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February 07, 2014 at 06:02 AM
(Bloomberg) — CGI Group Inc., the Canadian company that lost the Patient Protection and Affordable Care Act (PPACA) website contract after a botched rollout, is pursuing new federal and state government work in the U.S. to bolster sales in its biggest market.
“Our view is that the brand isn’t damaged,” said Chief Executive Officer Michael Roach, 61. “We may see one-offs here and there, but I don’t see anything that will last. We’re prepared to talk to our clients about what we’re learning here. We’ve not been banned from anything. We’re not barred.”
CGI, Canada’s largest technology company, has bids in for about $1.3 billion in potential U.S. government business, Roach said yesterday in an interview at the firm’s Montreal headquarters. Roach said he’s also seeking contracts with states and corporate clients.
See related story: CGI wanted help weeks ago
Roach’s challenge is separating CGI from the fallout that followed PPACA’s Oct. 1 debut, as delays and error messages foiled applicants on the insurance exchange serving 36 of the 50 U.S. states. After years of providing services as basic as running the Medicare website and processing 25 percent of all U.S. passports, CGI found itself thrust into partisan sniping over the Patient Protection and Affordable Care Act of 2010.
“There have been many instances in our industry where other companies have run into something similar, and it’s passed with time,” Roach said. “There’s no doubt about it, this one got a lot more publicity.”
Enter Accenture
Nowhere did the spotlight burn brighter than in the U.S., the source of about C$2.5 billion ($2.26 billion) in revenue in the year ended in September, or about 25 percent of CGI’s global sales. Last month, the U.S. government said Accenture Plc would take over from CGI when its contract expires Feb. 28.
CGI rose 1.2 percent to C$33.23 in Toronto today. The shares slumped 19 percent through yesterday since reaching an all-time closing high of C$40.72 in November after President Barack Obama named Jeffrey Zients, his choice to become chief White House economic adviser, to fix the PPACA website’s software.
Lorne Gorber, CGI’s investor relations chief, declined to comment yesterday on the value of the PPACA contract beyond the $93.7 million total announced when the company won the job in 2011. Scott Penner, a TD Securities Inc. analyst in Toronto, estimated in October that the project generated C$290 million, or less than 3 percent of CGI’s annual sales.
PPACA risk
PPACA “is still a risk” for CGI, according to Eyal Ofir, an analyst at Clarus Securities Inc. in Toronto.
“Obviously there is some reputational damage,” Ofir said. “The question is how much of an impact this will really have. Management seems to think there is no impact, but the only way to tell is when we start to look at the orders they book over the next two quarters” — and whether the so-called book-to- bill ratio of orders to sales increases.
CGI said Jan. 29 that its book-to-bill ratio in the U.S. was 1.02 for the quarter ended in December, and 1.08 for the last 12 months. U.S. work made up 26 percent of CGI’s global backlog of C$19.3 billion.
“If we see a March quarter decline in the ratio, and it doesn’t rebound in June, this would send a signal to the market,” Ofir said in a telephone interview. “If it remains above 1 it would be positive.”
