CGI Inc (GIB) 2017 Q4 法說會逐字稿

Good morning, ladies and gentleman. Welcome to the CGI Fourth Quarter and Fiscal 2017 Conference Call.

I would now like to turn the meeting over to Mr. Lorne Gorber, Executive Vice President, Global Communications and Investor Relations. Please go ahead, Mr. Gorber.

Thank you, Hugo, and good morning. With me to discuss CGI's fourth quarter and fiscal 2017 results are George Schindler, President and Chief Executive Officer; and François Boulanger, Executive Vice President and CFO.

This call is being broadcast on cgi.com and recorded live at 9:00 a.m. on Wednesday, November 8, 2017. Supporting slides as well as the press release, financial statements and MD&A issued earlier this morning, are available on cgi.com and filed with both SEDAR and EDGAR.

Some statements made on the call may be forward-looking. Actual events or results may differ materially from those expressed or implied, and CGI disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The complete safe harbor statement is available on cgi.com and included in this morning's disclosures. We encourage our investors to read it in its entirety.

We are reporting our financial results in accordance with International Financial Reporting Standards, or IFRS. However, 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.

I'll turn it over to François to first to review our Q4 and full year financial performance, and then George will comment on the highlights of fiscal 2017 and provide our strategic and operational outlook. So with that, François?

Thank you, Lorne, and good morning, everyone. I am pleased to share the results for our fourth quarter fiscal 2017. Q4 revenue of $2.6 billion grew by 2.5% year-over-year at constant currency. On a GAAP basis, growth was 1%, as currency negatively impacted revenue by $39 million, mostly due to the U.S. dollar and British pound. For fiscal 2017, revenue was $10.8 billion, up 4.3% at constant currency, of which 2.8% was organic. IP-related services grew to 23% of revenue in Q4 and made up 22% of global revenue for the full year, up from 21% in fiscal 2016. Bookings were $2.9 billion for the quarter, and book-to-bill came in at 112%. For fiscal 2017, bookings totaled $11.3 billion or 104% of revenue. Adjusted EBIT in Q4 increased to $396 million for a margin of 15.2%, stable year-over-year. For the fiscal year, EBIT was $1.6 billion for a margin of 14.6%.

Our effective tax rate in Q4 was 27.5% compared with 27.3% last year. In our fiscal 2018 plan, we continue to expect a range of 27% to 29%. However, if, for example, the tax bill recently introduced in the U.S. Congress were to become policy in 2018, our overall tax rate would go down by approximately 300 basis points.

On a GAAP basis, net earnings were $208 million for the fourth quarter and EPS was $0.70 compared with $0.89 last year, due to the previously announced restructuring initiative. As planned, we expensed $88.6 million or 54% of the total $165 million. We remain on track to realize the related benefits starting in Q1 and throughout fiscal 2018. In addition, we expensed $3 million to complete 3 successful integrations in the U.S. as part of our metro market growth plan, ECS in Denver, CTS in Birmingham, and Summa in Pittsburgh. Excluding these items, net earnings were $276 million for a margin of 10.6% and EPS of $0.93. This compared favorably to $274 million and an EPS of $0.89 a year ago. For the full fiscal year, excluding specific items, net earnings were $1.1 billion for a net margin of 10.2% and an earnings per share of $3.65, or $0.19 higher than last year. Cash generated from operations in the fourth quarter was $352 million, including initial disbursements associated with restructuring. On the full year basis, operating cash flow improved to $1.4 billion or 12.5% of revenue. DSO at the end of September was 47 days compared with 44 days last year, mainly due to the timing of milestone billing.

In the quarter, we continued making accretive investments. We paid for Summa Technology and we invested $564 million buying back 9 million of our shares. We financed these investments using cash on hand and by drawing $200 million from our revolving credit facility. As a result, at the end of September, net debt stood at $1.7 billion, up $416 million compared with last year and yield a net-debt-to-capitalization of 21.5%. We closed -- we have close to $1.5 billion in remaining liquidity through our facility and available cash on hand. As a reminder, our financial strength would allow us to access significantly more if needed. Subsequent to the end of the quarter, we acquired Nordic-based Affecto. After an initial offer period, 95% of Affecto shares were tendered to CGI, and all the regulatory conditions were met. Over the next few quarters, we expect to incur integration-related expenses of approximately $25 million to $35 million. We paid $137.4 million for approximately $160 million in high-quality revenue. In line with our buy strategy practices, we expect the acquisition to be EPS accretive in fiscal 2018.

Now I'll turn the call over to George.

Thank you, François, and good morning, everyone. In line with our rolling 3-year strategic plan, we took actions throughout fiscal 2017 to build on the CGI foundation, ensuring we remain a partner and expert of choice for our clients, employer of choice for our professionals and investment of choice for our shareholders. This morning, I will highlight our team's results for the year and outline the actions and targeted investments we made to strengthen our market position as a global end-to-end IT and business consulting services leader.

Our performance in Q4 contributed to a strong fiscal 2017, furthering the positive outlook and confidence we have in sustaining value creation for all 3 stakeholders. Highlights for the year include: revenue of $10.8 billion, up 4.3% at constant currency; earnings of $1.1 billion or $3.65 per share; cash from operations of $1.4 billion or 12.5% of revenue; and contract awards of $11.3 billion or 104% of revenue. Our profitable growth in 2017 was achieved in line with our balanced Build and Buy approach, which is predicated on a deep understanding of our clients' business and the market dynamics that shape the services and solutions our clients need now and in the future.

During this year's Voice of Our Clients program, CGI leaders met face-to-face with more than 1,300 business and IT executives across 10 government and commercial industries in 17 countries. The top takeaway was a clear and accelerating need across all industries for organizations to transform in order to meet the digital needs of consumers and citizens. In line with this multiyear trend is a more pronounced focus on enterprise-wide digital strategies. In fact, the number of executives who said they are implementing enterprise-wide initiatives rose to 40%, up from just 12% in 2016. As such, clients in every industry plan to increase or maintain their IT spend and they are planning to rebalance their budgets to spend more on new applications and reduce legacy costs. These trends are driving increasing demand for enterprise solutions from global, end-to-end technology and business services firms. CGI is one of the few firms with the scale, reach and capabilities to meet these enterprise needs.

In fiscal 2017, we made investments that continue to position CGI to best meet this increasing demand. I would first like to highlight several strategic initiatives aimed at driving ongoing profitable organic growth, the build side. We invested in the creation and expansion of industry-focused centers of excellence and emerging technology practices in order to spur faster knowledge sharing, strengthen talent development and deepen our end-to-end capabilities. Our technology practices are focused in high-demand areas such as cyber, AI, robotics, DevOps, analytics and digital customer experience. Our industry centers focus on domains such as, consumer banking and insurance, payments, utilities, retail and manufacturing, industry areas that are on a faster pace for digital transformation. All of our industry and technology practices complement and utilize our client proximity go-to-market model, providing our clients with applied innovation, clarity of accountability and measurable results. Investing in this practice areas allowed us to be deeply involved in the enterprise-wide initiatives of our clients and served as a catalyst for our organic growth in fiscal 2017.

Also, we invested in the evolution of our intellectual property portfolio to a SaaS model. The majority of our top solutions are now available as a service. In parallel, we continue consolidating and retiring assets as part of our strategy to be asset light, leveraging cloud-based technologies and infrastructure and data center services. These actions contributed to growth in our IP portfolio, reaching 22% of revenue in 2017 and 23% in Q4. And as a leading professional services firm, we continue investing in learning and development programs to deepen member skills in areas such as agile methodologies, emerging technologies like Blockchain as well as consulting and leadership competencies. As a result, nearly 1/3 of our members were able to shift into new roles in the areas of highest demand by their clients. Our ongoing investments in talent are perhaps our most important, as these put us in an even stronger position to retain, recruit and onboard more members. In fiscal 2017, our global member base grew from 68,000 to 71,000, even as we initiated the actions associated with their restructuring. And our fiscal 2018 plans forecast continued billable-member hiring to meet the increasing client demand.

Now moving on to the buy side. We invested $307 million to execute a series of strategic metro market-focused acquisitions: In Boston, Collaborative Consulting; in Birmingham, CTS; in Denver, ECS Team; and in Pittsburgh, Summa Technologies. We benefit from the additional leadership capacity and local relationships these mergers bring us. And our new and existing clients benefit from additional depth and CGI's end-to-end capabilities. Finally, we returned $1.2 billion to shareholders through the purchase and cancellation of almost 20 million of our shares.

The return on these combined investments had an immediate positive impact on the year-over-year performance of our operations. In fiscal 2017, our operations in North America posted broad-based growth across industries. In the United States, revenue grew 6% in constant currency, with commercial at 14% and federal at 9%. And the U.S. team delivered an EBIT margin of 16.4%. In Canada, our team delivered organic growth of 5% and a strong margin of 21.4%. Across all operations in North America, book-to-bill was 113%. In Europe, we grew nearly 3% at constant currency, led by France with growth of 10%. EBIT margins across our European operations were strong at 11%, with the U.K. operations returning to double-digit margins. We see increasing booking strength in the Nordics, France and in Eastern, Central and Southern Europe, with each of these segments registering a book-to-bill above 1 for the year, a positive indicator for future growth. And as anticipated, bookings in the U.K. were softer, as decisions and the associated bookings continue pushing to the right. And in Asia-Pacific, our unique combination of industry domain and technology expertise continues to differentiate our Global Delivery Centers of Excellence. As such, we experienced 16% growth in R&D operations in 2017.

We begin fiscal 2018 in a very strong position, strategically, operationally and financially, with end-to-end opportunities to Build and Buy in all operating segments around the word. As François mentioned, we started this year by merging with Nordic-based Affecto, a leading provider of data analytics and business intelligence services and solutions. In fact, the role of data was another key highlight taken from our client interviews. Nearly 80% of clients responded that they plan to use advanced analytics to optimize and grow their businesses. I would like to warmly welcome the 1,000 professionals joining CGI from Affecto. Together, we solidify our leading position across all of Northern Europe in analytics and data science, combined with cybersecurity and data privacy. We now have more than 9,000 CGI members in this region, all of whom share our deep commitment to being the best in our industry.

Looking ahead, as digital matures and our clients define enterprise-wide strategies, their planned spending patterns are also changing. For example, based on this year's interviews, clients are forecasting more than double the allocation of their budgets to new projects over the next 2 to 3 years. We are already seeing the shift in demand, as over the last year, our pipeline of SI&C opportunities has grown by 22%. As a reminder, SI&C engagement set the foundation for the larger, full-outsourcing opportunities in the future. With these trends in mind, we will continue to leverage our proximity model, investing in the capabilities of our members to support clients around the world. We will continue to be rooted in the CGI Management Foundation, with a commitment to operational excellence, delivering locally and through a world class network of global delivery centers. And we will continue to be an active and disciplined consolidator. We have the capacity and the intention of executing both large transformational deals and accelerating the pace of metro market acquisitions in each of our operating regions. All acquisitions will be in line with our core business strategy.

In summary, we believe our fiscal 2018 plan will deliver organic growth at or ahead of the markets in which we compete, double-digit earnings per share expansion, and further M&A that contributes immediately to profitable growth and acts as a catalyst for future organic growth. We remain committed to executing on our strategic aspiration of profitably doubling CGI over the next 5 to 7 years. Thank you for your continued interest and support.

Let's go to the questions now, Lorne.

Just a reminder, a replay of the call will be available either via our website or by dialing 1(800) 408-3053 and using the passcode 6366493 until December 9. As well, a podcast of the call will be available for download within a couple of hours. Follow-up questions, as usual, can be directed to me at (514) 841-3355. Hugo, if we could go to questions, please?

(Operator Instructions) Our first question is from Maher Yaghi from Desjardins Capital Markets.

Thank you for the operational review and the granular outlook, George, for 2018. I am not accustomed to hearing CGI talk about some of their objectives. So quantitatively, it's good. So I wanted to just get more details about your growth trajectory in the quarter, and going forward, we saw constant currency growth rate pull back a bit in Q4 from Q3. Could you talk about some of the reasons behind this pullback? And your outlook for this metric going forward? Also, could you confirm that actual organic growth, excluding acquisitions, was positive in the quarter? I'm getting something like 1%.

Yes, thank you for the question, Maher. Yes, so let me start there with Q4. Yes, we were about roughly 1% pure organic growth; the remainder of that was inorganic growth. And maybe going to your outlook, we would expect a similar makeup next year as we had last year, approximately 50%. A little over 50% of our growth in 2017 was pure organic and about 50%, little less than 50% was inorganic. We would expect to see that same outlook and trajectory. So let me give you maybe some color commentary then on Q4. As a reminder, and we did point this out at the fourth quarter last year, that our U.K. business had a hardware resale and another project one-timer in the fourth quarter that contributed to a 14% growth rate in the U.K. last year. Likewise, you see this year U.K. is minus 10%, and pretty much due to that tougher comparable and partly due to some of those weaker bookings that we talked about pushing to the right due to Brexit. If you take the U.K. out, that growth rate doubles to more than 6% in the quarter. And the same would occur with the -- where pure organic growth would be over 2%, pretty consistent with where we've been, and we continue to see strength, as I mentioned, as we go into 2018. So I'd expect us to continue to see the growth. That's why I opened with that -- or closed with that in my opening comments. And we would expect to see that both on the build side as well as on the buy side, consistent with our long-term strategy of about 50% organic and 50% inorganic.

The next question is from Richard Tse from NBF.

I noticed declines in revenue in some regions because of expiring infrastructure contracts. Are those contracts that you are walking away from? I just want to get a sense of how infrastructure is going to play into your outlook with this pivot to digital here?

Yes, no, it's a good question. We're not walking away from any infrastructure, either existing deals or future deals. But we are more focused on delivering those infrastructure services in the current -- using the current modern technologies, including cloud-based, both private, hybrid as well as some public, always looking and making sure that security and data privacy is taken care of. But given that, that shift and the automation associated with that, you see some of the revenue come down even for the contracts we have. And for those clients that choose to stay in those same environments, we're just not going to be competitive and focused on asset-heavy solutions because it's not the strategy moving forward. But we're not walking away from any deals. And we're not -- certainly not walking away from future infrastructure, just delivered in a very different way. With a different revenue and profit profile, of course.

Right. And with respect to acquisitions, do you guys have a target with respect to the amount of capital you want to deploy on sort of the niche acquisitions you've been doing?

Not specifically, because we're really looking at the value that those acquisitions provide to us. As you know, we have a lot of flexibility, both in the cash that we generate as well as the opportunities we have and our credit line. And so I don't know, François, if you want to talk to that a bit. But we have a lot of flexibility and so we're really looking at bringing value in according to the strategy I outlined.

So again, after investing back in the business, we have free cash flow of $1.1 billion to $1.2 billion, and still see that growing in the next years. So no, we don't have necessarily a limit. I think, like we always said in the past, certainly want to grow organically and inorganically pretty equal. So that's mostly the target that we have. But we won't -- if it's making sense and the acquisition are accretive, we for sure, we will look at it.

And just the last one for me. So as you make this shift to digital, how do you manage the culture of the firm, given you've got sort of the old and new? And how do you go about driving synergies from that sort of different style or culture?

Yes. No, it's a good question. The overall culture of CGI doesn't change at all, right? Our values and our focus on all 3 stakeholders and our commitment to living up to our promises for clients stays all the same. So I would say the culture doesn't change. The way we deliver those services changes a bit, certainly, the way in some cases the different deals are measured. But also let me remind you, and this is why I made the point on the shift to enterprise-wide digital strategies, those projects start to take on a different look and feel. And that's why they're looking for more enterprise-wide providers to deliver on those. And in any enterprise-wide digital strategy, you need to address both the legacy operations as well as the new applications. And so there is a mixing of that, which is why we focused a lot on learning and development to make sure that we're bringing those technologies and capabilities together. So actually, our base culture doesn't change at all. And certainly it's exciting for members to continue to grow the business together.

The next question is from Daniel Chan from TD Securities.

Just on the restructuring, good to see the margins going up sequentially. Where can we expect margins to go over the next year as you complete this restructuring?

Yes, so it will -- as we previously announced, it's good to get some of the -- that initial, a little over half, of the expenses behind us. It will spill in here throughout the quarter. Most of it will be done by the first half, and then we'll start seeing those returns really providing the tailwind on the margins. But again, the shift was really just accelerating the strategy that we're on. And -- but as I've always said, where we'd like to be, as you see some of those North American margins, I believe as we move the overall strategy of the company and continue to stay disciplined on operational excellence, we should see all the margins approaching where we are in North America. And that's based on that optimal mix of outsourcing, systems integration and consulting and the intellectual property. So that's where I could see that going.

And just on the North American margins, it looks like the U.S. margins dropped quite a bit this quarter. Can you provide some color on that and where we...

It's just -- on a comparable basis, we had a nice uptick, which we pointed out a quarter ago or a year ago on the quarter from some tax benefits. That's lumpy when it comes in. It's all based on research and development, which plays right into some of those technology practices, emerging technology practices and industry centers of excellence I talked about. That's where we get those tax credits from. It's based on research and development. So that comes in a little lumpy, but otherwise, the U.S. had a very strong quarter and a very strong quarter on book-to-bill, which is a positive indicator for the future in the U.S.

Okay. And then final question, again on the restructuring. Part of that restructuring, you're talking about increasing your billable headcount. Can you just give us an update on where we stand with that, and when you'd expect these new employees to start generating revenue?

Well, we've continued to add billable members throughout the restructuring. That's why, even though we've done a little less than half of the planned 1,600 impact to member headcount, we've actually grown the total headcount. So that's happening every day, Daniel.

The next question is from Phillip Huang from Barclays.

Question on the -- maybe an update on the inorganic strategy. Now I'd imagine it's probably easier to find tuck-in acquisition opportunities than transformational ones that provide better returns than buybacks in the current environment. I was wondering, specifically, whether there were or will be any adjustments to your strategy to perhaps accelerate the execution on tuck-ins.

Yes, no, it's a good -- that's a great question. Thanks, Phillip. As I attempted to outline there at the opening, I would like to see and the strategy is to accelerate that -- the implementation of the metro market acquisitions, because, again, those acquisitions do a couple of things for us: one, they bring those deep relationships in metro markets where we might not have those same relationships; and allows us to bring the full offering suite to brand-new clients. It really is, partly, a business development model, but it's based on content and experience. And I've had the opportunity to meet with many of those clients, most recently with some of our Summa Technology, former Summa Technology partners in Pittsburgh, clients in Pittsburgh. And we're already opening up new opportunities and new RFPs that neither CGI would've been invited to, because we didn't have the relationship and the knowledge, and former Summa wouldn't have been invited because they didn't have the end-to-end capabilities. So we're already seeing that, that takes a little bit of time. It actually takes longer to convert that to revenue than just hiring a billable member. But the payoff, obviously, is much larger, and this is all additive to both the merged company coming in as well as the CGI's growth. So long way of saying, yes, I want to accelerate that in 2018, but it has to be the right opportunity, the right value.

Yes, no, that's helpful. Just as follow on to that topic on the process side of actually accelerating. We've seen other companies perhaps decentralize some of the decision-making, whether it be sourcing or the execution or up the approval level of tuck-ins. I was wondering if you could maybe talk a little bit about how the process might also be tweaked, if at all, as part of accelerating tuck-ins.

Yes, so it's a great question. Thank you. On the sourcing side, we have done that. We've actually -- have decentralized a lot of that sourcing. And it doesn't just -- it's not just in our local business unit leaders and strategic business unit presidents, we actually extend that sourcing to our clients. So in our Voice of Our Client annual face-to-face meetings that we have, we ask our clients, "Who else would you like to see us work with? Who's best-in-class that's already working with you?" And it's a double benefit for us, right? We now know we have a third party validating that the cultures match, and if they value what the merged company -- potential merged company would bring to us. Plus, we get the added benefit, we know we're going to keep the client because they're happy. I can tell you that in all 4 of the cases last year, of our acquisitions, they were mentioned by one or more of our clients, which is why we're able to then immediately begin getting some of the merged synergies and get invited to new and bigger RFPs together. So that's on the sourcing side. On the execution side, that has always been decentralized. In fact, that's decentralized in the large transformational deals that we have done. It is always the operational leaders that are part of the due diligence and the operational leaders then that own the integration were able to do that very quickly. I'd also remind you that in the case of the -- of each of the merged opportunities we talked about doing in 2017, we kept the CEOs and/or the COOs of each of those merged operations, who are now leading CGI businesses for us. So that's a -- it's another dimension that we get from the merged opportunity.

The next question is from Thanos Moschopoulos from BMO Capital Markets.

George, you mentioned that a larger proportion of clients are looking to implement enterprise-wide initiatives. Does that commentary apply broadly, globally speaking, or are there any specific regions you'd highlight where the digital transformation opportunities initiatives are more acute.

That's a great question, Thanos. No, it really does. It's pretty broad-based and you heard the number, because that number that I gave you, the 12% to the 40%, is based on all 1,300 of our -- of those that we surveyed. So you have to be pretty broad-based to get that kind of an uptick. And I can tell you, I've had discussions with European customers, both in region as well as coming here to Montréal as well as North American. And they're all moving in that direction. The result of that, for us, is we see the vendor consolidation going on as deals get larger. So they're narrowing the pool of companies that they even consider. And over time, we believe that will give us a better position. As the partnerships get stronger and broader, it gives us better opportunities for those outsourcing opportunities of the future based on that earned partnership with our clients. So it's a trend that gives us confidence as we look at 2018, continuing this growth path that we're on.

Great. In terms of the IP portfolio and the growth you're seeing in the mix, can you touch on maybe the areas driving that? I know that government and financial services that are kind of the key verticals there. So are those the primary drivers? Or are there other areas of strength these call out for...?

Yes, I guess there's 2 things I would say there. On the business solution side, yes, it is -- continues -- we continued to see strength in banking and in government, and continued interest in some of the other industries, utilities. And the insurance side of financial services, we see more interest. We also see interest in the IT optimization tools, like our hybrid cloud platform, the Unify360 product. But in addition to offering this IP as Software as a Service, which I outlined in the opening, some of the uptick in our IP we're seeing now by the value proposition that the new technologies that we've integrated into our IP is now creating. So let me give you a couple of examples. Where I mentioned Blockchain in the opening, we're using Blockchain technologies in our trade solution, in our payment solution, and now we're looking at it for our utilities solution. What does this provide our clients? It provides them faster transaction times that the IP can afford, with strength and security. So that's an example on Blockchain. In artificial intelligence, we're building that into our wealth solution, our hybrid cloud solution, our global customer services solution. This allows the price point, and again, the value proposition to change for our clients. And then the applying digital customer experience, this is a big driver of the IP, and so we've taken existing IP, like our government IP, and added that digital customer experience. We've done that in our wealth platform. And then we're introducing new platforms that are built using that as its basis, like our retail 360 platform. So -- and that's just the beginning because I think that in the future, as I mentioned, 80% of our clients are saying, "Okay, now how do I use data analytics?" And I mentioned the importance of bringing on our new colleagues from Affecto, because the future is going to be in the data that these new applications and new technologies are able to provide, which then feeds back into better solutions. So it's a -- I gave you a maybe a longer answer than you expected, but that's where IP is going. It's not just the business solution, if that makes sense.

The next question is from James Schneider from Goldman Sachs.

George, thanks for giving the outlook on the expectations for fiscal '18. Maybe just one clarification on that. You talked about the mix of organic and inorganic being roughly 50-50, and talked about the organic being kind of ahead of the market. Where do you see the market tracking as we head into calendar '18, rough ballpark [midterm] numbers?

Well, yes. The IT services has been roughly about 2% to 3%. I think they're -- I haven't looked at what they're looking at in the future. I think that's pretty much folding. As I mentioned, the mix of spending is changing dramatically, and the mix is more in our areas, as -- because when you look at the IT, even the IT services, some of that's based on the infrastructure, and some of that's based on the new applications, as I mentioned. Our clients are saying there are expectations they are going to double the amount or more than double the amount that they spend on the new than on the old. And of course we play on both sides of that in providing them some intellectual property and some other services on helping them get more efficient on their legacies so they can save money, but we spend it again on the new. And so that's why I believe it should be possible for us to outstrip that 3% IT services number for CGI.

That's helpful. And then maybe as a follow-up. On your acquisition strategy, I think you've historically talked a lot about targeting U.S. commercial opportunities for M&A. And obviously, you had the metro acquisitions recently. But with Affecto, you're doing something more in the Nordics. So I'm wondering if there's any kind of change in the opportunity set that you're seeing in terms of attractive acquisitions, whether that's either the geographical footprint or the service delivery and offerings they provide? Or just the valuations? So maybe if we can even help kind of level set your expectations on larger scale acquisitions, it would be great.

Yes, so on the priorities that we look at, we're looking at all geographies in which we operate, where there is a metro market. And we have drawn a map and we've looked at all the largest metro areas. We don't have the coverage that we could have in each of those areas, and so we're being very disciplined in looking at opportunities in each. I'll remind you, it's a highly fragmented market; no one has that much market share. And so it's an opportunity for us, particularly with the trend towards larger enterprise deals by our clients and buying behaviors, it's a nice mix to consolidate and merge these high-quality companies into the CGI family, really in all operating markets around the world. So we have a pipeline in every strategic business unit. But again, we're going to be disciplined, and so you see the more opportunities happen to be there in the U.S. this year, but we will see, like Affecto, we will see that in all regions. And then on the large transformational, as I said before, it's hurry up and wait, wait and hurry up. It's got to be the right timing, and we will be disciplined to ensure that any large transformational deal would be accretive in year one and good for all 3 of our stakeholders.

The next question is from Paul Steep from Scotia Capital.

George, could you talk -- you've talked a lot on the call about cloud and digital transformation. Could you give us a sense of where you think we are on the journey today, just in terms of any metrics you might have, and where you think you're going to get to on your 3-year rolling plan, either percent of revenue, percent of staff and that sort of -- that transition that's going on?

Yes. So Paul, thanks for the question. It varies, in this case, a lot by industry, not as much by region, but a lot more by industry. So for example, cloud is still top of mind for governments. They're still not where they believe they can be, need to be, on a cloud basis, and it's -- for them, it's a nice way to reduce the -- their budget -- reduce the cost and therefore meet the, maybe, the budget situation that the governments have around the world. In fact, that raised to number 4 or 5. For the top 3 responses from our clients cross-industry, cross-geography, really were digital transformation for the consumers and/or the citizens, it was regulatory requirements, and it was cybersecurity. But where there was a divergence, government really was still focused on cloud. I think it's a little more mature on the commercial side. And then, when you ask about digital transformation, what we see on the commercial side, where they diverge is leveraging some of these newer technologies to take digital transformation to the next level. They really have just done the point solution. That's why you see the change to the more enterprise-wide solutions. The long way of saying, we're still on the early days, I believe, cross-industry. Some industries are a little further along, but they're going to a second generation on experience -- experimenting with newer technologies. And as I said, we're still on the early days of really leveraging all the data now that's being captured by some of this digital transformation. So I would say, we're still in the early innings.

And then, the second one, we touched on it earlier, but maybe slightly unfair to ask it this way. But if you think about your plans to move to more of an asset-light model over time, how much capital do you think you could free up over the next few years in terms of opening up that capital to redeploy, either to reinvest in the business or do the other initiatives you guys have been doing?

Yes, no. Thanks, Paul, for that. I'll start and then I'll turn it over to François. And we're already been on this journey. And a few of you already pointed out that we've been freeing up some capital and you see we've certainly shared with you how we continue to reinvest that in the business. But maybe François, you can give some more specifics on as we look forward.

Yes, and again, you need to understand that we'll still have some infrastructure, because we're delivering a lot of our IP through SaaS and that's still in our infrastructure. So globally, you won't see that much of reduction of the global reinvested in our business, because again, we will invest more in our IP. So that was also the idea of it. So I'm saying, if I'm looking just at the last year, we did invest in purchasing, what, $112 million. So you'll see perhaps some reduction, $25 million, $30 million more in the future. But I would not expect that much less, because again, we have our internal stuff and we will also still keep some data center for SaaS model with our own IP.

The next question is from Robert Young from Canaccord Genuity.

Couple of questions on the enterprise-wide initiatives you're talking about growing. Presumably, the decisions for these initiatives are moving higher in the organization, and I wanted to ask you about how CGI is positioned to interface with the C-Suite, if those decisions are occurring above the traditional sort of IT services or IT decision-maker in the organization?

Yes, that's a great question and very insightful, because you're right that the decisions are moving, I would say not just to the C-Suite, but a lot of these decisions now are moving away from solely the CIO shop to the business side. But what's interesting, what we see on a lot of these newer enterprise via digital transformation, it's got to be a combination of both the CIO shop, which also is climbing the curve in being more business-focused than just technology-focused, and the line of business, and in some cases, even a Chief Digital Officer. And we see those Chief Digital Officers reporting from everybody to everywhere from being in the C-Suite to being in the CIO shop, to be having multiple in the lines of business. And that was a trend that we saw across, but no one-size-fits-all solution. And so what that really means for us is that we have to have coverage across the organization, and I think we are very well suited there, because we have, as you correctly stated, we have that traditional relationship with the CIO through our business solutions, with the IP going up around the world. We have more in those lines of business. And yes, I do believe one of the reasons we're making some of the investments in our learning development, I mentioned consulting and leadership competencies, is to ensure that we have the right people that are also able to engage at the C-Suite. So I believe we've taken all the right steps and are positioned very well, and I can assure you that I have many discussions in the C-Suite myself, and about these types of projects. We're talking -- we're not just talking at a high level, we're talking about what digital transformation can bring them.

Okay, great. That's great color. Another piece of that puzzle would be the way that CGI incents the workforce. Could you talk about the shift from regional incentives to incentives for these enterprise sort of global initiatives?

Yes, no, that's a good question. Our P&L and our incentive structure, and then when I mentioned that these centers -- innovation centers for our clients are actually embedded and still work through our client proximity areas. So there's no change in the incentives. And let me make this clear, there's also no change in our strategy and our belief that innovation occurs at the shop floor. It doesn't occur from the 25th floor in Montréal. And so the reason I highlighted these centers, those are spread throughout the world. So they are embedded in the countries and regions with our clients. And we believe that then, we cannot just share tools and practices broadly by connecting these centers, but also apply the intelligent and applied innovation working directly with our customers. Because we don't believe, let's build it and they will come, we actually build it in collaboration with our clients. And that's, that innovation that our clients actually benefit from much faster than just a build it in the shop -- our shop, and then bring it to our client. So that's -- there's no change in that strategy at all, Robert.

Okay. And then last 2 mechanical questions here. You've talked about IP percent of revenue. In the past you've given the bookings percent, if you're willing to share that? And the second would be around the pace of restructuring in 2018. Is there any help you can give us on how to model that out?

Okay. So on the -- I'm going to ask François maybe to look at the IP percent of revenue, I believe it was up on the bookings. I also want to remind you, because we're climbing on the IP percentage of revenue. But I want to remind you, we also added $240 million of revenue approximately and 1,000 members. None of those metro market based acquisitions today came with IP revenue. So we're continuing to grow even though we're adding inorganic revenue that doesn't help in that calculation. So IP continues to be very strong. On the pace of the restructuring, I mentioned that we were looking to get about half of the restructuring behind us in the fourth quarter. We overachieved by a little bit, so 54%. We continue on a path to have the majority of it done through the first half of the 2018, with twice as much in quarter 1 as quarter 2. And then it tails off for the rest of the year. François, any...

I don't have exactly the number for the booking. I'll need to come back to you or to Lorne.

The next question is from Rob Peters from Cormark Securities.

Just a question on the U.S. growth. I was -- I appreciate the additional color on the federal versus the commercial side of the business. And it looks like -- we've seen the press releases. But the government billings look to be some of the highest we've seen for the broader government segment. I'm just wondering, if you could kind of give us some commentary on how you see that flowing through the revenue line? And maybe the outlook in that segment?

So on the government side, there's 2 drivers to that business that you see in some of those bookings. One is on the government intellectual property, our ERP solutions, we have invested in that digital customer experience. As I mentioned, we're having very nice success across the U.S. market with that government IP. And we have 2 flagship solutions, one geared towards the federal government, because the way they operate is different, since they're giving some of the grants, and then our ERP on the state and local side. They're receiving the grants, so we have a separate solution there. So that's some of the uptick on the government side. I would say, the other uptick on what's driving some of that -- some of those bookings, and we would then would expect that, that will continue to flow through the bottom line. And I'll remind you, it is, right now, flowing through some of the bottom line as we speak. But it really is the relationships that we have with some of those government clients. Those relationships go back many years. And we continued, some would say we doubled down on those relationships during the time that the government, particularly on the defense side wasn't spending, deepening those relationships so that when the spending came back, which it is, we are their partner of choice. So that's kind of where we are. And by the way, that's the same playbook that we are using on the U.K. side. As they face that uncertainty with Brexit, we're using that same playbook to get, quite frankly, to get closer to our clients, so that when the spending decisions are eventually made, that our bookings and then the revenue will flow through. So that's -- but with IP, there is a little bit of a lag from the time that you get the booking till you get the revenue, depending on some of the way the implementations were, particularly depending on whether it's as a service or a license in an uptick. So that profile changes a little bit. But it's probably a quarter or so lag.

Perfect, and then maybe just last one for me. I think you gave us a lot of great color on the outlook for next year and a lot of granularity there. But in terms of talking about double-digit growth in the earnings side, I was just wondering, does that factor in the accelerated M&A strategy? Or as you kind of roll up more of those smaller metropolitan area businesses, we would see that as additive to the EPS growth in 2018?

No, it is inclusive, because it includes the whole strategy. But again, it would be a mix of both the organic and inorganic. I expect the profile to look similar to it did in 2017, about 50-50.

Hugo, I think we have time for one last question.

Certainly. Our last question will be from Stephanie Price from CIBC.

You mentioned overall margins being closer to North America with the restructuring. Can you talk about the key drivers there? Is it primarily the change in infrastructure delivery?

On the margin side? Well, the restructuring, it's a combination of moving to where the new spending patterns are occurring. And as I mentioned, it's more on the new applications. But I think it's, and Stephanie, I've talked about this before, when you are in a market where there's value that can be driven from your solutions that helps our customers grow their business, there's a little less price compression. When you're in a market where it's all about savings, there's value to that, and certainly, we thrive in those economic markets, but there's a cap to the value you can bring. So that drives some of the margin and then the natural movement, as you mentioned, on the infrastructure services, the way we can deliver those now, bring value to our clients and bring higher margin to CGI. So it's a win-win.

Perfect. And then just one more. Can you talk about the size of the emerging technology practices? So how should we think about the current contribution from areas like robotic process improvements and cyber and AI? And how do you see those rolling out over the next couple of years? Where could we get to here?

Yes, so I can tell you that the numbers of people on these emerging technology practices are usually 100 to 200 people. They're spread throughout, as I mentioned, embedded with the operating units, the client-facing units. But it's -- all of that revenue flows through our clients, and we don't separate that out, because that's not how our clients are buying. So this just allows us to centralize the tools and the practices and get these off the ground, but it's all sold and delivered in conjunction with our clients. So I don't really -- I can't really separate that out.

Thank you, Stephanie, and thank you everyone. January 31, our Q1 results and our AGM. Hope to see you all then. Thank you.

Thank you.