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CGI Group Inc (NYSE:GIB)
Q4 2019 Earnings Call
Nov 6, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, welcome to the CGI Fourth Quarter and Fiscal Year 2019 Conference Call. I would now like to turn the meeting over to Mr. Lorne Gorber, Executive Vice President, Investor and Public Relations. Please go ahead, Mr. Gorber.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thank you, Valerie, and good morning. With me to discuss CGIs Fourth Quarter and Fiscal Year 2019 results are George Schindler, our President and CEO; and Francois Boulanger, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live from Montreal at 9:00 a.m. Eastern Time on November 6th, 2019. Supplemental slides as well as the press release we issued earlier this morning are available for download, along with our 2019 MD&A, financial statements and accompanying notes, all of which are filed with both SEDAR and EDGAR.

Please note that some statements made on the call may be forward looking. Actual events or results may differ materially from those expressed or implied and CGI disclaims any intent or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable laws. The complete safe harbor statement is available on both our MD&A and press release as well as on cgi.com. We encourage our investors to read it in its entirety and to refer to the risks and uncertainties section of our MD&A for a description of the risks that could affect the company.

We are reporting our financial results in accordance with the International Financial Reporting Standards or IFRS. 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 in this call are Canadian unless otherwise noted. With that, I'll turn it over to Francois now to review and provide context to our Q4 and full year financial performance, and then George will comment on our operational highlights and update our strategic outlook. Francois?

Francois Boulanger -- Executive Vice-President and Chief Financial Officer

Thank you, Lorne and good morning everyone. I am pleased to share our fourth quarter and fiscal 2019 results. Let's begin with Q4. Revenue was CAD2.96 billion, an increase of CAD160 million or 5.7% compared with Q4 last year. On a constant currency basis, revenue grew 7.7% of which approximately 4% was organic. IP Solutions and Services grew by 14% year-over-year and now account for 22% of revenue. Q4 book -- Q4 bookings totaled CAD3.4 billion for a book-to-bill of 115%.

Our focus on bringing clients more end-to-end services in IT is driving scope expansions and new add-on work, particularly in the US. In Q4, following the pipeline shift seen in [Indecipherable] quarters, 53% of total bookings were from our managed IT services. In fact, eight of the top 10 bookings were managed IT engagements. Adjusted EBIT in Q4 increased CAD457 million for a margin of 15.5% up CAD22 million year-over-year, reflecting the quality of our revenue growth. Our effective tax rate in Q4 was 21.4%. When excluding a one-time net tax benefit of CAD18 million in Germany, it was 25.1% stable compared to last year.

Looking ahead for fiscal 2020, we expect a range of 24.5% to 26.5%. Net earnings were CAD324 million in Q4 or a margin of 11%, up 50 basis points compared to last year. EPS was CAD1.19, up 16% compared with CAD1.03 last year. When excluding acquisition and integration expenses and a favorable one-time tax adjustments, net earnings were CAD329 million for a margin of 11.1% and earnings per share were CAD1.21, up 11% from CAD1.09 a year ago.

Cash generated from operations in the fourth quarter was CAD405 million or 13.7% of revenue. This represents an improvement year-over-year of 150 basis points or CAD65 million. DSO at the end of September was 50 days compared with 52 days last quarter and last year, reflecting a higher proportion of recurring revenue. During Q4, we made a number of accretive investments, including CAD80 million we invested in our business, CAD15 million acquiring Sunflower Systems, CAD219 million in debt reduction and CAD106 million to repurchase 1.1 million shares.

Turning now to our fiscal 2019 full-year results. Revenue was CAD12.1 billion, an increase of CAD604 million or 5.3% compared to fiscal 2018. On a constant currency basis, revenue grew 5.9% of which approximately 60% is organic and 40% from recent mergers. Bookings totaled CAD12.6 billion or 104% of 2019 revenue, as a result we ended the year with a backlog of CAD22.6 billion or 1.9 times our annual revenue. Adjusted EBIT was CAD1.8 billion, representing a margin of 15.1% for the full fiscal year, up 30 basis points from last year. We continue to see opportunities to increase overall margin through the ongoing evolution of our revenue mix toward higher managed IT services revenue, optimization of the business as we integrate new metro market mergers and the introduction of new or enhanced IP solutions.

These opportunities to improve margin are most pronounced in Central and Eastern Europe where we achieved margin progression throughout fiscal 2019, reaching double digits in Q4. Net earnings were CAD1.26 billion for a margin of 10%, up 50 basis points compared to last year. EPS was CAD4.55, up from CAD3.95, representing a year-over-year improvement of 15%. When excluding acquisition integration-related expenses, as well as a favorable German tax adjustment net earnings were CAD1.3 billion for a margin of 10.8%, up 30 basis points year-over-year and earnings per share were CAD4.70 or CAD0.51 higher than last year, representing growth of 12%.

For the full -- for the full year, operating cash flow increased to CAD1.6 billion or 13.5% of revenue, an improvement of CAD141 million. With this strong cash flow, we made a number of accretive investments. CAD331 million we invested in our business in talent, contracts and intellectual property. CAD620 million to complete the Acando, ckc and Sunflower mergers, and CAD1.1 billion to repurchase 12.5 million shares at an average price of CAD90.37. At the end of September, our net debt stood at CAD2.1 billion for a net debt to capitalization ratio of 22.9%. This is up from 19.2% at the end of 2018 and remains well within our comfort zone. As a reminder, we took advantage of the low interest rate environment to renegotiate a portion of our long-term debt at more attractive rates earlier in the year. We have the overall financial capacity and the intention to continue building and buying in fiscal 2020.

Before turning the call over to George, I want to highlight a few outcomes from our recent strategic business planning process. First, we are closing our delivery center in Brazil. Second, we are refocusing the infrastructure operation in Portugal to be a near shore delivery center following the non-renewal of our large infrastructure only contract. These two actions will result in an annual revenue impact of approximately CAD27 million in Western and Southern Europe, but once completed will improve this segment's EBIT margin.

Finally, we decided to create two separate Northern European strategic business unit. A new Scandinavia segment with over 5,500 members in Sweden, Norway and Denmark and which generated approximately CAD1.1 billion in revenue last year. As we stand up this new segment, we are using the opportunity to optimize and restructure -- restructure parts of our infrastructure business in Sweden. The second new segment in the region is Finland, Poland and Baltics with 4,300 members and which generated approximately CAD800 million in revenue last year. We will provide restated historical data for the new segments, when we report our Q1 fiscal 2020 results. The combined cost of these actions related to Brazil, Portugal and Sweden are expected to total CAD30 million to CAD40 million, the majority of which we plan to expense in Q1.

Now I'll turn the call over to George.

George D. Schindler -- President and Chief Executive Officer

Thank you, Francois, and good morning. I am pleased with our team's collective performance in fiscal 2019. We successfully executed on the strategic priorities necessary to meet current client demand for innovation and business agility. We grew organically in every operating segment with a stronger mix of managed IT and intellectual property.

We expanded our margins on the strength of the improved business mix and continued operational excellence. And we continue to broaden our reach by using our metro market merger strategy as a catalyst for organic growth and are now at scale an additional four metro markets Hamburg and Wolfsburg in Germany; Oslo in Norway; and Gothenburg in Sweden. To broaden our end-to-end services, in Q4 we merged with US based Sunflower Systems, expanding our IT strength in government ERP with more comprehensive business analytics for our clients.

And regarding the previously announced merger with SCISYS,all regulatory approvals have been received and a final court hearing is set for November 14th,after which we expect to close the transaction and begin merger integration activities. I want to take this opportunity to warmly welcome more than 700 new members from Sunflower and SCISYS to CGI. Together we deepen our expertise in IP portfolio, in the space, media and government industries. Our results this fiscal year, 6% revenue growth and 12% earnings per share accretion demonstrate the successful implementation of our Build and Buy strategy to create value for all three stakeholders.

Before turning to our fiscal 2020 outlook, let's review our fourth quarter performance highlights. In North America revenue in constant currency for the US commercial and State Government operations grew 2% organically, compared to the same period last year. This was driven primarily by improved State government bookings in the second half including managed IT services and IP, such as our renewed Mobile First Advantage ERP Solution. Overall book-to-bill in the quarter was 218%, reflecting the continued strength of our commercial business.

Several clients renewed and extended their managed services contracts, specifically in the financial services and health sectors. The pattern of client demand across industries in the US is increasingly focused on better aligning digital projects with a comprehensive end-to-end IT strategy. As a result, we are seeing growth across major metro markets with significant pipeline expansion for managed IT services. EBIT margin was 15.2% impacted by one-time project adjustments. This compares to 20% in Q4 last year, which was supported by higher R&D tax credits.

In US federal, we delivered organic growth of 18.2% and improved our EBIT margin by 150 basis points to 14.3%, both driven by cyber security and IP-related services. ookings were strong at 134% of revenue. The team was successful in winning large projects and task orders with the US Department of State, The Administrative Office of the US Courts and the Social Security Administration. We were also selected for positions on multi-award contract vehicles with the Health and Human Services Administration and Ginnie Mae, the principal financing arm for government mortgage loans.

In Canada revenue decreased slightly year-over-year, while EBIT margins improved to 23.9% driven by the seasonal strength of our recurring revenue base. Demand for IP in Canada continues to be notable in the financial services, utilities and payroll services markets reflecting client preference to prioritize solutions and accelerate returns on their digital investments. Additionally, we've been awarded new projects in the health industry leveraging RPA in analytics.

Turning now to Europe. In Northern Europe, revenue was up nearly 10% and EBIT margin was 10.3%. We expect margins to continue improving as the integration of condo proceeds. Manage IT awards were strong in the quarter with a number of extensions and scope expansions. For example, our partnership with LocalTapiola, one of Finland's largest financial services providers expands our scope of managed IT. In addition, our systems integration, IP and managed services bookings were strong with public sector agencies across the region. Separating Scandinavia from Finland, Poland and Baltics, now creates two strategic business units in the region, enabling us to further leverage the power of proximity, serving the local needs of our clients with increased focus, while continuing to apply our global capabilities and expertise.

In Western and Southern Europe revenue grew 3.5% year-over-year, with continued strong organic growth in France, offset by revenue declines in Southern Europe. EBIT margins across the segment improved year-over-year by 310 basis points to 15.4%. Bookings in the region were slightly lower than recent quarters, but remain above 100% of revenue on a trailing 12-month basis. We see continued momentum and public sector, which booked over 130% in Q4, including extensions to managed IT services contracts.

In Central and Eastern Europe, our team delivered growth of nearly 17%, driven by organic growth in Germany and the Netherlands as well as by recent mergers. As with other regions, the slowing macroeconomic environment is leading to more client opportunities for the cost savings associated with managed IT services. This receptivity among commercial clients in the region mirrors aspects of the North American market as clients seek to align managed services, digital investments and IP-based business solutions. Notably, EBIT margins returned to double-digits at 10.4% in Q4 on the strength of our Dutch operations, which continued expanding both its top and bottom lines.

In the UK and Australia revenue grew 4.6% and EBIT margin was 12.7%, the same as last year. Bookings for the quarter were just under 100% reflecting continued uncertainty related to Brexit. However, our strong capabilities and complex project delivery and our incumbent status with large government agencies position us for future opportunities in the first half of next year. This will naturally follow the outcome of the general election and the final Brexit determination. We also see an increase in the number of commercial clients considering larger IT investments, when compared with previous quarters. And in Asia Pacific, our proven combination of industry domain and technology expertise continues to differentiate our global delivery centers of excellence, as such, we delivered growth of 10.1% and an EBIT margin of 27.9% in the region.

Turning now to fiscal 2020, we approach our strategic business planning process with the aim of building on where we are and focusing on where we want to go. This year, our annual business plans were informed by the insights gained from over 1,500 in-person interviews with commercial and government executives in each geography where we operate. These insights tell us that overall, while clients at early stages with enterprise digital investments, 90% of executives we interviewed report that they are not yet achieving the planned business benefits. Additionally, clients are prioritizing both digital services and IT modernization as ways to accelerate these benefits. In fact, these are the top two priorities in nearly all industries this year and reported by our clients is having the top impact among all trends.

And lastly harnessing data is key, as nearly 70% of clients executives reported increased investment in analytics and business intelligence this year, with further increases planned over the next three years. All of these findings point to a continued shift in the buying behaviors of our clients, which increasingly favor partners that can deliver on their IT modernization efforts while achieving returns on digital investments. At the same time a slowing growth economy and geopolitical uncertainties are causing many of our clients to also place a growing premium on using technology to generate cost savings and efficiencies. Fundamentally, we have positioned ourselves in a way that allows our clients to combine our range of services, the best fit their needs. Specifically, a combination of managed IT services and business process services to help clients mitigate costs and budget pressures allowing reallocation of funds for innovation investment. Strategic IT and business consulting to enable business agility and cultural change. Systems integration to support IT modernization efforts to optimize existing and new technologies. And intellectual property, which serves as an accelerator to apply relevant innovations more quickly.

In the right combination, these services offer the innovation, agility and financial benefits, our clients need, while delivering recurring revenue streams at higher margins for CGI. We've been building a pipeline of these longer-term larger opportunities over the past year. Our 2020 plans include increased investments in the business engineering capacity, intellectual property offerings and consulting expertise required to advance these opportunities. In addition to the right balance of end-to-end services, we believe that CGI is uniquely positioned in terms of the level of trust we have earned with our clients and consistently delivering on their largest, most complex systems integration projects. This is reflected by achieving all-time high client ratings for satisfaction, innovation and loyalty this past year. And importantly, 85% of our employees are now CGI shareholders, giving us the talent capacity and engagement for continued excellence in delivery.

In fact the ongoing investments in talent or perhaps our most important, as these put us in an even stronger position to retain and on board new employees. Taken together, our proximity model, range of services, client trust and ownership culture, along with our financial strength make CGI resilient during times of economic and political uncertainty. Our capital allocation approach is aligned to this positioning and will be prioritized to drive revenue growth and double-digit earnings per share accretion. Specifically we will continue to invest back into our business, including in people, IP, new offerings and manage IT contracts to drive profitable growth and optimal service mix. Fund and active metro market merger strategy to accelerate our growth and pursue a disciplined consolidation strategy within the IT services industry and buy back our stock to increase returns to our shareholders.

In conclusion, we are one of the few firms with the scale, reach, capabilities and commitment to be our clients global partner of choice. We continue to see a market climate conducive to achieving our strategic aspiration of doubling CGI over the next five to seven years. Thank you for your continued interest and support. Let's go to questions now, Lorne.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Just a reminder that a replay of the call will be available either via our website or by dialing 1-800-408-3053 and using the passcode 5380304 until December 7th. As well a podcast of the call will be available for download within a few hours and follow-up questions could be directed to me at 514-841-3355. Valerie if we could pull up for questions please.

Questions and Answers:

Operator

Thank you, Mr. Gorber. [Operator Instructions] Our first question is from Richard Tse with National Bank Financial. Please go ahead.

Richard Tse -- National Bank Financial -- Analyst

Yes. Thank you. George. With respect to your comments on sort of the uncertain backdrop and the interest in using technology to drive efficiencies and save on costs. Are you suggesting there that if we see a softening economy that demand for your services would not change and then in fact they have the potentials to move higher?

George D. Schindler -- President and Chief Executive Officer

Yes. So that's -- it's something I've been talking about for a few quarters now, Richard. Thanks for the question. What we see in this kind of economic environment is a different mix of the -- of the CGI services portfolio. So you typically see that intellectual property, actually the demand goes up because the capital requirements are different for intellectual property for our clients and of course it accelerates the benefits, rather than building a bespoke systems integration project.

Same thing goes for managed IT, but this is a little different, because typically the manage IT goes up and the systems integration and consulting goes down a bit in this type of economy. IP demand as I mentioned goes up, but this is a bit of a different landscape because most of our clients as I mentioned, are only partway through their digital transformation and so by mixing those services, giving them savings on that manage IT services and allowing them to reinvest, actually accelerate some of CGI's growth and enable our clients to meet their demands.

So I see this environment actually being in the longer term -- in the intermediate term being positive for CGI, but we're in that shift. We're in that shift period where the demand curve is just changing as we discussed, and that's why you see some of the softening of the bookings short-term, intermediate term, I think it plays to our strengths.

Richard Tse -- National Bank Financial -- Analyst

Okay, thanks. And then with respect to your current base, obviously, you guys have a pretty substantial base of existing customers. Can you share with us at this point in time, how many of those customers or the magnitude, on a percentage basis, maybe have moved to these digital transformation projects here?

George D. Schindler -- President and Chief Executive Officer

I would say the majority of our customers are in the midst of a set of digital transformation project. Some are in the earlier stage, where we're actually giving them some consulting help, some are in the -- in the middle stage, I don't think anybody is clearly at the end stage and if they are they're reinvestigating what else they have to do from a digital transformation perspective.

Richard Tse -- National Bank Financial -- Analyst

Okay. And just one last one from me, in regarding your comments on Brazil and Portugal, should I read that to mean you're kind of backing off of South America and doubling down on your plans for Europe?

George D. Schindler -- President and Chief Executive Officer

Yeah, that would, that would be -- that would be the correct -- correct read on that. In fact, we've been, as you know with with the Logica merger, we had a lot more operations. We've been necking that down. We really had neck down Brazil to a delivery center only and given the risk and the decline in demand for that and the opportunities in other parts of Europe, we made this strategic decision.

Richard Tse -- National Bank Financial -- Analyst

That's great. Thank you.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thanks, Richard.

Operator

Thank you. Our next question is from Jason Kupferberg with Bank of America. Please go ahead.

Jason Kupferberg -- Bank of America -- Analyst

Hey, thanks, good morning guys, how are you?

George D. Schindler -- President and Chief Executive Officer

Hi Jason.

Jason Kupferberg -- Bank of America -- Analyst

I just had a question, maybe a couple actually on margins. So the adjusted EBIT margins were down 10 basis points year-over-year in the quarter. I know that's kind of a reversal of the trends, we've been seeing for a while, you did call out -- I think one particular US federal project that had a charge related to it. I was curious, just if you could -- if you could size that for us, just trying to get a sense of the underlying margins? And then as we think about fiscal '20, I mean, you guys don't provide specific guidance, but should fiscal '20 be another up margin year, recognizing that you do have plans for some elevated reinvestments and I'm not sure how you're going to treat those Brazil and Portugal costs, would they be in or out of adjusted EBIT?

George D. Schindler -- President and Chief Executive Officer

Yes. So on your last question. Those -- those costs that I mentioned, those will be out of the adjusted EBIT. I will remind you that you're right, it's just the quarter, the margins are 30 basis points higher over the year. On really the strength of our managed IT, of our growth and of the excellence in -- in our ability to integrate recent mergers. also remind you that we do have a merger, rather large merger that's still undergoing and I pointed that out in Northern Europe with a condo. And as we see that that merger integration successfully complete and we're pretty disciplined about that. And then the mix of business with IP and manage IT certainly are planned where those double-digit margins would be -- a double-digit EPS accretion would be to continue to expand our margins next year.

Jason Kupferberg -- Bank of America -- Analyst

Okay, that's helpful. I was just curious, also on the bookings, the new business mix there, I think it was only 20% that's kind of well below typical levels. This can be lumpy certainly quarter-to-quarter, but it did just kind of stick out as being particularly low, it sounds like you had a lot of really positive renewal activity. So it may have been a function of that. But I just wanted to see if there were any other call out or any reason to believe that we won't go back toward more sort of historical mix in the bookings as we look forward from here and based on what you see in your pipeline.

George D. Schindler -- President and Chief Executive Officer

Yeah, no, Jason, that's a good -- a good observation and is exactly as you, as you pointed out, we did have a number of renewals and extensions. I will point out though that some of those are actually add-on business. So that's not all just rolling over existing business. In fact many of those and we pointed that out have add on opportunities given this environment that we're in and this is a bit of a natural shift when you talk about returning to the new level of bookings. As I've been mentioning, we had higher -- a little bit higher than average on the the new side in our bookings and that was new systems integration and consulting clients and now as we continue to sell more services and extend that SI&C into managed services, it'll show up more in the existing clients, rather than the brand new business, but I think it's actually a richer mix of business and therefore it will drive some higher margin. So that's where we are right now in the -- in the evolution of the business mix.

Jason Kupferberg -- Bank of America -- Analyst

Okay and just last quick one from me, any way you can help us size with the total revenue contribution from SCISYS and Sunflower might be in fiscal '20?

George D. Schindler -- President and Chief Executive Officer

Francois. Do we have the...

Francois Boulanger -- Executive Vice-President and Chief Financial Officer

We don't have the specific, perhaps we can take it to offline with with Lorne.

George D. Schindler -- President and Chief Executive Officer

Yeah, what I can tell you it's over 800 employees who are joining CGI, about half in Germany, half in the UK. So it will be a nice uptick there.

Jason Kupferberg -- Bank of America -- Analyst

Okay, well thank you guys for the color.

Operator

Thank you. Our next question is from Ramsey El-Assal with Barclays. Please go ahead.

Ramsey El-Assal -- Barclays -- Analyst

All right, thanks for taking my question. I wanted to ask about the strength in the US federal business this quarter. You saw some nice growth there. Just wondering if I can get a little more color on that. And then in addition, I had a broader question about, is there any impact to decision-making on contracts when it comes to US election cycle, typically? Is there anything we should expect going into obviously a presidential cycle right now, we're going through an election -- a regional election cycle as well. Just wondering if there is any -- any takeaway there or not?

George D. Schindler -- President and Chief Executive Officer

Yes. So we have -- thanks for pointing out the strength in the federal business, that's really, the growth is mainly on the strength of bookings, we had over the trailing 12 months, 18 months really projects in the federal space, sometimes the start-up a little slower, given the bureaucracy there, but as I've been pointing out. So really that's a nice tailwind from prior -- prior quarter's bookings and we continue obviously to see that strength in the seasonally strong quarter -- fourth quarter that you see there. When you move into an election cycle, you're right, new starts tend to to wane, and it's really -- this is where incumbency status rules, and given the vehicles that we continue to win positions on and the incumbent status that we have and a number of the -- of the big agencies that will -- that will propel our continued strength I believe straight through the election cycle.

Ramsey El-Assal -- Barclays -- Analyst

Great, that's helpful. And one follow-up from me. I also would about your metro market strategy. Can you help us think through, given it's a key growth driver next year -- can you help us think through sort of where you are in that broader, longer-term journey in terms of the addressable market and penetration rates? What inning are we in with that? Is this, I guess that will keep on giving for many, many, many years or are you sort of -- do you have a plan and you're penetrating it to some degree this...

George D. Schindler -- President and Chief Executive Officer

Yes. So we do have a plan. We are penetrating. I mentioned, we are now at scale at four additional markets. I think that puts us in the -- in the mid '20s. When we look at -- at where as a percentage of the total addressable market, we're at scale maybe in 25 or so percent of the of the metro markets we've identified. So we have a lot more growth to go there and we're going to be disciplined and as you might expect, a lot of add opportunity is in the United States, which continues to show strength in the -- in the economy, albeit slowing and opportunities for us to continue to -- to accelerate our M&A in that market. So that's kind of where we are.

Ramsey El-Assal -- Barclays -- Analyst

Terrific. Thanks for answering my questions.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thanks Ramzy.

Operator

Thank you. Our next question is Maher Yaghi with Desjardins. Please go ahead.

Maher Yaghi -- Desjardins Securities Inc. -- Analyst

Thank you for taking my question. Congratulation on another year with double-digit EPS growth. I wanted to maybe step back and ask you more bigger question -- bigger picture question regarding your position as a consolidator in the industry. When you look at the opportunities that you have, apart from the metro market acquisition path that you have been on, when you look at large -- larger transactions, what are you looking for now, versus when maybe you have looked at in the past, have you changed the way you look at large M&A transactions? Are you looking for higher margin companies, companies with more IT or like you've done in the past, are you looking for companies that you can improve on in terms of margins that have struggled or -- just trying to figure out your and also geographically, where would you rather have these companies positioned? And my second question is on your revenue growth. And if I -- if I'm not mistaken, your organic revenue growth, excluding acquisitions was 4% to 4.5% in the quarter, up sequentially again, I wanted to know what your views are on that metric? Are you satisfied with that number or you're hoping to achieve a higher number in 2020?

George D. Schindler -- President and Chief Executive Officer

Yes. So maybe I'll start with the last question Maher. I think there are opportunities for us in certain geographies to accelerate that -- that organic growth, particularly as I look at places like the US, where now the state and local business has stabilized, for sure, we should be attacking more growth. I mentioned some of the investments we're making in our business, engineering expertise, which are really kind of our forward engineers, many of them are former CIOs that are helping to kind of drive that opportunity for that managed IT services and we see that opportunity expanding really throughout the geographies, but certainly bigger opportunities in the US. And so that's really is an opportunity.

Now, how the pace of that, as you know, it's easier to turn systems integration and consulting opportunities rapidly into organic growth. It takes a little harder and longer and you have to be more disciplined in those longer-term deals because they're 10-year deals, you live with those -- with that deal for a longer period of time. So you need to make that right for both parties. We have a lot of trust from our rent clients and so we're in those conversations. So turning that pipeline into bookings, into revenue growth is something that will take a little more time on that side. But certainly, I see that as an opportunity for us to accelerate. When you look at the M&A strategy as I mentioned, we're certainly not through on the metro market merger strategy. There is lots of continued opportunities there, but to your direct question on the transformational opportunities, I think again that we haven't seen it yet, on the -- on the larger transformational opportunities on valuation, but I actually believe that we'll see more attractive valuations, as the market continues to shift and slow in different geographies, most pronounced right now in Europe and what are we looking for is really to increase our depth and breadth in the markets that we're already in, that's the main focus.

Yes, it would be to fill out the the the full end-to-end services. So we'll be looking for something that has some IP, but also some consulting and systems integration opportunities, we're still looking for managed IT including and the full -- the ability to have full end-to-end capabilities for these managed IT, which will include some infrastructure elements because from an infrastructure perspective, although we've necked that down as a percentage of the overall, it's really stabilized and it's still an important element of being our full scale provider to our -- to our clients. So we're really looking to increase our breadth and depth on the end to end. And certainly, our belief is that when we look around the market, there will still be opportunities when we bring it into the CGI model to also improve the margins as we go through the integration. Really, in most of those companies that we would be looking at.

Maher Yaghi -- Desjardins Securities Inc. -- Analyst

Okay, great. Thank you, George.

George D. Schindler -- President and Chief Executive Officer

Yeah.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thanks Maher.

Operator

Thank you. Our next question is from Thanos Moschopoulos from BMO markets Please go ahead.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Hi, good morning, George. Just to expand on your commentary regarding the macro environment. You've spoken for some time about the mix shift to managed services from SI&C. But specifically, how is the demand environment evolves over the past three months? Are there any specific regions you'd call out where customers have you come notably, more cautious than they were last quarter>

George D. Schindler -- President and Chief Executive Officer

Yeah, I would say, I don't know if it's been the last three months, but certainly over the last six months, we have seen that shift be a little more pronounced. But you know it really varies. And it plays into the strength of our diversity across geographies, our strength of diversity across industries and then of course the services that we offer. So it's -- it really -- it varies a little more conservative on some of the SI&C and more interest in the in the savings associated with manage IT in Europe, a little more bullish, of course, in the US, Canada is a little bit in between. From an industry perspective, I would say manufacturing is really focused on and getting some of those savings not surprising given some of the effects of the trade climate has on manufacturing.

On the other side, financial services are looking to accelerate. So more demand for IP, and then what's interesting is we see that both in the retail and in the communication sector, the pipeline is actually growing for some of our consulting and systems integration services, as they look to integrate new technologies, kind of, they are on the second wave if you will, of digital transformation given that their consumer-driven kind of on the tip of that looking at more artificial intelligence, data analytics and into their portfolio.

So, and then in communications really investing in 5G and the opportunities. It's still early days on that, but we kind of see that -- so I say this shift is a little different than the last economic downturn where you don't see that that strong shift down, certainly weakening on the consulting and system integration, but still demand there, but still the uptick on the managed services. So intermediate term, I think the shift will be good for CGI, short-term, there's always disruption in there.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Great. And with respect to the actions you're taking in Portugal, Sweden in Brazil, you called out the restructuring impact, what would be the revenue impact associated with those actions?

George D. Schindler -- President and Chief Executive Officer

It's about CAD20 million to CAD30 million revenue impact out of that as operations, and -- but again, we believe that we will continue to be stronger because of it?

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Okay. And then finally, could you update us on the account integration?

George D. Schindler -- President and Chief Executive Officer

Update on Acando?

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Yeah, how that's progressing?

George D. Schindler -- President and Chief Executive Officer

Yeah, it's progressing well. You see, it does have some impact on the margin short-term, but it's progressing well. I have -- I've been there to talk to some of our newest members. We got a new set of a strong leaders in, as we went through the business planning process. They've been fully engaged in that and again, I see that is strength in our mix has been able to provide the consulting expertise required as part of those broader managed IT engagements.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Great. I'll pass the line. Thank you.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thanks Thanos.

Operator

Thank you. Our next question is from Paul Treiber with RBC Capital Markets. Please go ahead.

Paul Treiber -- RBC Capital -- Analyst

Thanks so much and good morning. You reiterated the target to double the size of the company over the last -- over the next five to seven years. You mentioned that a number of times. Can you just provide an update on how you think you're tracking to that goal and what you may need to either keep doing or perhaps change or accelerate to achieve that goal?

George D. Schindler -- President and Chief Executive Officer

Yes. So thanks for the question Paul. So, as I've mentioned in the past, to me it's really the combination of the Build and Buy. So as we approach 5% pure organic growth, what we really are looking for is 5% to 6% pure organic growth. You heard this quarter we're at 4%, so that's moving along. It's not where we want to be, need to be in order to get that doubling, but we're progressing along that path, quite nicely.

And on the other side, it's 5% to 6% on the inorganic growth, which would be targeting the 10% to 12% total growth you hearing constant currency, we are at 7.7% this last quarter. So we're moving along that path and that's without I'll remind you -- without the transformational opportunity that we believe the market is more conducive to. So, I would say we're tracking pretty well. We're not -- we're where we need to be, where we can be, but we're tracking that evolution, very well.

Paul Treiber -- RBC Capital -- Analyst

And then in regards to the aspirations to treat 5% to 6% organic, what do you see either in your pipeline or from a strategy perspective, that gives you confidence in getting there?

George D. Schindler -- President and Chief Executive Officer

Well, the managed IT services deals are bigger by their very nature. So if you think of the systems integration and consulting deal regardless of how important they are to our clients and we've done a lot of that, the reason I describe them as tip of the spear is they tend to be smaller, more discrete projects. And as you move to manage IT, the opportunities to get larger and the growth therefore, in some of those deals we take on new employees into CGI as well, and so you can actually accelerate your growth faster. So that's, what gives me the confidence and we're in those discussions. That's what's in the pipeline. Of course we have to work to get them into the bookings and then turn them into revenue, but that's what gives me the confidence.

Paul Treiber -- RBC Capital -- Analyst

Okay. And then one last one for me. Just regards to the changes to Brazil and Portugal and then that I guess just split up in Northern Europe, do you feel you're at the point where the organizational structure for the former Logica assets is now essentially fully optimized or asking in other way, are there any areas in the former Logica assets you feel are underperforming your expectations?

George D. Schindler -- President and Chief Executive Officer

Yeah, I would not say that they're fully integrated in with all of the services, and you see that in a number of our locations in Europe, where we could increase the intellectual property, part of the business and that's a key element of the business plans there in Europe. As far as operating the CGI model 100 -- 150% operating in the model, but there is still opportunities for us to continue to do that. And you even see in Central and Eastern Europe, there is still opportunity for us by introducing more IP and other services into the mix that we can continue to operate in that way. I'm particularly pleased you want to look at, what was an underperforming asset. Clearly it was Netherlands operations and that has -- as I mentioned now the fourth straight quarter of increased revenue growth and margin accretion and there is more opportunity to have now that they're operating in that mode.

Paul Treiber -- RBC Capital -- Analyst

Thanks. Thanks so much.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thanks Paul.

Operator

Thank you. Our next question is from Robert Young with Canaccord Genuity. Please go ahead.

Robert Young -- Canaccord Genuity Group, Inc. -- Analyst

Hi, good morning. Maybe just to clarify some of the short-term comments. It sounds like you're kind of a bit of weakness, particularly in short-term signings, some restructuring driven factors and maybe just be helpful, do you think that you can maintain constant currency growth over the next couple of quarters, I know you don't give guidance, but is that your expectation?

George D. Schindler -- President and Chief Executive Officer

Yeah our expectation is to continue to grow and that's what our plans are certainly oriented toward. The caution of anything is may see a pause in acceleration as we work through some of the shift in the environment, but certainly growth is an important driver for us and we believe we can continue that.

Robert Young -- Canaccord Genuity Group, Inc. -- Analyst

Okay, great, thanks for that. And then the mix driven by renewals and expansions, that's a healthy thing you are doing. Eight of the top 10 were large deals and so -- is this existing large deals that are rolling forward with some add-ons or are you seeing the conversion from some of these short-term consulting deals, the tip of the spear, you're talking about into large deals, is that working or is this just big deals that are getting a lot [Speech Overlap]

George D. Schindler -- President and Chief Executive Officer

No, no, no. It's beginning to work. These are -- some of those were actually conversion from SI&C work into more elements of managed services. And like I said, there were also add-on opportunities there, but it's a mix. But in all cases, it's adding on additional work. In some cases, it's managed services, adding on, consulting, in some cases it's just an integration adding on and converting into managed services. So, it's definitely a strength and that's why I pointed out.

Robert Young -- Canaccord Genuity Group, Inc. -- Analyst

Okay. And what we can see in the numbers, the shift toward the renewals and the shift toward outsourcing and the way that you report the bookings mix. This is -- these numbers are showing that the strategy working over the last several quarters, you expect to see that trend -- and the numbers continue over the next say year should we expect to see that?

George D. Schindler -- President and Chief Executive Officer

We do expect that to continue and as you know our long-term target is to get to that 70% managed services. And the reason for that in the 30% systems integration consulting just remind you, the reason we do that is that gives us the highest margins, but also the best opportunity for growth. It was a 100% managed services you miss away. It was a 100% systems integration consulting you leave opportunity on the table. And so that's why that mix. Right now it's tilting now starting to go over, I think it's 53%, 54% managed IT this quarter. So you see it tilting in the direction we want, but there's a lot of opportunity to continue to expand that and that's the opportunity as well for expanded margin.

Robert Young -- Canaccord Genuity Group, Inc. -- Analyst

Okay. Maybe one last little question, continuing the question on the US government, the elections next year. I think there is some talk about government shutdown, maybe refresh you've said that's a low area of risk for you in the past, maybe just refresh that, and I'll pass the line?

George D. Schindler -- President and Chief Executive Officer

Yeah, I was with our team, and in federal in the US, just week and a half ago, and there is an opportunity that -- that they don't come to a conclusion here at the end of November and there is another government shutdown. I'm not -- it's not clear to me that that's likely, but it's hard to determine what's likely anymore in politics. So I'm not -- I'm not going to make that decision, but what I can tell you is we're positioned very well in past -- in past shutdowns, we've had a small, very small impact, typically, that can be mitigated within quarter depending on when it happens or very, very shortly thereafter. I would remind you, most of our work is deemed to be mission critical when the government shuts down. It doesn't mean that everybody stops working and a lot of our work in the managed services and the intellectual property can continue even if the government is working and then there might be a lag in the cash. So I don't see a big impact for us and that's what the team assured me when I was down there last week.

Robert Young -- Canaccord Genuity Group, Inc. -- Analyst

Great, thanks a lot.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thanks, Rob.

Operator

Thank you. Our next question is from Howard Leung with Veritas Investments. Please go ahead.

Howard Leung -- Veritas Investment Research -- Analyst

Good morning.

Good morning. I just wanted to ask about the -- George, in one of your comments, you mentioned that in Europe, there was a lot of business one through, there was interest in cost savings through managed services, IT in Europe. Do you find that for those wins there was little more kind of price or cost competition or were you able to win through additional service offerings?

George D. Schindler -- President and Chief Executive Officer

Yes, no, it's a great question. And what I can tell you is we are very disciplined. As I mentioned, these are five, seven, 10-year deals and although of course, we want to give the cost savings and we design our offering to provide those cost savings early in the cycle for our clients. It's very important that we design those deals to be also good for CGI and so we're not -- we don't get into that game. In some cases, we will walk away from deals where it's short-term cost savings and only based on price and not based on really for our clients, the transformation they need. And so we're very, we're very careful with that to eye these relationships and this trust and what we've been doing over the last few years on the systems integration side, that's why I point that out and it's so important. We're not going to get into that, that price gain. There are some clients that will -- will buy that way. That's just -- that's just reality, but we start -- we tend to stay away from those -- those types of opportunities.

Howard Leung -- Veritas Investment Research -- Analyst

Right. And for those clients that tend to do that, are they in a particular sector in Europe or particular vertical maybe?

George D. Schindler -- President and Chief Executive Officer

No it varies, it's usually how pronounced maybe what they -- what they need and sometimes what they -- how they procure, but again with the clients that we're talking to, in general, we're seeing a more -- a different approach, given that they are in the middle of the digital transformation and they can't just stop that?

Howard Leung -- Veritas Investment Research -- Analyst

Right. That makes sense. Thanks. And then just maybe when -- one final one for Francois. IFRS 16, when that gets adopted, because the lease expense shift to D&A and interest, how is that going to affect adjusted EBIT margins going forward?

George D. Schindler -- President and Chief Executive Officer

For sure, it will -- it will at least on the margin, overall margin will have a little bit of pressure in the first years of a lease, as you know, because we will have -- we'll have some more interest at the beginning of the depth and then in the future. So will reverse naturally after, but as far as specific for next year, I don't -- I don't see very, very minimal impact, if you saw the financial statement for sure that that will go up by CAD850 million, but the impact on the P&L will be very minimal mix.

Howard Leung -- Veritas Investment Research -- Analyst

Okay. No, that's good to know. Thanks. I'll turn it back

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Maybe Valerie we will have time for a last question?

George D. Schindler -- President and Chief Executive Officer

Yes. And maybe before we -- before we do the last question, I should correct, I mentioned that we had 800 people in SCISYS. It's really over 600 people and will get that revenue number to you afterwards, as well. I misspoke there.

Operator

Thank you. Our last question is from Deepak Kaushal with GMP Securities. Please go ahead.

Deepak Kaushal -- GMP Securities -- Analsyt

Oh. Hey, guys. Thanks for squeezing my question in. George, I just -- guys, I was just wondering, George, you signaled a shift in the demand curve a couple of times and you made a minor comparison to previous downturn.

George D. Schindler -- President and Chief Executive Officer

Yeah.

Deepak Kaushal -- GMP Securities -- Analsyt

It sounds like you're also saying that customers are still willing to invest to cut costs, rather than cost to cut costs, is that correct or have you seen the cut cost to cut costs in some markets and how long can we expect this short-term kind of disruption to last and what you're seeing? And then there is a minor follow-up to that.

George D. Schindler -- President and Chief Executive Officer

Yes, no, no, no, that's -- it's the right way to phrase the question because we are seeing a difference in this cycle, particularly as it pertains to IT. So IT is so embedded now into the business plans of our clients into the business. In some cases, it is the business of our clients. They're cutting costs in other places and they're using IT to cut costs in other places, but you're absolutely right, they are looking to cut costs in the IT operational elements, but they are reinvesting those in the IT that's going to drive the business forward. So that's what we're seeing right now, pretty much in every industry.

Deepak Kaushal -- GMP Securities -- Analsyt

Okay. And just a follow-up on that is it, from your customers, is this a reflection of their caution around the macro uncertainty or they actually seeing a slowdown from their end customers?

George D. Schindler -- President and Chief Executive Officer

I think it's it's most -- I think it's a little of both. I think it's caution that they have and that they're seeing some of that. However, I pointed out, the systems integration and consulting is strong in some of those consumer-driven areas. So I think it's -- it's a general caution.

Deepak Kaushal -- GMP Securities -- Analsyt

Okay. And, are we holding our breath for three months, six months, nine months, what's kind of your gut telling you at this stage?

George D. Schindler -- President and Chief Executive Officer

Well, I don't know if -- if we're holding our breath, given that we think that we can actually help them in this environment, but I do think this shift will play itself out over the next several quarters?

Deepak Kaushal -- GMP Securities -- Analsyt

Okay, thank you very much. I appreciate you taking my question.

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Thank you Deepak. Thank you everyone. We look forward to having you join us on January 30th for our Q1 fiscal 2020 results followed by our annual shareholder meeting. Thank you.

George D. Schindler -- President and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks].

Duration: 59 minutes

Call participants:

Lorne Gorber -- Executive Vice-President, Investor and Public Relations

Francois Boulanger -- Executive Vice-President and Chief Financial Officer

George D. Schindler -- President and Chief Executive Officer

Richard Tse -- National Bank Financial -- Analyst

Jason Kupferberg -- Bank of America -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

Maher Yaghi -- Desjardins Securities Inc. -- Analyst

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Paul Treiber -- RBC Capital -- Analyst

Robert Young -- Canaccord Genuity Group, Inc. -- Analyst

Howard Leung -- Veritas Investment Research -- Analyst

Deepak Kaushal -- GMP Securities -- Analsyt

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