CGI seeks to double company and be vindicated for role in Obamacare roll out

Photo: The Canadian Press. All rights reserved.

CGI Group Inc. chief executive Michael Roach in Montreal is pictured in a file photo. THE CANADIAN PRESS/Ryan Remiorz

MONTREAL - CGI's top official says the IT services company will eventually be vindicated for the criticism it received in developing the U.S. health-care insurance website and it doesn't believe it's reputation will suffer.

Initial technical problems with the October launch of the website delayed or prevented people from enrolling online, marring what was to be one of President Barack Obama's defining political achievements.

"We remain confident that in the fullness of time our role, contribution and responsibility in these initiatives will become clearer," CEO Michael Roach told shareholders on Wednesday after reporting strong first-quarter results.

He said many of the technical problems with the complex system has been fixed in the past months and the Montreal-based company is proud of its role.

"In short, the part of the system we were contracted to build, specifically the federal facilitated marketplace, works," Roach said.

CGI's contract was slated to expire in February but the U.S. administration decided instead to sign a 12-month contract, worth about US$90 million, with Accenture, one of the world's largest consulting firms.

CGI (TSX:GIB.A) was selected in September 2011 as the lead contractor on the project and was awarded a US$93.7-million contract over two years to design and build the government's HealthCare.gov website where Americans could sign up for health coverage that took effect Jan. 1.

Roach said Wednesday that its efforts working through the challenges to fix the website will ensure the company continues to be selected for future government and other contracts.

In response to a shareholder question, Roach said the company had no way of predicting that the complex contract would become so politicized and draw such media attention.

"But if you're going to be a world champion and grow your company, you can't shy away from projects because they may be complex or to some degree risky," he said.

Company founder and chairman Serge Godin said in an interview that it expects to take a longer than in the past to reach its goal of doubling in size and reaching $20 billion in annual revenues. The focus is to expand its market share in countries where it has clients, a segment that accounts for 85 per cent of the global IT spending. That means beefing up its commercial presence in the U.S., growing revenues in Canada and offering intellectual property services.

Godin said he's not worried about any U.S. health-care repercussions, saying its global customers understand the complexity of the project and have shared their confidence in the company through internal surveys.

Roach said that there's no indication that the companye's difficulties had any impact on results in the first quarter as profits surged to $189.8 million, and bookings increased.

The company earned 60 cents per share for the period ended Dec. 31, up from seven cents a year ago when net earnings were $22.4 million.

Excluding the costs of integrating a major U.K.-based acquisition, CGI's adjusted net income was $207.9 million or 65 cents per share, up from $137.8 million or 44 cents per share a year earlier.

Revenues increased 4.4 per cent to $2.644 billion in the quarter, up from $2.532 billion a year earlier.

CGI was expected to earn 70 cents per share in adjusted profits on $2.64 billion of revenues, according to estimates compiled by Thomson Reuters.

It booked $2.8 billion worth of orders in the quarter, 45 per cent of which was new business. That raised its bookings over the last 12 months to $10.3 billion and its backlog to $19.3 billion.

CGI increased its normal course issuer bid by 10 per cent, allowing it to repurchase about 21.8 million shares over the next year, at a potential cost of $750 million. It purchased 2.5 million shares during the quarter for $100 million, and 3.2 million shares over the last 12 months.

Maher Yaghi of Desjardins Capital Markets said strong bookings in the quarter helped offset a "slight miss" compared to "aggressive" analyst expectations.

"Bookings in the quarter were up, which should allay some investor concerns given the recent negative publicity surrounding the company," he wrote in a report.

He said the financial impact from the shift of the U.S. health insurance contract to rival Accenture is small for a company with more than $10 billion of annual revenues.

Paul Treiber of RBC Capital Markets said the concerns over the U.S. health-care problems have been overdone, pushing the share price down nearly 19 per cent over the last two months and presenting an opportunity for long-term investors. He said the European operations will enjoy a rebound and Logica's improved margins are sustainable.

But Kris Thompson of National Bank Financial lowered his share price target by $5 to $45."Long-term outlook remains intact but near-term headline risk is too high," he wrote.

On the Toronto Stock Exchange, CGI's shares lost $1.37 or 3.9 per cent at $33.86 in Wednesday afternoon trading.