CGI Inc (GIB) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the CGI first-quarter 2015 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, Mode, and good morning.

With me to discuss CGI's first-quarter FY15 results are Michael Roach, our President and CEO; and Francois Boulanger, Executive Vice President and CFO. This call is being broadcast on CGI.com and recorded live at 9 AM on Wednesday, January 28, 2015. Supplemental slides, as well as the press release we issued earlier this morning, are available for download, along with our Q1 MD&A, financial statements and the 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 press release, as well as on CGI.com. We encourage our investors to read it in its entirety.

We are reporting our financial results in accordance with the International Financial Reporting Standards or IFRS. As before, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian unless otherwise noted.

As many of you know, we're hosting our AGM this morning, so we'll keep our scripted comments brief in order to take as many questions and we can within the next 45 minutes. I'll turn it over to Francois first to review our Q1 financials, and then Mike will comment on both strategic and operational highlights.

So with that -- Francois?

Thank you, Lorne, and good morning, everyone.

I am pleased to share our results for Q1 FY15. Revenue was CAD2.5 billion compared with CAD2.6 billion in the year-ago period. Foreign exchange fluctuations favorably impacted revenue by CAD54 million or 2.1% compared with the same period last year. Adjusted EBIT was CAD344 million, up 14%, while our EBIT margin increased by 200 basis points to 13.5%. Net earnings were up CAD46 million to CAD236 million compared with CAD190 million in Q1 last year, representing an increase of 24%. EPS was CAD0.74 per diluted share compared with CAD0.60 last year.

Cash generated by operating activities continued to be very strong at CAD339 million in the first quarter. The significant improvement year over year was largely the result of increased profitability and continuing DSO improvement, from a high of 55 days last year to 42 days in Q1, the second quarter in a row below our 45-day target. As a result, cash from operations for the last 12 months was CAD1.6 billion, excluding CAD125 million dispersed for Logica integration expenses. The remaining integration provision of CAD83 million will be largely dispersed through the rest of this fiscal year.

Turning to the balance sheet, we repaid CAD290 million of debt during the quarter, ending Q1 with net debt of CAD1.9 billion, or CAD966 million lower than last year. As a result, the net debt to capitalization ratio significantly improved from 39% last year to 25% at the end of December. With our revolving credit facility fully accessible and nearly CAD500 million in cash, we have CAD2 billion in readily available liquidity, and access to more as needed.

Now I'll turn the call over to Mike.

Thank you, Francois, and good morning, everyone.

Our first-quarter results were strong and continued to reflect the operational and financial benefits of our business model, now implemented globally. Revenue was up sequentially, but as expected, was down year over year. I'll touch on some of the influencing factors as part of my commentary on the operations.

Our record CAD20 billion backlog and an expanding opportunity pipeline are providing increased visibility into future organic growth. We continue to leverage our IP-based solutions and services, global delivery centers and our transformational consulting offerings to create maximum value for our clients and for investors.

Our EBIT margin at 13.5% increased 200 basis points compared to Quarter One last year. Earnings per share expanded by 23%, reinforcing our ongoing success and commitment to improving the quality of our revenue and earnings. Our net margin at 9% returns us to our pre-merger industry-leading performance. The same could be said for cash from operations, which was up 400% year over year to CAD339 million. On a trailing 12-month basis, we have now generated approximately CAD1.5 billion of cash. Cash generated from operations in EBIT are aligned on a 12-month basis, reflecting our post-integration experiences.

In my remaining time, I'll provide some brief comments on the operations, beginning with North America. Strength in our US commercial and state business continues to mitigate the industry-wide pressures in the federal government sector. As expected, our top line in the US was impacted by the significant revenue bump-up last year associated with the completion of the Affordable Care Act projects. Without this one-time impact, revenue was essentially stable. Despite this headwind, our US team improved EBIT to a record CAD95 million, up CAD28 million, a 40% improvement year over year. EBIT margins increased year over year by 470 basis points to 14.5%.

In CGI federal, we saw the number of contract awards increasing as the volume of task orders continues to grow. We currently have over 100 open proposals with an estimated value of CAD1.6 billion. Our strategy is to maintain our focus on our clients' needs, while improving our long-term position by adding new vehicles, like the recently announced US Navy CANES, our 57th active contract vehicle. While the federal government spending is flat year over year, this remains an CAD80 billion market, where we are well-positioned to grow over time.

In our US commercial business, we secured new clients in financial services, a top US bank and a credit lending operation of a leading global auto manufacturer. Our opportunity pipeline continues to expand as clients plan and budget for more transformational IT projects to support revenue growth priorities.

In addition, our cyber security expertise and associated business continues to rapidly expand as we engage with the technology and business leaders across all markets. Cyber security remains a top priority for clients and is embedded in all our offerings.

Turning to the Canadian operations, the highlight of the quarter was clearly the CAD2 billion extension of our Bell relationship, to 2026. With this key renewal, over 60% of our Canadian revenue has been extended beyond 2020. This level of recurring revenue enables us to make the required long-term investments to create both client and shareholder value. We continue to drive consistent and industry-leading margins, as demonstrated by the 21% delivered by the Canadian team in the quarter.

We also continue to focus on our organic growth opportunities in three main areas: Western Canada, where pressure in the oil patch presents an opportunity for clients to better manage or reduce costs through the use of information technology. Intensifying our efforts to expose clients to the benefits of leveraging our nine Canadian delivery centers to take advantage of the widening currency spread between the Canadian and US dollars. And third, we have created a dedicated business unit in Toronto focused exclusively on the banking sector, where we have significant opportunities to grow our business over time.

Shifting to Europe, although the economic sentiment remains mixed, our teams continue to implement our operating model, and in doing so, contributed strong bookings, superior margins and cash generation. Our book-to-bill over the past 12 months is 112%, and the quality of the bookings is gradually increasing, replacing the planned runoff of low-margin businesses.

Additionally, we have begun migrating more work toward global delivery centers, which will contribute to accelerating margin expansion and improving our competitive position. The benefits of these actions were clearly visible in the quarter, as all our operating SBUs deliver EBIT margins greater than 10% when excluding the impact of intangibles.

In the UK, our operations posted 2% organic growth and expanded EBIT margins by 390 basis points to 11.3%. We continue to improve our business mix through quality engagements across numerous sectors in the UK, including health, justice and utilities. In addition, we are leveraging our cyber expertise and our secure cloud offering, which are now gradually replacing lower-quality revenue.

In France, margins increased to 12.6%, up from 9% last year when excluding acquisition-related benefits booked in the first quarter of 2014. Our book-to-bill in France was 105% over the last 12 months. We continue to focus on increasing our backlog and associated bookings, which will serve as the catalyst for future profitable growth.

Similarly in the Nordic countries, we continue to leverage our market leadership position to increase our bookings, recurring revenue and backlog. For the trailing 12-month periods, bookings in this region are robust at 122% of revenue. Our finished operation continues to grow as we aggressively expand our business with long-term clients, where we have earned a position of trust as their strategic technology partner. The recent decision in Scandinavia to consolidate our data center operations and increase the utilization of global delivery will have enduring long-term benefits, despite the short-term cost impact.

Over all the macro economic climates of our operating geographies, we continue to capitalize on our global footprint and expertise to focus on offering our clients transformational IT solutions that drive revenues, reduce costs and also address cross-industry regulatory changes. At our AGM today, we will reiterate our commitment to deploy cash to drive the highest possible returns for investors. Profitable organic growth remains the most beneficial use of cash, followed by an accretive acquisition, and finally, debt repayment and share buybacks.

We continue to manage our debt with discipline and, as our tradition, gradually reduce it over time. End of quarter we repaid CAD290 million, ending December with a net debt of CAD1.9 billion. From the peak of CAD3.3 billion after acquiring Logica, we reduced our net debt by CAD1.4 billion over the last 27 months. Of the remaining debt, 80% is fixed at an interest rate of 2.65% after tax, insulating us from any dramatic interest rate fluctuations and better positioning us for future acquisitions.

Consistent with our use of cash and our firm belief that CGI remains a very good investment, the Board of Directors today approved the extension of our Normal Course Issuer Bid until February 10, 2016. This gives us the flexibility to purchase approximately 19 million shares over the next 12 months.

I would remind investors that we have returned more than CAD2.5 billion to shareholders through the share buyback program over the last 10 years, at an average price of CAD11. Our ability to generate significant cash from operations, coupled with our strong balance sheet and access to more than CAD2 billion to capital, ensures our ability to continue participating in the ongoing consolidation of our industry.

In closing, I would like to share with you a proof point that demonstrates how focusing on fundamentals is essential for long-term business success and enables the generation of significant accretion for our shareholders. CAD100 invested in CGI's 1986 initial public offering would have generated an average return of 19% in each of the last 28 years. This means a CAD100 investment in 1986 would be worth approximately CAD12,000 today. By comparison, the same CAD100 invested in the TFX over the same period would be worth less than CAD1,000.

The fundamentals of CGI are strong, and we are confident in our ability to continue building a world champ. Thank you for your continued interest and support. Now let's go to questions, Lorne.

Just a reminder that the replay of the call is available either by our website or by dialing 1-800-408-3053 and using the passcode 6793253 until February 6. In addition, a podcast of this call will be available for download within a few hours. Follow-up questions, as usual, can be directed to me at 514-841-3355.

So Mode, if we could poll for questions in the investment community, please.

Thank you, Mr. Gorber.

(Operator Instructions)

Our first question is from Paul Steep from Scotia Capital. Please go ahead.

Great, thanks. I'll give you the second one first to give you time to maybe look it up. Mike, I was going to first ask about the cadence of renewals, since you won this significant BCE deal. And then secondly, the tenure of the book, or the age of the book. You gave a great example in Canada. Could we get some color on the UK and the Nordics as well? Thanks.

On the age of the backlog?

Yes, just on the overall age, you gave a good sense of how much is locked up over a long period of time.

Yes, if you look at the total Company now, we're certainly north of 50%, primarily on the back, again, of the strength in the United States backlog, Canada and the UK. And Finland is getting there as well. So what we're really dealing with here, Paul, is in the other countries, it's very much like we found with American Management Systems. The backlogs are very short, and of course the goal is to extend them over time.

As I say, we've made good headwind in Finland. The UK has got a backlog greater than one year. I think the last time I checked, the average remaining age of the backlog is five years across the Company. And again, more heavily weighted in North America, at the time.

Great. Any feedback -- just as a final follow-up there -- in terms of the more mature markets you've been operating in for a while? Any feedback, given the volatility in the markets lately in terms of clients' Bell willingness or pushed to do renewals early or not do renewals, as the case might be?

I would say, of course, on renewals -- and that was the case in the Bell case -- we look very carefully. We try never to leave a renewal to the expiry date. If you look at the Bell case, we moved a year or so ahead of it, to have time to work through that without a re-tendering. Governments, of course, are a little tougher. But I haven't seen any significant movement in the renewal rate, especially, Paul, where we've been there for a number of years. Again, in Europe, of course, the deals are shorter. And a good portion of that is core systems integration work, project work that does turn over probably every 60 or 90 days.

I think in some industries, there is clear indication that they will invest more in information technology. I highlighted -- regulatory -- here, because I have to tell you, in numerous sectors, customers are telling me that they have to invest a significant amount of money in information technology to meet regulatory changes. Of course, more predominate in banking. But not restricted to banking anymore.

Great. Just last one. On the IP side of things, if you can update us on that number sometime during the call, as to where the overall book is, or percent of revenue is, related to your IP solutions? Thanks.

Okay, thanks, Paul.

Thank you. The following question is from Paul Treiber from RBC Capital Markets. Please go ahead.

Thanks very much. In regards to acquisitions in M&A, how do you think about the movement in the Canadian dollar, just in terms of the impact on potential acquisitions in terms of pricing? And how would you finance acquisitions outside of Canada?

Well, again, as I often mentioned, we look to three criteria -- the right target, the right price and the right time. The dollar itself, I don't think, is a large impact. The euro, in fact, is essentially flat. The pressure would come in the US.

But on the other hand, cost of capital in the US is very low. And we're also generating, as I mentioned today, some very significant earnings in the United States. That's also one of the reasons why we locked down some long-term debt, so that we wouldn't be in a situation where we would be faced with a currency pressure and interest rate upward pressure.

At this point, I don't see that as swinging our decision to do a deal either way. Of course, I don't have one sitting on my desk here to weigh through the impact of that. But to the extent possible, we try to protect ourselves from a large exposure here on that side.

I think as far as a deal, how we would finance it, you know, our preference would be to use our cash. I think we'd use the equity on the Logica deal, given its size. But as you can see here, very rapidly we're able to work down that debt to our cash generation. So I would anticipate it would be primarily cash and debt.

And the following question to that is, there's been a couple of transactions in the IT services space in the last six months or so. How do you see valuations in the market right now, in comparison to several years ago?

Well, again, it does fluctuate by the nature of the acquisition, whether it's IP or a services industry. And I would say it also -- again, it depends on whether the acquirer has strategic reasons for entering through an acquisition into that market, and whether or not they have good visibility into their synergies. I would say, generally what's happening is, all the valuations are moving up, including ours. So again, I don't feel they're out of line. We have never been a Company that has consciously overpaid for an acquisition, and our intent would be to remain very diligent and disciplined around any acquisition that we would approach.

Just lastly, I wanted to focus on margins in Europe. There's been a modest degree of volatility in European margins in the last year. How should we think about the consistency of margins in Europe going forward?

And then also, if organic growth improves in Europe, should that be accretive to margins? Or neutral to margins, given some of the potential ramp-up costs?

It should be accretive, unless it's driven by a large outsourcing contract that would have in it, obviously, some transition and transformational expenses in it. Again, as I mentioned, we're starting to see that now in the UK. In the UK, you saw a growth now at 2.2%; the margins are strengthening.

The volatility over there, as I mentioned, you will see volatility in Europe by the nature of some of those markets. And I always use France -- and our France colleagues are doing a great job. But in France and other countries, given the vacation schedules and the statutory days off, you can have some significant movements. As you know, we can accrue for vacations, but we can't accrue for statutory days off. So you will see some fluctuations there.

But I think what is important to look at, as I called out, all of our operations in Europe now at the SPU level are generating an EBIT of over 10, when you back out the intangibles, which can range from 1% to 2.5%, depending on the geography.

Okay, thank you. I'll pass the line.

Thanks, Paul.

Thank you. The following question is from Jason Kupferberg from Jefferies. Please go ahead.

Hello. This is Ahmed Singh for Jason. Just continuing on the margin discussion, the overall adjusted EBIT margin for this quarter was very strong at 13.5%. If you could help us, how should we look at this margin going forward for the rest of FY15? It seems like there is more upside potential from here. Or do you think the current rate is a good decent run rate for the rest of the year?

Again, the way I have to think about it -- in the business-as-usual mode in our Company, we have a series of levers. And what we attempt to do is, of course, increase the utilization of those levers in our various businesses, regardless of the margin level they're running. Whether they're running at 20% or they're running at 10%, there's still opportunity to push on those levers to increase the overall margin.

And again, it starts with bringing on quality revenue, and there's always an opportunity to do more of that, especially at the high-end-type of revenue. The second thing is, we've made significant progress. Our teams worked extremely hard. The number of trouble projects we have have dropped significantly year over year. When you look at where some of the margins are coming from, that's where they're coming from. We're no longer having the same amount of margin leakage, and therefore, more of the margin is coming to the shareholders.

Global delivery, we see that as an increasing lever, as well. When you get the right mix, as well, between revenue growing, the utilization's rates return -- so, long story short, over time -- and we don't manage this Company by quarter. It's one of the reasons why at the end of my remarks, which I'll be sharing with shareholders, that if you execute with discipline over a long period of time and focus on fundamentals, the return to investors in our case have been very significant.

To be clear, we're not saying our margins are tapped out. I can assure you, it's my belief that we still have opportunities here to improve margins over time and, again, change the mix to a higher-margin business and pull the other levers that I spoke about.

Okay, great. Just shifting to cash flow, operating cash flow gain was impressive this quarter. So if you could provide a little bit more color on how we should look at cash flow going forward? I know previously, you have said the CAD300 million, CAD350 million range is a good way to look at quarterly cash flow. But also a couple of things, like your DSO is running a little lower than target. So how would those factors impact your cash flow for the rest of the year?

Good question.

First, I'm very pleased with the work everybody has done on the DSO. I think if you look at the DSO, given the mix of geographies we have and everything, it's excellent, and in fact, is below our 45-day target.

What I've been trying to communicate probably on every call is that cash flow needs to be looked at on a trailing 12-month basis, because there are influencing factors in various quarters. But as far as we're concerned, we have returned to the type of cash generation that we did pre-Logica. And you can see that in the quarter, where we had a significant increase year over year.

Again, trailing 12 months has been CAD1.6 billion. Our intent is, of course, to continue to work very hard to generate those ranges of cash. And we're fairly confident that we'll be able to do that in 2015 and beyond.

Perfect. Just one last quick one. I know previously you had said that the organic growth should probably return during the second half of this year. What are your thoughts about the whole growth expectation?

We're still onto that. We've reviewed it with the operations. And again, in the first quarter, as I mentioned, we had some tough comparisons year over year. But moving forward, we do see the opportunity to gradually return to organic growth in the back half of the year.

Okay, thank you very much.

Thanks, Ahmed.

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

Thank you. Mike, when you think the impasse with US federal will be lifted? Or should we assume that's going to be a longer-term event or headwind going forward?

What I've assumed, Richard, as I said in there, my view is probably going to continue to go sideways here, flat for 2015. Back to my earlier comment, our strategy is to stay very close to our customers, renew and extend business that we can there. And also continue to ensure that we're adding new contract vehicles. As I mentioned, we added one. We're up to 57 now. And that, of course, gives us a massive hunting license across a good portion of that CAD80 billion market.

As far as the business there, the team is operating very effectively. They're managing their costs carefully so not to get out of balance between the revenue and the margin. But I haven't built in any significant upside in the back end of the year on federal. It would be good, but from a planning standpoint, I am seeing some positive things, as I mentioned. But we still have CAD1.7 billion awaiting a decision.

Okay. And then switching gears on the pricing environment. I think [Accentia] recently said on their call that they're seeing some relief after pressure for a good part of last year. Are you seeing the same thing? And how would that apply to new deals? And then secondly, how would it apply to renewals?

I think on renewals, we've always taken a very business approach with our clients. In some cases, we change the scope, add the scope, narrow the scope, depending on where we are, so that -- and extend the term, which gives us a lot of flexibility to bring a lot of value to the customer, while maintaining the contract.

I'm not seeing a lot of pressure. I think, again, where we lose a bit -- and it's on price. My sense is, I don't know if you call that pricing pressures or somebody willing to take a risk on the bottom line more than we are. I mean, we don't believe in loss leaders. We don't believe in buying business for the sake of buying business. We spent the last two years digging out of there and we don't want to go near there.

Where we have lost business on price, we analyze it. We look at whether we're using the proper mix of local and global delivery. But I wouldn't say there's a general downward pressure here, that I've seen.

Okay. And then just one last question. Of your offerings, what would you say is in the most demand today? Is it still back-office ERP systems, more work in the cloud? Just some perspective on that. Thank you.

Again, and not any particular order, I would say is, I mentioned in my remarks, cyber security, front to back, is top-of-line across industry. In the government space, our Advantage solution in the United States is still in big demand, both from bringing on new states and jurisdictions that don't have it. But also, we continue, of course, to modify and expand and update a very large embedded base there.

We've also, as you know, added cloud to the Advantage to attract some of the smaller jurisdictions. And we're just currently going through an analysis there to see if we want to make any modifications to our offering to accelerate the growth there.

On the finance side, Trade360, collections, and finally, I would say payments, are ramping up. Especially in the financial institutions; modernizing and updating payments and processes, and supporting IT infrastructure is picking up.

I also call out, because as I say, when I go around the world and I talk to clients, a lot of companies in various sectors have to invest significant money in information technology to meet regulatory requirements. That is becoming a growing part -- in some cases, a significant amount in absolute dollars or pounds. And again, we're looking at that; we're active in there. And that's clearly a growth engine.

That's great, thanks, Mike.

Thank you.

Thank you. The following question is from Scott Penner from TD Securities. Please go ahead.

Thank you. Just two questions, Mike. First of all, I wanted to clarify one of the comments you made in your script. Excluding the revenue impacted, let's say, by Obamacare last year, did you say that the US market, the revenue would have been pretty consistent with last year?

I think that for the most part, in the US, I'm saying that when you remove not only the stuff that I would call the federal ACA, but also the state business, Scott, because we also were doing a lot of work at that same period of time on the health-related projects for the state. So for the most part, I'm saying the US operations, from a revenue standpoint, would have been actually stable.

Okay. I think that's a pretty important point. The other thing I wanted to ask about is, again, your comment on Western Canada, and the bigger energy market in general. What is the receptiveness of customers right now? There's a lot of things going on and changing fast. What's the receptiveness of customers to taking your calls?

And are these transformational deals with longer sales cycles? Or are you looking at smaller quick-hit deals that we could see in the near-term?

Well, again, we're actually looking at both. I think in some cases, you know, we're looking to help augment internal staffs, to accelerate the implementation of technology. It will bring down the costs of the operation. And at the same time, putting in front of the customer a transformational deal that would see us take on a portion of that back room. And it could be business process wrapped with IT, as we do a lot more of that now, where we'll take the whole back room.

There is, I would say, a lot of interest in how costs can be managed or brought down rapidly against the dropping commodity price. I cited Western Canada, but it's not only Western Canada; it's in other jurisdictions. And I am, in fact, having an opportunity in a couple of weeks in Europe to speak to a customer in that situation.

Clearly, our business is an interesting business. Because as the economy grows, or as companies grows, of course, they deploy more information technology to bring on new products and drive the top line. But on the other side, when tough times come -- and you recall in the US state business, where a number of years ago, was exceedingly tough, we put together what we called Solutions for Tough Times. Actually, we're working on the same thing for the energy industry, as we speak.

I appreciate it. I'll leave it there. Enjoy the AGM.

Thanks, Scott.

Thank you. The following question is from Ralph Garcea from Cantor Fitzgerald. Please go ahead.

Good morning, gentlemen.

Good morning, Ralph.

Just given that this is the third quarter in a row on the US side where your EBITDA margins have been in the mid-14% range. As you open up, down the road, the Lafayette facility and possibly some other near-shore centers, can you get another 50 BPs to 100 basis points on the margin side out of the US business as we move forward?

I think that's certainly doable. I think you rightly called out that we've added a new center in Lafayette, that brings with it a very competitive cost model to win more business, and also to increase our margins on the business.

I think the other thing, Ralph, is that as the commercial business picks up, of course, our mix changes. There we have the opportunity to generate better margins, where as you know, a lot of our government business is actually capped on a cost-plus or time and material basis. And then the third lever there would be the continuing use of our IP-based services and solutions. So I think if you just took those three levers, we can continue to gradually improve the margins in the United States.

Now, as we mentioned before, and it's probably a question that's coming, if we look at acquisitions, of course, the United States is a market that we're very interested in. Clearly, it would be very helpful to our overall plan to have a larger presence in the commercial space, and that still remains a priority for us.

I mean, just on that comment and your IP -- you picked up some deep expertise on the cyber security side with the Stanley acquisition. It was mainly defense and government-related. Are you seeing that now trickle into commercial contracts, and that's giving you some of that margin leverage also?

What we've done on that, Ralph, is actually -- globally now, we have about six centers that are really embedded in those markets where we are offering security on a broad basis, starting even with the data center and the monitoring of this. And as you've heard, we continue to grow in that space in the UK, continue to grow with a number of the large international companies where we have won cyber contracts.

The US, while has a lot of expertise there, we have been able to replicate and build on, frankly, because it would be unfair to say Logica didn't have the similar type of experts. The biggest challenge -- which is a nice one -- is to be able to ramp up with enough experts in this space to meet the demand. But that's a nice problem to have.

Perfect, thank you.

Thanks, Ralph.

The following question is from Steven Li from Raymond James. Please go ahead.

Thank you. Hi, Mike. Just on Canada again. The past year or so, margins have been very strong. But organic growth, and especially recent bookings, have lagged. Can you share your outlook for Canada for this year? Should we expect more of the same? Thanks.

I think, again, in Canada, we're in some degree a bit of a victim of our success. When you have such a high percentage of your plants in long-term outsourcing, as I mentioned before, you ride the uptick and you ride the downtick, in terms of volumes. In some cases, volumes are putting downward pressure on the top line.

But as I mentioned, the three areas that I called out, I think as we execute across those, my sense is that we can gradually return again to profitable growth in Canada. And again, my sense is that will be an area that will be in the back end of 2015.

We have some visibility on some good opportunities. Some of these, it takes time to get them over the line. But we have a very strong franchise here in Canada. And we're very confident in the team that we've got on the ground here to move us in the right direction.

Meanwhile, of course, we're protecting our margins and to ensure the margins aren't an impediment to our growth. Because the margins are actually coming from, as I say, the mix of the work we have. And in those areas, of course, our pricing and offerings are very competitive. I believe that Canada is not a mature market, and there's opportunities here for growth.

That's great. Thanks, Mike.

Thanks, Steven.

Thank you. The following question is from Thanos Maschopoulos from BMO Capital Markets. Please go ahead.

Hi, good morning. Mike, how should we think about the mix coming from outsourcing revenue over the next year or so? I know that's clearly a strong focus for you. Assuming we might see a cyclical uptick in assigned sea work as well. So would that offset the other? Or should we look for that outsourcing mix to improve over the next 12 months?

That's a very good question, because as the economies start to strengthen, you do see more systems integration projects coming on stream. On the other side, as I mentioned many times, an outsourcing deal takes a long time to groom. But when it hits, it's a dramatic uptick on the organic growth side, and therefore changes the mix. And you can see that, again, in countries like Finland, where we won in the past 12 months two very good contracts with very strong customers up there.

My sense is, absent a large outsourcing deal, you'll see a gradual uptick on the project work. But an outsourcing deal can dramatically shift the mix, the recurring revenue, the backlog and the margins over time. And of course, we work on both.

The way I view that, outsourcing is a very key part of our strategy, and you have to be nimble and ready to execute when the customer is. That's certainly how we're approaching our plan. And now with the new platform we've got around the world, we're certainly eligible in participating in more opportunities and getting more visible opportunities with clients who are looking at that.

Great. And I thought you raised an interesting point earlier with respect to the opportunity for your Canadian delivery centers, with the Canadian dollar having declined. Can you talk about the initial level of interest you're seeing there? Maybe what you've seen historically the last time the dollar was down at these levels?

As I say to our own team, you've got a 20% advantage on the currency in a number of these locations that I mentioned. We also have, as do our competitors, government grants to entice growth in the information technology space. So the combination of the two makes our Canadian centers very appealing. The challenge is, you've got to get out there, show some comparisons to other options for a customer. When the dollar was in the 70% range a number of years ago, that actually was the trigger for us to set up more of these centers.

Our sense is -- I don't want to predict where the dollar is going. But if it continues to maintain at that kind of spread. We're certainly getting a better hearing. Our focus, while primarily would be in the US commercial market, we do have global companies who are also looking to place their work in various geographies. We have some of that already in Canada. And that business is growing as those companies do diversify, in some cases, more work out of previous jurisdictions they had in parts of Europe into other areas like Canada.

Great. Thanks, Michael. I'll pass the line.

Mode, I think we'll have time for one last question, please.

Certainly. Our last question is from Jim Schneider from Goldman Sachs. Please go ahead.

Good morning, thanks for taking my question.

Mike, I was wondering if you can comment on the environment you're hearing anecdotally from clients in Europe? Whether the macro pressure some of them may be feeling in some countries is actually causing them to do more outsourcing sooner than they would have otherwise done. Or maybe hold back from doing that outsourcing, from a secular standpoint, towards more outsourcing Europe.

That's a good question and I appreciate it, because a lot of times, we tend to bulk Europe all together as one. Even though they're on the common currency, their economies are much different. Again, I would say that Spain and Portugal continue to be challenged. We've got a great team on the ground there. Fortunately, we don't have a large exposure there.

Again, where I really see much more interest in investing in information and technology in Europe would be in the UK and in Germany. In the UK, in particular, the amount of money that has to go into the regulatory side for global financial services company there, is very significant. So you've got a driver, to some extent, that's not linked to the economy; it's linked to regulation.

Of course, many of these companies would much prefer, I'm sure, to invest that kind of spend into their core business of growing their business with the customers, and making it easier to do business. With that two pressures, what happens is, they're looking at how to cut the run cost of the existing operations, and then redeploy money, either/and to meet the regulatory pressures, and invest back in their core business. So this stimulates, I would say, a different conversation.

In some jurisdictions, I'm also looking at seeing whether there's an opportunity here to become a bit of an intermediate for numerous financial institutions who are making the same regulatory changes, and each paying a hundred cents on the dollar to do it. Whether there's areas where we could do it once for multiple players.

So we're exploring that. I haven't seen any big resistance. I just don't think we've quite figured out how to wrap that solution and execute on it. But the idea is out there, and I think appealing to a number of institutions.

That's helpful. And then just as a follow-up, a clarification on your earlier comments on M&A. Do you still think that the US commercial is the most attractive area, when you look at your overall M&A pipeline? Or are there other areas within the US or internationally that you think are equally interesting?

Thank you to clarify that. I was speaking in terms of what I believe was probably the most accretive acquisition, would be in the United States. And also from a capability standpoint, to augment our commercial business so that we would participate in more of the growing strength of the US economy. Unfortunately, as you know, sometimes where you would like to prioritize and execute your M&A strategy doesn't align with the pipeline of opportunities or the willingness of sellers to sell.

We continue to look, obviously, globally, and we continue, as we mentioned earlier -- if I go back to my comments on the UK, it's just as an example. Our margins have improved there. The organic growth has returned. And therefore, if I could add more capabilities and a larger footprint on the ground in the UK, I think it would be accretive for shareholders, given that we have righted the ship there and the team there certainly has proven their ability to manage in line with our operating model, and would do so in an acquisition case.

So that's how we look at it. But I still firmly see it that this is a consolidating industry. And I don't think we've missed anything over the last two years that I particularly would have wanted. So we've come through the Logica merger; our cash is back in line. There's a significant amount of liquidity out there that we've been offered by various financial players. And so we're in a good position to pull the trigger again on the right deal, at the right place and the right time.

Great. Thank you.

Thank you.

Thank you, Jim, and thank you, everybody, for joining us. Hopefully, you'll have a chance to tune in to our annual meeting this morning at 11 AM, which will be broadcast on CGI.com. And then of course, once again, in late April for our second-quarter results. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.