(Adds share reaction, details from call with analysts)
By Alastair Sharp
TORONTO, April 30 CGI Group Inc, the
Canadian computer services provider involved in last year's
botched rollout of the Obamacare U.S. health plan, said on
Wednesday its quarterly profit more than doubled, driven by a 7
percent rise in revenue and strong European bookings, sending
its shares higher.
Solid overseas demand, coupled with favorable currency
gains, more than offset weakness in the U.S. market. CGI Group's
contract to manage the online U.S. health exchange program was
not renewed after a bungled launch created a political crisis
for U.S. President Barack Obama.
The company has had more growth in Europe than in North
America recently following its 2012 purchase of Logica, a former
"If you look at the bookings for the U.S., it was weak,"
said Steven Li, an analyst at Raymond James. "The weakness was
actually concentrated in U.S. federal, which is where all the
healthcare exchanges contracts are."
Li said fewer federal contracts were on offer in general,
but for CGI Group specifically, "what happened with Obamacare
On a call with analysts, CGI Chief Executive Officer Michael
Roach said the complicated U.S. project was a hiccup that has
been blown out of proportion.
"Clearly, some of the work around the health exchanges have
temporarily had an impact on the business," he said. "The
reality on the ground versus the perception in the press,
there's a big gap there."
He said CGI is still managing some state-based health
exchanges and has been able to reset customer expectations and
has already booked much of the cost of those projects, which
could lead to a recovery in CGI's U.S. margins in the second
The company generated C$350 million ($319 million) in cash
flow from operations, excluding integration costs, in its fiscal
second quarter, rebounding from a disappointing result in the
"The improvement in cash flow generation should go a long
way to allay investor concerns regarding the cash production
ability of Logica," Canaccord Genuity analyst Maher Yaghi wrote
in a note.
Shares in the company jumped 2.9 percent to C$39.18 in
Wednesday trade on the Toronto Stock Exchange. The stock has
risen around 7 percent since the start of the year.
Net profit in the second fiscal quarter rose to C$230.9
million, or 73 Canadian cents per share, from C$114.2 million,
or 36 Canadian cents.
The company, which reports in Canadian dollars but receives
revenue in a range of other currencies, has also been buoyed by
a slip in the relative value of the Canadian currency.
Revenue rose 7 percent to $2.7 billion.
The company booked $2.9 billion in contract awards, with 40
percent reported as new business. Bookings are an indicator of
future sales. The book-to-bill ratio was 105.4 percent.
Book-to-bill refers to the ratio of orders added to the
company's backlog versus finished work that can be billed to a
client. Investors are keen to see the company get orders for
more work than it finishes each quarter, reflecting growth.
CGI Group's North American book-to-bill over the past 12
months was 98.8 percent, and it was 110.2 percent in Europe.
Just under 13 percent of CGI Group's revenue stemmed from
work it did for the U.S. federal government in the quarter, down
from 13.9 percent a year earlier.
(Additional reporting by Sayantani Ghosh in Bangalore; Editing
by Maju Samuel, Jeffrey Benkoe and Peter Galloway)