CGI says Logica acquisition will boost earnings as it raises cost savings target

MONTREAL – CGI Group Inc. still expects that the acquisition of U.K.-based Logica will deliver a 25 to 30 per cent boost to its earnings next year as the information technology company “aggressively” pursues cost savings.

“After 100 days of operations we can confirm that the strategic, operational and financial fit anticipated in the transaction,” CEO Michael Roach told a conference call Wednesday.

“We can also confirm that we are aggressively adjusting the cost base to reduce overhead and increase our competitiveness while transforming the business into the CGI performance-based operation model.”

His remarks came after CGI reported it swung to a loss in its most recent period, mostly related to its $2.7-billion acquisition of Logica in August.

The expected boost in earnings per share before acquisition costs are on $1.50 per share earned in fiscal 2012.

Montreal-based CGI raised its annual cost synergies target 50 per cent to $300 million over three years, while also increasing the costs to achieve those savings to $400 million from $265 million.

It provisioned $98 million in several costs in the fourth quarter that will gradually be applied next fiscal year. Three-quarters of the cost synergies are “people related” while the remaining 25 per cent are for real estate and other measures.

The company didn’t say how many jobs would be cut or where.

CGI (TSX:GIB.A) said the net loss in its fiscal 2012 fourth quarter was just under $170 million or 58 cents per diluted share, compared with a profit of $69.6 million or 26 cents per share in the year-earlier period.

Revenue in the three months ended Sept. 30 rose to $1.61 billion from just over $1 billion in the fourth quarter of fiscal 2011. Excluding Logica, CGI revenues increased 3.6 per cent.

Excluding costs associated with the acquisition, the company said it would have had net earnings of $100 million or 37 cents of diluted earnings per share, down from 39 cents per share a year earlier.

CGI said the company incurred acquisition-related and integration charges totalling $248.3 million in the period.

Analysts had estimated 37 cents per share of what CGI calls diluted earnings on $1.6 billion of revenue, according to figures compiled by Thomson Reuters.

For the full year, the company reported net earnings of $131.5 million or 48 cents per diluted share on revenues of $4.77 billion.

That compared with full-year earnings of $438.1 million or $1.59 per diluted share on revenues of 4.22 billion.

“I’m very pleased with our team’s solid and balanced performance in fiscal 2012, financially and operationally,” Roach told analysts.

“We entered fiscal 2013 in a position of strength enabling us to focus on the year’s No. 1 operational priority which is the successful integration of Logica.”

Maher Yaghi of Desjardins Capital Markets said the results were negative and lower than expected on higher costs in the quarter as Logica was added to CGI’s results for the first time.

“Overall, results this quarter were very messy due to significant integration costs at Logica,” he wrote in a report.

He said the projected earnings boost from Logical should raise 2013 EPS to between $1.88 and $1.95 per share without assuming any growth in its base business.

“Our estimate going into the quarter was for EPS of $2.08, which we believe is achievable. Hence, we continue to see upside in the stock at current levels.”

Founded in 1976, CGI Group Inc. is the fifth-largest independent information technology and business process services firm in the world with 72,000 employees in the Americas, Europe and the Asia Pacific region.

On the Toronto Stock Exchange, CGI’s shares were down 73 cents, or 1.54 per cent, at $46.54 in morning trading Wednesday.