively
relate to historical facts constitute "forward-looking statements" within
the meaning of that term in Section 27A of the United States Securities
Act of 1933, as amended, and Section 21E of the United States Securities
Exchange Act of 1934, as amended. These statements represent CGI Group
Inc.'s intentions, plans, expectations, and beliefs, and are subject to
risks, uncertainties, and other factors, of which many are beyond the
control of the Company. These factors could cause actual results to
differ materially from such forward-looking statements.

These factors include and are not restricted to the timing and size of
contracts, acquisitions and other corporate developments; the ability to
attract and retain qualified employees; market competition in the
rapidly-evolving information technology industry; general economic and
business conditions, foreign exchange and other risks identified in the
Management's Discussion and Analysis (MD&A) in CGI Group Inc.'s Annual
Report or Form 40-F filed with the SEC, the Company's Annual Information
Form filed with the Canadian securities authorities, as well as
assumptions regarding the foregoing. The words "believe", "estimate",
"expect", "intend", "anticipate", "foresee", "plan", and similar
expressions and variations thereof, identify certain of such forward-
looking statements, which speak only as of the date on which they are
made. In particular, statements relating to future growth are forward-
looking statements. CGI disclaims any intention or obligation to publicly
update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Readers are cautioned not to
place undue reliance on these forward-looking statements.



Consolidated financial statements of
CGI Group Inc.
For the three months ended December 31, 2004

<<
Consolidated statements of earnings
(in thousands of Canadian dollars,
except per share amounts) (unaudited)
Three months ended December 31
-------------------------------------------------------------------------
2004 2003
-------------------------------------------------------------------------
$ $

Revenue 950,275 691,558
-------------------------------------------------------------------------
Operating expenses
Costs of services, selling and administrative 812,870 577,807
Research 5,502 6,637
Amortization (Note 6) 45,288 33,788
-------------------------------------------------------------------------
863,660 618,232
-------------------------------------------------------------------------
Earnings before the following items: 86,615 73,326
-------------------------------------------------------------------------
Interest
Long-term debt 7,697 3,070
Other (2,145) (1,614)
-------------------------------------------------------------------------
5,552 1,456
-------------------------------------------------------------------------
Earnings before income taxes, entity subject
to significant influence and discontinued
operations 81,063 71,870
Income taxes 27,967 29,042
-------------------------------------------------------------------------
Earnings before entity subject to significant
influence and discontinued operations 53,096 42,828
Entity subject to significant influence 247 38
-------------------------------------------------------------------------
Net earnings from continuing operations 53,343 42,866
Net loss from discontinued operations - 339
-------------------------------------------------------------------------
Net earnings 53,343 42,527
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted-average number of outstanding
Class A subordinate and Class B shares 444,562,252 402,130,479
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings per share
from continuing operations 0.12 0.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings per share
from discontinued operations - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings per share (Note 4) 0.12 0.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated statements of retained earnings
(in thousands of Canadian dollars) (unaudited)
Three months ended December 31
-------------------------------------------------------------------------
2004 2003
-------------------------------------------------------------------------
$ $

Retained earnings, beginning of period,
as previously reported 769,421 555,310
Change in accounting policies (Note 1) (38,664) (13,105)
Retained earnings, beginning of period,
as restated 730,757 542,205
Net earnings 53,343 42,527
-------------------------------------------------------------------------
Retained earnings, end of period 784,100 584,732
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated balance sheets
(in thousands of Canadian dollars)
As at As at
December 31, September 30,
2004 2004
(unaudited) (audited)
-------------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 229,558 200,623
Accounts receivable 547,620 545,056
Work in progress 220,168 222,278
Prepaid expenses and other current assets 115,923 94,617
Future income taxes 68,441 80,814
-------------------------------------------------------------------------
1,181,710 1,143,388

Fixed assets 134,654 143,641
Contract costs 268,622 278,240
Definite-life intangibles and other
long-term assets (Note 2) 616,508 625,121
Future income taxes 93,987 102,720
Goodwill 1,808,009 1,827,604
-------------------------------------------------------------------------
Total assets before funds held for clients 4,103,490 4,120,714
Funds held for clients 211,712 196,622
-------------------------------------------------------------------------
4,315,202 4,317,336
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities
Current liabilities
Accounts payable and accrued liabilities 444,788 433,415
Accrued compensation 131,337 118,541
Deferred revenue 144,772 123,213
Income taxes 4,497 31,369
Future income taxes 70,902 68,603
Current portion of long-term debt 14,195 14,529
-------------------------------------------------------------------------
810,491 789,670

Future income taxes 287,846 287,433
Long-term debt 430,137 475,291
Accrued integration charges and other
long-term liabilities 88,803 106,458
-------------------------------------------------------------------------
Total liabilities before client funds
obligations 1,617,277 1,658,852
Client funds obligations 211,712 196,622
-------------------------------------------------------------------------
1,828,989 1,855,474
-------------------------------------------------------------------------

Shareholders' equity
Capital stock (Note 4) 1,820,964 1,820,230
Contributed surplus (Note 1) 56,468 49,879
Warrants 19,655 19,655
Retained earnings 784,100 730,757
Foreign currency translation adjustment (194,974) (158,659)
-------------------------------------------------------------------------
2,486,213 2,461,862
-------------------------------------------------------------------------
4,315,202 4,317,336
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated statements of cash flows
(in thousands of Canadian dollars) (unaudited)

Three months ended December 31
-------------------------------------------------------------------------
2004 2003
-------------------------------------------------------------------------
$ $
Operating activities
Net earnings from continuing operations 53,343 42,866
Adjustments for:
Amortization expense (Note 6) 52,726 40,839
Deferred credits (719) (5,711)
Future income taxes 18,854 9,883
Foreign exchange loss 1,526 1,806
Stock-based compensation expense 6,775 6,214
Entity subject to significant influence (247) (38)
Net change in non-cash working capital items (28,547) (2,098)
-------------------------------------------------------------------------
Cash provided by continuing operating activities 103,711 93,761
-------------------------------------------------------------------------

Investing activities
Business acquisitions (net of cash acquired)
(Note 5) (32,902) (1,384)
Proceeds from sale of assets and businesses
(net of cash disposed) - 12,136
Purchase of fixed assets (8,640) (12,208)
Proceeds from disposal of fixed assets 5,494 -
Contract costs (3,954) (35,181)
Additions to definite-life intangibles and
other long-term assets (19,678) (13,090)
Decrease in other long-term assets 3,385 2,946
-------------------------------------------------------------------------
Cash used in continuing investing activities (56,295) (46,781)
-------------------------------------------------------------------------

Financing activities
Proceeds from credit facilities (Note 3) 190,000 -
Repayment of credit facility (207,578) (30,000)
Repayment of other long-term debt (2,732) (3,042)
Issuance of shares (net of share issue costs) 548 207
-------------------------------------------------------------------------
Cash used in continuing financing activities (19,762) (32,835)
-------------------------------------------------------------------------
Effect of rate changes on cash and cash
equivalents of continuing operations 1,281 (1,694)
-------------------------------------------------------------------------
Net increase in cash and cash equivalents
of continuing operations 28,935 12,451
Net cash and cash equivalents provided by
discontinued operations - 107
Cash and cash equivalents at beginning of period 200,623 83,509
-------------------------------------------------------------------------
Cash and cash equivalents at end of period 229,558 96,067
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Interest paid 5,012 4,643
Income taxes paid 30,557 34,069
Issuance of Class A subordinate shares for
business acquisitions (Note 4) - 1,020
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

Notes to the consolidated financial statements
For the three months ended December 31, 2004
(tabular amounts only are in thousands of Canadian dollars, except share
data) (unaudited)

Note 1 - Summary of significant accounting policies

Interim consolidated financial statements



The interim consolidated financial statements for the three months ended December 31, 2004 and 2003 are unaudited and include all adjustments that management of CGI Group Inc. (the "Company") considers necessary for a fair presentation of the financial position, results of operations and cash flows.

The disclosure provided for these interim periods do not conform in all respects to the requirements of generally accepted accounting principles for the annual consolidated financial statements; therefore, the interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the Company for the year ended September 30, 2004. These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the annual consolidated financial statements for the year ended September 30, 2004, except for the accounting changes referred to below.

Certain comparative figures have been reclassified in order to conform to the current period presentation.

Change in accounting policies

The Canadian Institute of Chartered Accountants ("CICA") amended Section 3870 of the Handbook, Stock-Based Compensation and Other Stock-Based Payments, effective for fiscal years beginning on or after January 1, 2004. The amendments of the section require the adoption of the fair-value based method for all stock-based awards and the recognition of an expense in the financial statements. The Company adopted the amendments on a retroactive basis beginning on October 1, 2004 for employee stock options granted since October 1, 2001 and beyond. As a result of applying this change, the Company has reflected an additional expense of $6,775,000 (see Note 4) recorded in cost of services, selling and administrative expenses in the current period and restated comparative figures for the three months ended December 31, 2003 by $6,214,000. An adjustment to retained earnings and contributed surplus of $37,857,000 as at September 30, 2004 ($12,298,000 as at December 31, 2003) has also been made to reflect the application of this change.

The CICA issued Handbook Section 3110, Asset Retirement Obligations, effective for fiscal years beginning on or after January 1, 2004. The section focuses on the recognition and measurement of liabilities for obligations associated with the retirement of property, plant and equipment when those obligations result from the acquisition, construction, development or normal operation of the assets. The Company adopted the section on a retroactive basis beginning on October 1, 2004. As a result, figures for the consolidated balance sheets as at September 30, 2004 were restated as follows: an increase in fixed assets of $880,000, an increase in accrued integration charges and other long-term liabilities of $1,687,000 and a decrease in retained earnings of $807,000. The impact on the Company's consolidated statements of earnings for the three months ended December 31, 2004 and comparitive periods was negligible. The asset retirement obligations pertain to operating leases of office buildings in different locations where certain clauses require premises to be returned to their original state at the end of the lease term. The total estimated undiscounted cash flows required to settle these obligations amount to $2,700,000. The timing of the settlement of these obligations vary between one and twenty-three years.

Future accounting change

The CICA issued Accounting Guideline 15, Consolidation of Variable Interest Entities, which provides clarification on the consolidation of entities when equity investors are not considered to have a controlling financial interest or they have not invested enough equity to allow the entity to finance its activities without additional subordinated financial support from other parties. The guideline comes into effect for interim periods beginning on or after November 1, 2004. The Company does not believe that the adoption of this guideline will have a significant impact on the consolidated financial statements.

Note 2 - Definite-life intangibles and other long-term assets

<<
-------------------------------------------------------------------------
As at December 31, 2004
-------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
-------------------------------------------------------------------------
$ $ $

Internal software 73,278 28,373 44,905
Business solutions 230,616 51,935 178,681
Software licenses 141,489 66,911 74,578
Customer relationships and other 355,260 70,631 284,629
-------------------------------------------------------------------------
Definite-life intangibles 800,643 217,850 582,793
-------------------------------------------------------------------------

Financing lease 9,974
Investment in an entity subject to significant influence 17,283
Other 6,458
-------------------------------------------------------------------------
Other long-term assets 33,715
-------------------------------------------------------------------------
Total definite-life intangibles and other long-term assets 616,508
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
As at September 30, 2004
-------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
-------------------------------------------------------------------------
$ $ $

Internal software 72,515 25,549 46,966
Business solutions 226,412 48,286 178,126
Software licenses 142,578 61,878 80,700
Customer relationships and other 346,107 60,763 285,344
-------------------------------------------------------------------------
Definite-life intangibles 787,612 196,476 591,136
-------------------------------------------------------------------------

Financing lease 13,121
Investment in an entity subject to significant influence 16,415
Other 4,449
-------------------------------------------------------------------------
Other long-term assets 33,985
-------------------------------------------------------------------------
Total definite-life intangibles and other long-term assets 625,121
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Note 3 - Credit Facility



During the quarter, the Company concluded a five-year unsecured revolving credit facilities for an amount of $800,000,000. This agreement comprises a Canadian tranche with a limit of $500,000,000 and an American tranche equivalent to $300,000,000. The amount drawn in US$ on our previous syndicated bank facility was subsequently reimbursed. As at December 31, 2004, an amount of $190,000,000 has been drawn on this facility and bears interest at the bankers' acceptance rate plus 1.125%. This amount is included in long-term debt on the Company's consolidated balance sheets.

Note 4 - Capital stock and stock options

a) Capital stock

The Class A subordinate and the Class B shares changed as follows:

Three months ended
December 31, 2004
-------------------------------------------------------------------------
Class A subordinate shares Class B shares
-------------------------------------------------------------------------
Carrying Carrying
Number value Number value
-------------------------------------------------------------------------
$ $ $ $
Balance, beginning
of period 410,720,891 1,775,362 33,772,168 44,868
Issued for cash (1) - - - -
Issued as
consideration
for business
acquisitions
(Note 5) - - - -
Options exercised 117,180 734 - -
-------------------------------------------------------------------------
Balance, end of
period 410,838,071 1,776,096 33,772,168 44,868
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Twelve months ended
September 30, 2004
-------------------------------------------------------------------------
Class A subordinate shares Class B shares
-------------------------------------------------------------------------
Carrying Carrying
Number value Number value
-------------------------------------------------------------------------
$ $ $ $
Balance, beginning
of period 368,236,503 1,435,763 33,772,168 44,868
Issued for cash (1) 41,340,625 330,725 - -
Issued as
consideration
for business
acquisitions
(Note 5) 136,112 1,020 - -
Options exercised 1,007,651 7,854 - -
-------------------------------------------------------------------------
Balance, end of
period 410,720,891 1,775,362 33,772,168 44,868
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) On May 3rd, 2004, the Company issued 41,340,625 Class A subordinate
shares to the public and to BCE for cash proceeds of $330,725,000
before share issue costs of $5,489,000 (net of income tax recoveries
of $2,466,000).

b) Stock options



Under the Company's stock option plan for certain employees and directors of the Company and its subsidiaries, the Board of Directors may grant, at its discretion, options to purchase Class A subordinate shares to certain employees 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 shares on the TSX on the day preceding the date of the grant. Options generally vest one to three years from the date of grant and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death.

The following table presents the weighted average assumptions used to determine the stock-based compensation expense using the Black-Scholes option pricing model:

Three months ended Three months ended
December 31, 2004 December 31, 2003
-------------------------------------------------------------------------
Compensation expense 6,775,000 6,214,000
-------------------------------------------------------------------------
Dividend yield 0.0% 0.0%
Expected volatility 45.9% 47.5%
Risk free interest rate 3.93% 3.91%
Expected life (years) 5 5
Weighted-average grant date
fair value ($) 3.87 3.64
-------------------------------------------------------------------------
-------------------------------------------------------------------------



The following table presents information concerning all outstanding stock options granted by the Company:

Three months ended Twelve months ended
Number of options December 31, 2004 September 30, 2004
-------------------------------------------------------------------------
Outstanding, beginning
of period 25,537,300 20,459,515
Granted 4,976,551 7,577,166
Exercised (117,180) (1,007,651)
Forfeited and expired (417,070) (1,491,730)
-------------------------------------------------------------------------
Outstanding, end of period 29,979,601 25,537,300
-------------------------------------------------------------------------
-------------------------------------------------------------------------

c) Earnings per share
The following table sets forth the computation of basic and diluted
earnings per share:

Three months ended December 31, 2004
-------------------------------------------------------------------------
Net Number
earnings of shares Earnings
(numerator) (denominator) per share
-------------------------------------------------------------------------
$ $
Net earnings 53,343 444,562,252 0.12
-------------------------------------------------------------------------
Dilutive options (1) 1,040,584
Dilutive warrants (1) 1,670,938
-------------------------------------------------------------------------
Net earnings after
assumed conversions 53,343 447,273,774 0.12
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Three months ended December 31, 2003
-------------------------------------------------------------------------
Net Number
earnings of shares Earnings
(numerator) (denominator) per share
-------------------------------------------------------------------------
$ $
Net earnings 42,527 402,130,479 0.11
-------------------------------------------------------------------------
Dilutive options (1) 1,436,619
Dilutive warrants (1) 1,054,993
-------------------------------------------------------------------------
Net earnings after
assumed conversions 42,527 404,622,091 0.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The calculation of the dilutive effects excludes all anti-dilutive
options and warrants. These are options and warrants that would not
be exercised because their exercise price is higher than the average
market value of a Class A subordinate share of the Company for each
of the periods shown in the table. The number of excluded options was
18,129,371 and 20,635,302 for the three months ended December 31,
2004 and 2003, respectively. The number of excluded warrants was
2,113,041 for the three months ended December 31, 2004 and 2003.


Note 5 - Investments in subsidiaries and joint ventures

a) Acquisitions
For all business acquisitions, the Company began recording the results of
operations of the acquired entities as of their respective effective
acquisition dates.

During the three months ended December 31, 2004, the Company made two
acquisitions of which the most significant is the following:

AGTI Services Conseils Inc. ("AGTI") - On December 1, 2004, the
Company purchased for $47,100,000 the remaining outstanding shares of
a Montreal-based information technology consulting enterprise
specializing in business and IT consulting, project and change
management and productivity improvement. The acquisition was accounted
for as a step-by-step purchase. The Company previously held 49% of the
outstanding shares of AGTI and accounted for its investment using
proportionate consolidation.

The acquisitions were accounted for using the purchase method. The
purchase price allocations shown below are preliminary and based on the
Company's best estimates. The final purchase price allocations are
expected to be completed as soon as the Company's management has gathered
all the significant information believed to be available and considered
necessary in order to finalize these allocations.

-------------------------------------------------------------------------
-------------------------------------------------------------------------
$
Non-cash working capital items 1,825
Fixed assets 595
Definite-life intangibles and other long-term assets 17,609
Future income taxes (5,679)
Goodwill (1) 30,768
Long-term debt (34)
-------------------------------------------------------------------------
45,084
Cash position at acquisition 2,557
-------------------------------------------------------------------------
Net assets acquired 47,641
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Consideration
Cash 37,441
Holdback payable 10,178
Acquisition costs 22
-------------------------------------------------------------------------
47,641
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The entire goodwill amount is included in the IT services segment
and is not deductible for tax purposes.


b) Modifications to purchase price allocations
During the three-month period ended December 31, 2004, the Company
modified the purchase price allocation and made adjustments relating to
certain businesses purchased, resulting in a net increase of non-cash
working capital items, future income tax liability and cash of
$1,910,000, $567,000 and $2,004,000, respectively, whereas goodwill
decreased by $3,347,000.


c) Balance of integration charges
For AMS and Cognicase, the components of the integration charges related
to business acquisitions included in accounts payable and accrued
liabilities and accrued integration charges and other long-term
liabilities are as follows:
-------------------------------------------------------------------------

Consolidation
and closure of
facilities Severance Total
-------------------------------------------------------------------------
$ $ $
Balance, as at October 1, 2004 68,977 20,250 89,227
Adjustments to initial
provision 1,831 6,721 8,552
Foreign currency translation
adjustment (1,882) (599) (2,481)
Paid during the three-month
period (4,783) (6,694) (11,477)
-------------------------------------------------------------------------
Balance, as at December 31, 2004 64,143 19,678 83,821
-------------------------------------------------------------------------


Note 6 - Amortization expense

Three months ended Three months ended
December 31, 2004 December 31, 2003
-------------------------------------------------------------------------
$ $
Amortization of fixed assets 11,463 10,920
Amortization of contract costs
related to transition costs 3,982 1,273
Amortization of definite-life
intangibles and other long-term
assets 29,843 21,595
-------------------------------------------------------------------------
45,288 33,788
Amortization of contract costs
related to incentives
(presented as reduction of revenue) 7,438 7,051
-------------------------------------------------------------------------
52,726 40,839
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Note 7 - Segmented information

The Company has two lines of business ("LOB") as follows:
Information Technology ("IT") services and Business Process
Services ("BPS").

The focus of these lines of business is as follows:

The IT services LOB provides a full-range of IT services, including
systems integration, consulting and outsourcing, to clients worldwide.
The professionals and facilities located in India and Canada also
serve the United States and foreign-based clients as an integral part
of their offshore and nearshore delivery model;

The BPS LOB provides a full spectrum of business process outsourcing
services to its client base. Its services include business processing
for the financial services sector, as well as payroll services,
document management services, and finance and administration services.

The following presents information on the Company's operations based on
its management structure:

As at and for the
three months ended
December 31, 2004 IT
services BPS Corporate Total
-------------------------------------------------------------------------
$ $ $ $
Revenue 818,864 131,411 - 950,275
Operating expenses
before amortization
expense 692,531 107,774 18,067 818,372
Amortization expense 37,486 5,433 2,369 45,288
-------------------------------------------------------------------------
Earnings before
interest, income
taxes, entity
subject to
significant
influence and
discontinued
operations 88,847 18,204 (20,436) 86,615
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets 3,260,778 710,743 343,681 4,315,202
-------------------------------------------------------------------------
-------------------------------------------------------------------------

As at and for the
three months ended
December 31, 2003
-------------------------------------------------------------------------
Revenue 562,096 129,462 - 691,558
Operating
expenses before
amortization
expense 454,792 110,244 19,408 584,444
Amortization
expense 27,967 4,302 1,519 33,788
-------------------------------------------------------------------------
Earnings before
interest, income
taxes, entity
subject to
significant
influence and
discontinued
operations 79,337 14,916 (20,927) 73,326
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets 2,246,500 532,359 213,086 2,991,945
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The accounting policies of each segment are the same as those described
in the summary of significant accounting policies. See Note 2 of the
annual consolidated financial statements of the Company for the year
ended September 30, 2004. Intersegment sales and transfers are priced
as if the sales or transfers were to third parties.


Note 8 - Guarantees

In the normal course of business, the Company enters into agreements that
may provide for indemnification and guarantees to counterparties in
transactions such as consulting and outsourcing services, business
divestitures, lease agreements and financial obligations. These
indemnification undertakings and guarantees may require the Company 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. The nature of most indemnification and guarantees
undertakings prevent the Company from making a reasonable estimate of
the maximum potential amount the Company could be required to pay
counterparties, as the agreements do not specify a maximum amount and 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 that any sum it may have to pay in connection
with indemnification and guarantees will have a materially adverse effect
on its consolidated financial statements.

The Company is the guarantor of a US$3,000,000 letter of credit issued by
a client. In the event that the client defaults on payments owed to a
supplier, and the supplier draws upon the letter of credit for payment,
the Company may be called upon to reimburse the amounts drawn up to a
maximum of US$3,000,000.


Note 9 - Reconciliation of results reported in accordance with
Canadian GAAP to US GAAP

The material differences between Canadian and US generally accepted
accounting principles (''GAAP'') affecting the Company's consolidated
financial statements are detailed in the table below. The Company's most
recent annual financial statements describe the circumstances which gave
rise to the material differences between Canadian and US GAAP applicable
as at September 30, 2004.

Three months Three months
ended ended
December 31, December 31,
2004 2003
-------------------------------------------------------------------------
Reconciliation of net earnings $ $
Net earnings - Canadian GAAP 53,343 42,527
Adjustments for:
Stock-based compensation (a) 6,775 6,214
Capitalized software (595) (191)
Warrants 351 351
Unearned compensation - (363)
Leases (154) (309)
-------------------------------------------------------------------------
Net earnings - US GAAP 59,720 48,229
-------------------------------------------------------------------------
Other comprehensive income:
Foreign currency translation adjustment (36,315) (14,942)
-------------------------------------------------------------------------
Comprehensive income 23,405 33,287
-------------------------------------------------------------------------
Basic and diluted earnings per share - US GAAP 0.13 0.12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at As at
December 31, September 30,
2004 2004
-------------------------------------------------------------------------
Reconciliation of shareholders' equity $ $
Shareholders' equity - Canadian GAAP 2,486,213 2,461,862
Adjustments for:
Stock-based compensation (a) 44,632 37,857
Capitalized software (6,182) (5,015)
Warrants (7,534) (8,939)
Unearned compensation (3,694) (3,694)
Leases (3,365) (2,284)
Integration costs (6,606) (6,606)
Goodwill 28,078 28,078
Adjustment for change in accounting policy 9,715 9,715
-------------------------------------------------------------------------
Shareholders' equity - US GAAP 2,541,257 2,510,974
-------------------------------------------------------------------------
>>

(a) Stock-based compensation
Under Canadian GAAP, stock-based employee compensation was accounted for
using the fair value-based method beginning October 1, 2004 as required
by CICA Handbook Section 3870, Stock-Based Compensation and Other
Stock-Based Payments. Under US GAAP, the Statement of Financial
Accounting Board (SFAS) No. 123 (revised 2004), Share-Based Payment, does
not require adoption of this standard until interim periods beginning on
or after June 15, 2005. Rather, SFAS No. 148 Accounting for Stock-Based
Compensation - Transition and Disclosure, requires pro-forma disclosure
of net earnings, and basic and diluted earnings per share, assuming that
the fair value-based method of accounting had been applied from the date
the SFAS No. 123, Accounting for Stock-Based Compensation, was adopted.
For the three months ended December 31, 2004, pro-forma net earnings and
pro-forma basic and diluted earnings per share under US GAAP are
$52,945,000 and $0.12, respectively ($42,015,000 and $0.10, respectively,
for the three months ended December 31, 2003).

Note 10 - Subsequent event

On January 25, 2005, the Company disposed of its investment in Nexxlink
Technologies Inc. at a price of $6.05 per share, resulting in a gain of
$4,200,000. This investment had been accounted for using the equity
method.



Source: CGI GROUP INC.

CONTACT: CGI Investor Relations, Jane Watson,
Vice-president, investor relations, (416) 945-3616 or (514) 841-3238; Ronald
White, Director, investor relations, (514) 841-3230; CGI Media Relations,
Eileen Murphy, Director, media Relations, (514) 841-3430
Archived images on this organization are available through CNW E-Pix at
http://www.newswire.ca/. Images are free to members of The Canadian Press.


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