CGI Inc (GIB) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CGI quarterly results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Lorne Gorber, Vice President Global Communications and Investor Relations. Please go ahead, Mr. Gorber.

Thank you, Angie, and good morning, everyone. With me to discuss the first quarter of fiscal 2007 are Michael Roach, our President and Chief Executive Officer, and David Andersen, Executive Vice President and Chief Financial Officer. Also with us in the room this morning are co-founders Serge Godin, Executive Chairman, and Andre Imbeau, Executive Vice Chairman.

This call is being broadcast on CGI.com. Supplemental slides as well as the press release we issued earlier this morning are also available for download. Additionally, our Q1 MD&A, financial statements and accompanying notes are posted on our website and are being filed with both SEDAR and EDGAR.

Please note that some statements made on the call may be forward-looking; actual events or results may differ materially from those expressed or implied and 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 report our financial results in accordance with Canadian GAAP, but we do discuss non-GAAP financial measures which should be viewed as supplemental. The MD&A contains definitions of each non-GAAP performance indicator used in our reporting. All the figures expressed on this call are in Canadian dollars unless otherwise noted.

Now I'll turn the call over to David first and then to Mike who will review the financial and operational highlights of the first quarter. With our annual meeting scheduled for 11 AM this morning, our comments will be brief in order to try and leave as much time as possible for Q&A, but we will have to cap the call at about 45 minutes. David?

Thank you, Lorne, and good morning, everyone. We reported first-quarter fiscal 2007 revenue of C$904 million. This compares with C$845.8 million in the fourth quarter of 2006 and C$898.5 million in the same period a year ago. Our EBIT margins before final restructuring charges in Q1 were 11%, improving from 10.8% in Q4 and from 8.8% in the first quarter of 2006.

Overall we continue to approve our profitability. Our net earnings margin before restructuring costs went from a low of 4% and three quarters ago to 5.4% to 6.3% and to 6.5% this quarter even after higher year-over-year interest payments. These margin improvements are directly linked to the return on investment associated to the restructuring program announced last March.

On an EPS basis before the final restructuring charges the Company earned C$0.18 per share in the first quarter of fiscal 2007 compared with C$0.16 per share in the fourth quarter of 2006 and C$0.13 in the same period last year. The restructuring charges in the quarter totaled C$23 million, bringing the total and complete program cost to $90 million, in line with the original estimate.

Including the restructuring costs, our net earnings margin went from a low of 1.6% in Q2 of 2006 to 4.8% in the first quarter of fiscal 2007. So by all measures our results have continued to strengthen and with no further restructuring charges left to record. Next quarter's results will reflect the full and positive impact of the program.

On the cash side we also had a good first quarter, we generated C$166 million in cash from operations during the first three months of the fiscal year, that's C$112 million higher sequentially and C$103 million higher than the first quarter of last year. There are no onetime items included in this figure.

You may recall that last quarter we highlighted the C$54 million generated in cash during Q4 as being low due to normal variations in working capital. The primary drivers of the improvement this quarter were a positive working capital variation due to the improvement in our DSOs of 44 days from 50 days in the year ago period and 52 days at the end of September as well as the timing of certain payments.

During the quarter we invested more than C$15 million in our own shares, purchasing an additional 1.9 million shares. We also repaid C$92 million in debt during the quarter and at the end of December, including cash and cash equivalents of C$146.6 million, our net debt was C$580 million. This represents a net debt to capitalization ratio of 22.6%, an improvement from the 27.2% recorded at the end of the fourth quarter. In summary we posted a solid quarter. I'll now turn the call over to Mike.

Thank you, David. Good morning to everyone. I'm pleased to report that as a result of our continuing focus on business development, specifically implementing the full offering strategy, we've been able to generate revenues of C$904 million this quarter. We delivered EBIT margins of 11% and net earnings margin of 6.5% -- among the very best in our peer group.

I am very pleased with the continuing ability of the operation to generate drawn cash flows, enabling us to invest over C$100 million in debt reduction and in buying back our own stock during the quarter. Over the last 12 months, after taking the restructuring costs into account, CGI has generated in excess of $410 million in operating cash flow. At the current number of shares outstanding this represents $1.25 per share.

As Q1 was the final quarter of the restructuring I want to remind you of its two key elements, our first priority was to restore our margins to more traditional levels. Our profitability has improved in each of the last four quarters. Our goal was to achieve C$90 million in improvements within 12 months and against this standard we have delivered.

The second element of the program is squarely focused on generating consistent profitable revenue growth; against this standard we have begun seeing results. We have returned to profitable growth, posting a sequential top line improvement of 07% this quarter and just about 1% year-over-year. Our ability to continue delivering this profitable growth is linked to the implementation of our full offering strategy.

The elements of this strategy are to systematically and with discipline review the Company's full transformational capabilities with new and existing clients. Our plan is to generate additional revenue through capturing a greater share of clients' IT and business process services investments, a growing and lengthening backlog of signed contracts, and an improving funnel of opportunities for both outsourcing and systems integration. We want to make sure the client can leverage CGI's comprehensive end-to-end suite of services and solutions for all of their business transformation needs while profiting from our unique and competitive global delivery model.

It's worth noting that this quarter our revenue outside of Canada accounted for more than 40% of the total, marking a new high. We plan on continuing to grow all our operations. This is consistent with our strategic goal of deriving at least 60% of our revenue from outside of Canada over the next three to five years.

At this time in the year we review with our Board the best use of cash, and our conclusion remains that there are significant growth opportunities for CGI to pursue which will generate significant value over time. Accordingly we will continue to invest in these growth opportunities through the pursuit of large outsourcing contracts and strategic accretive acquisitions. We'll also continue reducing debt and buying back our stock when appropriate.

Again, consistent with these priorities the Board this morning approved the extension of our normal course issuer bid allowing us the flexibility to repurchase 10% of our public float or almost 30 million shares over the next 12 months. Overall the fundamentals of CGI are strong and we remain confident in our ability to profitably grow our business and in the process create additional value for our shareholders. Thank you and let's go to our questions, Lorne.

Just a reminder that the replay of the call will be available either via our website or by dialing 800-408-3053 and using the pass code 321-0468 until February 13th. Follow-up questions can be directed to me at 514-841-3355 and media can follow-up directly with Philip Beauregard at 514-841-3218. Angie, if we can poll for questions from the investment community, please.

(OPERATOR INSTRUCTIONS). Jason Kupferberg, UBS.

Thank you and good morning, guys. I had a question regarding M&A and I know that the restructuring is complete. And by the way, congratulations on that. What are your thoughts from an M&A perspective? Are you a little bit more apt to perhaps consider something larger now that the internal restructuring activities are in the past?

I think that's an excellent question, Jason. And it goes to one of the points we've made I think consistently here that when we look at acquisitions they have to be accretive, they also have to be something that we can integrate from an operational standpoint. There's no doubt about it that implementing a restructuring program of the size and scale that we did over the period of time certainly required management to focus heavily on the restructuring program, both elements, reducing the cost, improving the margins and getting the organic growth wheel going again.

So relative to acquisitions, our balance sheet continues to strengthen so we have increased financial capability. Operationally we believe that we're in a position to do that. All that's left is to find the right target at the right price.

Okay. And on the margin front, 11% this quarter. Is it your feeling that that level is sustainable going forward? Obviously now that the restructuring program is complete do you think that you can sustain that level or will it vary just depending on how revenue bounces around quarter to quarter?

Is certainly can vary for a number of factors, some is what -- seasonality. I think the message though that we've tried to communicate is that are goal in the restructuring was to return CGI to its more traditional levels of margin which, as you guys know, has always been at the top or near the top of our peer group. We never stop looking for ways to drive efficiency; it goes with the business we're in. I'm pleased with the 11%, especially as Dave pointed out -- the same time last year we had about C$6 million in -- we had C$6 million in interest costs this quarter we didn't have same quarter last year.

So yes. No, we're going to keep booking. It may bounce around depending on whether we're implementing an outsourcing deal that could have expenses upfront and the revenue a little after. But we believe we've returned to our more traditional levels of margin performance.

And just one quick one if I can just finish up here. On the bookings front, certainly better than last quarter the backlog continues to trickle down quarter over quarter, I think it's been three straight quarters now. Based on what you see in the pipeline do you see that trend reversing? Do you see the book to bill getting back above one? Obviously it can be lumpy in a given quarter, but we've seen kind of a multi-quarter trend of being just below that one to one ratio?

Our stated goal is to be better than book to bill of one. As you did mention, we've seen a nice bump up this quarter. We look at our funnel, we look at how our teams have been able to generate growth by actually getting a better share of existing client spend. We believe the book to bill will continue to strengthen towards the stated goal of one or better.

Thanks for the comments.

Paul Steep, Scotia Capital.

I guess first on the strength in the U.S. business and the growth there, maybe, Michael, you could talk a little bit about the market and U.S. government for state and local in particular and some of the success you've got going on.

As I mentioned on the call, this goes back to the comments we made around the strategy of actually acquiring American Management Systems two years ago. We felt we needed to get more scale, more capability and, again, just to reiterate, we're very, very pleased with that acquisition. We're pleased with the leadership team we have, a very strong team focused on the right things. And again, that execution piece has been reflected in the bottom line ever since we did the acquisition. You're now seeing it a little more clearer as the dollar kind of stabilizes. We are seeing growth in the commercial section as well as the government area.

Again, in the government area we continue to win new advantage opportunities, we continue to look at turning what would have been one-time licenses into recurring licenses. And the outlook from our perspective remains very, very positive in the U.S. both on the government and the commercial side. We have a lot of capabilities also in the financial sector, things around our collection systems, and many of those systems have been in service for a lot of years. The cycle of refreshing those is coming up. We're making new investments in those areas.

And we think we're on the cusp of increased activity there as some of these financial institutions look at upgrading and modernizing some of those applications that AMS have had in there on an embedded basis for many, many years. And we're also pushing those in Europe as well. We've gone back to clients in Europe that have had AMS solutions that have been somewhat dormant there and are now calling on them again. And we're starting to see interest and activity in upgrading those platforms to the more modern platforms that we've invested in.

Great. Just on the M&A, to follow up on that -- the geographic focus. Historically we've talked a little bit about Europe and the U.S. and was just curious to get your sense as to the target area in that point and also maybe on the side as to whether it's a process or an industry focus in terms of how we should be thinking about where the strategy is heading.

Again, very focused on the U.S. and Europe. The U.S. represents about 70% of the spend in the IT side. We look for a company that would complement the verticals we're in, would be nice to have something maybe a little more heavier in the U.S. on the commercial side versus the government. Some company with a backlog would also be interesting to us. So those are the types of targets we're looking for. And again, all of the acquisitions we do of course must be accretive and must be able to be smoothly integrated from an operations perspective. Because in the final analysis really what we're buying is talent here, and so those are the types of things that we're looking at.

Great. just two quick clarifications and I'll get off. The first would be where are we at in terms of the target debt to net cap level that you're looking at? Historically we've been talking 18%. I'm just curious as to what the thinking is. And then secondly, what was the Bell revenue contribution in the quarter?

On the debt ratio, about 18 to 20. Again, a lot depends on market conditions and -- but I think we've moved down from 27 to 22. So we believe that there's a range there and we're getting very close to it. On the Bell revenue itself -- was about -- just checking -- about 111 million.

Perfect. Thank you.

Mike Abramsky, RBC Capital Markets.

I just would appreciate perhaps a little bit of color as to how you can see the sustainability of your growth going forward. This quarter was above consensus which is obviously positive. Can you talk a little bit about the contribution that you see in this quarter and going forward from new and renewed contracts? The decline in backlog is a little worrying; it is the fourth straight quarter and I'd just like to understand for example how much of that is related to contract adjustments and restructurings and cancellations. And how that is expected to recover and, again, some general outlooks on sustainability of growth?

Again, it's a good question and I appreciate the opportunity to address it. Because again, I think if you look at what we've been executing here -- we outlined our plan and we're executing to our plan. The time it takes of course is driven by a number of factors. We said we had to address some cost issues, we've done that. We said we needed to get the growth going; we've put up a quarter with 7% sequentially. We've increased the book to bill ratio, granted it's not where we stated. But again, directionally we understand those areas where we need to move the dial and we have plans to do that.

Relative to the book to bill, it's not a matter of the losing position with existing clients or contract cancellations. In fact, what you're seeing here is our ability to work with our existing client base to actually increase the share of wallet that we're getting with each client, bringing to them more of our services. You've also seen -- I think we put an announcement out Friday where with Axis we went from a client who was essentially a tier one client to a multi-tier client. So therefore we've got a long-term contract there of seven years and we've increased our visibility of revenue with that client from one tier to tier two and tier three.

And that's how we're executing the program. As I mentioned before, when you're executing a program like this you will always see the positive impact on the bottom line before you see it on the top line. It takes a little more time, but again, we're executing a total plan here that has those two elements and you've seen the first element in the bottom line. You're starting to see the impact on the top line.

The backlog, while it has fluctuated a little bit, I think it still has to be put in perspective. It's over C$12 billion; the average age is still over seven years. That's a lot of visibility. If you look at the backlog, the current revenue, I still think it's one of the best in the industry. So we're conscious of those other dials we've got to turn and we're working very hard to put them in the right direction.

So when you do look forward, Mike, what do you see as some of the most promising growth drivers either in terms of new product that you're bringing, new or existing client -- that can increase existing client or penetration or new client contract?

Well again, I think there are some macro and there's some micro. If I take the micro ones first, it's a matter of -- and we surface that on this call is that if you look at how rapidly we've grown over the years and even if you take the last two years with American Management Systems, we gained a lot of capabilities there that we have not had the opportunity to fully put in front of all our clients.

So if I look at some of the things we acquired from AMS on the government side or on the financial side, as I mentioned the financial institution side, it takes time for us to be knowledgeable enough of those solutions internally, get those embedded into our total value proposition and then take them in front of the client.

On the other hand, it takes time for the acquired companies like AMS to really understand the managed service offering we have and how to sell that and how to bring that forward to apply it. So part of it is increasing our coverage of our full capabilities with our existing client base. The second more macro indicator is that outsourcing or managed services, whatever you want to call it, is a permanent change to how business and government will do business.

So directionally that driver will always be there. It may slow down, it may accelerate, but it's still always going to be there. And we're very well positioned because we're one of the few players that are end to end in that space so that over time we will pick up our fair share of those outsourcing opportunities. Those two factors, the micro and the macro, will drive the growth for CGI, just as it has in the past. I think though that the two headwinds we faced last year and to some extent in 2005 has kind of clouded some of that activity.

I think that the two headwinds we faced are more stable this year; the dollar seems to be operating in a tighter range. And with BCE our relationship remains very strong and we continue to work with them in helping them transform their company, which means revenue for our company.

Last one and then I'll hop. The Canadian growth, I would sort of calculate that excluding BCE as flat, and that is 60% still of your revenue. So is that going to -- do you see that as perhaps shrinking or expanding?

Are you talking quarter-over-quarter or year-over-year?

Year-over-year you have to understand that this same quarter last year Bell had a minimum of $125 million which they actually exceeded. So that's one of the reasons I'm emphasizing sequential because that to me was a bit of an anomaly quarter relative to what BCE has been spending ever since.

Excluding BCE.

But if you exclude BCE, we did see grow in Canada and in fact we saw growth in all of our geographies sequentially and year-over-year we saw growth also in Europe. So I think I'm trying to focus a little more on sequentially because I think that shows more the impact of the program because we started the program last March and you're following our progression. On the bottom line, you're starting to see some of the activities we took into the first quarter on the top line and our goal is to keep that momentum going forward throughout '07.

Thank you very much.

Scott Penner, TD Newcrest.

Mike, just if you could kind of update us about the dynamics of some of the larger contracts that you're working on. It's been a while since we've seen a real drawing of the line in the sand type of contract. And coming up on $4 billion in revenue I think you'd agree it takes a lot to move the dial organically without some of these large deals. So any comments there would be helpful?

I think that's a good observation, Scott. And that's why I also am talking about the other things we're doing account by account to expand and grow within accounts because you're quite right. When the Company was much smaller you could announce a deal that would drive the organic growth number on the basis of one deal. Given the size of the Company now we need to fire on all four pillars of growth.

And the first pillar is increasing our emphasis on systems integration. We've expanded that now with a lot more solutions, so systems integration solutions capabilities. We still have the pillar in outsourcing. We still have the two pillars in acquisitions -- the niche acquisitions and the large acquisitions. So in order for us to meet our strategic goal and to continue to ensure that we're a global player here, we need to drive on all four pillars and that's exactly what we're doing. And you will see growth coming over time on all four pillars.

What you're seeing here in the first quarter is growth coming around the first pillar. There will be things coming on the large outsourcing side and hopefully on the other two pillars if we can find the right targets. So it's really us returning to focus on those growth drivers that have really allowed us to take this company from two people to 25,000 over 30 years and make sure we're executing well against all four.

I think the take away that we've realized is the point you make -- is that you cannot generate enough rain from one or two large outsourcing contracts to grow a 3.5 or $4 billion company. You need to execute evenly and consistently across all four pillars and that's what we're trying to do.

Thank you for that. Just lastly, maybe if you could comment on something a little different and that is the role of these sourcing advisors or consultants in the marketplace, it would seem that they are more pervasive across both large and small companies. So you could make the argument that their sole job in life is to make sure that the customers get as much value and squeeze as much value from the vendors as they can. So how do you maintain in that environment a decent return on capital?

Well, I think two things. It's a bit of a two-edged sword. On one hand they can be helpful to a company like ours. Most of these guys have been dealing with what I like to term the old line or established long-term players in our industry. Frankly at some level they need some new faces to bring to their clients. Because if you're always negotiating with the same two players at the table I don't think it does a lot for their business.

So to some degree they like the fact there's a new player here, that they can offer their clients an alternative and, in many cases, an alternative that's driving higher value than some of the players they normally see across the table. And in some cases we've come in when some of the established players have essentially attempted to move the deal through with very little value in our opinion for the client.

On the other hand, they can slow the process down and I think you're seeing some of that in the speed at which these deals move throughout the funnel. The third area which is how to ensure you get a good return on capital and that really comes down to discipline. And again, we've been consistent on that all the way along in the sense that I think a number of you where I met with you individually I've said we're only interested in profitable revenue. One can take a deal that in the short-term will put revenue on the top line, but in two or three quarters you see people taking write-downs against these bad deals.

And our belief is that we need to drive profitable growth given that we're executing a buy and bill strategy we realize we need to have healthy profitable revenue. We need to have healthy margins and we need healthy cash flow. Those are kind of the fuel that drives a buy and bill strategy. And when we look at these deals we look at them the same we look at an acquisition. We will not buy a company because we've got pressure from an investment banker to close the deal.

And similarly on an outsourcing deal, we will not close the deal because some industry analyst is sitting across the table saying that these are the terms and conditions that you should accept and we just don't do it. We do what's right for our company and our shareholders and where we're at odds we part ways. And in some cases, without getting into specifics, where we've parted ways other people have gone in and those contracts have gone south.

I appreciate it. Thank you.

(OPERATOR INSTRUCTIONS). David Wright, BMO Capital Markets.

What could you tell us that you might be doing differently to get a bigger share of wallet? Because for some time I think you've been trying to do cross [pollenization] with your various business units, but is there anything you're doing differently to pick up the business?

As I mentioned before, David, we have a decentralized business model that works very, very good. The thing we've tried to address is a potential gap there in when you want to bring the full breadth of the Company together sometimes it's difficult to do that by individual business units. So what we've done this time is we have fully integrated a number of our corporate functions, the corporate marketing, the business engineering group, we put them together under the leadership of Daniel Rocheleau.

We're working as an integrated fashion with the country presidents and the business units to ensure that we're addressing our marketing pitch at the right level, making sure that we have the full content of the Company's offering and that we have the right people at the table, the SMEs or the senior executives we need to ensure that the Company story gets told fully and completely.

And we've also reemphasized the fact that we should be constantly speaking to our clients about expanding the scope of the services they do with us because our ability to do a larger scope has also increased. And sometimes when the folks that are delivering -- it's tough to fully realize that we've also added all these other capabilities. So I think it's nothing more than disciplined focus and really ensuring that we're bringing the best of our company to our clients.

With the restructuring what's your employment count across the various regions?

I think, Lorne, you can give Dave that off hand. But Dave, we're still tracking 24,500, 25,000, it fluctuates up and down.

With only 1000 people with the restructuring. I guess I was chiefly interest in India, whether you've had a greater shift with employment over in India?

Again, across all our global delivery models we continue to expand. I think we're up to about 15% of our workforce, about 4000 people that are actually working on what we would call global delivery. And that is having the components of near shore, home shore and off shore of which India is a component in that. But in southwest Virginia now we're over 100; in Prince Edward Island, their new building is up there, we're approaching 150 there. We continue to expand in India.

So that piece of the model is moving along nicely. We've just certified all the candidates, CMM level three last quarter. So it's starting to -- the buildout continues, but it's built out enough now that we're starting to see some nice revenue opportunities come from the global delivery model.

Okay, thanks. And a question I guess for David on the balance sheet. Goodwill from last quarter went up about $50 million. Could you talk about what the impact on goodwill was and what would've made that change?

Pretty simple. It's just the impact of the change in the foreign exchange rate. Because it's -- when we acquired AMS, that goodwill is denominated in U.S. dollars. So as the Canadian vis-à-vis the U.S. dollar changes rates, then that just kicks out an exchange gain or loss. And you'll see the other side of that sitting in the balance sheet in the -- it used to be called the cumulative translation account, so it's part of retained earnings; it's part of the comprehensive income.

Okay. Great, thank you very much.

Paul Lechem, CIBC World Markets.

My questions relate to the investment tax credits that you have in your Montreal locations from the Quebec government. I'm just wondering if you can give us an update on what you expect those to be in '07 and '08, and if you can remind us again when the current program comes to an end, and if you are in negotiations right now to try and renew the program beyond the current expiree?

Okay, so the program itself, there is a number of programs. One, I think, is to 2010, one is to 2012. The programs, I will remind you again that the programs don't only apply to us, they apply to an industry, and there are many players that are involved there.

Relative to negotiations, I would prefer not to comment on that. I think it is something that is ongoing discussion between the industry and the government. I did point out, though, from an investor standpoint -- and I reiterate that again -- is that the credits, you have to look at these credits against the additional costs. And again, if we didn't have the credits we would take action to make sure our costs were competitive and, therefore, from an investor standpoint the kind of margins and performance that we drive would be comparable to what we are doing today.

As far as '07, Dave, I guess the '06 credits are coming out soon?

Yes, we will be receiving those in the next few months.

And the level, I think we put it in the circular, last year was --.

It's in the MDA.

It's in the MDA? Okay.

Also, there are parts of it in the financial statements too, for last year.

Okay, Paul?

So we should expect '07, '08 to be comparable to the years previous?

Yes.

Susan Chen, Merrill Lynch.

Congratulations for a good quarter. You mentioned that your IT services revenue is higher than expected, and you mentioned that reflects business won from new and existing clients. I wonder if you could give us some color of have from new client, have from existing client, and going forward how should we expect that to run?

That's a good question. I would say that in the quarter, a lot of it came from existing clients, but I will put that in perspective. I guess they're existing clients, but some of them are new existing clients in the sense that if you look at some of the deals we did last year, the revenue -- and I explained that on a number of calls -- especially in the infrastructure space, we have to make the investment to actually move the physical infrastructure from the clients over to ours.

Once that gets in there, then the client starts to make change controls, he starts to grow; we see some of that growth. So I would say -- I don't want to guess on a percentage, but it is more than 50% came from existing clients.

Going forward, we expect that mix to gradually change. More will start to come from new clients as the impact of our full operating strategy kind of evolves from our existing client base to our new client base. So I would say over time we would look to get more revenue coming from new clients than existing clients, but it will take time, Susan.

In the interim, we are confident that we can continue to grow our business with the very large pool of clients we have and new ones that we are working on every day here.

Related to that with your more of new clients ramp up, do you see your CapEx increase during the year?

CapEx is very much tied again to the nature of the deal. If it is an infrastructure deal, you're going to have a higher investment requirement. If we are working on the people side of the deal where we are doing an application development, application maintenance, traditionally we have not had to invest heavily on the infrastructure side.

So I think at this point, again, it is hard to know exactly which type of outsourcing deals will hit. But when we look at a survey we had IDC do, in fact in 2006, we asked them to go and talk to the top 2000, Fortune 2000 companies. And I think it was 13% of those companies said that within the next three years, they would look at full outsourcing, which would be the tier 1, tier 2, tier 3, by our definition. Therefore, we would have a pretty good -- while in a full outsourcing deal, we could have a CapEx input, the fact that it would be full outsourcing would probably keep our ratios probably in line relative to our current level.

Switching gears, can you give us some color on the development of your U.S. CGI federal business? And also related to that, two weeks ago one of the federal IT guys preannounced, CACI preannounced and also [Gibbs] gave us a negative outlook of the federal IT side. Can you comment on that, if there's any impact on your business? I understand it's very small size of your business right now.

It may be small but it's powerful and it's well focused. It's got a great team there. We have our CGI federal business up, running, it's all been certified. Again, they're targeting some very exciting opportunities. The U.S. federal government spends over $100 billion a year on information technology and therefore it's a huge opportunity for us. We're not seeing the kind of thing that CACI announced. The spaces we're in are very stable. We are pursuing a number of opportunities there around our momentum product.

As I mentioned on this call before, last year we were able to take a client who would have been a onetime revenue opportunity for us and turned it into a 10-year revenue opportunity in the federal space. So the team there is very much focused on not only growing onetime revenue, but also transitioning that into longer-term revenue through a fully managed service and that's what the team are doing there. But I saw that announcement by CACI and we're not seeing that at all, Susan.

Thank you very much.

Angie, I think we'll have time for one more question.

Richard Tse, National Bank Financial.

I'm going to try to slip in two questions here. First, what do you guys think is a sensible organic growth rate going from here obviously in the absence of any acquisitions?

Well, again, I don't want to give guidance on that. I think that we've always grown a combination of both. I think there you should look at the kind of market rates, Richard. And again, I think what we're trying to tell everyone is that as our program kicks in and continues to kick in we're hoping that we would see continuing momentum here on the top line. The headwinds we had we're hoping that as we turnaround may become tailwinds. So where the currency was hurting us it in fact could start to help us.

The BCE thing where we had to address a major reduction last year, we're expecting more stable revenue there. So those things could turn out instead of being neutral, could be positive here. Those things will kind of influence the rate of growth that we experience, but I think the message here is that we're executing a program, it takes time, but so far I have to tell you that I'm very pleased with the way our team has conducted themselves for us what's essentially a transition year.

And if you look back, and I think I've shown a number of you that slide, if you look back through the last 10 years, we've had other areas where we've had transitions, but we've always returned stronger in terms of delivering top line, bottom line and ultimately value for our shareholders after those transition periods. That's where we think we are and that's the basis on which we're going store. We're looking to profitably grow our company top line and bottom line as we go forward.

Okay. And one final one. With respect to contract restructuring there's obviously a lot of discussion among the advisor community that the restructurings on the market continue to increase or trend upwards. Can you give us a bit of color on that and what's your sense of repricing of this and contracts, has that environment improved or deteriorated in any way?

Again, I think that's a good point to bring back -- reference the comments I made about our backlog. The average age of our backlog is in excess of seven years. We do not have any major contracts up for renewal this year or frankly next year. And where we have major contracts, and you're seeing some of that, we're always proactive in looking at extending them out. We believe that from a strategic standpoint it's the right thing to do for the Company.

And in those negotiations, as I've mentioned before, the issue for us is not that the clients will constantly look to drive better value, that goes with our business. For us it's always an issue of the speed because we're going to continue to drive costs out of our operation. We have to have a restructuring mentality in a business that's based on the whole premise of managed service and outsourcing.

So where we have a discussion with a client and they want to look at other ways to create value over time, we really don't have an issue with that. We believe that with enough time and if it's done properly we can gain cost advantages for the client and still have enough value left over for our shareholders here. And the BCE is a good example.

I mean, the issue there was they moved rapidly, that the volumes drop quickly. And again, we weren't able to get the utilization rates back up within the quarter. But as we've demonstrated over three-quarters now we've been able to get those utilization rates back up and you see the impacts as one example coming into our bottom line.

Okay, Great. Thank you.

Thanks, Richard. Thank you, everyone, for being here this morning. Hopefully you'll all tune in to our annual general meeting at 11 AM this morning. And we'll see you back in April for second-quarter results. Thanks very much.

Thank you.

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