CGI revenue soars following acquisition but costs erode net income

IT services company CGI Group Inc. (TSX:GIB.A) says revenue hit $2.53 billion in its fiscal first-quarter, up 147.5 per cent from a year earlier and slightly above analyst estimates.

The explosive revenue growth was due largely to the Montreal-based company’s $2.7-billion purchase of U.K. information technology provider Logica PLC last August, during the company’s fiscal fourth quarter.

The acquisition resulted in higher integration expenses in the 2013 first quarter than analysts expected as year-over-year quarterly profits declined sharply.

However, Logica has been seen as a long-term strategic acquisition building CGI’s presence throughout Europe.

“I am very pleased with our overall performance and with the progress we made with respect to executing our Logica integration plan, which is designed to create incremental and long-term value for all stakeholders,” Michael E. Roach, CGI’s president and chief executive officer said in releasing the results Wednesday.

“Our clients continue to respond in a positive manner to the expanded scale and scope of our offerings and operations following our merger.”
CGI’s net income was $22.4 million or seven cents per share, after including $153.4 million of costs related to the takeover. On an adjusted basis, CGI reported 44 cents per share of earnings for the quarter – a penny short of estimates compiled by Thomson Reuters.

A year earlier, CGI’s net income was $106.5 million or 40 cents per share, with $1.03 billion of revenue.

The Montreal-based company, which has roughly 2,000 employees in Ottawa, is the world’s fifth-largest independent provider of computer, communications and other information technology services for large organizations.

During the quarter, it booked $2.8 billion in new contract wins, extensions and renewals, bringing the last 12-month booking total to $6.6 billion, or 106 per cent of revenue.

At the end of December, CGI’s backlog of signed orders stood at $18.3 billion, up $4.7 billion compared with the same period last year.

Besides its earnings report, CGI announced a renewed share buyback program. The company’s board has authorized CGI to repurchased up to 10 per cent of its public float, although management isn’t obliged to do so.

Last year, CGI spent an average of $20.68 per share for a total of $21.7 million to buy back about 1.1 million shares.

Analysts had estimated CGI’s adjusted earnings would increase by more than 15 per cent to 45 cents per share, a penny higher than reported. Revenue slightly exceeded expectations of just under $2.5 billion.

On Monday, CGI announced the extension of its decade-long payroll services contract with Quebec financial co-operative Desjardins Group for five years at an estimated price of $180 million.

CGI will continue to manage all of the operations for the payroll services centre dedicated to Desjardins’ customers. This includes technology infrastructure, support and development of the payroll and human resources management solutions, payroll processing, and customer support.

Thanks to the Business Journal for this Article

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