CGI Group seeks to grow U.S. commercial business to complement government work

MONTREAL – CGI Group is looking to grow its American business by adding more commercial customers to complement its heavy reliance on U.S. state and federal government contracts.

“Our balance is not where we want it,” CEO Michael Roach said Thursday during a conference call on its fiscal 2014 fourth-quarter and full-year results.

CGI (TSX:GIB.A) ended its 2014 financial year with a stronger fourth-quarter profit and the integration of a major European acquisition a year early. However, its revenue edged up only slightly and missed analyst estimates by some $90 million.

The Montreal-based IT services company, which provides computer, communications and software services to public and private sector organizations around the world, had $213.7 million or 67 cents of net income in the fourth quarter before adjustments.

Excluding specific items related to acquisition and integration-related costs, CGI’s net income was $234 million or 73 cents per share — in line with estimates.

Revenue was $2.48 billion — up about $25 million from a year earlier but short of the analyst estimate of $2.57 billion — despite getting a boost from the Canadian dollar’s weakness against most local currencies where CGI does business. On a constant currency basis, CGI’s revenue fell by $82.1 million or 3.4 per cent.

CGI is closely tied to the U.S. federal business, which has an estimated $80 billion in market opportunities.

“We love the government business we’re in. We want to grow it…but we’ve light on the commercial business,” he told analysts. “Through organic and acquisitions we look to reinforce that and get a better mix in the U.S.”

Although it employs up to 12,000 people in the United States, Roach said there are also opportunities to expand in large urban cities like Chicago and Miami where it is underrepresented. But he added that finding suitable acquisition targets will take time.

CGI said it has been exiting low-margin businesses as part of its integration activities, primarily related to its acquisition of Logica PLC in August 2012, near the end of the 2012 financial year. The year-over-year decreases between the fourth quarters of fiscal 2013 and 2014 were focused on North America.

The company said it had completed the integration of Logica by Sept. 30, a full year sooner than planned. It said $575.5 million was spent on one-time costs over the integration period to achieve more than $400 million of annual savings.

Revenue from the U.S. segment was down $24.2 million or 3.6 per cent to $655.1 million. On a constant currency basis, the revenue was down $56 million or 8.2 per cent. Revenue from the Canadian segment was $382.9 million, a decrease of $24.9 million or 6.1 per cent due to lower work volumes after the expiration of contracts.

CGI’s other geographic markets in Europe and the Asia-Pacific saw higher revenue during the quarter.

Maher Yaghi of Desjardins Capital Markets said cost controls offset weak revenues and bookings, which came in at $2.05 billion.

“Weakness in North America remains an area of concern going forward and may raise questions about the sustainability of the revenue base or potential for organic growth,” he wrote in a report.

For the full year, the company earned $859.4 million or $2.69 per share, compared with $455.8 million or $1.44 per share in fiscal 2013.

Excluding one-time items, adjusted earnings were $893.5 million or $2.80, three cents short of analyst forecasts. That compared with $727.7 million or $2.30 per share a year earlier.

Revenues rose to $10.5 billion from $10.08 billion, while net debt decreased to $2.11 billion from $2.74 billion at the end of the prior fiscal year.

On the Toronto Stock Exchange, CGI’s shares closed at $40.55 on Thursday, up $1.09 or 2.76 per cent.

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Note to readers: This is a corrected story: A previous version said the company missed revenue estimates by more than $100 million