Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

CGI Group Inc. (NYSE:GIB)

F1Q09 Earnings Call Transcript

January 27, 2009 at 9:30 am ET

Executives

Lorne Gorber - Vice President and Investor Relations

Michael Roach - President and Chief Executive Officer

David Anderson - Executive Vice President and Chief Financial Officer

Analysts

Richard Tse - National Bank Financial

Scott Penner - TD Newcrest

Paul Steep - Scotia Capital

Jason Kupferberg - UBS

Mike Abramsky - RBC Capital Market

Ralph Garcea - Haywood Securities Inc.

Steven Li - Raymond James

Eric Bernofsky - Desjardins Securities

Operator

All participants please standby, your meeting is ready to begin.

Good morning ladies and gentlemen, welcome to the CGI first quarter 2009 result conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Lorne Gorber, Vice President, Global Communications and Investor Relations. Please go ahead Mr. Gorber.

Lorne Gorber

Thank you, Jenny and good morning everyone. With me to discuss the first quarter of fiscal 2009 are Michael Roach, our President and CEO and David Anderson, Executive Vice President and CFO. This call was being broadcast on CGI.com and recorded live at 9:30 am on January 27th.

Supplemental slides as well as the press release we issued earlier this morning are also available for download along with our Q1 MD&A, financial statement and accompanying notes, each of which are being filed with both SEDAR and Edgar. Please note that some statements made on the call maybe 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 statement whether it is a result of new information, future events or otherwise.

We report our financial results in accordance with Canadian GAAP, but we do discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definition of each non-GAAP performance indicators used in our reporting. All of the figures expressed on this call are from continuing operations and in Canadian dollar unless otherwise noted.

I will turn the call over to David first to review the quarter’s results and then to Michael to discuss strategic highlights of the quarter before making a few concluding remarks.

Before turning the call to David, a reminder that our annual meeting is scheduled for 11 AM this morning, so our comments will be brief to leave as much time as possible for Q&A but we will have to limit the call to about 45 minutes. David?

David Anderson

Thank you, Lorne, and good morning.

I am pleased to share the financial details of another good quarter. Quarterly revenue reached the $1 billion mark for the first time, an increase of $105 million or 11.7% compared with the same period a year ago.

Foreign currency fluctuations positively impacted revenue by 7.4%. EBIT margin remained strong at 11.4% compared with 11.8% in Q1 of 2008. This difference is largely related to a $5 million workforce adjustment in our Canadian operations completed in the first quarter and a $3.8 million currency charge related to the interest component on our hedged US dollar debt and the impact felt from unprecedented volatility in the Canadian US exchange rate.

We expect a portion of this FX charge to reverse in future quarters. Earnings were $79.5 million or 10.5% better than $71.9 million recorded in Q1 of 2008. Our net earnings margins continue to stand out among our North American and European peers, having reached 8% in the first quarter.

EPS was $0.26 per share. This compares with $0.22 in the same period last year, representing an increase of 18.2%. Our Q1 effective tax rate was 24.4%, compared with 27.5% in Q1 of 2008, which takes into account the onetime tax benefit in both the first quarter of this year and of last year. Excluding these impacts, our normalized effective tax rate going forward should be in the 32% to 34% range.

Now, let us turn our attention to the balance sheet. During the quarter we generated $79.2 million in cash from operations are $0.26 cash per diluted share. At 52 days, DSO was seven days higher than our 45-day target. This is largely due to the timing of milestone billings and some payments which spills over into Q2 as a result of an extended holiday period taken primarily by our clients in Canada. We continue to drive towards the achievement of the 45-day target level. To date, we have not been experiencing any pattern of deliberate slow paying amongst our clients.

At the end of this month, we will retire the first tranche of our US dollar senior unsecured notes for an amount of US$85 million. You may recall last year we pledged our US notes while currency was approximately at par. As a result, our payment this week is for $85.3 million Canadian dollars, representing a significant benefit for shareholders.

We finished Q1 with $216 million in cash and cash equivalents or $165.9 million higher than the fourth quarter of 2008. This increase was largely due to the hedging decision we made this quarter to protect the value of our foreign cash balances. We hedged US$100 million and 12 million euros by drawing down an equivalent of $144.7 million Canadian from our line of credit. We have since paid back $50.4 million.

This action had the effect of locking in approximately $20 million in foreign currency gains and had no effect on our net debt as the credit facility and the cash account both changed by the same amount. Accordingly, our net debt at the end of December was $259.5 million, for net debt, the capitalization ratio of 9.6%, leaving us with expanding and significant financial flexibility.

All and all we are pleased with the results and we continue generating even in more challenging times.

I will now turn the call over to Mike.

Michael Roach

Thank you, David, and good morning everyone.

We are off to a strong start achieving very good results in our first quarter. We grew our revenue by 11.7%, reaching a CGI milestone of $1 billion in a single quarter.

We improved our earnings by 10% compared with last year and our earnings per share grew by 18%. Our net earnings margin was 8%, one of the best in the industry and the seventh consecutive quarter, our net margin has exceeded 7% demonstrating consistent execution of our business model. Cash from operations reached $79.2 million or $0.26 per share in the quarter.

Let us briefly review the results by geography. Canadian revenue was essentially flat in the first quarter, as many of our commercial and government clients took an extended vacation break given the timing of the Christmas Holiday. As a result, deal flow and certain projects slowed down, in fact in the Canadian bookings and resulted in some revenue being pushed out or delayed until later in the year.

The depth and breadth of our services and solutions continued to help us profitably grow our presence in the US market. US operations recorded revenue growth of 38% during the quarter or 14.1% at constant currency, largely due to the strength in the government and healthcare vertical.

The integration of our government business process services unit in the CGI Federal continues to gain momentum with recent wins at the Centers for Medicare and Medicaid, as well as housing and urban development. CGI Federal is well positioned to take advantage of the projected growth in IT and business process services investment anticipated under the new US Administration.

A further demonstration of the strength of our US operations can be seen in the book-to-bill ratio, which was a 120% of revenue in quarter one. Financial services and government led the bookings which included wins with the Navy Federal Credit Union, the City of Cleveland, and the State of North Carolina.

European revenue increased by 14.9% during the quarter or 9.5% at constant currency. This is largely due to new outsourcing revenue coming on stream in financial services, as well as the additional project work with existing telecom clients.

We booked $775 million in new contract wins for the first three months of the year. Over the last 12 months, our book-to-bill ratio is onetime revenue. We remain committed to maintaining or improving this ratio as we continue to have good visibility on the number of significant opportunities.

During the quarter 80% of our bookings came from two sectors. The financial sector accounted for 50% or the government and healthcare accounted for another 30%. Current economic conditions are clearly having an impact. We are seeing more activity in our sales funnels, as client seek to strengthen their balance sheet and improve their competitive position. The evidence is clear as our outsourcing opportunities qualified in the early stages of the sales funnel have increased 35% over the last three months.

We believe that overtime this increased activity will translate into contract wins and growth in our backlog. We currently have more than $11.4 billion in committed long term orders. This level of recurring and predictable revenue is particularly attractive for investors during these times and allows CGI to stay focused on our strategic objectives.

In addition, as you know we renewed and expanded our credit facility to $1.5 billion last year. The facility is very important and very strategic, as it is secured to 2012 and today carries an interest rate below 2%. It is strategic because it provides financial security and the operating flexibility to invest in profitably growing our Company while better positioning us for the future.

At our AGM this morning, we will again reconfirm with shareholders our priority use of cash. Organic growth remains the most attractive way for us to invest our cash. Accretive acquisitions are next and as I said before we need to find the right target at the right price and at the right time, and we continue to look.

Finally, we will invest in either stock buyback or debt reduction depending on market conditions. Consistent with these investment priorities and our belief that CGI remains a very good investment, the Board of Directors approved this morning the extension of a normal course issuer bid. This will give us the flexibility to purchase and cancel up to 10% of our public flat or approximately $27 million shares over the next 12 months. If fully executed at today’s price, this would represent an investment of over $250 million.

Looking forward, we remained focus on the fundamentals. We firmly believe that CGI with our high level of recurring revenue embedded in long term contracts is extremely well positioned to see this economic cycle through or continue to profitably grow our Company.

In conclusion, we are encouraged by the reception clients are giving us, as we engage to help them through the challenging times. To accelerate awareness and the relevance of our capabilities we will intensify our marketing activities around our portfolio of services and solutions designed for tough times.

In summary, we will continue to adhere to the fundamentals of running a sound business and remain focused on executing our fiscal 2009 business plan.

Let us go to the questions, Lorne.

Lorne Gorber

Just a reminder that a replay of the call will be available either by our website or by dialing 1800-4083-053 and using the pass code 32Q815Q# until February 15th, as well as the podcast of this call will be available for download at either CGI.com or through iTunes within a few hours. Follow up questions can be directed to me at 514-841-3355.

Jenny, if we could poll for questions from the investment community and I would ask our analysts and investors to limit their questions to one each.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Your first question comes from Richard Tse - National Bank Financial.

Richard Tse - National Bank Financial

Mike, just a quick question here on booking, you have often talked about a target of onetime here for the year. Is that something that we should sort of hold to going forward, as related to that how do you see the system integration and consulting to that business going that, doing that typically less discretionary in this market?

Michael E. Roach

Thank you, Richard and again I am glad you raised a question on bookings because I have been fairly consistent, I think over the last three years on this.

Bookings, we do not look at bookings by quarter because in our business, obviously in the services business bookings can be very lumpy. We were impacted, as I mentioned, a number of our major clients in Canada more particularly, actually shutdown earlier than previous years and we have number of deals that slipped into the first quarter.

You should look at bookings on a trailing 12 months and again that is standard. Our goal is to be, obviously, greater than one and as I mentioned in my script, we have some good visibility on some deals that we feel a low close and that we will be able to meet that goal.

Relative to the SI&C business, it is kind of an interesting perspective because I think you are right in some cases there will be some projects that will be looked upon as more discretionary so that you could see some softening there. On the other side, as you know we have a very large recurring backlog in excess of 60% that I think cushions us pretty well there and then what we also have is the SI&C work associated with our solutions and as I mentioned before, a lot of those solutions, they are very sticky. They are in the ERP space, so where we have a deep embedded base of ERP clients and advantage to our momentum in the US. There will be continual changes that require SI&C work and add on projects and regulatory changes that will continue to drive some good SI&C business for us certainly in the US.

Operator

Your next question comes from Scott Penner - TD Newcrest. Please go ahead.

Scott Penner - TD Newcrest

Mike, I just wanted to ask about the financial services vertical, which probably one of the more presence surprises versus expectations, just at any kind of update on the profile of deals that your customers are signing up for and what areas within the financial services are really driving the sort of strength on thing?

Michael E. Roach

Yes. I remind everybody again. In our financial service verticals we consider a life insurance as well as PNC. The PNC market remains very healthy. We have a lot of relationships in there. We have got some category killers in terms of solutions.

In the financial institutions themselves, again, we are getting more discussions on things like tax on how to collect cash. We are having more interest in areas of could we actually manage portions or applications for the bank that is actually our IP. There is even some discussions in terms of us taking on at more integrated role of IT and business process services. What I was highlighting in my comments, there is a real interest in clients to engage now especially in the financial community. I would say everything is on the table here in terms of how can you help me with my balance sheet. How can you help with bringing more visibility to risk issues and we have a lot of solutions in there and as I mentioned, we are working actually on our press release that we will cut that will actually highlight to the marketplace just a number of quality and quantity of solutions that we have that are really designed for tougher times, times like this.

Operator

Your next question comes from the line of Paul Steep - Scotia Capital.

Paul Steep - Scotia Capital

Maybe if you can just talk a little bit about BCE that I guess last quarter after the end of their Q4, do you have a better sense of the outlook in '09 and maybe what the contribution was in the quarter?

Michael E. Roach

Well again we had a milestone this quarter in terms of reaching a billion dollars. Also I think I had a milestone in the 10 years that I spend with CGI. I think it is the first time we have not identified BCE as 10% more or more of our revenue and again directionally, that is where we want to be at the firm. We really do not want to have clients that are too concentrated in terms of dependence on one client. I am pleased to say that BCE, via our calculations has met their minimal amount of 425 for fiscal 2008 and given the revenue growth, we actually experienced in the quarter, and they actually fell slightly below the 10%.

As far as the outlook there, my sense is that BCE will always be very good client of CGI. We have a good relationship. They are a very strong company, always needing IT and I think we are well positioned to continue to do well there. On the absolute spend level again as you may recall under the agreement, we now switched to 30% minimum of their expense and my sense is that we will reach that milestone. It is hard to know at this point frankly what is that absolute number is.

They are obviously re-vectoring some of their plans given that their remaining a public company but all in all again, a good fiscal 2008 fell and we our looking forward to continue and to build our relationship and revenue stream with them in 2009.

Operator

Thank you. Your next question comes from the line of Jason Kupferberg - UBS.

Jason Kupferberg - UBS

I just want to pick up on the topic of bookings a little bit and certainly I do not want to get hang up one quarter and particular because it is understandable that there is probably more lumpiness than ever in this kind of environment but it looks like if my math is right for the March quarter, you have to do something in the neighborhood of about a billion dollars in booking to keep up that trailing 12 month year-over-year booked sale at about one time.

I just want to get a sense of where you guys see the number heading kind of in near term. I know you have mentioned some deals booking into March but our checks more broadly suggest that decision making cycles are elongating and 2009 budgets are taking a bit longer to finalize. I am just curious if you guys are experiencing that dynamic as well and how that might translate to actual bookings result here over the next couple of quarters.

Michael E. Roach

Yes. I think you know Jason again it is very hard to talk about individual versus kind of micro versus macro. There are certainly individual clients where the cycle is gone longer depending on what shape they are in and what their immediate strategy is.

There are other phenomena where most companies have essentially frozen or reduced the headcount hiring within the firms. So, in those cases they have to get things done. They are going to look at outside suppliers. There is I would say some rebalancing of where work is going to be done between North America and India something as you know I have spoken about for probably 4 years now. I think that also affords us opportunities in terms of picking up some of that work in our global delivery centers especially the ones in North America.

So when I look across that I would say that we still see some good opportunity there. We are seeing some new opportunities. We are also seeing some opportunities that have come back, areas where we worked hard on them maybe 3 or 4 years ago and were not able to close them but some of them are actually coming back given the economic challenges. So again I do not want to and I think you are right, I do not think I want to over dwell on a quarter here on the booking side. I mean I clearly understand that we need to book business here, profitable business that would add to our backlog. That is the direction, the commitment I have from my team and I am fairly confident that will happen whether it will happen as we just are offsetting the first quarter in the second quarter. I am not sure but when I look over 12 months, I am fairly confident that we can get back there.

Jason Kupferberg - UBS

One quick follow up, any change in customer buying patterns or conversations you guys you are having with customers since the recent situation with (4.23) unfolded. I know it is still kind of early days but any color?

Michael E. Roach

Yes, I mean we are talking to clients and I think someone of them are actually taking this is an opportunity to relook and rebalance as I mentioned where the works is going to be done. I think the risk managers of some of these firms are asking the right questions in terms of where work should be done and again we are out there restating and re-explaining our balance to approach to the global delivery and we are getting a good reception.

Operator

Your next question comes from the line of Mike Abramsky from RBC Capital Market.

Mike Abramsky - RBC Capital Market

Yes. Thank you so much. Just a couple of housekeeping questions beforehand. The last quarter your tax rate was inline with this last quarter but last quarter you said that you expected to be 33% going forward and it was not. Can you just give us a sense on how the tax rate is expected to trend?

Michael E. Roach

Very essentially, Mike, what we are seeing here is that if you recall back some time ago we have done a number of acquisitions in 2001, 2003, 2004 and as part of those acquisitions, there are number of provisions that had to be taken and there are some interest expense that we had to recognize in the tax expense line as a result of that.

Now, with that time as we move forward we are closing the various tax audit that are related to those various revisions as we get those things resolved and we can not push the IRS or revenue candidates to be able to bring to those to a close very quickly so continue to monitor those and weather the case forward and as we get those things resolved, as they get resolved, they trickle back to the P&L. All we can do on our side is to identify it for you while we expect that to be in normalized rate is going to be as we go forward and then give you visibility to when we are successful in getting those goals and if there is any upside on those, I think we are pretty good in giving you that transparency.

Mike Abramsky - RBC Capital Market

Okay. So, would you change your stance now that we should be using this quarter’s level going forward or should we be sticking to it as you with the last quarter? What direction can we…?

Michael E. Roach

I think if you were to look in the MG&A, you would see that as I mentioned in my comments earlier, 32% to 34% I think is a good rate for planning purposes and if there is something that comes up, we will highlight that for you.

Mike Abramsky - RBC Capital Market

Okay. Just again on housekeeping, could you just… I think you went through some stuff really quickly at the beginning of the call but can you just summarize for us why perhaps even though you beat really strongly on the top line, the EPS is, not excluding the tax impact, was not strong. What is it sort of primary reasons there?

Michael E. Roach

On the EBIT?

Mike Abramsky - RBC Capital Market

On, EPS. If you take out the $0.03 for the tax adjustment, it was a smaller meat as compared to what the top line was relative to 3? So I am just wondering what the, if any of this adjustment that you mentioned in your opening remarks were related to that?

Michael E. Roach

I think we just go back and just simply look over the last seven quarters, Mike you will noticed that we have been from a continuing operations prospective, striping out the tax effect running at 7% or greater. So, we have a fairly good level of consistency at that level over that time span.

David Anderson

Yes. I think, maybe he is referring dates where we set up front with two kind of one-time events in the quarter. We took a $5 million charge for small restructuring that we completed, Mike, in the first quarter and then there was another $3.8 million that was a one time relating to the…

Mike Abramsky - RBC Capital Market

The forex.

Michael E. Roach

The forex and part of that $3.8 will reverse in future quarters as the currency operates more in a tighter range.

Mike Abramsky - RBC Capital Market

Okay, so those charges flow through your P&L and have occurred, and had earnings.

Michael E. Roach

Yes, for sure. I mean our EBIT would have been over 12 without debt.

Mike Abramsky - RBC Capital Market

Okay and then I guess last housekeeping, the BCE I realized you are not disclosing it but on my math, we expect it at least a $105 million based on the, for $25 million contract which would make it a greater than 10% customer. So, I am just wondering where I am not looking at this properly.

Michael E. Roach

Well, we will probably take that offline. I can assure you that they were not 10%.

Mike Abramsky - RBC Capital Market

If they were not, were you surprised that perhaps, I mean we have to think about how to model this going forward because obviously they are still substantial customers so can you give us any sense of where the direction because even at 105, that would have been down 16% year over year and clearly you are trying to make it up or plan to make it up as you said through other business but how do we think of those, I mean BCE have been so significant to you and the Canadian revenues I think it is important to help us a little bit understand how to think about it going forward.

Michael E. Roach

Well, I understand that point, Mike but again I am not going to single out an individual plant. I understand it had been significant, as I said, since I came 10 years ago but the strategy this Company is to continue to grow and expand and diversify into many, many different clients. If they were to hit above 10%, I guess in a quarter they would be recognized or pointed out again but again our goal is to continue to do business there. As I say, it is a little tougher to get a beat on what their expand rate will be going forward. They are operating obviously in a very competitive environment as well. So, I think we are not going to give obviously individual clients’ numbers here if they are not above 10%.

Mike Abramsky - RBC Capital Market

Okay, sorry. So, my question might really just going throughout…

David Anderson

Actually, this is about Mike because we got get through your list.

Mike Abramsky - RBC Capital Market

Okay, your government was significantly a 14% on US growth. Is that like just huge compared to what you have done on previous quarters? Is that a one-time impact or..?

David Anderson

Well, Mike again government deals take a while and that is my point. I mean I think bookings can be very volatile and you work in government, you could be working the process for a year and some of these, they are even longer so it will be lumpy but again what I think we have to take away from there is the relevance and the strength of our solutions and capabilities in that space and we anticipate there will be further investments in the US. If you look at HUD, we managed 25% of the HUD developments in the US and that is just one example where I expect to see there will be more investment. Medicaid and Medicare, I think clearly the new president has indicated that. He mentioned our global delivery center, as you know the president actually met with our people and I think he was quite impressed by the fact that we are able to use technology and bring quality jobs to rural areas in the US. I think all those kind of things are helping us being tractioned in what is a very big market.

Operator

Your next question comes from the line of Ralph Garcea - Haywood Securities Inc.

Ralph Garcea - Haywood Securities Inc.

Great quarter, first of all and the fact that you did a billion dollars in revenue with the last week or two at December basically shut down in Canada and parts of the US, do you think that is, are you comfortable with that sort of run rate over the next quarter or two I guess is the first question. And then you talked about in the past about the pipeline on the advantage and momentum side, will you see that pick up or accelerate with this new administration as I mean some of the states, their budgets are under pressure now I guess given this current environment.

Michael E. Roach

Yes, thanks Ralph. I guess on looking forward, obviously I do not give guidance and I think right now to be honest, this is a very tough time to make a call on bookings and the timing of that and in fact the revenue because it is bumpy in terms of really understanding the speed and the timing of some of the stuff and also the currency. I mean I think this is actually the first time on the four years that we have actually got the currency to our back now. Our competitors of course have the other way. It will give an extra boost also to our global delivery centers in Canada in terms of the adding another layer of competitiveness to them. It also helps us in terms of deals that we have done in the past in the US relative to the currency rates at the time.

So, we are sticking to our business plan at this point. In this environment I think a lot of folks are looking at re-vectoring their plan. We put our plan together last August and when we look at it, we think it is still relevant. In the first quarter, we were very, very close to our plan, bid in the couple or various obviously. So on the year at this point, we are not seeing anything that would tell us that we need to re-vector our plan significantly but quarter by quarter in terms of booking and revenue; you could see some swings there as this thing works through the system.

On the solution side, you are quite right. Some of the states or obviously a lot of the states are financially challenged this time. Our take on this thing is though if you look at the amount of money the federal government will push through in terms of infrastructure spending, in terms of other investments that will flow through the states and down to municipalities, the importance of having good financial systems here, good tracking, good accountability on that, I think will be very paramount in the next period and this is where again our RERPs that the federal government and state local are absolutely category leaders and I believe that will continue to see good action in that area and as well in collections. Anything that as I mentioned solutions for tough times, people still have to invest in tough times and we think we got our nice portfolio here that is really targeted at helping state locals, commercial clients through this tough times.

Ralph Garcea - Haywood Securities Inc.

Okay. So that mean you finally have a government that is pushing for accountability down there and both of your products drive that so…

Michael E. Roach

That is it and I think accountability is going to be very, very key. If you push a trillion dollars out the door, you are going to need the financial systems to manage, handle it and see it and we got a large embedded base out there now. We are expecting some modifications to some of those systems to accommodate this thing and just this quarter, we announced the city of Cleveland went with advantage so I think it is high on the priority list.

Operator

Your next question comes from the line of Steven Li - Raymond James.

Steven Li - Raymond James

Mike, just one little question on bookings. So, 80% is from two sectors, which of the other sector was abnormally weak and is the short term trend going to remain weak or have you started to see some pick up?

Michael E. Roach

I did not catch the last part, Steven, I am sorry. The 80% of the bookings came from two verticals. We have some action in manufacturing but I would say that again the primary growth was in those two areas. I apologize Steven; I did not catch the last part of your question.

Steven Li - Raymond James

I guess I was asking, so out of the weak segment; telecom, manufacturing or retail, in the short term do you expect those trends to remain weak or have you started to see some pick up?

Michael E. Roach

Well, yes. I do not think a quarter is a trend. It is a one reference point. I think it will fluctuate over the year. Clearly manufacturers are under a lot of pressure here in the short term but again I think if you look at our model, we have solutions and capabilities across all five verticals. We got a nice geographic balance now in the Company where we are now approaching north of 40% of our revenue with well over 40% of our revenues now goes by to Canada. We got the currency to our back. We have got a lot of good and we got a nice backlog so we got a lot of factors here that allow us to have offsets if we see a pressure in manufacturing, we got an upside on the government side. If another one goes down, we have an offset by geography.

So, I think the balance aspects of the CGI model are holding up well here as I mentioned in my script in terms of getting through this. So, I would say you are going to see some fluctuations but I am still very bullish that government obviously will continue to invest heavily through the cycle and that the financial sector will invest. They always invest at a higher rate than the rest of the sectors and while they are maybe slowdowns in some areas, those financial institutions that are here for the long haul, they are going to take advantage of this period to invest and get stronger and we want to be there and be part of that.

Steven Li - Raymond James

Okay, great and David, you mentioned in your comment, did you say the margin this quarter was lower because of the $5 million charge?

David Anderson

There was a severance charge that we had in the Canadian operations of $5 million and there was also a $3.8 million on a currency related charge which we related back to some hedging that we have done.

Lorne Gorber

We will have our one last question.

Operator

Your next question comes from the line of Eric Bernofsky - Desjardins Securities.

Eric Bernofsky - Desjardins Securities

So given the economic climate and the focus on cost cutting by, I would imagine, the majority of your customers, have you seen any pricing pressures, maybe not this quarter but in the quarters ahead. What implications might that have on your margins? You mentioned before you kind of run in the 7% range on a net margin basis? What would it take to get that up to the 8% level?

Michael E. Roach

Well again, I think a couple of things. First off, in good times and bad times, clients always talk about pricing. Clearly in these times there are obviously more conversations around that. We run our business with the restructuring mentality. Everyday we have got to figure out how to do this stuff cheaper somewhere else or a different way to meet clients' demands and generate a fair return to our shareholders. So even if you give the example at the small restructuring we did in Canada, it is an example of something where if we see an opportunity to make some changes, take some cost out, we do it rapidly and we move on.

When I looked at our margins, improving margins, first off, I think we have to say I think our margins are actually on a consistent basis, the best in North America and Europe and one of the things that we strive for here is to build our operations and execute our operational plan to provide a level of consistency in our earnings and hence we pointed out, we now have seven quarters where we have at least at the minimum reach, we got a number of quarters where we have headache but margins really improved in our business over time. They are gradual and as to say some of the drivers are making sure you qualify your deals to make sure they are profitable because if you do not do that, you are behind the eight ball from day one. We have got to continue to drive off utilization rates. We have got to drive more outsourcing deals which I think over time help us in terms of utilization and hence, margins. And then there are all the other things in terms of leveraging our own global delivery model in terms of where we put work and finally always working on the mix of our revenue. The proximity, the client affords the bigger opportunity to add value to the client and for us.

So, we kind of drive on all of those areas. We also are very diligent on looking at the lines of businesses and contracts that are driving the highest margins to see how we can improve there and grow that area and we also identify the low performers and look at what changes we can make there and we focus on it like laser in terms of reporting back every quarter if we got a business or a line of business is underperforming, what can we do to improve it? What changes do we make? We have also as you know over the last three or four years divested probably a quarter of a billion dollars revenue where it did not align as close to our strategic direction today as it did when we undertook the deals and we were able to sell live business and had a very good multiple and then redeploy that cash back against our priority.

So, that is how margins improve. It is gradual. It is pushing all those buttons everyday, every quarter and that is essentially a good aspect of our CGI model.

Lorne Gorber

Thanks Eric. Thank you everyone. We hope you will join us in about 45 minutes from now for our Annual General Meeting which is also being broadcast on CGI.com and we will remind you all that I will be available for follow ups this afternoon. Thank you very much.

Operator

Thank you gentlemen. This concludes today's conference call. Please disconnect your line and thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: CGI Group Inc. F1Q09 (Qtr End 01/27/08) Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts