CGI exiting low-margin markets, eyes M&A in cyber security

Reuters News
Posted: Jul 29, 2015 8:02 AM

By Alastair Sharp

TORONTO (Reuters) - CGI Group Inc, the information systems and management consultancy, said on Wednesday it would target acquisitions in cyber security while exiting some markets entirely, as it reported third-quarter profit and revenue that missed estimates.

The company's chief executive officer said it has compiled a short list of 85 potential acquisition targets that would help it grow by delving deeper into industries, three years after going wide with its Logica acquisition.

CEO Michael Roach told investors on a conference call that the company is working its way through a list compiled from almost a thousand interviews with top managers at its customers "as part of our buy strategy."

Scores of acquisitions have fueled CGI's growth over four decades. It consumed the larger Logica for European exposure in 2012 at a price tag of 1.7 billion pounds ($2.65 billion), and paid more than $1 billion in 2010 for Stanley Inc and its U.S. defense and intelligence contracts, now part of its CGI Federal unit.

That unit later drew unwelcome attention as the lead contractor in the botched launch of, the system underpinning U.S. President Barack Obama's landmark health reform.

Roach said the company was getting out of or avoiding low-margin markets in the Middle East and Latin America, with the exception of Brazil, and that the U.S. utilities market was underserved and an opportunity.

The Montreal-based company said it signed C$2.2 billion in contracts in the period, down from the C$2.5 billion a year ago.

Sales were hurt by the emerging market exits and by delays in business with the U.S. federal and the UK governments.

Net income rose to C$257.2 million, or 80 Canadian cents per share, in the three months to June 30, from C$225.1 million, or 71 cents a share, a year earlier. Revenue slipped 4 percent to C$2.56 billion.

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Analysts, on average, expected CGI to earn 81 Canadian cents a share on revenue of C$2.65 billion, according to Thomson Reuters I/B/E/S.

Shares were down 4.4 percent at C$48.

Its backlog of signed orders, an indicator of future sales, rose to C$19.7 billion from C$18.8 billion a year earlier.

It will take a C$60 million pretax charge over the next six months for investments in cyber security, digitization of client processes and other upgrades.

(Editing by Jeffrey Benkoe)