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Cognizant revenues fall into negative; subdued guidance for 2021

Cognizant revenues fall into negative; subdued guidance for 2021

While Indian IT services companies have made a strong comeback in Q3, Cognizant's full year  revenues for the first time has slipped into the negative territory, with guidance for 2021 also in low single digit range

Cognizant's predicts subdued growth in 2021 Cognizant's predicts subdued growth in 2021

US' Teaneck-headquartered Cognizant reported a decline of revenue of -0.7 per cent year-on year (yoy) for the full year 2020, clocking revenues of $16.65 billion compared to $16.78 billion in 2019. The adjusted operating margins for the same period also declined from 16.6 per cent to 14.4 per cent. For the fourth quarter ending December 31, the company recorded revenues of $4,184 million down -3.0 per cent yoy in constant currency terms. The quarter was impacted by 250 basis points from the offer made to settle and exit large customer engagement in the financial services segment in Continental Europe, which resulted in a revenue hit of $107 million and additional expenses of $33 million. The quarter also took a 120bps impact from the exit of certain content services. "Excluding the impact from the anticipated exit from a client engagement, we executed well in the fourth quarter, and delivered against our expectations and our guidance. Gross margins increased. Cash flow was strong," said Brian Humphries, CEO, Cognizant.

While Indian IT services companies' Q3 results indicated that FY22 would usher in robust growth, perhaps even in double digits, Cognizant guided a subdued 4.0-7.0 per cent  constant currency growth  full year growth for 2021 (5.5-8.5 per cent in dollar terms). The operating margins are expected to be in the range of 15.2-16.2 per cent in 2021. "We anticipate further growth acceleration in the first half of 2021, driven by a reinvigorated US health care business, including our strategic product portfolio, and a strong outlook in life sciences," he further added.

While financial services which saw the largest decline in revenues -- down 4 per cent yoy -- in constant currency, healthcare and communications media and technology segments saw marginal growth of 3.1 per cent  and 1.6 per cent  respectively on a yoy basis for the full year 2020. With slowing growth, 2020 also saw the company struggle on several fronts like cyber attack, customer exits and senior executives quitting the company along with the global pandemic. Reiterating the goal to drive shareholder value, the CEO said that the company was still in the middle of a 'multi-year project to reposition the company'. "I'm genuinely pleased with how the team has come together. We're united. We're ambitious. We're eager to prove our potential," he added.

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