CGI Inc (GIB) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CGI fourth-quarter and FY16 conference call. I would like to turn the meeting over to Mr. Lorne Gorber, Executive Vice President, Global Communications and Investors Relations. Please go ahead, Mr. Gorber

Thank you, Marie, and good morning. With me to discuss CGI's fourth-quarter and FY16 results are George Schindler, President and Chief Executive Officer; and Francois Boulanger, Executive Vice President and CFO. This call is being broadcast on CGI.com and recorded live at 9 AM on Wednesday November 9, 2016.

Supplemental slides as well as the press release we issued earlier this morning are available for download along with our MD&A, 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 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 in Canadian dollars unless otherwise noted.

I'll first turn it over to George for opening comments, then Francois will go through our Q4 and full-year financial results, and finally George will wrap up with operational highlights across our key markets and overall strategy for FY17. George?

Thank you, Lorne, and good morning, everyone. It is a privilege to be here discussing the results of such a high performing global team.

FY16, CGI's 40th year, has been a remarkable one. We returned to positive organic growth in Q3 and built on that momentum once again, achieving constant currency organic growth of 2.8% in Q4. CGI has a long history of disciplined execution through our build and buy strategy. Now we have turned this discipline to creating more profitable organic growth in FY17 and beyond. This has been my focus since stepping into the COO role some 18 months ago and continues now as CEO. By prioritizing the acceleration of our revenue growth and the quality of our mix, we plan to continuously improve all key financial metrics including cash generation, earnings per share growth, and bookings.

We are entering FY17 from a position of strength. We signed a number of significant deals in FY16. Many were long term, with both new and existing clients. They included SNC-Lavalin, Sears, La Banque Postale, Scottish Borders, Alberta Health, Volvo, and PNC, just to name a few. Our standard portfolio of digital IP now represents 20% of global revenue, moving closer to our IP30 goal. We are booking more deals that integrate our IP solution and evolve both the business and IT sides of our clients' organization. In Q4 alone, more than 30% of our bookings were specifically driven by IP solutions and services in support of digital business initiatives.

For FY16 our net earnings reached an all-time high of CAD1.1 billion while EPS expanded by 12.5%. And with cash from operations of CAD1.3 billion we can invest in levers that will accelerate the successful execution of our strategy on both the build and the buy side. On the buy side we made strategic niche acquisitions in FY16. JSL, a leading Toronto-based consultancy specializing in banking and agile development; and Alcion, a French high end consulting firm also specializing in banking. These transactions were accretive in year and immediately acted as catalysts for new growth opportunities. And we remain active again in FY17. Just last week we completed the acquisition of Boston-based Collaborative Consulting.

We warmly welcome these highly skilled new members to CGI. Collaborative Consulting is a line to the CGI model. It combines deep local relationships, on-shore delivery capabilities and industry expertise, particularly in the areas of financial services and life sciences. These are the right skill sets to deliver digital transformation solutions that will immediately benefit our collective clients. Consistent with our criteria this merger will be earnings-accretive in FY17.

As a key element of our annual planning process, we conduct a series of more than 1,000 in-depth client interviews, now known as the CGI Global 1000. Evenly split between business executives and IT leaders, these face-to-face discussions are conducted by CGI proximity leaders. Clients share perspectives on the trends influencing their specific industries and key strategic initiatives. We distill the findings with our own observations to provide CGI insights in a comprehensive global outlook that we share with each participating executive. Given the clear and compounding trends over the year surrounding the digital agenda globally, we published a version of the report for the benefit of all existing and prospective clients. This outlook is then reflected in our strategic plans to ensure we are best positioned to meet client demand, and as a result, drive value for all CGI stakeholders.

Now I will pass it over to Francois to discuss our financial performance in more detail.

Thank you, George, and good morning everyone.

I'm pleased to share our results for the fourth quarter and FY16. For the quarter, revenue was CAD2.6 billion, stable year over year, but up 2.8% on a constant currency basis. Currency fluctuations, mainly the pound, negatively impacted revenue by CAD75 million. We were awarded CAD2.9 billion in new contracts during the quarter and CAD11.7 billion for the year, representing 110% of revenue.

Adjusted EBIT was CAD395 million in Q4, up CAD16 million, while EBIT margin increased by 60 basis points to 15.3%. This margin expansion was driven by higher profitability in Canada, the Nordics, and the US. These improvements were partly offset by a one-time project provision in the UK. Going forward, we expect the UK to continue generating double-digit EBIT margins. For the year our tax rate excluding specific items was 27%. Given an increasing level of profitability in the US, India, and France, we expect a normalized tax rate for FY17 to be in the 27% to 29% range. Net earnings were CAD274 million in Q4, up 18%, compared with CAD233 million last year and representing a net margin of 10.6%. Earnings per share of CAD0.89 in Q4 compared with CAD0.73 on a GAAP basis, or CAD0.82 excluding specific items, a significant improvement on both measures.

Turning to cash. Our operation generated CAD402 million in the fourth quarter, bringing the cash from operations in FY16 to CAD1.3 billion or CAD4.26 per share. We ended the year with a DSO of 44 days, in line with our 45-day target. We continue to invest our cash to have the most accretive impact on the business. In FY16, we invested more than CAD350 million back into our own business by opening cybersecurity centers in Finland, France, and the Netherlands, innovating alongside clients and through our internal innovation program, expanding our global delivery capacity both on- and off-shore, and investing in robotics and automation tools and delivery centers, driving efficiency for our clients and profitable growth for CGI. We acquired LCN and GSL, as George mentioned. We invested CAD580 million repurchasing 9.3 million shares at an average price of CAD55.56. Under the current share buyback program, we can purchase an additional 14.3 million shares before February.

And finally, we repaid CAD180 million of long-term debt. Net debt was reduced by CAD446 million during the fiscal year to CAD1.3 billion. As a result, net debt to capitalization was 15.8%, an improvement of 590 basis points. As a reminder, for FY17, we have a single debt payment to make of CAD112 million due this quarter.

With respect to the acquisition of Collaborative Consulting, we paid $115 million and expect to incur approximately $3 million in restructuring charges this quarter as we complete the integration.

With access to CAD600 million in cash and CAD1.5 billion in available credit facilities and more if needed, we continue to have the flexibility to fully execute our build and buy profitable growth strategy.

Now I'll pass the call back to George.

Thank you, Francois.

As a mentioned earlier, the overarching priority for clients at this time is to transform to become digital organizations. That transformation agenda is well underway globally and CGI is at the heart of this shift. With that in mind, let's briefly review the Q4 highlights from our global operations, beginning in North America.

Canada posted organic revenue growth of 4.2% as transformational outsourcing deals signed in 2016 convert into new high-quality revenue. At the same time, the demand for high-end IT consulting and digital projects remain strong, particularly in financial services, where Q4 book to bill with Canadian banks was over 250% and included significant IP-related awards.

In the US, commercial revenue grew organically by 8% in Q4, driven by particular strength, again, in financial services, but also manufacturing and utilities. The pipeline continues expanding as transformational outsourcing opportunities progress and higher value digital engagements are added. In our US federal business, Q4 bookings were strong at 190%. As a new administration comes in, existing contract vehicles are often leveraged to rapidly implement early initiatives. Having earned a spot on 58 agency or government-wide contract vehicles over the years, we are well-positioned to capitalize on these potential new opportunities.

Looking across the pond, the UK grew by 14% in Q4, as key wins such as the city of Edinburgh continued converting into top-line growth. Like Edinburgh and Scottish Borders, the city of Glasgow is now considering its path towards digital transformation. They recently selected CGI to build a business case and long-term roadmap towards this very goal. Enabled by the initial competitive process run by Edinburgh, this contract vehicle facilitates the path for 17 additional municipalities, including Glasgow, to begin designing their future state directly with CGI as the digital transformation partner of choice.

In Eastern and Central Europe, despite challenges in the Dutch public sector, we have seen continued strength in Germany and Belgium, which grew 4% and 14% respectively in Q4. With a deep focus on digital, we are seeing stronger bookings and a healthier pipeline of higher value opportunities across the region. For example, we have expanded our partnerships with several of the world's leading car manufacturers, specifically in Germany, to strategically integrate technology to improve the driver's digital experience. Across the Nordics, we saw improving profitability, with EBIT margin rising to 12.2%, as the benefits of restructuring actions previously implemented are taking hold and demand for our IP is increasing. However, as we continue to move portions of our existing client business offshore, the result is a temporary headwind on revenue.

France finished FY16 strong, growing 9% in Q4 and posting an EBIT margin of 12.6%. We saw demand increase across all vertical markets with strong double-digit growth in financial services, government, and manufacturing. Our recent win with chemical giant Solvay once again demonstrates that transformational outsourcing and modernizing legacy IT is a key step on the digital journey for large enterprise clients. And our business consulting expertise is also serving us particularly well as a wedge to longer-term transformational engagement.

Finally, growth in Asia-Pacific was led by our India global delivery centers. Revenue grew organically by 14.2% in Q4 while EBIT margin of 18.7% was up 390 basis points.

Turning to strategy. In this extraordinary time to be in business, change will continue happening faster and more broadly than ever before. Our clients face a competitive urgency to connect their legacy environments with a digital operating model required to meet the needs of their customers. As an end-to-end provider, we are well-positioned to be our clients' partner choice for digital transformation. We exploit three strategic levers to help them reach this goal and in turn drive growth for CGI: high-end consulting and systems integration, with an additional focus now on digital; transformational outsourcing, supporting both run and change initiatives; and intellectual property, acting as a digital business accelerator. These are the organic levers that we will stay focused on exploiting throughout FY17 and beyond.

So let me end with the two levers of our buy-side strategy. As Francois pointed out, we have the capacity necessary to execute large transformational deals, while at the same time we can continue to make niche acquisitions similar to the collaborative Alcion and JSL transactions. Each first appeared on our radar screen as part of the Global 1000 discussions with our clients. Market conditions continue to favor consolidation and response to client demand for global partners. In fact, we see vendor consolidation as an ongoing response by our clients to meet operational efficiency targets and to invest in their digital transformation agenda. In turn, we will make investments in both the build- and the buy-side of our strategy to ensure we are always qualifying and continue being down selected as a preferred partner in all key geographic areas.

With respect to our funnel of targets we have visibility into a significant number of deals, both transformational and niche players. The funnel is healthy and reflects the highly fragmented nature of our industry. It includes thousands of possible targets, both private and public, across all existing geographies. We are actively engaging with potential sellers at various stages of the buy cycle. In closing, we are confident in our ability to continuously improve the top and bottom lines by utilizing all of our strategic levers on the build and buy side of the CGI strategy.

So with that, let's could to questions, Lorne.

Just a reminder that a replay of the call will be available either via our website or by dialing 1-800-408-3053 and using the pass code 9337285. That will be available until December 10. As well, a podcast of the call will be available for download within a few hours and as usual, follow-up questions can be directed to me at 514-841-3355.

So Marie, perhaps we can poll for questions from our listeners?

Thank you very much.

(Operator instructions)

Richard C., National Bank Financial

Thank you for those comments, George. When you look out over the next 12 months, can you maybe give us some perspective on where you see areas of momentum, whether it be geographic by region, by vertical or specific products?

Yes. So I can answer that thanks, Richard for the question. We actually see -- let me start with some context. We see the digital transformation opportunity as something that is broad across the market.

And that's exactly what came through in our Global 1000 report. In fact, 70% of leaders cite the rising influence of customers and citizens as a key driver in their business models.

That is driving demand and it is driving demand maybe faster in the consumer intensive industries like financial services, and banking specifically on the retail side as well as retail. But it also is driving it across all the industries at different paces.

So maybe a little more continuous. We see on the banking side. And then again, across each of the regions and I think the strong book-to-bill that we showed this quarter in all of the areas, strongest which was in the US this quarter shows where some of that growth is going to be over the next 12 months.

Okay. And then with the change in administration that's coming, and you guys obviously do a substantial amount of work on the government side in the US, do you see any meaningful impact here from the changes based on what you can tell now whether it's positive or negative?

Yes. I always say that there's a natural cycle of government. And every four or eight years the administration is going to change.

More and more with that change, there's opportunities that are driven because any new priority for a new administration, whatever that administration might be does drive some change that requires technology in today's world. And so there are opportunities and that's why I pointed out the 58 vehicles that we're on, because you want to get initiative done quickly particularly given the US procurement regulations, you want to do that as a task order under existing vehicle. And we see that happen all the time.

On the other side, I would tell you that most of the work, the abundance of the work that we have in the US federal business is mission-essential work. And so that will continue regardless of the new priorities that an administration brings in. So early days, obviously, the morning after the election. But that's really how we approach what I would call the natural cycle of government.

Okay, and just one last quick one for me. It sort of caught my attention with your comments on this auto partnership and enhancing the digital experience on that.

It kind of seems outside the realm of what you've historically done. Could you elaborate on what you doing there to the extent that you are allowed to?

Yes. I can't talk about specifics, but I think it's a great example and the reason I highlighted it, it's a great example of where technology is now entering the market in totally different ways.

The driver selection, obviously the primary purpose of the car manufacturer still is really on the overall driving experience and yet what we see more and more, it's not just the mechanics of the driver experience. It's the digital driver experience.

So it's all the areas that you might think of, it's all the real-time systems that are in a car, whether it's the navigation systems, whether it's the interface on some of the real-time music, etc. It's everything. So we're involved in the testing of that. We're also involved in some of the development of that.

Thanks, thank you.

Steven Li, Raymond James

Thank you. George, maybe I'll ask a different question on the US business. As the bookings look quite strong in Q4, but what are some of the areas that still need to improve for the US to show organic growth?

Yes. So we did have -- I'll start with this. We did have sequential organic growth across the US so certainly, along with those bookings, that's a positive outlook as we move into the future.

I think it's really about the scale. It's part of the reason that we did make the acquisition of Collaborative Consulting. We still need to get more scale, particularly in various metro markets. So collaborative is a great example because alone, they are very high-end consulting and systems integration, a key lever of the CGI growth strategy.

But they can't really play in the larger transformational outsourcing deals, yet they have visibility into them. They don't' have any intellectual property, yet they have deep relationships in the various areas and that's why I highlighted financial services with the industries that we have intellectual property that could be leveraged. So I think that's something that I would see us doing more of, not just in the US but in any of our geographies where we believe that we're under leveraged from a scale perspective

Great. And the US elections result last night, does that benefit CGI as an onshore vendor in the US?

Well I think as you know, we will stay true to our model, which has always been client proximity, because we need to be close to our clients in order to understand their needs and I highlighted that in the script. Complimented by a global delivery model.

And as you know we've never gone straight to offshore or onshore. It's a global delivery model so I like where we're positioned in the global marketplace with or without this election.

Great. One last one. The lower margins in UK, is that the result of contract ramping costs and the SID rebounds in upcoming quarters? Thank you.

Yes, it was isolated to one specific project. We don't as a practice talk about isolated projects. But we're certainly on a path to resolve that and it's a one-time.

Thanks.

Thanks, Stephen.

Maher Yaghi, Desjardins Capital Markets.

Yes, thank you for taking a question. Historically, the stock has reacted quite sensibly to the EPS growth and as you enter the next fiscal year, I wanted to ask you how you see EPS growth taking hold.

Historically we've seen the Company report double-digit EPS growth on a consistent basis, how do you view FY17, where's the growth in EPS going to come from? Maybe if you can talk about margin expansion revenue growth or buyback and how you put altogether for your outlook for FY17?

Sure. Thanks for the question. As you are aware, and as I mentioned in the script, we remain committed to continuous improvement on all the key financial metrics, obviously earnings per share being an important one. And driving that with consistent returns, with our historic past.

Having said that, you are right. Where we're going to drive some of that growth in earnings-per-share expansion changes a little bit, given how we're now positioned and moving to revenue growth. So we're still going to get some of that from operational excellence. And I believe there are still opportunities, in fact, to do that and is part of our plan.

Having said that, the quality of the mix continues to be important and you saw the strong bookings we had in intellectual property which is really now a digital business enabler and plays right into the demand that we see from our clients and that's why you see that continued growth.

In fact, there's a bigger opportunity as we take that intellectual property and move it to a Software as a Service. It does two things. One, it drives additional profit for us but it also enables us to move that across geographies easier.

But the third dimension that is, I think, has momentum now is as we continue to grow the revenue, more of that will drop now to the bottom line and provide us with that EPS expansion. So it's a balance across all of it. And that's all part of our plan for FY17.

Okay great. And just a follow up. Thanks for the little bit of visibility on IP side. Can you characterize the spread of that IP on the bookings side? Is it compartmentalized in certain sectors? Or is it across the platform?

Yes. It is across the platform, but it is highly concentrated right now in financial services and government. Because that's where we have more of the IP.

Having said that, we had IP bookings across every one of our geographic units and we also had it across each of the industries just at different levels. A lot of the IP is still based in North America but we're gaining traction moving that across each of the geographies.

And as I said some of our investments are actually to move some of that IP to a Software as a Service so we can gain more of that traction across each of the geographies. Does that help?

Thank you, George.

Thanks, Maher.

Thanos Moschopoulos, BMO Capital Markets

Hello, good morning. George, financial services has clearly been a [history] for you Canada helping that region return to growth.

Can you remind us of some of the factors specifically driving Canadian financial services. Is it primarily digital or is there anything else you'd call out there?

Yes, I think there's a couple of things that we see driving some of that growth, particularly in Canada. And it is their desire to move rapidly to more of a digital model.

And in order to do that, that requires them also to move faster as organizations. And as they have to move faster, it does two things. One, it drives some more of that proximity revenue because if they're going to implement a project in an agile way very rapidly, it drives more of that expertise to the on-site, working directly with the client, and so we've actually seen growth in that area.

It also, as they look to move more rapidly, they are adopting the broader suite of CGI intellectual property and IP. And so again, we see a lot of growth there in the banks. And then we see is a lot of receptivity, not just in the Canadian banks but more broadly, we see a lot of receptivity right now in selecting a single vendor or a smaller set of vendors to help them on both the run side and the legacy and on the change side. As they move to a more digital experience for their consumers and customers.

And so we're seeing growth there as well. In fact are doing some of the work on Robo advising et cetera with some of the Canadian banks, so we're working on both the run and the change side and they're seeing that the two are coming closer together and they're looking for more of a single partner.

So I think some of our growth is probably taking some of that away from some others and our acquisition of JSL, JSL couldn't play on both sides. They were playing on the change side but he could really play on the run site. So bringing them into the fold is another way that we can grow.

And then looking at financial services more globally, obviously some of your competitors have called out areas of weakness in the US and in Europe. So just to clarify, you're not seeing that from the sounds of it, maybe for some of the reasons you highlighted as far as IP initial?

That's correct.

Okay. And maybe one last one for me in terms of capital deployment, you highlighted the large payment that's coming due this quarter looking past that, how should we think about your priorities as far as debt repayment versus share buybacks? Can you remind us of your target capital structure and whether you're approaching that?

I'll remind you and pretty much the way Francois went through the way we look at deploying our capital is the order of importance. Obviously, reinvesting in our own business is the most important way that we can do that both organically, through our IP and other investments we make in client contracts, as well as in accretive acquisitions like we discussed on the call.

But maybe Francois, you can jump in on --

Yes, so you're right. We have only one payment to do in the next quarter and that's the only payment until after that 2018. So on the debt side, it will be very low activity.

Also, when you'll read the financial statement you'll see that we did renew our credit facility. We renewed for the next four years so -- two extra years, sorry, so we're at five years now of credit facility still CAD1.5 billion. So for sure, as George indicated, we are very active on the acquisition side, so we are looking and actually, if it's not happening or depending when it's happening, we will go back in the market and doing some share buyback.

Great, thanks guys. I'll pass the line.

Paul Steep, Scotia Capital

Great. George or Francois, maybe you can carry on just on the topic we were on. How should we think about the level of investment in the IP portfolio into 2017.

It sounds like you're bullish at recent opportunities certainly in the financial segment. Is there a thought about accelerating investment into that next year? Because given your view of presumably the window of opportunity in digital transformation?

Sure. Let me just maybe go through kind of how we think about an investment in IP and then maybe Francois, you can comment. But when we're looking at investing in the IP, the first thing we look at is our existing IP. So we look at stringing together some of the various piece parts.

And bringing that into a combined offering. So that's some of the investment we've done, and a protect-the-bank offering is a good example of that where we had some intellectual property on the security side, on the anti-money laundering side on the case management side, string that together into a collective protect-the-bank offering, which is, which gets a higher value for the client and therefore a higher value for us.

It also includes allowing our IP to travel. A good example of that is the proper pay IP that we have which was narrow built for helping us to fight fraud, waste, and abuse in the US federal government.

That now is a commercial offering in the US. But now by moving it to a Software as a Service cloud offering, we can more easily deploy that in other locations and do that in a secure way because the data now stays in resident in country. But we're also looking at new intellectual properties. And we still do that in partnership with our clients.

So we have an IP going on right now in the UK. We're investing but we're co-investing, if you will, with a consortium of clients around a digital secure collaboration platform. So we still want to do that in conjunction with our clients. We get new ideas that come in from our innovation program for members. We believe innovation comes from the shop floor.

And then an exciting new offering that we have in our transformational outsourcing deals is we offer our clients a joint innovation fund where they can take some of the savings that we are giving them from the outsourcing effort. We match that with some innovation funds of our own and we jointly create some of the change initiatives for the client. Some of that we can reap as IP.

So all of it is accelerated and many of those new IP we're actually doing ourselves deploying agile methodologies. So we already are accelerating that, not necessarily just by increasing the dollars but by increasing the return on the dollars we are investing. But Francois?

So just to continue, as George indicated, we are doing a lot of these investments with also the client so you won't see necessarily a pressure on the investment side, on our side. So yes, you can see some increase but it's very important to us to do it with the client and so naturally, clients are participating in the investment

Okay. Just a follow-up maybe on the Nordics to get operational for a minute here. You've had good success in moving and calling out some legacy contracts. Where are we in the process, George, at this point?

Are we halfway there? How should we think about the potential to maybe bring margins, not obviously to US levels but maybe into the mid-teens on an adjusted EBIT basis?

That's a good question. We're definitely on the path but I think it's a balanced path. On both, as I highlighted, we did some of the restructuring and moved some more of the work to our offshore locations. But part of that is not just to drive those accretive bottom-line improvements, but it's also to position ourselves for the growth.

And so we are still focused on that. There's a strong economy there. There's opportunities for us to continue to grow. We have a leadership position in many of our clients and we actually are seeing that in some of our clients where they're looking for us to move from just the run into the change and that changes our mix, and that improves our bottom line as well in the Nordic.

So we're on the path. I can't tell you exactly, I can't predict exactly where that's going to be and as you know we don't give guidance but we're certainly on a path there and I'm encouraged.

The last one for me. Just high-level, we've had a good, a really good bookings year. How should we think about just major renewals in 2017? I don't have anything in mind in particular, but just wanted to make sure there are no larger bumps. It seems like you've sort of smoothed it out over time, but --

So I think we actually have many of our larger renewals, particularly in North America behind us. So really, that's why you see the emphasis on the growth side. I think that's really the emphasis as we move into 2017.

Thank you.

Robert Young, Canaccord Genuity.

Hello, good morning. Just continuing our theme on the bookings. Over the last 12 months, you've had strong book-to-bill even if you extend back 24 months, it's certainly higher than the gross and [con] security would suggest that. I was wondering if you could talk about how that bookings or how those bookings are going to convert into revenue. Is this a lengthening of contracts or are we going to see the top-line growth start to trend towards that book-to-bill metric?

No. I think what you saw historically over the last 24 months is a renewal, if you will of the makeup of those bookings. So a lot of, as we know, the infrastructure business has been going through a transformation.

As we go through that transformation, CGI has moved, has really moved and embraced the change and moved to more of an asset-light environment. A lot of our recent bookings were more asset light. As the storage price has come down, as the infrastructure and move to the cloud changes, the makeup of that revenue changes.

So it's higher quality revenue, but initially, at maybe a lower dollar amount. But we're through a lot of that transformation. The good news is the services is at a higher margin, and so it gets back to the quality of mix. So I think that's what you've been seeing. So yes, I do see you'll see more of that booking dropping into the revenue line as we move forward throughout the year.

Okay. Second question from me would be around the US bookings. In the past, your predecessor framed the size of the pipe in the US and there was a pretty big opportunity there.

And with bookings here this quarter, have you drawn that down significantly or is there still a good opportunity say in front of you in the U.S?

No. It's a massive market and in fact, we've added the pipeline even with the strong bookings that we've had and again, it's my example of collaborative, we will see probably a dozen deals add to the pipeline in those two other areas of our strategy. In addition to their strong systems integrations and consulting skills. So I believe there's more to be seen there.

And again, it's driven by the demand that we see in the Global 1000 around becoming more digital and going to more of that single provider. We do see that trend. I highlighted that in some of the vendor consolidation going on. So actually I think be pipeline is robust.

Yes, that's great. Last question for me is just on the acquisition of Collaborative Consulting, and just based on the metrics you've shared, it looks as though you've been able to acquire that at a reasonable valuation, and I think US commercial has been an area where people have assumed that you wouldn't be able to get reasonable valuations. So why is that?

Are there a lot of targets that you can get at this type of valuation level that can further this digital strategy and some of the areas you are trying to push into? And then I'll pass the line.

Thanks for the question. As I mentioned, it's a highly fragmented market and so it's really a matter of sifting through and finding the right company and of course, we stay committed to the right time and the right price. And I'm glad you pointed out that this was a good valuation for what we're bringing in.

But I think it also demonstrates that we can and are willing to do those types of acquisitions. We turned down more than we take. But like I said, there are thousands out there. And I think the most exciting part is each of those niche acquisitions that we were able to accomplish over the last 12 months, each of them came directly from discussions that we had with our clients.

And that's why that's so powerful in the Global 1000. It's also unique because they are person-to-person discussions with our client proximity leaders, so a leader to a leader. You find out very different opportunities when you have that type of discussion. On both the organic side and as we just proved here, on the inorganic side. So I think there's more there.

James Schneider, Goldman Sachs.

Good morning. Thanks for taking my question and congratulations on the continued growth on the top line. Maybe you could talk a little bit your headcount and hiring plans.

By our calculations headcount was up a little bit over 2% in the quarter. And I guess can you maybe comment on as you look to sustain that growth, do you expect to add headcount and personnel at the same rate you did the last couple of quarters and throughout this year?

Yes. Just to remind you that those headcount numbers are really updated only annually. And so some of that growth happened throughout the year. It is focused on the entirety of our model, so some of it is in the client proximity areas, particularly in the skill sets that you might expect around digital transformation, around security, around agile methodologies.

The largest of that came from our France unit. And then also from our Canadian unit, so you'd expect that. Given where we're coming from. In addition, we had growth in our global delivery centers across the world led by India so again, I think it's proof point to the balance model, and the way it works, and yes, we will see some of the headcount.

But again, I would advise you as we look at changing the quality of the mix, the more IP is actually, is not as headcount driven. So we can grow our revenues both through the headcount and meeting our clients needs but also on the other side and we continue to invest in operational efficiencies, particularly using automation and robotics, which actually helps us drive more revenue with less people.

That's helpful, and maybe as a follow-up, maybe for Francois, tying off the earlier comments you made regarding EPS growth, can you maybe just beyond the top line talk about how much room for margin expansion on the EBIT side there might be from here and specifically call out any kind of quantified cost initiatives you have in mind as target for FY17?

Yes, thanks for the question. So clearly we still have a lot of space on the EBIT side. Again, it's a journey, not necessarily you see all the improvement next year but again, it's like US several years ago we were in the low teens and now we're doing 15%, 16% in the US. So the idea is to continue to do the same in Europe.

We have still a lot of space to move. For sure, some of it will come from the mix like George was saying, a mix of revenue (inaudible) selling more IP like we're doing in North America, more outsourcing contract that naturally is bringing some efficiencies and again can improve a lot the EBIT margin.

And again we're always looking at seeing on the cost side and the overall SG&A to improve year over year. But again, it's not something you'll see necessarily next year, the full impact next year but it's always an improvement year over year.

I would just add to that, it really is. We see multiple opportunities in each of the areas I highlighted before, whether it's the quality of the mix and quite frankly, the pricing power you have as you move up the value chain and when we talk about pricing power, it's really because as we move to more of the change initiatives, we're not just talking about saving money, we're talking about driving revenue for our clients.

That's uncapped and therefore it comes at a different value equation. Obviously the intellectual property plays into that as well. But the growth is also an important driver to that overall EBIT expansion as well because as Francois said, we don't need to add as much overhead.

We will continue to be operationally disciplined, and quite frankly, we're also moving to more of a digital organization ourselves. That drives savings on our overhead as well. And so we're making those investments as well as we speak, so I think there's a number of different opportunities for us to continue this EBIT expansion and it is not based on cost cutting alone.

Thank you.

Phillip Huang, Barclays.

Thank you, good morning. Just a quick question on (inaudible), there's been some changes to the Management Team with George's appointment as CEO specifically in the UK and ECS Europe and M&A.

I know that such changes are quite typical for the Company at this time of the year historically. But I was wondering if you could elaborate a bit on the initiatives behind the changes and what we could expect to see in those areas of the business in the year ahead.

Yes, I think you answered it well. It is our practice every year to evolve our Leadership Team to make sure that for the plan that would put together, we have the right team in place to execute to that plan. So this was an evolution of our Leadership to make sure that we have the right team again for the plan that we have in place.

So I think that -- I really feel good about the team that we have in place. We have some very strong global leaders and they're the right leaders to lead us forward in the initiatives that I outlined in the script. So I wouldn't read any more or less into it. It's a regular practice.

That's helpful. And maybe just expand on the macro environment a bit, there's certainly -- I remember a bit of fear following the Brexit vote. And certainly doesn't look back there was any impact of Brexit in the quarter and many of your peers have also not seen any signs of material impact from Brexit.

But some of the Indian based service providers have sounded a bit more of a cautious tone on macro uncertainty. I was wondering if maybe you could might help put us in context, what's different in terms of what they're facing versus what you're seeing and perhaps any insights on the subject you've gained from the Global 1000. Thanks.

Yes, I think that's a great question. Let me start. I think, let me start with the end when you talked about the Global 1000 takeaway. One of, I think, the interesting takeaways from those discussions was that although we see that a number of our clients, those that we talk to, over 70% actually have digital transformation initiatives in place.

It's not just about technology. 72% of those executives saw internal resistance to change as the biggest barrier to implementing their enterprise-wide digital transformation. What's that mean for us?

What that means is there is a dimension of that onsite change management, consulting, helping them with their digital road maps, helping them stay on track versus just taking everything offshore, so I think that's an important takeaway from the Global 1000. Having said that, as you know, change is good.

If you have an end-to-end services offering. End-to-end in the model where we have the client proximity as well as the global delivery environment where we can work on the high-end consulting, straight through to the run and operate. So I believe that the macro environment changes play into our model and probably don't if you don't have that end-to-end offering.

That's very helpful. Thank you.

Jason Kupferberg, Jefferies.

Hello, Jason.

Hello, how are you. So I just wanted to follow up on some of the digital commentary. I know there are lots of different definitions in the market around what's digital, what's not.

I would just be curious your perspective in general, how you guys are defining it as you go to market with your digital offerings and if you had to try and size it, at least in terms of a range as far as the percentage of CGI's revenue that you feel is coming from digital, would just love any perspective on that?

Well, I'll end with a general comment, although we don't break out our digital growth, you can be sure that, and I think I mentioned this, on all of our IP bookings, they are linked directly to business, digital offerings. The way I define digital is more around the model itself.

And our clients moving to a model where they can provide more of a digital experience, whether it is self serve or empowering their consumers or citizens through technology. So that's a pretty broad definition. As you suggest, everything we do at one level is digital, given that it's, technology is digital at its core.

But that's the way I talk about. It's more on that business model, not just on deploying technology in a different way. So it's really on the business side.

Okay. Maybe just one last quick one on the election. As it relates to the US, and maybe even globally, the commercial side of things, just given that the surprise outcome does create some level of uncertainty.

Would there be any concern that the rate of pipeline conversion in the industry or decision cycles get elongated here until there is greater clarity on what the new administration's priorities are?

You know, I can't really predict this. As you know, business is pretty resilient, and that's what we've seen also in the UK. But I think it does play, Jason, to the balance of our business.

As you know, we have a nice balanced portfolio between commercial and government and again, when the administration changes, any change will require some technology. So I don't see any big impact today.

Okay. Thank you for the comments.

Thanks, Jason.

Paul Treiber, RBC Capital Markets.

Thanks very much, and thanks for squeezing me in. I just wanted to focus on CGI's buy strategy for a moment. As being, as you mentioned, a lot of consolidation in the industry.

What are your thoughts on large transformative acquisitions at this point? And particularly to the three levers that you mentioned, are some of the candidates out there, do they provide you enough significance with those three levers to make up for perhaps some baggage they may come with?

Yes. We are focused, as I mentioned, on both the niche, we've had some success in the niche, but we do have a healthy view into some transformational deals as well. We stay close to that. We see, virtually every deal that is potentially going to hit the market or hits the market so we're very attuned to that.

To answer your question, yes. I do see opportunities in helping to drive each of those three levers. And quite frankly, many of the transformational deals out there, they cannot resist the move that is going on in the industry.

And so they're doing some of that work themselves now. I only see that becoming more attractive to us in the future.

And elaborating on that, do you see -- or could you outline some priorities in terms of either geographic regions or verticals. Are there areas that you would be interested where you see gaps you may want to fill?

Yes. Clearly, the US remains a big market for us. I believe we have mentioned on previous calls that Germany is a very strong area for us. UK, what's interesting is I think we are now at the levels of the UK pound where we were when we did the Logica acquisition.

That's actually is a tailwind for us from that respect. So those are three of the big areas but again, I want to mention that we have a pipeline in every one of our geographic areas, both niche as well as potential transformational opportunities. And for us, I'm still looking at transformational opportunities as being anything over $300 million.

All right. Thank you. I'll leave it there.

Ralph Garcea, Cantor Fitzgerald.

Good morning gentlemen and takes are taking the questions. Just two quick ones if I may. First on the Glasgow contract, that deal has to go to counsel for vote.

They voted obviously to go ahead with the contract, now with that one and Scottish Borders, does it make it easier to get the other 14 or 15 municipalities or do they have to go through the same process? Can't they use these two as sort of reference sites?

Thanks for the question, Ralph. The overall contract vehicle can be leveraged by everybody. There is a scale play and an efficiency play obviously associated with doing that.

And as some of the larger municipalities go, I would expect that would make it potentially easier. But each of them has their own business case.

And with Glasgow, it really is first to drive the business case. But it is an agile procurement model, so I certainly don't see it hurting the opportunities moving forward.

Okay. And then in the US, I think you're well-positioned with the results from last night given your near-shore center. I think you've got five right now. Is there any plans to increase that in the US? Or add headcount to the five you have set up?

We are, as you know, I believe we talked about in the past, we have a pretty rigorous process that we go through to evaluate and open centers around the world, because again, it's not just a labor arbitrage play, it really is a center of excellence.

And so the broad answer to your question is we're always looking for those opportunities because it drives value to our clients. So we'll have to see. There could be a reason to do that more aggressively, but we obviously also have a pipeline of centers that we're always looking at.

Okay. Thank you.

Thanks, Ralph. Marie we will have time for one last question.

Stephanie Price, CIBC.

Thanks for squeezing me in. Francois mentioned that an area of spending is robotics, I was wondering if you could talk a little bit about the work you're doing in robotics and process automation?

Yes. So a lot of that right now is centered -- thank you for the question, Stephanie. A lot of that right now is centered around some of that transformation that I talked about on the infrastructure side on the large outsourcing deals.

So we're seeing some opportunities to drive efficiencies by automating more of that, those back-end processes around the infrastructure side. We're now linking some of that into our application, maintenance side, but I see that area as just scratching the surface right now, Stephanie, and I believe we'll see more and more of that on the front end and on the front end side, I mentioned the Robo advising.

I think that automation and technology will make its way in more places. But right now it's really centered on that back-end infrastructure.

And as indicated by George also we are looking at it also internally, example in shared services, finance shared services, and other processes at corporate. And we're seeing good opportunity to see some efficiencies.

Great. Thank you.

Thanks, Stephanie.

Thank you, Stephanie, and thank you everyone for joining us this morning. We'll hopefully see you at our AGM Q1 results in January, early February. Thank you.

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