Information Technology | CGI remains confident despite the shadow of a recession

The company continues to hire

Posted at 6:56 a.m.
Updated at 12:29 p.m.

Stephane Rolland
The Canadian Press

(Montreal) The management of the Montreal-based multinational technology consulting firm CGI believes it is sheltered from the consequences of a possible recession, while companies do not seem to be questioning their technological investments.

That’s according to CGI President and CEO George D. Schindler, who was repeatedly asked about the subject during a call to discuss the latest quarterly results on Wednesday. “Information technology is no longer a discretionary expense,” he said.

In previous recessions, the company has done relatively well, despite a slowdown in business, said the leader. Technology is of greater strategic importance to businesses than in the past, he said.

Mr. Schindler cited conversations he had with a client in Europe to illustrate his point. “The discussion went like this: ‘We’re preparing for a recession, but we’re also preparing to spend more on technology than we ever have.’ It is a change. I don’t think we heard this kind of comment in 2008-2009 [pendant la crise financière]. »

Strong analyst interest in demand, which has captured the majority of questions, comes at a time when the risks of an inflation-induced recession and rising interest rates are raising fears in several industries. .

In his conversations with customers, Schindler says he’s seen a “commitment” on the part of companies to continue investing in technology, which allows them to modernize their operations, be more efficient, reduce costs and to make up for a shortage of labour.

Businesses, however, are reportedly well aware of the economic risks on the horizon. Sixty percent of CGI clients said they expect operating expenses to be stable or declining, according to a survey conducted earlier this year. However, the survey shows that 80% of customers plan to maintain or increase the budget they devote to technology investments.

In recruiting mode

In this favorable environment, CGI continues to hire. By the end of June, the company’s workforce had increased by more than 10,500 advisors and professionals from a year ago to a total number of approximately 88,500 worldwide.

Schindler said the employer needs to spend more money on training new employees amid labor scarcity, but the investments will pay off once recruits are able to work billable hours.

The job market is still “very tight”, despite announcements of layoffs in some Canadian start-ups such as Goodfood and Wealthsimple, or in American companies such as Netflix. The CGI survey mentioned above indicates that 88% of its clients have difficulty finding professionals.

Results above expectations

CGI management made reassuring comments on demand as the company reported slightly better-than-expected results in the third quarter, which ended June 30.

Analyst Daniel Chan of TD Securities believes the 7.9% revenue growth to $3.26 billion reinforces management’s optimistic assumption. Excluding currency fluctuations, revenues would have increased by 11.5%. “Strong revenue growth reinforces our confidence in the resilience of technology spending, despite economic uncertainty. »

While revenue growth is strong, CIBC World Markets analyst Stephanie Price “sees signs of demand normalizing.” With 3.41 billion in new contracts, the new contracts/invoicing ratio is 1.05 times. “It’s solid, but slightly below average. »

The company announced a net profit of 364.3 million, up 7.6% compared to the same period last year.

Adjusted diluted earnings per share, which excludes certain acquisition-related costs and income taxes, amounted to $1.54, compared to $1.36 for the same period last year.

Prior to the earnings release, analysts had expected earnings per share of $1.53 and revenue of $3.21 billion, according to data firm Refinitiv.

The stock was up $2.21, or 2.07%, at $109.20 at the close of the Toronto Stock Exchange.

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