CGI’s third quarter results highlight a weak performance in Europe, prompting doubts over its strategy for UK-based Logica, which it recently acquired for an estimated £1.7 billion.
Logica’s performance for the first half of the year will not be revealed having reached an agreement in May to be acquired by the Canadian company, but CGI’s current results for Europe paint a gloomy picture for the future.
In the quarter to 30 June 2012, CGI reported that its European revenues fell by 2.1 percent year-on-year at constant exchange rates to £33.5 million.
Anthony Miller, managing partner at analyst firm TechMarketView, highlights that over the last nine months CGI’s European margins reached 5.9 percent, which means that it needs a strong fourth quarter to boost its margins to the 6.1 percent level it saw in its last full-year results. However, Miller suggested that this will be a “challenge as it starts the Logica integration proper”.
CGI’s net profits were also down approximately 30 percent to £55 million, compared with £77 million last year.
Miller said: “There is still nothing that changes my view that CGI simply does not have any idea what it’s getting itself into.
“Rumours are flourishing as to whom will succeed Andy Green as CEO of Logica, or as it will doubtless soon be known, CGI Europe, though in a sense it probably doesn’t matter, unless he/she comes with miracle worker credentials.”
When the acquisition was announced, the analyst community was particularly pessimistic of CGI’s ability to integrate Logica’s European operations into a single business.
Douglas Hayward, research director at IDC, argued at the time that the acquisition would not create a truly integrated global player with the scale to take on the HPs, IBMs or Accentures of this world in the short-term, and possibly not even in the long-term.
He said: “That’s doubtful, unless CGI can act fast and ruthlessly without alienating Logica’s larger workforce. We’re not convinced that the two businesses have significant growth-centred operational synergies.”
“Add to this that Logica on its own has struggled to create a truly integrated European player and is more of a conglomerate of local companies. We wonder if CGI really grasps the size of the challenge.”