With the economic slowdown, banks are taking it easy when the time comes to sign new technology contracts, notes the IT consulting firm CGI. The Montreal company reports that government spending is offsetting this headwind.
“The banking industry has been hit by rising interest rates,” said President and CEO George D. Schindler at a conference Wednesday to discuss the company’s quarterly results with financial analysts. This is an important factor, particularly in North America. »
The financial sector is going through a difficult period as the economy slows down, weighed down by rising interest rates. In Canada, layoff announcements in the banking industry have increased in recent months.
The banking sector represents a significant part of the Montreal company’s clientele. TD Securities estimates that the financial services sector represents 22% of CGI’s revenue.
However, the strength of demand in the government sector, almost 36% of revenues, helped to offset the relative weakness of demand in the banking sector.
Mr. Schindler expects the market to remain strong in the coming months, despite the upcoming US election in November. “We anticipate an acceleration in contract awards in anticipation of the elections and this is not just the case for the United States, but also for the United Kingdom and Canada. »
“The public administration wants things to continue to move forward during this period,” he adds. Contract awards tend to be quicker, a little bigger and have a slightly longer duration to ensure some stability. »
Mr. Schindler expects a pause during the US elections, but he notes that after the election, new initiatives are generally launched at the start of the term, whether the president is reappointed or there is a change of direction. administration.
The boss of CGI was questioned about recent layoffs, even if the company’s order book is growing.
“We are in a context where the turnover rate has fallen significantly, which means that we have fewer replacements to make,” replies the manager. We are careful not to hire ahead of demand, but we are in a good position to grow with demand. »
Following a cost optimization program launched in September, the company laid off 19 employees in Quebec in October and 55 other employees in Montreal in November. This program is expected to affect less than 1% of all company employees worldwide.
Results slightly above expectations
The Montreal multinational continues to win more contracts, even though revenues are growing at a modest pace of 1.5% in constant currency. The new contracts-to-billings ratio was 116.2% in the first quarter ended December 31.
The company reiterated that converting new contracts into revenue could take longer.
“It takes a little longer for these contracts to translate into revenue, due to the characteristics of these agreements,” explains the businessman. These are larger contracts with a global scope. For this reason, the transition takes a little longer. »
The consensus of analysts anticipates greater revenue growth later in the year, underlines analyst Jérôme Dubreuil of Desjardins Capital Markets. “CGI does not provide forecasts, but we expect an improvement supported by the good order book. »
In the first quarter, CGI’s net income increased 1.9% to $389.8 million. Adjusted diluted earnings per share reached $1.83. Revenues, for their part, increased by 4.4% to $3.6 billion.
Before the results were released, analysts expected earnings per share of $1.82 and revenue of $3.58, according to financial data firm Refinitiv.
Unlike previous years, Mr. Schindler was not available for an interview on the sidelines of the annual meeting.
CGI shares were up $1.38, or just under one percent, at $150.56 at the close on the Toronto Stock Exchange.