Q4 2022 CGI Inc Earnings Call
Got it.
Good morning, ladies and gentlemen, welcome to Cgi's fourth quarter fiscal 2022 conference call I would now like to turn the meeting over to Mr. Kevin lender SVP of Investor Relations. Please go ahead Mr lender.
Thank you Joelle and good morning, with me to discuss Cgi's fourth quarter fiscal 2022 results are George Schindler, our president and CEO and Steve <unk> Executive Vice President and CFO .
Call is being broadcast on CGI Dot Com and recorded live at nine a M. Eastern time on Wednesday November nine 2022.
Supplemental slides as well as our press release, we issued earlier. This morning are available for download along with our fiscal 2022, MD&A audited financial statements and accompanying notes all of which have been filed with both SEDAR and Edgar.
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 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 Dot com.
We recommend our investors read it in its entirety.
We are reporting our financial results in accordance with international financial reporting standards or <unk> as always 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 will now turn it over to Steve to review, our Q4 financial results and then George will comment on our full year performance and business outlook Steve. Thank.
Thank you, Kevin and good morning, everyone.
Our results in the quarter were strong against all key financial metrics, demonstrating the resiliency of Cgi's business model and the value that we provide to our clients.
In Q4, we delivered $3 $25 billion of revenue up 8% year over year are up 13, 9% when excluding a $178 million of unfavorable foreign exchange impacts.
All segments delivered positive constant currency growth, including the following with double digit growth.
Western and southern Europe up 35%.
Asia Pacific up 22 point, 700%, Canada up 13, 2% and U S commercial and state government up 10, 9% from.
From an industry perspective, we also add constant currency growth across all sectors.
Notably financial services grew 21%.
Manufacturing retail and distribution grew 14%.
<unk> grew 13% and communication and utilities group 10 person.
The number of our consultants and professional increased year over year by 10000 people representing at 12, 5% increase for a total of 90000 worldwide.
As planned our offshore delivery centers of excellence are growing at a faster pace 13, 2% year over year, and now representing 22% of total employees.
We booked $3 $6 billion of contract wins in the quarter up 25% year over year, and representing a book to bill ratio of 112%.
Notably new business in the quarter was 37% of bookings an increase from the previous year's 31% and the eyes in the last five quarters.
Book to Bill was over 100% in the majority of our client proximity segment led by U K and Australia at the 139%.
U S commercial and state government at 125%.
U S federal at 121% and <unk>.
And then Poland and Baltics at 117%.
With respect to our European operations.
Book to Bill was 107% for the quarter and 114% for the full year demonstrating ongoing resilience in relation to the current macroeconomic pressures.
And in North America book to Bill was robust at 117% for the quarter.
On the strength of total Q4 bookings global backlog is now at an all time high of $24 $1 billion.
This represents one nine times revenue.
Bookings related to our IP services and solution also increased significantly year over year, resulting in a book to bill ratio of 146% in the quarter.
With the addition of services acquired from humanity, which consist almost exclusively of ESI and fee revenue as a percentage of revenue remained stable sequentially at 20% in the quarter.
As a reminder, mergers provide us with new client relationships, where we can offer and deliver our full suite of end to end services in particular, our IP.
In the quarter multiple segments add notable IP bookings.
UK and Australia with an IP book to Bill ratio of 283% driven by our global trade solutions.
Canada with an IP book to Bill ratio of 273% led by new wins for our wealth management solutions suite.
And U S commercial and state government with the Nike book to Bill ratio of 166% driven by our advantaged state and local government ERP solutions.
With respect to profitability.
The dip in Q4 was $522 million up five 7% after considering the unfavorable impact from coupe tuition against Hurricane Aegean reporting currency.
EBIT margins were 16, 1% up 10 basis points sequentially.
On a year over year basis margins were down 30 basis points, mainly due to the temporary dilutive impact of recent larger acquisition and also due to the expected increase of both spend they make travel and support the business development activities.
We remain on plan to bring the recent mergers to CGI margin targets or.
Over the coming quarters.
EBIT margin were strongest in the following segments.
Pacific at 28, 6%.
Canada at 24, 6%.
UK, and Australia at 16% and Finland, Poland and Baltics at 15, 9%.
Our effective tax rate in Q4 was 25, 4% compared to 25, 5% in the prior year.
We continue to expect our tax rate for future quarters to be in the range of 24, 5% to 26, 5%.
Net earnings were $362 million and diluted EPS was $1 51.
Representing an expansion of eight 6% year over year.
When excluding integration and acquisition costs net earnings were $373 million, reflecting a margin of 11, 5%.
On the same basis diluted EPS was $1 56, and the accretion of 11, 4% when compared to $1 40 in the same period last year.
This improvement was mainly driven by the execution of our build and buy profitable growth strategy.
In Q4 cash provided by operating activities was $489 million, representing 15, 1% of revenue.
Compared to the prior year cash from operation decreased $38 million, mostly due to COVID-19 related income tax refund in Q4 of fiscal 2021 timing of our payables and higher DSO of 49 days.
The increase in DSO was mainly due to the impact of recent acquisitions, which are in the process of being fully integrated as well as foreign exchange fluctuations.
Our DSO target remains at 45 days.
In the quarter, we invested $103 million back into our business and $133 million in buying back one 3 million shares at a weighted average price of $105 and <unk> 48.
Importantly, our return on invested capital is up 80 basis points to 15, 7% compared to 14, 9% in the year ago period, demonstrating our efficient deployment of capital.
Looking ahead, our capital allocation focus continues to be on delivering double digit returns to our shareholders by investing back in our business pursuing accretive acquisition and buying back our stock.
Our capital resources totaled $2 $5 billion with access to more if needed.
Now I will turn the call over to George to recap the full year results and the outlook for our new fiscal year George.
Steve and good morning, everyone.
At this time last year I outlined CGI as fiscal 2022 plan to drive double digit earnings per share accretion with a majority of the expansion generated through growth from our build and buy strategy today.
Today I am pleased to share that we delivered on this plan for the fiscal year with 12, 9% year over year EPS accretion on an adjusted basis.
10, 5% year over year revenue growth on a constant currency basis, and $14 billion of bookings with book to Bill ratios above 100% for all service offerings led by consulting and systems integration at 118%.
This strong performance was achieved through the efforts of our now 90000 talented consultants and professionals, who delivered on our client commitments and deepened our relationships and expanded the business by winning new engagements across our end to end portfolio of digital services and solutions.
Before turning to a review of the value we created for each of our stakeholders for the full year I would like to highlight some of the New awards booked in Q4, which reflect continued client demand for modernizations and rising demand for cost savings.
<unk> financial our Canadian based global asset and wealth management company signed a long term partnership with CGI to modernize deliver and manage their proprietary transfer agency platform and a SaaS based model.
HSBC extended Cgi's application management services engagement to support the global rollout of their trade platform, which was co created with CGI to make trade simpler faster and safer for customers through integrated digital experiences.
Actaea, a Finnish financial services firm signed a new partnership with CGI to help them drive operational efficiencies and accelerate the development of new products and services for improved customer experience.
European Space Agency selected CGI to support the development of a dynamic predictive routing tool utilizing cgi's AI accelerator, IP, which enables satellite network operations to become more efficient.
Vodafone extended their long term relationship with CGI in the UK through a new 15 year engagement to design build and extend their internet of things platform in support of critical national infrastructure services.
In the U S nuclear regulatory commission awarded CGI, a new agreement to help the agency prepare for emerging cyber threats, including by employing a new digital forensics lab to help evolve their security posture.
One of CGI strategic priorities over the past year has been to broaden our relationships with key platform providers our bookings in the fourth quarter were boosted by several new partner based projects across each of Cgi's named Global Alliance partners, including with Microsoft SAP <unk>.
AWS Salesforce and service now.
Turning to fiscal 2022 performance for each of our three stakeholders clients employees and shareholders I will start with clients.
Critical to our growth agenda remains CGI has deep and trusted relationships with clients will increasingly partner with us to help them in their most important digital transformation efforts.
Since we made this year further enhanced CGI has capacity to create client value through our industry and technology expertise end to end services and delivery excellence.
Again this year client satisfaction was up on every dimension, we measure with clients intent to engage CGI again in the future as one of the highest scores at nine five out of 10.
Turning now to our employees when we call members as 84% are also shareholders of CGI are deep and trusted relationships are essential and therefore the investments we make in these talented consultants and professionals are paramount to our success.
As with our clients the satisfaction of our members also increased on every dimension. This year with one of the highest scores, reflecting overall commitment to the company at nine to 10.
As such our voluntary attrition rate continues to be below the overall it services industry average.
Importantly, hiring is up on a year over year basis, surpassing pre pandemic levels. We remained focus on early career talent with students in new graduates representing close to 20% of all hires last year.
In recognition of our continuing talent investments and our team oriented inclusive culture CGI earned a position on Forbes magazine's list of the world's best employers just last month.
And for our shareholders the combination of CJS industry portfolio geographic presence and to end services and operating discipline.
And we will continue to strengthen our resilience and capacity to deliver shareholder value.
We closed the year with broad based constant currency revenue growth in all geographic segments and industry sectors, including 22, 6% and our western and Southern Europe Geographic segment, 21, 5% and Asia Pacific, 14% in U S commercial and state government.
And 13, 7% in the financial services industry sector at 11% and government and also 11% in health care.
A contributor to growth. This year was our increased M&A activity as we closed five new mergers and welcomed over 5000 consultants a significant acceleration over fiscal 2021.
And applying <unk> disciplined evaluation approach in fiscal 2022, we analyze an increased number of potential merger opportunities, which more than 40% included IP based services.
A subset of these companies remain active in our current pipeline and at the same time, we continue to identify and assess new merger opportunities given the highly fragmented it services environment.
Turning to fiscal 2020 to profitability adjusted EBIT was $2 9 billion for a 16, 2% margin.
10 basis points year over year.
Net earnings were $1 7 billion for an 11, 4% margin up 10 basis points year over year.
Net earnings on an adjusted basis were $149 billion or margin of 11, 6% up 30 basis points year over year.
<unk> was $6 <unk> up 11, 6% and EPS on an adjusted basis was $6 13.
12, 9%.
These strong returns were driven by a combination of revenue growth and improved profitable business mix and continued operational excellence.
Our strong cash generation and capital allocation during the year enabled us to make a number of accretive investments.
$374 million back into our business, including in talent IP offerings, and new managed services contracts six.
$659 million in acquisitions for an investment of $572 million net.
Net of cash acquired.
And $913 million to buyback, our stock, which remains an accretive and flexible mechanism to return capital to our shareholders.
Looking ahead to fiscal 2023, we remain confident in Cgi's positioning as one of the few leading global firms with the scale reach and capabilities to help clients drive their digital transformation forward.
To address the current economic environment. Many clients are prioritizing operational efficiencies and placing a sharper focus on business case returns, helping them generate cost savings to fund and accelerate their digitization investments.
Across industries, we continue to see clients embed and optimize their technology from end to end transforming the entirety of their business value chains.
With demand for this more holistic approach and the need to fund it at least partially through cost savings. We believe demand will continue for all of Cgi's end to end services and solutions.
So you are supported by our bookings over the past year, and our future pipeline of opportunities over.
Over the past year, we saw an uptick in demand for our business and strategic consulting services as clients began to accelerate many key initiatives, which required business model transformation customer experience design and cloud advisory.
In line with his uptick overall systems integration and consulting bookings increase by over $1 billion in fiscal 2022 and comprised 50% of our total bookings mix of services and.
<unk> future client demand remains strong for <unk> as our pipeline of opportunities for these services is up on a year over year basis.
At the same time, our pipeline over the next year reflects an increased interest in managed services as the total value of these opportunities is up by nearly 40%.
And for IP, the pipeline is up 25%.
In fact, our managed services and IP bookings in the fourth quarter was the highest over the last five quarters.
This shift towards more managed services and IP demand as one we are predictive for several quarters given the value propositions for these services in the current economic environment.
Our portfolio of end to end services and solutions and the breadth of enterprise clients working with CGI positions us to quickly identify adapt and meet client needs as.
This enables CGI to profitably grow through our build and buy strategy for the benefit of our shareholders now and in the future. In fact, we have a proven track record of strong financial performance, even during previous economic slowdowns.
Related to the buy strategy, we see an increasingly positive M&A environment for CGI based on three key dynamics valuations are coming down notably for the publicly traded firms in our pipeline.
Currency is in our favor given the strength of the Canadian dollar and CGI, a strong balance sheet enables us to act on both metro market mergers and transformational merger.
These dynamics along with our robust pipeline suggest there is and will be more potential merger opportunities that are both attractive and actionable.
We will remain disciplined in our approach to ensure our investments are accretive for shareholders and have the necessary cultural fit to deliver ongoing benefits for each of our stakeholders.
In closing, we've architected, our fiscal year 2023 business plans with the capacity to invest in driving revenue growth at or ahead of the markets, where we operate while again delivering double digit EPS accretion.
For your continued interest and support.
Go to the questions now Kevin.
Thank you George well, we can now queue up for questions. Please.
Thank you ladies and gentlemen, we will now begin the question answer session should you have a question. Please press the star followed by the one on your Touchtone phone Youll hear three Tom prompt acknowledging you're requesting your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press the star followed by the <unk>.
If you are using a speaker phone please lift your handset before pressing any.
One moment. Please for your first question.
Your first question comes from Richard Tse.
From National Bank financial Please go ahead.
Yes. Thank you so great numbers and thank you for providing all of that additional disclosure on your comments on things like book to Bill of IP. That's that's really helpful.
Can you maybe talk about.
You look at your existing customer base. That's on this digital transformation journey.
Kind of use a baseball analogy or they're kind of like in the third inning or the sixth spending.
Just kind of curious to see where that stands today.
Yes, no. Thanks for the question Richard.
Yes.
We have used the baseball analogy before but.
When we look at it and I talk to our clients and we look at the voice of the clients.
It feels as if this digitization risk rates never ends.
And so I would say it's still early innings.
But it may not even be a nine inning game.
Okay fair enough.
And you talk about sort of the surveys you do and how you do them fairly regularly on annual basis. When you do them do ask sort of questions as to what services you're clients may see.
Going forward in the future that are going to be in demand and if so what are they saying about those services.
We do ask a number of questions about the trends both from a from business perspective, but also from an it perspective, and what would make a difference for them and their business and what we hear from them is a lot of the.
The story, we've been telling for a while here which is around.
Some of the technologies that provide more data insights so.
Data analytics is an important element that they talk to of course, they talk about some of the operational efficiencies provided by technology like cloud.
And.
And they also talk about though the combination of bringing technology together with the business and that's why we've invested a lot in the in the business consulting area of the.
CGI and <unk> services.
Okay, and just one last one for me and it's good to see the additions to the people.
If you look for can you maybe give us some color in terms of your hiring plans as we look ahead to next year.
Yes, so you might have seen that we have slowed some of the open positions.
Just a tad still up year over year and the reason for that is we're seeing some of the <unk>.
Turnover numbers come down a little bit so we still see strong growth we've been very successful on the hiring side.
Turnover has been below the industry average, but is starting we believe is starting to come down and has plateaued and so we'll adjust our hiring appropriately, but we haven't had a talent.
A talent shortage.
Throughout this past year, we've been able to hire and keep.
Percentage of our people and some others.
That's great great color. Thanks.
Your next.
Question comes from Stephanie price with CIBC. Please go ahead.
Hi, Good morning, just following up on Richard's question, a little bit there, you've obviously been staffing up offshore just curious about offshore demand and how you think about the right mix of offshore and nearshore employees over the longer term.
So Stephanie thanks for the question and you know that.
We remain committed to our proximity model because that's where the relationships are built in house and has made a big difference in some of those.
We believe in some of those client satisfaction scores that we have.
Having said that.
Especially given some of the inflationary pressures that their clients have.
Giving them more options by building up our global delivery centers of excellence and that's proven to be very successful for both our clients and enabled us to manage the.
The wage inflation that.
Everybody is facing so.
We believe that we will continue to be able to build that.
And as we grow our business and it's growing a little bit faster than the rest of our business, but you can see that we're also growing in proximity as well.
Sure and then just wanted to have a capital allocation just in light of the government's 2% tax on buybacks at such implemented January 2024, just curious if it changed the capital allocation strategy at all in 2023 and beyond.
Steve.
Look for 2023, 2% will be applicable.
So we're not changing our plan.
And for the future of <unk>, 2% will be considered in the calculation.
That's something that we'll look at.
But we are nothing anticipating that it will affect.
Significantly our plans for the future.
Thank you and maybe I'll just sneak one more in on Canadian results have been very strong in the quarter, just curious what youre seeing in Canada in terms of bookings and in terms of.
Client demand.
Yes, well as you know we're still very.
Very strong in the financial services market in Canada, and we continue to see digital transformation.
Moving forward with the with the banks in Canada, and certainly fueled and some of that growth in Canada is fueled by our intellectual property, where we continue to make investments and lead the market in areas like wealth management. So.
We will continue to.
We continue to see strong man right here in Canada.
Perfect. Thank you very much.
Your next question comes from panels Marshall.
BMO. Please go ahead.
Hi, good morning.
George just two.
Speak specifically clear on the macro I think your message is that clients are shifting their spending priorities.
As you mentioned is more managed services and IP, but budgets aren't coming down per se.
Yes first of all is that correct and then secondly, as far as sales cycles and approval process has there been any change there or.
Not that Youre seeing at this point.
No.
Yes.
You heard it right on the macro environment, we see it as a shift right. So we.
We may expect to see some slowing of maybe consulting as a stand alone and just to remind you that that's only about 4% to 5% of our overall revenues.
But we're embedding some of that consulting work into some of those managed services deals that we're seeing things shift too. So that's why we're pretty bullish even in this current macroeconomic environment that we can we can manage that shift and still help our clients with the demand.
We saw that the majority of our clients. The vast majority of our clients are holding budgets the same or growing them.
And so when they when they're doing that they are looking for cost savings, which is another reason for that for that shift to managed services, but also the shift to some of our commercial off the shelf solutions in IP versus rolling Theyre rolling their own what's.
What's interesting is when you look at that environment, our top systems integration and consulting deals.
This quarter. If you just look at the top deals in the quarter. Their average duration is approximately three and a half years. So.
They are squarely in these digital transformations.
Consistent with what we've what we've been suggesting as we looked at their voice of the client information so.
There is a shift but still strong demand out there.
And sales cycles, not seen anything as far as.
More approvals are getting deals over the finish line is that consistent.
Yes.
On the sales cycles, we're seeing two things that I mentioned on the remarks right we talked about.
Our need for cost savings and we talked about.
A sharper focus on the business case.
When cost savings enter the equation, they actually tend to go a little bit faster.
So.
It speeds up some of the some of the booking sales cycles.
However, when you get a sharper focus on business case returns that tends to slow things down a little because you want to actually do more evaluation. So it's kind of a tale of two sides.
So some deals are moving a little bit faster some deals are slowing down a little bit. So overall I would say it kind of balances each other out.
In the.
Fullness of time.
Okay.
One last one is on margins I mean, some puts and takes as we think about the next year I think on the one hand, you should get some uplift from integrating the recent tuck ins.
On the VIP mix is poised to grow on the flip side youre doing more hiring which could have near term impact.
As he puts us all together how should we think what the margin trajectory will be upcoming here yes.
Yes, well I think you summarized that very well, we and also Steve mentioned, we've got some of the expected higher travel costs for business development now that everything has opened up.
Then.
The temporary effects of the hiring as you said, but many tail winds for the future quarters not just the <unk>.
<unk> the integrations, but also the effects of some of the changes in restructuring made in the Scandinavia and central European operations, particularly the <unk>.
They're actually we believe there'll be a utilization increase as our turnover comes down we wont have to hire as much of that actually I think could be a tailwind as we move in and of course, the big one is that shift.
And the bookings mix to a more managed services and IP, but also growth in global delivery and operational excellence. So we've got a we've got a number of <unk> that will allow us that continued steady growth on the on the on the margins even with some of those.
Headwinds.
Great Thanks to our topline.
Yes.
Your next question comes from Jerome to play with Deutsche Bank. Please go ahead.
Hi, everyone. Thanks for taking my questions first one first one is on Europe .
I mean, you have a unique clients.
Through which you can see the situation there are you seeing.
More sorts of more pronounced macro impact.
There could there be a more of a portion of these or is there a bit more risk in the near term and then second one from from last night's elections in the U S.
Not going to ask you first for your political opinions there but.
Wondering if youre seeing a more conducive landscape.
When.
The incentives are aligned with the white house or a different situation. Thank you.
Well, let's start with.
With Europe .
The fact that.
Europe is a closer in proximity obviously to the to the conflict going on in Ukraine and of course, the impact then on the supply chain and energy.
I think that there is there would be a little more of an impact there in Europe and certainly they were they were quicker to plan for some some potential slowdowns, but thats exactly what <unk> been doing in <unk>.
Many of our European clients are global and so they're all remaining focused on digitization.
And I would say maybe more of the regional clients in Europe are a little more focus on cost savings first but still remain focused on Digitization and then I'll just remind you that for us.
30.
34% of our Q4 revenue overall is in government, but.
That number doesn't go down much when you look at Europe about 30% of our of our revenue is is in government and in Europe . So it's a little bit higher in North America, but its still 30% in Europe , So and as you know government is countercyclical during economic slowdowns.
We feel like we've got a we've got a good portfolio of business there in Europe .
To continue to grow even through this current times when.
When you go to the elections. Thank you for not asking me for my political views on that.
It's certainly entertaining to watch to watch some of that but.
In general Here's how I'd first may be characterized as in general the work. We do is bipartisan. So if you think about the work we're doing and Archie modernization.
It may it may shift from what agency that it modernization is done with but in reality is still need it modernization as a bipartisan topic and in fact, if your budget gets cut you might even need more of the cost savings around the managed services, which which typically government doesn't.
Start with something.
Something like cyber security, which we're doing at the department of Homeland Security supporting 35 different federal agencies pretty much a bipartisan.
Issue.
Back office managed services, including our momentum ERP I could go on passport operations I could go on and on but the reality is that when you look at it a lot of our work is bipartisan. So then to your question is yes. It is helpful that we actually have a budget and we are still working under continuing resolution now.
Full that without a clear clear mandate that actually is better for us because it means that the center the Senate does more bipartisan.
Spending bills and then we can get on with actually.
Getting the work done, but I would remind you with a strong incumbency and all of the work. We currently have.
We're able to and over two times backlog.
And our book of business, we're able to get through some of these.
Inevitable.
Slow decision, making if it if it occurs.
Thank you George.
Your next question comes from <unk>.
With Scotiabank. Please go ahead.
Good morning, guys.
Okay.
This European question I wanted to understand what is the expected growth rate that you are seeing in or how should we model for western and southern Europe I do see a slight.
Drop as compared to some of the previous quarters, which had been growing at a little bit higher growth rate and similarly for Scandinavia, and central Europe that to EBIT pretty well this year not surprising so how should we how should we best think about these two segments in Europe going forward.
Yes, well as you know <unk>, we don't give guidance on on growth, but just from a from an overall <unk>.
Services perspective, I think that the.
The overall growth rates in Europe for it services are staying pretty close to what they are in North America and Thats, certainly what will be will be focused on.
We do have some <unk>, obviously now with the first full quarter of.
Of humana's in our European operations over 50% of that is squarely in the digital transformation. So we have ways to manage through that and thank you for noticing in calling out the Scandinavian Central Europe as you know we've been working working hard on that so.
I think overall.
Well look we look pretty good.
The shift to managed services is going to be important that doesn't happen overnight. So you might see some lumpiness, but for the full year, we're still looking at.
<unk>.
That's very helpful and I will just ask one more question on the M&A side, so on a quarter over quarter basis margins did shrink a little bit and it has to do with the M&A activity as you continue to embark on more M&A.
A few quarters down how do you best and I know you don't guide, but how should we best kind of think about it.
SG&A expense standpoint, yes.
Yes no.
I appreciate the question and it is it is temporary but it does.
Little more pronounced and when we do European.
M&A, because it takes a little bit longer.
And quite frankly.
Yes, little more time to execute on on some of the activities just given the regulatory environment in Europe versus the regulatory environment and.
In North America or are there other parts of the world. So.
So I think Thats, how you can maybe maybe think about that but of course as you know we're looking at this this M&A.
It's something we want to do across every one of our geographic.
Our operations and so youll, probably see more in North America and of course U S is <unk>.
Little bit faster to get some of those returns so.
Stay tuned good color. Thanks George.
Your next question comes from Daniel Chan with TD Securities. Please go ahead.
Hi, Good morning, maybe just another question on M&A last quarter, you were expecting to do about $1 billion for the year, where does that target stand now.
Yes so.
You heard that we're we're about two thirds of the way there and in pricing, but of course, we get some cash with that so we're a little bit under that.
From an investment perspective, but.
We've got some some big opportunities still out there.
Can't we.
Can't time. These so I can't can't even try to do that but what I can tell you is that it's.
We're very pleased with the acquisitions that we did close this year.
We're very pleased with the pipeline of opportunities we have going forward. So with some like minded companies and we have a similar plan if not higher and in the next year. So we're pretty we're pretty bullish on where we are what we've accomplished and what we may still accomplish.
This year, but also where we're heading next year.
Okay. It sounds good.
Shifting to the bookings the new business bookings mix was much higher this quarter than in the past is there anything driving that mix higher in particular and if you looked at the pipeline now is the proportion of new business larger than in the past.
Yes so.
It's a great question and yes, it's been very it's been very deliberate we've made.
Made some investments in talent and our end to end services and offerings and partnerships and and raising our profile and I think youre seeing some of the realization of that which has positioned us to be that partner of choice for our clients and so that's it's really a result of some of the inverse.
Since we've made over the last.
Last do you.
The last few years and yes from a pipeline perspective, the new business is in fact up even higher than what we booked in the quarter.
Thanks George.
Your next question comes from Rob Young with Canaccord. Please go ahead.
Hi, Rob.
Brian .
Rob.
Sorry about that I was on mute.
Couple of comments in the prepared.
Our comments will focus on capacity I'm. Just curious you said you have the capacity to deliver growth you've had a couple of peers are highlighting issues with U S capacity.
A couple that are hiring highlighting higher utilization you. Just noted that you expect to see higher utilization. So I'm just curious about.
The comments around attrition and maybe a slowdown in hiring.
How does your capacity look and maybe just to dig deeper into that are you winning share because you have more capacity.
Deploy in the U S and other markets.
It's an interesting question I think part of <unk>.
Part of our wins as is.
Is not just overall capacity is that proximity capacity and that might be the difference that you hear from from some others. We have a strong critical mass that we continue to to build both organically and inorganically in the U S and as you hear we're continuing to grow faster in <unk>.
Mobile delivery, but thats were coming from proximity and growing faster than the global delivery rather than the other way and so I think thats that may be one of the benefits that we have that maybe some others don't have but like I said its investments we've made across the board and.
And our talent and our end to end services and <unk>.
And our quality that has also made a difference in us winning some of that that market share also I would say our willingness because we know our clients well.
As we can be flexible in our partnerships and thats, a big differentiator for CGI.
Clients tell me all the time you show up differently.
It's an X factor, it's harder for you to quantify but you can see the results in the in the bookings and the revenue growth.
Hey, that's great color.
The comments about.
The additions to offshore I think implicitly wanted to grow that.
I think you said earlier in the call that maybe you'll be slowing that's gross.
And did I hear that correctly in the first part and then the second would be around the impact on margins I think is it still a situation where you're maybe have less.
Offshore delivery.
Relative to your peers as a percentage of employees and then as you build up the off share offshore delivery does that imply a strong support for margins going forward.
Well on the first first question, let me, let me clarify that.
What I'm, saying is that the pace of hiring can be a little bit less in order to get the same growth. When your turnover comes down and so that was just making that comment but.
Certainly.
We're continuing to grow and as I mentioned grow faster than global delivery and yes. It does help our margins in fact, it's one of the ways, we've been able to keep the margins where they are and continue to grow them.
Through that mix of talent so.
I mentioned that working.
The talent mix from the new hires the students and the new graduates with 20%, but then that higher growth in global delivery.
And then enabling us to do project rotations for the people that are in proximity to higher value work and higher margin.
Work or higher rate work, which then comes with a higher margin. That's the one of the ways a big way that we've been able to manage the wage inflation.
Without impacting the pricing on our clients now of course, we're also doing some of the pricing where revalue of our services.
And.
Through rate increases, but this is a nice way for us to balance that.
For our clients and for our shareholders.
Okay, Great last one from me just on the IP bookings strength I know you've been working on that for a long time, but is this driven by outbound efforts or is that being driven more demand or are your customers seeing you more as a provider of that type of service. Maybe you can just give some stress.
Strength.
Yes, it's a combination of both and what we've been working on from a from an outbound perspective is not just getting our IP to more people but.
Making those deals larger by bundling them with managed services bundling them with <unk>.
Business process outsourcing <unk>.
And in fact, if you look at our IP.
The deals in the pipeline this time of the year versus the same time last year they doubled.
And the number of deals greater than $100 million have doubled and so thats just an indication of what we're doing with those deals. We've also have some nice cross geography momentum we're also using.
Our partnership channel now so we've built some of our IP on top of platform providers. So we I think you used. The example last last quarter on collections with the sales force also done retail with with Google as examples and now we can use their channel.
To get that to more more of our clients and then of course, we are investing in our IP itself to make it more attractive. So it's really the combination of the two that that's making a difference and yes, we have been investing this and that's very very important to us.
Last item, though as we do.
We will continue to look for IP through inorganic means and I mentioned that a lot of the.
The companies that we looked at this year did in fact.
40% of them did half.
It is associated with them.
Some exclusively IP and some mix of IP and other services, but we continue to think that that's an important driver here as well.
Great. Thanks for taking the questions.
Your next question comes from Steven Li with Raymond James. Please go ahead.
Thank you.
George.
<unk> has done some good restructuring working in Scandinavia, but the margins are still lagging the group.
We are realistic is it to expect gross margins to approach the rest of Europe , and Rob will be a reasonable timeline. Thanks.
Yep Yep.
Certainly thats the plan.
I would view that as a tailwind.
The growth that we're now having there is definitely a tailwind some of the numbers you do see there do include some restructuring that we expensed.
In both the quarter and the year. So that's a bring it down so we would expect to see those improving as we move through the next few quarters and.
And then getting to the more of the CGI targets may take a little bit longer, but certainly you'll start to see those improvements in the next few quarters.
Yes.
George.
Mobile IP for example, or just higher utilization gets you to it yes.
Yes, it's a mix of.
Both we've got a lot of great consulting services, there, we want to mix that with the end to end services.
And so that.
It's a big it's a big driver of.
The opportunities there some great clients there some.
Some talented individuals' it just.
As you've seen in other parts of it where it takes a little bit more time.
That's great. Thanks.
Yes.
Your next question comes from Jason Kupferberg with Bank of America. Please go ahead.
Good morning, everyone. This is Tyler Dupont on for Jason Thanks for taking my questions.
Just jumping off of some previous comments regarding hiring can you just clarify roughly how many of those new hires are focused more on offshore delivery.
This near shore onshore and are there specific segments that you are seeing more robust, Thailand and others.
Also just to build on that if you can provide an update on the utilization metrics that you've seen during the quarter I appreciate it.
Sure on the on the offshore.
Versus onshore hiring I think Steve mentioned that we're now at 22% grew.
At a 14% level, which is a little bit higher than the rest of that you can kind of see the movement there based on those those numbers.
And then when you talk about.
What's your second question.
I had to do with the specific segments that are seeing more robust hiring than others and just an update on utilization.
Yes, so the segments, well clearly Asia Pacific because it has the bulk of the.
Of the.
Global delivery, but it's not the only place we do have global delivery, but we're seeing strong hiring in and certainly the U S segments.
And then of course with the addition of some of the inorganic growth.
Seeing that end WMC and then Canada has had very strong strong hiring. So those are those are some of the geographic segments, you'll see but again, we've had growth growth everywhere, just a slightly different paces.
Okay. I appreciate that thank you and then secondly, I just wanted to ask a bit more about your vertical markets. It looks like financial services definitely saw some really strong growth during the year can.
Can you maybe just talk about some of the successes, we're seeing there and just balancing that with communication and utilities, which looks like it had done.
EBIT growth profile compared to fiscal 'twenty one.
Yes. So if you look at financial services is.
One of our largest segments right after government and it's pretty broad based.
Highlighted some of the big bookings in the quarter.
Financial which actually a digital transformation leader.
Really selected CGI for our business knowledge.
In the wealth space, but also the the.
Technology and operational Knowhow and we've we've mixed debt together with even some business process operations. So.
That's a good example of a digital leader in the financial space teaming partnering with CGI see the same thing with HSBC, which I highlighted where we're co creating with the bank pretty.
Pretty much the heart of what they do their largest.
One of the largest trade banks.
We're co created with them on a trade platform and again it shows the business combined business knowledge and technology leadership.
<unk> working in partnership.
With the bank and then at Tia is an interesting one they really needed a partner to help them implement their digital transformation, but to do that.
<unk>.
With some sort of cost savings so they wanted to improve their competitiveness, but at the same time, they need to fund that through cost savings. So again.
They partnered with CGI, we actually re badge.
Instead of their staffs and they are now part of CGI, we can give them the cost savings that can give career opportunities to their people, even with the cost savings and then turnaround and help them implement their digital transformation vision for competitiveness. So it gives you. It gives you an idea of what we're doing there in financial services.
On the communications side, I mentioned that with with Vodafone, It's really our deep technical expertise to help them kind of in their infrastructure backbone around Iot and <unk> for a national critical infrastructure. So this is a real it's a real opportunity for us too.
Continue to grow but communications.
It's been it's been a slower move.
Move for them on some of these changes that they're going through but I think thats going to be continue to be very robust moving forward.
Great. Thank you I appreciate it I appreciate all the insight.
Yep.
Your next question comes from Paul Treiber with RBC capital markets. Please go ahead.
Oh, Thanks, very much good morning, I just wanted to follow up on the questions around offshore but in particular in regards to virtual versus in office now obviously during COVID-19. There was a shift to virtual and I think that pretty much favored offshore can you see the acceptance of virtual as a long term tailwind to offshore.
Or do you think.
Ultimately in time, it'll it'll settle out and won't be a structural change in the industry.
Yes.
Great question I don't have a crystal ball I definitely think that.
Some of the.
Some of the tailwind on on virtual given the pandemic.
We will continue I think structurally that that will continue in the industry. So.
Certainly there.
The one hesitation I would have is there is also the reality is around the geopolitics, there's the realities around regulatory.
Environment that I think will counterbalance that a bit.
So so that's why.
Kind of hesitate a bit on the crystal ball, but certainly in the current environment, It's a tailwind for us.
And do you see near shore also benefiting from virtual and sort of you mentioned the pros and cons.
Turning to offshore does nearshore sort of split those and do you see it is that the ideal positioning for your mix of employees.
I think I think you're onto something there, yes, we do see near shore as a big differentiator and that balancing it it's not it's not the same cost savings is offshore but it addresses some of those other areas and so it's always been part of our mix has always been.
Our value proposition.
If anything I think it's just becoming a stronger part of the value proposition.
<unk>.
And just as part of what we've always said, which is global delivery not offshore delivery versus onshore delivery, it's really global delivery and those those.
Near shore centers make a huge difference for us on.
On the value proposition.
Okay. Thank you I'll pass the line.
While we will have time for one more call. Please one more question.
Your next question comes from Suzanne to Kumar with Stifel. Please go ahead.
Good morning.
I had a question on.
Really in terms of the competitive landscape and what you're seeing in terms of client behavior. Here just kind of curious are you seeing any trends around vendor and service provider consolidation within your client base and if so how do you see yourself positioned in and are you seeing an opportunity to really capture more of that wallet youre, giving.
Your you bought a capability side.
Yes.
We definitely are seeing.
A bit of vendor consolidation across industries across geographies, and where a lot of that.
A lot of the displacement comes from some of the local providers that.
It also gives us an opportunity on the on the M&A on the M&A side, but we're very well positioned with as I mentioned some of the investments we are making our end to end services our global delivery.
It really is really is a differentiator, it's why I highlighted.
<unk>.
Client satisfaction scores and the willingness we're seeing.
A large percentage of the of the 2022 bookings were for new or expanded work share and a lot of that is from some of that vendor consolidation that youre asking about.
I call. It the next wave of vendor consolidation every time you go through an economic boom time.
Clients tend to kind of collect.
Multiple.
Our partners and they get more focused.
In times like today, so it's an opportunity for CGI.
Great. Thank you.
Okay.
Oh, sorry, Hello.
Sorry, I was just going to say there are no further questions at this time.
Thank you as well thanks, everyone for participating as a reminder, a replay of the call will be available either via our website or by dialing one 870, 767 hundred 47070, and using the passcode 333313 as well a podcast of this call will be available for download within a few hours.
Follow up questions can be directed to me at one 905 973, <unk> hundred 63, Thanks again, everyone and look forward to speaking soon.
Ladies and.
Gentlemen, this concludes your conference for today, we thank you for participating and ask you. Please disconnect your lines.
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