CGI to Cut 1,600 Jobs, Reshaping Workforce as Web Dominates

(Bloomberg) -- Canadian technology-service provider CGI Group Inc. said it's cutting 1,600 jobs while hiring in other areas as it responds to clients' accelerating demands to provide more online services.

The Montreal-based company will post a pretax expense of C$165 million ($131 million) over the next year to account for the job cuts and “address underutilized resources,” Chief Financial Officer François Boulanger told analysts on a conference call Wednesday. The stock had its biggest intraday drop since December.

Conversations with clients “indicate a clear and accelerating need for our clients to become digital to meet their customer expectations -– this was the top global trend, the top business priority and the top technology priority,” Chief Executive Officer George Schindler said on the call. “Nearly 80 percent of clients interviewed across every industry plan to increase or maintain their IT budgets -- with significant increases for new applications and automation.”

He said the company, which has a staff of about 70,000 around the world, “will continue hiring and developing in-demand expertise” and that the “billable headcount” will grow. The cuts are equal to about 2.3 percent of the workforce.

Like rivals Accenture Plc and International Business Machines Corp., CGI is trying to decrease dependence on traditional technology outsourcing work by harnessing demand from businesses and governments to take their operations and services online. It's also accelerated medium-size acquisitions to add banking clients and broaden its reach in the U.S., where it has long relied on government contracts.

A sample of the job offers on CGI's website includes positions for data analysis, web development and security.

Lower Margins

Profit margins declined a half percentage point from a year earlier to 9.8 percent, the company said in its third-quarter earnings statement. Earnings, excluding some items, rose to 93 cents a share, compared with the 94 cents projected by analysts. Revenue topped estimates at C$2.84 billion.

CGI fell 3.5 percent to C$64.02 at 10:25 a.m. in Toronto, the biggest decline since Dec. 16.

CGI measures “will be focused on readjusting its employee skill base in order to improve utilization rates and increase automation, which should lead to improved margins” starting next year, Maher Yaghi, an analyst at Desjardins Capital Markets, wrote in a note Wednesday. “We do not believe this initiative is likely to result in a negative impact on the company's revenue growth trend.”

The U.S., CGI's largest market, was also its fastest growing in the third quarter, with revenue rising 17 percent to C$813.7 million. Growth in Canada was 6.8 percent.

In the U.S., CGI is pitching its services to government and corporate clients with an emphasis on its local workforce there, a message it's betting will have appeal since the Trump administration has placed such a heavy emphasis on job creation. The company employs more than 11,000 people in the U.S., very few on a visa, leaving it less exposed than many rivals to an overhaul in the work visa program.

To contact the reporter on this story: Sandrine Rastello in Montreal at srastello@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, David Scanlan