CGI Inc (GIB) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to CGI fourth quarter and 2010 results conference call. I would now like to turn the meeting over to Mr. Lorne Gorber, Senior Vice President, Global Communications and Investor Relations. Please go ahead, Mr. Gorber.

Thank you, Colleen, and good morning, everyone. With me to discuss CGI's fourth quarter and fiscal 2010 results are Michael Roach, our President and CEO, as well as David Anderson, Executive Vice President, and CFO. This call is being broadcast on cgi.com, and recorded live at 9.00 AM on Tuesday, November 9, 2010. Supplemental slides, as well as the press release we issued earlier this morning are available for download, along with our fiscal 2010 MD&A, audited financial statements, 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 in both our MD&A and our press release, as well as on cgi.com. We encourage our investors to read it in it's 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'll turn the call over to David first, to review the results for the fourth quarter. And then he'll pass it over to Mike, who will discuss strategic highlights of both the quarter and the full-year. Given that we will be discussing both, our scripted comments will be brief, in order to maximize the time we have for Q&A. David?

Thank you, Lorne, and, good morning. In the fourth quarter, our revenue reached CAD1.01 billion, representing an increase of 8.7%, or CAD81 million from Q4 2009. Foreign exchange fluctuations negatively impacted revenue by CAD46.8 million or 5.1%, compared with the same period last year. When adjusted for FX, year-over-year growth on a constant currency basis was 13.8%. Included are Stanley's results from August 17, the day the transaction officially closed. Our EBIT margins strengthened to 13.9% from 13.6% in the fourth quarter of 2009. This improvement was largely driven by our ongoing focus on operational excellence, including investments in tools and productivity initiatives.

Net earnings in Q4 2010 were CAD84.1 million, or 1.7% better than the CAD82.6 million reported in Q4 2009. Our earnings margin was 8.3% representing an improvement of 60 basis points over Q4 2009. Diluted earning per share were CAD0.30, this compares with CAD0.27 in the same period last year for an increase of 11.1%. These results include one-time expenses of CAD16.7 million related to the Stanley acquisition. Before these expenses, net earnings would have been CAD94.5 million, and diluted earnings per share would have been CAD0.34 per share, representing a year-over-year improvement of 14.4% and 25.9%, respectively. The earnings margin would have been 9.4%.

We generated CAD158.5 million in cash from operations in the fourth quarter or 15.1% of revenue. Our DSO at the end of Q4 was 47 days. The year-over-year increase is attributable to the mid-quarter closing of our Stanley transaction, as we inherited all of the receivables work in progress, but only six weeks of revenue. Excluding these transaction-related anomalies, we are and expect to continue operating within our target level of 45 days.

Our long-term debt at the beginning of Q4 stood at CAD417.9 million. We drew down $800 million to pay for Stanley, and repaid CAD193.2 million during the quarter, leaving debt as of September 30, 2010, of CAD1.15 billion. This represents a net debt to capitalization ratio of 30.6%. As today's market rate, such levels yield an optimal weighted average cost of capital for the Company. In the quarter, we continued buying back our stock, acquiring 8.1 million shares of CGI for CAD123.4 million. At year-end, our return on equity was 16.4%, while the return on invested capital was 16.3%. Now I'll turn the call over to Mike.

Thank you, David, and good morning, everyone. I am very pleased with our performance in quarter four, and for all of fiscal 2010. The ongoing ability of our team to focus and execute with discipline, in challenging market conditions has solidified our leadership position amongst our North American and European peers. I'll begin my remarks with a review of our fiscal 2010 performance by stakeholder.

Let's start with clients. Feedback from our clients continues to be very encouraging, and reinforces our fundamental belief that quality work equals more work. Against this standard, we continued delivering our projects on time and on budget. Throughout the year we solicited and received direct feedback from approximately 2,500 signed client assessments. On a 10 point scale, we scored 9.0 on overall satisfaction in fsical 2010. But even more importantly received a 9.2 on loyalty, suggesting clients will continue using CGI services, and even recommend CGI to others. Client loyalty is important in any business, but in our business, it is essential.

Our employee or member satisfaction levels remains high, while attrition rates are amongst the lowest in our industry. In addition, ownership levels amongst our member base reached 87%, representing the single largest block of share ownership. Member satisfaction and ownership continue to be a key competitive differentiator for our Company, and is one of the reasons why CGI continues to be a consistent, top performer.

Now to our shareholders. Fiscal 2010 revenue was CAD3.7 billion. When adjusted for FX, year-over-year growth on constant currency basis was 3.4%. EBIT was up 11%, and EBIT margin was strong at 13.7%. Earnings from continuing operations was up 15%. Earnings margin grew to 9.7%, and EPS expanded by more than 21% on a fully diluted basis. We generated CAD552 million in cash from operations, or 15% of revenue. This represents CAD1.89 per share.

We invested CAD517 million in acquiring CGI stock, further demonstrating our ongoing commitment to create shareholder value. We reduced the total share count by nearly 10% during fiscal 2010, ending the year with approximately 270 million shares, down from a peak of more than 444 million shares in fiscal 2005. We booked CAD4.6 billion in new contract signings or 124% of revenue, adding new global marquee clients, while renewing, extending, and expanding our relationship with others. In the fourth quarter alone, our bookings improved by 97% year-over-year. In summary, we entered fiscal 2011 in excellent position, strategically, operationally, and financially.

I would like now to reinforce a couple of points on the fourth quarter, which once again was strong and balanced across all performance indicators. First, I want to draw your attention to the strength of our profitability year-over-year. When you remove the impact of the one-time expenses related to the Stanley transaction, our earnings were CAD94.6 million, up 14.4%. Our earnings margin was 9.4%, and our diluted earnings per share was CAD0.34, up 26% compared with last year.

Second, a brief update on Stanley integration. Stanley is integrated into CGI's organizational structure, and we are now better positioned to win business in this large CAD100 billion US government market. CGI Federal is now able to service all US government agencies, including all branches of the military. Without interruption, we've continued to sign extensions and new contracts across civilian, defense, and intelligence agencies, as demonstrated by recent wins with the US Marine Corps, the State Department and the Nuclear Regulatory Commission.

Our strength in technology in government was further recognized by being 1 of only 11 companies chosen to provide cloud computing services to the US federal government. Of these, only a handful were pure play IT service providers. In addition, just last week, CGI Federal was named Greater Washington US Government Contractor of the Year in the category of companies generating more than CAD300 million in annual revenue. One of the reasons cited for winning, included operational and financial accomplishment, client satisfaction, and overall excellence in federal agency support.

A joint dedicated integration team has been busy addressing client and member requirements, successfully realizing the necessary business synergies. We have realized more than 85% of the targeted savings related to bottom line synergies, or more than CAD23 million on an annual basis. Accordingly, we are confident that over the next 12 to 24 months, the business combination will yield an EPS accretion rate of 15% to 20%.

Looking ahead to fiscal 2011, including our current line of credit, we continue to have ample liquidity, more than CAD650 million to continue prioritizing the deployment of our cash with a commitment to making the most accretive investments for our shareholders. These investments include profitable organic growth, additional accretive acquisition, share repurchase, and/or debt repayment. Given the attractive valuation of CGI shares and the low cost of capital, we continue to invest aggressively in our share buyback. Under the current program, we have now bought back 18.2 million shares, or 72% of our total authorized allotment. We continue to have the financial flexibilty to repurchase the remaining 7 million shares before February 2011. In addition to this use of cash, we also have $87 million in senior unsecured notes, which will be retired as they come due in January 2011.

With respect to the market, we continue to see significant opportunities to deliver profitable organic growth, and have identified five corporate-wide priorities to focus on in fiscal 2011. First, we'll reinforce our full offering profitable growth strategy with an emphasis on increasing full end-to-end outsourcing and recurring revenue streams. We'll also continue to accelerate growth and expand margins through increasing our focus on sales of our IP-based solutions. We'll continue to invest in new growth areas, such as cloud computing, and our defense intel business. To win more, we'll bid more, by leveraging our global delivery network more extensively. And finally, we'll focus on strengthening our CGI partner network and go-to-market alliances, in order to track new sources of profitable revenue.

In order to shape and increase our capture rate, we've also made some recent leadership adjustments to our operations. In addition to Donna Morea, who continues to have operational responsibility for the US, Europe and Asia, Doug McCuaig has recently been appointed President of our Canadian operations. Doug is based in Toronto, Canada's largest market for our services. In addition, Eva Maglis has been appointed to lead and consolidate our global infrastructure services and solution practice across the globe. Both Doug and Eva are experienced and proven CGI leaders.

Finally, we've been operating under the same basic fundamental beliefs and quality-focused model for almost 35 years. I want to reiterate, that we continue to believe that our consistent ability to execute to this model delivers superior returns to shareholders over time, including throughout the most challenging of market conditions. Our stock price has increase by more than 25%, adding approximately CAD0.5 billion to our market cap during the last 12 months. We remain committed to the full realization of our strategic goals, and are confident in our team's ability to execute against our business plan in fiscal 2011 and beyond. I want to take the opportunity to thank for your continued interest and confidence in CGI. And, Lorne, let's go to the questions.

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 4070144 until November 23. As well, a podcast of this call will be available for download at either CGI.com or via iTunes within a few short hours. Follow up questions can be directed to me at 514-841-3355. Colleen, if we could poll for questions from the investment community, please?

(Operator Instructions).

Our first question is from Tom Liston of Versant Partners. Please go ahead.

Hi, thank you. Good morning. Just on -- with the Stanley acquisition, in the presentator -- in the press release that is, it said CAD16.7 million. In the financials, I think it was more like CAD20.9 million. Can you talk about the discrepancy there, and if you are 85% complete, is there another small charge to come in the future quarter here?

Okay, thank you, Tom. The good news is there is no discrepancy. The 16.7 was the charge taken in the quarter. The 20.9 was the total charges for fiscal 2010. As far as the charges that lie ahead of us, as I mentioned over 80% of the costs are behind us. And we anticipate about CAD5.4 million additional charges over the balance of the year, and they are primarily related to real estate, and some technology integration that actually takes more time to execute than the initial piece that we've already completed.

Sure. Obviously, there was a little bit of severance on the flip side. How many of the key executives from Stanley have you been able to retain, and can you comment just on the people that you were able to retain?

We have retained the leadership team that we had targeted as part of the integration plan. As I've mentioned on calls before, the CEO, the CFO, and most of the corporate services leaders, obviously were not targeted as folks that we had expected to keep. But on the line operating side, we have kept the leaders that we have targeted, and take the opportunity to say that they are excellent leaders, and doing a great for us, as demonstrated by the continuing wins that we have seen since the announcement of the deal.

And just finally, as we move to the revenue side, there's obviously potential for synergies there. Scale is important, but perhaps more importantly scope, can you comment on any existing projects in the pipeline that you may not have been able to go after previously? Or at least tied a chunk up?

Well again, there are some synergies, obviously on the client by client basis, in terms of where we've been working on the civilian side, And there is also opportunities now, given the added expertise and relationships that have been secured through Stanley, areas like health is one area. The state department would be another area. So there are a number of areas like that you will see. And in fact, I think what we'll do, Tom, on some of those is actually identified where they were a joint initiatives, so you will have more visibility where some of that comes from. I will take the opportunity though, to remind investors that in our accretion calculations, we don not -- didn't include any top line synergies here. Our accretion rate is driven by our cost reduction and business combination synergies.

Very good. Thanks. I'll pass the line.

Thanks, Tom.

Thank you. Our next question is from Richard Tse of Cormark Securities. Please go ahead.

Hi, Mike. Congratulations here on the quarter.

Thank you.

Listen, a couple questions here, first with respect to Stanley, you've had it for a few months now. Do you sort of see any upside to the margins here, now that you've been operating it for a bit over and above your expectation?

Well again, I would say if you look at the synergies, Richard, that these synergies are obviously driving improved margins there. But we are still in the early days, in terms of moving the needle on other areas. As I say, we've been able to identify and target, with the help of the Stanley leadership, areas where there's been some bottom line synergies. But things like evolving, what we bid on, and looking at the top line synergies and capturing those, that takes -- that's going to take a little longer.

But, no, I haven't seen anything there that would concern me, in terms of our ability to continue to improve the total operation, both top line and bottom line. And it is one of the reasons why I released, what we see as an accretion rate here over the next 12 to 24 months, because our confidence level, and our visibility into the levers that we need to execute is very good there. So we are confident that we can deliver that accretion rate, and have a plan in place to make that happen.

Okay. And as far as Europe I know, because of some charges there, I know it's not a big piece for the Company, but what are your expectations for that group going forward here.

I'm sorry, Richard, there's a noise. I didn't get the first part of that question.

Yes, can you hear me now?

Europe? Okay, sorry, Lorne just wrote it down. Europe, okay. So yes, in Europe I think as I had said before, that we would actually have bottomed in Europe. I had said last time that the UK, German operations were strengthening. We've seen a continuation of that strengthening. We are profitable in the quarter, and would expect to be profitable throughout fiscal 2011, market conditions remaining the same or improving over that period of time.

Okay, and one final question. And I have to ask this as a bit of a curve ball, but what was the US growth, X Stanley?

I'm don't -- I'm not going to start down the path of separating growth between the two. Years ago we used to do that, and frankly it's very difficult to run an operation that way. They are integrated. We had about six weeks of Stanley in the quarter, and so I can tell you that the operations did grow in the US, throughout fiscal 2010 and in the fourth quarter.

Okay. Great. Thanks a lot Mike.

Thanks, Richard.

Thank you. Our next question is from Maher Yaghi of Desjardins Securities. Please go ahead.

Yes. Thank you for taking my question. I just have a clarification on your earlier comment about the accretion from the Stanley acquisition. Can you maybe break down that 15% to 20%, in terms of how much is coming from actual cost cutting, and how much is coming from just business combination, in terms of using the cash to acquire EBITDA?

Well, again what I was clarifying was that in our calculation of the accretion rate, we were not taking revenue growth into consideration, that the accretion was being driven by synergies relating to the business combination.

Right. Is there any actual cost lowering of the cost structure on the Stanley side implied in that estimate?

Absolutely. It's all on the Stanley side.

Apart from, I mean can you maybe just break down how much costs you think you are going to take out of the Stanley side to get to that 15% to 20%?

Well, what I had said was -- so far in fiscal 2010 -- well, in fiscal 2010 that we had taken a charge of CAD20.9 million, and that we had CAD5.4 million left to take in fiscal 2011.

And that would be, you think that would translate into cost savings over the next 12 to 24 months, equivalent to how much restructuring it took?

Well, again, I'm not quite sure I understand where you are --.

I'm trying to understand how much of the restructuring charges that you took will actually lead to lower cost on the Stanley side? And how much is it a one-time event in terms of severance cost and things like that?

Well, you are talking two different things here. What I've shared with you was the cost that we've implemented to realize the synergies. And the synergies I've said that we've booked -- we've realized CAD23 million of synergies so far, which represents 85% of the synergies that we are targeting.

Okay. All right. And just a question on general market dynamics. In the Canadian side we saw the revenue coming down. Can you maybe talk about how long that lower plateau will continue? And on the US side we are starting to see is a nice growth there. Can you maybe talk about where you are seeing the increased revenue growth coming from your verticals?

Well, again, very briefly, I don't consider one quarter in Canada being a trend or a plateau. I think we continue to see some great opportunities in Canada. We've had a number of wins there, across various verticals. I think there's more activity also being driven by software and packages. We are seeing a number of our clients who are starting now to invest again in improving their operations, and we've had a number of announcements along that area.

Healthcare, I think, straddles both Canada and US. We are seeing continued activity and growth opportunity in there. I still love the government vertical, despite all the press and talk around government, government is a great place to be. I'm very pleased with what our teams have put up, in terms of growth and bookings, in the government sector. And so, when I look at it, I do feel that thing are starting to pick up in the market, as we start to cross over now into our customer's fiscal 2011. Budgets are being finalized, and the sense we are getting is that there will be more investment in information technology in calendar 2011. And we intend, as I mentioned through our five priorities to capture a good share of that.

Okay. Thank you.

Thank you, Maher.

Thank you. Our next question is from Scott Penner of TD Newcrest. Please go ahead.

Thanks. Just to David to clarify one thing, in note 18 it actually indicates that Stanley's revenue is about 3% of the revenue for the year. So that implies about CAD110 million or so for that period. Is that right?

It's approximately in that range.

Okay. No, that's fine. Just on the -- Mike, you had mentioned that beyond the seasonally soft September quarter that you could see some project momentum, and start to build into the last part of the year. Is that still your view right now?

That still is our expectation. As I say, we'll get a better sense of how much folks are going to try to close off here, Scott, as between now and the startup of their new -- their new fiscal year. But the pipelines have grown over the summer both the outsourcing and the systems integration pipeline. So our sense is that will move through the pipeline. We'll start to see some of that this quarter and into calendar 2011.

On the state and local side, specific in the US, it looks like the federal business is doing well. But if you can just comment on the booking dynamics within the state and local side?

I understand, local side, we are targeting a number of very large opportunities, Scott, so they are taking a little more time to get over the line. Some of them are actually benefit-funded type initiatives. But I like the pipeline there. I think there's a number of transformational deals that we could pick up there, that could really move the needle for us on the state and local side. But they are more strategic larger deals, it takes a little more time to get them through the various approval processes.

And David, the tax rate going forward, is it still 31 to 33, or is it coming down?

Around 30.5 to 32, 32.5. It's pretty close to what we had as a long-term rate.

And then lastly, the net debt to cap, I believe this may be the first time you commented on this being a particularly optimal capital structure for you. Does this imply that this a net debt ratio, that you'd otherwise would like to maintain going forward?

Well, when we take a look at the curve, we are on the sweet spot of it, so there is no real hurry to move off it.

Okay. That's fine.Thank you.

Thanks, Scott.

Thank you. Our next question is from Paul Steep of Scotia Capital. Please go ahead.

Good morning, guys. Mike, maybe just on -- I guess priority three and four, as I wrote them down here -- actually two, three and four -- two and three were the IP solutions and cloud computing defense initiatives. Should we think about in 2011 maybe a little bit higher CapEx? Again I assume this may or may not result potentially in maybe a new Center of Excellence, something in or around Virginia or the belt way? Or do you think you have enough sort of capacity out in Troy or Lebanon as it is?

Well, I think a couple things, first off when it comes to Centers of Excellence, the capital cost standing those up are not very significant. So I don't expect to see any need for additional capital from past levels that would trigger that. I guess what I was really talking about here is, if we do open, we obviously have an investment committee, and I look at things like cloud computing, and I use things like defense intel, as an example, we would like to do more business, for example, in Canada in that space. So there will be some cost to stand up that division. But again on the size of our Company, I really don't see that as being material over a 12 month period.

What I was trying to trigger there, was to share with investors if we look at our IP based solutions, they do carry a higher margin than the rest of our business. If we are able to increase the growth in those businesses, we'll not only get top-line growth, but we will get a disproportional increase in bottom line growth, because they do carry higher margin. So it's an area we've been working on for sometime, but it's an added emphasis going into fiscal 2011, in that as I mentioned we do see more interest now in companies, in governments investing in IP-based solutions. And in our case, of course, we wrap that with the managed services offerings, that also increases our backlog, our recurring revenue, and really makes us much more defensive if you will, going forward in terms of building a higher floor, in terms of recurring revenue. And therefore, putting us in a better position against any kind of economic swing here. So just emphasizing those areas, Pau,l as things we want to reemphasize and refocus on in fiscal 2011.

And so, that's actually I guess, where I was heading with the original question, not well-worded. But that's sort of new wording from you, it's something you've flagged in the past. But are you going to get a little more aggressive in this area? Or do you need to do anything to accelerate it in 2011, like not materially financially, but it seems like a good opportunity, especially when you saw the benefit you saw through AMS when --?

I think what's behind that, is obviously that I've made them corporate-wide. We are doing some reorganization, in terms of aligning leadership and establishing harder goals and visibility around these five areas. And out of that will come proposals for investments. But I kind of do those, as the business cases come forward, beyond what I've already built in the budget. But again, those business cases are scrutinized, in terms of ensuring that there is a significant return to investors case by case. And so beyond that, that's kind of how we've positioned those initiatives for 2011.

And one last one just for David. In the MD&A you walk through the IFSR impact. I think I caught all of them. But it didn't flag as any being particularly materially. Is there anything else that all of us should sort of watch out for and think about when the transition happens here?

At this particular stage we don't see anything being problematic or being that significant. In fact, we shared with the Board yesterday, just an overview schedule that kind of showed the ups and downs of all the various types of adjustments that would be made in the -- the walk away from that was, that there wasn't anything to be alarmed or take any special note of. There are some things operationally, whether it would be in the provisions, whether it would be in the rules around impairment, or around revenue recognition, there are some activities that have to be tweaked, or small changes that will have to be made, but nothing too significant that is going to have an impact on the numbers themselves. At least, that is the way we see it today.

I think as well, I think to David's credit and to the team here, as you know, Paul, we have been very transparent in all our reporting. So when you look at some of the requirements, in terms of transparency of reporting, our internal assessment is that we are far along that curve already, so that the additional disclosures and transparency are not significant for CGI.

Okay. Thanks, guys.

Thanks, Paul.

Thank you. Our next question is from Ralph Garcea of Northland Capital Partners.

Good morning, gentlemen.

Morning, Ralph.

I guess we'll start off with Stanley. You've only had it six weeks in the quarter, but going into Q4, would you say having your size and scale behind them has helped them, in the business that they've won through the last two or three months?

I would probably have to be realistic to say that the last number of month is a very early stages. I'll tell you what I think, Ralph, has helped a lot, and I drew attention to it just briefly, but our CGI federal team has been recognized as the US Contractor of the Year there to the federal government, which is a very prestigious recognition. I think it helps at a lot of levels. I think it helps by increasing our brand and profile in the Beltway, and with the US government. It clearly helps in terms of attracting and retaining talent to that group. And ultimately I got to think it's a net positive in terms of winning new business.

I would tell you that the Stanley team have a lot of bids in for decision, and we are seeing some of those come through over the last six weeks. In fact our book-to-bill in the US federal government in the fourth quarter was north of 135%. So it was very significant. Those are combination of wins that Stanley accomplished, and also our existing CGI Federal business. So I think clearly having a larger Company allows us obviously to bid more, and also take on a larger engagements as a prime as opposed to a sub. That is one example.

And then the scope of their win and renewals has increased, is that a fair comment then?

Well again, as I say, I only have six weeks to judge, but the bookings were very robust in quarter four on both divisions.

Okay, I'll switch to the Canadian side then, I mean was your organic growth -- or the negative organic growth a function of seasonality, or going forward, what do you see in the pipeline? I mean your biggest customer, BCE, has gotten bigger with their recent acquisition. Their wireless business is growing. Do you see increased business out of them, and what are you going to do to drive organic growth in Canada?

Well, again, first off, as I mentioned, we've made some operational changes there. We've appointed Doug McCuaig the President. Doug is in Toronto, the biggest market in Canada for our services. We've won a number of deals in Canada. The ramp-up, in terms of realizing the revenue from the booking is going a little slower than I would like. Some are linked just to the size of the client, and the resourcing of the work. And I expect to see that ramp up pick up over the next quarter or so.

The pipeline is robust in Canada. We have a lot of large clients already as you know Ralph. You named one, and we continue to gain share in large clients, including the one you named. But it's a smaller market obviously to the US, so that the number of opportunities in comparison is obviously greater in the US. The second thing we've done is pulled together now under Eva Maglis, is all our infrastructure business. And this is an area where we also see additional opportunities not only in Canada but in the other geographies that should drive growth here.

But in Canada, again, the financial vertical, we see opportunities there. We see opportunities on the government side provincially, and also federally. And telcom business in Canada is also good for us, and we are also as you have seen by some of the announcements, we've actually won some stuff in MR&D. Meanwhile, our global delivery offering in Canada continues to grow. We've opened a new center in Monkton. We are staffing it up now. So I like the prospects that we have in Canada. Again, it's going to take sometime to actually take on the revenue from some of the wins that Doug and the team have put up there.

Yes. Just lastly on the expansion in India, I guess you are going to be adding 1500 or so headcount, taking you to 5,000 I think over the next year or so. What's driving that? And what sort of operating leverage can you get from utilizing that as part of your global delivery network?

Well again, as I think as you looked at one of the priorities that I had spoken about, our win ratios company-wide are very high. And it's a good thing. But in order to drive more growth, as I've said one of our priorities is to win more, is to bid one. The second part is actually in -- add additional fire power behind, including leveraging our global delivery network. Now that includes India, but also includes our centers in North America and in Europe. So our sense is, that the growth there is going to come from increased wins, increased evolving requirements of our clients who are looking to bring on more work, utilizing the global delivery including India.

Now we have been picking up good leverage in India. I mean we have got our nice level of critical mass there with 1,500 or so additional hires. As you say, it will push us closer to 5,000 mark. And that brings with it additional synergies, both at the operating level, but also on the sales and marketing level. We'll also be looking to have more of our infrastructure, what we refer as Tier 1 capabilities in India, and that's an area where we still have a lot of room to grow. So we have good operations there, very talented people. I was over, I guess in the spring or, I like what I see there. Turn over rates are still better than the Indian average, and 96% of our members in India are CGI shareholders. So we got have a very dynamic group there. It's a great asset. Donna and they her team are doing an excellent job of growing that. So we expect to see additional leverage of our global delivery centers in fiscal 2011, including India.

Okay. Thank you.

Thanks, Ralph.

Our next question is from Del Warmington from Delwar Capital. Please go ahead.

Yes. Quick question. What percent of your sales was from the government sector?

What percent of our sales in the quarter was from the government sector?

Yes.

Just digging that out, Del. Again, I think a high percentage of our bookings again, came from the financial vertical as well as government. But from the government, specifically in the quarter --

37 for the quarter.

37%?

Sorry, that's revenue

That's revenue. Are you looking for bookings or revenue?

Revenue.

Revenue, 37% came from government --

For the year.

For the year, and in the quarter, I would suspect it's a little higher than that.

I'll circle back with you, Delwar on the --.

It's probably close to 40, Del, in terms of -- clearly government as a result of the Stanley acquisition. And in fact, the growth that we've experienced there, is now our single largest vertical, and I would say it's about 40% to 42% the guys are telling me, 42%.

Okay, and one last question. Given the currency movement over the last six months, would imagine causing your overall hedging strategy please?

The movement of the currency, Dave, is it impacting our hedging strategy?

Not at all. Not all We were protecting ourselves from that type of movement. But again, we are not trying to protect the top line, we are trying to protect the bottom line. So with some of the natural hedges that we have between the Canadian and US dollar, plus with the activity between ourselves, Canada, and India, US and India, we do have hedges there. So we really try to minimize the short-term effects of any sudden fluctuation, so that the operations then have an opportunity to kind of retool, and do the things that are necessary to be able to deal with the change of the currency over the longer term.

Thanks a million.

Thanks, Del, very much.

Thank you. Our next question is from Michael Urlocker of GMP Securities. Please go ahead.

Good morning. My first question is a rather broad one, Michael. If we look at the industry as a whole and CGI's performance up until this quarter, it's clear the US business for the whole industry has been kind of soft and declining because of primarily I assume the recession. So I wonder if you could just make an observation about whether it's fair to say that the recession is lifting somewhat, in terms of spending from your US customers?

Thank you, Michael. Thank you for your question. Clearly, I think the US has really at a macro level has taken an economic body blow there. Put again, what I always tell my own people if you strip away the macro picture, and you take it down to customer by customer, you can start to see that the US is digging out of this. So we are seeing clients who are investing more in technology. As you know the productivity rate in the United States is quite high in comparison to other countries, and one of the reasons it's higher is they do invest more in technology. So we are seeing that.

We are seeing companies that are continuing to be very diligent on the cost side, so they are very price sensitive, or value sensitive is probably a better word. But there are clearly signs that, they are as per past recessions, investing in technology. And again we are seeing that not only in the government vertical, but clearly in the financial vertical. And some of it's taking the form of much more openness in terms of looking at new partners, new suppliers. And again that's one of the ways we positioned ourselves in the US, as an alternative, a fresh face, a Company who actually delivers on time and on budget.

And then also, we were one of the early companies, frankly, that have the Centers of Excellence that are in the United States. And so we have the process and reputation around that. We are not a newcomer to that. So I am seeing a gradual pick up there, and we are looking forward to seeing some of that in our revenue numbers as the year goes on.

Okay. Thank you, that's helpful. And then I wonder, a second question. If we look at Stanley as an acquisition, again kind of a broad picture basis, certainly a big part of their business has been on a cost plus basis. I mean sure there's a desire to look for opportunities for fixed price, where there might be a greater profitability available to the supplier. But can you describe to me, is that a very slow migration? I assume some of these contracts you're undertaking can't be changed quickly.

It's going to have to start at the policy level. And if I can talk generally, the US like other governments, are very focused on cost reduction, and on controlling expenditures. And of course, one of the ways to get overall better control of expenditures is to move to a fixed price, because you have certainty in terms of the cost. The risks clearly shift to the supplier, but if the supplier is disciplined and focused on delivering it's projects on time and on budget, the risk is obviously worth the potential returns. So I think as you see various governments working through these budget challenges on a global basis, and you'll also see more opportunities on benefit-funded initiatives, especially at the state and local sides.

Thank you. Actually I was curious about the benefit-funded operations. Can you just describe to me -- is this kind of a unique proposition for CGI, or is this something that is taking on acceptance among a variety of the suppliers?

Well, it's again, I think there's always been funded -- benefit funded initiatives, but CGI really from our heritage and legacy with our acquisition with AMS, has a lot of experience in government, in terms of areas of revenue assurance, revenue collection, tax collection. These areas that lend themselves, frankly, to benefit-funded type initiatives. And we've got a lot of experience in that area. And again with tight budgets, this type of project becomes a lot more appealing to legislators across the United States, and in other jurisdictions. I think it takes on an added significant here, and a ramp-up in tough economic times. And we are certainly in such times, especially at the state and local level.

Okay. Thank you very much.

Thanks, Michael.

Thank you. Our next question is from Dushan Batrovic of Dundee Securities. Please go ahead.

Hi, thank you. Just to ask, the US spending question a little bit differently. MIke, I think last quarter it sounded as if you were a little more incrementally negative just in your commentary, a little more uncertainty, et cetera. At this point in time, has that view changed at all, or are you more positive or negative, or about the same as you were last quarter there?

No, I guess, I am glad you had an opportunity -- I probably never have enough coffee before the session last time. I was being more philosophical about the macroeconomic condition of the US economy. And I think what I wanted to do, on this call, is actually take it down a layer, and say, look at it on a more client by client basis. Look, the US is still the biggest market in the world for IT services. So when you see the kind of macro headlines, we are really talking about at the edges of that market. By some calculation, the US is still 50% of the world's IT services spend. So it's a very, very big market for us, and again we're largely an attacker in that market. So the opportunities for us down there are huge over time here.

So no, I would say I've always been optimistic on the US market. It's one of the reasons why we continue to expand there, and acquired Stanley. And again we continue to look for accretive acquisitions in that market, because we think it's a great market. So no, I would say last time I was more or less trying to answer the questions, in terms of the macro conditions in the US. And actually comparing them to Europe, and what we saw earlier in the fiscal year. But still a very good market. We are well positioned there. As I say, the Stanley acquisition has helped us on a number of levels, not only in the government side, but it gives us more presence in the US. I think this quarter is the first quarter in the Company's history where the revenue coming from the United States is now greater than Canada. So that is a milestone store discuss something that we'll probably see more in the future now, as we continue to expand our growth in the United States.

I would say that you've been consistent on the long term opportunity in the US. So am I to interpret your commentary, that you are not making or putting out a view, of what you are seeing on a quarter-by-quarter basis, in terms of deal activity, pipeline, close rates, et cetera.

Yes, I don't really manage the Company on a quarter-to-quarter basis. I mean my view that , if you look at our business, a very complex business when you get into managed services. And when you get into as much government business we're in, of course the timing of how deals move through the funnel to closure are beyond our control. In the government area is an example. It's quite common for wins to be protested, which ends up delaying the booking and the revenue stream. So again, I'm not very good predicting quarter-to-quarter. What I am sharing is strong and continued belief that the US market is the right market for us, and a market where we will see a disproportional level of profitable growth for CGI in the quarters and years ahead.

Last question for me is on the Stanley synergies. You mentioned you are not assuming top line synergies. Are you being conservative there, or is there an opportunity to actually bring in some top line synergies, or is it more of a longer term story there?

No, no, there's definitely synergies there. I always wanted to clarify, because I think for investors, the level of certainty around delivering an accretion rate is always better, if they understand where the accretion rate is being driven from, and hence, why I clarified that our accretion rate is really based on driving bottom line cost out, and productivity gain,s as opposed to being driven by revenue which does clearly take more time. We do see more opportunities in 2011 to put together the capability of the two operations, and drive growth there. But again that takes more time, than what we can do in terms of the cost structure.

Okay. I'll leave it there.

Thanks, Dushan.

Thank you. Our next question is from Michael Abramsky of RBC Capital Markets.

Thanks very much, Mike. On Stanley's growth, what you were just talking about a little before, do you know what -- could you let us know what the constant currency US revenue growth was, excluding Stanley for the quarter?

No. We don't release that, and we wouldn't be releasing that go forward. We are combining our operations. And what you will see though Dave, I guess is, we will declare and treat the US government as a single client. So that you will see over 10% of our revenue, so that will be in the MD&A Mike, on an ongoing basis. And I think -- did we -- was it in the MD&A for the quarter? It was 14% of the Company's revenue Mike in the quarter.

Okay. I guess another way is you've been talking positively, and I think well about the US opportunities. Do you think that we've seen organic growth in the US in the kind the zero to 5% range. And you've talk about sort of not kind of providing an outlook in the sense for Stanley, or not providing the accretion for Stanley on the revenue side. Is it possible that Stanley, could Stanley be a lift to that organic growth rate in the next couple of quarters? Or could Stanley potentially offset that organic growth rate in the US in the couple of quarters, around maybe some of the restructuring going on, et cetera?

Well, clearly our expectation in acquiring a company like Stanley that the combination of the two, Mike, would be positive to our growth curve here. And again, I don't have any more than six weeks experience on that, but when I look at the bookings, as I mentioned, the bookings were north of 135% as a combined entity. So that bodes well, in terms of future organic growth in that area. So our expectation is that at many levels we see Stanley as a net positive here.

How could that booking trend be? Could you help us place that in context relative to prior quarters booking trends for Stanley?

Well again, I don't have handy heir bookings by quarter in the past. But again, the reason I mentioned that, if you look at the amount of change, Mike, and what was going on in the quarter in terms of integrating in the firm, realizing the synergies, and still calling on clients, I think it's very significant accomplishment in that six week period. So it bodes well for the future.

Okay. Maybe if we just shift to Canada for a minute. So you talked about others, it sounds like you made an important management transition. And you are hopeful to accelerate some of the progress -- or speed in which some of the projects are moving forward. Should we expect a recovery to zero percent organic growth in Canada, or in the next couple of quarters, or do you think things may remain slightly negatively as you go through this management transition?

No, I don't expect them to be negative. In fact, I expect it to be positive in the sense that I have the President of Canadian operations located in Toronto, which is a very, very large market. And the amount of time that Doug can spend on focusing on the growth opportunities in Canada is obviously greater than I could, given the multi-faceted aspects of being CEO, and also President of continuing operations. So I think from that perspective, I think it's a net positive. And the other thing Mike, I would draw your attention, pulling the infrastructure business together on is a global basis also will increase our ability to bid and win more business in that area, as well. And the net impact of those two, because they -- the infrastructure business also impacts Canada obviously as well as the other parts of the globe. So I think the -- operational changes, obviously as part of our plan for fiscal 2011 should assist us in meeting our growth objectives. Thanks, Mike.

Yes.

Colleen, we will have time for one last question.

Thank you. Please go ahead. Your line is now open, Mr. Eyal Ofir.

Thanks. Hi, guys. Congrats on a good quarter.

Thank you, sir.

A question here from a strategic standpoint long term. Now that you have integrated Stanley, and you are almost there from an overall standpoint. You have a pretty good presence in the public domain. Do you see yourselves getting more aggressive in international markets, maybe getting more into Europe, or other markets globally, specifically targeting that segment?

Yes. It's an excellent question and you are kind of spot on there. I think with about 42% of our revenue coming from government, obviously our priority and preference would be to do an accretive acquisition in the commercial side. And again, something that would have the attributes of a good cultural mix, something that has some IP-based components, more product solution base line that is sticky, something that obviously would be in the United States or Western Europe, and obviously, we always like recurring revenue. And so if I put my wish list together, it would include all of the above. So we continue to work a funnel that includes companies and opportunities with those attributes.

And as I mentioned in my closing remarks, we do have the financial fire power to execute another deal. And on an operational perspective, we also feel we are capable of doing that. The Stanley acquisition was focused on a single area, and a single organization in our Company called CGI Federal. It's now been integrated, and the teams are working as one. And it really didn't impact any other areas of the Company. And therefore from an integration risk or cultural risk or financial risk, we don't see any at this point, and feel quite open and capable of doing another acquisition that would be in the commercial side of the business.

And do you have any thoughts around emerging markets? Is there a point in time when you see yourself going into India or some of the countries in Latin America?

Well, I would say that strategically, and want to reinforce, we do follow our clients. So we have operations in Singapore, as an example, and we don't talk a lot about them. But we do follow our clients, and make sure we are able to serve our clients anywhere in the globe, and we'll continue to do that. In some cases we do sell our IP, into South America and into Asia, but through third parties. So again, we do see those as emerging markets. But again, our strategy which is as you know, is very disciplined, we tend to ensure that the maximum focus is on the US, Western Europe and Canada, that represents 75% or 80% of the world's IT spend. But having said that, we do follow our clients, and we will ensure that if our client needs is in a geographic location where we are not, that we'll ensure that we are there, or that we can serve them in those areas.

Okay, great. Thanks for the time.

Thank you, sir.

Thanks a lot, Eyal. And thank you everyone for joining us this morning. Hope to see you back here for our first quarter results on January 26th. Thank you. Have a nice day.

The conference has now ended. Please disconnect your lines. Thank you for your participation.