CGI Inc (GIB) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the CGI first-quarter 2010 results conference call.

I would now like to turn the meeting over to Mr.

Lorne Gorger, Vice President Global Communications and Investor Relations.

Please go ahead, Mr.

Gorger.

Thank you, Rebecca, and good morning, everyone.

With me to discuss CGI's first-quarter fiscal 2010 results 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 a.m.

on Wednesday, January 27, 2010.

Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q1 MD&A, financial statement, and accompanying notes.

All 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 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.

The complete Safe Harbor statement is available on both our MD&A and press release as well as CGI.com.

We encourage our investors to read it in its entirety.

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 of these non-GAAP performance indicators 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 financials, then he will pass it over to Mike who will discuss a few strategic highlights.

Before turning the call over to David a reminder that our annual meeting is scheduled for 11 a.m.

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.

We hope you can join us either in person or via the web for our AGM.

David?

Thank you, Lorne, and good morning.

I am pleased to share the financial details of another good quarter that began our fiscal 2010.

Revenue was CAD913.0 million.

Foreign exchange fluctuations unfavorably impacted revenue by CAD50.3 million or 5.0% compared with the same period last year.

In addition, during the second quarter of 2009 a low performing contract was not renewed representing approximately CAD26 million in the quarter.

When adjusted for these two items revenue was essentially flat on a [year-over-year] basis and excluding currency revenue was also stable on a sequential basis.

Our EBIT margin strengthened in Q1 to 13.1% from 11.4% in the first quarter of 2009.

This improvement was largely driven by improved profitability and ongoing investments and productivity initiatives, as well as the benefit of our ongoing restructuring efforts.

During Q1 certain tax audits concluded with the expiry of limitation periods.

The final determinations from these audits, which were primarily based in the US, resulted in favorable tax adjustments in Q1 in the amount of CAD30.5 million.

As a result net earnings in Q1 2010 were CAD111.2 million or 38.9% better than the CAD80.1 million reported in Q1 of 2009.

Our earnings margin was 12.2%, up from 8% in Q1 of fiscal 2009.

Diluted earnings per share in the first quarter were CAD0.37.

This compares with CAD0.26 in the same period last year for an increase of 42.3%.

On a comparable basis, when you remove the benefit of the tax items in the first quarters of 2010 and 2009, the year-over-year improvement in net earnings were 12.9%.

Excluding these tax adjustments our EPS improved by 17.4% to CAD0.27 in Q1 and the net earnings margin improved to 8.8%, up from 7.1% in the year-ago period.

We generated CAD166.1 million in cash from operations in the first quarter or CAD0.55 a share.

This compares with CAD79.6 million or CAD0.26 per share in Q1 of 2009 for an improvement of 108.7%.

Our DSO was 30 days, an improvement of nine days versus last quarter, and was a primary driver of the quarter's increase in cash from operations.

We have remained focused on improving our DSO and our efforts over the last year continue to be seen in our performance.

As a point of reference we have improved our days sales outstanding by 22 days since Q1 of 2009 and we continue to believe our DSO can stay below our 45-day target.

In the quarter we acquired 11.4 million shares of CGI for CAD150.4 million at an average price of CAD13.20 per share.

As of last Friday, we acquired 91% of the maximum allowed under the current program.

At the end of December we were in a net cash position of CAD73.0 million and still have a CAD1.5 billion credit facility in place until August 2012.

At the end of the quarter our ROI was 15.4% and our ROE was 15.2%.

Now I will turn the call over to Mike.

Thank you, David.

Good morning, everyone.

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

In the interest of time I am going to focus my comments on our market outlook.

Increased client project activity and growing momentum in our sales funnel coupled with higher bookings reinforce our expectation of a gradual return to more traditional levels of top-line growth during the remainder of our fiscal year.

This confidence is reinforced by bookings of CAD1.6 billion in new contract wins and renewals for the first three months of fiscal 2010.

I would like to draw your attention to the particular strength in Canada where we achieved a book-to-bill ratio of 230%.

86% of our bookings came from our two largest verticals, the financial services sector as well as government and healthcare.

Over the last 12 months we have booked CAD4.9 billion in new business reaching a book-to-bill ratio of 130% of revenue.

I want to remind you that we look at and measure bookings on a trailing 12-month basis.

As new budgets come on stream, projects and additional IT investments are being undertaken creating significant opportunities in all our operating segments and geographies.

To further illustrate this point, just last week we announced a significant win with the US State Department valued at $395 million over a 10-year period.

This is an excellent start to our quarter two bookings and will contribute to profitable, organic growth well into the future.

As new budgets are being rolled out clients are again investing to improve their competitive position.

The evidence is clear as our outsourcing opportunities qualified in the early stages of the sales funnel have increased by 80% over the last 12 months, and the momentum of these deals moving through the various stages of the funnel has increased as well.

We believe 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, an increase of more than CAD500 million sequentially.

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

As we reported, we continued to generate very significant cash from our operating activities.

In fact, over the last 12 months we have generated CAD716.8 million in cash from operations or CAD2.33 a share.

Accordingly at our AGM this morning I will again reconfirm the priority uses of cash.

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

Accretive acquisitions are next, and as I said before, we continue to seek the right target at the right time and for the right price and we are continuing to look at a growing funnel of opportunities.

Finally, we will continue to invest our excess cash in buying back CGI stock through our share buyback program.

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 or approximately 25 million shares over the next 12 months.

If fully executed at today's price, this would represent an investment of more than CAD400 million.

In summary, we continued adhering to the fundamentals of running a sound business and remained focused on executing our long-term strategic plan and our fiscal 2010 business plan.

Let's go to the questions, Lorne.

Thanks, Mike.

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 1215568 until February 10.

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

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

Rebecca, if we could poll for questions from the investment community please.

(Operator Instructions) Tom Liston, Versant Partners.

Thank you and good morning.

Michael, just on your bookings to date, obviously the recent announcements and the deal momentum overall -- certainly there are signs that the outsourcing market are generally starting to improve, at least a little bit.

But how much is it from improving market overall versus some of the disruption with your competitors with the acquisition activity or just getting that critical mass and increasing your competitive position within some of the key verticals?

Can you just lightly comment on those three aspects and why you have been more successful recently and certainly confident in your outlook for bookings?

That is a good question, Tom, and thank you for it.

I think it's probably, obviously, a combination of things.

Some of the deals that we have invested in and targeted for 12, 18, some cases 24 months have moved through the funnel to actually closure.

So if you take a massive deal like US State, a deal like that would take 12, 18 months, maybe longer from start to contract award.

And it will, and I want to point out, take a time to ramp up in terms of going from bookings into actual revenue.

I think there is no doubt that a number of our competitors are probably spending a disproportional amount of time focusing on internal activities.

We are not in that position.

We are solely focused on our clients and winning business.

I would think the third thing is the SI&C business that really took a hit in our second quarter last year is gradually coming back.

So some of our large clients who hit the brakes last year at this time have replenished their budgets and are starting to put those projects in the window.

And over the next number of quarters we expect to see that trend transition into top-line growth.

Okay.

And just another quick one related, can you describe how you use the term qualified?

Where is that in -- what threshold does that have to meet to make that qualified?

When you were talking about the pipeline being up 80% year-over-year, where are they in the pipes such that you would classify them as qualified?

Again, I think what we are kind of saying there are opportunities that are either going to materialize in an RFP situation or where we are in active discussion with the client and have confirmed that there is real client interest here in determining whether there is a sufficient business case to trigger an outsourcing or managed services deal.

Perfect.

Thanks, I will pass the line.

Jason Kupferberg, UBS.

Thanks.

Good morning, gentlemen.

I just had a couple of questions.

Mike, I know you said that you do expect to return to some more traditional levels of top-line growth during the rest of fiscal '10.

Does that refer to the constant currency growth rates?

And are you thinking kind of roughly in the mid-single digit range on that basis, just based on what you guys have done historically and what you see in the backlog right now?

Yes, it's in constant currency.

I am really not in a position, Jason, to predict the currency so I talk in constant currency.

I would say I don't want to get into giving absolute numbers.

I guess what I am trying to do and have been over the last four years is to be very transparent in how I see the market and how we are managing in that market.

And I think if you go back to the second quarter last year I had said that I saw that as the bottom.

In fact, if you look at the revenue patterns since then, with the exception of our fourth quarter that was a little stronger than I suspected, we continue to march towards crossing over into positive organic growth here over the next number of quarters.

I still believe that.

I said that a year ago and I continue to see the signs, both in dialogues with clients, in the funnel, and in the bookings, that would tell me that we are continuing to move towards that kind of an outcome.

What I don't know, Jason, is the strength of what happens in the economy, kind of when that happens.

So if the SI&C comes back and some of the outsourcing deals that we have won start to come on stream that will certainly move the revenue off.

What I can't have visibility on is whether the economy is really going to harden and strengthen and gain momentum as we close out the year.

If it does, my expectation is that the revenue growth would continue to accelerate.

Okay, that is helpful.

And then just turning to the Europe Asia-Pac segment, I know it's your smallest geography but has been under a fair amount of pressure recently and I know that the margins were kind of soft this quarter and last quarter.

Was there more restructuring in that segment both in this quarter?

And can you just talk about how you are viewing the performance of that business and kind of how much is macro related versus perhaps execution related?

Could this be part of your M&A strategy?

Sure, good questions.

First, again just to reiterate and I think it's kind of common knowledge that the European economy, in my view, went into the recession later.

They are at a different point in the cycle of coming out, so a lot of what you are seeing on the top-line I would tell you are macro related.

On the bottom line we took a CAD3 million restructuring charge in the quarter in Europe.

When you back that out the margins are essentially flat or stable, I guess, on a year-over-year or quarter-over-quarter basis.

When I look at the funnel, we have some managed services opportunities there.

I would like to increase the level of recurring revenue I have in Europe, much like I have in Canada and in the United States, so I am not as vulnerable to these macro conditions.

So the strategy in Europe is a big push on more recurring revenue, more managed services business to further insulate us from a continuation of this and to avoid the problem next time.

As you know, we have reorganized Europe.

Donna Morea has responsibilities now for the United States and Europe.

We see some business developments synergies of leveraging solutions and capabilities and account management focus by putting those geographies under Donna's leadership.

And we remain very optimistic that as the European economy picks up our business will go with it.

Hopefully, as I said, the goal is to further insulate us on the uptick here by going with more long-term contracts.

If I can just squeeze in one more quick one, Obama has talked about possibly scaling back non-defense discretionary spending a bit.

Any initial thoughts on how that could possibly impact your US government business?

I don't expect any impact.

As I said before, the US spent over $100 billion on civilian IT spend and I have a very small share of that.

And, therefore, my view of life is we got a lot of work to do to gain the other $99 billion of upside there, Jason.

Sounds good.

Thank you.

Richard Tse, National Bank Financial.

Hi, Mike.

Just wondering if you can give us a bit more color in terms of the margins, what you specifically are doing to keep those margins at that level and whether you think they are going to be sustainable in this range here over the next couple of quarters.

Well, Richard, as they say, I know I sound like a broken record on that, but I think relative to margins my belief is that what we are trying to do is execute our model very consistently so that we create a floor.

I will share, I think today, at the AGM we now have 11 quarters where net margins are at 7% or greater.

And as you know, I think we have only got one North American and European peer that has hit 7% over the same period.

So the goal there is to create a great deal of consistency on margin by executing to our business plan.

On the upside, as I mentioned, we have a series of levers including utilization rates, on-time and on-budget delivery, margin leakage on projects, working on the mix of our revenue, working smarter as well as harder in terms of ensuring that we are growing more rapidly the high-margin portions of our business.

Also, focusing on underperforming contracts, underperforming assets -- all of which we are firing on.

And you see that in the fact that our margins now are pushing up into the 8% level.

As well as, you know in Canada we have moved in the process of operationalizing a full 40-hour work week across the country.

That will give us more capacity, give us more variable revenue over fixed costs.

So we constantly are looking at executing better to the levers that are really at the disposal of all of our competitors in terms of executing precisely and focused on those levers to drive up margin.

As well, we continue to expand our global delivery capabilities with our new center opening up in Troy.

Our Indian operations are very active as well these days.

So I think we have got all the levers there and we continue to work very hard.

I think the last thing I would say and you have seen that in the question Jason asked on Europe, when we see an opportunity to reprofile our cost structure, or what we call an ongoing restructuring mentality, we move on it very rapidly.

So in Europe we see some softness, we see some opportunity to get some costs out in order to position us to be stronger as the economy comes back.

We took a CAD3 million hit there behind us with restructuring and we are better positioned to improve margins next quarter and beyond.

So that is kind of how we look at it, Richard.

It's not too fancy, but it seems to work for us.

Okay.

One more question here.

Going through your MD&A the tone of the language seems to be a bit more cautious than your previous releases here.

Can you give us a sense of the impetus behind that when I think the view is that things are actually improving broadly?

And I guess related to that can you talk a bit about your current contracts that potentially will be coming up for renewal and some of the progress being made there?

Thanks.

Well, a little tongue-in-cheek I would remind you that MD&As are written by accountants.

Got you.

I couldn't resist.

But, seriously I think again our approach as you know on reporting our financials is to be very transparent and very conservative.

That is exactly how we operate the Company and I think it's always very good to err on the side of caution in terms of the MD&A.

So I would say what I am really talking about is outlook and the MD&A, of course, is not designed to address that.

I am talking more about outlook and what I see in the market and the conversations we are having with clients and the speed and bid reviews that -- and the client interactions that we are all involved in.

So I think that is the contrast, if you want a comparison.

We don't normally talk about renewals.

We are constantly in discussions with clients, as I said to you before.

In many, many cases we never wait for the final year or two years or six months to discuss a renewal.

We try to get a jump on it.

In some cases that is not possible.

But, again, where we are in a renewal situation we are coming at it from the incumbent standpoint and, therefore, remain in a good position to extend and renew our business.

At this point when I look at the renewals that are there, this is exactly the position we are in and how we feel about them.

Okay.

Great, thank you.

Scott Penner, TD Newcrest.

Just, Mike, again on the margins and understanding your answer to Richard's question about the number of levers.

When the volume of new business signed over the past 18 months or so starts to come on stream does that create a challenge on one of those levers and that that new business starts off at lower margins?

Again, our philosophy there, as you know, is we don't believe in loss leaders.

There are ramp ups clearly on some of these deals, Scott.

But, again, what we really work hard on is ensuring that we are executing the transition and the ramp up plan to the actual bid proposal that was put forward.

It could have some short-term impacts.

But at this stage I am not really talking about anything that would disrupt the consistency and the execution, I guess, of those models and of those margins because we would have some potential depending what it is.

I think when you are adding people, so when the deals are primarily either IP-based or they are people-based you don't have the same kind of ramp up.

You have got a very good alignment between billing your revenue and your cost.

Where it's infrastructure related, where we have to make investments and you may have a time lag between the revenue coming on and some of your costs, you could see some of that.

But if you look at some of the deals we are announcing, I would say they are probably more slanted towards the people IP-based side than they are the infrastructure.

Right.

Okay.

Dave has a comment as well.

Sorry, Scott, if I could just add to.

One of the things that we are very focused on is the pre-bid reviews.

So at different stages as the proposal is going to going through the cycle we are doing checkpoints to understand what is being offered, what the deliverables are, how it's going to be priced, what their P&L is going to look like, what the cash flow is going to look like.

And at that point in time, even before it's presented in front of the client, if we see that we are going to have a low profitability in the first year then we will work with the team to understand what can we do in the way of shaping the deliverables or shaping some of the contract terms to be able to make it a little bit more favorable for us so that when the business comes in we don't end up with the same spikes and the same P&L challenges.

And because of the way that we have the performance incentives spread across the Company at the [BU] level they are also very encouraged to dig down, understand what the implications are, and work with us on what the opportunities are to improve what those profiles look like.

And this is all back before it's presented to the client.

So it's not a case of, oops, I have got a problem.

We have -- what Mike had said before, we have the business plan in place for each of these deals and then we execute against those.

Okay, that is very helpful.

Just on the acquisition front, Mike, I think in the past -- I don't want to put too many words in your mouth -- but in the past you have spoken about just bulking up in core verticals and in core markets, namely the US government type solutions.

Have those priorities changed at all?

No, I would say that, if anything, they are reinforced.

Despite an earlier comment on US government, any kind of pullback in their investment, it's still a massive market.

It's a very consistent market.

Our experience has been government invests throughout the economic cycle.

And in fact, our view is that as they do tighten up managed services, outsourcing services, business process services in government will actually accelerate.

And therefore actually I would say reinforces our view that this is a good target market for us to add more scale so that we can get more opportunities and more business.

Okay, thank you.

Steven Li, Raymond James.

Thank you.

Mike, just so -- the recent contracts you have signed in the US, so should we expect organic growth in the US to rebound back to double-digit growth for the rest of the year or is it going to be lumpy?

Well, it will be gradual I think is the better way, because if you look at the US state there it's say a 10-year deal so it takes time to ramp up.

You will see that revenue coming on over a 10-year period.

I would suspect on some of those deals you will actually see some additional revenue as there is changes over a 10-year period, adds, in terms of regulations and other things.

But again what you are seeing here, which is exactly kind of where I thought we would be and I am comfortable with where we are, the bookings, the activity is increasing.

The clients are restarting their SI&C budgets and we are winning not only on our targeted areas, we are taking share from some of our competitors down there.

So I would think that we are looking for continued positive growth in the US.

We believe Canada is also now in a position to cross over in the next number of quarters as we continue to ramp up on various deals and also, as I say, see the SI&C from some of our large clients in Canada strengthened.

So it will be gradual, but the key thing here is it will be sustainable and that is what we are looking for.

Because when we sign these 10-year deals it means that we have an opportunity here to grow that account over 10 years, it means we can make investments now and get the returns over the 10 years.

And it also further strengthens our resistance to the next economic downturn by building up our recurring revenue base.

I point out in my remarks there that our backlog, even though it was impacted by currency, grew by $0.5 billion quarter-over-quarter.

And that is another good sign, as far as I am concerned, of both positive activity on the client and growth cycles.

Great.

And then just one more question on the margins.

So the last two quarters EBIT you have been about 13%.

So from what I just heard today so this is a sustainable level and you are targeting to stay at that level?

Again, I am targeted always to do better, always to do better.

I mean, as I say, my philosophy is for all extensive purposes there is not a cap on margins.

There is a self-imposed cap on how well you execute to the levers that result in the margins.

So, again, we are never going to stop there.

We are always looking to better operational excellence, focus on continuous improvement, so I don't like to think of margins in terms of a cap.

I think we are paid to figure out how to generate more value here.

Our people are incented that way and, frankly, they have done an excellent job here, as I said, over the last number of quarters.

We have been very consistent and we are executing very well.

So, again, I am looking always at the opportunities.

It's much like booking so I don't look at margins by quarter.

Back to the point I made earlier where we see an opportunity to restructure now that will help us down the road two quarters or a year from now, we want to move on it.

And we will make that visible so you can adjust the EBIT line up or down for those restructuring or those activities.

Thank you.

Mike Abramsky, RBC Capital Markets.

Mike, hi, thanks.

Just want to make sure though that people don't get ahead of themselves on margins, because obviously there is a lot of questions around that.

Just to be specific you are looking, as you do with margins, at bookings on kind of a trailing growth basis so you tend to take a longer view.

So I suppose we shouldn't expect the last couple of quarters to necessarily be absolutely representative.

We may see some higher and we may see some lower.

Is that a fair statement?

Absolutely.

As I say, we don't operate the Company by quarter and that is why, Mike, I keep coming back to the other metrics and say that if you look at the peer group, 7% net margins as a minimum threshold over 11 quarters, nearly 3 years now, shows the ability to consistently execute at a floor.

Now the question is how do we move that floor up over time.

I would absolutely agree; one reference point is not a trend here.

But we have had two strong quarters, we are taking other actions always to improve our profitability, and -- but, no, we don't look at it by quarter.

We need the flexibility to make investments, to take actions, to improve our long-term profitability and return to shareholders.

Okay.

And then on the Canadian side your growth still remains sluggish.

When do you expect to translate the large CAD1.1 billion in financial services bookings into revenue?

And on a macro basis what are some of the things that you are looking for to kind of expect a recovery in the Canadian market?

You said that, for example, you had a lower margin contract that was not renewed in Q2 and there was some deferral of start up with new contracts.

So should we see some of these things start to play to help Canadian growth kind of going forward and how quickly might we see some of these things?

Or is there maybe some systemic macro headwinds in the Canadian market that could take a bit longer?

What is your thoughts there?

Okay.

Let's start with the bookings.

When we issued that press release we did point out that those bookings were spread over a 10-year period, I believe.

I think maybe an average of eight; I would have to check.

But we did say those were long-term bookings again, which is good and helps in fact drive up the backlog number that you saw.

Again, I would just reiterate I see that as exactly on strategy in the sense that we have some investments to be made there but we are actually gaining share and building, again, a stronger recurring base of revenue going forward.

So those bookings will come on over time.

On the Canadian side, if you look at it year-over-year growth in the second quarter '09 was minus 11.4%.

If you take the average over the last two quarters, it's about 6%.

Minus 6% you mean.

Minus 6%.

Yes.

So it has been cut in half.

And if you look at -- this is the last quarter that we are carrying the comp of the contract, low margin contract we didn't renew, Mike.

So second quarter it will be behind us when you look year-over-year.

The second thing is if you looked as an example, I think in the MD&A we look at the verticals.

Telecom on a year-over-year basis, while it was down 21%, on a sequential basis was up 10.6%.

So we are seeing some SI&C business starting to come back and we were impacted more in Canada by the slowdown in SI&C because we have a lot of very large clients in Canada.

And when they hit the brakes the first thing they stopped was the SI&C.

I didn't expect that it would come back before they had restruck their budgets for 2010.

So now that their budgets are struck they are now -- we can have more visibility on these SI&C projects, it will take a quarter or so, as I explained before, to go from business requirements to systems requirements till we can actually start seeing the top line.

But, again, it's one of the reasons why I still feel the way I felt last year was that in the March, June quarters we should start to see, ex-currency, a return to organic growth.

And of course to power that organic growth company-wide Canada needs to be on the positive side as well.

Okay.

And then very lastly, very briefly, you just want to -- because there has been a number of questions on this kind of -- the positive commentary relative to the MD&A, which I understand is written by accountants.

But at the same time, are you seeing an improvement in behavior beyond the activity, positive activity, you talked about in the sense that clients are actually willing now to kind of sign, get projects going or is that aspect still an area where there is some deferral?

I would say it's not back to what I would call business as usual, but it's much better than it was over the last three quarters, Mike.

We are getting clients who are saying okay, I am going to make a call and I am going to sign the deal and move on.

And that we hadn't seen -- again, I don't think it's surprising because again when companies hit the brakes first quarter of last year they were very reluctant to make any investments and long-term commitments.

They had to focus on their balance sheets and their line of credit.

That is kind of lifting now and we are starting to see the funnel move at a healthier pace.

It's showing up in the bookings and it will show up in the revenue, but there is a lag between booking the contract obviously and turning it into revenue.

Thanks very much.

Paul Steep, Scotia Capital.

Mike, maybe you can talk a little bit on the organic side about investment priorities in 2010, particularly service areas, size, and maybe pace and velocity.

We saw you open some centers of excellence late last year, but if the cash is continuing to build where should we see that go into 2010?

Again, it's a good question, Paul, and just to reinforce again the most accretive use of our cash is to invest in organic growth.

It drives the highest return to our shareholders.

It's the least costly way to grow the business so we are very, very focused on that.

So again areas that we are looking at is investing in enhancing our IP, our solutions, evolving that to be ASP where we have multiple clients leveraging the same IP.

Good for the clients, good business case for the client that doesn't have the capital upfront and he is actually sharing cost with other clients.

Good for us because it will drive the utilization of our assets harder and we have more opportunity to drive margins up as volumes increase.

So we are investing in our existing IP.

We are revolving it on the service line to have more multi-shared services type clients there.

We continue to invest in our global delivery centers, not only in adding new ones, but investing and strengthening the ones we have in terms of capability and reach.

Doing more want we call remote aspects of infrastructure in some of these centers that we haven't traditionally done a lot of, so that would be a second area.

I would say vertically we are also looking, probably a little more now, at niche, smaller acquisitions that are in the financial vertical that have IP capabilities.

We see this as a good time to acquire some asset there.

We believe that the financial services will continue to invest.

We are big already, as you know, in wealth management.

We see wealth management as a long-term sustainable growth area.

I would say when you come to the government side we are not only focusing on investing in relationships that end up in the large macro deals that you have seen with states and others.

We are also looking at the shorter-term contracts that are opportunities that come out of vehicles like Allianz, so the task orders is the word I was searching for.

We are looking at and focusing heavily and investing more there to take a look at more task orders and perhaps we have in the past.

So we have got quiet a menu of opportunities to invest that will, in fact, we believe, further strengthen our position in the marketplace and also help us reinforce the organic growth engine that we believe is starting back up here.

Okay, great.

The last one for me just on contract costs; great bookings over the last few quarters.

I guess to you or David, should we see any trend on that in terms of cash contract costs or upfront investments?

Any sort of spike there or just normal sort of run rate as those ramp?

At this particular point in time I would say it's probably normal, especially compared to this last quarter.

With some of these newer contracts there will definitely be some uplift that we see in that number.

But, again, it's going to be gradual and we are not looking at any huge spike on the contract cost line.

Okay, great.

Thanks, guys.

Dushan Batrovic, Dundee Securities.

Thank you.

Just firstly on the organic revenue growth, again as related to the March and June quarters of 2009 you have some great bookings there, a combined CAD2.7 billion over those two quarters.

Based on those and given the lag from bookings to revenues we would have expected a little better organic revenue growth.

Is it just a question of timing or did those outsourcing contracts get offset by -- more offset by some of the other things that you mentioned?

I think it was a combination of things.

One is again the mix of long-term versus short-term bookings.

Secondly, again, as you bring on some of that new revenue from those bookings we still hadn't bottomed out from the SI&C work that was not refiring.

And then as well as we mentioned earlier, in our case we had a contract in the second quarter 2009 that we didn't renew so we carried that throughout all of 2009 and into the first quarter of 2010.

So, again, when I factor those in -- those unique things into our history and I look at what is ahead I remain confident that over time this will come into a clearer focus and you will get a better alignment over time between the bookings and the revenue.

It's a timing factor, both by the nature of our bookings and the state at which the client market is returning.

Thank you.

Lastly for me is when you mentioned you expect that the positive organic growth for the, I guess in the back half of your fiscal year.

How much of that are you banking on the SI&C side coming back versus simply the outsourcing contracts that are already enhanced being translated into revenues?

To be transparent I don't parse it down that way.

I would say that the SI&C business is a key factor here in that it's actually a piece that has been eroding our top line as opposed to growing it.

So the outsourcing side tends to add growth; the SI&C pulls back, it tends to put pressure on the top line.

So as it comes back you complement that with the managed services deals coming on stream.

This is where I see the opportunity for an uptick in the growth line.

Okay.

Thanks very much.

Rebecca, we will have time for one last question.

Eyal Ofir, Canaccord Adams.

Thanks.

Just a quick question on the balance sheet.

We saw deferred revenue climbed up CAD70 million sequentially.

Can you just explain a little bit more on the dynamic there?

Is that related to specific bookings that were signed in the quarter or is there any other contracts that are potentially moving to steady state that you will be taking it in to Q2?

No, it's more a case of where -- we have identified in the MD&A that the timing of client payments came very from one quarter to another quarter.

And this is what we are seeing here.

That sometimes payments that would normally come in on the first of the month might come in on the last day of the quarter before, so we get the good news there.

But then we have had quarters where it has gone the other way on us, where the payment that is due at the end of the month that comes the first day of the next month.

So we have seen a little bit of that on a couple of the contracts.

There were some payments that were due on execution of the contract; contracts are signed, payments have come in when they were supposed to.

So we have received the cash, but we haven't delivered the service yet so there is a little bit coming in from there.

And then the other difference then is just the normal every day difference in timing of when the client payments come in.

Okay.

So I guess this quarter then we shouldn't be looking at -- definitely just because of the size of the number sequentially?

No, I would expect that that number should come down a little bit just as we start to deliver the services of which we have already been paid for.

Okay, thanks.

And maybe just one last question on the -- you talked a little bit about the acquisition strategy going forward.

Is there, I guess, a timeline we should be thinking about when we should expect some announcements on that front?

No.

I think as they say, time is one of three elements we look at.

The other, of course, is the right target and the right price.

And we are working to ensure that we get all three.

Okay, perfect.

That is it for me.

Thanks.

Thanks, Eyal.

Thank you, everyone, for joining us.

Hopefully, you can join us in about 40 minutes or so for our annual general shareholder meeting which is also being broadcast on CGI.com.

Thank you.

Have a nice day.

Thank you.

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