CGI Inc (GIB) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CGI conference call. I would now like to turn the meeting over to Ms. Paule Dore, Executive Vice President and Chief Corporate Officer. Please go ahead, Ms. Dore.

Thank you, operator.

Good morning, everyone.

Thank you for joining our conference call to discuss the financial result for the fourth quarter and for the '05 fiscal year.

With me today on the call are Serge Godin, CGI's Chairman and Chief Executive Officer, Andre Imbeau, Executive Vice President and Chief Financial Officer, Michael Roach, President and Chief Operating Officer, Jackes , Senior Vice President Finance and Treasury, David Anderson, Senior Vice President and Corporate Controller.

This conference call and accompanying slides are also being broadcast on our website at www.cgi.com. If anyone has not yet seen a copy of today's release issued earlier this morning, it can be viewed on our website as well. Additionally, we published our Q4 MD&A, which was posted this morning on our website and is being filed with SEDAR and EDGAR.

In our press release and accordingly, during the course of this conference call, we will make forward-looking statements regarding future events and the future financial performance of the Company. We wish to caution that such statements are forward-looking, and that actually events or results may differ materially.

We report our financial results in accordance with [inaudible]GAAP, however, we also use non-GAAP performance measures, mainly adjusted EBIT and cash net earnings. These non-GAAP financial measures are detailed in our MD&A, and should be considered as supplemental in nature. We refer to you our fourth quarter MD&A,our fiscal '04 annual report, and other documents filed with the Securities Commissions in the U.S. and Canada, which identify factors that could cause actual results to differ materially from forward-looking statements.

CGI disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. We remind you that all of the values expressed during this conference call are in Canadian dollars unless otherwise stated.

I would like to remind participants that we wish them to limit themselves to one question at that time as we would like to ensure that as many participants as possible have an opportunity to ask questions. Respecting your business schedules, we aim to keep this call to one hour.

Now, I will turn the call to Andre Imbeau who will review the financial highlights of our fourth quarter. He will be followed by Michael Roach who will committed by operations and by Serge Godin who will share perspectives on our market.

Thank you, Paule, and good morning, everyone.

Today we are pleased to report we have achieved growth of 17% in revenue and 18.5% in net earning from continuing operation in fiscal 2005, in line with the 17% we projected for revenue and earnings as part of the guidance we gave last July. We also significantly increased cash flow and further strengthened our balance sheet.

I will now run through the main line items.

Turning to slide number 5.

Fourth quarter revenue of $904.8 million was essentially the same on a constant currency basis compared with one year ago. Revenue from new business in last year was up during the quarter by the previously announced termination earlier in 2005, of a contract that was not meeting our profitability standards and some contracts entered through acquisitions. For the 12 month period ended September 30, 2005 revenue increased 17% to $3,686,000,000. This increase was mainly the result of acquisition of American Management Systems in May, 2004.

On constant currency basis, revenue has grown by 20.5%. We will have noted in the quarterly release that we have revised the interpretation of the accounting treatment relative to certain business process services. This revision follows the clarification of Generally Accepted Accounting Principles during our ongoing internal accounting review. Reduced revenue and applicable services, which are now accounted for on a net rather than gross basis. However, these have no impact on net earnings or cash flow. Had it not been for the two items noted above and the impact of currency, our revenue would have been $3 billion -- $3,753,000,000 in fiscal 2005.

If you look on slide number 6, you will see a reconciliation of our fiscal 2005 revenue with the July guidance. If you add back to our revenue numbers, this revenue adjustment and the increment of currency impact since the end of July, our revenue was slightly ahead of the 17% guidance we had provided.

We are now on slide 7.

In the fourth quarter, we generated net earnings from continuing operation of $56.4 million. Earnings per share from continuing operation were $0.13 compared with $0.12 a year ago. The year-over-year improvement mainly was driven by efficiency and productivity gain in our operations. The net earnings from continuing operation margin improved sequentially for the fifth consecutive quarter since the acquisition of AMS to 6.2% from 6% in the previous quarter.

Turning to slide 8.

Fourth quarter cash net earnings, which are net earnings from continuing operations before the amortization of intangibles, increased to $77.5 million, cash net earnings represented 8.6% of revenue, up from 8% last year. On the per share basis, they amounted to $0.18 versus $0.17 a year ago. Why cash net earnings is not a GAAP measure, we believe that it provides better visibility of our ability to generate cashflow from our assets. For the full fiscal year, cash net earnings increased by 21.4% to $302 million, or $0.69 per share, compared with fiscal 2004.

Adjusted earnings before interest and taxes, adjusted EBIT, is another non-GAAP number we refer to because it is a useful measure of the effectiveness of the business from an operational perspective. Adjusted EBIT increased to $89.4 million in the quarter, representing an EBIT margin of 9.9%, compared to 9% a year ago. For the year, adjust EBIT increased 11.6% to $346.1 million, mainly reflecting the AMS acquisition and new contracts, partially upset by the nonrecurrence of our life and sales and the impairment charges noted earlier.

Moving now to the cashflow statement and slide 8.

Cash provided by continuing operating activities was $479.7 million for the full year, an increase of $249.9 million over fiscal 2004. Our strong cashflow enable us to further strengthen our balance sheet.

At year end, our net debt capitalization ratio was 0.3%. Meanwhile, our cashflow position was $240.5 million. This was after buying back 14.9 million of our shares since February under our share repurchase program for a total consideration of $116.4 million.

Our DSO of day sales out-pending was reduced to 48 days from 54 days a year-ago. This improvement demonstrates our commitment to managing our receivables very closely.

Moving to slide 9.

During the fourth quarter, we booked 665.5 million of new business, bringing total booking for fiscal 2005 to $3.6 billion. Total bookings were 17.5% higher than in fiscal 2004. Our backlog of $12.9 billion at an end rate of remaining term of 6.7 years.

At this point, I would like to turn the call over to Michael Roach to discuss some of the operating highlights.

Michael.

Thank you, Andre, and good morning, everyone.

With fiscal 2005 now completed, I will take this opportunity to review our progress of the past year and highlight how we are well positioned to realize our vision, which is to be a world-class IT and BBS leader helping our clients win and grow.

Turning to slide 12.

During the year, we continued to increase the portion of our business generated from outside of Canada, which was up 8 percentage points, representing 39% of our revenue in 2005. I am also pleased to say that we are profitable in all our geographies and in both lines of business, namely IT and BPS. Turning to slide 13.

A key accomplishment this past year was our successful integration of AMS. We realized significant cost synergies from this acquisition, and our margins have increased accordingly. Importantly, we also achieving synergies that will drive the top line, leveraging our increased critical mass in the U.S. and in Europe. During the year, we achieved a number of strategic contract wins with brand name clients, including John Hancock. We also announced seven IT contracts for our Vantage 3 financial management solution with U.S. state and local governments, including a U.S. $333 million contract with Los Angeles County, and we won three BPS contracts to administer multi-family housing under the U.S. Department of Housing and Urban Development, or HUD, valued in total at approximately $100 million over five years. CGI is now one of the largest HUD business processors of it's kind, and a leading contender for future HUD contracts.

In terms of our prospects, following the summer period, our clients have been coming back to us with requests more projects, and we've been seeing increased activity levels. A noteable example is our selection last month to enter into negotiation phase for the Commonwealth of Virginia's Enterprise Application Architecture Initiative. At this time, we cannot comment further on this opportunity, but clearly, we are very please today have been selected to enter into this phase.

We continue to make acquisitions to add depth and breath of expertise. In fourth quarter alone, we made two niche acquisitions. We acquired MPI Professionals, a New York-based consulting and systems integration firm focused on the financial services sector, our largest vertical, and Silver Oaks Solutions, a leading provider of spend management solutions that provide cost savings in procurement spending for clients in both government and commercial sectors.

Over the years, we have also built industry-specific business and technology architectures that are among the most advanced for each of our selected vertical sectors. We developed or acquired state-of-the-art technology business solutions based on these architectures. We provide business transformation capabilities and strong management expertise to help our clients achieve their goals. This represent hundreds of millions of dollars in investments that are available to our clients to assist them in accelerating their value-creation initiatives. I should add that this is very attract capability to our clients and represents a barrier to entry for our competitors.

During the year, we continued to develop our global delivery model. This model includes the most robust near-shore capability in the IT services industry, with centers of excellence in six Canadian cities. Our near-shore capability is a tremendous asset given our proximity to the U.S., the largest IT services market in the world.

We also continue to develop our home shore capability with centers of excellent in the U.S. This past week, we announced plans to open a center of excellent focused on software engineering in Southwest Virginia, and we continue to develop our capability off-shore, where we have the delivery centers in Bangalore and [Monbine], and plan to continue to increase our capacity in--step with demand.

I would like to emphasize that off-shoring one facet of our global delivery model. A model, which we believe provides a very competitive value proposition. It provides clients with a blend of delivery options that meet their strategic and cost requirements. Through our metro-market business structure, we provide clients with a strong local business -- a strong local presence and accountability, combined with the benefits of world class IT and business process delivery services, and we provide global quality assurance that is second to none, based on our ISO and CMMI certifications covering our comprehensive management foundation.

From a professional point of view, over the past few years, we've had virtually no turn-over in the senior management team and a very low member turnover. We are attracting and retaining highly qualified professionals in our industry, and the firms with the best people end up winning the business.

In summary, we view the prospects for fiscal 2006 very positively. There will always be challenges, which over the years have only made us stronger, but we continue to focus on the opportunities, which remain considerable.

At this point, I will surgeon turn the call over to Serge.

Serge.

Thank you, Mike, and good morning, everyone.

Fiscal 2005 was another year of the strong and financial and operation performance, and, as always, we placed great emphasis on generating cashflow. I'm pleased to say that our efforts have been successful, for instance, over the past three years, we have achieved a 39% compound annual growth for cashflow.

In fiscal 2006, as we begin our thirtieth year of business. We affirmed our commitment to managing CGI as a long-term growth company. Our strong cash flow supports this commitment. We are convinced that our focus on long-term profitable growth is in the best interest of all CGI's takeovers.

Turning to slide 15 for a look at market demand.

Most of the recent studies or surveys conducted by market research firms show that a much larger proportions of organizations will increase their IT spending over the coming quarters. For example, in North American, according to industry analysts, demand for system integration and consulting services is projected to grow by some 4 to 5% annually. As for demand growth for IT and business processing, we expect it to be very strong.

Moving to slide 16.

Our four pillar growth strategy will continue to drive our growth. This strategy is comprised to two pillars related to signing of contracts, mainly system integration and consulting contracts, and large information technology and business process [inaudible]. The two other pillars are related to the acquisition of niche and large firms. One we have the critical mass to qualify for large [inaudible] initiatives. We will continue to build a stronger presence in some of our metro markets, namely in the U.S. and Europe. You will know that from recent industry news that consolidation will continue to be strong, and we intend to remain an active consolidator -- profitable consolidator.

The domain is which we operate offers tremendous opportunities as shown on slide 17. Both information technology and business process services also our markets, are physically untapped market. According to a study we commissioned in 2004 from the market research firm IDC, the IT spending not outsourcing by organizations in our market represents more than $1 trillion per year for IT -- US dollars -- and more than more than $2 trillion -- U.S. again -- for year for business process services. This is one estimate of the market potential, a portion of which will be outsourced in the coming years.

Some you have have asked how we planned to use our cash given our strong cashflow and cash position. I ree refer to our plans on the third quarter conference call when I said that we would continue to constantly dig the market, and that we would prefer to pay in cash instead of using our shares as a currency. Additionally, as you know, we have been activity buying back our shares as part of our share repurchase program. We review our use of cash regularly from the perspective of balancing the interest of our three stakeholder groups.

In closing, I would like to say that we strive to be recognized by our shareholders as a well managed, financially strong company providing [inaudible] returns and will continue to work hard to achieve this recognition.

Thank you for your time. At this point, we would be happy to take any questions you might have.

Thank you.

[OPERATOR INSTRUCTIONS]

The first question is from Paul Steep, Scotia Capital.

Serge, maybe you could talk just a little bit about the consolidation market? Obviously, you've been on this path for a while. Maybe you could talk about if there have been larger opportunities in the market, what your thoughts have been since you obviously have not closed on anything at this point, why you decided maybe to hold off, or what was not right if the environment that held back on consolidation just or the moment at least?

Thank you, Paul, for your question.

You have been following us for quite a number of years now, Paul, and so we have been a very prudent company. And when we look at acquisition, we always look at it from an execution point of view. What is the CGI ability to integrate these companies -- the targets. As you know, last year we had or we when we acquired AMS, so it was quite a large acquisition, and then we -- as we all know -- today, it is a very successful integration.

Once it's said though, let's say we declared a victory on that one, and then, so today, CGI is in a positioned for, an execution stand-point, to acquire other companies. That's what we have in mind, so when I say we declared victory, that means that it is non-integrated. We are working as one company now, and as you have seen in the winning, that the series of contracts with the new team coming from AMS, we -- it's really a great success.

Once it's said, we still need to grow our footprint in some of the metro market both in U.S. and in Europe. We have to realize that it is also a matter of critical mass in those metro markets where we have a presence as -- in the outsourcing -- in the outsourcing business. It is very important to have sufficient presence in the each of those metro markets in order to qualify CGI for those large outsourcing initiatives.

So the message -- key message -- here, ready to do other integrations.

What about the pricing environment on deals that you've seen? Obviously, Lockheed trying to go after CSC, and we've seen other deals -- does the pricing environment just not palletable at the moment given where -- even if you're doing it cash, where the market's actually at -- is that what's held things back a little bit?

No. So far if a situation in which we have been situation or, let's see, targets we are looking. I'm not saying it's going to be in cement, so obviously, we have the targets, and we have not seen yet change in terms of pricing. I'm not talking about companies such as you just mentioned. We don't need to acquire so large companies obviously. Again, we're going to be prudent, and the idea is to build those critical mass, but from a pricing point of view, not -- this is not the case.

And as you know and as we have announced, we have a policy, in terms of acquisition, it has to be created the first year of the transaction, so it dictate the kind of acquisition or the targets.

Just two quick clarificationsclarificationsrating cashflows, since we're now looking forward go the '06, what do you think the targeted level is, either yourself or Andre, for the next year?

You know it's a good question. You know -- as you know -- we don't provide guidance about that type of items anymore. So what we can say, we see -- we did improve our cashflow position during the -- if we look at 2005 and 2004 significantly. close to double our cashflow generation, mainly related to some projection with it, and also, if you look at our free cashflow, this year, as we remove the fixed asset and the intangible and also the contract costs, we have generated close to $340 million. So from, I would say, from $200 million less from the year before. Based on that, I will say that we will continue to improve it, and as we will continue to grow based on the transaction we will do okay on the market.

Thank you.

Okay.

Thank you.

The following question is from Scott Penner, TD Newcrest.

Please go ahead.

Andre, I wanted to get your updated thoughts on capital structure. Now that your about $4 billion in revenue, very strong and resilient cashflow, it appears virtually to demand have much higher debt ratios. I would like to get your thought what you feel the correct debt to capital ratio in for your company longer term, and how you are going to get there?

As we said, we still targeting the growth and working to achieve other positioning in some large market like U.S. or Europe. So having access to our cash capacity and also the debt level capacity, it's helping us to achieve that goal and use that cashflow in a transaction like this or support the growth on the larger sourcing contract.

I would say, as we communicate in the past, we always look to manage our debt ratio under the [inaudible] of the peers, and as of now, it appears, when we do compare with the peers, they are working around 30% of the -- of the economy value of the corporation -- the debt plus capitalization -- the capitalization of the corporation. So I would say it's our main target.

So on -- versus that 30% or what the median might be, do you guys have a target, be in 10, 15% then longer terms, that should be that portion of your capitalization?

We always look -- if you look at us, when we did that transaction with AMS, we went up to 20 to do that transaction, and early in the process, we started to reimburse our debt the way that we do work, using our cashflow generation from that. As soon as we have new transaction, as I said we may go up to the. I will say. maximum [inaudible] of the peers comparable, and since then, money's been getting through reducing to the maximum. We don't look, at this point, to maintain our long-term debt ratio excect for period of time just to pay back the transaction with -- we've just done before, you know?

Okay.

Thank you.

Okay.

Thank you.

The following question is from Mike Abramsky from RBC Capital Markets.

Please go ahead.

Yes, thanks very much.

The bookings were a little softer in the last three quarters at about 665 million, and backlog is -- I think -- accordingly declined. I just wondered if you expect to see that trend perhaps reverse itself, and perhaps, what are the assumptions you're making going forward with regard to that, and what might that decline risk to organic growth next year?

A lot of questions in there Mike. It's Michael Roach.

Maybe try to take them in some order -- first, the bookings really represent the summer period. Frankly, that warm summer we had seemed to expand right across our markets. A lot of clients took vacations.

So it was a little softer primarily driven by the seasonality. The second thing is you saw the Commonwealth of Virginia discussion slid into this quarter, so it didn't make -- it didn't make last quarter. So, again, the timing of when some of these organic opportunities are going to be brought to conclusion is really something that we can't accurately predict. I think, again, our sense is, our funnels are healthy. I did take time today to walk through the solid operational footing that we built over the last year, and again, we remain you know fairly confident that we're well positioned to continue to grow the business next year.

Thanks, Mike.

Now, just part of that, I guess there was a contract that had been written down as being unprofitable. I just wondered if you can commit a little bit and give us color on size of that, and whether that's a pattern we might see in the future?

First, it's not a pattern that you've seen with us in the past, so I can assure you it's not a pattern you can expect to see in the future. It's simply not a pattern. It's a one-off situation that's behind us, and we decided to put it behind us and again, move into fiscal 2006 in the strongest position as we can.

Okay.

So that would be an anomaly?

Yes.

Last question, you've been fairly aggressive with reguard to -- this quarter with regard to share buy back, I would -- in regards to your issue or bid -- you seem about half done, I would calculate. What might we assume regarding how that will trend over the next year, and perhaps, even can you give us guidance for a reasonable share count for '06 might be?

You know on the share buy back, we have the allocation for this year going up to the end of January 2006 to go up to 28.5 -- 28.8 million shares buy back program. We want to do it, and the intention of the corporation is to do it at the maximum one -- of the price, which we think is the right price for the -- do the buy back. And I would say, as of during the last quarter, it went well because we were able to get some share coming in the market, okay on the price and be able to buy. As you see, we did buy back, since February, significantly, with some variation mainly the CapEx to get from the market.

So -- and on the trend for that continuing -- I mean given kind of where the prices is now -- would you front-end that?

You know our way -- we will present our views to our Board of Directors, and as you know, we have to get the approval of the Board before we can get -- before we can talk about it. What I can say at this point -- our program is working for this year, and we will -- if it's appropriate, we will recommend for that to continue, but, at this point, I cannot answer officially.

Okay.

Thank you very much.

Thank you.

The following question is from Ed Maguire, Merrill Lynch.

Please go ahead.

Ed?

Ed?

Mr. Maguire require your line is now open. You may procedure.

This is Garret Bekker, [Fred]. Can you hear me?

Yes.

Sorry about that. Just looking at the duration of contracts declining, just wondering if you could maybe comment on that, and if maybe there's anything to read in there?

No, nothing to read. It's declining very slightly. It's the rate of consumption, but you know you're going to see that next time, we're going to announce for the [inaudible] and also on contract, which is the main growth driver, and it's going to go up significantly.

And I would say to you, you have to take into consideration for the backlog itself that the our mix of business to-date, as SINC as compared to the large, also contract long-term contract, we have 45% of our business in SINC, which is more short-term type of contract -- means between less than one year. So it does not in fact, at the same level than the also same business than the BPS business, but as we said, we always look to increase that proportion of large outsourcing contract significantly. So it's part of the explanation about the backlog and the value of the backlog itself.

Okay. Great.

And then, you may have talked about this earlier, but I'm not sure I got it, are there any potential additional contracts that we can look to that potentially could not meet the profitability guidelines going forward?

Not that we're aware of at this point, as I mentioned, all our -- all our lines of business and all our geographies worldwide are profitable.

You know we always make the assessment of that okay -- what's that -- minimum on the monthly basis and one on the quarterly basis for sure, and, at the end of the year, it was the adjustment we made and, okay, and one we seen in the full portfolio of the project of contract.

Great. That's helpful.

I think that's all I have.

Thanks, Gary.

Thank you.

The following question is from Richard Tse from National Bank Financial.

Please go ahead.

Hi.

Just a few quick questions here -- first, with respect to the pipeline, can you tell us where you are at beyond Virginia in terms of closing on that $7 billion pipeline, which I didn't think you talked about quarter. Is it sort of delays as a result of your strict profitability requirements, or is it a broader industry issue here that we're seeing -- that's a slope conversion, right?

It's Mike.

I think again, the challenge we have, and we explained this through a number of calls, Richard, is that we can't -- what you're really talking the is velocity at which an opportunity moves through the funnel to the closing, and these are really in the hands of the clients. We have to move at the pace of the client, and depending on whether the client is a government that can add additional time and complexity, or if the client is very large international client, their own internal processes could slow the thing down. Basic human things, as I mentioned earlier, about summer holidays and ability to interface with people to close are factors, but I don't -- my take of the business is I'm not seeing anything unnatural here. We've always said it could vary from 18 to 24 month on average, but with any average, some are longer, and some are shorter.

We're comfortable that the pipeline we have is solid, that these are really opportunities, and they are moving through the pipeline. Are they moving as fast as we would like? Obviously not, but again, the key for us is to ensure that we end up closing the ones that we're working on, and we're continuing to make good solid progress there.

I think, again, the Commonwealth is a good example. As you know, we spoken to that numerous times. At one point, we said it looks like they were going to close on our piece of business first, and then they switched to close. They were going to close on the Tier-1 business, and as it turned around, it switched again, and they were entering into negotiations with us first, and now, they just announced second piece, which is the Tier-1 award. So, again, those factors are not in our control, and hence, we have to work with the cliental and market, generally, in terms of timing.

That's fair.

In terms of the focus here on profitability -- where do you guys see a sustainable level of EBIT margins would be at? Clearly, you've made some major progress there. Where do you expect that to get it to?

Again, I don't want to say a target, but I would say we're confident that we're going to continue to gradually move that number up. We're -- as we have gained scale here, we've gained increased buying power in terms of some of the inputs to our business. Our global delivery model that I spoke about is helping keep our costs -- labor cost down and keep us competitive. We still see opportunities to grow the bottom line, and our 2006 plan has initiatives in there that would continue that incremental gradual improvement in the bottom line.

We're basically beyond the trough in terms of EBIT margins is what you're suggesting, right?

Yes.

Alright.

Thank you.

Thank you.

The following question is from Peter Misek with Canaccord Capital.

Please go ahead.

Good morning.

Just a couple questions on the market -- can you give a bit of understanding what's going on with your utilization rates in the market and the pricing environment? It appears that the Indian markets has seen significant wage inflation, and it's helping some of your peers, in terms of pricing. Can you help you the out with some of that first, please?

Again I think the -- I don't want to comment on my peers per se, but would say from our perspective, Peter, we're not seeing that kind of wage inflation across our global delivery model. I think that's one of strengths we have. We're not -- got all our apples in one basket. We have an integrated global delivery model that has components in the home countries, and hence, the announcement we made in Southwest Virginia. We think there is market within the country to move work from high-cost areas to lower-cost areas. We then have what I said, I believe, is a very unique position in Canada, given our footprint here, to move work across the border, and then we have our Indian operation.

So I think some of the pricing that -- pressures that you've seen you know driven by the India loan is kind of mitigated a bit. I don't see the same pressures by the Indian providers. In fact, my own view is they are trying to move to more of global delivery model themselves as opposed to a single out-tasking offering in India.

Just on your utilization rights, if you could, it appears some of the margin improvement and cash flow improvement could be driven by your stronger utilization rates? Could you just give us an update on that?

Yes, our utilization rates are -- as I said, all our lines of business and all our geographies are profitable, so utilization is a very significant factor -- an input factor -- to a business like ours, and our utilization rates are strong. We are not carrying a significant bench, which I think is very positive. So yes, certainly, utilization rates have a key input, and we're managing that side of business extremely carefully.

Just on your free cashflow -- it appears that you guys are now generating a circuit 10% or 10%-plus free cashflow yield. It appears you are trading at many metrics at a discount to a lot of your peers. Wouldn't some of that cashflow be best used as really investing in yourselves or maybe tapping some of value funds that look for a dividend before they invest? The cashflow growth you guys have seen over the last year has just been very, very strong and it looks like it is going to continue, and you appear to be one of cheapest players out there. If you could help me understand that.?

I could understand that Peter, Serge.

We are continued of an ideal situation, so with the capacity we now have as witnessed by the results. So today -- and we have to have in mind that CGI is, relatively speaking, is the new kid in this large outsourcing play market. And those large outsourcing contracts and competing against those big players, which you know, there's always a question, which comes to us very rapidly because the -- is this company going to be around five years from now? Since we're signing 10-year contracts, it is very important for us to show and keep a very strong balance sheet.

When I said that expression "the new kid on the block," you could imagine that in competing with very large corporations so the -- that competition is trying to find means to win against us because we came up -- we are coming up with new ways of delivering services, our strong footprint in Canada, which is closer advantage. I mean talking from a U.S. perspective.

It gives us huge advantages, and, obviously, the competitors are trying to, let's say, distance themselves and trying to beat CGI, and so the selling argument they are going to have -- they're going to try to discredit CGI. That's why you know from that point of view it's very important for us to keep a very strong balance sheet.

Okay.

Thank you.

Okay.

Thank you. The following question is from David Wright from BMO Nesbitt Burns.

Please go ahead.

Thank you very much. Good morning.

Good morning.

Congratulations on your year results.

When I look at the overall results, and certainly we see the marketplace is slowing down in it's growth, so your top line revenues are also slowing down and that seems consistent. When I then look at some of the underlying components, there are two numbers that stand out in my mind, that numbers that maybe represent areas of greater potential than what your realizing. It's the international numbers of Europe and Asia and BPS numbers. So I wondered if you could -- I would expect that certainly competitor are showing more growth in their Asia environment, and your revenues on the quarter versus a year ago for Europe and Asia is pretty much flat. I wondered if you could comment on that? Perhaps there's a mix going on between declines in one geographic region and growth in another one, and then also on BPS number, although it's your strongest growth area, competitors are certainly growing at a much faster rate. So I just wondered if there's greater potential here than what you're expecting for the growth in that area in the coming year and why?

David it's Mike.

On the international, I think a couple of things. First off, when you look at the percent of the revenue coming from international, you've good to look at the total growth of the entire company, and as I said we went up 8 percentage points in the U.S.

Secondly, as I mentioned in overview, last year was a year where we spent a lot of time on integrating AMS. On top of that, we transferred Joe [Seleba] to Europe, and Joe and his team have done an excellent job of really ringing out the cost synergies. The margins are very healthy in our Europe business.

In Asia, we're primarily in Australia, and our growth in Australia was over 40% last year. So that market has been good to us. So I have to tell you I'm very pleased with the international piece.

We are continuing to look ,though, for growth there including leveraging our acquisition pillar. We've always said we're looking for the right target at the right price and at the right time in Western Europe. On BPS --

Can I ask a question on international? Often we ask about the numbers of employment in India, so maybe you could update us on that? Maybe that's a red herring, because we all seem to be looking for is there not more growth opportunity in India, but you're saying really it's Australia that's driving those Asian numbers.

No, Australia is small part of the Asia, but the -- relatively to India, I think we've been consistent. We're growing the Indian operation as the demand would dictate. We've been growing about 50 people a month. We're -- probably by year end, we'll hit a thousand -- very good, steady growth.

We've been trying balance the growth there with these things that are very, very important to clients. One is to have low turnover, so that the people that are working on their applications are consistent and they're not crossing the street. Two, that we continue to provide high quality, which is very important, and three, that we have that linked to people on the customer premises or in their communities and with the Canadian model, and across those three, we're very pleased with our India operations. Our clients continue to visit there, and all I hear is very positive comments.

I had a very large client go over there the last quarter, he spent two or three hours with one of our developers actually looking at his specific application and was very, very impressed with the quality of our people. So from that perspective, as I say, we're very pleased with what's going on in India.

Okay.

And on the BPS front?

Well, the BPS front, the emphasis we put on, in BPS, over the last year -- we've done some -- we've been reviewing that portfolio of services. We've done some selected divestitures in that space, and for that, we've generated some very interesting cash numbers.

We have also appointed a new leader to the BPS. As I mentioned, he's carrying on there with a very strategic review there of where we ought to provide our emphasis and how we should leverage our four pillars of growth.

And finally, we've been working through what is a market issue relative to the claims processing business. The claims and insurance side have been down. They have now started to turn around.

Some of the natural disasters, in fact, are beneficial when it comes to the claims adjusting business. In fact, we're flat out in the markets we're at. We are actually short of adjusters given the load. So it's gone from a few claims to many claims, and we're hustling to stay -- stay up on that.

So do we see opportunities there? Absolutely, and -- but again, we're trying to balance that with all the other things that we're doing. Some of the stuff that we've got out of AMS, we've been leveraging that into the BPS space. For example, the [proponics] you saw this last quarter ,we signed up the Union Bank of California onto proponics. This is the third client we've got in three geographies. That's an example where we're taking some of the solutions that we've got that have an IT component and leverage them into the BPS business.

Profitable though is good in this business. So, we're still very enthusiastic there, but over the last year, that's the areas we've been addressing.

Thank you very much for your comment.

Thank you. The following question is from Paul Bradley, Frasier McKenzie.

Please go ahead.

Thank you.

Couple of quick questions -- You've been asked about the new bookings in the most recent quarter. Just wondered if you can provide a little bit more detail on the mix of that business, new renewal add-ons at a rough percentages there as you look at what was captured during the quarter?

I would say that it's not out of the norm. That would be -- one of the challenges we have is as we said before we can't always announce everything that we win. Some clients seem to have more and more restrictions around that, Paul, but for the most part, I would say it followed our normal pattern of renewals and new business.

So try to pin you down there -- 30, 35% of it would be new work from new customers or higher proportion of that?

I would say it's north of 45%, somewhere between 40 and 50% would be from new clients, and again to Andre's point, pieces of would by systems integration, which is normal course of business there.

Right.

Okay, that kind of leads me into the second questions since everyone else seems to have had a chance to ask you a couple of questions. If you look at the business mix going into fiscal 2006, about 45% of our revenue coming out of 2005 was systems integrations and consulting. Clearly, you're an outsourcing company. Do you see that declining as you convert more into outsourcing, or is that run rate we should anticipate in the absence of any acquisitions that will flow through the next year?

I would say, in the absence of any acquisitions, you will see the percent of our revenue that outsourcing, increase.

Okay.

Then that gives me my third question then -- you've spoken -- but last one -- you've spoken with the integration of AMS in the U.S., If you look at the mix of business, I believe the attraction of buying AMS in first place, is the SI and C company is cheaper to buy than outsourcing companies. It is an SI and C company, in fact, it even has software in there. If you look at the mix of business you're getting from AMS, is that meeting your targets on getting outsourcing business as opposed to sort of continuing with the flow of business they had before you acquired them?

Yes, I think so.

I think you've got to look at it though, Paul, from two perspectives. First, as I say, in one hand what we're trying to do -- the first thing we were trying to do is retain and leverage the relationships that AMS had. Again, this time of year, we have a lot of annual conferences on various pieces of our business. I just tended state and local government advantage conference where we had 500, if you can believe it, government people from across the U.S. I also attended the credit and collections seminary, and we had you know most of the brand name banks in North America and U.S. there.

So the first thing there was to shoulder up the relationships to make sure that the clients understood the combination of AMS and CGI was a plus to them, immediately and more importantly in the long-term. The second goal then was to try and look at a number of solutions that we had with AMS. In many cases AMS had some very deep relationships based on solutions, and their strategy was to sell licenses and not necessarily pursue the long-term relationships.

So in some of those cases, we've now taken some of their solutions and turned them into recurring revenue streams. So I mentioned [Proponics]. We sell [Proponics] as ASP because we're not interested in just cashing in a license, we're interested in a 5-year relationship, or a 10-year relationship, around that software. We're trying to do the same thing with Advantage, we're trying to do the same thing with Momentum, and we see that as a big opportunity because there's a long history embedded base in there.

If you look at Advantage and Momentum, they're in the government sector. The government sector is experiencing challenges not only on the cost, but they're also seeing a challenge in the aging of their IT workers. In some cases, they're looking at different business models. Hence, the idea of the Commonwealth of Virginia, where governments are looking at other alternatives in how to get the IT work done. We're trying to take some products and solutions we had with AMS, move them from one-off license to a long-term revenue stream to it match the relationships.

Then the third thing is we're getting in front of more and more of the clients that we acquired through AMS to show them our full IT outsourcing capability, and we're also taking the AMS capabilities, and this is important one, and bringing them to the existing relationships that we had in CGI, including in Canada, to show them the added depth and breath. We believe that will generate additional outsourcing contracts, not only in the original AMS footprint, but indeed in the areas like Canada, where the combination of two firms have increased our chances of winning new business.

Okay. I have a number of other questions, but I'll call back and ask those later.

Thank you.

Thank you.

The following question is from Scott Penner, TD Newcrest.

Please go ahead.

Either Mike or Serge, some of the industry comments from other companies have been that the deals are generally getting slightly smaller and slightly shorter. I would just be interested in your comments regarding your own pipeline, and what you see in the market in terms of the deal make up these days?

Thanks.

Thank you, Scott.

Those comments are very isolated with a couple of other companies. This is not what we're experiencing. There is no change from our perspective on that question.

Okay. Thank you.

Thank you.

The following question is from Ralph Garcea from Credit Suisse First Boston.

Please go ahead.

Good morning. Just a couple quick questions here -- on the Commonwealth of Virginia, do you see that closing by the end of December, or when you start recognizing revenue from that? Can you give an estimate?

No, at this point, Ralph, and I'm sure you can understand, we're in negotiations, and we really cannot make any comments that would in any way disrupt the negotiations that we're having at the table with the Commonwealth. So, we prefer to take a pass on that other than to say that we're working hard on it, and the attitude of the parties is very positive towards getting a conclusion as quickly as possible.

Has helped in the U.S. market? Winning that deal, and basically showing that you can can compete against the IBM's in the world -- has it helped either in the government sector and the commercial side of U.S.?

I definitely think so. I think, again, it's another good example of the combined strength and additional scale and scope that we bring to clients. I think it also disspells concerns of whether a Canadian company can win government business in the U.S. It also disspells the rumor whether a company like CGI can beat companies like IBM head-to-head in the marketplace. I think, at just about any measure, I think it demonstrates that from an operational perspective, from a capability perspective, from management focus perspective that CGI's pretty well positioned.

I mean we're spending all our time focusing on growing our business. As I said, Ralph, we have a strong financial base, operationally. We've got great people. We are tracking good people. We're getting more calls, frankly, from competitors who -- people in competitor who would like to join us. So, I do think it adds a positive momentum impact not only in the marketplace, but also have the people retention, recruiting side.

Lastly, on the 7 billion or so that you're bidding on, can you give a split -- U.S., Canada, Europe and government commercial? I don't know if you've ever given the government commercial split.

No, never. I would say 50% of the pipeline is U.S.- based, and it's probably 40/10 would be the other split -- Canada and Europe.

And you won't give the split then for government/commercial or -- ?

No, I don't think we've -- haven't given that. I think again the preponderance of the source is very oriented around the commercial side but as I say, I do see more interest coming from governments.

Okay. Thank you.

Thanks, Ralph.

[OPERATOR INSTRUCTIONS]

The following question is from David Shore from Desjardins Securities.

Please go ahead.

Yes, thanks.

Serge, just BC reported pretty week results it morning. I was wondering if you had any discussions with them regarding their stake in CGI, and their plans for that going forward?

No. So it is -- I didn't see the results. So I can't comment, obviously, on their results. So no -- no discussion on that.

Okay.

Thank you. Rest of my questions have been answered.

Thank you.

The following question is from Steven Li from Raymond James.

Please go ahead.

Thank you.

Mike, your sweet spot has always been the mid-market. Are you seeing more of IBM these days?

No, again, I think when you say the mid-market, I think we're very competitive across all markets, clearly in the mid-market, we are very agile and very fast in a space. But, no, I've got to be honest, I'm not seeing as much of IBM in that market at all.

We have been competing against IBM, and you've seen what is happening over there. We had some comments on the Virginia -- the Commonwealth of Virginia -- so our -- I would say that our success winning rate, while we're winning rate against IBM in U.S., is the same as the same we have in Canada. We're very successful from that point of view. We don't see any issues there.

Operator, we'll take one last question, and then, we'll conclude the call.

The following question will be from Paul Bradley from Frasier McKenzie .

Thank you very much. I did manage to get an extra question in.

Just looking at the pipeline of business, you spoke at about roughly 7 billion -- what would be the largest single contract you would be bidding on there, so we get a rough idea of distribution of that -- in general terms?

Between -- between largest, largest he said -- let's say between $1 million per year and $300 million per year.

Okay, so there's lot of different individual pieces of business in there then?

That's it.

Thank you.

I would now like to turn the meeting back over to you, Ms. Dore.

Serge is going to wrap it up.

Okay. Thank you very much. Again, thank you very much for your confidence, thank you for being with us. I would like to thank everybody, and we are very pleased with our results, and then, we look forward to -- we think that we are very -- let's say -- confident for better results in 2006. Thank you very much.