CGI Inc (GIB) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the CGI first-quarter 2009 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, Jenny, and good morning, everyone.

With me to discuss the first quarter of fiscal 2009 are Michael Roach, our President and CEO and David Anderson, Executive Vice President and CFO.

This call is being broadcast on CGI.com and recorded live at 9:30 AM on January 27.

Supplemental slides as well as the press release we issued earlier this morning are also available for download, along with our Q1 MD&A, financial statement and accompanying notes, each of which 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 express 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 performance measures, which should be viewed as supplemental.

The MD&A contains definitions of each non-GAAP performance indicator used in our reporting.

All of the figures expressed on this call are from continuing operations and in Canadian dollars unless otherwise noted.

I will turn the call over to David first to review the quarter's results and then to Mike, who will discuss strategic highlights of the quarter, before making a few concluding remarks.

Before turning the call to David, a reminder that our annual meeting is scheduled for 11 AM this morning, so our comments will be brief to leave as much time as possible for Q&A.

But we will have to limit the call to about 45 minutes.

David?

Thank you, Lorne and good morning.

I'm pleased to share the financial details of another good quarter.

Quarterly revenue reached the CAD1 billion mark for the first time, an increase of CAD105 million or 11.7% compared with the same period a year ago.

Foreign currency fluctuations positively impacted revenue by 7.4%.

EBIT margin remained strong at 11.4% compared with 11.8% in Q1 of 2008.

This difference is largely related to a CAD5 million workforce adjustment in our Canadian operations completed in the first quarter and a CAD3.8 million currency charge related to the interest component on our hedged US dollar debt and the impact felt from unprecedented volatility in the Canadian-US exchange rate.

We expect a portion of this FX charge to reverse in future quarters.

Earnings were CAD79.5 million, or 10.5% better than the CAD71.9 million reported in Q1 2008.

Our net earnings margins continue to stand out among our North American and European peers, having reached 8.0% in the first quarter.

EPS was CAD0.26 per share.

This compares with CAD0.22 in the same period last year, representing an increase of 18.2%.

Our Q1 effective tax rate was 24.4% compared with 27.5% in Q1 of 2008, which takes into account the onetime tax benefits in both the first quarter of this year and the last year.

Excluding these impacts, our normalized effective tax rate going forward should be in the 32% to 34% range.

Now let's turn our attention to the balance sheet.

During the quarter, we generated CAD79.2 million in cash from operations or CAD0.26 in cash per diluted share.

At 52 days, DSO was seven days higher than our 45-day target.

This is largely due to the timing of milestone billings and some payments which spilled over into Q2 as a result of an extended holiday period taken primarily by our clients in Canada.

We continue to drive towards the achievement of the 45-day target level.

To date, we have not been experiencing any pattern of deliberate slow paying amongst our clients.

At the end of this month, we will retire the first tranche of our US dollar senior unsecured notes for an amount of US$85 million.

You may recall last year we pledged our US notes while currency was approximately at par.

As a result, our payment this week is for CAD85.3 million, representing a significant benefit for shareholders.

We finished Q1 with CAD216 million in cash and cash equivalents or CAD165.9 million higher than the fourth quarter of 2008.

This increase was largely due to the hedging decision we made this quarter to protect the value of our foreign cash balances.

We hedged US$100 million and EUR12 million by drawing down an equivalent of CAD144.7 million from our line of credit.

We have since paid back CAD50.4 million.

This action had the effect of locking in approximately CAD20 million in foreign currency gains and had no effect on our net debt as the credit facility and the cash account both changed by the same amount.

Accordingly, our net debt at the end of December was CAD259.5 million, for a net debt to capitalization ratio of 9.6%, leaving us with expanding and significant financial flexibility.

All in all, we are pleased with the results we continue generating even in more challenging times.

I will now turn the call over to Mike.

Thank you, David, and good morning, everyone.

We are off to a strong start, achieving very good results in our first quarter.

We grew our revenue by 11.7%, reaching a CGI milestone of CAD1 billion in a single quarter.

We improved our earnings by 10% compared with last year and our earnings per share grew by 18%.

Our net earnings margin was 8%, one of the best in the industry and the seventh consecutive quarter our net margin has exceeded 7%, demonstrating consistent execution of our business model.

Cash from operations reached CAD79.2 million or CAD0.26 per share in the quarter.

Let us briefly review the results by geography.

Canadian revenue was essentially flat in the first quarter, as many of our commercial and government clients took an extended vacation break given the timing of the Christmas holiday.

As a result, deal flow and certain projects slowed down, impacting the Canadian bookings and resulted in some revenue being pushed out or delayed until later in the year.

The depth and breadth of our services and solutions continued to help us profitably grow our presence in the US market.

US operations recorded revenue growth of 38% during the quarter or 14.1% at constant currency, largely due to the strength in the government and healthcare vertical.

The integration of our government business process services units in the CGI Federal continues to gain momentum with recent wins at the Centers for Medicare and Medicaid as well as housing and urban development.

CGI Federal is well positioned to take advantage of the projected growth in IT and business process services investment anticipated under the new US administration.

A further demonstration of the strength of our US operations can be seen in the book-to-bill ratio, which was 120% of revenue in quarter one.

Financial services and government led to bookings, which included wins with the Navy Federal Credit Union, the City of Cleveland, and the State of North Carolina.

European revenue increased by 14.9% during the quarter or 9.5% at constant currency.

This is largely due to new outsourcing revenue coming onstream in financial services as well as additional project work with existing telecom clients.

We booked CAD775 million in new contract wins for the first three months of the year.

Over the last 12 months, our book-to-bill ratio is 1 times revenue.

We remain committed to maintaining or improving this ratio as we continue to have good visibility on a number of significant opportunities.

During the quarter, 80% of our bookings came from two sectors -- the financial sector accounted for 50% while the government and healthcare accounted for another 30%.

Current economic conditions are clearly having an impact.

We are seeing more activity in our sales funnels as clients seek to strengthen their balance sheet and improve their competitive position.

The evidence is clear as our outsourcing qualified and the early stages of the sales funnel have increased 35% over the last three months.

We believe that over time, this increased activity will translate into contract wins and growth in our backlog.

We currently have more than CAD11.4 billion in committed, long-term orders.

This level of recurring and predictable revenue is particularly attractive for investors during these times and allows CGI to stay focused on our strategic objectives.

In addition, as you know, we renewed and expanded our credit facility to CAD1.5 billion last year.

The facility is very important and very strategic as it is secured to 2012 and today carries an interest rate below 2%.

It is strategic because it provides financial security and the operating flexibility to invest in profitably growing our Company while better positioning us for the future.

At our AGM this morning, we will, again, reconfirm with shareholders our priority use of cash.

Organic growth remains the most attractive way for us to invest our cash.

Accretive acquisitions are next, and as I've said before, we need to find the right target at the right price and at the right time.

And we continue to look.

Finally, we will invest in either stock buyback or debt reduction depending on market conditions.

Consistent with these investment priorities, and our belief that CGI remains a very good investment, the Board of Directors approved this morning the extension of our normal course issuer bid.

This will give us the flexibility to purchase and cancel up to 10% of our public float for approximately 27 million shares over the next 12 months.

If fully executed at today's price, this would represent an investment of over CAD250 million.

Looking forward, we remain focused on the fundamentals.

We firmly believe that CGI, with our high level of recurring revenue embedded in long-term contracts, is extremely well-positioned to see this economic cycle through while continuing to profitably grow our Company.

In conclusion, we are encouraged by the reception clients are giving us as we engage to help them through these challenging times.

To accelerate awareness and the relevance of our capabilities, we will intensify our marketing activities around our portfolio of services and solutions designed for tough times.

In summary, we will continue to adhere to the fundamentals of running a sound business and remain focus on executing our fiscal 2009 business plan.

Let's go to the questions, Lorne.

Just a reminder that a replay of the call will be available either via our website or by dialing 1-800-408-3053 and using the pass code 3228152# until February 15.

As well, a podcast of this call will be available for download at either CGI.com or through iTunes within a few hours.

Follow-up questions can be directed to me at 514-841-3355.

Jenny, if we could poll for questions from the investment community and I would ask our analysts and investors to limit their questions to one each.

(Operator Instructions).

Richard Tse, National Bank Financial.

Just a quick question here on bookings.

You have often talked about a target of 1 times here for the year.

Is that something that we should sort of hold to going forward?

I guess related to that, how do you see the system integration and consulting side of the business (technical difficulty) given that it's typically less discretionary in this market?

Thank you, Richard.

And again, I'm glad you raised the question on bookings because I have been fairly consistent, I think, over the last three years on this.

Bookings, we do not look at bookings by quarter because in our business, obviously, in the services business, bookings can be very lumpy.

We were impacted, as I mentioned, a number of our clients, major clients in Canada, more particularly, actually shut down earlier than previous years and we had a number of deals that slipped into the first quarter.

You should look at bookings on a trailing 12 month.

And against that standard, our goal is to be obviously greater than 1.

And as I mentioned in my script, we have some good visibility on some deals that we feel will close and that we will be able to meet that goal.

Relative to the SI&C business, it's kind of an interesting perspective because I think you are right in some cases, there will be some projects that will be looked upon as more discretionary, so that you could see some softening there.

On the other side, as you know, we have a very large recurring backlog in excess of 60% that I think cushions us pretty well there.

And then what we also have is the SI&C work associated with our solutions.

And as I mentioned before, a lot of those solutions are very sticky.

They're in the ERP space, so where we have a deep, embedded base of ERP clients, let's say Advantage or Momentum in the US, there will be continual changes that require SI&C work and add-on projects and regulatory changes that will continue to drive some good SI&C business for us, certainly, in the US.

Okay, thanks.

I will pass it along.

Scott Penner, TD Newcrest.

Thanks.

Mike, I just wanted to ask about the financial services vertical, which was probably one of the more pleasant surprises versus expectations.

Just any kind of update on the profile of deals that your customers are signing up for?

And what areas within the financial services are really driving the sort of strength we're seeing?

Yes, and again, I remind everybody, again, in our financial service verticals, we consider life insurance as well as PNC.

The PNC market remains very healthy.

We have a lot of relationships in there.

We've got some category killers in terms of solutions.

In the financial institutions themselves, again, we're getting more discussions on things like tax, on how to collect cash.

We're having more interest in areas of could we actually manage portions or applications for the bank that is actually our IP.

There's even some discussions in terms of us taking on a more integrated role of IT and business process services.

What I was highlighting in my comments, there is a real interest in clients to engage now, especially in the financial community.

I would say everything is on the table here in terms of how can you help me with my balance sheet.

How can you help me with bringing more visibility to risk issues?

And we have a lot of solutions in there.

And as I mentioned, we're working actually on a press release that we will cut that will actually highlight to the marketplace just the number, quality and quantity of solutions that we have that are really designed for tougher times, times like these.

Okay, great.

Thank you.

Paul Steep, Scotia Capital.

Maybe you could just talk a little bit about BCE.

It said I guess last quarter after the end of their Q4, we would have a better sense of the outlook in '09 and maybe what the contribution was in the quarter.

Well again, we had a milestone this quarter in terms of reaching $1 billion.

We also I think had a milestone in the ten years that I've been with CGI, I think it's the first time we haven't identified BCE as 10% more -- or more of our revenue.

And again, directionally, that's where we want to be as a firm.

We really don't want to have clients that are too concentrated in terms of dependence on one client.

I am pleased to say that BCE, by our calculations, has met their minimum of CAD425 million for fiscal 2008.

And given the revenue growth we actually experienced in the quarter, they actually fell slightly below the 10%.

As far as outlook there, my sense is that BCE will always be a very good client of CGI.

We have a good relationship.

They are a very strong company, always needing IT, and I think we're well positioned to continue to do well there.

On the absolute spend level, again, as you may recall under the agreement, we now switched to 30% minimum of their spend.

And my sense is that we will reach that milestone.

Hard to know at this point frankly what that absolute number is.

They are obviously revectoring some of their plans given that they are remaining a public company.

But all in all, again, I think a good fiscal 2008 with Bell and we're looking forward to continuing to build our relationship and revenue stream with them in '09.

Great.

That covers it.

Thanks, guys.

Jason Kupferberg, UBS.

Just wanted to pick up on the topic of bookings a little bit.

And certainly don't want to get hung up on one quarter in particular because it's understandable that there's probably more lumpiness than ever in this kind of environment.

But it looks like, if my math is right, for the March quarter, you'd have to do something in the neighborhood of about $1 billion in bookings to keep up that trailing 12-month year-over-year book-to-bill at about 1 times.

Just want to get a sense of where you guys see the number heading kind of in the near-term.

I know you had mentioned some deals slipping into March.

But our checks more broadly suggest that decision-making cycles are elongating and '09 budgets are taking a bit longer to finalize.

So just curious if you guys are experiencing that dynamic as well and how that might translate into actual bookings results here over the next couple of quarters.

Yes, I think, Jason, again, it's very hard to talk about individual versus kind of micro versus macro.

There are certainly individual clients where the cycle has gone longer depending of what shape they are in and what their immediate strategy is.

There are other phenomenas where of course companies have essentially frozen or reduced the headcount hiring within the firm, so in those cases, they have to get things done.

They're going to look at outside suppliers.

There is, I would say, some rebalancing of where work is going to be done between North America and India, something, as you know, I have spoken about for probably four years now.

I think that also affords us opportunities in terms of picking up some of that work in our global delivery centers, especially ones in North America.

So when I look across that, I would say that we still see some good opportunities there.

We're seeing some new opportunities.

We're also seeing some opportunities that have come back, areas where we have worked hard on them, maybe three, four years ago, and weren't able to close them, but some of them are actually coming back given the economic challenges.

So again, I don't want to -- and I think you're right, I don't think I won't to over-dwell on a quarter here on the bookings side.

I mean I clearly understand that we need to book business here -- profitable business -- that would add to our backlog.

That's the direction and the commitment I have from my team.

And I'm fairly confident that will happen.

Whether it will happen as neat as offsetting the first quarter in the second quarter, not sure, but when I look over 12 months, I'm fairly confident that we can get back there.

One quick follow-up.

Any change in customer buying patterns or conversations you guys are having with customers since the recent situation with [Satteum] unfolded?

I know it's still kind of early days, but any color?

Yes.

I mean we are talking to clients and I think some of them are actually taking this as an opportunity to relook and rebalance, as I mentioned, where the work is going to be done.

I think the risk managers of some of these firms are asking the right questions in terms of where work should be done.

And again, we are out there restating and re-explaining our balanced approach to global delivery.

And, we're getting a good reception.

Okay.

Thanks for the comments, guys.

Mike Abramsky, RBC Capital Markets.

Thanks very much.

Just a couple of housekeeping questions beforehand.

The last two quarters, your tax rate was in line with this quarter, but last quarter you said that you expected it to be 33% going forward and it was not.

Can you just give us a sense of how the tax rate is expected to trend?

Very simply, Mike, what we're seeing here is that, if you recall back sometime ago, we had done a number of acquisitions in 2001, 2003, 2004.

And as part of those acquisitions, there were number of provisions that had to be taken and there was some interest expense that we had to recognize in the tax expense line as a result of that.

Now, as time has moved forward, we are closing the various tax audits that are related to those various provisions.

As we get those things resolved and we can't push the IRS or Revenue Canada to be able to bring those to a close very quickly, so we've continued to monitor those and to put our case for.

As we get those things resolved, as they get resolved, they trickle back into the P&L.

I think all we can do on our side is to identify for you while we expect that the normalized rate is going to be as we go forward and then give you visibility to when we are successful in getting those closed.

And if there's any upside on those, I think we're pretty good at giving you that transparency.

Okay, so would you change your stance now that we should be using this quarter's kind of level going forward?

Or should we listen sort of -- are you sticking to what you thought it was last quarter or what direction can we --?

I think if you were to look in the MD&A, you'd see that, and as I mentioned in my comments earlier, 32% to 34%, I think, is a good rate for planning purposes.

And if there is something that comes up, we will highlight that for you.

Okay.

Just again on housekeeping, could you just -- I think you went through some stuff really quickly at the beginning of the call, but can you just summarize for us why, perhaps, even though you beat really strongly on the top line, the EPS be not -- excluding the tax impact -- was not as strong.

What were the sort of primary reasons there?

On EBIT?

On EPS.

If you take out the CAD0.03 for the tax adjustment, it was a smaller beat as compared to what the top line was relative to street, so I'm just wondering what the -- if that was -- if any of the adjustments that you mentioned in your opening remarks were related to that.

I think if we just go back and just simply look over the last seven quarters, Mike, you'll notice that we have been, from a continuing operations perspective, stripping out the tax effect, running at 7% or greater.

So we have a fairly good level of consistency at that level over that time span.

I think maybe he's referring, Dave to where we said up front there was two kind of onetime events in the quarter.

We took a CAD5 million charge for a small restructuring that we completed, Mike, in the first quarter, and then there was another CAD3.8 million that was a onetime relating to the ForEx.

And part of that CAD3.8 million will reverse in future quarters as the currency operates more in a tighter range.

Okay, so those charges flowed through on your P&L and hit earnings?

Yes, for sure.

I mean our EBIT would have been over CAD12 million without that.

Okay.

And then I guess last housekeeping, the BCE, I realize you're not disclosing it, but on my math, we expected at least CAD105 million based on the CAD425 million contract, which would make it a greater than 10% customer.

So just wondering where I'm not looking at this properly.

Well, we'd probably take that off-line.

I can assure you that they were not 10%.

If they weren't, were you surprised that perhaps -- we have to think about how to model this going forward because, obviously, they are still a substantial customer.

So can you give us any sense of where the direction?

Because even at CAD105 million, that would have been down 16% year-over-year.

And, clearly, you are trying to make it up -- or plan to make it up, as you said, throughout our business.

But how do we think about -- I mean BCE has been so significant to you and Canadian revenues, I think it's important to help us a little bit understand how to think about it going forward.

Well, I understand that point, Mike, but again, I'm not going to single out an individual client.

I understand they've been significant, as I said, since I came 10 years ago.

But the strategy of this Company to continue to grow and expand and diversify into many, many different clients.

If they were to hit above 10%, I guess in a quarter, they would be recognized or pointed out again.

But again, our goal is to continue to do business there.

As I say, it's a little tougher to get a beat on what their spend rate will be going forward.

They're operating, obviously, in a very competitive environment as well.

So I think we're not going to give, obviously, individual client's numbers here if they are not above 10%.

Okay.

Sorry.

So, just my question, Mike, really -- after going through those --

We're going to have to make this the last one, Mike because I've got to get through the list.

Okay.

It's just your government was significantly up, 14% on US growth.

Is that like -- it's just huge compared to what you've done previous quarters.

Is that a onetime impact?

Or how do we think about (multiple speakers)

No, Mike, again, government deals take a while, and you know, that's my point.

I think bookings can be very volatile.

you work in government, you could be work in the process for a year.

In some of these, they're even longer.

So it will be lumpy.

But again, what I think we ought to take away from there is the relevance and the strength of our solutions and capabilities in that space.

And we anticipate there will be further investments in the US.

If you look at HUD, we manage 25% of the HUD developments in the US.

And that's just one example where I expect to see there would be more investment.

Medicaid and Medicare, I think, clearly, the new President has indicated that.

Our global -- I mentioned our global delivery center.

As you know, the President actually met with our people and I think he was quite impressed by the fact that we are able to use technology and bring quality jobs to rural areas in the US.

I think all those kind of things are helping us gain traction in what is a very big market.

Okay, thanks very much.

Ralph Garcea, Haywood Securities.

Great quarter, first of all.

And the fact that you did CAD1 billion in revenue with the last week or two of December basically shut down in Canada and parts of the US -- are you comfortable with that sort of run rate over the next quarter or two, I guess is the first question.

And then, you talked about in the past about the pipeline on the Advantage and Momentum side.

Will you see that pick up or accelerate with this new administration as some of the states are -- their budgets are under pressure now I guess given this current environment.

Thanks, Ralph.

I guess on looking forward, as obviously you know, I don't give guidance.

And I think right now, to be honest, this is a very tough time to make a call on bookings and the timing of that and in fact revenue.

Because it's bumpy in terms of really understanding the speed and the timing of some of this stuff and also the currency.

I think this is actually the first time in the four years that we've actually got the currency to our back now.

Our competitors, of course, have it the other way.

It will give an extra boost also to our global delivery centers in Canada in terms of adding another layer of competitiveness to them.

It also helps us in terms of deals we've done in the past in the US relative to the currency rates at the time.

So we are sticking to our business plan at this point.

In this environment, I think a lot of folks are looking at revectoring their plan.

We put our plan together kind of last August.

And when we look at it, we think it is still relevant.

In the first quarter, we were very, very close to our plan, beat it in a couple of areas, obviously.

So on the year at this point, we're not seeing anything that would tell us that we need to revector our plan significantly.

But quarter by quarter in terms of booking and revenue, you could see some swings there as this thing works through the system.

On the solution side, you are quite right.

Some of the states or obviously a lot of the states are financially challenged at this time.

Our take on this thing is, though, if you look at the amount of money the federal government will push through in terms of infrastructure spending, in terms of other investments that will flow through the states and down to the municipalities, the importance of having good financial systems here, good tracking, good accountability on that, I think, will be very paramount in the next period.

And this is where, again, our ERPs at the federal government and state/local are absolutely category leaders.

And I believe that we will continue to see good action in that area.

And as well as in collections, anything that, as I mentioned, solutions for tough times.

You know, people still have to invest in tough times, and we think we've got a nice portfolio here that is really targeted at helping states, locals, commercial clients through these tough times.

Okay, but I mean you finally have a government that is pushing for accountability down there and both your products [strive] that, so (multiple speakers)

That's it, yes.

And it's a great point.

Yes.

I think accountability is going to be very, very key.

If you push CAD1 trillion out the door, you are going to need the financial systems to manage, handle it, and see it.

And we've got a large embedded base out there now.

We are expecting some modifications to some of those systems to accommodate this thing.

And, just this quarter, we announced the City of Cleveland went with Advantage.

So I think it's high on the priority list.

Think you.

Steven Li, Raymond James.

Thank you.

Mike, just one more question on bookings.

So 80% is from two sectors.

Which of the other sectors was abnormally weak?

And is the short-term trend going to remain weak or have you started to see some tick-up?

Thanks.

I didn't catch the last part, Steven.

I'm sorry.

The 80% of the bookings came from two verticals.

We had some action in manufacturing, but I would say that, again, the primary growth was in those two areas.

I apologize, Steven.

I didn't catch the last part of your question.

I guess I was asking, so out of the weak segments, so telecom, manufacturing or retail, I mean, in the short term, do you expect those trends to remain weak or have you started to see some pickup?

Well, again, I don't take a quarter as a trend.

It's a one reference point.

I think it will fluctuate over the year.

Clearly, manufacturers are under a lot of pressure here in the short term.

But, again, I think if you look at our model, we have solutions and capabilities across all five verticals.

We've got a nice geographic balance now in the Company, where you know we're now approaching north of 40% of our revenue is -- well over 40% of our revenue now is outside of Canada.

We've got the currency to our back.

We've got a lot of good -- and we've got a nice backlog.

So we have a lot of factors here that allow us to have offsets if we see a pressure in manufacturing, we get an upside on the government side.

If another one goes down, we have an offset by geography.

So I think the balance aspects of the CGI model are holding up well here as I mentioned in my script in terms of getting through this.

So I would say you are going to see some fluctuations, but I'm still very bullish that government obviously will continue to invest heavily through the cycle, and that the financial sector will invest -- they always invest at a higher rate than the rest of the sectors.

And while there may be slowdowns in some areas, those financial institutions that are here for the long haul, they're going to take advantage of this period to invest and get stronger, and we want to be there and be part of that.

Okay, great.

And David, I missed your comment.

Did you say the margin this quarter was lower because of a CAD5 million charge?

There was a severance charge that we had in the Canadian operations of CAD5 million.

Yes, okay.

And there was also a CAD3.8 million on a currency-related charge which related back to some hedging that was done.

Okay, thanks.

Eric Bernofsky, Desjardins Securities.

Thanks, good morning, guys.

So, given the economic climate and the focus on cost-cutting by I would imagine the majority of your customers, have you seen any pricing pressures?

Maybe not this quarter but in the quarters ahead?

And what implications might that have on your margins?

You mentioned before you were kind of running in the 7% range on a net margin basis.

What would it take to get that up to the 8% level?

Well again, I think a couple things.

First off, in good times and bad times, clients always talk about pricing.

Clearly in these times, there are obviously more conversations around that.

We run our business with a restructuring mentality.

Every day, we've got to figure out how to do this stuff cheaper, somewhere else or a different way to meet client demands and generate a fair return to our shareholders.

So even if you give the example of the small restructuring we did in Canada, as an example of something where if we see an opportunity to make some changes, take some costs out, we do it rapidly and we move on.

When I look at our margins, improving margins -- first off, I think we ought to say I think our margins are actually on a consistent basis, the best in North America and Europe.

And one of the things that we strive for here is to build our operations and execute our operational plan to provide a level of consistency in our earnings.

And hence we pointed out, we now have seven quarters where we have at least, as a minimum we've said.

We've had a number of quarters where we have hit 8.

But, margins really improve in our business over time.

They're gradual.

And as I say, some of the drivers is making sure you qualify your deals to make sure they're profitable because if you don't do that, you are behind the eight ball from day one.

We've got to continue to drive up utilization rates.

We've got to drive more outsourcing deals, which I think over time, help us in terms of utilization and hence margins.

And then there's all the other things, in terms of leveraging our own global delivery model, in terms of where we put work, and finally, always working on the mix of our revenue.

The proximity to the client affords a bigger opportunity to add value to the client and for us.

So we kind of drive on all of those, Eric.

We also are very diligent on looking at the lines of businesses and contracts that are driving the highest margin to see how we can improve there and grow that area.

And we also identify the low performers and look at what changes we can make there.

And we focus on them like a laser in terms of reporting back every quarter -- if we've got a business or a line of business that's underperforming, what can we do to improve it, what changes do we make?

We have also, as you know, over the last three or four years divested probably CAD0.25 billion of revenue, where it didn't align as close to our strategic direction today as it did when we undertook the deals.

And we were able to sell that business at a very good multiple, and then redeploy that cash back against our priorities.

So that's how margins improve.

It's a gradual.

It's pushing all those buttons every day, every quarter, and that's essentially a good aspect of our CGI model.

Thanks, Eric.

Thank you, everyone.

We hope you'll join us in about 45 minutes from now for our annual general meeting, which is also being broadcast on CGI.com.

And I remind you all that I'll be available for follow-ups this afternoon.

Thank you very much.

Thank you, gentlemen.

This concludes today's conference call.

Please disconnect your lines and thank you for your participation.