Colliers International Group Inc (CIGI) 2007 Q3 法說會逐字稿

Good day and welcome to FirstService Corporation's third-quarter 2007 results conference call. Today's call is being recorded. Legal counsel requires us to advise that the discussions scheduled to take place today may contain forward-looking statements that involve risks and uncertainties. Actual results may be materially different from those contained in these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company's annual report on Form 10-K and in the Company's other filings with Canada and U.S. securities commissions. At this time for opening remarks and introductions, I would like to turn the call over to the Founder and Chief Executive Officer, Mr. Jay Hennick.

Thank you and good morning everybody. As the operator said, I'm Jay Hennick, and I'm the Chief Executive Officer of the Company. With me today is Scott Patterson, our President Chief Operating Officer, and John Fredericton, Senior Vice President and Chief Financial Officer.

This morning, FirstService reported very strong third quarter results with strong performances across the board in each of our service areas as you will hear from Scott and John in just a few minutes. Overall, revenues were up 26% over a very strong third quarter last year, EBITDA was up 30% and earnings per share was also up 30%. Cash flow from operations was $55 million for the quarter, almost 50% higher than last year, and our balance sheet continues to get stronger quarter after quarter.

With more than $250 million in cash and unused credit facilities, there is no question that the state of FirstService is strong. We're in an excellent position to capitalize on opportunities that present themselves and that's precisely what we're doing.

With these results, we decided to increase our guidance again for the fifth time this year. We now expect earnings per share for the year to come in at between $1.27 and $1.32 a share, up from $1.07 last year. At the top end of the range, that translates into a 31% increase over last year, a very strong result, to say the least.

We have also provided our preliminary outlook for fiscal 2008, as we normally do with our third quarter results. John will provide more details on both in his prepared comments.

In addition to our operational success during the quarter, we were also very successful with acquisitions. As mentioned on our last conference call, early in the quarter, we expanded our residential property management division with the acquisition of Service America, Florida's largest provider of home service contracts for major home appliances and heating and air conditioning systems. The addition of Service America not only provides us with a leadership position in a non-essential service, it gives us an excellent opportunity to help them accelerate their growth by doing a better job cross-selling this service to our customer base.

In November, we announced the acquisition of PGP Valuation, one of the largest independent commercial appraisal and consulting firms in the United States. Founded in 1978 and headquartered in San Diego, PGP has eight offices and utilizes a very sophisticated appraisal processing technology that we believe gives PGP a significant competitive advantage. As part of the transaction, we will merge our existing appraisal operations into PGP and continue to grow and develop this business with our new partners driving the bus in this profitable niche of the commercial real estate services industry.

We followed this same model again earlier this week with two more acquisitions. First, we acquired an 80% interest in PKF Consulting and PKF Hospitality Research, the leading hotel and hospitality consulting and research firm in the US. The balance of the equity was retained by PKF's senior management same. Founded back in 1935 with 10 offices across the US, PKF provides a variety of consulting and advisory services to owners, managers and financers of resort and hospitality properties, and more increasingly to condominium managers as well. And the Company's annual publication, Trends in the Hotel Industry, is a well-known and important management tool used by most owners and managers of hotels and resorts to manage their assets more effectively. Concurrently with closing, we merged our US hotel consultancy and brokerage operations into PKF to create the largest hotel and hospitality consulting and now brokerage operation in the US.

The second acquisition was Canada's largest and most experienced project management firm, MHPM Project Managers. Again, we partnered with the senior management team who will continue to operate the business as our partners going forward. Founded in 1989 with six offices across Canada, MHPM offers property owners and users a single point of responsibility when they develop, construct or renovate any of their offices or other facilities. Here too, we merged our existing project management business in Canada with that of MHPM.

The acquisitions of the PGP, PKF and MHPM are all important additions to our rapidly growing commercial real estate services platform. Each company is an industry leader in a specialty niche of the commercial real estate services sector. Each allows us to leverage our existing operations and customer base into a substantially larger and better managed business, and each provides us with even more services to offer to our growing customer base. Most importantly, however, each emphasizes the importance of FirstService's unique partnership model. By partnering with great management teams that have a vision for their business, we are able to align our interest with those of the operators, and together, we can build our businesses together and create value for all of the stakeholders.

So as you've heard, we've been very busy on a number of fronts. So far this year, we've completed a total of 14 acquisitions, spending about $75 million in the process and adding about $22 million annually in incremental EBITDA. Some of you will recall my comments earlier in the year when we sold our interest in Resolve that I hoped to be able to replace the $20 million in EBITDA within 18 months. Needless to say, I am pleased that we've been able to accomplish this in less than a full year.

Our goal as a company is to double our size and double our share value over the next five years. To do that, we have to grow internally by at least 8% and we have to add about $12 million of EBITDA through acquisitions each year on average. With internal growth running at about 12% so far this year and with more than $22 million in EBITDA already in the bank, we are well on the way to achieving our five-year plan. Doubling our size and doubling our share value will provide our shareholders with at least a 30% annualized return on their investment if they bought the shares of FirstService at today's levels. Based on our results to date and the momentum we currently enjoy, we remain very optimistic about the balance of the year and we are confident that we will begin fiscal 2008 in very fine shape.

Now let me ask John to take you through our financial details for the quarter, Scott will then provide his operational report, and then we will open things up to questions. John?

Thank you, Jay. As Jay already indicated, we are reported strong overall results in our third quarter at December 31 with each of our four operating segments generating solid growth over the last year. Our earnings trends limited the substantial free cash flow generation in the third quarter, some of which was due to working capital changes which will reverse in our fourth quarter as a variable composition liabilities are paid out, primarily in our commercial real estate services division.

With a significant cash and an undrawn revolving credit facility, we're well positioned to fund future growth opportunities as they present themselves. Our results in our third quarter also once again reinforce the advantage that our service line and geographical diversification provides to our shareholders, something we view as important in successfully managing future growth while mitigating risk, a real point of differentiation versus our peers that will become more visible as we move through the business cycle.

Here are our highlights of our consolidated results for the quarter, all of which are from continuing operations. Revenues up 26% to $374.8 million with 13% of term growth, of which 1% was due to the stronger Canadian and Australian currencies relative to the U.S. dollar and the balance of the growth related to acquisitions. EBITDA, up 30% to $26.8 million. Adjusted net earnings, up 24% to $9.3 million and adjusted diluted earnings per share up 30% to $0.30 per share.

Cash flow from operations increased 49% to $55.2 million. As outlined in prior conference calls, the adjustment to net earnings and earnings per share represents the non-cash and rapid amortization of short-lived intangible assets relating to pending commercial real estate brokers' transactions and listings recognized on acquisitions completed within our commercial real estate services platform. At I just mentioned, our cash flow from operations for the quarter was strong with just over $55 million generated during the October through December period. During these three months, we also invested $24 million in acquisitions and $4.7 million in capital expenditures. For the nine months ending December 31 in the current year, we have invested about $65 million in acquisitions. This represents about 60% of the after-tax cash proceeds received on the sale of our Resolve business services operation last March, and these acquired businesses will contribute earnings per share on an annual basis equivalent to that contributed by Resolve in our last fiscal year. After the end of the quarter, we made further investments in the PKF and MHPM commercial real estate services businesses as Jay outlined earlier and we will continue to look for investment opportunities in all four of our service platforms.

We have also invested year-to-date about $15 million in expenditures, and for the full year, we expect our CapEx investment to remain well within our self-imposed annual CapEx limit of 2% of revenues and about 20% of EBITDA.

Turning to our balance sheet, our net debt position at the end of the quarter was just under $100 million, while our leverage, expressed in terms of net debt to trailing 12-month EBITDA, was 1.86 times, down from 1.13 times at the end of our second quarter and well below our historical operating range of 2.5 to 3 times. With cash on hand of about $137 million, our $110 million revolving credit facility fully available to fund growth opportunities and our loan average, we have ample financial capacity to fund the significant level of acquisition investment to augment our internal growth without issuing any additional equity.

Looking forward to the balance of fiscal 2007, we have updated the outlook of our existing operations presented during our second quarter conference call. The following revised outlook reflects the contribution of the PGP valuation acquisition completed at the end of November as well as the two acquisitions announced last week. It also assumes no material change in current economic conditions in our major markets and excludes the impact of any further acquisitions completed between today and the end of our current fiscal year ending March 31, 2007.

We're increasing our estimates for the current year as follows -- revenues in the range of $1.275 to $1.325 billion, EBITDA in the range of $111 to $117 million and adjusted diluted earnings per share in the range of $1.27 to $1.32 per share. This morning, we also introduced our preliminary outlook for our year ending March 31, 2008, which we will finalize after completion of our fourth quarter and the formal review of our internal operating budgets for next year.

At this time, we estimate revenues in the range of $1.45 and $1.55 billion, EBITDA of $126 million to $136 million and adjusted diluted earnings per share in the range of $1.40 to $1.50 per share. We will announce a final outlook in conjunction with the release of our fourth quarter and annual results in May.

Now I would like to turn things over to Scott for his comments. Scott?

Thanks John. As you have heard, we generated revenue growth in our third quarter of 26%, approximately one-half of which is organic, representing the eighth consecutive quarter in which our internal growth has been 10% or better. I will comment on the internal growth drivers and operating highlights for each of our platforms, and then we will open the call to questions.

Let me start with commercial real estate, Colliers International, where our revenues for the quarter were up 35%, two-thirds driven by acquisitions, including Sealy, PRG Nationwide and Cohen Financial, and one-third due to organic growth. The healthy organic growth rate was driven by very strong results in central Europe, Australia and most of our markets in Asia. We are particularly pleased with the results out of Asia where CMN has invested for years to develop strong market positions. We're starting to consistently see the results in this investment, especially from Hong Kong, several offices in China, India and Singapore.

Similarly in central Europe, countries like Romania, Poland, Czech Republic and Hungary where CMN first established a presence in 1994, we have developed a position as the clear market leader in the region and are seeing the results of that leadership during this period of healthy markets.

In North America, revenues were approximately flat versus year-ago against a very strong comparable quarter which was up 32% over the December '04 quarter.

In terms of outlook, our pipeline remains relatively strong in all regions, approximately at levels of a year ago and (indiscernible) markets remain healthy which provide us with enough visibility to be cautiously optimistic about the next six to nine months.

Two key components of the Colliers growth strategy that have been discussed previously on this call include firstly the expansion of non-brokerage services to broaden the service offering to clients creating a revenue stream that is diversified and more recurring and consistent in nature. And secondly, the aggressive investment in people development, retention and recruitment as a competitive differentiator. I am pleased to report that we've continued to achieve success with both of these initiatives which we're confident will pay long-term dividends for us.

When we acquired CMN, the brokerage/services split was approximately 80/20. In the December quarter, this split was closer to 70/30 and on a run rate basis, the brokerage/services split was approximately 65/35. On the people side, we are making great strides with our people development and training program, operating core curriculum that has been successfully deployed around the globe. We also had another very successful quarter in terms of producer retention and recruitment, particularly in North America and Asia.

The third quarter EBITDA (indiscernible) was 7.2% compared to 8.2% in the prior year. The margin dilution is primarily due to the new [Grover] compensation model introduced in North America at the beginning of calendar '06. The model has the effect of lowering commission expense early in the calendar year until minimum thresholds are achieved and increasing commission expense later in the calendar year. I had commented on our fourth quarter call last year that we expected our margins to be down in the December quarter.

Let me now (indiscernible) our residential property management where revenues grew 23% in total over the prior year quarter, 13% organically. The organic growth, while strong, is off our year-to-date growth of 17% and down from our second quarter in total growth of 19%, reflective in part to the slowdown in new residential development and to a tough comparator quarter in the prior year where we reported internal growth of 30% partially due to a spike in service revenue as a result of hurricane Wilma damage.

The organic growth was driven by (technical difficulty) strong 20% growth cost growth in management contract revenue, but countered by approximately flat (indiscernible) service revenue relative to the prior year. Despite the slowdown in new development, we continued to achieve success in having new management contracts, particularly in South Florida, Las Vegas and in the Northeast including New York City. Our 20% plus growth in management revenue compares to a market which we estimate is growing in the mid- to high-single digits providing strong evidence of the competitive advantage we enjoyed as the largest manager of community association in the US.

I've mentioned on this call the last few quarters that we have refocused our attention on existing buildings that are [maintenanced] by competitors or self-managed. In this past quarter, we started to see the result of this initiative as the number of existing buildings and the percentage relative to new development was up over the previous couple of quarters. One of the keys to our internal growth strategy is to enhance our unit volume growth by layering in facilities services across our association base where opportunities arise and only at the discretion of the client. During the quarter, we continued to achieve success with this initiative, although comparatively, it did not show due to the strong surge in service revenue we experienced last year in the third quarter subsequent to hurricane Wilma. The strong service revenues generated in the prior year also drove the overall EBITDA margin up 170 basis points to 8.8%, 50 basis points higher than the more representative 8.3% we reported this year.

Turning to property improvement where revenues grew 9% for the quarter, 5% organically. Internal growth was driven primarily by systemwide sales gains at the major franchise systems, including CertaPro Painters, California Closets and Paul Davis Restoration.

Year-over-year growth was particularly strong at CertaPro Painters due to an increase in the number of franchisees and a continued increase in productivity, or average sales per franchisee. At both Paul Davis and California Closets, we experienced a high-single-digit increase in systemwide sales. Total sales growth at California Closets, however, was tempered by a decline in the sale of Melamine board to our franchisees. This is a continuing trend as our larger franchisees increasingly look to enhance their own margin by adding manufacturing capability and buying uncut Melamine board direct.

Systemwide sales at our other small franchise systems, including Floor Coverings International, Handyman Connection, Pillar to Post and College Pro Painters, were approximately flat year-over-year on a net basis. Our franchise operations as a group grew internally at a mid-single-digit range. The EBITDA margin for this division was 11.2%, up 170 basis points over the prior year due primarily to higher royalty revenue and the result operating leverage at our largest franchise systems. The margin also increased due to the mix change at California Closets with higher margin royalty revenues comprising an increasingly higher percentage of total revenues relative to lower margin Melamine board and product revenues.

Moving now to Integrated Security, our revenues for this division for the quarter grew an impressive 19% on a year-over-year basis and 14% sequentially, compared to the second quarter. Internal growth was driven approximately equally by our U.S. and Canadian operations. In the U.S., our growth is being driven by a general increase in the sale and installation of access control and CCTV systems. Strategically, we're increasingly focused on specific market verticals where we have developed expertise and experience, and this strategy is gaining traction for us. Our scales booking during the quarter were the largest in our history and we expect the year to finish strong. The growth in our Canadian operations was similarly driven by increases in systems sales and installation, primarily in our Toronto branch as a result of certain large projects.

Our EBITDA (indiscernible) for the quarter was 8.9% compared to 6.9% in the prior year. The 200-basis-point increase is a result of general operating leverage across all our security operations combined with significant mix change in Canada as our higher margin systems business is doing much greater year-over-year than our lower margin manpower business.

This concludes our prepared comments. I would like to ask the operator to take questions now please.

(OPERATOR INSTRUCTIONS). Frederic Bastien.

Scott, in the last conference call, you were pointing towards an EBITDA margin in the 8% range for Colliers for fiscal '08. Are you still comfortable with this guidance, or should we now look for something a little lower than that?

I'm going to ask John to answer that question on the full year.

On the full year, I think it's going to be a shade below 8, and just a bunch of factors but nothing I can point to in particular. I would expect that we'll be a shade below 8.

Where do you think the margins can end up for fiscal '08 though?

For fiscal '08?

Yes, given that you're increasing the service line for Colliers.

We're working with them both internally and through acquisition to increase that margin. I don't want to give you anything at this point. We are working through our internal processes and budgeting right now. So we provide our overall guidance for the year. But all I can say is that we will be working with the management team to increase that margin next year.

Okay. We're fairly happy to see that both RPM and Property Improvement Services posted respectable internal growth rates in the quarter. I know it's a little early, but can you give of a sense of how things are shaping up for these two divisions in the fourth quarter?

Residential Property Management and Property Improvement, did you say?

Yes.

These are our most stable divisions and (indiscernible) Property Improvement, it grew internally at 5%. The home improvement market, which is a metric that we follow, it has grown at approximately the same rate and is expected to continue. Our expectation for this division in the fourth quarter and next year frankly is mid- to high-single-digit internal growth. Residential property management, internal growth has been extremely strong the last couple of years, primarily driven by new development. This market grows again in the mid- to high-single-digit level. Our expectations for the fourth quarter and beyond is greater than 10% low teens internal growth.

Should we expect a similar kind of spread here? You mentioned that the actual Management Services increased 20% in the quarter, but that the Ancillary Services were kind of flat. Should we expect the same kind of outlook for '08?

Our growth in management contract revenue will not be that high. Our services should be higher. We would -- ultimately, our management revenue will trend down to the low-teens level and our services will increase from -- certainly from this past quarter. And our expectation in Services revenue would be high-single digit, around 10%.

Thank you. I will get back in queue.

Matt Litfin.

Had a question on the commercial real estate platform. Can you tell us where you are in terms of your number of brokers. And how does that look year-over-year, looking for growth in brokers and trying to get to revenue per broker as well?

I don't have that information, but we can get back to you on that.

Okay. I wondered if you could talk through the geographic split of the revenue at Colliers in calendar '07. Even if they're not exact numbers, just generally give us the split of the geographies.

North America is a little over 60% of, which includes Canada -- give me a second here, Matt. Asia is in the 25% range, and the balance is split between Europe and Latin America.

Great. One final unrelated question. Given the -- well, I guess this is the eye of the beholder -- but given the low valuation of your shares, does it make sense to ramp up the share repurchase plan? It seems like you can afford to do that and have dry powder for acquisitions, given the $250 million number that Jay I think you threw out at the beginning of the prepared comments.

As outlined, I didn't speak to it specifically, but as we outlined in our press release this morning, we had been an acquirer of our shares back in the third quarter. And I think we'll continue opportunistically when we believe that the market is not recognizing the value of our shares to utilize the issue a bit that we have in place and buy back stock at certain times. So, absolutely, our focus first and foremost is on acquisitions and we believe there's lots of opportunity there. But from time to time, again, particularly when we believe the stock is moving down and not reflecting value, we will be active acquirers of those shares.

I know someone else will ask this, so I might as well throw it out. Can you comment on the acquisition pipeline and whether or not there is any medium or bigger fish in the works?

There is the a lot of stuff in the pipeline, but they are very strategic and I'm not really in a position to give clarity on it right now, Matt. We're very busy with a lot of very good ideas that could take shape very rapidly. We've been working for a long period of time in two or three of our segments to build relationships with potential targets, and they are warming up nicely. But I can't give you anything more than that at this point. Smaller tuck-under acquisitions continue, as you've seen. We have great channels of distribution in our business, lots of opportunity to leverage those channels, and that is attractive to business leaders that believe that they can build their business more rapidly by being associated with one or two or three of our different service lines. So we are capitalizing on that.

We shall stay tuned, thanks.

[Nadeem Kabara].

Just on the commercial real estate platform side, just wondering if, looking at the margins year-over-year, I know you mentioned the compensation model, but I'm wondering if any recurring from the Sealy integration costs that we saw last quarter, if that had an impact this quarter as well?

Those issues certainly continue. We continue to be impacted by office rationalization in the southwest U.S. and the business disruption that that may cause, and the integration with Sealy continues. But it did not impact us on a year-over-year basis as significantly as it did in the second quarter, but it certainly continues and it will continue in the fourth quarter as well.

Okay, great. And just perhaps to rephrase a previous question, where would you like to see Colliers in terms of brokers versus non-brokerage split?

From my perspective, we have done a very good job over the past almost three years at repositioning the split of this business. I think that if we can get to a 60/40 split, we've done a great job. The broker channel is a very powerful channel. The brokers have a tremendous opportunity to create opportunities for other services that we offer, and I believe that the broker channel has to continue to be augmented as we grow because that's going to help us feed some of the other services. Scott talked about training, and the amount of expenditures we have incurred over the past probably 18 months on enhanced training. That is very important primarily for the broker channel because training includes not just doing a better job at what they do, but also understanding that as a commercial real estate services professional, not just a he broker, as a professional, they should be offering more than just brokerage services to their clients. It's not something that you can just talk about once or twice. It's something that you have to spend lots of time making sure that your brokers understand the services, understand how to sell the services, understand how to bring others into the equation when needed. And so we believe that the broker channel is the thin edge of the wedge in many ways. So 60/40 is probably a good number and we are almost there.

Okay, great. And if I can just finish with looking at the tax rate for the quarter, it seemed a little higher than usual. Perhaps you can comment on that and where you see it for finishing the year.

The tax rate was a little bit lower for the year, or for the quarter. We're looking at about a 33% to 34% tax rate, and we have adjusted to be in line with that for the year.

Okay, great. Thank you.

David Gold.

Can we talk a little bit more essentially on the outlook for commercial real estate. As you put out your preliminary guidance, I'm certainly not looking for hard numbers here, but even softly if you can talk a little bit about how you are thinking about the U.S. versus Asia and Europe have been to fiscal '08?

I will start and let John pick up on it if he chooses to. The only comment I can really make is that the markets remain healthy in all of these regions, and we are optimistic from quarter to quarter the comparators are going to fluctuate regionally. But I would say that we are optimistic really around the globe with CMA right now.

Presumably, do you have embedded into the forecasted decelerating growth for commercial real estate?

I think it's probably too early.

I think we would like to revisit this as we firm up our outlook for the year overall. At this point, as we've talked about before in terms of internal growth, we are probably looking at mid- to upper-single digits. But, anyways, we have not included our entire detailed budgeting process yet, and it's probably premature to make comments about it.

But presumably from this point though, you are still feeling pretty good though about that business?

Yes.

Okay. And second, Jay, now that you have more than replaced the EBITDA from Resolve, is a safe way to think about acquisition targets as say just that $12 million of EBITDA?

Well, your purpose -- is that the safe way? That is not what we're doing. We're looking at things opportunistically, and from our perspective, we want to know have a good feel for where our growth plan is over the next five years. So that is where the 8% internal growth on average and $12 million of EBITDA per year in acquisitions comes from. But we're going to capitalize on acquisitions as they present themselves and as our operations frankly can integrate them effectively. We have been very busy lately in a couple of areas. We have to digest a bit here, and so acquisitions will be -- they're always opportunistic, David, I mean that is the reality of them. You take them when you can, provided you can integrate them effectively. But our consolation prize, and we have said this many times on our five-year plan, is (MULTIPLE SPEAKERS) 8% a year, $12 million of EBITDA each year, have a nice day. (MULTIPLE SPEAKERS) double revenue, double share value in five years, not bad. If we can do better, we will do better.

Okay, but if 12 months from now, if you did not do at least $12 million of EBITDA acquisitions, you would be surprised?

I would be disappointed, yes.

Okay, perfect. Thank you all.

David Newman.

It's actually Andy Peng filling them for David. I'm just wondering if I could ask that following question, the commercial real estate conditions, but not so much by the various reasons, but just by the different business lines. How is the global sales market doing, how is the leasing market doing, and maybe also, what was your organic growth rate in your non-brokerage services, say year-to-date, assuming you actually had them within your -- at that time?

I will talk at a couple of them. The internal growth in our non-brokerage services was higher than brokerage, I think particularly in North America, but in general as we focus more on that as we discussed. Leasing and sales on the brokerage side were approximately the same as they were last quarter, but generally, leasing is up this year. And I didn't catch some of the other questions.

I think you also asked about sort of outlook as it relates to these sales versus leasing?

Correct.

I think, overall, I think our view and our management team's view would not be dissimilar to the market's view, that being that as the market extends, sales growth will likely slow and be offset by higher leasing. As companies continue to expand and look for additional space, there will be additional leasing revenues generated. So that's basically the way we are looking at the market.

That's great. Thank you.

Bill MacKenzie.

Thank you, it's actually Michael Tupholme in for Bill. First question relates to your balance sheet and cash flows. Given the strength in both seen this quarter, can you talk about your thoughts on and whether the Board has considered any potential for dividends?

This question has come up several times over the past number of quarters. The Board considers dividends probably every meeting. Management team considers dividends every day in what we do. And our view is, we can reinvest our capital in growth and generate at least a 30% annualized return. And as the largest shareholder, the biggest beneficiary of dividends, I still say no. So we are excited about the growth opportunities and we want to continue to reinvest our available cash in growth, and that is our current thinking. Tomorrow might be different, but today, that is our thinking.

Okay, thank you. Second question relates to the '08 guidance. Can you just talk about whether you have assumed any share repurchases in that guidance? I know there was a question earlier about whether you would pursue them, but is it embedded in that guidance in any way?

No.

Okay. And then also I guess, just within the Security segment, you talked about a couple of factors that drove the margins that are being of higher productivity and operating leverage. Are we likely to see that -- those factors continue to benefit the margins going forward, or was that sort of a somewhat onetime-ish for this quarter?

Well, when you're looking at quarter-over-quarter, it depends on obviously the previous quarter, and we are coming off of a couple of years of lower margins on margins that we weren't comfortable with. We have been focusing hard on increasing those margins in a number of different ways. But certainly, the operating leverage, if our revenues continue to decline, the operating leverage will be there because we are focused on the cost side and holding the costs and efficiencies wherever possible.

The other factor that I commented on is the mix change in Canada, and that's likely to continue also because our systems business does have considerable momentum right now and is growing faster now than our manpower business in Canada, and there is a big difference in the marketplace.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS). Frederic Bastien.

Just actually following up on that last question that was asked. I was just wondering if the competitive pressures have eased somewhat on the security side, because this is something that had a negative impact on margin last year.

I think that we reacted by focusing on certain verticals where we do have a competitive advantage. The competitive pressure was driven part by us because we were trying to be too many things to too many markets and we have tried to leave focus on areas where we do have an advantage and are able to price accordingly, and also sell more, frankly.

Can you give us a sense of what areas specifically we're referring to here?

I think that we've referred to customers in some of these areas before, so the three largest verticals would PetroCan and financial institutions and government.

Okay, thank you. One last question if I may. The minority interest was a tad higher than what we were expecting in the quarter. Where do you see this ending in terms of -- for the all of fiscal '07 as a percentage of earnings?

Well, it's going to be probably -- early estimate would be in the 28% range, I suspect, as -- and our acquisition activities take us to doing -- tuck in our acquisitions and retaining -- with the management teams retaining equity, you do have additional minority interest, and these business have been growing well. So we are seeing somewhat of an increase in minority interest.

Okay, thanks.

(OPERATOR INSTRUCTIONS). John Novak.

Can you give us some -- have there been any discussions about divesting of any businesses, particularly the possibility of divesting Security Services?

No, there has not been at all.

And are there any other businesses that could be a candidate for divestiture within your portfolio?

Every business is a candidate, because every business is a high-quality, fast-growing business that is run as an independent business unit. So I guess presumably, every single one of them is a candidate.

But nothing that you would anticipate over the next 12 months?

No.

Thank you.

Mr. Hennick, it appears we have no more questions at this time. I will turn the call back over to you.

Okay, thanks everyone for joining us, and we look forward to the year-end conference call. Thank you.

That does conclude today's presentation. We thank you all for your participation.