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Thursday 30 July 2020

CGI UK: an even keel in Q3 (helped by SCISYS)

CGI logoOn the face of it, globally, CGI fared better than Sopra Steria in the three months to end June (see Sopra Steria H120: JVs lifts UK performance). While Sopra Steria’s revenues declined organically by 8.4% in what was the Group’s H2, CGI’s revenues were down 3.5% (or 2.2% after the foreign currency impact) to CAN$3.05b. It is not a wholly fair comparison, as CGI does not extract acquisitive growth from the numbers; however, we believe acquisitions (of SCISYS (Ireland), Meti Logiciels (France) and TeraThink (US), which added only a few hundred employees in total, had limited impact on the period’s growth (perhaps a couple of percentage points).

No surprises that CGI points to reduced demand and a slowdown in activity as COVID-19 swept the globe. In particular, the Group points to the negative impact of conditions in the manufacturing, retail, and distribution (MRD) sector, which represents 22% of total revenues. This explains the double-digit percentage decline in Scandinavia where lower work volumes in MRD were to blame, as well as the non-renewal of some contracts.

By contrast, in the UK & Australia business, there is no exposure to the MRD sector. And, that would have been a benefit, as would the high exposure to areas where it supports critical national infrastructure: Government, space, defence & intelligence, telecommunications and utilities (c75-80% of revenues). Prior to COVID-19, UK & Australia CEO, Tara McGeehan had expected a return to growth for her area of the business. That didn’t quite happen but, on a constant currency basis, revenues were flat at CAN$340.7m. The US Federal Government segment was the only other to remain in positive territory. Of course, the UK & Australia business benefitted from the addition of SCISYS revenues; we estimate, without that it would have seen a decline of c3%. Aside from COVID, revenues were also negatively impacted by the non-renewal of an infrastructure services contract and the completion of a large SI contract in telco & utilities.

Globally, plans are in motion to mitigate against the impact of COVID-19 including a restructuring plan and a reduction in travel-related expenses. The adjusted EBITDA was down 5.5% year on year; the margin remained high at 14.7% (down just 50 basis points). In the UK, a big jump in margin from 12.3% to 17.3% was “impacted by prior year adjustments on a client contract and the adoption of IFRS16.”

Looking ahead, the global trailing 12-month book-to-bill ratio is little changed compared to the end of March, at c97%. In the UK, however, the figure is much lower, at 76.8% (the lowest across the Group after Canada). While we understand the book-to-bill can be misleading, but it has been below 100% for a few quarters now, and there would be comfort in seeing this figure grow; with a strong position in public sector, we hope to see CGI benefit as the vertical accelerates its digital transformation post-COVID. 

Posted by: Georgina O'Toole

Tags: results   itservices  

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