CGI’s Q113 (to 31st December 2012) was the first full quarter to include the Logica business. As such, CGI’s Q114 (to 31st December 2013) is the first quarter where we are able to see a year-on-year like-for-like comparison. Over the period the Group benefited from currency fluctuations, so while at the headline level, revenue was up 4.4% at $2.64b (Can $s), at constant currency worldwide revenues declined by 1.9%.
The UK was also a beneficiary of currency adjustments. At the headline level UK revenues declined by just 1.9% to $287.2m. But taking foreign currency impact into account, the decline was a steeper 8.7%. The decline is blamed on “the run off of low margin business compared to the same period last year”; one of management’s focus areas since the acquisition has been on rescuing low margin projects to bring contracts to an acceptable profitability level, or alternatively, exit contracts if that has not been possible.
At Group level, adjusted EBIT increased by 44.6% compared to Q113; an EBIT margin of 11.5%. This is an improvement on a year previously (when the EBIT margin stood at 8.3%), but represents a decline from Q413 margin of 12.7%. Meanwhile the UK business achieved an EBIT margin of 7.4% compared to 3.1% a year previously, but compared to 11.8% in the previous quarter. The margin trend suggests that the low hanging fruit, e.g. the obvious problem contracts, have now been identified and dealt with. Improving the margin going forwards may be a tougher ask. However, CGI does highlight that margin improvement is set to continue as the Logica integration continues.
Globally, bookings in the quarter reached $2.8b, or 106.5% of revenues; and the backlog of signed orders had also increased significantly year on year. And the UK claims its fair share of that (13% of the bookings). Speaking to CGI UK President Tim Gregory, it is clear that the biggest impact of CGI’s acquisition of Logica in the UK has been on improved client satisfaction, i.e. better engagement and delivery. The rest of 2014 will be about getting that message to the market and winning new business as a result.