“Information technology is no longer a discretionary expense,” said CGI President and CEO George D. Schindler. (Photo: Canadian Press)
Management at the Montreal-based multinational technology consultancy CGI (GIB-A.TO) believes it is immune to the effects of a possible recession, while companies appear to be confident in their technology investments.
This was stated by CGI President and CEO George D. Schindler, who was repeatedly asked about this during a telephone conversation on Wednesday, devoted to discussing the latest quarterly results. “Information technology is no longer a discretionary spending,” he said.
Shares rose $1.10, or 1.03%, to $108.09 on the Toronto Stock Exchange around noon.
During previous recessions, the company has performed relatively well despite the downturn in business, the leader said. Technology is more strategic to businesses than it has been in the past, he says.
Mr. Schindler cited conversations he had with a client in Europe to illustrate his point. “The discussion went like this: ‘We are preparing for a recession, but we are also preparing to spend more on technology than ever.’ This is a change. I don’t think we heard such comments in 2008-2009. [pendant la crise financière]”.
Analysts’ strong interest in demand, which has generated most of the questions, comes at a time when the risks of an inflation-driven recession and rising interest rates are worries in several industries.
In his conversations with clients, Schindler says he has seen companies’ “determination” to continue investing in technologies that allow them to modernize their operations, be more efficient, cut costs and make up for labor shortages.
However, businesses are said to be well aware of the economic risks on the horizon. According to a survey earlier this year, 60% of CGI clients said they expected operating expenses to remain stable or fall. However, the survey shows that 80% of clients plan to maintain or increase the budget they allocate to technology investments.
In dialing mode
In this favorable environment, CGI continues to hire employees. By the end of June, the company’s workforce had increased by more than 10,500 consultants and professionals compared to last year, to approximately 88,500 people worldwide.
Schindler said the employer should spend more money training new employees amid labor shortages, but the investment will pay off once recruits can work paid hours.
The job market is still “very tight” despite announcements of layoffs at some Canadian startups like Goodfood and Wealthsimple or US companies like Netflix. The CGI survey mentioned above notes that 88% of its clients have difficulty finding professionals.
Results above expectations
CGI’s management commented encouragingly on demand as the company reported slightly better-than-expected results for the third quarter ended June 30.
Analyst Daniel Chen of TD Securities said the 7.9% rise in revenue to $3.26 billion confirms management’s optimistic assumptions. Excluding currency fluctuations, revenue would have increased by 11.5%. “Strong revenue growth strengthens our confidence in the sustainability of technology spending despite economic uncertainty.”
Despite strong revenue growth, CIBC World Markets analyst Stephanie Price “sees signs of demand normalizing.” With new contracts worth $3.41 billion, the ratio of new contracts to invoices is 1.05 times. “It’s solid, but a little below average.”
The company posted net income of $364.3 million, up 7.6% year-over-year.
Adjusted diluted earnings per share, which excludes certain acquisition-related costs and income taxes, was $1.54 compared to $1.36 in 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 Refinitiv.