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CGI to pay down debt, buy back shares as it hunts for next acquisition

MONTREAL - CGI Group Inc. plans to focus in the short-term on reducing its debt and buying back company shares, while the IT services company remains on the hunt for acquisitions.

"We continue to look and there are opportunities out there and we would not hesitate to pull the trigger if we found the right acquisition here at the right time and the right price," CEO Michael Roach said Wednesday during a conference call to discuss its improved third-quarter results.

Roach said a return to a more traditional level of cash generation in the quarter puts the company in a stronger position to complete an acquisition.

The Montreal-based company (TSX:GIB.A) saw its third-quarter profit jump 26 per cent to $225.1 million, or 71 cents per diluted share. That compared with a profit of $178.2 million, or 56 cents per share diluted, a year ago.

Excluding specific items, the company earned $229.8 million, compared with $200.4 million in the year ago period, up 14.7 per cent. Adjusted earnings per diluted share were 72 cents for the quarter, up 14.3 per cent year-over-year and one cent short of analyst forecasts

The company had revenues of $2.7 billion, up 3.9 per cent from $2.56 billion year-over-year.

Analyst Maher Yaghi of Desjardins Capital Markets said the margin improvement and strong cash generation should "allay investor concerns about the cash production ability of Logica."

While its U.K. business has turned around since the 2012 acquisition of Logica, some other European operations haven't hit bottom and aren't expected to recover until the second half of next year.

Still, Roach said it is making progress in Europe.

"When I look back two years when we did the acquisition, I would say that were clearly a lot more bullish on it Europe then we were then," Roach said.

During the quarter, CGI said it signed $2.5 billion in contract awards, including European bookings of $1.7 billion.

In the United States, the commercial and state government business improved in the quarter, offsetting weakness in federal contracts caused by ongoing delays in procurement decisions.

Roach said CGI Federal continues to outperform its industry competitors, which are also protecting margins because of the lack of growth.

Meanwhile, CGI said it is contemplating taking advantage of low interest rates to boost its relative proportion of long-term debt as it pursues its next stage of growth.

Interest rates have lingered near historic lows in recent years, but are expected to start to climb as the economy begins to improve.

CGI currently has $2.4 billion in net debt, but only $480 million in long-term debt. It also has about $1.2 billion in available cash and unused credit facilities.

The goal is to "get the capital structure nailed down for the next generation," added chief financial officer David Anderson.

The Canadian Press


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