Chapter 7

Figures converted from Canadian dollars at historical FX rates — see data/company.json.fx_rates for the rate table. Ratios, margins, and multiples are unitless and unchanged.

Funding the Buy

For a decade, CGI paid for its acquisitions and its buybacks out of its own cash flow. In fiscal 2025 it did not. Acquisitions, share repurchases and a first dividend came to $2.37 billion against $1.55 billion of free cash flow, and the roughly $0.8 billion gap was bridged with a $674.7 million note issue and a drawdown of cash [1]. Net debt jumped to $2.52 billion and net-debt-to-capitalization to 25.1% [2]. Leverage is still modest; the self-funding pillar of the thesis is what bent.

Source: net debt and net-debt-to-capitalization, FY2025 Annual Report, MD&A Section 4.5 [3]; net-debt-to-EBITDA per company disclosure [4]; coverage derived from adjusted EBIT and net finance costs [5].

The year the cash stopped covering it

The engine described in Build and Buy rests on a simple rhythm: operating cash funds the deals, the buybacks and the debt paydown, all at once, with room to spare. That rhythm held through fiscal 2024. It did not hold in fiscal 2025.

Cash generation itself was fine. Operating cash flow was $1.63 billion and free cash flow $1.55 billion, in line with the prior year and consistent with the conversion record set out in Earnings Quality [6]. What changed was the size of the claims on that cash. CGI spent $1.34 billion on acquisitions net of cash acquired, $931 million buying back and cancelling Class A shares, and $99 million on its newly initiated dividend [7]. Those three uses total $2.37 billion — about $0.8 billion more than the year produced.

Source: FY2025 Annual Report, Consolidated Statement of Cash Flows [8].

The gap was closed two ways. In March 2025 CGI issued US$650 million of five-year senior notes at 4.95%, swapped back to a 3.71% Canadian-dollar cost [9], raising the $674.7 million shown as an increase in long-term debt [10]. And the cash balance was allowed to fall, from $1.01 billion to $631 million over the year [11]. Neither is remarkable on its own. Together they mark the first year in this cycle where CGI could not do everything it wanted with the cash the business threw off — the "self-funded acquisitions" language in the through-line met its first real test.

How much of a stretch this is

Not much, on the numbers that matter for solvency. Net-debt-to-capitalization of 25.1% looks like a jump only against fiscal 2024's 16.2%, which was itself a trough after years of deleveraging. Set against a longer run, 25.1% sits below where CGI operated as recently as fiscal 2022, when the ratio was 28.8% [12].

Source: FY2025 net debt to capitalization of 25.1%, FY2025 Annual Report, MD&A Section 4.5 [13]; net debt to capitalization of 28.8% in FY2022 and 20.4% in FY2023, FY2023 Annual Report, MD&A Section 4.5 [14].

The cleaner leverage lens tells the same story. On the company's own measure, net debt closed fiscal 2025 at roughly 1.0 times trailing EBITDA, up from a 0.5-times low earlier in the year but well inside CGI's historical band — the ratio ran near 1.2 times through fiscal 2022, reached about 1.5 times during 2020, and touched 2.7 times after the 2012 Logica deal, deleveraging quickly each time [15]. Interest is barely felt: net finance costs were $61.1 million against adjusted EBIT of $1.91 billion, coverage of roughly 31 times, even after interest on long-term debt rose to $59.1 million from $33.4 million on the new notes [16] [17]. And liquidity is ample: $1.75 billion of capital resources available at year-end, most of it an undrawn $1.1 billion revolving facility extended to 2030, with all debt covenants in compliance [18].

Against $1.5 billion-plus of annual free cash flow, a net debt of $2.52 billion is something CGI could clear in under two years if it chose to. The balance sheet did not weaken. It lost its slack.

The choices that slack used to hide

Losing slack matters because it forces a ranking. Through fiscal 2024, free cash flow paid for acquisitions, buybacks and debt reduction together; nothing had to be traded off. In fiscal 2025 those uses began to compete, and the calendar sharpens the point. $610.5 million of 2021 U.S. senior notes matures in September 2026 — a maturity large enough that it pushed year-end working capital slightly negative, to minus $35.8 million [19]. The maturity wall beyond it is manageable but no longer trivial.

Source: Q2 FY2026 Investor Presentation, Capital Structure [20].

The reasonable read is that CGI now has to choose among deleveraging, buying back stock and funding the next large acquisition, where before it could do all three. That is a milder problem than it sounds: at roughly one times EBITDA, 31 times interest coverage and $1.75 billion of liquidity, the ranking is a decision made from strength, not a constraint imposed by lenders. Management frames the same tension as a "balanced approach towards share buybacks and reducing leverage," which is candid about the trade-off now in front of it [21].

The counter-case to any worry here is the coverage and the deleveraging history; the case for watching it is that the fiscal 2025 buyback ran at an average of about $104 a share, above today's price (see The De-Rating), and was part-funded by borrowing rather than cash. What would change the read is a larger debt-funded acquisition that carried leverage toward the 2-to-2.7-times range while organic growth stays in the low single digits — the combination that would turn a balance-sheet choice into a balance-sheet limit. Until then, the funding shift is best read as CGI spending its accumulated slack to keep the Build-and-Buy machine and the buyback running in the same year, not as a company reaching for leverage it cannot carry.