BUSINESS

CGI says it won't be rushed into acquisitions to pursue doubling of company

04/29/2015 03:24 EDT | Updated 08/05/2015 07:59 EDT
MONTREAL - CGI Group says it won't be rushed into unprofitable acquisitions in order to make good on its aim of doubling the size of it business in five to seven years.

"It's not a firm goal because we don't drive to acquisitions for the sake of an acquisition, we do it because we can create value for our customers and our shareholders," CEO Michael Roach said Wednesday during a conference call on second-quarter results.

The Montreal-based IT service company had a history over 20 years of doubling its size every four years. It recently stretched that horizon as the company has grown. A doubling would mean adding $10 billion of revenues, coming from acquisitions and organic growth.

The clock on the new goal started at year-end on Sept. 30 with the completion of the acquisition of British firm Logica.

Roach told analysts that the new objective doesn't alter the company's acquisition strategy but tells potential targets that it is open to deals if there is a strategic fit.

"We're clearly in a position to acquire if we see the right asset," he said, adding that deals could range from small niche acquisitions to something more transformational.

The search for acquisitions comes as CGI's bookings in the quarter were $2.25 billion, down 21 per cent from the prior year. It has faced delays in the awarding of U.S. government business and a contract freeze during the U.K. election.

CGI Group Inc. (TSX:GIB.A) said its second-quarter revenue decreased 3.9 per cent from last year to $2.6 billion, but was $59.9 million higher than in the first quarter. About two-thirds of the lower revenue is due the termination of contracts last year related to the health-care website for Obamacare.

Its net income was $251.2 million or 78 cents per share, up from $230.9 million or 73 cents per share in the prior year. Excluding currency impacts, it earned 79 cents per share, one penny below analyst forecasts, according to Thomson Reuters.

Maher Yaghi of Desjardins Capital Markets said that while revenue and earnings were in line with analyst expectations, bookings were low on U.S. weakness.

"We continue to believe that with bookings continuing to be weak, it will be hard for the company to achieve sustainable organic revenue growth and it will have to rely on acquisitions for growth," he wrote in a report.

CGI said it has about US$1.2 billion worth of bids waiting for approval in the U.S. About half the contracts are civilian and half on the defence side.

In Britain, contract awards have been put on hold until after the May 7 election. If the Conservatives lose, it could take some time until the new government sets its spending priorities.

Analyst Thanos Moschopoulos of BMO Capital Markets said he had hoped for more revenue stability by now in Europe, but said revenue weakness in North America was understandably soft because of ongoing growth challenges in Canada, where it is the largest IT player and tough comparisons from Obamacare work a years ago.

CGI was selected in September 2011 as the lead contractor on a US$93.7-million project to design and build the government's HealthCare.gov website where Americans could sign up for health coverage.

Initial technical problems delayed or prevented people from enrolling online and, despite the company's claim that its part of the system worked, its contract was not renewed.

Follow @RossMarowits on Twitter

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